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 note 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, 2022.
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 months ended March 31, 2023 are not necessarily indicative of results to be expected for the full fiscal
year.
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.
Inventory
Inventory
consists solely of finished goods and is stated at the lower of cost or net realizable value. Cost is determined under the first-in,
first-out (FIFO) method. We periodically review our inventory and make provisions as necessary for estimated obsolete and slow-moving
goods. The creation of such provisions results in reduction of inventory to net realizable value and a charge to cost of sales. Inventories
are reflected in the accompanying condensed consolidated balance sheets net of a valuation allowance of $87,000 and $42,000 as of March
31, 2023 and December 31, 2022, respectively.
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 26.7% for the three months ended March 31, 2023 and (291.3%)
for the three months ended March 31, 2022.
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 three months ended March 31, 2023, we recorded no income tax benefit nor deferred tax asset
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. For the three
months ended March 31, 2022, we had recorded an income tax benefit of $0.7 million related to the non-taxable PPP loan forgiveness, which
is not taxable at the federal level, but may be at the state level.
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
have an operating lease for the office and warehouse space in Laguna Hills, California. Pursuant to the lease agreement, the base rent
of $39,778 per month began on June 1, 2022 and increases 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, net of the sublease.
In connection with this lease agreement, we entered into a sublease agreement for a portion of the Laguna Hills office and warehouse
location, in which we receive $24,254 per month commencing in February 2022 with a sublease expiration of October 31, 2023.
We
also have operating leases for office space in Delray Beach, Florida, Southbury, Connecticut, and Doylestown, Pennsylvania with various
fixed minimum monthly payments totaling $5,840. These leases have a combined operating lease liability of $0.1 million and operating
lease assets of $0.1 million.
At
March 31, 2023, the total operating lease liability was $3.1 million and the total operating lease asset was $2.6 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 March 31, 2023, the total aggregate transaction price allocated to the unsatisfied performance obligations was approximately $16.7
million, of which approximately $12.2 million is expected to be recognized over the next 12 months.
As
of December 31, 2022, the total aggregate transaction price allocated to the unsatisfied performance obligations was approximately $10.4
million.
The
following tables summarizes the deferred revenue activity for the three months ending March 31, 2023 (in thousands):
Beginning balance at December 31, 2022 | |
$ | 10,352 | |
Additions | |
| 14,958 | |
Revenue recognized from beginning of period | |
| (2,817 | ) |
Revenue recognized from additions | |
| (5,747 | ) |
Ending balance at March 31, 2023 | |
$ | 16,746 | |
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 March 31, 2023 and December 31, 2022, we deferred $0.4 million
and $0.2 million, respectively, of related contract acquisition costs
The
following table summarizes net sales by revenue source (in thousands):
| |
Three Months Ended
March 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Hardware and software | |
$ | 20,540 | | |
$ | 14,300 | |
Consumables | |
| 1,626 | | |
| 1,280 | |
Professional services | |
| 4,873 | | |
| 4,141 | |
| |
$ | 27,039 | | |
$ | 19,721 | |
Recently
Adopted Accounting Standards
In
September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments. This ASU requires 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, deferred 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. The Company adopted this accounting update in the first quarter of 2023 on a prospective basis. The adoption of this ASU
did not have a material impact on the Company’s condensed 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 was comprised of cash of $4.6 million,
of which $4.4 million was paid during the year ended December 31, 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
the fourth quarter of 2022, we finalized 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. Relative to the provisional amounts recorded
as of March 31, 2022, 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) $0.5 million decrease in customer lists and relationships, (ii) a $0.1 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, (vi) a $0.9 million decrease in deferred tax assets and (vii) a $1.4 million increase in goodwill.
As
of December 31, 2022, the allocation of the total consideration to the estimated fair value of acquired net assets as of the acquisition
date for AMG was as follows (in thousands):
Cash | |
$ | 170 | |
Accounts receivable | |
| 1,402 | |
Inventory | |
| 129 | |
Prepaids and other current assets | |
| 123 | |
Customer lists and relationships | |
| 1,930 | |
Trade name | |
| 360 | |
Backlog | |
| 280 | |
Developed technology | |
| 70 | |
Accounts payable | |
| (558 | ) |
Accrued expenses | |
| (152 | ) |
Deferred tax liabilities | |
| (897 | ) |
Deferred revenue | |
| (148 | ) |
Total fair value excluding goodwill | |
| 2,709 | |
Goodwill | |
| 2,371 | |
Total consideration | |
$ | 5,080 | |
The
estimated useful lives of intangible assets recorded related to the AMG acquisition are as follows:
| |
| 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):
| |
March 31, 2023 | | |
December 31, 2022 | |
| |
Gross Amount | | |
Accumulated Amortization | | |
Net Amount | | |
Gross Amount | | |
Accumulated Amortization | | |
Net Amount | |
Customer lists and relationships | |
$ | 7,940 | | |
$ | (4,188 | ) | |
$ | 3,752 | | |
$ | 7,940 | | |
$ | (3,850 | ) | |
$ | 4,090 | |
Trade names | |
| 1,360 | | |
| (1,037 | ) | |
| 323 | | |
| 1,360 | | |
| (973 | ) | |
| 387 | |
Developed technology | |
| 140 | | |
| (93 | ) | |
| 47 | | |
| 140 | | |
| (86 | ) | |
| 54 | |
Backlog | |
| 340 | | |
| (340 | ) | |
| - | | |
| 340 | | |
| (340 | ) | |
| - | |
| |
$ | 9,780 | | |
$ | (5,658 | ) | |
$ | 4,122 | | |
$ | 9,780 | | |
$ | (5,249 | ) | |
$ | 4,531 | |
Amortization
expense recognized during the three ended March 31, 2023 and 2022 was $0.4 million and $0.3 million, respectively. Amortization expense
is primarily 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.
Below
is a reconciliation of the fully dilutive securities effect for the three months ended March 31, 2023 and 2022 (in thousands, except
per share data):
| |
2023 | | |
2022 | |
Net income attributable to common stockholders | |
$ | 866 | | |
$ | 854 | |
| |
| | | |
| | |
Weighted average basic shares outstanding | |
| 7,417 | | |
| 7,104 | |
Dilutive effect of stock options and restricted stock | |
| 372 | | |
| 560 | |
Weighted average shares for diluted earnings per share | |
| 7,789 | | |
| 7,664 | |
| |
| | | |
| | |
Basic income per share | |
$ | 0.12 | | |
$ | 0.12 | |
Diluted income per share | |
$ | 0.11 | | |
$ | 0.11 | |
Note
6: Line of Credit
Our
Loan and Security Agreement (the “Loan Agreement”) with MUFG Union Bank, National Association (the “Bank”), as amended, provides for a revolving line of credit of up to $10.0 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 currently scheduled to
mature on July 31, 2026. Effective March 27, 2023, we entered into an amendment letter (“Amendment”) with the Bank that
served to amend certain terms of the Loan Agreement and increased the revolving line of credit available to us from $9.0 million to
$10.0 million. The Amendment also served to modify certain covenants in the original agreement. On March 31, 2023, we drew down $7.0
million (see Note 11) of this facility and amounts borrowed under this credit facility are evidenced, and governed, by the terms of
a commercial promissory note in favor of the Bank.
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 Term secured overnight financing rate as administered by the Federal Reserve Bank of New York (“SOFR”) 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,
commencing April 30, 2023. The interest rate on the loans adjusts at the end of each SOFR rate period (1, 3, or 6 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 March 31, 2023, the effective interest rate was 7.8%. 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 $10.0 million.
Covenants
Under
the Loan Agreement, as amended by the Amendment, we are subject to a variety of customary affirmative and negative covenants, including
that we (i) maintain a ratio of total debt to EBITDA of not greater than 3.0:1.0 measured at the end of each quarter, (ii) maintain a
fixed charge coverage ratio of not less than 1.35:1.00 to be measured as of the end of each fiscal quarter, and (iii) submit a pro-forma
statement in advance showing compliance and overall satisfactory metrics post acquisition should the Company use any loan under the
Loan Agreement for any acquisition with a purchase price in excess of $1,500,000. 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.
As
of March 31, 2023 we were in compliance with all of our covenants, were eligible to borrow up to $3.0 million, and had $7.0 million in
outstanding borrowings under the line of credit.
Note
7: Term Debt
MUFG
Promissory Note
We
entered into a $5.0 million unsecured promissory note agreement, effective March 27, 2023, with the Bank. Principal and interest payments
on this note are due in quarterly installments of $250,000 on the last day of each quarter commencing June 30, 2023, with an interest
rate based on Term SOFR plus 2.5% (secured overnight financing rate) as administered by the Federal Reserve Bank of New York, which was
7.8% at March 31, 2023.This note matures March 31, 2028.
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 March 31, 2023 and December 31, 2022, 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 March 31, 2023, 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.
Warrants
The
following table summarizes information about our outstanding common stock warrants as of March 31, 2023:
| |
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 | | |
| 207,665 | | |
$ | 208 | | |
| | |
Warrants - Common Stock | |
| Oct-18 | | |
| Oct-23 | | |
| 1.40 | | |
| 21,000 | | |
| 29 | | |
| | |
| |
| | | |
| | | |
| | | |
| 228,665 | | |
$ | 237 | | |
$ | 1.04 | |
Note
9: Share-Based Compensation
Under
our amended 2014 Plan 1,600,000 shares of our common stock are reserved for issuance under the 2014 Plan
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 cannot 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 three months ended March 31, 2023:
| |
Stock Options | | |
Grant Date
Weighted
Average
Exercise Price | | |
Weighted
Average
Remaining
Contractual
Life | | |
Aggregate
Intrinsic
Value | |
| |
| | |
| | |
(in years) | | |
($ in thousands) | |
Outstanding at December 31, 2022 | |
| 458,957 | | |
$ | 4.08 | | |
| | | |
| | |
Granted | |
| 36,000 | | |
| 7.76 | | |
| | | |
| | |
Forfeited or expired | |
| - | | |
| | | |
| | | |
| | |
Exercised | |
| (1,457 | ) | |
| 4.15 | | |
| | | |
| | |
Outstanding at March 31,
2023 | |
| 493,500 | | |
$ | 4.35 | | |
| 2.64 | | |
$ | 1,308 | |
Exercisable at March 31,
2023 | |
| 352,884 | | |
$ | 4.53 | | |
| 2.60 | | |
$ | 1,142 | |
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 three months ended March 31, 2023 were estimated using the Black-Scholes option-pricing model with the following assumptions:
Weighted average grant-date fair value per option granted | |
$ | 7.76 | |
Expected option term in years | |
| 2.5 | |
Expected volatility factor | |
| 74.0 | % |
Risk-free interest rate | |
| 4.18 | % |
Expected annual dividend yield | |
| 0.0 | % |
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 March 31, 2023, there was $0.2 million of total unrecognized share-based compensation related to unvested stock options. These costs
have a weighted average remaining recognition period of 1.6 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
One
customer accounted for 20% of consolidated revenue during the three months ended March 31, 2023, and only two customers accounted for more than 10% of consolidated revenue during the three months ended March 31, 2022. Trade accounts receivable from one customer represented
49% of net consolidated receivables at March 31, 2023 and trade accounts receivable from two customers represented approximately 20% and
14% of net consolidated receivables at March 31, 2022.
Three
vendors accounted for 33%, 26%, and 22% of all consolidated purchases during the three months ended March 31, 2023. For the prior
year period, these same vendors accounted for 33%, 27% and 10% of all consolidated purchases for the three months ended March 31, 2022.
No other vendor accounted for more than 10% of purchases during the three months ended March 31, 2023 and 2022.
As
of March 31, 2023, three vendors accounted for 35%, 29% and 20% of total accounts payable. As of March 31, 2022, two
of the same vendors accounted for 42% and 29% of the total accounts payable. No other vendor accounted for more than 10%
of accounts payable as of March 31, 2023 and 2022.
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.
Note
11: Subsequent Events
On
March 31, 2023, we entered into a Stock Purchase Agreement to acquire all of the issued and outstanding shares of stock of Macro Integration
Services, Inc. (“Macro”), a corporation organized under the laws of the State of North Carolina, for a purchase price of
$10.5 million, which was paid at closing, and is subject to certain adjustments for indebtedness and net working capital. In order to
the fund this acquisition we increased our line of credit and drew down $7.0 million on March 31, 2023 and entered into a new $5.0 million
term loan (see Notes 6 and 7). On April 1, 2023, we closed on the acquisition of Macro and as a result of the acquisition, Macro became
a wholly owned subsidiary of the Company.