UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 (Mark
One)
 
 þ
              Quarterly Report Pursuant to
      Section 13 or 15(d) of the SecuritiesExchange Act of
      1934
 
 For the
quarterly period ended September 30, 2009
 
 Or
 
 o
              Transition Report Pursuant to
      Section 13 or 15(d) of the SecuritiesExchange Act of
      1934
 
 For the
transition period from __________ to __________
 
 
 DECISIONPOINT
SYSTEMS, INC.
 (Exact
name of registrant as specified in its charter)
 
 
 Delaware
              
              333-144279
              
              74-3209480(State
      of Incorporation)
              
              (Commission
      File Number)
              
              (IRS
      Employer Identification No.)
 
  19655
Descartes,   Foothill; Ranch, CA 62910-2609
 (Address
of principal executive offices) (Zip code)
 
 (949)
465-0065
 (Registrant's telephone number, including area
code)
 
 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 requirement for
the past 90 days.  Yes þ   
No o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes o   No o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):
 
 Large accelerated filer                                                    o
              Accelerated filer                                             
      oNon-accelerated filer                                                     
      o
                (Do not check if a smaller reporting company)
              Smaller reporting company                           
      þ
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o   No þ
 
 The
number of shares of common stock, par value $0.001 per share of DecisionPoint
Systems, Inc. issued and outstanding as of the close of business on November 13,
2009 was 28,000,000.
  
  DECISIONPOINT
SYSTEMS, INC.
 
  
 PART I. FINANCIAL INFORMATIONItem 1.   Financial Statements (unaudited)Consolidated
      Balance Sheets as of  September 30, 2009 (unaudited) and
      December 31, 2008
              1Consolidated
      Statements of Operations for the Three and  Nine Months Ended
      September 30, 2009 and 2008 (unaudited)
              2Consolidated Statement of Stockholders’ Equity for the Year Ended
      December 31, 2008 and Nine Months Ended September 30, 2009
                (unaudited)
              3Consolidated
      Statements of Cash Flows for the Nine Months Ended September 30,
      2009 and 2008 (unaudited)
              4Notes to
      Consolidated Financial Statements (unaudited)
              5Item 2.   Management’s Discussion and Analysis of
      Financial Condition and Results of Operations
              21Item 3.   Quantitative and Qualitative Disclosures About
      Market Risk
              26Item 4T. Controls and Procedures
              26PART II.  OTHER INFORMATIONItem 1.    Legal ProceedingsItem 1a.  Risk Factors
              27Item 2.    Unregistered Sales of Equity
      Securities and Use of Proceeds
              27Item 3.    Defaults Upon Senior
    Securities
              27Item 4.    Submission of Matters to a Vote of
      Security Holders
              27Item 5.    Other Information
              27Item 6.    Exhibits
              27
 
 
  PART I.              FINANCIAL
INFORMATION
 
 ITEM
1.            FINANCIAL STATEMENTS(UNAUDITED)
 
 DECISIONPOINT
SYSTEMS, INC.
 Consolidated
Balance Sheets
  September
      30, 2009
                
                
                December
      31,(unaudited)
                
                
                2008ASSETSCurrent
      assetsCash
      and cash equivalents
                
                $
                100,255
                
                
                $
                944,941Accounts
      receivable, net
                
                
                8,177,093
                
                
                
                8,069,039Inventory,
      net
                
                
                1,778,776
                
                
                
                2,643,466Deferred
      costs
                
                
                3,911,355
                
                
                
                3,705,483Deferred
      tax assets
                
                
                155,000
                
                
                
                73,000Prepaid
      expenses
                
                
                68,480
                
                
                
                25,059Total
      current assets
                
                
                14,190,959
                
                
                
                15,460,988Property
      and equipment, net
                
                
                56,511
                
                
                
                78,161Other
      assets, net
                
                
                85,942
                
                
                
                24,875Goodwill
                
                
                4,860,663
                
                
                
                4,860,663Total
      assets
                
                $
                19,194,075
                
                
                $
                20,424,687LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      liabilitiesAccounts
      payable
                
                $
                7,762,959
                
                
                $
                7,864,693Line
      of credit
                
                
                3,542,528
                
                
                
                3,377,208Current
      portion of debt
                
                
                504,233
                
                
                
                1,953,800Accrued
      expenses and other current liabilities
                
                
                3,432,186
                
                
                
                4,032,667Unearned
      revenue
                
                
                8,507,931
                
                
                
                8,690,151Current portion of holding share liability
                
                
                235,586
                
                
                
                36,103Total current liabilities
                
                
                23,985,423
                
                
                
                25,954,622Long-term
      liabilitiesHolding share liability, net of current portion
                
                
                -
                
                
                
                235,587Debt,
      net of current portion
                
                
                -
                
                
                
                2,866,024Total
      liabilities
                
                
                23,985,423
                
                
                
                29,056,233Commitments
      and contingenciesSTOCKHOLDERS'
      EQUITY (DEFICIT)Convertible preferred stock, $0.001 par value,10,000,000
      shares authorized, 975 shares and noneissued
      and outstanding, respectively
                
                
                1
                
                
                
                -Common stock, $0.001 par value, 100,000,000 sharesauthorized,
      28,000,000 and 12,243,224 shares issuedand
      outstanding, respectively
                
                
                28,000
                
                
                
                12,243Additional
      paid-in capital
                
                
                6,209,026
                
                
                
                2,192,146Accumulated
      deficit
                
                
                (9,858,118
                )
                
                
                (9,581,209
                )Unearned
      ESOP shares
                
                
                (1,170,257
                )
                
                
                (1,254,726
                )Total
      stockholders’ deficit
                
                
                (4,791,348
                )
                
                
                (8,631,546
                )Total
      liabilities and stockholders' equity
                
                $
                19,194,075
                
                
                $
                20,424,687
  See
accompanying notes to consolidated financial statements
 1
 DECISIONPOINT
SYSTEMS, INC.
 Consolidated
Statements of Operations
 (Unaudited)
  Three
      Months
                
                
                Nine
      MonthsEnded
      September 30,
                
                
                Ended
      September 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      sales
                
                $
                11,531,043
                
                
                $
                13,337,363
                
                
                $
                35,229,426
                
                
                $
                41,829,853Cost
      of sales
                
                
                9,153,966
                
                
                
                10,771,576
                
                
                
                28,353,988
                
                
                
                33,937,580Gross
      profit
                
                
                2,377,077
                
                
                
                2,565,787
                
                
                
                6,875,438
                
                
                
                7,892,273Selling,
      general and administrative expense
                
                
                1,947,595
                
                
                
                2,241,898
                
                
                
                6,057,902
                
                
                
                7,337,762Operating
      income
                
                
                429,482
                
                
                
                323,889
                
                
                
                817,536
                
                
                
                554,511Other
      income (expense):Other income (expense), net
                
                
                9,351
                
                
                
                3,008
                
                
                
                (212,801
                )
                
                
                (612,289
                )ESOP
      contribution, net
                
                
                (28,156
                )
                
                
                (26,756
                )
                
                
                (84,469
                )
                
                
                (80,260
                )Interest
      expense
                
                
                (300,319
                )
                
                
                (274,099
                )
                
                
                (773,239
                )
                
                
                (931,785
                )Total
      other expense
                
                
                (319,124
                )
                
                
                (297,847
                )
                
                
                (1,070,509
                )
                
                
                (1,624,334
                )Net
      income (loss) before income taxes
                
                
                110,358
                
                
                
                26,042
                
                
                
                (252,973
                )
                
                
                (1,069,823
                )(Benefit)
      provision for income taxes
                
                
                (54,605
                )
                
                
                -
                
                
                
                23,936
                
                
                
                2,200Net
      income (loss)
                
                $
                164,963
                
                
                $
                26,042
                
                
                $
                (276,909
                )
                
                $
                (1,072,023
                )Net
      Earnings per Share -Basic
                
                $
                0.01
                
                
                $
                0.01
                
                
                $
                (0.02
                )
                
                $
                (0.21
                )Diluted
                
                $
                0.01
                
                
                $
                0.00
                
                
                $
                (0.02
                )
                
                $
                (0.21
                )Weighted
      Average Shares Outstanding -Basic
                
                
                21,595,410
                
                
                
                5,038,087
                
                
                
                11,863,284
                
                
                
                5,038,087Diluted
                
                
                32,209,115
                
                
                
                11,665,576
                
                
                
                11,863,284
                
                
                
                5,038,087
  See
accompanying notes to consolidated financial statements
 2
 DECISIONPOINT
SYSTEMS, INC.
 Consolidated
Statements of Stockholders’ Deficit
 (Unaudited)
  Additional
                
                
                Accumu-
                
                
                Unearned
                
                
                TotalPreferred stock
                
                
                Common stock
                
                
                paid-in
                
                
                lated
                
                
                ESOP
                
                
                stockholders’Shares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                capital
                
                
                deficit
                
                
                shares
                
                
                deficitBalance
      at December 31, 2007
                
                
                -
                
                
                $
                -
                
                
                
                12,243,224
                
                
                $
                12,243
                
                
                $
                2,142,448
                
                
                $
                (8,691,146
                )
                
                $
                (1,361,733
                )
                
                $
                (7,898,188
                )Stock-based
      compensation
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                49,698
                
                
                
                -
                
                
                
                -
                
                
                
                49,698Principal
      payment from ESOP
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                107,007
                
                
                
                107,007Net
      loss for the year ended December 31, 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (890,063
                )
                
                
                -
                
                
                
                (890,063
                )Balance
      at December 31, 2008
                
                
                -
                
                
                
                -
                
                
                
                12,243,224
                
                
                
                12,243
                
                
                
                2,192,146
                
                
                
                (9,581,209
                )
                
                
                (1,254,726
                )
                
                
                (8,631,546
                )Convertible
      preferred shares sold in private placement
                
                
                560
                
                
                
                1
                
                
                
                -
                
                
                
                -
                
                
                
                312,739
                
                
                
                -
                
                
                
                -
                
                
                
                312,740A-Warrants
      issued in connection with preferred stock
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                142,740
                
                
                
                -
                
                
                
                -
                
                
                
                142,740B-Warrants
      issued in connection with preferred stock
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                104,520
                
                
                
                -
                
                
                
                -
                
                
                
                104,520Reverse
      merger transaction:Elimination
      of accumulated deficit
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (38,000
                )
                
                
                -
                
                
                
                -
                
                
                
                (38,000
                )Previously
      issued Canusa Capital Corp. stock
                
                
                -
                
                
                
                -
                
                
                
                8,000,000
                
                
                
                8,000
                
                
                
                30,000
                
                
                
                -
                
                
                
                -
                
                
                
                38,000Exchange
      of bridge notes upon event of Merger
                
                
                415
                
                
                
                -
                
                
                
                
                
                
                
                -
                
                
                
                415,000
                
                
                
                -
                
                
                
                -
                
                
                
                415,000Conversion
      of subordinated notes upon event of Merger
                
                
                -
                
                
                
                -
                
                
                
                7,756,776
                
                
                
                7,757
                
                
                
                2,786,767
                
                
                
                -
                
                
                
                -
                
                
                
                2,794,524Beneficial
      conversion feature of convertible note
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                96,361
                
                
                
                -
                
                
                
                -
                
                
                
                96,361Warrants
      issued with convertible note
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                128,639
                
                
                
                -
                
                
                
                -
                
                
                
                128,639Stock-based
      compensation
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                38,114
                
                
                
                -
                
                
                
                -
                
                
                
                38,114Principal
      payment from ESOP
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                84,469
                
                
                
                84,469Net
      loss for the nine months ended September 30, 2009
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (276,909
                )
                
                
                -
                
                
                
                (276,909
                )Balance
      at September 30, 2009
                
                
                975
                
                
                $
                1
                
                
                
                28,000,000
                
                
                $
                28,000
                
                
                $
                6,209,026
                
                
                $
                (9,858,118
                )
                
                $
                (1,170,257
                )
                
                $
                (4,791,348
                )
  See
accompanying notes to consolidated financial statements
 3
 DECISIONPOINT
SYSTEMS, INC.
 Consolidated
Statements of Cash Flows
 (Unaudited)
  Nine
      Months Ended September 30,2009
                
                
                2008Cash
      flows from operating activities:Net
      loss
                
                $
                (276,909
                )
                
                $
                (1,072,023
                )Adjustments
      to reconcile net loss to net cash in operating
      activities:Depreciation
      and amortization
                
                
                28,069
                
                
                
                31,188Amortization of
      deferred financing costs and note discount
                
                
                95,939
                
                
                
                -Allowance for
      doubtful accounts
                
                
                45,000
                
                
                
                177,488Inventory
      allowance
                
                
                15,000
                
                
                
                50,500Write
      off of investment
                
                
                -
                
                
                
                632,500Stock-based
      compensation
                
                
                38,114
                
                
                
                -Deferred tax
      assets
                
                
                (82,000
                )
                
                
                (73,000
                )Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                (153,054
                )
                
                
                1,646,355Inventory
                
                
                849,690
                
                
                
                (533,405
                )Deferred
      costs
                
                
                (205,872
                )
                
                
                339,027Prepaid
      expenses
                
                
                (43,421
                )
                
                
                (140,046
                )Other
      assets
                
                
                33,410
                
                
                
                68,928Accounts
      payable
                
                
                (101,734
                )
                
                
                (761,767
                )Accrued liabilities and
      other current liabilities
                
                
                (600,481
                )
                
                
                1,313,469Unearned
      revenue
                
                
                (182,220
                )
                
                
                (576,181
                )Proceeds from ESOP
      contribution
                
                
                84,469
                
                
                
                80,256Net
      cash (used in) provided by operating activities
                
                
                (456,000
                )
                
                
                1,183,289Cash
      flows from investing activitiesCapital
      expenditures
                
                
                (6,419
                )
                
                
                (7,755
                )Cash
      flows from financing activitiesBorrowings from
      line of credit
                
                
                37,110,050
                
                
                
                42,024,000Repayments on line
      of credit
                
                
                (36,944,730
                )
                
                
                (43,155,620
                )Payments on
      debt
                
                
                (1,178,983
                )
                
                
                (450,000
                )Proceeds from sale
      of convertible note, net of issuance cost
                
                
                192,500
                
                
                
                -Issuance of
      convertible preferred stock
                
                
                560,000
                
                
                
                -Paid financing
      costs
                
                
                (85,000
                )
                
                
                -Holding share
      liability
                
                
                (36,104
                )
                
                
                (125,876
                )Net
      cash used in financing activities
                
                
                (382,267
                )
                
                
                (1,707,496
                )Net
      decrease in cash and cash equivalents
                
                
                (844,686
                )
                
                
                (531,962
                )Cash
      and cash equivalents at beginning of period
                
                
                944,941
                
                
                
                597,524Cash
      and cash equivalents at end of period
                
                $
                100,255
                
                
                $
                65,562Supplemental
      disclosure of non-cash activities:Interest
      paid
                
                $
                618,911
                
                
                $
                903,055Income taxes
      paid
                
                
                6,936
                
                
                
                2,200Supplemental
      disclosure of non-cash financing activities:Conversion of
      bridge notes to preferred stock
                
                
                415,000
                
                
                
                -Conversion of
      Holding subordinated debt
                
                
                2,794,524
                
                
                
                -A-Warrants issued
      in connection with preferred stock
                
                
                142,740
                
                
                
                -B-Warrants issued
      in connection with preferred stock
                
                
                104,520
                
                
                
                -Beneficial
      conversion feature of convertible note
                
                
                96,361
                
                
                
                -Warrants issued
      with convertible note
                
                
                128,639
                
                
                
                -Issuance costs
      related to convertible note
                
                
                57,500
                
                
                
                -
  See
accompanying notes to consolidated financial statements
 4
 DECISIONPOINT
SYSTEMS, INC.
 Notes
to Consolidated Financial Statements
 September
30, 2009
 (Unaudited)
  NOTE
1 - DESCRIPTION OF BUSINESS AND THE MERGER
 
 Nature of Business -DecisionPoint Systems, Inc. (the “Company”) is a data collection systems
integrator that sells and installs field mobility devices, software, and related
bar coding equipment, and provides radio frequency identification solutions,
more commonly known as “RFID”.  The Company also provides professional
services and software customization solutions.
  The
Company was incorporated on December 27, 2006 under the laws of the State of
Delaware at which time its name was Canusa Capital Corp. (“Canusa”).  On
June 17, 2009, the Company entered into an Agreement and Plan of Merger
(“Merger” or “Merger Agreement”) among the Company, DecisionPoint Acquisition,
Inc., a Delaware corporation which is a wholly-owned subsidiary of the Company
(“Merger Sub”), and DecisionPoint Systems Holding, Inc., a California
corporation (“Holding”).  Holding merged with and into Merger Sub with
Merger Sub surviving the Merger as a wholly-owned subsidiary of the Company
under the name DecisionPoint Systems Group, Inc. (“DecisionPoint”). 
DecisionPoint has two wholly owned subsidiaries, DecisionPoint Systems CA, Inc.
formerly known as Creative Concepts Software, Inc. (“CCS”) which was originally
incorporated in 1995 and DecisionPoint Systems CT, Inc. formerly known as
Sentinel Business Systems, Inc. (“SBS”) which was originally incorporated in
1982.  All costs incurred in connection with the Merger have been
expensed.  Upon completion of the Merger, the Company adopted
DecisionPoint’s business plan.
  Description of the Merger – On
June 18, 2009, the Company completed the Merger.  Immediately prior to the
Merger, the Company had 2,500,000 common shares outstanding and Holding had
10,000 common shares outstanding.  Pursuant to the Merger Agreement,
1,500,000 outstanding shares of common stock owned by the Company’s Chief
Executive Officer were cancelled.  Contemporaneously with the Merger,
$2,794,524 of Holding’s subordinated convertible debt was converted into 6,336
shares of the Holding’s common stock.  In accordance with the terms of the
Merger, each of the 16,336 shares of Holding’s common stock that was outstanding
immediately prior to the Merger was exchanged for 153.04 shares of the Company’s
common stock, giving Holding’s shareholders 2,500,000 of the Company’s common
stock.  After the Merger, pursuant to an 8 for 1 stock dividend, each of
the Company’s 3,500,000 shares of common stock was exchanged for eight shares
for of common stock, resulting in 28,000,000 total outstanding shares. 
This transaction was treated as a stock split for accounting
purposes.
 
 Following
the Merger, the business conducted by the Company is now the business conducted
by Holding prior to the Merger.  In addition, the directors and
officers of the Company were replaced by the directors and officers of
Holding.
  All
references to share and per share amounts in this Quarterly Report have been
restated to retroactively reflect the number of shares of DecisionPoint Systems,
Inc. common stock issued pursuant to the Merger.
 
 Accounting
Treatment of the Merger; Financial Statement Presentation
  The
Merger was accounted for as a reverse acquisition pursuant to the guidance in
“SEC’s Division of Corporation Finance Financial Reporting
Manual”.  These transactions are considered by the Securities and
Exchange Commission to be capital transactions in substance, rather than
business combinations.  That is, the transaction is equivalent to the
issuance of stock by the private company for the net monetary assets of the
shell corporation, accompanied by a recapitalization.  Accordingly,
the Merger has been accounted for as a recapitalization, and, for accounting
purposes, DecisionPoint is considered the acquirer in a reverse
acquisition.  The historical consolidated financial statements in this
Quarterly Report are those of DecisionPoint.  Effective on the closing date
the Company adopted DecisionPoint’s year end of December 31.
  Canusa’s
historical accumulated deficit for periods prior to June 18, 2009 in the amount
of $38,000, was eliminated against additional paid-in-capital, and the
accompanying unaudited consolidated financial statements present the
previously issued shares of Canusa common stock as having been issued pursuant
to the Merger on June 18, 2009.  The shares of common stock of the
Company issued to the Holding stockholders in the Merger are presented as having
been outstanding since the original issuance of the shares.
 
 5
 DECISIONPOINT
SYSTEMS, INC.
 Notes
to Consolidated Financial Statements
 September
30, 2009
 (Unaudited)
 
 NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
  Basis
of Presentation
  The
accompanying unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the U.S. for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X.  Accordingly, they do not include all of the
information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements.  In the opinion of the
Company’s management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring accruals and
adjustments) necessary to present fairly the consolidated financial position,
results of operations and cash flows of the Company at the dates and for the
periods indicated.  The interim results for the period ended September
30, 2009, are not necessarily indicative of results for the full 2009 fiscal
year or any other future interim periods.  Because the Merger was
accounted for as a reverse acquisition under U.S. generally accepted accounting
principles, the financial statements for periods prior to June 18, 2009 reflect
only the operations of DecisionPoint.
  These
unaudited consolidated financial statements have been prepared by management and
should be read in conjunction with the audited consolidated financial statements
for DecisionPoint Systems, Inc. and notes thereto for the year ended December
31, 2008, included in the Company’s current report on Form 8-K/A filed with the
SEC on August 19, 2009.
  In June
2009, the Financial Accounting Standards Board (“FASB”) issued the FASB
Accounting Standards Codification (the “ASC”). The ASC has become the single
source of non-governmental accounting principles generally accepted in the
United States (“GAAP”) recognized by the FASB in the preparation of financial
statements.  The ASC does not supersede the rules or regulations of
the Securities and Exchange Commission (“SEC”), therefore, the rules and
interpretive releases of the SEC continue to be additional sources of GAAP for
the Company.  The Company adopted the ASC as of July 1,
2009.  The ASC does not change GAAP and did not have an effect on the
Company’s financial position, results of operations or cash flows.
  Summary
of Significant Accounting Policies
  Basis of Consolidation - The
accompanying unaudited consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, DecisionPoint.   All
significant intercompany accounts and transactions have been eliminated in
consolidation.
  Use of Estimates -The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management 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.  Actual results could differ
from those estimates.  Certain accounting policies involve judgments
and uncertainties to such an extent that there is reasonable likelihood that
materially different amounts could have been reported under different
conditions, or if different assumptions had been used.  The Company
evaluates its estimates and assumptions on a regular basis.  The
Company uses historical experience and various other assumptions that are
believed to be reasonable under the circumstances to form the basis for making
judgments about carrying values of assets and liabilities that are not readily
apparent from other sources.  Actual results may differ from these
estimates and assumptions used in preparation of the consolidated financial
statements.
  Cash and Cash Equivalents -
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
  Accounts Receivable – Accounts
receivable are stated at net realizable value, and as such, current earnings are
charged with an allowance for doubtful accounts based on management’s best
estimate of the amount of probable incurred credit losses in the Company’s
existing accounts receivable.  The Company determines the allowance
based on historical write-off experience and specific account information
available.  Accounts receivable are reflected in the accompanying
unaudited consolidated balance sheets net of a valuation allowance of $620,000
and $575,000 as of September 30, 2009 and December 31, 2008,
respectively.
  6
 DECISIONPOINT
SYSTEMS, INC.
 Notes
to Consolidated Financial Statements
 September
30, 2009
 (Unaudited)
 
 Inventory -Inventory is
stated at the lower of cost or market.  Cost is determined under the
first-in, first-out (FIFO) method.  The Company periodically reviews
its inventories and makes provisions as necessary for estimated obsolete and
slow-moving goods.  The creation of such provisions results in a write
down of inventory to net realizable value and a charge to cost of
sales.  Inventories are reflected in the accompanying unaudited
consolidated balance sheets net of a valuation allowance of $190,000 and
$175,000 as of September 30, 2009 and December 31, 2008,
respectively.
  Deferred costs – Deferred
costs consist primarily of third party extended maintenance services which the
Company has paid for up front and then amortizes over the life of the service
contract period.  This is generally for a term of one to five
years.
  Property and Equipment-Property
and equipment are recorded at cost.Repairs
and maintenance that do not improve or extend the lives of the respective assets
are expensed in the period incurred.
 
 Depreciation
of property and equipment is provided for by the straight-line method over the
estimated useful lives of the related assets.
  Computer
equipment                                                      3
to 5 years
 Office furniture and
fixtures                                          5
to 7 years
  Leasehold
improvements are amortized over the shorter of the lease term or the life of the
improvements.
  Impairment of Long-Lived
Assets - The Company reviews its long-lived assets and certain
identifiable intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.  Recoverability of assets is measured by comparing the
carrying amount of an asset to future undiscounted net cash flows expected to be
generated by the asset.  If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.  Assets to
be disposed of by sale are reflected at the lower of their carrying amount or
fair value less cost to sell.  To date, the Company has not recorded
any impairment charges.
  Goodwill –Goodwill is the
excess of the purchase price paid over the fair value of the net assets of the
acquired business.  Amortization of goodwill is not
permitted.  Goodwill is tested at least annually for impairment by
comparing the fair value of the reporting unit to its carrying amount including
goodwill.  If the carrying amount of the reporting unit exceeds its
fair value, an impairment loss is recognized.  The amount of
impairment loss is determined by comparing the implied fair value of reporting
unit goodwill with the carrying amount.  If the carrying amount
exceeds the implied fair value then an impairment loss is recognized equal to
that excess.  The Company completed its last annual assessment during
December 2008.  At that time, no impairment was
necessary.
  Deferred Financing Costs -Costs that are incurred by the Company in connection with the issuance of
debt are deferred and amortized to interest expense over the life of the
underlying indebtedness, adjusted to reflect any early repayments.
  Revenue Recognition - Revenues
are generated through product sales, warranty and maintenance agreements,
software customization, and professional services.  Product sales are
recognized when the following criteria are met (1) there is persuasive
evidence that an arrangement exits; (2) delivery has occurred and title has
passed to the customer which generally happens at the point of shipment provided
that no significant obligations remain; (3) the price is fixed and
determinable; and (4) collectability is reasonably assured.  The
Company generates revenues from the sale of extended warranties on wireless and
mobile hardware and systems.  Revenue related to extended warranty and
service contracts is recorded as unearned revenue and is recognized over the
life of the contract as the Company maintains financial risk throughout the term
of these contracts and may be liable to refund a customer for amounts paid in
certain circumstances.
  The
Company also generates revenue from software customization and professional
services on either a fee for- service or fixed fee basis.  Revenue from
software customization and professional services that is contracted as fee
for-service, also referred to as per-diem billing, is recognized in the period
in which the services are performed or delivered.  Fixed fee services are
accounted for in conformity with either the percentage-of-completion or the
completed-contract method.  Revenues recognized on the
percentage-of-completion method are measured by the percentage of cost incurred
to date, primarily labor costs, to total costs estimated to be incurred for each
contract.  Management considers expended costs to be the best
available measure of progress on these contracts.
 7
 DECISIONPOINT
SYSTEMS, INC.
 Notes
to Consolidated Financial Statements
 September
30, 2009
 (Unaudited)
  Concentration of Credit Risk-
Financial instruments that potentially subject the Company to a concentration of
credit risk consist primarily of cash and cash equivalents, and accounts
receivable.  Cash and cash equivalents are deposited with major
financial institutions and, at times, such balances with any one financial
institution may be in excess of the FDIC insured limits.  In September
2008, the FDIC insured limit was temporarily increased from $100,000 to
$250,000, and the limit was to revert back to $100,000 on January 1,
2010.  In June 2009, the FDIC insured limit of $250,000 was extended
through December 31, 2013.  The FDIC is also providing unlimited
coverage on non-interest bearing transaction accounts through December 31, 2009
for banks participating in the FDIC Temporary Liquidity Guarantee
Program.
  During
the nine months ended September 30, 2009, the Company had sales to a single
customer, who represented 17% of total net sales.  Accounts receivable
from a single customer as of September 30, 2009 accounted for 18% of total
accounts receivable.
  Fair Value of Financial Instruments -The Company measures fair value in accordance with generally accepted
accounting principles.  Fair value measurements are applied under
other accounting pronouncements that require or permit fair value
measurements.  The provisions are to be applied prospectively as of
the beginning of the fiscal year in which it is initially adopted, with any
transition adjustment recognized as a cumulative-effect adjustment to the
opening balance of retained earnings.    The adoption of
this standard had no significant impact on the Company’s consolidated financial
statements.
  Stock-Based Compensation - The
Company records the fair value of all stock-based compensation awards in its
consolidated financial statements.  The terms and vesting schedules
for stock-based awards vary by type of grant and generally vest based on the
passage of time.  The fair value of stock-based compensation is
calculated using the Black-Scholes option-pricing model and the expense is
recognized on a straight-line basis over the requisite service period, net of
estimated forfeitures.
  Loss per Common Share -Basic
loss per share is computed by dividing the loss available to common shareholders
by the weighted-average number of common shares outstanding.  Diluted
loss per share is computed similarly to basic loss per share 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.
  The
weighted-average basic and diluted shares for the three and nine months ended
September 30, 2009 and 2008 excludes ESOP shares that have not been committed to
be released of 6,404,590 and 7,205,137, respectively.
  For the
periods in which the Company has incurred a net loss, potentially dilutive
securities are excluded from the computation of fully diluted net loss per share
as their effect is anti-dilutive.
  Potentially
dilutive securities include:
  September
      30, 2009
                
                
                September
      30, 2008Convertible
      preferred stock
                
                
                1,950,000
                
                
                
                -Convertible
      note payable
                
                
                500,000
                
                
                
                -Warrants
      to purchase common stock
                
                
                1,575,000
                
                
                
                100,000Options
      to purchase common stock
                
                
                6,588,705
                
                
                
                6,527,489Total
      potentially dilutive securities
                
                
                10,613,705
                
                
                
                6,627,489
  Income Taxes -
  8
 DECISIONPOINT
SYSTEMS, INC.
 Notes
to Consolidated Financial Statements
 September
30, 2009
 (Unaudited)
  The
Company determined that there were no material liabilities for tax benefits for
past years and the current period.  The Company has determined that
any future interest accrued, related to unrecognized tax benefits, will be
included in interest expense.  In the event the Company must accrue
for penalties, they will be included as an operating expense.
  Prior to
the Merger discussed above, the Company filed its Federal and State income tax
returns as a sub-chapter “S” corporation.  Therefore, any income tax
liability from its operations was payable directly by its
shareholders.  The Company's sub-chapter “S” corporation status was
terminated on June 18, 2009, upon the close of the Merger.
  Reclassification - Certain
amounts in the prior period consolidated financial statements and related notes
have been reclassified to conform to the current period
presentation.
  New
Accounting Standards
 
 Effective
June 30, 2009, the Company adopted a new accounting standard issued by the FASB
related to the disclosure requirements of the fair value of financial
instruments.  This standard expands the disclosure requirements of
fair value (including the methods and significant assumptions used to estimate
fair value) of certain financial instruments to interim period financial
statements that were previously only required to be disclosed in financial
statements for annual periods.  In accordance with this standard, the
disclosure requirements have been applied on a prospective basis and did not
have a material impact on the Company’s consolidated financial
statements.
  Effective
June 30, 2009, the Company adopted a newly issued accounting standard related to
accounting for and disclosure of subsequent events in its consolidated financial
statements.  This standard provides the authoritative guidance for
subsequent events that was previously addressed only in United States auditing
standards.  This standard establishes general accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued and requires the
Company to disclose the date through which it has evaluated subsequent events
and whether that was the date the financial statements were issued or available
to be issued.  This standard does not apply to subsequent events or
transactions that are within the scope of other applicable GAAP that provide
different guidance on the accounting treatment for subsequent events or
transactions.  The adoption of this standard did not have a material
impact on the Company’s consolidated financial statements.
  In August
2009, the FASB issued an amendment to the accounting standards related to the
measurement of liabilities that are recognized or disclosed at fair value on a
recurring basis.  This standard clarifies how a company should measure
the fair value of liabilities and that restrictions preventing the transfer of a
liability should not be considered as a factor in the measurement of liabilities
within the scope of this standard.  This standard is effective for the
Company on October 1, 2009.  The Company does not expect the impact of
its adoption to be material to its consolidated financial
statements.
  In
October 2009, the FASB issued an amendment to the accounting standards related
to the accounting for revenue in arrangements with multiple deliverables
including how the arrangement consideration is allocated among delivered and
undelivered items of the arrangement.  Among the amendments, this
standard eliminates the use of the residual method for allocating arrangement
consideration and requires an entity to allocate the overall consideration to
each deliverable based on an estimated selling price of each individual
deliverable in the arrangement in the absence of having vendor-specific
objective evidence or other third party evidence of fair value of the
undelivered items.  This standard also provides further guidance on
how to determine a separate unit of accounting in a multiple-deliverable revenue
arrangement and expands the disclosure requirements about the judgments made in
applying the estimated selling price method and how those judgments affect the
timing or amount of revenue recognition.  This standard, for which the
Company is currently assessing the impact, will become effective for the Company
on January 1, 2011.
  In
October 2009, the FASB issued an amendment to the accounting standards related
to certain revenue arrangements that include software elements.  This
standard clarifies the existing accounting guidance such that tangible products
that contain both software and non-software components that function together to
deliver the product’s essential functionality, shall be excluded from the scope
of the software revenue recognition accounting
standards.  Accordingly, sales of these products may fall within the
scope of other revenue recognition accounting standards or may now be within the
scope of this standard and may require an allocation of the arrangement
consideration for each element of the arrangement.  This standard, for
which the Company is currently assessing the impact, will become effective for
the Company on January 1, 2011.
 
 9
 DECISIONPOINT
SYSTEMS, INC.
 Notes
to Consolidated Financial Statements
 September
30, 2009
 (Unaudited)
 
 NOTE
3 - PROPERTY AND EQUIPMENT
  Property
and equipment as of September 30, 2009 and December 31, 2008, consists of the
following:
  September
      30,
                
                
                December
      31,2009
                
                
                2008Computer
      equipment
                
                $
                173,932
                
                
                $
                171,444Office
      furniture and fixtures
                
                
                64,069
                
                
                
                64,069Leasehold
      improvements
                
                
                27,749
                
                
                
                23,818Total
                
                
                265,750
                
                
                
                259,331Less
      accumulated depreciation and amortization
                
                
                (209,239
                )
                
                
                (181,170
                )Net
      property and equipment
                
                $
                56,511
                
                
                $
                78,161
  For the
periods ended September 30, 2009 and December 31, 2008, the Company incurred
depreciation and amortization expense on property and equipment of $28,069 and
$40,967, respectively.  Depreciation and amortization expense for the
three months ended September 30, 2009 and 2008 was $8,454 and $9,779,
respectively.
  NOTE
4 – LINE OF CREDIT
 
 In
December 2006, pursuant to a Loan and Security Agreement (“Loan Agreement”), the
Company obtained a $6.5 million line of credit, which provides for borrowings
based upon eligible accounts receivable, as defined in the Loan
Agreement.  Under the terms of the Loan Agreement, interest accrues at
Prime plus 2.5% with an interest rate reduction of 0.75% based on future
profitability.  The Loan Agreement is secured by substantially all the
assets of the Company and matured in December 2008, at which time it was amended
to extend the maturity date to March 15, 2009 in exchange for an extension fee
of $12,185.
  In March
2009, pursuant to an Amendment to the Loan and Security Agreement (“Amendment”)
the line of credit was renewed for an additional two year period and the amount
available for borrowing was increased to $8.5 million.  Pursuant to
the Amendment, the rate at which interest accrues increased to Prime plus 4%,
with a potential interest rate reduction of 0.50% based on future
profitability.  The Amendment also modified the definition of “prime
rate” to a rate not less than 4% on any day.  The Company paid an
annual renewal fee of $85,000.  The amounts outstanding under the line
of credit at September 30, 2009 and December 31, 2008 were $3,542,528 with
interest accruing at 8%, and $3,377,208 with interest accruing at 10.25%,
respectively.  The line of credit has a tangible net worth financial
covenant and other non-financial covenants with which the Company has been in
compliance.  Availability under this line of credit was approximately
$2,438,000 and $1,605,000 as of September 30, 2009 and December 31, 2008,
respectively.
  The line
of credit allows the Company to cause the issuance of letters of credit on
account of the Company to a maximum of the borrowing base as defined in the Loan
Agreement.  No letters of credit were outstanding as of September 30,
2009 or December 31, 2008.
  For the
nine months ended September 30, 2009 and 2008, respectively, the Company’s
interest expense, including fees paid to secure lines of credit, totaled
$260,619 and $298,659.
 
 10
 DECISIONPOINT
SYSTEMS, INC.
 Notes
to Consolidated Financial Statements
 September
30, 2009
 (Unaudited)
 NOTE
5 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
 
 Accrued
expenses and other current liabilities consist of the following:
 
 September
      30,
                
                
                December
      31,2009
                
                
                2008Salaries
      and benefits
                
                $
                1,706,900
                
                
                $
                1,739,910Interest
      payable
                
                
                605,494
                
                
                
                451,166Professional
      fees
                
                
                591,343
                
                
                
                1,731,324Other
      fees and expenses
                
                
                528,449
                
                
                
                110,267Total
      accrued expenses and other current liabilities
                
                $
                3,432,186
                
                
                $
                4,032,667
 
 As of
September 30, 2009 and December 31, 2008, the Company had deferred compensation
expense including interest for its two principal officers included in accrued
salaries and benefits, with an outstanding balance of $635,640 and $294,742,
respectively.  Interest accrues monthly at an annual rate of
16%.
  NOTE
6 – HOLDING SHARES LIABILITY
  In March
2006, pursuant to a Stock Purchase Agreement (“Agreement”), the Company acquired
the common stock of SBS.  As part of the purchase price, certain
employees and directors of SBS agreed to the cancellation of previously issued
and held options to acquire shares of SBS stock in exchange for the Company’s
Holding Share equivalents (“Holding Shares”).  The fair value of the
Holding Shares was determined to be $380,000 under the terms of the
Agreement.  The recipients of these Holding Shares were entitled to
receive a cash settlement under one of three settlement options determined by
each recipient prior to the closing of the acquisition.  The
settlement options were: Option A - settlement of 20% per year of the recipients
Holding Shares beginning on May 1, 2006, Option B - settlement of 100% of the
recipients Holding Shares on May 1, 2010, or Option C - settlement of the
recipients’ Holding Shares on the earliest to occur of the date on which the
recipient turns 65, terminates employment, or the Company experiences a change
in control (as defined in the Agreement).  For those recipients who
elected to defer their cash payments under options B or C, the per-share value
is to be re-evaluated, and the related liability adjusted, to reflect changes in
the fair value of the underlying stock,  based on the fair value of
the ESOP share price as determined annually on December 31 of each subsequent
year until maturity.
 
 Future
settlements of these Holding Shares as of September 30, 2009 include the final
fixed payment of $36,103 due under option A, $139,467 due under Option B, and
$60,016 due under option C.  The amounts due under options B and C
have not been adjusted for any change to the fair value of the ESOP share price
as fluctuations to date have not been material. All amounts have been classified
as current.
 11
 DECISIONPOINT
SYSTEMS, INC.
 Notes
to Consolidated Financial Statements
 September
30, 2009
 (Unaudited)
  NOTE
7 – DEBT
 
 Debt as
of September 30, 2009 and December 31, 2008, consists of the
following:
  Beginning
              
              
              
              
              
              
              
              
              
              
              
              Amortization
              
              
              
              
              
              Ending2009
              
              Balance
              
              
              
              
              
              Note
              
              
              
              
              
              of
      Note
              
              
              Conversion
              
              
              BalanceDebt
              
              January
      1
              
              
              Additions
              
              
              Discount
              
              
              Payments
              
              
              Discount
              
              
              to
      equity
              
              
              September
      30Bank
      term loan
              
              $
              600,000
              
              
              $
              -
              
              
              $
              -
              
              
              $
              (450,000
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              150,000Subordinated
      debt - CCS
              
              
              353,800
              
              
              
              -
              
              
              
              -
              
              
              
              (344,734
              )
              
              
              -
              
              
              
              -
              
              
              
              9,066Subordinated
      convertible debt
              
              
              1,666,024
              
              
              
              -
              
              
              
              -
              
              
              
              (71,500
              )
              
              
              -
              
              
              
              (1,594,524
              )
              
              
              -Subordinated
      convertible debt - SBS
              
              
              1,200,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,200,000
              )
              
              
              -Bridge
      notes
              
              
              1,000,000
              
              
              
              -
              
              
              
              
              
              
              
              (312,750
              )
              
              
              -
              
              
              
              (415,000
              )
              
              
              272,250Subordinated
      convertible debt - June 2009
              
              
              -
              
              
              
              225,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              225,000Note
      discount
              
              
              -
              
              
              
              -
              
              
              
              (225,000
              )
              
              
              -
              
              
              
              72,917
              
              
              
              
              
              
              
              (152,083
              )Subordinated
      debt, net
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              72,917Total
      debt
              
              $
              4,819,824
              
              
              $
              225,000
              
              
              $
              (225,000
              )
              
              $
              (1,178,984
              )
              
              $
              72,917
              
              
              $
              (3,209,524
              )
              
              $
              504,233Less
      current portion
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (504,233
              )Debt,
      net of current portion
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              -2008
              
              Beginning
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              Amortization
              
              
              
              
              
              
              EndingBalance
              
              
              
              
              
              
              Note
              
              
              
              
              
              
              of
      Note
              
              
              Conversion
              
              
              BalanceDebt
              
              January
      1
              
              
              Additions
              
              
              Discount
              
              
              Payments
              
              
              Discount
              
              
              to
      equity
              
              
              December
      31Bank
      term loan
              
              $
              1,200,000
              
              
              $
              -
              
              
              $
              -
              
              
              $
              (600,000
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              600,000Subordinated
      debt - CCS
              
              
              353,800
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              353,800Subordinated
      convertible debt
              
              
              1,666,024
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,666,024Subordinated
      convertible debt - SBS
              
              
              1,200,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,200,000Bridge
      notes
              
              
              1,000,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,000,000Total
      debt
              
              $
              5,419,824
              
              
              $
              -
              
              
              $
              -
              
              
              $
              (600,000
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              4,819,824Less
      current portion
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,953,800
              )Debt,
      net of current portion
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              2,866,024
 The
carrying amount of debt approximates fair value based on the short-term maturity
and variable interest rates.
  Bank Term Loan -During
December 2006, pursuant to a Loan Agreement, the Company borrowed $1.5 million
(“Loan”).  The Loan is due as follows; six months of interest only
payments and thirty equal monthly payments of principal and
interest.  Monthly principal payments are fixed at $50,000 over the
term of the loan.  Under the terms of the Loan Agreement, interest
accrues at Prime plus 2.5% (10.25% at September 30, 2009) with a potential
interest rate reduction of 0.75% based on future profitability.  The
Loan Agreement is secured by substantially all the assets of the
Company.  The Loan has a tangible net worth financial covenant and
other non-financial covenants with which the Company has been in
compliance.
  12
 DECISIONPOINT
SYSTEMS, INC.
 Notes
to Consolidated Financial Statements
 September
30, 2009
 (Unaudited)
  Subordinated Debt - CCS - In
December 2003, in connection with the acquisition of CCS, the Company issued
subordinated debt with a three year term in the amount of $650,000 to the
original owner of CCS.  The terms of the debt called for interest only
payments at Prime plus 4%, not-to-exceed 12% (7.25% at September 30,
2009).  In December 2006 the holder agreed to continue interest only
payments and to extend the maturity date of the then current principal balance
of $353,800 for successive one year periods.  In January 2009, the
terms of the agreement were modified to extend the maturity date to November 30,
2009 and to provide for monthly principal and interest payments of $43,092
through October 2009 and a final payment of $9,066 which was made in November
2009.
  Subordinated Convertible Debt –
Employees and investors –During the years ended December 31, 2003, 2004,
2005, and 2006, the Company issued subordinated convertible debt totaling
$1,666,024 with ten-year terms to employees and investors in connection with the
ESOP purchase transaction.  Interest accrues at rates ranging from Prime
plus 6% to Prime plus 8% subject to a minimum rate ranging from 12% to 14% and a
maximum rate ranging from 14% to 16%. At the date of the Merger, there was
$1,666,024 of convertible debt outstanding.  Concurrent with the completion
of the Merger, $1,594,524 of the subordinated convertible debt was converted
into 3,603,874 shares of the Company’s common stock.  Two holders elected
not to convert their balances totaling $71,500 which was fully repaid in
September 2009.
  Subordinated Convertible Debt - SBS -During March 2006, the Company purchased the stock of SBS.  As
part of the payment for the purchase of its common stock, the shareholders of
SBS agreed to take subordinated convertible debt in the aggregate amount of
$1,200,000.  Terms of repayment were quarterly interest only payments
at a rate of 4%, with all unpaid interest and principal due March
2013.  As of December 31, 2008, $1,200,000 was
outstanding.  Concurrently with the completion of the Merger, the
entire amount of the debt was converted into 4,152,902 shares of the Company’s
common stock.
 
 Bridge Notes - In June 2007,
the Company issued subordinated debt (“Bridge Notes”) totaling $1,000,000 with a
six month term to certain members of management and an outside
Director.  The Bridge Notes accrue interest at 15% per annum and were
subject to an initiation fee of 2.5% and an extension fee of 2.5% of the
principal to extend beyond September 2007.  All principal and interest was
originally due on December 31, 2007. In August 2008 the Bridge Notes were
amended to extend the maturity date to September 30, 2008 in exchange for an
additional commitment fee of 2.5% per quarter.  In January 2009,
$100,000 of the principal along with accrued interest was repaid.  On
January 28, 2009, the remaining Bridge Notes were extended on a rolling basis
provided that the holders remained an employee or director of the
Company.  The Bridge Notes bear an extension fee of 2.5% per quarter
as long as they remain outstanding.  In the event of a subsequent
material transaction involving a merger, acquisition, initial public offering,
change in control, sale of substantially all of the Company’s assets or a
financing transaction (“Transaction”) in excess of $2 million that contemplates
the exchange or conversion of the Bridge Notes into some form of equity, the
holder has the option to either have the Bridge Note and all unpaid interest,
paid in full or converted in accordance with the terms of the
Transaction.  Concurrent with the completion of the Merger, $415,000
of principal was exchanged for 415 shares of Series A Cumulative Convertible
Preferred Stock.  During August and September 2009, additional
principal payments totaling $212,750 were made on certain Bridge Notes and the
interest rate was reduced from 25% (15% per annum plus 2.5% quarterly) to 16%
per annum.
  Pursuant to the terms of the Bridge
Notes, the Company issued
fully vested warrants to purchase 100,000 shares of common stock.  The
warrant amount was equal to 10% of the principal amount of the Bridge Notes
divided by the offering price in any initial public offering under the
Securities Act of 1933, as amended.  The warrants have an
exercise price of $1.00 and a contractual term of five years.  The
warrants were valued at $45,419 and have been recorded as a discount to the
Bridge Notes and a credit to additional paid-in capital.  The note
discount has been fully amortized to interest expense as of September 30, 2009
  Subordinated Convertible Debt June
2009 –Immediately following the completion of the Merger in June 2009,
pursuant to a Securities Purchase Agreement, the Company issued a convertible
subordinated debenture (the “Note”) with a face value of $250,000, net of an
Original Issue Discount of 10% and issuance costs of $32,500 with net proceeds
totaling $192,500.  Interest on the Note accrues at 6% per annum and
is due monthly. Principal and any remaining accrued but unpaid interest are due
in June 2010.  The Note converts at the option of the holder into shares of
the Company’s common stock at $0.50 per share.  The market value of
the Company’s common stock was $1.00 per share on the date of
issuance.
 
 Pursuant
to the terms of the Note, the Company issued detachable warrants to purchase
500,000 shares of the Company’s common stock at an exercise price of $0.50 per
share.  The warrants are fully vested and have a contractual term of
five years.  The warrants were valued at $314,850 using the Black-Scholes
option-pricing model.  The proceeds from the issuance
 13
 DECISIONPOINT
SYSTEMS, INC.
 Notes
to Consolidated Financial Statements
 September
30, 2009
 (Unaudited)
 
    For the
three and nine months ended September 30, 2009, the Company’s interest expense,
including all extension and commitment fees, totaled $300,320 and $773,240,
respectively.  For the three and nine months ended September 30, 2008,
the Company’s interest expense, including all extension and commitment fees,
totaled $274,099 and $931,786, respectively.
 
 NOTE
8 – STOCKHOLDERS’ EQUITY
 
 The
Company’s authorized capital stock consists of 100,000,000 shares of common
stock with a par value of $0.001 per share, and 10,000,000 shares of preferred
stock with a par value of $0.001 per share.  After the Merger,
there are 28,000,000 shares of the Company’s common stock issued and
outstanding and 975 shares of the Company's Series A Cumulative Convertible
Preferred Stock (“Series A Preferred Stock”) issued and
outstanding.
 
 (a)
Common Stock
 
 On June
18, 2009, the Company completed the Merger.  Immediately prior to the
Merger, the Company had 2,500,000 common shares outstanding and Holding had
10,000 common shares outstanding.  Pursuant to the Merger Agreement,
1,500,000 outstanding shares of common stock owned by the Company’s Chief
Executive Officer were cancelled.  Contemporaneously with the Merger,
$2,794,524 of Holding’s subordinated convertible debt was converted into 6,336
shares of the Holding’s common stock.  In accordance with the terms of the
Merger, each of the 16,336 shares of Holding’s common stock that was outstanding
immediately prior to the Merger was exchanged for 153.04 shares of the Company’s
common stock, giving Holding’s shareholders 2,500,000 of the Company’s common
stock.  After the Merger, pursuant to an 8 for 1 stock dividend, each of
the Company’s 3,500,000 shares of common stock was exchanged for eight shares of
common stock, resulting in 28,000,000 total outstanding shares.  This
transaction was treated as a stock split for accounting purposes.
 
 (b)
Preferred Stock
  On June
8, 2009, the Company designated up to 10,000 shares of the Series A Preferred
Stock, par value $0.001, with a stated value of $1,000 per share with such
designations, powers, preferences and rights, qualifications, limitations and
restrictions as set forth in the Certificate of Designation of Series A
Preferred Stock.  The right and preferences are summarized as
follows:
  Dividends - The
holders of the Series A Preferred Stock shall be entitled to receive, when, as
and if declared by the Board of Directors, dividends at an annual rate of 8% of
the stated value.  Dividends shall be cumulative and shall accrue on each
share of the outstanding Series A Preferred Stock from the date of its
issue.
  Voting Rights - The
Series A Preferred Stock shall have no voting rights except on matters affecting
their rights or preferences.
 
 Liquidation - Upon
any liquidation, dissolution or winding-up of the Company, the holders of the
Series A Preferred Stock shall be entitled to receive an amount equal to the
stated value per share plus any accrued and unpaid dividends before any payments
shall be made to the holders of any common stock.
 
 Conversion - Each
share of Series A Preferred Stock shall be convertible, at the option of the
holder, at a conversion price of $0.50 per share.
    14
 DECISIONPOINT
SYSTEMS, INC.
 Notes
to Consolidated Financial Statements
 September
30, 2009
 (Unaudited)
 
 “Act”),
in a transaction conducted pursuant to section 4(2) of the Act and Regulation D
thereunder.   In connection with the sale, the Company issued warrants
to purchase 560,000 shares of common stock.
 
 Concurrent
with the Merger, $415,000 of Bridge Notes issued in June 2007 were exchanged for
415 shares of Series A Preferred Stock and warrants to purchase 415,000 shares
of common stock.
 
 (c)
Warrants
 
 In
connection with the issuance of the Series A Preferred Stock described above,
the Company issued warrants to purchase 975,000 shares of common
stock.  For each share of Series A Preferred Stock, the investor
received a warrant, exercisable on or before June 18, 2012, to purchase 500
shares of common stock with an exercise price of $1.00 per share (“Class A
Warrants”) and a warrant, exercisable on or before June 18, 2012, to purchase
500 shares of common stock with an exercise price of $1.25 per share
(“Class B Warrants”).  The fair value of the warrants of $142,740 and
$104,520 for the Class A Warrants and Class B warrants, respectively, was
determined based upon the Black-Scholes option-pricing model and the following
assumptions: stock price $1.00, contractual term 3 years, expected volatility
40.72%, expected dividend yield of 0%, and a risk-free interest rate of
1.76%.  The warrants were recorded as additional paid-in
capital.
 
 In
connection with the Bridge Notes, in June 2007, the Company issued 100,000
warrants to purchase common stock at an exercise price of $1.00 per
share.  The warrants are valued at $45,419 based upon the
Black-Scholes option-pricing model and the following assumptions: stock price
$1.00, contractual term 5 years, expected volatility 44.19%, expected dividend
yield of 0%, and a risk-free interest rate of 5.03%.  The warrants
were recorded as additional paid-in capital.
 
 Immediately
following the Merger, the Company issued a debenture in the amount of $250,000
including warrants to purchase up to 500,000 common shares with an exercise
price of $0.50 per share.  The warrants were valued at $314,850 based
upon the Black-Scholes option-pricing model and the following assumptions: stock
price $1.00, contractual term 5 years, expected volatility 44.19%, expected
dividend yield of 0%, and a risk-free interest rate of 2.71%.  The
warrants were recorded based on their relative fair value allocated between the
warrants and the Note (see Note 7) which was $128,639.
 
 NOTE
9 - ESOP PLAN
  In
December 2003, the Company formed an Employee Stock Ownership Plan (the “ESOP”)
and loaned the ESOP $1,950,000 (the “ESOP Note”) that the ESOP Trust (“Trust”)
used to acquire 6,667 shares of the of the Company’s stock from its former
stockholder for $1,300,000 and 3,333 shares from the Company for
$650,000.  The ESOP Note bears interest at a rate of 5.25% with annual
principal and interest payments and has a 15-year term.  The amount
owed to the Company under the Note as of September 30, 2009 and December 31,
2008, was $1,170,257 and $1,254,726, respectively.  The ESOP Note is
reflected in the accompanying unaudited consolidated balance sheets as unearned
ESOP shares in stockholders’ equity (deficit).
  The ESOP
covers all non-union employees.  Employees are eligible to participate in
the Plan after three months of service.  Plan participants start vesting
after two years of participation and are fully vested after six years of
participation.  ESOP contributions are determined annually by the Board of
Directors, and are a minimum $130,000 per year, to repay the ESOP Note held by
the Company.  The Company’s contribution expense for the nine months
ended September 30, 2009 was $133,873 representing $84,469 for ESOP principal
payment and $49,404 for ESOP interest.  The Company’s contribution expense
for the year ended December 31, 2008, was $178,498 representing $107,007 for
ESOP principal payment and $71,491 for ESOP interest.  The ESOP Note is
secured by the unallocated Company stock held by the Trust.
 
 ESOP
shares are allocated to individual employee accounts as the loan obligation of
the ESOP to the Company is reduced.  These amounts are only calculated on
an annual basis by an outside, independent financial advisor and as such, the
presentation is only for the year ended December 31, 2008.
 
 The ESOP
held 7,205,137 shares of unallocated Company stock and 5,038,087 shares of
allocated Company stock as of December 31, 2008.
  15
 DECISIONPOINT
SYSTEMS, INC.
 Notes
to Consolidated Financial Statements
 September
30, 2009
 (Unaudited)
  NOTE
10 - STOCK OPTION PLAN
 
 In
January 2004, the Company established the 2004 Incentive and Non-Incentive Stock
Option Plan (“2004 Plan”) which was originally adopted by the Board of Directors
of DecisionPoint and was assumed by the Company on June 18, 2009, in connection
with the Merger.  The 2004 Plan authorized 5,385 shares of common stock for
issuance.  On June 18, 2009, pursuant to the Merger, the 2004 Plan was
amended and each share of common stock then subject to the 2004 Plan was
substituted with 1224.32 shares of common stock, for an aggregate of 6,592,976
shares.  Under the 2004 Plan, common stock incentives may be granted
to officers, employees, directors, consultants, and advisors.  Incentives
under the Plan may be granted in any one or a combination of the following
forms: (a) incentive stock options and non-statutory stock options;
(b) stock appreciation rights (c) stock awards; (d) restricted
stock and (e) performance shares.
 
 In June
2009, the Company  established the DecisionPoint Systems, Inc. Incentive
Stock Plan ("2009 Plan") to retain directors, executives and selected employees
and consultants and reward them for making contributions to the success of the
Company.  These objectives are accomplished by making long-term
incentive awards under the 2009 Plan in the form of options, stock awards and
restricted stock purchase offers.  The total number of common shares which
may be purchased or granted under the 2009 Plan shall not exceed
1,000,000.  There were no options granted under the 2009 Plan as of
September 30, 2009.
 
 The 2004
and 2009 Plans, (collectively, the “Plans”) are administered by the Board of
Directors, or a committee appointed by the Board of Directors, which determines
recipients and types of awards to be granted, including the number of shares
subject to the awards, the exercise price and the vesting
schedule.  The total number of shares authorized under the Plans is
7,592,976.  The term of stock options granted under the Plans cannot
exceed ten years.  Options shall not have an exercise price less than 100%
of the fair market value of the Company’s common stock on the grant date, and
generally vest over a period of five years.  If the individual
possesses more than ten percent of the combined voting power of all classes of
stock of the Company, the exercise price shall not be less than 110% of the fair
market of a share of common stock on the date of grant.
  A summary
of the status of the 2004 and 2009 Plans as of September 30, 2009 and
information with respect to the changes in options outstanding is as
follows:
  Weighted
      -Options
                  
                  
                  
                  
                  
                  Average
                  
                  
                  AggregateAvailable
                  
                  
                  Options
                  
                  
                  Exercise
                  
                  
                  Intrinsicfor
      Grant
                  
                  
                  Outstanding
                  
                  
                  Price
                  
                  
                  ValueDecember
      31, 2008
                  
                  
                  65,487
                  
                  
                  
                  6,527,489
                  
                  
                  $
                  0.22
                  
                  
                  $
                  1,436,048Additional
      options authorized
                  
                  
                  1,000,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Granted
                  
                  
                  
                  
                  (61,216
                  )
                  
                  
                  61,216
                  
                  
                  
                  0.26
                  
                  
                  
                  15,916Exercised
                  
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Cancelled
                  
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -September
      30, 2009
                  
                  
                  1,004,271
                  
                  
                  
                  6,588,705
                  
                  
                  $
                  0.22
                  
                  
                  $
                  1,451,964Exercisable
      options at September 30, 2009
                  
                  
                  
                  5,256,006
                  
                  
                  $
                  0.22
                  
                  
                  $
                  1,158,275
 
 The
following table summarizes information about stock options outstanding as of
September 30, 2009:
  Options
      Outstanding
                  
                  Options
      ExercisableWeighted-Average
                  Weighted-
                  
                  
                  Weighted-Range
      of
                  
                  Remaining
                  Average
                  
                  
                  AverageExercise
                  Number
                  Contractual
                  Exercise
                  
                  Number
                  ExercisePrices
                  Outstanding
                  Life
      (Years)
                  Price
                  
                  Exercisable
                  Price$0.20
      - $0.31
                  6,588,705
                  5.55
                  $0.22
                  
                  5,256,006
                  $0.22
 16
 DECISIONPOINT
SYSTEMS, INC.
 Notes
to Consolidated Financial Statements
 September
30, 2009
 (Unaudited)
 
 Stock-based
compensation cost is measured at the grant date based on the fair value of the
award and is recognized as expense over the required service period, which is
generally equal to the vesting period.  The fair value of options
granted to employees during the nine months ended September 30, 2009 (no options
were granted during the nine months ended September 30, 2008) was estimated
using the Black-Scholes option-pricing model with the following
assumptions:
  Term
                
                5
      yearsVolatility
                
                
                44.19
                %Dividend
      yield
                
                
                0
                %Risk-free
      interest rate
                
                
                1.87
                %
  Management’s
estimate of expected volatility is based on the average expected volatilities of
a sampling of five companies with similar attributes to the Company, including:
industry, size and financial leverage.  The Company calculates the
estimated life of stock options using the “simplified” method.
 
 The
Company has no historical basis for determining expected forfeitures and, as
such, compensation expense for stock-based awards does not include an estimate
for forfeitures.  The Company adjusts stock-based compensation on a
quarterly basis for changes to the estimate of expected equity award forfeitures
based on a review of recent forfeiture activity and expected future employee
turnover.
 
 Employee
stock-based compensation costs for the nine months ended September 30, 2009 and
2008 was $38,114 and $0 respectively, and is included in selling, general and
administrative expense in the accompanying unaudited consolidated statements of
operations.  At September 30, 2009, total unrecognized estimated
employee compensation cost related to stock options granted prior to that date
was $115,000, which is expected to be recognized over a weighted-average vesting
period of 2.3 years.
 The
weighted-average fair value on the grant date of options granted to employees
during the nine months ended September 30, 2009 was $0.10.  The
Company did not grant any stock options during 2008.
 
 NOTE
11 – COMMITMENTS AND CONTINGENCIES
 
 Leases - The Company leases
its office and warehouse facilities under various operating
leases.   The Company has a corporate office located in
Parsippany, New Jersey where the Company leases 3,600 square
feet.  The executive offices and West coast sales, and operations are
located in Foothill Ranch, California where the Company leases 7,500 square
feet.  In addition, the Company leases 3,000 square feet in Shelton,
Connecticut for its East coast sales and operations and 2,000 square feet in
South Plainfield, New Jersey for its East coast depot
operation.  These facilities are expected to accommodate the Company’s
needs for the foreseeable future.
 
 The lease
for Foothill Ranch, CA expires in July 2010.  The lease for Shelton, CT
expires in April 2014.  The lease for Parsippany, NJ expires June
2011.  The South Plainfield, NJ facility lease is a month to month
rental.
 
 Rent
expense for the nine months ended September 30, 2009 and 2008 was $238,048 and
$214,702, respectively.
 
 The
aggregate remaining future minimum payments under these leases expiring after
September 30, 2009, are as follows:
 Years
      ending December 31:2009
                  
                  $
                  71,7642010
                  
                  
                  228,2392011
                  
                  
                  96,4132012
                  
                  
                  58,9242013and
      thereafter
                  
                  
                  77,136$
                  532,476
 17
  DECISIONPOINT
SYSTEMS, INC.
 Notes
to Consolidated Financial Statements
 September
30, 2009
 (Unaudited)
  Contingencies - The Company is
involved in certain litigation arising in the normal course of its
business.  Management, having consulted with its counsel, believes
these matters will not, either individually or in the aggregate, have any
material adverse impact on its operating results or financial position of the
Company.
 
 NOTE
12 - INCOME TAXES
 
 The
Company’s deferred income tax assets and liabilities are recognized for the
estimated future tax consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis.  These assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which the temporary differences are expected to reverse.
 
 The
Company has net operating loss carryforwards available in certain jurisdictions
to reduce future taxable income.  Future tax benefits for net
operating loss carryforwards are recognized to the extent that realization of
these benefits is considered more likely than not.  This determination
is based on the expectation that related operations will be sufficiently
profitable or various tax business and other planning strategies will enable the
Company to utilize the operating loss carryforwards.  The Company’s
evaluation of the realizability of deferred tax assets considers both positive
and negative evidence.  The weight given to potential effects of
positive and negative evidence is based on the extent to which it can be
objectively verified.  During the third quarter of 2009, the Company
recorded a valuation allowance related to the temporary items as it was
determined it is more likely than not that the Company will not be able to fully
use the assets to reduce future tax liabilities.
 
 The
provision for income taxes for the nine months ended September 30, 2009 and the
year ended December 31, 2008, is as follows (all amounts are
approximate):
  September
      30,
                
                
                December
      31,2009
                
                
                2008Current
      income tax expense:Federal
                
                $
                83,000
                
                
                $
                -State
                
                
                36,000
                
                
                
                16,000119,000
                
                
                
                16,000Deferred
      income tax expense (benefit):Federal
                
                
                (73,000
                )
                
                
                --State
                
                
                (22,000
                )
                
                
                (62,000
                )(95,000
                )
                
                
                (62,000
                )Income
      tax expense (benefit)
                
                $
                24,000
                
                
                $
                (46,000
                )
    18
 DECISIONPOINT
SYSTEMS, INC.
 Notes
to Consolidated Financial Statements
 September
30, 2009
 (Unaudited)
 The
Company’s deferred tax assets and liabilities are as follows:
 
 September
      30,
                
                
                December
      31,2009
                
                
                2008Allowance
      for doubtful accounts
                
                $
                148,000
                
                
                $
                7,000Inventory
      reserve and uniform capitalization
                
                
                64,000
                
                
                
                4,000Accrued
      expenses
                
                
                339,000
                
                
                
                34,000Deferred
      revenue
                
                
                441,000
                
                
                
                28,000Valuation
      allowance
                
                
                (837,000
                )
                
                
                -Deferred
      tax assets - current
                
                
                155,000
                
                
                
                73,000Property
      and equipment
                
                
                (2,000
                )
                
                
                -Intangible
      assets
                
                
                225,000
                
                
                
                -Stock
      based compensation
                
                
                44,000
                
                
                
                -Valuation
      allowance
                
                
                (267,000
                )
                
                
                -Net
      deferred tax assets - long-term
                
                
                -
                
                
                
                -Total
      net deferred tax asset
                
                $
                155,000
                
                
                $
                73,000
 
 A
reconciliation of the United States statutory income tax rate to the effective
income tax rate for the nine months ended September 30, 2009 and the year ended
December 31, 2008 is as follows:
 September
      30, 2009
                
                
                December
      31, 2008Amount
                
                
                Rate
      (%)
                
                
                Amount
                
                
                Rate
      (%)Tax
      at the Federal statutory rate
                
                $
                (86,000
                )
                
                
                34.0
                
                
                $
                -
                
                
                
                -State
      taxes
                
                
                9,000
                
                
                
                (3.6
                )
                
                
                46,000
                
                
                
                4.9Permanent
      differences
                
                
                12,000
                
                
                
                (4.5
                )
                
                
                -
                
                
                
                -Others
                
                
                (13,000
                )
                
                
                5.1Valuation
      allowance
                
                
                1,104,000
                
                
                
                (436.4
                )
                
                
                -
                
                
                
                -Impact
      of change from S toC
      Corporate tax status
                
                
                (1,002,000
                )
                
                
                396.0
                
                
                
                -
                
                
                
                -Effective
      tax rate
                
                $
                24,000
                
                
                
                (9.4
                )
                
                $
                46,000
                
                
                
                4.9
  Prior to
the Merger discussed in Note 1, the Company filed its Federal and State income
tax returns as a sub-chapter “S” corporation.  Therefore, any income
tax liability from its operations was payable directly by its
shareholders.  As a result of the Merger, the Company’s sub-chapter
“S” corporation status was terminated on June 18, 2009.  When the
Company changes its tax status from a nontaxable sub-chapter “S” corporation to
a taxable “C” corporation, deferred tax assets and liabilities shall be
recognized for timing differences at the date that a nontaxable enterprise
becomes a taxable enterprise.  As a result, the Company recorded a net
deferred tax asset of $1,002,000 with the offset being recorded as an income tax
benefit with a valuation allowance in the statement of operations of $1,104,000
for the period ended September 30, 2009.
   19
 NOTE
13 - PROFIT SHARING PLAN
 
 The
Company maintains a 401(k) Profit Sharing Plan (“401k
Plan”).  Employees who are 21 years of age and after 90 days of
service are eligible to participate.  Each year, employees can make
salary contributions up to 25% of their salary and the Company matches 100% of
employee contributions up to 3% of eligible employee compensation and 50% of
employee contributions over 3% to 5% for a total of 4% of employee
compensation.  Employer contributions to the 401k Plan were $152,763
and $192,584 for the nine month periods ended September 30, 2009 and 2008,
respectively.
 
 NOTE
14 - RELATED PARTY
 
 The
Company from time to time has purchased and sold certain products and services
from a separate corporate entity which is wholly owned by an
ESOP.  This entity is affiliated with the Company through limited
overlapping management and Board representation by the Company's CEO and
CFO.  During the three and nine months ended September 30, 2009,
products and services were purchased for $42,001 and $126,001,
respectively.  Sales to this affiliate during the same periods were
$113,523 and $427,589, respectively.  Amounts due from this affiliate
are included in accounts receivable in the accompanying unaudited consolidated
financial statements as of September 30, 2009 and December 31, 2008, are
$810,553 and $594,403, respectively.
 
 As of
September 30, 2009 and December 31, 2008, the Company has accounts payable to
two of its executive officers primarily arising from purchases of products on
behalf of the Company in the amounts of $579,596 and $366,453,
respectively.
 
 NOTE
15 - SUBSEQUENT EVENT
 
 The
Company has evaluated subsequent events through November 13, 2009, the date on
which the consolidated financial statements were issued.
  20
  ITEM
      2.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
 
 MANAGEMENT’S
DISCUSSION AND ANALYSIS
  Forward
Looking Statements
 
 Some of
the statements contained in this Form 10-Q that are not historical facts are
"forward-looking statements" which can be identified by the use of terminology
such as "estimates," "projects," "plans," "believes," "expects," "anticipates,"
"intends," or the negative or other variations, or by discussions of strategy
that involve risks and uncertainties.  We urge you to be cautious of
the forward-looking statements, that such statements, which are contained in
this Form 10-Q, reflect our current beliefs with respect to future events and
involve known and unknown risks, uncertainties and other factors affecting our
operations, market growth, services, products and licenses.  No
assurances can be given regarding the achievement of future results, as actual
results may differ materially as a result of the risks we face, and actual
events may differ from the assumptions underlying the statements that have been
made regarding anticipated events.  Factors that may cause actual
results, our performance or achievements, or industry results, to differ
materially from those contemplated by such forward-looking statements include
without limitation:
  ·
              Our
      ability to raise capital when needed and on acceptable terms and
      conditions;
 ·
              The
      intensity of competition;
 ·
              General
      economic conditions and,
 ·
              Our
      ability to attract and retain management, and to integrate and maintain
      technical information and management information
  systems.
  All
written and oral forward-looking statements made in connection with this Form
10-Q that are attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements.  Given the
uncertainties that surround such statements, you are cautioned not to place
undue reliance on such forward-looking statements.  We undertake no
obligation to publicly update or revise any forward-looking statements whether
as a result more information, future events or occurrences.
 
 OVERVIEW
 
 DecisionPoint
Systems, Inc. (“Company”, “DecisionPoint”, “we” or “us”) is a data collection
systems integrator that sells and installs field mobility devices, software, and
related bar coding equipment, and provides radio frequency identification
solutions, more commonly known as “RFID”.  The Company also provides
professional services and software customization solutions. DecisionPoint
delivers to its customers the ability to make better, faster, and more accurate
business decisions by implementing industry-specific, enterprise wireless and
mobile computing systems for their front-line employees and fully integrating
them into their back office systems.
 
 We
provide customers with everything they need through the process of achieving
their enterprise mobility goals, starting with the planning of their systems, to
the design and build stage, to the deployment and support stage, and finally to
achieving their projected Return On Investment (“ROI”).  Our business
designs, sells, installs and services voice and data communications products and
systems for private networks and wireless broadband systems to a wide range of
enterprise markets, including retail, transportation and logistics,
manufacturing, wholesale and distribution, as well as other commercial customers
(which, collectively, are referred to as the “commercial enterprise
market”).  We provide a complete line of deployment and integration
services, including site surveys, equipment configuration and staging, system
installation, depot services, software support, training programs and project
management.
  We have
developed an ‘ecosystem’ of partners which we bring to every customer
situation.  The standout partner in this ecosystem is the Motorola
Enterprise Mobility Division, for whom we consistently are rated one of the
nation’s top Value Added Resellers.  We also partner with other top
equipment and software suppliers such as Zebra Technologies Corporation, Datamax
- O’Neil  — a unit of the Dover Corporation,  in addition to
a host of specialized independent software vendors such as AirVersent, Antenna
Software, GlobalBay, Mobileframe, Syclo and Wavelink.
 
 Over the
last several years, we have been repositioning ourselves to focus more on
providing higher margin, customer-driven, mobile wireless and RFID solutions
rather than providing simply hardware and customized software as a
reseller.  This is the key to increasing our profitability and is also
a major point of differentiation.
 
 21
 
  Transportation
and logistics, and field services such as repair and maintenance, delivery and
inspections are now emerging as great new markets.  This is primarily
due to the arrival of robust, national wireless carrier networks that can reach
a field-based mobile worker almost anywhere they are.  The general
term for this new group of markets is referred to as “Field
Mobility”.  Although it cuts across multiple industries and business
applications, it has one common characteristic: goods are tracked or services
are being performed by field-basedworkforces, not
workers operating in a single location under one roof. We believe that the
growth of Field Mobility-based markets will be very significant over the next
several years, and we have created a dedicated specialty business practice to
focus on it.  This practice was established in 2008, with the express
purpose of replicating our historical success with a new set of customers and
challenges together with a new ecosystem of partners which includes the four
major wireless carriers of AT&T, Sprint, T-Mobile and
Verizon.  The carriers not only bring potential new opportunities to
DecisionPoint but also have attractive programs which allow us to earn
additional revenue from them when we facilitate service of mobile computers and
devices on their networks.
 
 We were
incorporated on December 27, 2006 under the laws of the State of Delaware at
which time our name was Canusa Capital Corp. or Canusa.  On June 17, 2009,
we entered into an Agreement and Plan of Merger (“Merger” or “Merger Agreement”)
among ourselves, DecisionPoint Acquisition, Inc., a Delaware corporation which
is a wholly-owned subsidiary of us (“Merger Sub”), and DecisionPoint Systems
Holding, Inc., a California corporation (“Holding”).  Holding merged with
and into Merger Sub with Merger Sub surviving the Merger as our wholly-owned
subsidiary under the name DecisionPoint Systems Group, Inc.
(“DecisionPoint”).  DecisionPoint has two wholly owned subsidiaries,
DecisionPoint Systems CA, Inc. formerly known as Creative Concepts Software,
Inc. (“CCS”) which was originally incorporated in 1995 and DecisionPoint Systems
CT, Inc. formerly known as Sentinel Business Systems, Inc. (“SBS”) which was
originally incorporated in 1982.  All costs incurred in connection
with the Merger have been expensed.  Upon completion of the Merger,
the Company adopted DecisionPoint’s business plan.
  On June
18, 2009, we completed the Merger.  Immediately prior to the Merger, we had
2,500,000 common shares outstanding and Holding had 10,000 shares common shares
outstanding.  Pursuant to the Merger Agreement, 1,500,000 outstanding
shares of our common stock owned by our Chief Executive Officer were
cancelled.  Contemporaneously with the Merger, $2,794,524 of Holding’s
subordinated convertible debt was converted into 6,336 shares of Holding’s
common stock.  In accordance with the terms of the Merger, each of the
16,336 shares of Holding’s common stock that was outstanding immediately prior
to the Merger was exchanged for 153.04 shares of our common stock, giving
Holding’s shareholders 2,500,000 of common stock.  After the Merger,
pursuant to an 8 for 1 stock dividend, each of our 3,500,000 shares of common
stock was exchanged for eight shares of common stock, resulting in 28,000,000
total outstanding shares.  This transaction was treated as a stock split
for accounting purposes.
 
 All
references to share and per share amounts in this Quarterly Report have been
restated to retroactively reflect the number of shares of DecisionPoint Systems,
Inc. common stock issued pursuant to the Merger.
  RESULTS
OF OPERATIONS
 
 The
following discussion of our financial condition and results of operations is
based upon the unaudited results of operations for the three and nine months
ended September 30, 2009 as compared to the same periods ended September 30,
2008.  These should be read in conjunction with our unaudited
consolidated financial statements and notes thereto contained elsewhere in this
Form 10-Q.
  Comparison
of the Quarters Ended September 30, 2009 and 2008
 
 Revenues
were $11.5 million for the quarter ended September 30, 2009, compared to $13.3
million for the quarter ended September 30, 2008, a decrease of $1.8 million or
13.5%.  The decrease in revenue was primarily due to the weakened
economic conditions in the U.S. in the later part of 2008, that have continued
into 2009.  A reduction in traditional workforce mobility solutions
revenue has been partially offset by an increase in our field mobility solutions
revenue.
 
 Cost of
sales was $9.2 million for the quarter ended September 30, 2009, compared to
$10.8 million for the quarter ended September 30, 2008, a decrease of $1.6
million or 15%.  Our gross profit was $2.4 million for the quarter
ended September 30, 2009, compared to $2.6 million for the quarter ended
September 30, 2008, a decrease of $0.2 million or 7.4%.  Although the
actual dollar amount of gross profit is lower in the 2009 period, our realized
gross margin has increased to 20.6% in 2009, from 19.2% in the comparable period
of 2008.  This improvement is directly due to the increased emphasis
on cost control of the products and services which we resell as well as improved
utilization of our professional services costs which has a direct effect of
realizing greater margins on those services.
 
 22
 
 Selling,
general and administrative expenses were $1.9 million for the quarter ended
September 30, 2009, compared to $2.2 million for the quarter ended September 30,
2008, a decrease of $0.3 million or 13.1%.  The decrease in the
current quarter was the result of tighter cost management and lower commission
expense associated with lower revenues.  The primary items that
contributed to the reduction in expenses in the current period were lower
salaries, commissions and related travel expenses of approximately $0.2
million.  Finance and administration expenses were lower due to
reduced bad debt expense and financing fees.
 
 Other
expenses were $0.3 million for the quarters ended September 30, 2009 and
2008.  Other expenses for the three months ended September 30, 2009
and 2008 consists primarily of interest expense, which is related to our line of
credit and subordinated debt, and was $0.3 million for the quarter ended
September 30, 2009, compared to $0.3 million for the quarter ended September 30,
2008.  The increase in interest expense was the result of the issuance
of the $250,000 subordinated convertible debenture in June 2009.
 
 Comparison
of the Nine Months Ended September 30, 2009 and 2008
 
 Revenues
were $35.2 million for the nine months ended September 30, 2009, compared to
$41.8 million for the same period ended September 30, 2008, a decrease of $6.6
million or 15.8%.  The decrease in revenue was primarily due to the
weakened economic conditions in the US which has continued into 2009. A reduction in
traditional workforce mobility solutions revenue has been partially offset by an
increase in our field mobility solutions and consumable revenue of $0.3
million.
 
 Cost of
sales was $28.4 million for the nine months ended September 30, 2009, compared
to $34.0 million for the same period ended September 30, 2008, a decrease of
$5.6 million or 16.5%.  Our gross profit was $6.9 million for the nine
months ended September 30, 2009, compared to $7.9 million for the same period
ended September 30, 2008, a decrease of $1.0 million or
12.9%.  Although the actual dollar amount of gross profit is lower in
the 2009 period, our realized gross margin has increased to 19.5% in 2009, above
the 18.9% in the comparable period of 2008.  This improvement is
directly due to the increased emphasis on cost control of the products and
services which we resell as well as improved utilization of our professional
services costs.
 
 Selling,
general and administrative expenses were $6.0 million for the nine months ended
September 30, 2009, compared to $7.3 million for the same period ended September
30, 2008, a decrease of $1.3 million or 17.4%.  The decrease in the
current quarter of 2009 was the result of tighter cost management and lower
commission expense associated with lower revenues. The primary items that
contributed to the reduction in expenses in the current period were lower
salaries, commissions and related travel expenses of approximately $0.8
million.  Finance and administration expenses were lower due to a
reduction bad debt, insurance and payroll expenses along with lower financing
fees totaling slightly less than $0.5 million in the current
period.
 
 Other
expenses were $1.1 million for the nine months ended September 30, 2009,
compared with $1.6 million for the same period ended September 30, 2008, a
decrease of approximately $0.5 million, or 34%.  Interest expense,
which is related to our line of credit and subordinated debt, was $0.8 million
for the nine months ended September 30, 2009, compared to $0.9 million for the
same period ended September 30, 2008.  The decrease in interest
expense was the result of lower interest charges and amounts borrowed on our
line of credit and the conversion of $2.8 million of subordinated debt in June
2009.  The conversion of debt to equity concurrent with the Merger has
had a negligible impact on previous reporting periods but may be material in
future periods.  Other expense of $0.2 million and $0.6 million for
the nine months ended September 30, 2009 and 2008 respectively, consists
primarily of expenses related to the reverse merger transaction in
2009.  In 2008, we wrote-off an investment in a potential acquisition
that did not materialize in the amount of $632,500.
  
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Cash
and cash flow
 
 The
recent financial and credit crisis has reduced credit availability and liquidity
for many companies.  We have seen our revenue decrease approximately
16%, due to the weakened economic conditions in the U.S. which have continued
into 2009.  We have been able to improve our gross margins and reduce
our selling, general and administrative expenses which have resulted in improved
operating income.  We believe that our strategic shift to higher
margin mobility solutions with additional software and service revenues along
with tighter cost control will sustain us through this challenging
period.  As a matter of course, the Company does not maintain
significant cash balances on hand since we are financed by a line of
credit.  Typically, any excess cash is automatically applied to the
then outstanding line of credit balance.   As long as we continue
to generate revenues, we are permitted to drawdown on our line of credit to fund
our normal working capital needs.  As such, we anticipate that we will
have more than sufficient borrowing capacity to continue our operations in the
normal course of business unless unforeseeable material economic events occur
beyond our control.
   23
 
 As of
September 30, 2009 and December 31, 2008, we had cash and cash equivalents of
approximately $0.1 million and $0.9 million, respectively.  We have
used, and plan to use, such cash for general corporate purposes, including
working capital.
 
 As of
September 30, 2009, we have negative working capital of $9.8 million and total
stockholders’ deficit of $4.8 million.  Included in current
liabilities is  unearned revenue of $8.5 million, which reflects
services that are to be performed in future periods but that have been
principally paid and/or accrued for and therefore, do not generally represent
additional future cash outlay requirements.  Included in current
assets are deferred costs of $3.9 million which reflect costs paid for third
party extended maintenance services that are being amortized over their
respective service periods.  The increase in the unearned revenue,
offset by the deferred costs, will provide a benefit in future periods as the
amounts convert to realized revenue.
  In
December 2006, pursuant to a Loan and Security Agreement (“Loan Agreement”), the
Company obtained a $6.5 million line of credit, which provides for borrowings
based upon eligible accounts receivable, as defined in the Loan
Agreement.  Under the terms of the Loan Agreement, interest accrues at
Prime plus 2.5% with an interest rate reduction of 0.75% based on future
profitability.  The Loan Agreement is secured by substantially all of
our assets and matured in December 2008, at which time it was amended to extend
the maturity date to March 2009 in exchange for an extension fee of
$12,185.
  In March
2009, pursuant to an Amendment to the Loan Agreement (“Amendment”) the line of
credit was renewed for an additional two year period and the amount available
for borrowing was increased to $8.5 million.  Pursuant to the
Amendment, the rate at which interest accrues increased to Prime plus 4%, with a
potential interest rate reduction of 0.50% based on future
profitability.  The Amendment also modified the definition of “prime
rate” to a rate not less than 4% on any day.  We paid an annual
renewal fee of $85,000.  The amounts outstanding under the line of
credit at September 30, 2009 and December 31, 2008 were $3,542,528 with interest
accruing at 8%, and $3,377,208 with interest accruing at 10.25%,
respectively.  The line of credit has a tangible net worth financial
covenant and other non-financial covenants with which we have been in
compliance.  Availability under this line of credit was approximately
$2,438,000 and $1,605,000 as of September 30, 2009 and December 31, 2008,
respectively.
  We
believe that cash on hand, plus amounts anticipated to be generated from
operations and from other contemplated financing transactions, whether from
issuing additional long term debt or the sale of equity securities through a
private placement, as well as borrowings available under our line of credit,
will be sufficient to support our operations through the 12 month period ending
October 2010.If we
are not able to raise funds through private placements, we may choose to modify
our growth plans to the extent of available funding, if any, and further reduce
our selling, general and administrative expenses.
  For the
nine months ended September 30, 2009, net cash used in operating activities was
$0.5 million, primarily due to a $0.6 million reduction in accrued expenses and
the reduced loss from operations.  Net cash used in financing
activities was $0.4 million for the nine months ended September 30, 2009,
primarily from payments on our subordinated debt during the period.
 
 During
the nine months ended September 30, 2008 net cash provided by operating
activities was $1.2 million, primarily due to the increase in net changes in
working capital of $2.1 million.  Net cash used in financing
activities was $ 1.7 million for the nine months ended September 30, 2008,
primarily due to a net reduction in the amount outstanding on our line of credit
and bank term loan during the period.
 
 
 CRITICAL
ACCOUNTING ESTIMATES
 
 Our
consolidated financial statements are prepared in conformity with U.S. generally
accepted accounting principles, which require 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 periods.  Critical
accounting policies are those that require the application of management’s most
difficult, subjective, or complex judgments, often because of the need to make
estimates about the effect of matters that are inherently uncertain and that may
change in subsequent periods. In preparing the consolidated financial
statements, management has utilized available information, including our past
history, industry standards and the current economic environment, among other
factors, in forming its estimates and judgments, giving due consideration to
materiality.  Actual results may differ from these
estimates.  In addition, other companies may utilize different
estimates, which may impact the comparability of our results of operations to
those of companies in similar businesses.  We believe that of our
critical accounting policies, may involve a higher degree of judgment and
estimation:
   24
  Accounts
Receivable
  We have
policies and procedures for reviewing and granting credit to all customer
accounts, including:
  •
              Credit
      reviews of all new customer
accounts,
  •
              Ongoing
      credit evaluations of current
customers,
  •
              Credit
      limits and payment terms based on available credit
      information,
  •
              Adjustments
      to credit limits based upon payment history and the customer’s current
      credit worthiness, and
  •
              An
      active collection effort by regional credit functions, reporting directly
      to the corporate financial
officers.
  We
reserve for estimated credit losses based upon historical experience and
specific customer collection issues.  Over the last three years ending
December 31, accounts receivable reserves varied from 1.6% to 6.7% of total
accounts receivable. Accounts receivable reserves as of September 30, 2009, were
$620,000, or 7.0% of the balance due.  Accounts receivable reserves as
of December 31, 2008, were $575,000, or 6.7% of the balance due.  We
believe our reserve level is appropriate considering the quality of the
portfolio as of September 30, 2009.  While credit losses have
historically been within expectations and the provisions established, we cannot
guarantee that our credit loss experience will continue to be consistent with
historical experience due to the current economic recession.
  Inventory
 Inventory
is stated at the lower of cost or market.  Cost is determined under
the first-in, first-out (FIFO) method.  We periodically review our
inventories and makes provisions as necessary for estimated obsolete and
slow-moving goods.  We mark down inventory to an amount equal to the
difference between cost of inventory and the estimated market value based upon
assumptions about future demands, selling prices and market
conditions.  The creation of such provisions results in a write-down
of inventory to net realizable value and a charge to cost of sales.
  Deferred
Tax Asset
 
 The
increase of current deferred income tax assets in the third quarter of 2009 is
attributable to the release of a portion of the valuation allowance recorded in
the prior periods.  In the opinion of management, it is more likely than
not the $155,000 of the deferred tax assets will be realized.
 Revenue
recognition
  Revenues
are generated through product sales, warranty and maintenance agreements,
software customization, and professional services.  Product sales are
recognized when the following criteria are met (1) there is persuasive
evidence that an arrangement exits; (2) delivery has occurred and title has
passed to the customer, which generally happens at the point of shipment
provided that no significant obligations remain; (3) the price is fixed and
determinable; and (4) collectability is reasonably assured.  We
generate revenues from the sale of extended warranties on wireless and mobile
hardware and systems.  Revenue related to extended warranty and service
contracts is recorded as unearned revenue and is recognized over the life of the
contract and may be liable to refund a customer for amounts paid in certain
circumstances.  This has not been an issue for the Company
historically.
  We also
generate revenue from software customization and professional services on either
a fee for-service or fixed fee basis.  Revenue from software customization
and professional services that is contracted as fee for-service, also referred
to as per-diem billing, is recognized in the period in which the services are
performed or delivered.  Fixed fee services are accounted for in conformity
with either the percentage-of-completion or the completed-contract method. 
Revenues recognized on the percentage-of-completion method, are measured by the
percentage of cost incurred to date, primarily labor costs, to total costs
estimated to be incurred for each contract.  Management considers
expended costs to be the best available measure of progress on these
contracts.
  Stock-based
compensation
  We record
the fair value of stock-based payments as an expense in our consolidated
financial statements. When more precise pricing data is unavailable, we
determine the fair value of stock options using the Black-Scholes option-pricing
model.  This valuation model requires us to make assumptions and
judgments about the variables used in the calculation.  These
variables and assumptions include the weighted-average period of time that the
options granted are expected to be outstanding, the volatility of our common
stock, the risk-free interest rate and the estimated rate of forfeitures of
unvested stock options.  Additional information on the variables and
assumptions used in our stock-based compensation are described in Note 10
of the accompanying notes to our unaudited consolidated financial
statements.
  25
  Off-Balance
Sheet Arrangements
  There
were no off-balance sheet arrangements as of September 30, 2009
 
 Employees
 
 As of
September 30, 2009, DecisionPoint had a total of 62 full time and 2 part time
non-union employees.  We have not experienced any work disruptions or
stoppages and we consider relations with our employees to be good
 
 Inflation
  We do not
believe that inflation has had a material impact on our business or operating
results during the periods presented
 
 ITEM
3.        QUANTITIATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
 
 Not
required for smaller reporting companies.
 
 
 ITEM
4T.    CONTROLS AND PROCEDURES
  Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the design and operation
of our disclosure controls and procedures in accordance with Rule 13a-15 of the
Securities Exchange Act of 1934 (the “Exchange Act”).  Our management,
including our principal executive officer and principal financial officer,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2008, and concluded that the
disclosure controls and procedures were not effective as a whole, and that the
deficiency involving internal controls constituted a material
weakness.  The material weakness related to our application of ASC 718
to a transaction recorded in 2006 and errors in accounting for stock warrants
issued in connection with bridge financing in 2007.
  The
material weakness resulted in the restatement of the previously reported
financial statements and other related financial disclosures.  Based
on a review by our auditors and further evaluation by management of the Company,
we amended our 2007 and 2008 financial statements in a Form 8-K/A filed on
August 19, 2009.  The Company has implemented new procedures to mitigate
the risk of ineffective disclosure controls and procedures related to accounting
for the adoption of new accounting standards and derivative instruments in the
future that include a thorough review of all applicable guidance, consultation
with our external auditors and legal counsel and other financial reporting
experts.
  We review
our disclosure controls and procedures on an ongoing basis and may from time to
time make changes aimed at enhancing their effectiveness.  We also
review our internal control over financial reporting, on an ongoing basis and
may from time to time make changes aimed at enhancing their effectiveness. 
Based on their evaluation and on the new procedures noted above, our Chief
Executive Officer and Chief Financial Officer concluded that, as of the end of
the period covered by this report, our disclosure controls and procedures were
effective to provide reasonable assurance that we are able to record, process,
summarize and report in a timely manner the information required to be disclosed
in reports we file under the Exchange Act.
  26
  PART
II-OTHER INFORMATION
 
 
 ITEM
1.             LEGAL
PROCEEDINGS
 
 From time
to time, DecisionPoint may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business.  However,
litigation is subject to inherent uncertainties, and an adverse result in these
or other matters may arise from time to time that may harm its
business.  DecisionPoint is currently not aware of any such legal
proceedings or claims that they believe will have, individually or in the
aggregate, a material adverse affect on its business, financial condition or
operating results.
 
 ITEM
1A.           RISK
FACTORS
 
 There
have been no material changes from the risk factors disclosed in the “Risk
Factors” section of our Form 8-K/A as filed with the SEC on August 19,
2009.
 
 ITEM
2.                UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 Pursuant
to the Merger Agreement, the Company acquired all of the issued and outstanding
capital stock of DecisionPoint from DecisionPoint’s shareholders in exchange for
20,000,000 shares of the Company’s shares of common stock.  The
closing of the transaction took place on June 18, 2009.
 
 In
connection with the merger during June 2009, the Company sold 560 shares of
Series A Cumulative Convertible Preferred Stock with a par value of $0.001 and a
stated value of $1,000 (the “Series A Preferred Stock”) to investors and
exchanged 415 shares of Series A Preferred Stock with noteholders holding
$415,000 of notes issued by DecisionPoint.
 
 ITEM
3                   DEFAULTS
UPON SENIOR SECURITIES
  Not
applicable.
 
 ITEM
4.                 SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Not
applicable.
  ITEM
5.                 OTHER
INFORMATION
 
 Not
applicable.
 
 ITEM
6.                  EXHIBITS
 
 (a)
Exhibits
 
 Exhibit
      Number
              
              Description
      of Exhibit31.1
              
              Certification
      of the Principal Executive Officer pursuant to Exchange Act Rule
      13a-14(a31.2
              
              Certification
      of the Principal Financial and Accounting Officer pursuant to Exchange Act
      Rule 13a-14(a)32.1
              
              Certification
      of the Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted
      pursuant to Section 906 of the Sarbanes Oxley Act of
  200232.2
              
              Certification
      of the Principal Financial and Accounting Officer pursuant to 18 U.S.C.
      1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of
      2002
 
 
  27
  
 
 SIGNATURES
 
 
 In
accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 DecisionPoint
      Systems, Inc.Date:
      November 16, 2009
              By:
              /s/
      Nicholas E. TomsNicholas
      E. TomsPrincipal
      Executive Officer
 
 Date:
      November 16, 2009
              By:
              /s/
      Donald W. RowleyDonald
      W. RowleyPrincipal
      Financial and Accounting Officer