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DecisionPoint Systems, Inc. - Quarter Report: 2022 June (Form 10-Q)

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2022 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to _______________.

 

Commission file number: 333-245695 

 

DECISIONPOINT SYSTEMS, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

37-1644635

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1615 South Congress Avenue Suite 103

Delray Beach, FL

 

33445

 (Address of principal executive offices)

 

(Zip Code)

 

(561) 900-3723

Registrant’s telephone number, including area code

 

 (Former name, former address and former fiscal year, if changed since last report)

 

Securities Registered Pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading

Symbol

 

Name on Each Exchange

on Which Registered

Common Stock, $0.001 par value

 

DPSI

 

NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒      No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒      No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

☐ 

Accelerated filer

☐ 

Non-accelerated Filer

☒ 

Smaller reporting company

☒ 

 

 

Emerging growth company

☐ 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐      No ☒.

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 8, 2022 there were 7,288,628 shares of common stock, $0.001 par value, outstanding.

 

 

 

  

TABLE OF CONTENTS

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited)

 

3

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

Condensed Consolidated Statements of Income and Comprehensive Income

 

4

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

5

 

 

Condensed Consolidated Statements of Cash Flows

 

6

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

25

 

Item 4.

Controls and Procedures

 

25

 

PART II. OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

 

26

 

Item 1A.

Risk Factors

 

26

 

Item 5.

Other Information

 

26

 

Item 6.

Exhibits

 

26

 

 

Signatures

 

27

 

 

 
2

Table of Contents

  

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

 

DecisionPoint Systems, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value)

(Unaudited)

 

 

 

June 30,

2022

 

 

December 31,

2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$8,459

 

 

$2,587

 

Accounts receivable, net

 

 

18,654

 

 

 

12,302

 

Inventory, net

 

 

871

 

 

 

2,111

 

Deferred costs

 

 

1,867

 

 

 

1,998

 

Prepaid expenses and other current assets

 

 

516

 

 

 

336

 

Total current assets

 

 

30,367

 

 

 

19,334

 

Operating lease assets

 

 

2,924

 

 

 

329

 

Property and equipment, net

 

 

1,670

 

 

 

834

 

Deferred costs, net of current portion

 

 

2,051

 

 

 

1,492

 

Deferred tax assets

 

 

1,410

 

 

 

1,999

 

Intangible assets, net

 

 

5,223

 

 

 

3,564

 

Goodwill

 

 

10,012

 

 

 

8,128

 

Other assets

 

 

41

 

 

 

50

 

Total assets

 

$53,698

 

 

$35,730

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$15,310

 

 

$10,273

 

Accrued expenses and other current liabilities

 

 

3,736

 

 

 

3,220

 

Deferred revenue

 

 

13,086

 

 

 

4,599

 

Current portion of long-term debt

 

 

3

 

 

 

3

 

Current portion of operating lease liabilities

 

 

452

 

 

 

257

 

Total current liabilities

 

 

32,587

 

 

 

18,352

 

Deferred revenue, net of current portion

 

 

3,271

 

 

 

2,510

 

Long-term debt

 

 

144

 

 

 

146

 

Noncurrent portion of operating lease liabilities

 

 

2,747

 

 

 

83

 

Other liabilities

 

 

221

 

 

 

381

 

Total liabilities

 

 

38,970

 

 

 

21,472

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000 shares authorized; no shares issued or outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 50,000 shares authorized; 7,234 and 7,007 shares issued and outstanding, respectively

 

 

7

 

 

 

7

 

Additional paid-in capital

 

 

38,113

 

 

 

39,216

 

Accumulated deficit

 

 

(23,392 )

 

 

(24,965 )

Total stockholders’ equity

 

 

14,728

 

 

 

14,258

 

Total liabilities and stockholders’ equity

 

$53,698

 

 

$35,730

 

 

See Accompanying Notes to the Condensed Consolidated Financial Statements.

 

 
3

 

DecisionPoint Systems, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

(in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$22,692

 

 

$11,574

 

 

$38,272

 

 

$23,497

 

Service

 

 

4,814

 

 

 

3,595

 

 

 

8,955

 

 

 

7,744

 

Net sales

 

 

27,506

 

 

 

15,169

 

 

 

47,227

 

 

 

31,241

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

17,869

 

 

 

9,208

 

 

 

30,290

 

 

 

18,657

 

Service

 

 

3,310

 

 

 

2,465

 

 

 

5,935

 

 

 

5,250

 

Cost of sales

 

 

21,179

 

 

 

11,673

 

 

 

36,225

 

 

 

23,907

 

Gross profit

 

 

6,327

 

 

 

3,496

 

 

 

11,002

 

 

 

7,334

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing expense

 

 

2,384

 

 

 

1,910

 

 

 

4,560

 

 

 

3,799

 

General and administrative expenses

 

 

1,960

 

 

 

1,474

 

 

 

4,220

 

 

 

3,094

 

Total operating expenses

 

 

4,344

 

 

 

3,384

 

 

 

8,780

 

 

 

6,893

 

Operating income

 

 

1,983

 

 

 

112

 

 

 

2,222

 

 

 

441

 

Interest expense

 

 

(9)

 

 

(21)

 

 

(35)

 

 

(50)

Gain on extinguishment of debt

 

 

 

 

 

 

 

 

-

 

 

 

1,211

 

Other income

 

 

(21)

 

 

 

 

 

(16)

 

 

 

Income before income taxes

 

 

1,953

 

 

 

91

 

 

 

2,171

 

 

 

1,602

 

Income tax (expense) benefit

 

 

(1,232)

 

 

79

 

 

 

(598)

 

 

(99)

Net income and comprehensive income attributable to common stockholders

 

$721

 

 

$170

 

 

$1,573

 

 

$1,503

 

Earnings per share attributable to stockholders (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$0.10

 

 

$0.02

 

 

$0.22

 

 

$0.22

 

Diluted

 

$0.09

 

 

$0.02

 

 

$0.20

 

 

$0.20

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,222

 

 

 

6,942

 

 

 

7,209

 

 

 

6,913

 

Diluted

 

 

7,691

 

 

 

7,392

 

 

 

7,720

 

 

 

7,647

 

 

(1)

All share and per share information has been retroactively adjusted to reflect a reverse stock split. See Note 8, Stockholders’ Equity for additional information.

 

See Accompanying Notes to the Condensed Consolidated Financial Statements.

 

 
4

  

DecisionPoint Systems, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

For the Three and Six Months Ended June 30, 2022 and 2021 

(in thousands)

(Unaudited)

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

7,007

 

 

$7

 

 

$39,216

 

 

$(24,965 )

 

$14,258

 

Net income

 

 

 

 

 

 

 

 

 

 

 

852

 

 

 

852

 

Share-based compensation expense

 

 

 

 

 

 

 

 

225

 

 

 

 

 

 

225

 

Cashless exercise of stock options (Note 9)

 

 

214

 

 

 

 

 

 

(1,403 )

 

 

 

 

 

(1,403 )

Balance at March 31, 2022

 

 

7,221

 

 

$7

 

 

$38,038

 

 

$(24,113 )

 

$13,932

 

Net income

 

 

 

 

 

 

 

 

 

 

 

721

 

 

 

721

 

Share-based compensation expense

 

 

 

 

 

 

 

 

50

 

 

 

 

 

 

50

 

Exercise of stock options

 

 

13

 

 

 

 

 

 

25

 

 

 

 

 

 

25

 

Balance at June 30, 2022

 

 

7,234

 

 

$7

 

 

$38,113

 

 

$(23,392 )

 

$14,728

 

 

 

 

Common Stock (1)

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2020

 

 

6,788

 

 

$7

 

 

$38,236

 

 

$(26,379 )

 

$11,864

 

Net income

 

 

 

 

 

 

 

 

 

 

 

1,333

 

 

 

1,333

 

Share-based compensation expense

 

 

 

 

 

 

 

 

33

 

 

 

 

 

 

33

 

Exercise of warrants

 

 

152

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

2

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Balance at March 31, 2021

 

 

6,942

 

 

$7

 

 

$38,271

 

 

$(25,046 )

 

$13,232

 

Net income

 

 

 

 

 

 

 

 

 

 

 

170

 

 

 

170

 

Share-based compensation expense

 

 

 

 

 

 

 

 

41

 

 

 

 

 

 

41

 

Balance at June 30, 2021

 

 

6,942

 

 

$7

 

 

$38,312

 

 

$(24,876 )

 

$13,443

 

 

(1)

All share information and balances have been retroactively adjusted to reflect a reverse stock split. See Note 8, Stockholders’ Equity for additional information.

 

See Accompanying Notes to the Condensed Consolidated Financial Statements

.

 

 
5

  

DecisionPoint Systems, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Six Months Ended

June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$1,573

 

 

$1,503

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Loss on fixed asset disposal

 

 

22

 

 

 

-

 

Depreciation and amortization

 

 

1,128

 

 

 

715

 

Gain on extinguishment of debt

 

 

-

 

 

 

(1,211)

Amortization of deferred financing costs

 

 

-

 

 

 

25

 

Share-based compensation expense

 

 

275

 

 

 

74

 

Deferred income taxes, net

 

 

589

 

 

 

(18)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(4,950)

 

 

5,203

 

Inventory, net

 

 

1,369

 

 

 

(252)

Deferred costs

 

 

(305)

 

 

150

 

Prepaid expenses and other current assets

 

 

(171)

 

 

(301)

Accounts payable

 

 

4,479

 

 

 

(4,730)

Accrued expenses and other current liabilities

 

 

(501)

 

 

(221)

Due to related parties

 

 

-

 

 

 

25

 

Operating lease liabilities

 

 

264

 

 

 

(3)

Deferred revenue

 

 

9,100

 

 

 

1,532

 

Net cash provided by operating activities

 

 

12,872

 

 

 

2,491

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Cash paid for acquisitions, net of cash acquired

 

 

(4,525)

 

 

(170)

Purchases of property and equipment

 

 

(1,095)

 

 

(155)

Net cash used in investing activities

 

 

(5,620)

 

 

(325)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Line of credit, net

 

 

-

 

 

 

(1,206)

Payment under term loan

 

 

(2)

 

 

-

 

Cash paid for taxes on the cashless exercises of stock options

 

 

(1,403)

 

 

 

 

Proceeds from exercise of stock options

 

 

25

 

 

 

2

 

Net cash used in financing activities

 

 

(1,380)

 

 

(1,204)

Change in cash

 

 

5,872

 

 

 

962

 

Cash, beginning of period

 

 

2,587

 

 

 

2,005

 

Cash, end of period

 

$8,459

 

 

$2,967

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$31

 

 

$30

 

Cash paid for income taxes

 

109

 

 

362

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

     Right of use assets obtained in exchange for new operating lease liabilities

 

$

3,211

 

 

-

 

Cashless exercise of stock options

 

$3,508

 

 

$-

 

 

See Accompanying Notes to the Condensed Consolidated Financial Statements.

 

 
6

  

DecisionPoint Systems, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1: Description of Business

 

DecisionPoint Systems, Inc., which we sometimes refer to as the “Company”, “we” or “us”, is an enterprise mobility systems integrator that, through its subsidiaries, sells, installs, deploys and repairs mobile computing and wireless systems that are used both within a company’s facilities and in the field. These systems generally include mobile computers, mobile application software, and related data capture equipment including bar code scanners and radio frequency identification (“RFID”) readers. We also provide services, consulting, staging, kitting, deployment, maintenance, proprietary and third-party software and software customization as an integral part of our customized solutions for our customers. The suite of products utilizes the latest technologies with the intent to make complex mobile technologies easy to use, understand and keep running within all vertical markets such as merchandising, sales and delivery, field service, logistics and transportation and warehouse management.

 

In June 2018, we acquired 100% of the outstanding stock of Royce Digital Systems, Inc. (“RDS”). RDS provides innovative enterprise print and mobile technologies, deployment services and on-site maintenance.

 

In December 2020, we acquired 100% of the issued and outstanding membership interests of ExtenData Solutions, LLC (“ExtenData”). ExtenData is focused on enterprise mobility solutions and provides software product development, mobile computing, identification and wireless tracking solutions.

 

In January 2022, we acquired 100% of the issued and outstanding membership interests of Advanced Mobile Group, LLC (“AMG”). AMG provides services, hardware, software, integration, and wireless networking solutions, with deep experience in warehousing and distribution, manufacturing, mobile workforce automation, retailing, and healthcare segments.

 

Note 2: Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation

 

We have prepared the accompanying unaudited condensed consolidated financial statements of DecisionPoint Systems, Inc. and its subsidiaries on the accrual basis of accounting in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”). The accompanying condensed consolidated financial statements include the accounts of DecisionPoint Systems, Inc. and its wholly owned subsidiaries, DecisionPoint Systems International (“DPSI”), DecisionPoint Systems Group, Inc. (“DPS Group”), RDS, ExtenData and AMG. AMG was acquired on January 31, 2022, and as such, has been consolidated into our financial position and results of operations beginning February 1, 2022. All intercompany accounts and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted from these interim financial statements as permitted by SEC rules and regulations. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the financial condition, results of operations and cash flows for the interim periods presented. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of results to be expected for the full fiscal year.

 

Reverse Stock Split

 

In December 2021, we effectuated a reverse stock split of our outstanding shares of common stock at a ratio of 1-for-2. See Note 8, Stockholders’ Equity, for additional information. As a result, the number of shares and income per share disclosed throughout these consolidated financial statements have been retrospectively adjusted to reflect the reverse stock split. All share and per share information presented in this report has been retroactively adjusted to reflect the reverse stock split.

 

 

 

7

 

 

 

COVID-19

 

COVID-19 and the response to the pandemic have, at times, negatively impacted overall economic conditions. The potential future impacts of COVID-19, while uncertain, could materially adversely impact the Company’s results of operations.

 

Operating Segments

 

Under the Financial Accounting Standards Board Accounting Standards Codification 280-10, two or more operating segments may be aggregated into a single operating segment for financial reporting purposes if aggregation is consistent with the objective and basic principles, if the segments have similar characteristics, and if the segments are similar in each of the following areas: (i) the nature of products and services, (ii) the nature of the production processes, (iii) the type or class of customer for their products and services, and (iv) the methods used to distribute their products or provide their services. We believe each of the Company’s segments meet these criteria as they provide similar products and services to similar customers using similar methods of production and distribution. Because we believe each of the criteria set forth above has been met and each of the Company’s segments has similar characteristics, we aggregate results of operations in one reportable operating segment.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Certain accounting policies involve judgments and uncertainties to such an extent that there is a reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis.

 

Income Taxes

 

Our quarterly provision for income taxes uses an annual effective tax rate based on the expected annual income and statutory tax rates. Our effective tax rate, including discrete items as more fully described below, was 27.6% for the six months ended June 30, 2022 and 6.2% for the six months ended June 30, 2021.

 

We recognize excess tax benefits (windfalls) and excess tax deficiencies (shortfalls) as discrete items in income taxes in the period that stock options are exercised. For the six months ended June 30, 2022, we recorded an income tax benefit and deferred tax asset of $0.1 million related to excess tax benefits for stock option exercises which represents the difference in deferred tax assets recorded at fair value during the vesting period and the actual deferred tax assets realized based on the intrinsic value on the date of exercise.

 

Operating Leases

 

For non-cancelable operating lease agreements, operating lease assets and operating lease liabilities are established for leases with an expected term greater than one year and we recognize lease expense on a straight-line basis.

 

We previously had an operating lease for office and warehouse space in Irvine, California with fixed minimum monthly payments of $13,945, an original lease expiration of June 2023 and an incremental borrowing rate of 4.75%. In February 2022, we reached an agreement with the lessor which allowed for an early termination of the operating lease on February 28, 2022. The monthly payments remained unchanged through February 2022, and we did not incur an early termination liability in result of the lease modification. On the date of termination, we reversed the related net book value of the operating lease asset of $0.2 million and the lease liability of $0.2 million.

 

 
8

 

In connection with the closure of the office and warehouse space in Irvine, California, we entered into a new lease agreement commencing in February 2022 to relocate that office and warehouse space to Laguna Hills, California. Pursuant to the lease agreement, the base rent of $39,778 per month begins on June 1, 2022 and will increase 3% annually. The lease expires on April 30, 2029. In February 2022, we established an operating lease liability of $3.1 million and operating lease assets of $3.0 million. In connection with the new lease agreement, we entered into a sublease agreement for the Laguna Hills office and warehouse location, and we will receive $24,254 per month commencing in February 2022 with a sublease expiration of October 31, 2023.

 

During the six months ended June 30, 2022, we also entered into several other non-cancelable operating lease agreements with terms greater than one year and established an operating lease liability of $0.1 million and operating lease assets of $0.1 million.

 

Revenue Recognition

 

We recognize revenue when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. We do not have any material extended payment terms, as payment is due at or shortly after the time of the sale. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.

 

We recognize contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced to our clients. Unbilled receivables are recorded when we have an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when we invoice clients, or receive customer cash payments, in advance of performing the related services under the terms of a contract. Remaining performance obligations represent the transaction price allocated to the performance obligations that are unsatisfied as of the end of each reporting period. Deferred revenue is recognized as revenue when we have satisfied the related performance obligation.

 

As of June 30, 2022, the total aggregate transaction price allocated to the unsatisfied performance obligations was approximately $16.4 million, of which approximately $13.1 million is expected to be recognized over the next 12 months.

 

As of December 31, 2021, the total aggregate transaction price allocated to the unsatisfied performance obligations was approximately $7.1 million.

 

We defer costs to acquire contracts, including commissions, incentives and payroll taxes if they are incremental and recoverable costs of obtaining a customer contract with a term exceeding one year. Deferred contract costs are amortized to sales and marketing expense over the contract term, generally over one to three years. We have elected to recognize the incremental costs of obtaining a contract with a term of less than one year as a selling expense when incurred. We include deferred contract acquisition costs in “Prepaid expenses and other current assets” in the consolidated balance sheets. As of June 30, 2022 and December 31, 2021, we deferred $0.3 million and $0.1 million, respectively, of related contract acquisition costs.

 

The following table summarizes net sales by revenue source (in thousands):

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

 June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hardware and software

 

$20,601

 

 

$10,257

 

 

$34,901

 

 

$20,721

 

Consumables

 

 

2,091

 

 

 

1,317

 

 

 

3,371

 

 

 

2,776

 

Professional services

 

 

4,814

 

 

 

3,595

 

 

 

8,955

 

 

 

7,744

 

 

 

$27,506

 

 

$15,169

 

 

$47,227

 

 

$31,241

 

 

 
9

 

Accounting Standards Not Yet Adopted

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU will require the measurement of all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which, among other things, defers the effective date of ASU 2016-13 for public filers that are considered smaller reporting companies, as defined by the SEC, to fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted. Although management continues to analyze the provisions of this ASU, currently, we believe the adoption of this ASU will not significantly impact the Company’s consolidated results of operations and financial position.

 

There are no other accounting standards that have been issued but not yet adopted that we believe could have a material impact on our consolidated financial statements.

 

Note 3: Acquisitions

 

Advanced Mobile Group, LLC

 

On January 31, 2022, we entered into a Membership Unit Purchase Agreement and concurrently therewith closed upon the acquisition of all of the issued and outstanding membership interests of AMG for $5.1 million. The consideration we paid is comprised of cash of $4.6 million, of which $4.4 million was paid as of June 30, 2022, and an estimated earn-out obligation valued at $0.5 million, subject to the financial performance of AMG during each of the two years following the closing of the acquisition. As a result of the acquisition, AMG became a wholly owned subsidiary of the Company.

 

In June 2022, we continued to refine our analysis of the estimated fair value of the acquisition purchase price (including earn-outs) and the estimated fair value of the assets acquired and liabilities assumed in the acquisition. Changes to the fair value of assets and liabilities assumed at the date of AMG acquisition were a result of updating the purchase price allocation and were comprised of (i) $0.9 million decrease in customer lists and relationships, (ii) a $0.2 million decrease in the trade name, (iii) a $0.1 million increase in backlog, (iv) a $0.1 million increase in developed technology, (v) a $0.1 million decrease in deferred revenue and (vi) a $0.9 million increase in goodwill. We have not yet completed our final analysis of the estimated fair value of the acquisition purchase price (including earn-outs) and the estimated fair value of the assets acquired and liabilities assumed in the acquisition. We expect that significant goodwill and definite-lived intangible assets will be recognized upon completion of the required purchase price allocation analysis. In accordance with ASC 805 Business Combinations, the provisional amounts recorded below may be adjusted in future periods as management completes its acquisition analysis.

 

 
10

 

As of June 30, 2022, the allocation of the total consideration to the estimated fair value of acquired net assets as of the acquisition date for AMG is as follows (in thousands):

 

 Cash

 

$170

 

Accounts receivable

 

 

1,402

 

Inventory

 

 

129

 

Prepaids and other current assets

 

 

123

 

Customer lists and relationships

 

 

1,580

 

Trade name

 

 

330

 

Backlog

 

 

260

 

Developed technology

 

 

60

 

Accounts payable

 

 

(558 )

Accrued expenses

 

 

(152 )

Deferred revenue

 

 

(148 )

Total fair value excluding goodwill

 

 

3,196

 

Goodwill

 

 

1,884

 

Total consideration

 

$5,080

 

 

The estimated useful lives of intangible assets recorded related to the AMG acquisition are as follows (in thousands):

 

 

 

Expected

Life

Customer lists and relationships

 

7 years

Trade name

 

3 years

Backlog

 

11 months

Developed technology

 

3 years

 

Other acquisition

 

In March 2022, we acquired the customer lists and relationships of Boston Technologies, a provider of mobile order management and route accounting software for direct store delivery (DSD) operations, for cash of $0.3 million.

 

Note 4: Intangible Assets

 

Definite lived intangible assets are as follows (in thousands):

 

 

 

June 30, 2022

 

 

December 31, 2021

 

 

 

Gross

Amount

 

 

Accumulated

Amortization

 

 

Net

Amount

 

 

Gross

Amount

 

 

Accumulated

Amortization

 

 

Net

Amount

 

Customer lists and relationships

 

$7,590

 

 

$(3,080 )

 

$4,510

 

 

$5,690

 

 

$(2,453 )

 

$3,237

 

Trade names

 

 

1,330

 

 

 

(827 )

 

 

503

 

 

 

1,000

 

 

 

(699 )

 

 

301

 

Developed technology

 

 

130

 

 

 

(62 )

 

 

68

 

 

 

70

 

 

 

(44 )

 

 

26

 

Backlog

 

 

320

 

 

 

(178 )

 

 

142

 

 

 

60

 

 

 

(60 )

 

 

-

 

 

 

$9,370

 

 

$(4,147 )

 

$5,223

 

 

$6,820

 

 

$(3,256 )

 

$3,564

 

 

Amortization expense recognized during the three and six months ended June 30, 2022 was $0.3 million and $0.9 million, respectively. Amortization expense recognized during the three and six months ended June 30, 2021 was $0.3 million and $0.6 million, respectively. Amortization expense is calculated on an accelerated basis.

 

Note 5: Net Income Per Share

 

Basic net income per common share is computed by dividing the net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted net income per share is calculated similarly to basic per share amounts, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. For periods in which there is a net loss, potentially dilutive securities are excluded from the computation of fully diluted net loss per share as their effect is anti-dilutive.

 

 
11

 

Below is a reconciliation of the fully dilutive securities effect for the three and six months ended June 30, 2022 and 2021 (in thousands, except per share data):

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income attributable to common stockholders

 

$721

 

 

$170

 

 

$1,573

 

 

$1,503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic common shares outstanding

 

 

7,222

 

 

 

6,942

 

 

 

7,209

 

 

 

6,913

 

Dilutive effect of stock options, warrants and restricted stock

 

 

469

 

 

 

450

 

 

 

511

 

 

 

734

 

Weighted average shares for diluted earnings per share

 

 

7,691

 

 

 

7,392

 

 

 

7,720

 

 

 

7,647

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income per share

 

$0.10

 

 

$0.02

 

 

$0.22

 

 

$0.22

 

Diluted income per share

 

$0.09

 

 

$0.02

 

 

$0.20

 

 

$0.20

 

 

 Note 6: Line of Credit

 

Our Loan and Security Agreement (the “Loan Agreement”) with MUFG Union Bank, National Association (the “Bank”) provides for a revolving line of credit of up to $9.0 million with our obligations being secured by a security interest in substantially all of our assets. Loans extended to us under the Loan Agreement are scheduled to mature on July 31, 2024.

 

Interest and Fees

 

Loans under the Loan Agreement with an outstanding balance of at least $150,000 bear interest, at our option, at a base interest rate equal to the London Interbank Offered Rate (“LIBOR”) plus 2.50% or a base rate equal to an index offered by the Bank for the interest period selected and is payable at the on the last day of each month. If the LIBOR rate is selected, the interest rate on the loans adjusts at the end of each LIBOR rate period (1, 2, 3, 6, or 12 month term) selected by us. All other loan amounts bear interest at a rate equal to an index rate determined by the Bank, which shall vary when the index rate changes. As of June 30, 2022, the effective interest rate was the Prime Rate of 4.75%. We have the right to prepay variable interest rate loans, in whole or in part at any time, without penalty or premium. Amounts outstanding with a base interest rate may be prepaid in whole or in part provided we have given the Bank written notice of at least five days prior to prepayment and pay a prepayment fee. At any time prior to the maturity date, we may borrow, repay and reborrow amounts under the Loan Agreement, subject to the prepayment terms, and, as long as the total outstanding does not exceed $9.0 million. The Loan Agreement requires a commitment fee of 0.25% per year, payable quarterly and in arrears, on any unused portion of the line of credit.

 

Covenants

 

Under the Loan Agreement, we are subject to a variety of customary affirmative and negative covenants, including that we (i) achieve a net profit of not less than $1.0 million at the end of each fiscal year, (ii) maintain a ratio of total debt to EBITDA of not greater than 3.0:1.0 measured at the end of each quarter, and (iii) not realize a net loss for more than two consecutive quarters. The Loan Agreement also prohibits us from, or otherwise imposes restrictions on us with respect to, among other things, liquidating, dissolving, entering into any consolidation, merger, division, partnership, or other combination, selling or leasing a majority of our assets or business or purchase or lease all or the greater part of the assets or business of another entity or person.

 

 
12

 

As of June 30, 2022, we were in compliance with all of our covenants, were eligible to borrow up to $9.0 million, and had no outstanding borrowings under the line of credit.

 

Note 7: Term Debt

 

EIDL Promissory Note

 

On August 27, 2020, we received $0.2 million in connection with a promissory note from the SBA under the Economic Injury Disaster Loan (“EIDL”) program pursuant to the CARES Act. Under the terms of the EIDL promissory note, interest accrues on the outstanding principal at an interest rate of 3.75% per annum and with a term of 30 years with equal monthly payments of principal and interest of $731 beginning on August 27, 2021. As of June 30, 2022 and December 31, 2021, outstanding debt under the promissory note was $0.1 million.

 

Note 8: Stockholders’ Equity

 

We are authorized to issue two classes of stock designated as common stock and preferred stock. As of June 30, 2022, we are authorized to issue 60,000,000 total shares of stock. Of this amount, 50,000,000 shares are designated as common stock, each having a par value of $0.001 and 10,000,000 shares are designated as preferred stock, each having a par value of $0.001.

 

Reverse Stock Split

 

On December 13, 2021, DecisionPoint filed a Certificate of Amendment to the Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of Delaware to effect a 1-for-2 reverse stock split of the outstanding shares of the Company’s common stock that were outstanding at the time the Certificate of Amendment was filed (the “Reverse Stock Split”).

 

As a result of the Reverse Stock Split, every two shares of issued and outstanding common stock were automatically combined into one issued and outstanding share of common stock, without any change in the par value per share. No fractional shares were issued as a result of the Reverse Stock Split. Any fractional shares that would otherwise have resulted from the Reverse Stock Split were rounded up to the next whole number. The Reverse Stock Split reduced the number of shares of common stock outstanding however, the number of authorized shares of common stock under the Certificate of Incorporation remained unchanged at 50 million shares.

 

Proportionate adjustments were made to the per share exercise price and the number of shares of common stock that may be purchased upon exercise of outstanding warrants and stock options granted by the Company, and the number of shares of Common Stock reserved for future issuance under the Company’s 2014 Equity Incentive Plan , as amended (the “2014 Plan”).

 

Warrants

 

The following table summarizes information about our outstanding common stock warrants as of June 30, 2022:

 

 

 

Date

 

Strike

 

 

Total

Warrants

Outstanding

and

 

 

Total

Exercise

Price

 

 

Weighted

Average

Exercise

 

 

 

Issued

 

Expiration

 

Price

 

 

Exercisable

 

 

(in thousands)

 

 

Price

 

Warrants - Common Stock

 

Jun-18

 

Jun-23

 

$1.00

 

 

 

316,800

 

 

$317

 

 

 

 

Warrants - Common Stock

 

Oct-18

 

Oct-23

 

 

1.40

 

 

 

26,250

 

 

 

37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

343,050

 

 

$354

 

 

$1.04

 

 

In February 2021, the common stock warrants issued by the Company in September 2016 were fully exercised by all of the holders on a cashless basis. As a result of the cashless exercise, 151,504 shares of common stock were issued.

 

There were no warrants issued, exercised, forfeited, or expired during the six months ended June 30, 2022.

 

 
13

 

Note 9: Share-Based Compensation

 

Under our amended 2014 Plan 1,100,000 shares of our common stock are reserved for issuance under the 2014 Plan (as adjusted for the Reverse Stock Split).

 

Under the 2014 Plan, common stock incentives may be granted to our officers, employees, directors, consultants, and advisors (and prospective directors, officers, managers, employees, consultants and advisors) and our affiliates can acquire and maintain an equity interest in us, or be paid incentive compensation, which may (but need not) be measured by reference to the value of our common stock.

 

The 2014 Plan permits us to provide equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock and other stock bonus awards and performance compensation awards.

 

The 2014 Plan is administered by the Board of Directors, or a committee appointed by the Board of Directors, which determines recipients and the number of shares subject to the awards, the exercise price and the vesting schedule. The term of stock options granted under the 2014 Plan cannot exceed ten years. Options shall not have an exercise price less than 100% of the fair market value of our common stock on the grant date, and generally vest over a period of three years. If the individual possesses more than 10% of the combined voting power of all classes of our stock, the exercise price shall not be less than 110% of the fair market of a share of common stock on the date of grant.

 

The following table summarizes stock option activity under the 2014 Plan for the six months ended June 30, 2022:

 

 

 

Stock

Options

 

 

Grant Date

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Life

 

 

Aggregate

Intrinsic

Value

 

 

 

 

 

 

 

 

 

(in years)

 

 

($ in thousands)

 

Outstanding at January 1, 2022

 

 

1,002,750

 

 

$3.00

 

 

 

 

 

 

 

Granted

 

 

187,750

 

 

 

5.49

 

 

 

 

 

 

 

Forfeited or expired

 

 

(78,125 )

 

 

2.07

 

 

 

 

 

 

 

Exercised

 

 

(563,959 )

 

 

3.44

 

 

 

 

 

 

 

Outstanding at June 30, 2022

 

 

548,416

 

 

$3.53

 

 

 

2.6

 

 

$539

 

Exercisable at June 30, 2022

 

 

358,466

 

 

$3.39

 

 

 

2.4

 

 

$445

 

 

During the six months ended June 30, 2022, certain employees exercised vested stock options through a cashless exercise. The options exercised were net settled in satisfaction of the exercise price and employee share-based tax withholding. These shares were issued pursuant to an S-8 Registration Statement dated July 7 ,2021 with respect to shares issuable pursuant to the 2014 Plan. The exercised options, utilizing a cashless exercise, are summarized in the following table:

 

Options 

exercised

 

 

Weighted

Average

Exercise

Price

 

 

Shares Net

Settled for

Exercise

 

 

Shares

Withheld

for Taxes (1)

 

 

Net Shares

Issued

 

 

Weighted

Average

Share Price

 

 

Employee

Share-Based

Tax

Withholding (1)

 

 

550,834

 

 

$3.48

 

 

 

194,681

 

 

 

142,479

 

 

 

213,674

 

 

$9.85

 

 

$1,403,191

 

 

(1)

Shares withheld for employee taxes of 142,479 represents the equivalent shares for employee tax withholding of $1.4 million. The employee tax withholding is based on the statutory rates for each employee on the date of exercise. ASU 2016-09 clarifies that employee taxes paid in lieu of shares issued for share-based compensation should be considered similar to a share repurchase. Accordingly, employee taxes paid by us are recorded as a reduction to stockholders’ equity on the date of exercise and classified as a financing activity on the statement of cash flows when taxes are paid to the taxing authorities.

 

 
14

 

Share-based compensation cost is measured at the grant date based on the fair value of the award. The fair values of stock options granted during the six months ended June 30, 2022 were estimated using the Black-Scholes option-pricing model with the following assumptions:

 

Weighted average grant-date fair value per option granted

 

$4.15

 

Expected option term

 

3.2 years

 

Expected volatility factor

 

 

69.0%

Risk-free interest rate

 

 

2.61%

Expected annual dividend yield

 

 

 

 

We estimate expected volatility using historical volatility of common stock of our peer group over a period equal to the expected life of the options. The expected term of the awards represents the period of time that the awards are expected to be outstanding. We considered expectations for the future to estimate employee exercise and post-vest termination behavior. We do not intend to pay common stock dividends in the foreseeable future, and therefore have assumed a dividend yield of zero. The risk-free interest rate is the yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected term of the awards.

 

As of June 30, 2022, there was $0.1 million of total unrecognized share-based compensation related to unvested stock options. These costs have a weighted average remaining recognition period of 1.3 years.

 

Note 10: Contingencies

 

Litigation

 

From time to time, we are subject to litigation incidental to the conduct of our business. When applicable, we record accruals for contingencies when it is probable that a liability will be incurred, and the amount of loss can be reasonably estimated. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in our opinion, individually or in the aggregate, no such lawsuits are expected to have a material effect on our condensed consolidated financial position or results of operations.

 

Concentrations

 

Two customers accounted for 19% and 20% of consolidated revenue during the three months ended June 30, 2022, and 11% and 18% of consolidated revenue during the six months ended June 30, 2022. One customer accounted for approximately 10% and 15% of consolidated net revenues during the three and six months ended June 30, 2021, respectively. Trade accounts receivable from one customer represented 31% of net consolidated receivables at June 30, 2022 and trade accounts receivable from three customers represented approximately 19%, 12% and 11% of net consolidated receivables at June 30, 2021.

 

Two vendors accounted for 44% and 17% of all consolidated purchases during the three months ended June 30, 2022, and these same two vendors accounted for 39% and 21% of all consolidated purchased during the six months ended June 30, 2022. For the prior year periods, these same vendors accounted for 26% and 30% of all consolidated purchases for the three months ended June 30, 2021, 24% and 14% for the six months ended June 30, 2021. No other vendor accounted for more than 10% of purchases during the three and six months ended June 30, 2022 and 2021.

 

As of June 30, 2022, two vendors accounted for 50% and 17% of total accounts payable. As of June 30, 2021, the same two vendors accounted for 32% and 40% of the total accounts payable. No other vendor accounted for more than 10% of accounts payable as of June 30, 2022 and 2021.

 

A significant decrease or interruption in business from our significant customers or vendors could have a material adverse effect on our business, financial condition and results of operations. Financial instruments that potentially expose us to a concentration of credit risk principally consist of accounts receivable. We sell product to a large number of customers in many different geographic regions. To minimize credit risk, we perform ongoing credit evaluations of our customers’ financial condition.

 

 
15

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains statements that discuss future events or expectations, projections of results of operations or financial condition, trends in our business, business prospects and strategies and other “forward-looking” information. In some cases, you can identify “forward-looking statements” by words like “may,” “will,” “should,” “expects,” These statements may relate to, among other things, our expectations regarding for our financial results, revenue, operating expenses and other financial measures in future periods, and the adequacy of our sources of liquidity to satisfy our working capital needs, capital expenditures, and other liquidity requirements. Our actual results may differ materially from those anticipated in these forward-looking statements. Among the factors that could cause actual results to differ materially are the factors discussed under “Risk Factors” in documents and reports we have filed with the Securities and Exchange Commission. Some additional factors that could cause actual results to differ include:

 

 

our plans to obtain any requisite outside funding for our current and proposed operations and potential acquisition and expansion efforts;

 

the impacts from the COVID-19 pandemic, or any other health epidemic, on our business, and our clientele, together with the resulting disruptions to supply chains, the labor markets, or the global economy as a whole;

 

the concentration of our customers and vendors and the potential effect of the loss of a significant customer or vendor;

 

debt obligations of the Company arising from our line of credit from time to time or otherwise;

 

our ability to integrate the business operations of businesses that we acquire from time to time;

 

our prior history of operating losses;

 

our ability to compete with companies producing similar products and services;

 

the scope of protection we are able to establish and maintain for intellectual property rights covering our products and technology;

 

the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

 

general economic conditions, including effects of inflation, market volatility, interest rate increases, and effects of geopolitical events domestically and abroad;

 

our ability to develop and maintain our corporate infrastructure, including our internal controls;

 

our ability to develop innovative new products; and

 

our financial performance.

 

Our financial statements are stated in United States Dollars (“$”) and are prepared in accordance with U.S. GAAP. In this Quarterly Report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock.

 

Overview

 

We are a provider and integrator of mobility and wireless systems for business organizations. We design, deploy and support mobile computing systems that enable customers to access employers’ data networks at various locations (i.e. the retail selling floor, nurse workstations, warehouse and distribution centers or on the road deliveries via enterprise-grade handheld computers, printers, tablets, and smart phones). We also integrate data capture equipment including bar code scanners and radio frequency identification (RFID) readers.

 

In January 2022, we completed the acquisition of Advanced Mobile Group, LLC (“AMG”), a privately held company headquartered in Doylestown, Pennsylvania. We acquired AMG to expand our mobility-first enterprise solutions and service offerings and grow its capabilities in the mid-Atlantic region. AMG is a regional leader providing services, hardware, software, integration, and wireless networking solutions, with deep experience in warehousing and distribution, manufacturing, mobile workforce automation, retailing, and healthcare segments, with approximately 600 customers.

 

 
16

 

The future impact of the COVID-19 pandemic on our business and results of operations is unknown and will depend on future developments, which fluctuate and are highly uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 pandemic, the spread of the new variants of the virus domestically or abroad, the effectiveness of vaccines and vaccination rates, and additional preventative and protective actions that governments, or we or our customers, may implement, which may result in an extended period of continued business disruption and reduced operations. Certain of our customers, particularly those in the retail sector, have at times been significantly impacted by COVID-19 and the pandemic has contributed to disruptions in supply chains and labor shortages across industries, and we have experienced supplier shipment delays due to a supply chain and logistic challenges resulting in delays in product revenue recognition. Our results of operations during the first half of 2022 are not necessarily indicative of results to be expected in the remainder of 2022 in light of the uncertainties surrounding the impact of the COVID-19 pandemic and continuing issues with logistics and supply chain disruptions through the date of this report.

 

In addition, general economic uncertainty and volatility arising from geopolitical events and concerns, inflation, rises in energy prices, changes in interest rates and general declines in capital spending in the information technology sector (and the economy in general) make it difficult to predict changes in the purchasing requirements of our customers and the markets we serve and whether our results of operations will be materially impacted. 

 

Components of Results of Operations

 

Net Sales

 

Net sales reflect revenue from the sale of hardware, software, consumables and professional services (including hardware and software maintenance) to our clients, net of sales taxes.

 

Revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. We do not have any material extended payment terms, as payment is due at or shortly after the time of the sale. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.

 

Cost of Sales, Sales and Marketing Expenses, and General and Administrative Expenses

 

The following illustrates the primary costs classified in each major expense category:

 

Cost of sales, include:

 

 

Cost of goods sold for hardware, software and consumables;

 

Cost of professional services, including maintenance;

 

Markdowns of inventory; and

 

Freight expenses.

 

Sales and marketing expenses, include:

 

 

Sales salaries, benefits and commissions;

 

Consulting;

 

Marketing tools;

 

Travel; and

 

Marketing promotions and trade shows.

 

General and administrative expenses, include:

 

 

Corporate payroll and benefits;

 

Depreciation and amortization;

 

Rent;

 

Utilities; and

 

Other administrative costs such as maintenance of corporate offices, supplies, legal, consulting, audit and tax preparation and other professional fees.

 

 
17

 

 Results of Operations

 

The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales (in thousands):

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Statements of Operations Data:

 

(unaudited)

 

Net sales

 

$27,506

 

 

$15,169

 

 

$47,227

 

 

$31,241

 

Cost of sales

 

 

21,179

 

 

 

11,673

 

 

 

36,225

 

 

 

23,907

 

Gross profit

 

 

6,327

 

 

 

3,496

 

 

 

11,002

 

 

 

7,334

 

Sales and marketing expenses

 

 

2,384

 

 

 

1,910

 

 

 

4,560

 

 

 

3,799

 

General and administrative expenses

 

 

1,960

 

 

 

1,474

 

 

 

4,220

 

 

 

3,094

 

Total operating expenses

 

 

4,344

 

 

 

3,384

 

 

 

8,780

 

 

 

6,893

 

Operating income

 

 

1,983

 

 

 

112

 

 

 

2,222

 

 

 

441

 

Interest expense

 

 

(9)

 

 

(21)

 

 

(35)

 

 

(50)

Gain on extinguishment of debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,211

 

Other expense

 

 

(21)

 

 

-

 

 

 

(16)

 

 

-

 

Income before income taxes

 

 

1,953

 

 

 

91

 

 

 

2,171

 

 

 

1,602

 

Income tax (expense) benefit

 

 

(1,232)

 

 

79

 

 

 

(598)

 

 

(99)

Net income attributable to common shareholders

 

$721

 

 

$170

 

 

$1,573

 

 

$1,503

 

Percentage of Net Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

100.0%

 

 

100.0%

 

 

100.0%

 

 

100.0%

Cost of sales

 

 

77.0%

 

 

77.0%

 

 

76.7%

 

 

76.5%

Gross profit

 

 

23.0%

 

 

23.0%

 

 

23.3%

 

 

23.5%

Sales and marketing expenses

 

 

8.7%

 

 

12.6%

 

 

9.7%

 

 

12.2%

General and administrative expenses

 

 

7.1%

 

 

9.7%

 

 

8.9%

 

 

9.9%

Total operating expenses

 

 

15.8%

 

 

22.3%

 

 

18.6%

 

 

22.1%

Operating income

 

 

7.2%

 

 

0.7%

 

 

4.7%

 

 

1.4%

Interest expense

 

 

0.0%

 

 

0.1%

 

 

-0.1%

 

 

0.2%

Gain on extinguishment of debt

 

 

%

 

 

%

 

 

%

 

 

3.9%

Other expense

 

 

-0.1%

 

%

 

 

0.0%

 

 

0.0%

Income before income taxes

 

 

7.1%

 

 

0.6%

 

 

4.6%

 

 

5.1%

Income tax (expense) benefit

 

 

-4.5%

 

 

0.5%

 

 

-1.3%

 

 

0.3%

Net income attributable to common shareholders

 

 

2.6%

 

 

1.1%

 

 

3.3%

 

 

4.8%

 

 
18

 

Results of Operations for the Second Quarter of 2022 Compared to the Second Quarter of 2021 (Unaudited)

 

Net sales

 

 

 

Three Months Ended

June 30,

 

 

Dollar

 

 

Percent

 

 

 

2022

 

 

2021

 

 

Change

 

 

Change

 

 

 

(dollars in thousands)

 

 

 

Hardware and software

 

$20,601

 

 

$10,257

 

 

$10,344

 

 

 

100.9%

Consumables

 

 

2,091

 

 

 

1,317

 

 

 

774

 

 

 

58.8%

Services

 

 

4,814

 

 

 

3,595

 

 

 

1,219

 

 

 

33.9%

 

 

$27,506

 

 

$15,169

 

 

$12,337

 

 

 

81.3%

 

Net sales increased by 81.3%, or $12.3 million, during the three months ended June 30, 2022 as compared to the same period of the prior year. The increase in net sales was primarily driven by two significant, unplanned equipment orders by two of our large enterprise customers and a $1.9 million increase in overall net sales associated with sales by AMG which we acquired on January 31, 2022 (and, thus, there were no corresponding sales by AMG included in our results of operations for the comparable period in 2021).

 

Cost of sales

 

 

 

Three Months Ended

June 30,

 

 

Dollar

 

 

Percent

 

 

 

2022

 

 

2021

 

 

Change

 

 

Change

 

 

 

(dollars in thousands)

 

 

 

Hardware and software

 

$16,371

 

 

$8,290

 

 

$8,081

 

 

 

97.5%

Consumables

 

 

1,498

 

 

 

918

 

 

 

580

 

 

 

63.2%

Services

 

 

3,310

 

 

 

2,465

 

 

 

845

 

 

 

34.3%

 

 

$21,179

 

 

$11,673

 

 

$9,506

 

 

 

81.4%

 

Cost of sales increased by 81.4%, or $9.5 million during the three months ended June 30, 2022 as compared to the same prior year period primarily due to higher hardware sales volume and a $1.3 million increase in overall cost of sales associated with cost of sales of AMG that we acquired on January 31, 2022 (and, thus, there were no corresponding costs of sales of AMG included in our results of operations for the comparable period in 2021).

 

Gross profit

 

 

 

Three Months Ended

June 30,

 

 

 

2022

 

 

2021

 

 

 

(dollars in thousands)

 

Gross profit:

 

 

 

 

 

 

Hardware and software

 

$

4,230

 

 

$1,967

 

Consumables

 

 

593

 

 

 

399

 

Services

 

 

1,504

 

 

 

1,130

 

Total gross profit

 

$6,327

 

 

$3,496

 

 

 

 

 

 

 

 

 

 

Gross profit percentage:

 

 

 

 

 

 

 

 

Hardware and software

 

 

20.5%

 

 

19.2%

Consumables

 

 

28.4%

 

 

30.3%

Services

 

 

31.2%

 

 

31.4%

Total gross profit percentage

 

 

23.0%

 

 

23.0%

 

 
19

 

Gross profit increased $2.8 million for the three months ended June 30, 2022 as compared to the prior year period, primarily as a result of overall higher sales volume and the other impacts noted above. Overall gross profit margin remained flat with the prior year period.

 

Sales and marketing expenses

 

 

 

Three Months Ended

June 30,

 

 

Dollar

 

 

Percent

 

 

 

2022

 

 

2021

 

 

Change

 

 

Change

 

 

 

(dollars in thousands)

 

Sales and marketing expenses

 

$2,384

 

 

$1,910

 

 

$474

 

 

 

24.8%

As a percentage of sales

 

 

8.7%

 

 

12.6%

 

 

 

 

 

 

(3.9 )%

 

Sales and marketing expenses increased $0.5 million, or 24.8%, for the three months ended June 30, 2022 as compared to the prior year period primarily due to increased commissions on higher sales volume during the second quarter of 2022, combined with increased expenses for AMG operations that was acquired on January 31, 2022 (and, thus, there were not corresponding sales and marketing expenses of AMG included in our results of operations for the comparable period in 2021). As a percentage of sales, sales and marketing expenses decreased 390 basis points primarily due to higher sales volume for the three months ended June 30, 2022.

 

General and administrative expenses

 

 

 

Three Months Ended

June 30,

 

 

Dollar

 

 

Percent

 

 

 

2022

 

 

2021

 

 

Change

 

 

Change

 

 

 

(dollars in thousands)

 

General and administrative expenses

 

$1,960

 

 

$1,474

 

 

$486

 

 

 

33.0%

As a percentage of sales

 

 

7.1%

 

 

9.7%

 

 

 

 

 

 

(2.6 )%

 

General and administrative expenses increased $0.5 million, or 33.0%, for the three months ended June 30, 2022 as compared to the same period of the prior year. The increase in these expenses was due to higher professional and accounting fees, increased rent costs and a $0.3 million increase in expenses primarily associated with the acquisition of AMG on January 31, 2022 (and, thus, there were no corresponding general and administrative expenses by AMG included in our results of operations for the comparable period in 2021). As a percentage of sales, general and administrative costs decreased 260 basis points primarily due the higher sales volume in the second quarter of 2022.

 

Interest expense. The decrease in interest expense to $9,000 for the second quarter of 2022 from $21,000 from the same period last year was due to a decrease in debt levels as compared to the same period last year.

 

Income tax (expense) benefit. Income tax expense was approximately $1.2 million for the three months ended June 30, 2022 compared to an income tax benefit of $79,000 for the three months ended June 30, 2021. The income tax expense was primarily due to higher income before income taxes.

 

Net income. Net income was $0.7 million compared to $0.2 million in the same period last year.

 

 
20

 

Results of Operations for the Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021 (Unaudited)

 

Net sales

 

 

 

Six Months Ended

June 30,

 

 

Dollar

 

 

Percent

 

 

 

2022

 

 

2021

 

 

Change

 

 

Change

 

 

 

(dollars in thousands)

 

 

 

Hardware and software

 

$34,901

 

 

$20,721

 

 

$14,180

 

 

 

68.4%

Consumables

 

 

3,371

 

 

 

2,776

 

 

 

595

 

 

 

21.4%

Professional services

 

 

8,955

 

 

 

7,744

 

 

 

1,211

 

 

 

15.6%

 

 

$47,227

 

 

$31,241

 

 

$15,986

 

 

 

51.2%

 

Net sales increased by 51.2%, or $16.0 million, during the six months ended June 30, 2022 as compared to the same period of the prior year. The increase in net sales was primarily driven by two significant, unplanned equipment orders by two of our large enterprise customers and a $4.1 million increase in overall net sales associated with sales by AMG which we acquired on January 31, 2022 (and, thus, there were no corresponding sales by AMG included in our results of operations for the comparable period in 2021).

 

Cost of sales

 

 

 

Six Months Ended

June 30,

 

 

Dollar

 

 

Percent

 

 

 

2022

 

 

2021

 

 

Change

 

 

Change

 

 

 

(dollars in thousands)

 

 

 

Hardware and software

 

$27,907

 

 

$16,715

 

 

$11,192

 

 

 

67.0%

Consumables

 

 

2,383

 

 

 

1,942

 

 

 

441

 

 

 

22.7%

Professional services

 

 

5,935

 

 

 

5,250

 

 

 

685

 

 

 

13.1%

 

 

$36,225

 

 

$23,907

 

 

$12,318

 

 

 

51.5%

 

Cost of sales increased by 51.5%, or $12.3 million during the six months ended June 30, 2022 as compared to the same prior year period primarily due to higher hardware sales volume and a $2.7 million increase in overall cost of sales associated with cost of sales of AMG that we acquired on January 31, 2022 (and, thus, there were no corresponding costs of sales of AMG included in our results of operations for the comparable period in 2021).

 

Gross profit

 

 

 

Six Months Ended

June 30,

 

 

 

2022

 

 

2021

 

 

 

(dollars in thousands)

 

Gross profit:

 

 

 

 

 

 

Hardware and software

 

$6,994

 

 

$4,006

 

Consumables

 

 

988

 

 

 

834

 

Professional services

 

 

3,020

 

 

 

2,494

 

Total gross profit

 

$11,002

 

 

$7,334

 

 

 

 

 

 

 

 

 

 

Gross profit percentage:

 

 

 

 

 

 

 

 

Hardware and software

 

 

20.0%

 

 

19.3%

Consumables

 

 

29.3%

 

 

30.0%

Professional services

 

 

33.7%

 

 

32.2%

Total gross profit percentage

 

 

23.3%

 

 

23.5%

 

 
21

 

Gross profit increased $3.7 million for the six months ended June 30, 2022 as compared to the prior year period, primarily as a result of overall higher sales volume and the other impacts noted above. Overall gross profit margin decreased 20 basis points due to a shift in mix to hardware sales with lower profit margins.

 

Sales and marketing expenses

 

 

 

Six Months Ended

June 30,

 

 

Dollar

 

 

Percent

 

 

 

2022

 

 

2021

 

 

Change

 

 

Change

 

 

 

(dollars in thousands)

 

Sales and marketing expenses

 

$4,560

 

 

$3,799

 

 

$761

 

 

 

20.0%

As a percentage of sales

 

 

9.7%

 

 

12.2%

 

 

 

 

 

 

(2.5 )%

 

Sales and marketing expenses increased $0.8 million, or 20.0%, for the six months ended June 30, 2022 as compared to the prior year period primarily due to increased commissions on higher sales volume during the second quarter of 2022, combined with increased expenses for AMG operations that was acquired on January 31, 2022 (and, thus, there were no corresponding sales and marketing expenses of AMG included in our results of operations for the comparable period in 2021). As a percentage of sales, sales and marketing expenses decreased 250 basis points primarily due to the higher sales volume for the six months ended June 30, 2022.

 

General and administrative expenses

 

 

 

Six Months Ended

June 30,

 

 

Dollar

 

 

Percent

 

 

 

2022

 

 

2021

 

 

Change

 

 

Change

 

 

 

(dollars in thousands)

 

General and administrative expenses

 

$4,220

 

 

$3,094

 

 

$1,126

 

 

 

36.4%

As a percentage of sales

 

 

8.9%

 

 

9.9%

 

 

 

 

 

 

(1.0 )%

 

General and administrative expenses increased $1.1 million, or 36.4%, for the six months ended June 30, 2022 as compared to the same period of the prior year. The increase in these expenses was due to increased stock compensation expense, professional and accounting fees, and business insurance, and a $0.4 million increase in expenses associated with the acquisition of AMG on January 31, 2022 (and, thus, there were no corresponding general and administrative expenses by AMG included in our results of operations for the comparable period in 2021). As a percentage of sales, general and administrative costs increased 100 basis points primarily due to higher sales volume for the six months ended June 30, 2022.

 

Interest expense. The decrease in interest expense to $35,000 from $50,000 last year was due to a decrease in average debt balances as compared to the same period last year.

 

Gain on extinguishment of debt. We recorded a gain on extinguishment of debt of $1.2 million in the first half of 2021 in connection with the SBA’s forgiveness of the PPP Loans.

 

Income tax (expense) benefit. Income tax expense was approximately $0.6 million and $0.1 million for the six months ended June 30, 2022 and June 30, 2021, respectively. The higher income tax rate this period is associated with higher income before income taxes and in the prior year period, the PPP loan forgiveness was not subject to federal income tax.

 

Net income. Net income was $1.6 million compared to $1.5 million in the same period last year.

 

 
22

 

Liquidity and Capital Resources

 

As of June 30, 2022, our principal sources of liquidity were cash totaling $8.5 million and $9.0 million of availability under our line of credit. In recent years, we have financed our operations primarily through cash generated from operating activities, borrowings from term loans and our line of credit. In certain prior years, we generated operating losses and negative cash flows from operating activities as reflected in our accumulated deficit. We have generated operating income for each of the years ended December 31, 2018 through December 31, 2021. Based on our recent trends and our current projections, we expect to generate cash from operations for the year ending December 31, 2022. Given our projections, combined with our existing cash and credit facilities, we believe the Company has sufficient liquidity for at least the next 12 months.

 

Our ability to continue to meet our cash requirements will depend on, among other things, the effect of COVID-19 on U.S. and global economic activity, continuing disruptions in supply chains and labor shortages across industry sectors contributed to by the COVID-19 pandemic, the effects of inflation, our ability to achieve anticipated levels of revenues and cash flow from operations, our ability to manage costs and working capital successfully and the continued availability of financing, if needed. We cannot provide any assurance that our assumptions used to estimate our liquidity requirements will remain accurate due to, among other things, the unpredictability of the COVID-19 global pandemic and its effect on our company, customers and suppliers. Consequently, the duration of the pandemic and our estimates on the severity of the impact on our future earnings and cash flows could change and have a material impact on our results of operations and financial condition. In the event of a sustained market deterioration, and declines in net sales, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. We cannot provide any assurance that we will be able to obtain any additional sources of financing or liquidity on acceptable terms, or at all.

 

 Working Capital (Deficit)

 

 

 

June 30,

2022

 

 

December 31,

2021

 

 

Increase/

(Decrease)

 

 

 

(in thousands)

 

Current assets

 

$30,367

 

 

$19,334

 

 

$11,303

 

Current liabilities

 

 

32,587

 

 

 

18,352

 

 

 

14,235

 

Working capital (deficit)

 

(2,220 )

 

982

 

 

(3,202 )

 

The working capital deficit as of June 30, 2022 was primarily due to the cash paid for the acquisition of AMG. Deferred revenue increased at June 30, 2022 as compared to December 31, 2021 was due to an $8.7 million large enterprise retail customer order placed in January 2022, all of which was paid in cash as of June 30, 2022. The estimated cost to deliver this order is approximately $7.4 million.

 

Line of Credit

 

On July 30, 2021, we entered into a Loan and Security Agreement (the “Loan Agreement”) with MUFG Union Bank, National Association. The Loan Agreement provides for a revolving line of credit of up to $9.0 million with our obligations being secured by a security interest in substantially all of our assets. Loans extended to us under the Loan Agreement are scheduled to mature on July 31, 2024.

 

As of June 30, 2022, we were eligible to borrow up to $9.0 million, and had no outstanding borrowings under the line of credit.

 

EIDL Promissory Note

 

On August 27, 2020, we received $150,000 in connection with a promissory note from the SBA under the Economic Injury Disaster Loan (“EIDL”) program pursuant to the CARES Act. Under the terms of the EIDL promissory note, interest accrues on the outstanding principal at an interest rate of 3.75% per annum and with a term of 30 years with equal monthly payments of principal and interest of $731 that began on August 27, 2021.

 

 
23

 

Cash Flow Analysis

 

 

 

Six Months Ended

June 30,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Net cash provided by operating activities

 

$12,872

 

 

$2,491

 

Net cash used in investing activities

 

 

(5,620 )

 

 

(325 )

Net cash used in financing activities

 

 

(1,380

 

 

(1,204 )

Net increase in cash

 

$5,872

 

 

$962

 

 

Operating Activities

 

Net cash provided by operating activities increased to $12.9 million for the six months ended June 30, 2022 from $2.5 million for the six months ended June 30, 2021. The increase was primarily due to an increase in deferred revenue during the six months ended June 30, 2022.

 

Investing Activities

 

Net cash used in investing activities was $5.6 million for the six months ended June 30, 2022 which is comprised of cash payments in connection with the acquisition of AMG, the acquisition of the customer list and relationships of Boston Technologies, and capital expenditures of property and equipment. Net cash used in investing activities was $0.3 million for the six months ended June 30, 2021 which is comprised of cash payments delivered in the first half of 2021 in connection with the acquisition of ExtenData and purchases of capital expenditures of property and equipment.

 

Financing Activities

 

Net cash used in financing activities was $1.4 million for the six months ended June 30, 2022 due to the payment of employee taxes on the cashless exercise of employee stock options. Net cash used in financing activities was $1.2 million for the six months ended June 30, 2021, which was primarily comprised of payments on the line of credit.

 

Stock Issuances

 

For the six months ended June 30, 2022, certain employees exercised vested stock options previously granted under the 2014 Plan through a cashless exercise. The options exercised were net settled in satisfaction of the exercise price and employee share-based tax withholding. These shares were issued pursuant to an S-8 Registration Statement dated July 7, 2021 with respect to shares issuable pursuant to the 2014 Plan. The exercised options, utilizing a cashless exercise, are summarized in the following table:

 

Options 

exercised

 

 

Weighted

Average

Exercise

Price

 

 

Shares Net

Settled for

Exercise

 

 

Shares

Withheld

for Taxes

 

 

Net Shares

Issued

 

 

Weighted

Average

Share Price

 

 

Employee

Share-Based

Tax

Withholding

 

 

550,834

 

 

$3.48

 

 

 

194,681

 

 

 

142,479

 

 

 

213,674

 

 

$9.85

 

 

$1,403,191

 

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires the appropriate application of certain accounting policies, some of which require us to make estimates and assumptions about future events and their impact on amounts reported in our condensed consolidated financial statements. Since future events and their impact cannot be determined with absolute certainty, the actual results will inevitably differ from our estimates.

 

 
24

 

Acquisition of Advanced Mobile Group, LLC

 

We completed the acquisition of Advanced Mobile Group, LLC (“AMG”) for $5.1 million on January 31, 2022. We accounted for this transaction under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated, on a preliminary basis, to the assets acquired and liabilities assumed based on their respective estimated fair values, including identified intangible assets of $2.2 million and resulting goodwill of $1.9 million. Our preliminary fair value estimates of intangible assets were determined using valuation techniques based on estimates and assumptions used for similar intangible assets we acquired in connection with the acquisition of ExtenData in December 2020. As disclosed in Note 3 to the accompanying condensed consolidated financial statements, during the quarter ended June 30, 2022, management continued to refine its estimates of the fair value of assets acquired and liabilities assumed. Included in the purchase price of AMG, is contingent consideration of $0.5 million, subject to EBITDA results of AMG during each of the two years following the closing of the acquisition. We estimated the fair value of the contingent consideration based on the financial forecasts of AMG. The estimated fair values associated with the acquisition of AMG are subject to change during the measurement period which is not expected to exceed one year after the date of acquisition. Any adjustments to our preliminary purchase price allocation identified during the measurement period will be recognized in the period in which the adjustments are determined and recorded against goodwill.

 

For a description of other critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2021. Other than the acquisition of AMG, there have been no material changes to our critical accounting estimates since our Annual Report on Form 10-K for the year ended December 31, 2021.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Interest Rate Risk

 

We are subject to interest rate risk in connection with borrowings, if any, under our line of credit, which bears interest at variable rates. As of June 30, 2022, we had no outstanding borrowings under our credit facility.

 

Impact of Inflation

 

Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (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 our management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our evaluation of internal controls excluded an assessment of the internal control over financial reporting for AMG, a business that we acquired on January 31, 2022. We are currently in the process of conducting an assessment of AMG’s controls and procedures and will complete our assessment within one year. Based on the evaluation of our disclosure controls and procedures as of June 30, 2022, excluding an assessment of AMG’s internal control of financial reporting, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

 

Changes in Internal Control Over Financial Reporting

 

There were no material changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 
25

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The information contained in “Note 10: Contingencies” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q is incorporated by reference into this Item.

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this Quarterly Report on Form 10-Q, please refer to the section titled Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021 for a detailed discussion of certain risks that affect us.

 

Item 5. Other Information

 

On April 29, 2022, our common stock was authorized for listing on the NYSE American Stock Exchange, and, on May 5, 2022 our common stock began trading on that exchange under the ticker symbol “DPSI”.

 

Item 6. Exhibits

 

EXHIBIT INDEX

 

Exhibit

Number

 

Description

3.1

 

Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 filed on August 13, 2020)

 

 

 

3.2

 

Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on December 17, 2021)  

 

 

 

3.3

 

Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-1 filed on August 13, 2020)

 

 

 

  

 
26

 

Exhibit

Number

 

Description

10.1

 

2014 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 filed on July 8, 2021)

 

 

 

10.2

 

Membership Interest Purchase Agreement between DecisionPoint Systems, Inc. and various sellers dated January 31, 2022 ((incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on February 11, 2022)

 

 

 

21.1*

 

Subsidiaries of DecisionPoint Systems, Inc.

 

 

 

31.1*

 

Certification by the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2*

 

Certification by the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1*

 

Section 1350 Certification of Principal Executive Officer

 

 

 

32.2*

 

Section 1350 Certification of Principal Financial Officer

 

 

 

101.INS

 

Inline XBRL Instance Document.

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

 

104

 

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

  

*

Filed herewith

 

 
27

 

SIGNATURES

 

Under the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report was signed on behalf of the Registrant by the authorized person named below. 

 

 

DECISIONPOINT SYSTEMS, INC.

 

 

 

 

 

Dated: August 12, 2022

By:

/s/ Steve Smith

 

 

 

Name: 

Steve Smith

 

 

 

Title:

Chief Executive Officer

(Principal Executive Officer) and Director

 

 

 

 

 

 

Dated: August 12, 2022

By:

/s/ Melinda Wohl

 

 

 

Name: 

Melinda Wohl

 

 

 

Title:

Vice President Finance and Administration

(Principal Financial Officer and

Principal Accounting Officer)

 

 

 
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