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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2022

OR

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

For the transition period from                      to                   

Commission File No. 000-26408

Wayside Technology Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware

13-3136104

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

4 Industrial Way West, Suite 300, Eatontown, New Jersey 07724

(Address of principal executive offices)

(732) 389-8950

Registrant’s Telephone Number

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common stock, $.01 par value

WSTG

The NASDAQ Global Market

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 and 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

Smaller Reporting Company

Non-Accelerated Filer

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   

There were 4,461,645 outstanding shares of common stock, par value $.01 per share (“Common Stock”) as of May 5, 2022.

Table of Contents

Wayside Technology Group, Inc. and Subsidiaries

Table of Contents

 

 

Page

 

 

 

 

PART I FINANCIAL INFORMATION

 

 

 

 

Item 1

Financial Statements (unaudited)

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021

3

 

 

 

 

Condensed Consolidated Statements of Earnings for the three months ended March 31, 2022 and 2021 (unaudited)

4

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021 (unaudited)

5

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021 (unaudited)

6

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited)

7

 

Notes to Condensed Consolidated Financial Statements (unaudited)

8

 

 

Item 2.

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

20

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

29

 

 

 

Item 4.

Controls and Procedures

29

 

 

 

 

PART II OTHER INFORMATION

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

 

 

 

Item 6.

Exhibits, Financial Statement Schedules

30

 

 

SIGNATURES

32

 

2

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Wayside Technology Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

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

March 31,

December 31,

    

2022

    

2021

    

ASSETS

Current assets:

Cash and cash equivalents

$

37,047

$

29,272

Accounts receivable, net of allowance for doubtful accounts of $931 and $881, respectively

114,331

 

122,502

Inventory, net

1,742

 

2,022

Vendor prepayments and advances

760

661

Prepaid expenses and other current assets

4,372

 

4,871

Total current assets

158,252

 

159,328

Equipment and leasehold improvements, net

1,937

 

1,932

Goodwill

16,860

17,188

Other intangibles, net

9,597

9,950

Right-of-use assets, net

1,572

1,628

Accounts receivable-long-term, net

59

 

78

Other assets

417

 

459

Deferred income tax assets

76

 

189

Total assets

$

188,770

$

190,752

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

130,805

$

134,271

Lease liability, current portion

498

475

Total current liabilities

131,303

 

134,746

Lease liability, net of current portion

1,704

1,810

Deferred income tax liabilities

1,826

1,780

Non-current liabilities

28

Total liabilities

134,861

138,336

Commitments and contingencies

Stockholders’ equity:

Common stock, $.01 par value; 10,000,000 shares authorized; 5,284,500 shares issued: 4,447,053 and 4,424,672 shares outstanding, respectively

53

 

53

Additional paid-in capital

31,954

 

32,087

Treasury stock, at cost, 837,447 and 859,828 shares, respectively

(13,584)

 

(13,870)

Retained earnings

36,362

 

34,396

Accumulated other comprehensive loss

(876)

 

(250)

Total stockholders’ equity

53,909

 

52,416

Total liabilities and stockholders' equity

$

188,770

$

190,752

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

3

Table of Contents

Wayside Technology Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings

(Unaudited)

(Amounts in thousands, except per share data)

Three months ended

March 31,

    

2022

    

2021

    

Net sales

$

71,319

$

62,813

Cost of sales

 

59,338

 

51,970

Gross profit

 

11,981

 

10,843

Selling, general, and administrative expenses

 

8,249

 

8,412

Amortization and depreciation expense

357

399

Income from operations

 

3,375

 

2,032

Other income:

Interest, net

 

(10)

 

10

Foreign currency transaction gain (loss)

143

(91)

Income before provision for income taxes

 

3,508

 

1,951

Provision for income taxes

 

796

 

431

Net income

$

2,712

$

1,520

Income per common share-Basic

$

0.61

$

0.35

Income per common share-Diluted

$

0.61

$

0.35

Weighted average common shares outstanding — Basic

4,309

 

4,247

Weighted average common shares outstanding — Diluted

 

4,309

 

4,247

Dividends paid per common share

$

0.17

$

0.17

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

4

Table of Contents

Wayside Technology Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(Amounts in thousands)

Three months ended

March 31,

    

2022

    

2021

    

Net income

$

2,712

$

1,520

Other comprehensive (loss) income:

Foreign currency translation adjustments

 

(626)

 

1,040

Other comprehensive (loss) income

 

(626)

 

1,040

Comprehensive income

$

2,086

$

2,560

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

5

Table of Contents

Wayside Technology Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(Amounts in thousands, except share amounts)

Accumulated

Additional

Other

Common Stock

Paid-In

Treasury

Retained

Comprehensive

   

Shares

   

Amount

   

Capital

   

Shares

   

Amount

   

Earnings

   

(Loss) Income

   

Total

Balance at January 1, 2022

 

5,284,500

$

53

$

32,087

 

859,828

$

(13,870)

$

34,396

$

(250)

$

52,416

Net income

2,712

2,712

Translation adjustment

(626)

(626)

Dividends paid

(746)

(746)

Share-based compensation expense

369

369

Restricted stock grants (net of forfeitures)

(502)

(29,499)

502

Treasury shares repurchased

7,118

(216)

(216)

Balance at March 31, 2022

 

5,284,500

$

53

$

31,954

 

837,447

$

(13,584)

$

36,362

$

(876)

$

53,909

Accumulated

Additional

Other

Common Stock

Paid-In

Treasury

Retained

Comprehensive

   

Shares

   

Amount

   

Capital

   

Shares

   

Amount

   

Earnings

   

(Loss) Income

   

Total

Balance at January 1, 2021

 

5,284,500

53

31,962

 

922,503

(14,747)

28,191

(742)

$

44,717

Net income

1,520

1,520

Translation adjustment

1,040

1,040

Dividends paid

(750)

(750)

Share-based compensation expense

279

279

Restricted stock grants (net of forfeitures)

(883)

(52,190)

883

Treasury shares repurchased

2,990

(57)

(57)

Balance at March 31, 2021

 

5,284,500

$

53

$

31,358

 

873,303

$

(13,921)

$

28,961

$

298

$

46,749

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

6

Table of Contents

Wayside Technology Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

Three months ended

March 31,

    

2022

    

2021

    

Cash flows from operating activities

Net income

$

2,712

$

1,520

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

Depreciation and amortization expense

 

357

 

399

Provision for doubtful accounts

 

4

Deferred income tax expense

 

210

 

106

Share-based compensation expense

369

279

Amortization of discount on accounts receivable

(3)

(25)

Amortization of right-of-use assets

110

120

Change in fair value of contingent earn-out consideration

13

Changes in operating assets and liabilities:

Accounts receivable

 

8,059

 

(1,173)

Inventory

 

280

 

746

Prepaid expenses and other current assets

 

489

 

64

Vendor prepayments

(99)

(3,301)

Accounts payable and accrued expenses

 

(3,183)

 

9,887

Lease liability, net

(138)

(143)

Other assets and liabilities

 

64

 

(258)

Net cash and cash equivalents provided by operating activities

 

9,231

 

8,234

Cash flows from investing activities

Purchase of equipment and leasehold improvements

 

(177)

 

(123)

Vendor advances

(2,994)

Net cash and cash equivalents used in investing activities

 

(177)

 

(3,117)

Cash flows from financing activities

Purchase of treasury stock

 

(216)

 

(57)

Dividends paid

 

(746)

 

(750)

Net cash and cash equivalents used in financing activities

 

(962)

 

(807)

Effect of foreign exchange rate on cash and cash equivalents

 

(317)

 

89

Net increase in cash and cash equivalents

 

7,775

 

4,399

Cash and cash equivalents at beginning of period

 

29,272

 

29,348

Cash and cash equivalents at end of period

$

37,047

$

33,747

Supplementary disclosure of cash flow information:

Income taxes paid

$

145

$

130

Interest paid

$

10

$

11

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

7

Table of Contents

Wayside Technology Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2022

(Unaudited)

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

1.           Basis of Presentation:

The accompanying unaudited condensed consolidated financial statements of Wayside Technology Group, Inc. and its subsidiaries (collectively, the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, as permitted by the rules and regulation of the Securities and Exchange Commission, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete audited financial statements.

The preparation of these condensed consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, intangible assets, income taxes, stock-based compensation, evaluation of performance obligations and allocation of revenue to distinct items, contingencies and litigation. The Company bases its estimates on its historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In the opinion of the Company’s management, all adjustments that are of a normal recurring nature, considered necessary for fair presentation of the results for the periods presented, have been included in the accompanying condensed consolidated financial statements. The Company’s actual results may differ from these estimates under different assumptions or conditions. The unaudited condensed consolidated statements of earnings for the interim periods are not necessarily indicative of results for the full year. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K filed with the Securities Exchange Commission for the year ended December 31, 2021.

The consolidated financial statements include the accounts of Wayside Technology Group, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.

2.           Recently Issued Accounting Standards:

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” ("ASU 2016-13"). ASU 2016-13 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. In November 2019, FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).”  This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-13 on its Consolidated Financial Statements, particularly its recognition of allowances for accounts receivable.

3.         Foreign Currency Translation:

Assets and liabilities of the Company’s foreign subsidiaries have been translated using the end of the reporting period exchange rates, and related revenues and expenses have been translated at average rates of exchange in effect during the period. Foreign currency transaction gains and losses are recorded as income or expenses as amounts are settled. The net sales from our foreign operations for the three months ended March 31, 2022 and 2021 were $15.7 million and $16.7 million, respectively.

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4.          Comprehensive Income:

Cumulative translation adjustments have been classified within accumulated other comprehensive loss, which is a separate component of stockholders’ equity in accordance with FASB ASC Topic 220, “Comprehensive Income.”

5.          Revenue Recognition:

The Company’s revenues primarily result from the sale of various technology products and services, including third-party products, third-party software and third-party maintenance, software support and services. The Company recognizes revenue as control of the third-party products and third-party software is transferred to customers, which generally happens at the point of shipment or fulfilment and at the point that our customers and vendors accept the terms and conditions of the arrangement for third-party maintenance, software support and services.

The Company has contracts with certain customers where the Company’s performance obligation is to arrange for the products or services to be provided by another party. In these arrangements, as the Company assumes an agency relationship in the transaction, revenue is recognized in the amount of the net fee associated with serving as an agent. These arrangements primarily relate to third party maintenance, cloud services and certain security software whose intended functionality is dependent on third party maintenance.

The Company allows its customers to return product for exchange or credit subject to certain limitations. A liability is recorded at the time of sale for estimated product returns based upon historical experience and an asset is recognized for the amount expected to be recorded in inventory upon product return. The Company also provides rebates and other discounts to certain customers which are considered variable consideration. A provision for customer rebates and other discounts is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience.

The Company considers shipping and handling activities as costs to fulfill the sales of products. Shipping revenue is included in net sales when control of the product is transferred to the customer, and the related shipping and handling costs are included in cost of products sold. Taxes imposed by governmental authorities on the Company’s revenue producing activities with customers, such as sales taxes and value added taxes, are excluded from net sales.

The Company disaggregates its operating revenue by segment, geography and timing of revenue recognition, which the Company believes provides a meaningful depiction of the nature of its revenue. See segment Note 15.

Hardware and software products sold by the Company are generally delivered via shipment from the Company’s facilities, drop shipment directly from the vendor, or by electronic delivery of keys for software products. The majority of the Company’s business involves shipments directly from its vendors to its customers. In these transactions, the Company is generally responsible for negotiating price both with the vendor and customer, payment to the vendor, establishing payment terms with the customer, product returns, and has risk of loss if the customer does not make payment. As the principal with the customer, the Company recognizes revenue upon receiving notification from the vendor that the product was shipped. Control of software products is deemed to have passed to the customer when they acquire the right to use or copy the software under license as substantially all product functionality is available to the customer at the time of sale.

The Company performs an analysis of the number of days of sales in-transit to customers at the end of each reporting period based on an analysis of commercial delivery terms that include drop-shipment arrangements. This analysis is the basis upon which the Company estimates the amount of net sales in-transit at the end of the period and adjusts revenue and the related costs to reflect only what has been delivered to the customer. Changes in delivery patterns may result in a different number of business days estimated to make this adjustment. The Company also performs a weighted average analysis of the estimated number of days between order fulfillment and beginning of the renewal term for term licenses recorded on a gross basis, and a deferral estimate is recorded for term license renewals fulfilled prior to commencement date.

Generally, software products are sold with accompanying third-party delivered software assurance, which is a product that allows customers to upgrade, at no additional cost, to the latest technology if new capabilities are introduced during the period that the software assurance is in effect. The Company evaluates whether the software assurance is a separate performance obligation by assessing if the third-party delivered software assurance is critical or essential to the core functionality of the software itself. This involves considering if the software provides its original intended functionality to the customer without the updates, if the customer would ascribe a higher value to the upgrades versus the up-front deliverable, if the customer would expect frequent intelligence updates to the software (such as updates that maintain the original functionality), and if the customer chooses to not delay or always install upgrades. If the Company determines that the accompanying third-party delivered software assurance is critical or essential to the core functionality of the software license,

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the software license and the accompanying third-party delivered software assurance are recognized as a single performance obligation. The value of the product is primarily the accompanying support delivered by a third party and therefore the Company is acting as an agent in these transactions and recognizes them on a net basis at the point the associated software license is delivered to the customer. The Company sells cloud computing solutions that utilize third-party vendors to enable customers to access data center functionality in a cloud-based solution, including storage, computing and networking and access to software in the cloud that enhances office productivity, provides security or assists in collaboration. The Company recognizes revenue for cloud computing solutions for arrangements with one-time invoicing to the customer at the time of invoice on a net basis as the Company is acting as an agent in the transaction. For monthly subscription-based arrangements, the Company is acting as an agent in the transaction and recognizes revenue as it invoices the customer for its monthly usage on a net basis. For software licenses where the accompanying third-party delivered software assurance is not critical or essential to the core functionality, the software assurance is recognized as a separate performance obligation, with the associated revenue recognized on a net basis at the point the related software license is delivered to the customer.

The Company also sells some of its products and services as part of bundled contract arrangements containing multiple deliverables, which may include a combination of products and services. For each deliverable that represents a distinct performance obligation, total arrangement consideration is allocated based upon the standalone selling prices (“SSP”) of each performance obligation. SSP is determined based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through established standard prices, we use judgement and estimate the standalone selling price considering available information such as market pricing and pricing related to similar products.

The Company records freight billed to its customers as net sales and the related freight costs as cost of sales when the underlying product revenue is recognized. For freight not billed to its customers, the Company records the freight costs as cost of sales. The Company’s typical shipping terms result in shipping being performed before the customer obtains control of the product. The Company considers shipping to be a fulfillment activity and not a separate performance obligation.

The Company pays commissions and related payroll taxes to sales personnel when customers are invoiced. These costs are recorded as selling general and administrative expenses in the period earned as all our performance obligations are complete within a short window of processing the order.

6.            Goodwill and Other Intangible Assets:

The following table summarizes the changes in the carrying amount of goodwill for the three months ended March 31, 2022:

Balance at January 1, 2022

$

17,188

Translation adjustments

(328)

Balance March 31, 2022

$

16,860

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

As of March 31, 2022

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Customer and vendor relationships

$

10,405

$

1,265

$

9,140

Trade name

504

47

457

Total

$

10,909

$

1,312

$

9,597

As of December 31, 2021

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Customer and vendor relationships

$

10,550

$

1,079

$

9,471

Trade name

519

40

479

Total

$

11,069

$

1,119

$

9,950

Customer relationships are amortized over thirteen years. Vendor relationships are amortized between eleven and fifteen years. Trade name is amortized over fifteen years. Non-compete is amortized over one year.

During the three months ended March 31, 2022 and 2021, the Company recognized total amortization expense for other intangibles, net of $0.2 million, respectively.

Estimated future amortization expense of the Company’s other intangibles, net as of March 31, 2022 is as follows:

2022 (excluding the three months ended March 31, 2022)

    

$

603

2023

 

804

2024

 

804

2025

 

804

2026

 

804

Thereafter

 

5,778

Total

$

9,597

7.            Right-of-use Asset and Lease Liability:

The Company has entered into operating leases for office and warehouse facilities, which have terms at lease commencement that range from 2 years to 11 years. The Company determines if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets and lease expense for these leases is recognized on a straight-line basis over the lease term.

Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease based on the present value of the lease payments over the lease term. As our leases do not provide a readily determinable implicit rate, we use an incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments. The operating lease asset also includes any lease payments made and excludes lease incentives. Operating lease expense is recognized on a straight-line basis over the lease term and included in selling, general and administrative expenses.

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Information related to the Company’s ROU assets and related lease liabilities were as follows:

Three months ended

March 31,

2022

2021

Cash paid for operating lease liabilities

$

157

$

159

Right-of-use assets obtained in exchange for new operating lease obligations

$

63

$

38

Weighted-average remaining lease term

4.8 years

5.8 years

Weighted-average discount rate

3.4%

3.5%

Maturities of lease liabilities as of March 31, 2022 were as follows:

2022 (excluding the three months ended March 31, 2022)

    

$

431

2023

 

629

2024

 

545

2025

 

552

2026

 

550

Thereafter

 

125

2,832

Less: imputed interest

(630)

Total lease liabilities

$

2,202

Lease liabilities, current portion

498

Lease liabilities, net of current portion

1,704

Total lease liabilities

$

2,202

8.            Fair Value:

The carrying amounts of financial instruments, including cash and cash equivalents, short-term accounts receivable and accounts payable approximated fair value at March 31, 2022 and December 31, 2021 because of the relative short maturity of these instruments. The Company’s accounts receivable long-term are discounted to their present value at prevailing market rates at the time of sale.

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9.           Balance Sheet Detail:

Equipment and leasehold improvements consist of the following:

    

March 31,

December 31,

2022

    

2021

Equipment

$

2,665

$

2,627

Capitalized software

801

816

Leasehold improvements

 

1,874

 

1,762

 

5,340

 

5,205

Less accumulated depreciation and amortization

 

(3,403)

 

(3,273)

$

1,937

$

1,932

During the three months ended March 31, 2022 and 2021, the Company recorded depreciation and amortization expense of $0.1 million and $0.3 million, respectively.

In limited circumstances, the Company offers extended payment terms to customers for periods of 12 to 36 months. The related customer receivables are classified as accounts receivable long-term and discounted to their present value at prevailing market rates at the time of sale. In subsequent periods, the accounts receivable is increased to the amounts due and payable by the customers through the accretion of interest income on the unpaid accounts receivable due in future years. The amounts under these long-term accounts receivable due within one year are reclassified to the current portion of accounts receivable. At times the Company sells receivables to a financial institution on a non-recourse basis for cash, less a discount. The net proceeds from such sales are included in the operating section of the statement of cash flows as changes in accounts receivable. Accounts receivable long term, net consists of the following:

March 31,

December 31,

2022

    

2021

Total amount due from customer

$

158

$

484

Less: unamortized discount

 

(5)

 

(8)

Less: current portion included in accounts receivable

 

(94)

 

(398)

$

59

$

78

The undiscounted cash flows to be received by the Company relating to these accounts receivable long-term is expected to be $0.1 million during each of the 12-month periods ending March 31, 2023 and 2024, respectively.

Accounts payable and accrued expenses consist of the following:

    

March 31,

December 31,

2022

    

2021

    

Trade accounts payable

$

123,537

$

125,908

Accrued expenses

 

7,268

 

8,363

$

130,805

$

134,271

10.            Credit Facility:

On November 15, 2017, the Company entered into a $20,000,000 revolving credit facility (the “Credit Facility”) with Citibank, N.A. (“Citibank”) pursuant to a Second Amended and Restated Revolving Credit Loan Agreement (the “Loan Agreement”), Second Amended and Restated Revolving Credit Loan Note (the “Note”), Second Amended and Restated Security Agreement and Second Amended and Restated Pledge and Security Agreement. On August 31, 2020, the Company entered into an amendment to the Credit Facility (the “Amended Credit Facility”) pursuant to a First Amendment to Second Amended and Restated Revolving Credit Loan Agreement and Other Loan Documents (collectively, the “Amended Loan Agreement”) and First Allonge to Second Amended and Restated Revolving Credit Loan Note (the “Amended Note”).

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The Amended Credit Facility, which will continue to be used for working capital and general corporate purposes, matures on June 30, 2023, at which time the Company must pay all outstanding principal of all outstanding loans plus all accrued and unpaid interest, and any fees, costs and expenses. In addition, the Company will pay regular monthly payments of all accrued and unpaid interest. The interest rate for any borrowings under the Amended Credit Facility is subject to change from time to time based on the changes in the LIBOR Rate, as defined in the Amended Loan Agreement, with the LIBOR Rate not to be less than 0.75 percentage points. Interest on the unpaid principal balance of the Amended Note will be calculated using a rate of 1.75 percentage points over the Index. If the Index becomes unavailable during the term of the Amended Credit Facility, interest will be based upon the Benchmark Replacement (as defined in the Amended Loan Agreement) selected by Citibank after notifying the Company. The Amended Credit Facility is secured by the assets of the Company.

Among other affirmative covenants set forth in the Loan Agreement, which were not amended as part of the Amended Credit Facility, the Company must maintain (i) a minimum Debt Service Coverage Ratio (as defined in the Loan Agreement) of not less than 2.0 to 1.0, (ii) a maximum Leverage Ratio (as defined in the Loan Agreement) of at least 2.5 to 1.0, and (iii) a minimum Collateral Coverage Ratio (as defined in the Loan Agreement) of not less than 1.5 to 1.0. Additionally, the Loan Agreement contains negative covenants, which were not amended as part of the Amended Credit Facility, prohibiting, among other things, the creation of certain liens, the alteration of the nature or character of the Company’s business, and transactions with the Company’s shareholders, directors, officers, subsidiaries and/or affiliates other than with respect to (i) the repurchase of the issued and outstanding capital stock of the Company from the stockholders of the Company or (ii) the declaration and payment of dividends to the stockholders of the Company. The Company was in compliance with all such covenants at March 31, 2022 and December 31, 2021.

At March 31, 2022 and December 31, 2021, the Company had no borrowings outstanding under the Credit Facility.

On April 13, 2021, Wayside Technology UK Holdings Limited (“Wayside UK”), a wholly-owned subsidiary of the Company, entered into an uncommitted short term credit facility of £8,000,000 (“Uncommitted Credit Facility”) with Citibank N.A., London Branch (“Citibank London”) pursuant to certain terms and conditions. Obligations under the Uncommitted Credit Facility are guaranteed by the Company and will be used for working capital and general corporate purposes and have a maturity date of April 13, 2023, at which time Wayside UK must pay all outstanding principal of all outstanding loans plus all accrued and unpaid interest, and any interest, fees, costs and expenses, if any.

Interest on the unpaid principal balance of the Uncommitted Credit Facility will be calculated using a rate of 1.85 percentage points over the Daily Rate, as defined in the Uncommitted Credit Facility. Amounts borrowed under the Uncommitted Credit Facility will be guaranteed by the Company.   The Uncommitted Credit Facility may be cancelled at any time by Citibank London.  Citibank London has the sole discretion to accept or reject any requested utilization of the Uncommitted Credit Facilitation.

At March 31, 2022 and December 31, 2021, Wayside UK had no borrowings outstanding under the Uncommitted Credit Facility.

11.          Earnings Per Share:

Our basic and diluted earnings per share are computed using the two-class method in accordance with ASC 260. The two-class method is an earnings allocation that determines net income per share for each class of common stock and participating securities according to their participation rights in dividends and undistributed earnings or losses. Non-vested restricted stock awards that include non-forfeitable rights to dividends are considered participating securities. Per share amounts are computed by dividing net income available to common shareholders by the weighted average shares outstanding during each period. Diluted and basic earnings per share are the same because the restricted shares are the only potentially dilutive security.

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

Three months ended March 31,

    

2022

    

2021

Numerator:

Net income

$

2,712

$

1,520

Less distributed and undistributed income allocated to participating securities

70

52

Net income attributable to common shareholders

2,642

1,468

Denominator:

 

 

Weighted average common shares (Basic)

4,309

 

4,247

 

 

Weighted average common shares including assumed conversions (Diluted)

4,309

 

4,247

Basic net income per share

$

0.61

$

0.35

Diluted net income per share

$

0.61

$

0.35

12.        Major Customers and Vendors:

The Company had two major vendors that accounted for 22% and 10%, respectively, of total purchases during the three months ended March 31, 2022 and 24% and 9%, respectively, of total purchases during the three months ended March 31, 2021.

The Company had two major customers that accounted for 24% and 14%, respectively, of its net sales during the three months ended March 31, 2022 and 20% and 13%, respectively, of its net sales during the three months ended March 31, 2021. These same customers accounted for 20% and 17%, respectively, of total net accounts receivable as of March 31, 2022 and 18% and 22%, respectively, of total net accounts receivable as of December 31, 2021.

13.          Income Taxes:

The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. The Company believes that it has appropriate support for the income tax positions it takes and expects to take on its tax returns, and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

14.          Stockholders’ Equity and Stock Based Compensation:

The 2021 Omnibus Incentive Plan (the “2021 Plan”) authorizes the grant of Stock Options, Stock Units, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Bonuses and other equity-based awards. The 2021 Plan was approved by the Company’s stockholders at the 2021 Annual Meeting in June 2021. The total number of shares of the Company’s common stock, par value $0.01 per share (“Common Stock”) initially available for award under the 2021 Plan was 500,000 shares. As of March 31, 2022, the number of shares of Common Stock available for future award grants to employees, officers and directors under the 2021 Plan is 418,544.

The 2012 Stock-Based Compensation Plan (the “2012 Plan”) authorizes the grant of Stock Options, Stock Units, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Bonuses and other equity-based awards. The total number of shares of the Company’s Common Stock initially available for award under the 2012 Plan was 600,000, which was increased to 1,000,000 shares by stockholder approval at the Company’s 2018 Annual Meeting in June 2018. Immediately prior to the replacement of the 2012 Plan by the 2021 Plan, there were 352,158 shares of Common Stock

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available under the 2012 Plan. The 2012 Plan has been replaced by the 2021 Plan and none of the remaining shares of Common Stock authorized under the 2012 Plan will be transferred to or used under the 2021 Plan nor will any awards under the 2012 Plan that are forfeited increase the shares available for awards under the 2021 Plan. As of March 31, 2022, the number of shares of Common Stock available under the 2012 Plan is zero.

During the three months ended March 31, 2022, the Company granted a total of 30,999 shares of Restricted Stock to officers. These shares of Restricted Stock vest over time in sixteen equal quarterly installments. During the three months ended March 31, 2022, a total of 1,500 shares of Restricted Stock were forfeited.

During the three months ended March 31, 2021, the Company granted a total of 52,190 shares of Restricted Stock to officers. These shares of Restricted Stock vest over time in sixteen equal quarterly installments.

A summary of nonvested shares of Restricted Stock awards outstanding under the 2012 and 2021 Plans as of March 31, 2022, and changes during the three months then ended is as follows:

Weighted

 

Average Grant

Date

 

Shares

Fair Value

 

Nonvested shares at January 1, 2022

 

122,102

$

18.35

Granted in 2022

 

30,999

 

30.10

Vested in 2022

 

(17,027)

 

18.37

Forfeited in 2022

 

(1,500)

 

25.84

Nonvested shares at March 31, 2022

 

134,574

$

20.97

As of March 31, 2022, there is approximately $2.6 million of total unrecognized compensation costs related to nonvested share-based compensation arrangements. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 3.0 years.

During the three months ended March 31, 2022 and 2021, the Company recognized share-based compensation expense of $0.4 million and $0.3 million, respectively.

15.          Segment Information:

The Company distributes software developed by others through resellers indirectly to customers worldwide.  We also resell computer software and hardware developed by others and provide technical services directly to customers worldwide.

FASB ASC Topic 280, “Segment Reporting,” requires that public companies report profits and losses and certain other information on their “reportable operating segments” in their annual and interim financial statements. The internal organization used by the public company’s Chief Operating Decision Maker (CODM) to assess performance and allocate resources determines the basis for reportable operating segments. The Company’s CODM is the Chief Executive Officer.

The Company is organized into two reportable operating segments. The “Distribution” segment distributes technical software to corporate resellers, value added resellers (VARs), consultants and systems integrators worldwide. The “Solutions” segment is a cloud solutions provider and value-added reseller of software, hardware and services to customers worldwide.

As permitted by FASB ASC Topic 280, the Company has utilized the aggregation criteria in combining its operations in Canada, Europe and the United Kingdom with the domestic segments as the international operations provide the same products and services to similar clients and are considered together when the Company’s CODM decides how to allocate resources.

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Segment income is based on segment revenue less the respective segment’s cost of revenues as well as segment direct costs (including such items as payroll costs and payroll related costs, such as profit sharing, incentive awards and insurance) and excluding general and administrative expenses not attributed to an individual segment business unit. The Company only identifies accounts receivable, vendor prepayments and inventory by segment as shown below as “Selected Assets” by segment; it does not allocate its other assets, including capital expenditures by segment. The following segment reporting information of the Company is provided:

Three months ended

March 31,

  

2022

  

2021

Net Sales:

Distribution

$

65,784

$

54,820

Solutions

 

5,535

 

7,993

 

71,319

 

62,813

Gross Profit:

Distribution

$

9,593

$

7,874

Solutions

 

2,388

 

2,969

 

11,981

 

10,843

Direct Costs:

Distribution

$

3,664

$

3,913

Solutions

 

1,138

 

1,408

 

4,802

 

5,321

Segment Income Before Taxes: (1)

Distribution

$

5,929

$

3,961

Solutions

 

1,250

 

1,561

Segment Income Before Taxes

 

7,179

 

5,522

General and administrative

$

3,447

$

3,091

Amortization and depreciation expense

357

399

Interest, net

(10)

10

Foreign currency transaction gain (loss)

 

143

 

(91)

Income before taxes

$

3,508

$

1,951

(1) Excludes general corporate expenses including interest and foreign currency transaction gain (loss).

    

    

    

As of

As of 

March 31,

December 31,

Selected Assets by Segment:

2022

2021

Distribution

$

123,762

$

133,506

Solutions

 

19,586

 

18,895

Segment Select Assets

 

143,348

 

152,401

Corporate Assets

 

45,422

 

38,351

Total Assets

$

188,770

$

190,752

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Geographic areas and net sales mix related to operations for the three months ended March 31, 2022 and 2021 were as follows. Revenue is allocated to a geographic area based on the location of the sale, which is generally the customer’s country of domicile.

    

Three months ended

    

March 31, 2022

Distribution

  

Solutions

Total

Geography

              

              

USA

$

53,116

$

2,512

$

55,628

Europe and United Kingdom

 

7,437

 

2,557

 

9,994

Canada

 

5,231

 

466

 

5,697

Total net sales

$

65,784

$

5,535

$

71,319

Timing of Revenue Recognition

              

              

Transferred at a point in time where the Company is principal (1)

$

59,140

$

4,010

$

63,150

Transferred at a point in time where the Company is agent (2)

 

6,644

 

1,525

 

8,169

Total net sales

$