What changed in this filing

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Item 9A. Controls and Procedures

2023-03-06 compared with 2022-03-14 · 139 added, 196 removed, 753 unchanged (31% of the section changed)

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The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that 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.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in

the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

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(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

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;

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.

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Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other information

Third Amendment to Third Amended and Restated Credit and Security Agreement.

We entered into a Third Amended and Restated Credit and Security Agreement on February 24, 2012, by and among us, the guarantors party thereto, the lenders from time to time party thereto, and Citizens Bank, N.A., or Citizens, as agent for the lenders, pursuant to which we may borrow up to $50.0 million, which amount may be increased to $80.0 million at our option in certain circumstances, or the Credit Facility.

The Credit Facility includes various customary financial ratios and affirmative and negative operating covenants, including minimum net worth and maximum funded debt ratio requirements, and default acceleration provisions.

On December 2, 2021, we, as borrower, and GovConnection, Inc., PC Connection Sales Corporation, MoreDirect, Inc.

and GlobalServe, Inc., as guarantors, entered into the Third Amendment to Third Amended and Restated Credit and Security Agreement with Citizens, as a lender and as agent for the lenders, or the Third Amendment.

The Third Amendment, among other things, (i) extended the maturity date of the Credit Agreement from February 10, 2022 to March 31, 2025, (ii) replaced the Eurodollar Rate with the LIBOR Rate, (iii) replaced the Base Rate with the Alternate Base Rate, which is defined as a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 0.50% per annum and (c) the Adjusted LIBOR Rate in effect on such day for deposits in dollars for a one month or three month interest period plus 1.00% per annum, provided that the Alternate Base Rate shall at no time be less than 0% per annum and (iv) modified the LIBOR Rate provisions to provide for a successor benchmark using the secured overnight financing rate, or SOFR.

In connection with the Third Amendment, we paid a one-time facility fee to Citizens.

Capitalized terms used in this Item 9B.

and not otherwise defined herein shall have the respective meanings ascribed to them in the Third Amendment.

The foregoing description of the Third Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Third Amendment, which is filed as Exhibit 10.49 hereto and incorporated herein by reference.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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Directors, Executive Officers, and Corporate Governance

In addition to the information included below, the information included under the headings “Election of Directors,” “Information Concerning Directors, Nominees, and Executive Officers,” “Delinquent Section 16(a) Reports,” “Code of Business Conduct and Ethics Policy,” “Director Candidates,” and “Board Committees – Audit Committee” in our definitive Proxy Statement for our 2022 Annual Meeting of Stockholders to be filed with the SEC (the “Proxy Statement”) is incorporated herein by reference.

With the exception of the foregoing information and other information specifically incorporated by reference into this Form 10-K, the Proxy Statement is not being filed as a part hereof.

In addition to the information included below, the information required by this item, which is included under the headings “Election of Directors,” “Information Concerning Directors, Nominees, and Executive Officers,” “Delinquent Section 16(a) Reports,” “Code of Business Conduct and Ethics Policy,” “Director Candidates,” and “Board Committees – Audit Committee” in our definitive Proxy Statement for our 2023 Annual Meeting of Stockholders to be filed with the SEC (the “Proxy Statement”) is incorporated herein by reference.

With the exception of the foregoing information and other information specifically incorporated by reference into this Annual Report on Form 10-K, the Proxy Statement is not being filed as a part hereof.

Information about our Executive Officers

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McGrath has served as a member of our executive management team since he joined the Company in 2005.

Thomas Baker has served as our Chief Financial Officer and as a member of our executive management team since he joined the Company since March 2019.

Thomas Baker has served as our Chief Financial Officer and as a member of our executive management team since he joined the Company in March 2019.

Prior to joining the Company, Mr.

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Executive Compensation

The information included under the headings “Executive Compensation” and “Director Compensation” in the Proxy Statement is incorporated herein by reference.

The information required by this item, which is included under the headings “Executive Compensation” and “Director Compensation” in the Proxy Statement is incorporated herein by reference.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information included under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Proxy Statement is incorporated herein by reference.

The information required by this item, which is included under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Proxy Statement is incorporated herein by reference.

Certain Relationships and Related Transactions, and Director Independence

The information included under the headings “Certain Relationships and Related Transactions,” “Policies and Procedures for Related Person Transactions” and “Director Independence” in the Proxy Statement is incorporated herein by reference.

The information required by this item, which is included under the headings “Certain Relationships and Related Transactions,” “Policies and Procedures for Related Person Transactions” and “Director Independence” in the Proxy Statement is incorporated herein by reference.

Principal Accounting Fees and Services

The information included under the heading “Principal Accounting Fees and Services” and “Pre-Approval Policies and Procedures” in the Proxy Statement is incorporated herein by reference.

The information required by this item, which is included under the heading “Principal Accounting Fees and Services” and “Pre-Approval Policies and Procedures” in the Proxy Statement is incorporated herein by reference.

Exhibits and Financial Statement Schedules

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Description of Securities Registered Under Section 12 of the Exchange Act

Form of 1998 PC Connection Voting Trust Agreement among the Registrant, Patricia Gallup individually and as a trustee, and David Hall individually and as trustee.

Form of Registration Rights Agreement among the Registrant, Patricia Gallup, David Hall, and the 1998 PC Connection Voting Trust.

2020 Stock Incentive Plan.

2020 Stock Incentive Plan, as amended.

Amended and Restated 2007 Stock Incentive Plan, as amended.

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Employment Agreement, dated as of May 12, 2008, between the Registrant and Timothy McGrath.

Agreement for Inventory Financing, dated as of October 31, 2002, by and among the Registrant, Merrimack Services Corporation, GovConnection, Inc., MoreDirect, Inc., and IBM Credit Corporation.

Guaranty, dated as of November 14, 2002, entered into by Registrant in connection with the Agreement for Inventory Financing, dated as of October 31, 2002, by and among the Registrant, Merrimack Services Corporation, GovConnection, Inc., MoreDirect, Inc., and IBM Credit Corporation.

Guaranty, dated as of November 14, 2002, entered into by PC Connection Sales Corporation in connection with the Agreement for Inventory Financing, dated as of October 31, 2002, by and among the Registrant, Merrimack Services Corporation, GovConnection, Inc., MoreDirect, Inc., and IBM Credit Corporation.

Acknowledgement, Waiver, and Amendment to Agreement for Inventory Financing, dated as of November 25, 2003, by and among the Registrant, Merrimack Services Corporation, GovConnection, Inc., MoreDirect, Inc., and IBM Credit LLC.

Second Amendment, dated May 9, 2004, to the Agreement for Inventory Financing between the Registrant and its subsidiaries Merrimack Services Corporation, GovConnection, Inc., and MoreDirect, Inc., and IBM Credit LLC.

Third Amendment, dated May 27, 2005, to the Agreement for Inventory Financing between the Registrant and its subsidiaries Merrimack Services Corporation, GovConnection, Inc., and MoreDirect, Inc., and IBM Credit LLC.

Fourth Amendment, dated May 11, 2006, to the Agreement for Inventory Financing between the Registrant and its subsidiaries Merrimack Services Corporation, GovConnection, Inc., and MoreDirect, Inc., and IBM Credit LLC.

Fifth Amendment, dated September 19, 2010, to the Agreement for Inventory Financing between the Registrant and its subsidiaries Merrimack Services Corporation, GovConnection, Inc., and MoreDirect, Inc., and IBM Credit LLC.

Sixth Amendment, dated January 10, 2012, to the Agreement for Inventory Financing between the Registrant and its subsidiaries GovConnection, Inc., and MoreDirect, Inc., and IBM Credit LLC.

Seventh Amendment, dated July 16, 2014, to the Agreement for Inventory Financing between the Registrant and its subsidiaries GovConnection, Inc., and MoreDirect, Inc., and IBM Credit LLC.

Eighth Amendment, dated July 13, 2015, to the Agreement for Inventory Financing between the Registrant and its subsidiaries GovConnection, Inc., and MoreDirect, Inc., and IBM Credit LLC.

Ninth Amendment, dated January 4, 2017, to the Agreement for Inventory Financing between the Registrant and its subsidiaries GovConnection, Inc., and MoreDirect, Inc., and IBM Credit LLC.

Agreement for Credit, dated January 1, 2014, by and among the Registrant, and its subsidiaries PC Connection Sales Corporation, GovConnection, Inc., and MoreDirect, Inc., and Castle Pines Capital LLC.

Third Amended and Restated Credit and Security Agreement, dated February 24, 2012, among Citizens Bank of Massachusetts, as lender and as agent, other financial institutions party thereto from time to time, as lenders, PC Connection, Inc., as borrower, GovConnection, Inc., PC Connection Sales Corporation, MoreDirect, Inc., and Professional Computer Center, Inc., each as guarantors.

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Lease Agreement between the Registrant and Wilmington Investors, LLC, dated August 27, 2014, for property located at 3188 Progress Way, Building 11, Wilmington, Ohio.

Lease between ComTeq Federal, Inc.

and Rockville Office/Industrial Associates dated December 14, 1993, for property located at 7503 Standish Place, Rockville, Maryland.

First Amendment, dated November 1, 1996, to the Lease Agreement between ComTeq Federal, Inc.

and Rockville Office/Industrial Associates, dated December 14, 1993, for property located in Rockville, Maryland.

Second Amendment, dated March 31, 1998, to the Lease Agreement between ComTeq Federal, Inc.

and Rockville Office/Industrial Associates, dated December 14, 1993, for property located in Rockville, Maryland.

Third Amendment, dated August 31, 2000, to the Lease Agreement between ComTeq Federal, Inc.

and Rockville Office/Industrial Associates, dated December 14, 1993, property located in Rockville, Maryland.

Fourth Amendment, dated November 20, 2002, to the Lease Agreement between GovConnection, Inc.

(formerly known as ComTeq Federal, Inc.) and Metro Park I, LLC (formerly known as Rockville Office/Industrial Associates), dated December 14, 1993, for property located in Rockville, Maryland.

Fifth Amendment, dated December 12, 2005, to the Lease Agreement between GovConnection, Inc.

and Metro Park I, LLC, dated December 14, 1993, for property located in Rockville, Maryland.

Sixth Amendment, dated September 18, 2008, to the Lease Agreement between GovConnection, Inc.

and Metro Park I, LLC, dated December 14, 1993, for property located in Rockville, Maryland.

Seventh Amendment, dated May 21, 2012, to the Lease Agreement between GovConnection, Inc.

and Metro Park I, LLC, dated December 14, 1993, for property located in Rockville, Maryland.

Employment Agreement, dated March 1, 2019, between the Registrant and Thomas Baker

Letter Agreement, dated February 28, 2019, between the Registrant and Stephen Sarno.

Amendment No.

1, dated April 16, 2015, to Lease Agreement between the Registrant and Wilmington Investors, LLC, dated August 27, 2014, for property located at 3336 Progress Way, Building 11, Wilmington, OH

Incentive and Retention agreement, dated as of March 15, 2021, between the Registrant and Timothy McGrath .

Incentive and Retention agreement, dated March 15, 2021, between the Registrant and Thomas Baker

Form of Restricted Stock Units for 2020 Stock Incentive Plan

Third Amendment, dated December 2, 2021, to the Third Amended and Restated Credit and Security Agreement, among Citizens Bank of Massachusetts, as lender and as agent, other financial institutions party thereto from time to time, as lenders, PC Connection, Inc., as borrower, GovConnection, Inc., PC Connection Sales Corporation, MoreDirect, Inc., and Professional Computer Center, Inc., each as guarantors.

Incentive and Retention agreement, dated as of May 3, 2022, by and between PC Connection, Inc.

and Timothy McGrath, as amended.

Incentive and Retention agreement, dated as of May 3, 2022, by and between PC Connection, Inc.

and Thomas Baker, as amended.

Subsidiaries of Registrant.

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(2) Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 31, 1999.

(3) Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 30, 2001.

(4) Incorporated by reference from exhibits filed with the Company’s proxy statement pursuant to Section 14(a), File Number 0-23827, filed on April 17, 2001.

(3) Incorporated by reference from the exhibits filed with the Company’s registration statement (333-63272) on Form S-4 filed under the Securities Act of 1933.

(6) Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 31, 2003.

(7) Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 30, 2004.

(8) Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 30, 2006.

(4) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-Q, filed on August 10, 2007.

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(7) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-Q, filed on August 11, 2008.

(13) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-Q, filed on November 10, 2008.

(8) Incorporated by reference from exhibits filed with the Company’s annual report on Form 10-K, File Number 0-23827, filed on March 16, 2009.

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(11) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-Q, filed on August 8, 2012.

(18) Incorporated by reference from exhibits filed with the Company's annual report on Form 10-K, File Number 0-23827, filed on March 4, 2013.

(19) Incorporated by reference from exhibits filed with the Company’s current report on Form 8-K, filed on May 29, 2013.

(12) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-Q, filed on May 9, 2014.

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(14) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-Q, filed on October 31, 2014.

(23) Incorporated by reference from Appendix B filed with the Company’s proxy statement pursuant to Section 14(a), File Number 0-23827, filed on April 9, 2019.

(15) Incorporated by reference from exhibits filed with the Company’s current report on Form 8-K, filed on February 16, 2017.

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(20) Incorporated by reference from exhibits filed with the Company's annual report on Form 10-K, filed on March 16, 2021.

(21) Incorporated by reference from exhibits filed with the Company's annual report on Form 10-K, filed on March 14, 2022.

(22) Incorporated by reference from exhibits filed with the Company's quarterly report on Form 10-Q, filed on May 5, 2022.

* Management contract or compensatory plan or arrangement.

** Management contract or compensatory plan or arrangement and submitted electronically herewith.

*** Submitted electronically herewith.

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(i) Consolidated Balance Sheets at December 31, 2022 and December 31, 2021, (ii) Consolidated Statements of Income for the years ended December 31, 2022, 2021, and 2020, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2022, 2021, and 2021, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020, and (v) Notes to Consolidated Financial Statements.

Attached as Exhibit 104 to this report is the Cover Page Interactive Data File (embded within the Inline XBRL document).

Attached as Exhibit 104 to this report is the Cover Page Interactive Data File (embedded within the Inline XBRL document).

Form 10-K Summary

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March 6, 2023

/s/ JAY BOTHWICK

March 6, 2023

/s/ BARBARA DUCKETT

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We have audited the accompanying consolidated balance sheets of PC Connection, Inc.

and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, changes in Stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, changes in shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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The critical audit matter communicated below is a matter arising from the current-period audit of the 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 financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

The communication of critical audit matters does not alter in any way our opinion on the 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.

Revenue — Refer to Notes 1 and 2 to the financial statements

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As described in Note 1 to the consolidated financial statements, the Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.

Significant judgment is exercised by the Company in determining revenue recognition for these customer agreements, and includes the following:

Significant judgment is exercised by the Company in determining revenue recognition for customer agreements, and includes the following:

● Determination of whether products and services are considered distinct performance obligations that should be accounted for separately versus together, such as hardware, software and maintenance products as well as services related to the installation or implementation of products.

● Determination of stand-alone selling prices for each distinct performance obligation and for products and services.

● As a reseller, the determination if they are the principal or the agent for each performance obligation, which impacts whether the related revenue for each performance obligations is recognized on a gross or net basis.

● The timing of transfer of control for each distinct performance obligation and the identification and treatment of contract terms that may impact the timing and amount of revenue recognized.

● As a reseller, the determination if the Company is the principal or the agent for each performance obligation, which impacts whether the related revenue for each performance obligations is recognized on a gross or net basis.

● The timing of transfer of control for each distinct performance obligation and the identification of contract terms that may impact the timing and amount of revenue recognized.

Given these factors and due to the volume of transactions, the related audit effort in evaluating management's judgments in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor judgment.

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Our principal audit procedures related to the Company's revenue recognition for these customer agreements included the following:

● We evaluated management's significant accounting policies related to these customer agreements for reasonableness.

● We evaluated management's significant accounting policies related to these customer agreements.

● We selected a sample of customer contracts and performed the following procedures:

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● Assessed the terms in the customer agreement and evaluated the appropriateness of management's application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.

● We evaluated the reasonableness of management's estimate of stand-alone selling prices for products and services that are not sold separately.

We selected a sample of products and services sold and performed an evaluation of the Company’s determination of principal versus agent.

● We selected a sample of orders shipped at year end and evaluated whether revenue has been properly recognized by comparing the IT products shipped to the respective contract or customer purchase order if applicable and evidence of transfer of control.

● We tested the mathematical accuracy of management's calculations of revenue and the associated timing of revenue recognized in the financial statements.

● We selected a sample of orders shipped at year end and evaluated whether revenue has been properly recognized by comparing the products shipped to the respective contract or customer purchase order if applicable and evidence of transfer of control.

/s/ Deloitte & Touche LLP

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Right-of-use assets

Intangibles assets, net

Intangibles, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Treasury Shares

Paid-In Capital

Balance - December 31, 2019

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Balance - December 31, 2020

Issuance of common stock under Employee Stock Purchase Plan

Stock-based compensation expense

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Shares withheld for taxes paid on stock awards

Repurchase of common stock for treasury

Dividend declaration

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Gain from life insurance

(Gain) loss on disposal of fixed assets

Loss (gain) on disposal of fixed assets

Changes in assets and liabilities:

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Cash Flows used in Financing Activities:

Proceeds from short-term borrowings

Repayment of short-term borrowings

Purchase of treasury shares

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Net cash used in financing activities

Increase (decrease) in cash and cash equivalents

Increase in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Cash and cash equivalents, end of period

Non-cash Investing and Financing Activities:

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Income taxes paid

Interest paid

See notes to consolidated financial statements.

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PC Connection, Inc.

is a Fortune 1000 Global Solutions Provider that simplifies the information technology, or IT, purchasing experience, guiding the connection between people and technology.

is a Fortune 1000 Global Solutions Provider that simplifies the IT customer experience, guiding the connection between people and technology.

The Company’s dedicated Account Managers partner with customers to design, deploy, and support cutting-edge IT environments using the latest hardware, software, and services.

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These services are performed by the Company’s personnel and by third-party providers.

The Company’s GlobalServe offering ensures worldwide coverage for the Company’s multinational customers, delivering global procurement solutions through the Company’s network of incountry suppliers in over 150 countries.

The Company operates through three sales segments:

• Connection Enterprise Solutions (formerly MoreDirect)—serving large enterprise customers (Large Accounts)

• Connection Business Solutions (formerly PC Connection Sales Corp)—serving SMBs

• Connection Public Sector Solutions (formerly GovConnection)—serving federal, state, and local government and educational institutions

The Company operates through three operating segments:

● Connection Enterprise Solutions – serving large enterprise customers

● Connection Business Solutions – serving SMBs

● Connection Public Sector Solutions – serving federal, state, and local government and educational institutions

The following is a summary of the Company’s significant accounting policies:

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Revenue is recognized at the amount expected to be collected, net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

generally invoices for its products at the time of shipping, and accordingly there is not a significant financing component included in our arrangements.

generally invoices for its products at the time of shipping, and accordingly there is not a significant financing component included in its arrangements.

Cost of Sales and Certain Other Costs

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The Company considers all highly liquid short-term investments with original maturities of 90 days or less to be cash equivalents.

The carrying value of our cash equivalents approximates fair value.

The carrying value of the Company’s cash equivalents approximates fair value.

Fair value is defined 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.

The accounting guidance includes a fair value hierarchy that priorities the inputs to valuation techniques used to measure fair value.

The three levels of the fair value hierarchy are as as follows:

The three levels of the fair value hierarchy are as follows:

Quoted prices for identical assets or liabilities in active markets;

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Accounts Receivable

Account receivable are recorded at the invoice amount, net of allowances.

Accounts receivable are recorded at the invoice amount, net of allowances.

Customers are evaluated for their credit worthiness at the time of contract inception and the Company performs ongoing credit evaluations of its customers and adjusts credit limits based on payment history and customer creditworthiness.

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Amounts are charged against the allowance when it is determined that expected credit losses may occur.

We assess collectability by reviewing account receivable on an aggregated basis where similar characteristics exist and on an individual basis when we identify specific customers with collectability issues, and if necessary, records a reserve against those receivables it determines may not be collectable.

The Company assesses collectability by reviewing account receivable on an aggregated basis where similar characteristics exist and on an individual basis when the Company identifies specific customers with collectability issues, and if necessary, records a reserve against those receivables it determines may not be collectable.

Trade receivables are written off in the period in which they are deemed uncollectible.

Recoveries of trade receivables previously charged are recorded when received.

Inventories (all finished goods) consisting of software packages, computer systems, and peripheral equipment, are stated at cost (determined under a weighted-average cost method which approximates the first-in, first-out method) or

net realizable value, whichever is lower.

Inventories (all finished goods) are stated at cost (which approximates the first-in, first-out method) or net realizable value, whichever is lower.

Inventory quantities on hand are reviewed regularly, and allowances are maintained for obsolete, slow moving, and nonsalable inventory.

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Vendors have the ability to fund advertising activities for which the Company receives advertising consideration.

This vendor consideration, to the extent that it represents specific reimbursements of incremental and identifiable costs, is offset against selling, general and administrative expenses (“SG&A”) expenses.

This vendor consideration, to the extent that it represents specific reimbursements of incremental and identifiable costs, is offset against SG&A expenses.

Advertising consideration that cannot be associated with a specific program or that exceeds the fair value of advertising expense associated with that program is classified as an offset to cost of sales.

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The Company elects to apply the short-team lease exception to any leases with contractual obligations of one year or less.

These leases will not have a right-of-use (“ROU”) assets and associated lease liabilities on the balance sheet.

Instead, rent will be recognized on a straight-line

These leases will not have right-of-use, or ROU, assets and associated lease liabilities on the balance sheet.

Instead, rent will be recognized on a straight-line basis.

Goodwill and Other Intangible Assets

The Company’s intangible assets consist of (1) goodwill, which is not subject to amortization;

(2) an internet domain name, which is an indefinite-lived intangible not subject to amortization;

and (3) amortizing intangibles, which consist of customer lists, trade names, and customer relationships, which are being amortized over their useful lives.

(2) an internet domain name, which is an indefinite-lived intangible asset not subject to amortization;

and (3) amortizing intangibles,

which consist of customer lists, trade names, and customer relationships, which are being amortized over their useful lives.

Note 3 describes the annual impairment methodology that the Company uses each year in calculating the recoverability of goodwill and non-amortizing intangibles.

This same impairment test is performed at other times during

the course of a year should an event occur or circumstance change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

This same impairment test is performed at other times during the course of a year should an event occur or circumstance change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Recoverability of amortizing intangible assets is assessed only when events have occurred that may give rise to impairment.

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Product purchases from Ingram Micro, Inc., TD Synnex Corporation, and Dell Inc.

accounted for approximately 23 %, 23 % and 12 % respectively, of our total product purchases in 2021.

Product purchases from Ingram Micro, Inc., TD Synnex Corporation and HP Inc.

accounted for approximately 23 %, 22 % and 15 % respectively, of the Company’s total product purchases in 2022.

Product purchases from Ingram Micro, Inc., TD Synnex Corporation and Dell Inc.

accounted for approximately 23 %, 23 % and 12 % respectively, of the Company’s total product purchases in 2021.

Product purchases from Ingram Micro, Inc., TD Synnex Corporation and HP Inc.

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No other singular vendor supplied more than 10% of the Company’s total product purchases in 2022, 2021 and 2020.

We believe that, while the Company may experience some short-term disruption if products from Ingram Micro, Inc., TD Synnex Corporation, Dell Inc., and HP Inc., or any of these vendors become unavailable to us, alternative sources for these products are available.

The Company believes that, while it may experience some short-term disruption if products from Ingram Micro, Inc., TD Synnex Corporation, Dell Inc., and HP Inc., or any of these vendors become unavailable to it, alternative sources are available.

Products manufactured by HP Inc.

collectively represented approximately 15 % of the Company’s net sales in 2021, 18 % in 2020 and 19 % in 2019.

collectively represented approximately 14 %, 15 % and 18 % of the Company’s net sales in 2022, 2021 and 2020, respectively.

In the event the Company experiences either a short-term or permanent disruption of supply of HP products, such disruption would likely have a material adverse effect on the Company’s results of operations and cash flows.

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Restructuring and other charges are presented separately from SG&A expenses.

In the years ended December 31 2020 and 2019, we undertook actions across the business to lower our cost structure and align our business in an effort to improve our ability to execute our strategy.

In connection with these restructuring initiatives, we incurred restructuring and related costs of $ 1.0 million and $ 0.7 million for the years ended December 31, 2020 and 2019, respectively.

There were no restructuring related costs incurred for the year ended December 31, 2021.

In the year ended December 31, 2020, the Company undertook actions across the business to lower its cost structure and align its business in an effort to improve its ability to execute its strategy.

In connection with these restructuring initiatives, the Company incurred restructuring and related costs of $ 1.0 million for the year ended December 31, 2020.

There were no restructuring related costs incurred for the years ended December 31, 2022 or 2021.

Earnings Per Share

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Diluted earnings per share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributable to nonvested stock units and stock options outstanding, if dilutive.

The following table sets forth the computation of basic and diluted earnings per share:

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

Denominator for basic earnings per share

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Recently Issued Financial Accounting Standards

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) :

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848) :

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This guidance provides temporary optional expedients and exceptions to the U.S.

GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate.

GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR, and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate, or SOFR.

This ASU is applied prospectively and becomes effective immediately upon the transition from LIBOR.

The Company’s secured credit facility agreement references LIBOR, which is expected to be discontinued as a result of reference rate reform.

The optional amendments are effective as of March 12, 2020 through December 31, 2022.

The amendments are effective as of March 12, 2020 through December 31, 2022;

however, ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 has extended the effective date through December 31, 2024.

The Company is currently evaluating the effect of the adoption of this standard on the Company, but does not believe the adoption will have a material effect on its consolidated financial statements.

Nature of Products and Services

Information technology (“IT”) products typically represent a distinct performance obligation, and revenue is recognized at the point in time when control is transferred to the customer which is generally upon delivery to the customer.

The Company recognizes revenue as the principal in the transaction with the customer (i.e., on a gross basis), as it controls the product prior to delivery to the customer and derive the economic benefits from the sales transaction given the Company’s control over customer pricing.

IT products typically represent a distinct performance obligation, and revenue is recognized at the point in time when control is transferred to the customer which is generally upon delivery to the customer.

The Company recognizes revenue as the principal in the transaction with the customer (i.e., on a gross basis), as it controls the product prior to delivery to the customer and derives the economic benefits from the sales transaction given the Company’s control over customer pricing.

The Company does not recognize revenue for goods that remain in its physical possession before the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from the products, the goods are ready for physical transfer to and identified as belonging to the customer, and when the Company has no ability to use the product or to direct it to another customer.

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The Company is the principal in these transactions and recognizes revenue for the on-premise license at the point in time when the software is made available to the customer and the commencement of the term of the software license or when the renewal term begins, as applicable.

For certain on-premise licenses for security software, the customer derives substantially all of the benefit from these arrangements through the third-party delivered software maintenance, which provides software updates and other

support services.

The Company does not have control over the delivery of these performance obligations, and accordingly the Company is the agent in these transactions.

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Revenue allocated to software maintenance is recognized at the point in time when the Company’s vendor and customer accept the terms and conditions in the sales arrangements.

Certain of the Company’s larger customers are offered the opportunity by vendors to purchase software licenses and maintenance under enterprise agreements (“EAs”).

Certain of the Company’s larger customers are offered the opportunity by vendors to purchase software licenses and maintenance under EAs.

Under EAs, customers are considered to be compliant with applicable license requirements for the ensuing year, regardless of changes to their employee base.

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The Company records these agency fees as a component of net sales as earned and there is no corresponding cost of sales amount.

In certain instances, the Company invoices the customer directly under an EA and account for the individual items sold based on the nature of each item.

In certain instances, the Company invoices the customer directly under an EA and accounts for the individual items sold based on the nature of each item.

The Company’s vendors typically dictate how the EA will be sold to the customer.

The Company also offers extended service plans (“ESP”) on IT products, both as part of the initial arrangement and separately from the IT products.

The Company recognizes revenue related to ESP as the agent in the transaction because it does not have control over the on-going ESP service and does not provide any service after the sale.

Revenue allocated to ESP is recognized at the point in time when the Company’s vendor and customer accept the terms and conditions in the sales arrangement.

The Company also offers ESPs on IT products, both as part of the initial arrangement and separately from the IT products.

The Company recognizes revenue related to ESPs as the agent in the transaction because it does not have control over the on-going ESPs service and does not provide any service after the sale.

Revenue allocated to ESPs is recognized at the point in time when the Company’s vendor and customer accept the terms and conditions in the sales arrangement.

The Company uses its own engineering personnel to assist in projects involving the design and installation of systems and networks, and also engages third-party service providers to perform warranty maintenance, implementations, asset disposal, and other services.

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Determining whether the Company is the agent or the principal and whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

The Company estimates the standalone selling price (“SSP”) for each distinct performance obligation when a single arrangement contains multiple performance obligations and the fulfillment occurs at different points of times.

The Company maximizes the use of observable inputs in the determination of the estimate for SSP for the items that it does not sell separately, including on-premise licenses sold with software maintenance, and IT products sold with ESP.

The Company estimates the SSP for each distinct performance obligation when a single arrangement contains multiple performance obligations and the fulfillment occurs at different points of times.

In instances where SSP is not directly observable, such as when the Company does not sell the product or service separately, the Company determines the SSP using information that may include market conditions and other observable inputs.

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The Company disaggregates revenue from its arrangements with customers by type of products and services, as it believes this method best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

The following tables represent a disaggregation of revenue from arrangements with customers for the year ended December 31, 2021, 2020 and 2019, along with the reportable segment for each category.

The following tables represent a disaggregation of revenue from arrangements with customers for the years ended December 31, 2022, 2021 and 2020, along with the segment for each category (in thousands).

For the Year Ended December 31, 2022

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Contract Balances

The following table provides information about contract liabilities from arrangements with customers as of December 31, 2021 and December 31, 2020:

The following table provides information about contract liabilities from arrangements with customers as of December 31, 2022 and December 31, 2021 (in thousands):

December 31, 2022

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Changes in the contract liability balances during the years ended December 31, 2022 and 2021 are as follows (in thousands):

Balances at December 31, 2020

Balance at December 31, 2021

Cash received in advance and not recognized as revenue

Amounts recognized as revenue as performance obligations satisfied

Balances at December 31, 2021

Balances at December 31, 2019

Balance at December 31, 2022

Balance at December 31, 2020

Cash received in advance and not recognized as revenue

Amounts recognized as revenue as performance obligations satisfied

Balances at December 31, 2020

Balance at December 31, 2021

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is held by the Company’s Large Account and SMB segments.

Goodwill is held by the Company’s Business Solutions and Enterprise Solutions segments.

Goodwill and intangible assets with indefinite lives are subject to an annual impairment test as of November 30 and tested more frequently if events or circumstances occur that would indicate a potential decline in fair value.

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Factors considered when performing the impairment assessment included the Company’s performance relative to historical and projected future operating results, macroeconomic conditions, industry and market trends, cost factors that may have a negative impact on earnings and cash flows, changes in the Company’s stock price and market capitalization, and other relevant entity-specific events.

Based on the above qualitative analysis, the Company determined goodwill was not impaired for the years ended December 31, 2021 and 2020.

The carrying amount of goodwill for the periods presented is detailed below:

Based on the above qualitative analysis, the Company determined goodwill was not impaired as of December 31, 2022 and 2021.

The carrying amount of goodwill for the periods presented is detailed below (in thousands):

Balance at December 31, 2022

Large Account

Public Sector

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Balance at December 31, 2021

Large Account

Public Sector

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The Company’s remaining intangible assets are amortized in proportion to the estimates of the future cash flows underlying the valuation of the assets.

Intangible assets and related accumulated amortization are detailed below:

Intangible assets and related accumulated amortization are detailed below (in thousands):

December 31, 2022

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In 2022, 2021, and 2020, the Company recorded amortization expense of $ 1,220 , $ 1,220 , and $ 1,220 , respectively.

The estimated amortization expense relating to intangible assets in each of the five succeeding years and thereafter is as follows:

The estimated amortization expense relating to intangible assets in each of the five succeeding years and thereafter is as follows (in thousands):

For the Years Ended December 31,

2027 and thereafter

ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

Accounts receivable consisted of the following (in thousands):

Vendor consideration, returns and other

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PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

Property and equipment consisted of the following (in thousands):

Computer software, including licenses and internally-developed software

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Property and equipment, net

We recorded depreciation and amortization expense for property and equipment of $ 10,982 , $ 12,383 , and $ 12,057 in 2021, 2020, and 2019, respectively.

The Company recorded depreciation and amortization expense for property and equipment of $ 10,758 , $ 10,982 , and $ 12,383 in 2022, 2021, and 2020, respectively.

The Company leases certain facilities from a related party, which is affiliated with the Company through common ownership.

Included in the right-of-use asset as of December 31, 2021 was $ 2,318 and a corresponding lease liability of $ 2,318 associated with related party leases.

Included in the right-of-use assets as of December 31, 2022 was $ 1,130 and a corresponding lease liability of $ 1,130 associated with related party leases.

As of December 31, 2022, the Company had no leases that were classified as financing leases and there were no additional operating or financing leases that have not yet commenced.

Refer to the following table for quantitative information related to the Company’s leases for the year ended December 31, 2021 and 2020:

Refer to the following table for quantitative information related to the Company’s leases for the year ended December 31, 2022 and 2021 (dollars in thousands):

Year Ended December 31, 2022

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Capitalized operating leases

As of December 31, 2021, future lease payments over the remaining term of capitalized operating leases were as follows:

As of December 31, 2022, future lease payments over the remaining term of capitalized operating leases were as follows (in thousands):

For the Years Ended December 31,

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The long-term lease liability was $ 4,994 and the short-term lease liability, which is included in accrued expenses and other liabilities in the consolidated balance sheets, was $ 3,170 .

As of December 31, 2020, the ROU asset had a balance of $ 12,821 The long-term lease liability was $ 9,631 and the short-term lease liability , which is included in accrued expenses and other liabilities in the consolidated balance sheets, was $ 3,928 .

As of December 31, 2021, the ROU asset had a balance of $ 9,579 .

The long-term lease liability was $ 6,789 and the short-term lease liability, which is included in accrued expenses and other liabilities in the consolidated balance sheets, was $ 3,422 .

ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consisted of the following:

Accrued expenses and other liabilities consisted of the following (in thousands):

Customer and vendor deposits

Dividend Payable

Short term lease liability

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The Company owns and is the beneficiary of one life insurance policy on Patricia Gallup, the Company’s Chair and Chief Administrative Officer.

This policy had a total cash value recorded as “Other assets” on the Company’s balance sheet of approximately $ 200 as of December 31, 2021 and December 31, 2020 respectively.

This policy had a total cash value recorded as “Other assets” on the Company’s balance sheet of approximately $ 274 and $ 200 as of December 31, 2022 and December 31, 2021 respectively.

On November 14, 2020, David Hall, one of the Company co-founders and a member of the Company’s Board of Directors passed away.

The Company owned and was the beneficiary of two life insurance policies on Mr.

These policies had a total cash value of approximately $ 400 recorded as “Other assets” on the Company’s balance sheet as of December 31, 2019.

After the death of Mr.

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The Company has a $ 50,000 credit facility collateralized by its account receivables that expires March 31, 2025 .

This facility can be increased, at the Company’s option, to $ 80,000 for permitted acquisitions or other uses authorized by the lender on substantially the same terms.

Amounts outstanding under this facility bear interest at greatest of (i) the prime rate ( 3.25 % at December 31, 2021), (ii) the federal funds effective rate plus 0.50 % per annum and (iii) the one-month London Interbank Offered Rate (“LIBOR”), plus 1.00 % per annum, provided that the rate shall at no time be less than 0 % per annum.

This facility can be increased, at the Company’s option, to $ 80,000 for permitted acquisitions or other uses authorized by

the lender on substantially the same terms.

Amounts outstanding under this facility bear interest at the one-month LIBOR, plus a spread based on the Company’s funded debt ratio, or in the absence of LIBOR, the prime rate ( 7.50 % at December 31, 2022).

The credit facility includes various customary financial ratios and operating covenants, including minimum net worth and maximum funded debt ratio requirements, and default acceleration provisions.

The credit facility does not include restrictions on future dividend payments.

Funded debt ratio is the ratio of average outstanding advances under the credit facility to Adjusted Earnings Before Interest Expense, Taxes, Depreciation, Amortization, and Special Charges (Adjusted EBITDA).

The maximum allowable funded debt ratio under the agreement is 2.0 to 1.0.

Decreases in the Company’s consolidated Adjusted EBITDA could limit its potential borrowing capacity under the credit facility.

The Company had no outstanding bank borrowings at December 31, 2021 or 2020, and accordingly, the entire $ 50,000 facility was available for borrowings under the credit facility.

During 2022, the Company borrowed an aggregate of $ 36,463 under the credit facility during the year ended December 31, 2022, which was fully repaid prior to December 31, 2022.

The Company had no outstanding bank borrowings as of December 31, 2022 or 2021, and accordingly, the entire $ 50,000 facility was available for borrowings under the credit facility.

As of December 31, 2022, the Company was in compliance with all financial covenants contained in the agreement governing the credit facility.

In December of 2021, we entered into an amendment to our credit facility to, among other things, extend the maturity date to March 31, 2025, at which time any amounts outstanding shall become due.

See “Part II – Item 9b.

Other Information – Third Amendment to Third Amended and Restated Credit and Security Agreement” for additional information.

STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

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Each such series of Preferred Stock shall have such rights, preferences, privileges, and restrictions, including voting rights, dividend rights, redemption privileges, and liquidation preferences, as shall be determined by the Board.

There were no preferred shares outstanding at December 31, 2021 or 2020.

There were no preferred shares outstanding as of December 31, 2022 or 2021.

Share Repurchase Authorization

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In 2018, the Company’s Board approved a share repurchase program authorizing up to $ 25.0 million in additional share repurchases.

In November 2022, the Company’s Board approved a $ 25.0 million increase to the Company’s existing share repurchase authorization, bringing the aggregate size of the share repurchase program to $ 80.0 million as of December 31, 2022.

There is no fixed termination date for this repurchase program.

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The timing and amount of any share repurchases will be based on market conditions and other factors.

There was no shares repurchases during the year ended December 31, 2021.

The Company repurchased 247 and 135 shares for $ 10.2 million and $ 4.5 million during the years ended December 31, 2020 and 2019, respectively, under Board-authorized repurchase programs.

There were no share repurchases during the years ended December 31, 2022 and 2021.

The Company repurchased 247 shares for $ 10.2 million during the year ended December 31, 2020 under Board-authorized repurchase programs.

As of December 31, 2022, the Company has repurchased an aggregate of 2,599 shares for $ 42.3 million under Board-authorized repurchase programs, and the maximum approximate dollar value of shares that may yet be purchased under the Company’s existing Board-authorized program is $ 37.7 million.

Dividend Payments

The following table summarizes the Company’s special cash dividends declared in the years ended December 31, 2021, 2020 and 2019:

The following table summarizes the Company’s special cash dividends declared in the years ended December 31, 2022, 2021 and 2020 (in thousands, except per share data):

Dividend per share

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Total dividend

The dividends paid in January 2020 and 2019 were included in accrued expenses and other liabilities at December 31, 2020 and 2019, respectively.

Declaration of any future cash dividends will depend upon the Company’s financial position, strategic plans, and general business conditions.

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In 2010, the Board adopted and the stockholders approved the Amended and Restated 2007 Stock Incentive Plan (the “2007 Plan”), which, among other things, extended the term of the 2007 Plan to 2020.

In May 2019, the Company’s stockholders approved an amendment to the 2007 Plan, which authorized the issuance of 1,900 shares of common stock.

In May 2019, the Company’s stockholders approved an amendment to the 2007 Plan, which authorized the issuance of up to 1,900 shares of common stock.

Under the terms of the 2007 Plan, the Company is authorized, for a ten-year period, to grant options, stock appreciation rights, nonvested stock, nonvested stock units, and other stock-based awards to employees, officers, directors, and consultants.

In 2020, the Board adopted and the Company’s stockholders approved the 2020 Stock Incentive Plan (the “2020 plan”), which replaces the Amended and Restated 2007 Stock Incentive Plan.

The 2020 plan extended the term of the Restated 2007 plan and authorized the issuance of 350 shares of common stock plus any shares that remain available for grant under the Restated 2007 plan.

In May 2022, the Company’s stockholders approved an amendment to the 2020 Plan, which authorized the issuance of 1,003 shares of common stock.

As of December 31, 2022, there were 119 shares eligible for future grants under the 2020 Plan.

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Under the Purchase Plan, as amended, employees are eligible to purchase Company stock at 95 % of the purchase price as of the last business day of each six-month offering period.

An aggregate of 1,203 shares of common stock has been reserved for issuance under the Purchase Plan, of which 1,200 shares have been purchased.

The Purchase Plan was suspended by the Board since June, 2020.

No decision has been made whether to resume the Purchase Plan as of December 31, 2021.

In May 2022, the Board adopted and the Company’s stockholders approved an amendment to the Purchase Plan, which reserved an aggregate of 1,303 shares of common stock for issuance under the Purchase Plan, of which 1,200 shares have been purchased as of December 31, 2022.

Accounting for Share-Based Compensation

The Company measures the grant date fair value of equity awards given to employees and recognize that cost, adjusted for forfeitures, over the period that services are performed.

The Company measures the grant date fair value of equity awards given to employees and recognizes that cost, adjusted for forfeitures, over the period that services are performed.

The Company values grants with multiple vesting periods as a single award, estimates expected forfeitures based upon historical patterns of employee turnover, and records share-based compensation as a component of SG&A expenses.

The following table summarizes the share-based compensation expenses included in the consolidated statements of net income (dollars in thousands):

The following table summarizes the share-based compensation expenses included in the consolidated statements of net income (in thousands):

Pre-tax expense for nonvested units

Net effect on net income

In 2021, 2020, and 2019, the Company issued nonvested stock units that settle in stock and vest over periods up to six years .

In 2022, 2021, and 2020, the Company issued nonvested stock units that settle in stock and vest over periods of up to four years .

Recipients of nonvested stock units do not possess stockholder rights.

The fair value of nonvested stock units is based on the end of day market value of our common stock on the grant date.

The following table summarizes our nonvested stock unit activity in 2021:

The fair value of nonvested stock

units is based on the end of day market value of the Company’s common stock on the grant date.

The following table summarizes the Company’s nonvested stock unit activity in 2022 (shares in thousands):

Nonvested Stock Units

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Stock Equivalent Units

The Company has also previously issued stock equivalent units, (“SEUs”), which settle in cash and vest ratably over four years , to non-executive employees.

The Company has also previously issued stock equivalent units, or SEUs, which settle in cash and vest ratably over four years , to non-executive employees.

The fair value of these liability awards is based on the closing market price of the Company’s common stock and is remeasured at the end of each reporting period until the SEUs vest.

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Compensation expense

The provision for income taxes consisted of the following:

The provision for income taxes consisted of the following (in thousands):

Years Ended December 31,

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Provision for income taxes

The components of the deferred taxes at December 31, 2021 and 2020 are as follows:

The components of the deferred taxes as of December 31, 2022 and 2021 are as follows (in thousands):

Deferred tax assets:

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Operating lease liability

Qualified research expenses

Compensation under non-statutory stock option agreements

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Net deferred tax liability

The Company has deferred tax assets from state net operating loss carryforwards aggregating $ 1,786 at December 31, 2021 representing state tax benefits, net of federal taxes, of approximately $ 1,411 .

The Company has deferred tax assets from state net operating loss carryforwards aggregating $ 1,457 as of December 31, 2022 representing state tax benefits, net of federal taxes, of approximately $ 1,151 .

These loss carryforwards are subject to five , fifteen , or twenty-year carryforward periods, with $ 2 expiring in 2023, $ 4 expiring in 2024, $ 4 expiring in 2025, $ 33 expiring in 2026, $ 7 expiring in 2027, $ 1,210 expiring beyond 2027, and $ 197 with no expiration.

The Company has provided valuation allowances of $ 1,174 and $ 942 at December 31, 2021 and 2020, respectively, against the state tax loss carryforwards, representing the portion of carryforward losses that the Company believes are not likely to be realized.

The net change in the total valuation allowance reflects a $ 232 increase in 2021, and a $ 50 decrease in 2020, respectively.

A reconciliation of the Company’s 2021, 2020, and 2019 income tax provision to total income taxes at the statutory federal tax rate is as follows:

The Company has provided valuation allowances of $ 1,064 and $ 1,174 as of December 31, 2022 and 2021, respectively, against the state tax loss carryforwards, representing the portion of carryforward losses that the Company believes are not likely to be realized.

The net change in the total valuation allowance reflects a $ 110 decrease and a $ 232 increase in 2022 and 2021, respectively.

A reconciliation of the Company’s 2022, 2021, and 2020 income tax provision to total income taxes at the statutory federal tax rate is as follows (in thousands):

Federal income taxes, at statutory tax rate

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state tax jurisdictions.

The tax years 2017 -

2020 remain open to examination by the major state taxing jurisdictions in which the Company files.

The tax years 2018 -2021 remain open to examination by the major state taxing jurisdictions in which the Company files.

The tax years 2019-2021 remain open to examination by the Internal Revenue Service.

A reconciliation of unrecognized tax benefits for 2021, 2020, and 2019, is as follows:

Balance at January 1,

Additions on tax positions of prior years

Lapses of applicable statute of limitations

Balance at December 31,

For the year ended December 31, 2019, the unrecognized tax benefits decreased by $ 368 related to the expiration of various state statute of limitation periods.

Previously, the Company recognized interest and penalties related to unrecognized income tax benefits as a component of income tax expense, and the corresponding accrual was included as a component of our liability for unrecognized income tax benefits.

Previously, the Company recognized interest and penalties related to unrecognized income tax benefits as a component of income tax expense, and the corresponding accrual was included as a component of the Company’s liability for unrecognized income tax benefits.

The Company did no t recognize any interest and penalties for the years ended December 31, 2022, 2021 or 2020.

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Contingencies

The Company is subject to various legal proceedings and claims, including patent infringement claims, which have arisen during the ordinary course of business.

In the opinion of management, the outcome of such matters is not expected to have a material effect on our business, financial position, results of operations, or cash flows.

The Company is subject to various legal proceedings and claims, which have arisen during the ordinary course of business.

In the opinion of the Company’s management, the outcome of such matters is not expected to have a material effect on the Company’s business, financial position, results of operations, or cash flows.

The Company records a liability when it believes that a loss is both probable and reasonably estimable.

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The Company is subject to audits by states on sales and income taxes, employment matters, and other assessments.

Additional liabilities for these and other audits could be assessed, and such outcomes could have a material negative impact on our financial position, results of operations, and cash flows.

Additional liabilities for these and other audits could be assessed, and such outcomes could have a material negative impact on the Company’s financial position, results of operations, and cash flows.

SEGMENT AND RELATED DISCLOSURES

The internal reporting structure used by the Company’s chief operating decision maker (“CODM”) to assess performance and allocate resources determines the basis for our reportable operating segments.

The internal reporting structure used by the Company’s chief operating decision maker, or CODM, to assess performance and allocate resources determines the basis for the Company’s operating segments.

The Company’s CODM is its Chief Executive Officer, and he evaluates operations and allocates resources based on a measure of operating income.

The Company’s operations are organized under three reporting segments—the Business Solutions segment, which serves primarily small- and medium-sized businesses;

The Company’s operations are organized under three reporting segments—the Business Solutions segment, which serves primarily SMBs;

the Enterprise Solutions segment, which serves primarily medium-to-large corporations;

and the Public Sector Solutions segment, which serves primarily federal, state, and local government and educational institutions.

In addition, the Headquarters/Other group provides services in areas such as finance, human resources, information technology, marketing, and product management.

In addition, the Headquarters/Other group provides services in areas such as finance, human resources, IT, marketing, and product management.

Most of the operating costs associated with the Headquarters/Other group functions are charged to the operating segments based on their estimated usage of the underlying functions.

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Net sales presented below exclude inter-segment product revenues.

Segment information applicable to the Company’s reportable operating segments for the years ended December 31, 2021, 2020, and 2019 is shown below:

Segment information applicable to the Company’s operating segments for the years ended December 31, 2022, 2021, and 2020 is shown below (in thousands):

Years Ended December 31,

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Total operating income

Other (expenses) income, net

Other income, net

Income before taxes

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Shipments to customers located in foreign countries were not more than 2 % of total net sales in 2022, 2021, and 2020.

All of the Company’s assets at December 31, 2021 and 2020 were located in the United States.

The Company’s primary target customers are SMBs, medium-to-large corporate accounts, and federal, state, and local government agencies, educational institutions, and medium-to-large corporate accounts.

All of the Company’s assets as of December 31, 2022 and 2021 were located in the United States.

The Company’s primary target customers are SMBs, medium-to-large businesses, and federal, state, and local government agencies and educational institutions.

PC CONNECTION, INC.

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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