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 Securities Exchange Act of
      1934





For the
quarterly period ended June 30, 2009





or





o
            Transition Report Pursuant to
      Section 13 or 15(d) of the Securities Exchange 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  92610-2609


(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 outstanding as of the close of business on
August 19, 2009 was 28,000,000.














DECISIONPOINT
SYSTEMS, INC.





TABLE
OF CONTENTS





PART I.
      FINANCIAL INFORMATIONItem 1.   Financial
StatementsUnaudited Consolidated Balance Sheets as of June 30, 2009 and
      December 31, 2008
                
                1Unaudited Consolidated Statements of Operations for the Three
      and Six Months Ended June 30, 2009 and 2008
                
                2Unaudited Consolidated Statement of Stockholders’ Equity for
      the Year Ended December 31, 2008 and Six Months Ended June 30,
      2009
                
                3Unaudited Consolidated Statements of Cash Flows for the Six
      Months Ended June 30, 2009 and 2008
                
                4Notes to Consolidated Financial Statements
                
                6Item 2.   Management’s Discussion and Analysis of
      Financial Condition and Results of Operations
                
                23Item 3.   Quantitative and Qualitative
      Disclosures About Market Risk
                
                28Item 4T.  Controls and Procedures
                
                28PART
      II.  OTHER INFORMATIONItem 1.   Legal ProceedingsItem 1a.  Risk Factors
                
                29Item 2.   Unregistered Sales of Equity
      Securities and Use of Proceeds
                
                29Item 3.   Defaults Upon Senior
      Securities
                
                29Item 4.   Submission of Matters to a Vote of
      Security Holders
                
                29Item 5.   Other Information
                
                29Item 6.   Exhibits
                
                29








1






PART I.            FINANCIAL
INFORMATION
 
 ITEM
1.         FINANCIAL
STATEMENTS
 
 DECISIONPOINT
SYSTEMS, INC.
 
 Consolidated
Balance Sheets






June
      30, 2009
                                                  
                                                  
                                                  December
      31,(unaudited)
                                                  
                                                  
                                                  2008Current
      assetsCash
      and cash equivalents
                                                  
                                                  $
                                                  504,160
                                                  
                                                  
                                                  $
                                                  944,941Accounts
      receivable, net
                                                  
                                                  
                                                  5,388,234
                                                  
                                                  
                                                  
                                                  8,069,039Inventory,
      net
                                                  
                                                  
                                                  1,492,544
                                                  
                                                  
                                                  
                                                  2,643,466Deferred
      costs
                                                  
                                                  
                                                  3,717,079
                                                  
                                                  
                                                  
                                                  3,705,483Prepaid
      expenses
                                                  
                                                  
                                                  27,976
                                                  
                                                  
                                                  
                                                  25,059Total
      current assets
                                                  
                                                  
                                                  11,129,993
                                                  
                                                  
                                                  
                                                  15,387,988Property
      and equipment, net
                                                  
                                                  
                                                  63,846
                                                  
                                                  
                                                  
                                                  78,161Other
      assets, net
                                                  
                                                  
                                                  115,318
                                                  
                                                  
                                                  
                                                  97,875Goodwill
                                                  
                                                  
                                                  4,860,663
                                                  
                                                  
                                                  
                                                  4,860,663Total
      assets
                                                  
                                                  $
                                                  16,169,820
                                                  
                                                  
                                                  $
                                                  20,424,687Current
      liabilitiesRevolving
      credit facility
                                                  
                                                  $
                                                  1,848,765
                                                  
                                                  
                                                  $
                                                  3,377,208Current
      portion of debt
                                                  
                                                  
                                                  1,048,350
                                                  
                                                  
                                                  
                                                  1,953,800Accounts
      payable
                                                  
                                                  
                                                  8,097,983
                                                  
                                                  
                                                  
                                                  7,864,693Accrued
      liabilities
                                                  
                                                  
                                                  2,986,799
                                                  
                                                  
                                                  
                                                  4,032,667Unearned
      revenue
                                                  
                                                  
                                                  6,949,690
                                                  
                                                  
                                                  
                                                  8,690,151Current
      portion of deferred compensation
                                                  
                                                  
                                                  36,103
                                                  
                                                  
                                                  
                                                  36,103Total
      current liabilities
                                                  
                                                  
                                                  20,967,690
                                                  
                                                  
                                                  
                                                  25,954,622Long-term
      liabilitiesDeferred compensation, net of current portion
                                                  
                                                  
                                                  199,484
                                                  
                                                  
                                                  
                                                  235,587Debt, net of current portion
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  2,866,024Total
      liabilities
                                                  
                                                  
                                                  21,167,174
                                                  
                                                  
                                                  
                                                  29,056,233Commitments
      and contingenciesStockholders’
      equity (deficit)Convertible preferred stock, $0.001 par value, authorized10,000,000 shares, 975 and none shares issued andoutstanding,
      respectively
                                                  
                                                  
                                                  1
                                                  
                                                  
                                                  
                                                  -Common stock, $0.001 par value, authorized 100,000,000shares,
      28,000,000 and 12,243,224 shares issuedand
      outstanding, respectively
                                                  
                                                  
                                                  28,000
                                                  
                                                  
                                                  
                                                  12,243Additional
      paid-in capital
                                                  
                                                  
                                                  6,196,141
                                                  
                                                  
                                                  
                                                  2,192,146Accumulated
      deficit
                                                  
                                                  
                                                  (10,023,082
                                                  )
                                                  
                                                  
                                                  (9,581,209
                                                  )Unearned
      ESOP shares
                                                  
                                                  
                                                  (1,198,414
                                                  )
                                                  
                                                  
                                                  (1,254,726
                                                  )Total
      stockholders’ deficit
                                                  
                                                  
                                                  (4,997,354
                                                  )
                                                  
                                                  
                                                  (8,631,546
                                                  )Total
      liabilities and stockholders' equity
                                                  
                                                  $
                                                  16,169,820
                                                  
                                                  
                                                  $
                                                  20,424,687





See
accompanying notes to consolidated financial statements
 
 2






DECISIONPOINT
SYSTEMS, INC.
  Consolidated
Statements of Operations
 (Unaudited)




For
      the Three Months
                              
                              
                              For
      the Six MonthsEnded
      June 30,
                              
                              
                              Ended
      June 30,2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008Net
      sales
                              
                              $
                              12,033,956
                              
                              
                              $
                              15,395,405
                              
                              
                              $
                              23,698,382
                              
                              
                              $
                              28,492,490Cost
      of sales
                              
                              
                              9,575,576
                              
                              
                              
                              12,686,822
                              
                              
                              
                              19,200,024
                              
                              
                              
                              23,166,004Gross
      profit
                              
                              
                              2,458,380
                              
                              
                              
                              2,708,583
                              
                              
                              
                              4,498,358
                              
                              
                              
                              5,326,486Selling,
      general and administrative expense
                              
                              
                              1,934,718
                              
                              
                              
                              2,498,124
                              
                              
                              
                              4,110,306
                              
                              
                              
                              5,095,864Operating
      income
                              
                              
                              523,662
                              
                              
                              
                              210,459
                              
                              
                              
                              388,052
                              
                              
                              
                              230,622Other
      income (expense):Other
      expense, net
                              
                              
                              (248,675
                              )
                              
                              
                              (504,747
                              )
                              
                              
                              (222,151
                              )
                              
                              
                              (615,297
                              )ESOP
      contribution, net
                              
                              
                              (28,156
                              )
                              
                              
                              (26,752
                              )
                              
                              
                              (56,312
                              )
                              
                              
                              (53,504
                              )Interest
      expense
                              
                              
                              (203,808
                              )
                              
                              
                              (348,027
                              )
                              
                              
                              (472,921
                              )
                              
                              
                              (657,686
                              )Total
      other expense
                              
                              
                              (480,639
                              )
                              
                              
                              (879,526
                              )
                              
                              
                              (751,384
                              )
                              
                              
                              (1,326,487
                              )Net
      income (loss) before income taxes
                              
                              
                              43,023
                              
                              
                              
                              (669,067
                              )
                              
                              
                              (363,332
                              )
                              
                              
                              (1,095,865
                              )Provision
      for income taxes
                              
                              
                              77,541
                              
                              
                              
                              -
                              
                              
                              
                              78,541
                              
                              
                              
                              2,200Net
      loss
                              
                              $
                              (34,518
                              )
                              
                              $
                              (669,067
                              )
                              
                              $
                              (441,873
                              )
                              
                              $
                              (1,098,065
                              )Net
      Earnings per Share -Basic
      and diluted
                              
                              $
                              (0.00
                              )
                              
                              $
                              (0.05
                              )
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.09
                              )Weighted
      Average Shares Outstanding -Basic
      and diluted
                              
                              
                              16,909,891
                              
                              
                              
                              12,243,224
                              
                              
                              
                              14,576,557
                              
                              
                              
                              12,243,224





See
accompanying notes to consolidated financial statements
 
 3







DECISIONPOINT
SYSTEMS, INC.
 
 Consolidated
Statements of Stockholders’ Deficit
 Year
Ended December 31, 2008 and Six Months Ended June30,
2009
 (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
                          )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
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          38,000Conversion
      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 debenture
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          96,361
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          96,361Warrants
      issued with convertible debenture
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          128,639
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          128,639Stock-based
      compensation
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          25,229
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          25,229Principal
      payment from ESOP
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          56,312
                          
                          
                          
                          56,312Net
      loss for the six months ended June 30, 2009
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (441,873
                          )
                          
                          
                          -
                          
                          
                          
                          (441,873
                          )Balance
      at June 30, 2009
                          
                          
                          975
                          
                          
                          $
                          1
                          
                          
                          
                          28,000,000
                          
                          
                          $
                          28,000
                          
                          
                          $
                          6,196,141
                          
                          
                          $
                          (10,023,082
                          )
                          
                          $
                          (1,198,414
                          )
                          
                          $
                          (4,997,354
                          )





See
accompanying notes to consolidated financial statements
 
 4
  DECISIONPOINT
SYSTEMS, INC.
  Consolidated
Statements of Cash Flows
 (Unaudited)







For
      the Six Months Ended June 30,2009
                                
                                
                                2008Net
      loss
                                
                                $
                                (441,873
                                )
                                
                                $
                                (1,098,065
                                )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
      and amortization
                                
                                
                                19,613
                                
                                
                                
                                21,259Amortization
      of deferred financing costs and debt discounts
                                
                                
                                36,563
                                
                                
                                
                                12,187Allowance
      for doubtful accounts
                                
                                
                                75,000
                                
                                
                                
                                102,651Inventory allowance
                                
                                
                                15,000
                                
                                
                                
                                25,000Stock-based
      compensation
                                
                                
                                25,229
                                
                                
                                
                                -Write
      off of investment
                                
                                
                                -
                                
                                
                                
                                632,500Changes
      in operating assets and liabilities:Accounts
      receivable
                                
                                
                                2,605,805
                                
                                
                                
                                (365,595
                                )Inventory
                                
                                
                                1,135,922
                                
                                
                                
                                (1,532,131
                                )Deferred
      costs
                                
                                
                                (11,596
                                )
                                
                                
                                186,714Prepaid
      expenses
                                
                                
                                (2,917
                                )
                                
                                
                                (12,620
                                )Other
      assets
                                
                                
                                73,911
                                
                                
                                
                                (12,508
                                )Accounts
      payable
                                
                                
                                233,290
                                
                                
                                
                                1,220,508Accrued
      liabilities
                                
                                
                                (1,045,868
                                )
                                
                                
                                1,346,413Unearned
      revenue
                                
                                
                                (1,740,461
                                )
                                
                                
                                947,654Deferred
      compensation
                                
                                
                                (36,103
                                )
                                
                                
                                -Net
      cash provided by operating activities
                                
                                
                                941,515
                                
                                
                                
                                1,473,967Cash
      flows from investing activitiesAdditions to property & equipment
                                
                                
                                (5,298
                                )
                                
                                
                                (5,172
                                )Net
      cash used in investing activities
                                
                                
                                (5,298
                                )
                                
                                
                                (5,172
                                )





See
accompanying notes to consolidated financial statements
 
 5
  DECISIONPOINT
SYSTEMS, INC.
  Consolidated
Statements of Cash Flows
 (Unaudited)




For
      the Six Months Ended June 30,2009
                                    
                                    
                                    2008Cash
      flows from financing activitiesBorrowings from revolving credit facility
                                    
                                    
                                    24,494,050
                                    
                                    
                                    
                                    28,334,000Repayments
      of revolving credit facility
                                    
                                    
                                    (26,022,493
                                    )
                                    
                                    
                                    (29,822,708
                                    )Repayments
      note payable to bank
                                    
                                    
                                    (300,000
                                    )
                                    
                                    
                                    (300,000
                                    )Repayments note payable, seller of CCS
                                    
                                    
                                    (172,367
                                    )
                                    
                                    
                                    -Repayments
      note payable, bridge note
                                    
                                    
                                    (100,000
                                    )
                                    
                                    
                                    -Issuance
      of convertible preferred stock
                                    
                                    
                                    560,000
                                    
                                    
                                    
                                    -Proceeds
      from sale of convertible note, net of issuance costs
                                    
                                    
                                    192,500
                                    
                                    
                                    
                                    -Paid
      financing costs
                                    
                                    
                                    (85,000
                                    )
                                    
                                    
                                    -Proceeds
      from ESOP contribution
                                    
                                    
                                    56,312
                                    
                                    
                                    
                                    53,504Net
      cash used in financing activities
                                    
                                    
                                    (1,376,998
                                    )
                                    
                                    
                                    (1,735,204
                                    )Net
      decrease in cash and cash equivalents
                                    
                                    
                                    (440,781
                                    )
                                    
                                    
                                    (266,409
                                    )Cash
      at beginning of period
                                    
                                    
                                    944,941
                                    
                                    
                                    
                                    597,524Cash
      at end of period
                                    
                                    $
                                    504,160
                                    
                                    
                                    $
                                    331,115Supplemental
      disclosure of non-cash activities:Interest
      paid
                                    
                                    $
                                    362,661
                                    
                                    
                                    $
                                    678,049Income
      taxes paid
                                    
                                    
                                    8,430
                                    
                                    
                                    
                                    2,200Supplemental
      disclosure of non-cash financing activities:Conversion of bridge notes payable to preferred stock
                                    
                                    
                                    415,000
                                    
                                    
                                    
                                    -Conversion of subordinated debt
                                    
                                    
                                    2,794,524
                                    
                                    
                                    
                                    -Issuance of common stock in connection with the stock
    dividend
                                    
                                    
                                    11,243
                                    
                                    
                                    
                                    -Issuance
      of common stock in connection with the Merger
                                    
                                    
                                    8,000
                                    
                                    
                                    
                                    -Issuance of common stock in connection with the conversionof debt to equity
                                    
                                    
                                    7,757
                                    
                                    
                                    
                                    -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 debenture
                                    
                                    
                                    96,361
                                    
                                    
                                    
                                    -Warrants issued with convertible debenture
                                    
                                    
                                    128,639
                                    
                                    
                                    
                                    -Original issue discount in connection of note issuance
                                    
                                    
                                    25,000
                                    
                                    
                                    
                                    -







See
accompanying notes to consolidated financial statements
 
 6




DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes to ConsolidatedStatements
 For
the Six Months Ended June 30, 2009 and 2008


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 custom
programming 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. or 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”) and DecisionPoint
Systems CT, Inc. formerly known as Sentinel Business Systems, Inc.
(“SBS”).  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 of the 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, shareholders of the Company’s 3,500,000 shares of
common stock received a stock dividend of an additional seven shares for every
share held.  This transaction was treated as a stock split for
accounting purposes.




Following
the Merger, the business conducted by the Company is the business conducted by
DecisionPoint 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 common 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” which
provides that the “merger of a private operating company into a non-operating
public shell corporation with nominal net assets typically results in the owners
and management of the private company having actual or effective operating
control of the combined company after the transaction, with the shareholders of
the former public shell continuing only as passive investors.  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 31st.




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 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.






7
  DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008




NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES




The
accompanying consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (“GAAP”) for interim
financial information and with the instructions to Form 10-Q adopted under the
Securities Exchange Act of 1934, as amended.  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 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 June 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
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 audited consolidated financial statements in the
Company’s current report on Form 8-K/A filed with the Securities and Exchange
Commission (“SEC”) on August 18, 2009.




Principles of Consolidation -
The accompanying 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
preparation of the consolidated financial statements.





Use of Estimates -The
preparation of consolidated 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 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 balance sheets
net of valuation allowances of $650,000 and $575,000 as of June 30, 2009 and
December 31, 2008, respectively.




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 balance sheets net of a
valuation allowance of $190,000 and $175,000 as of June 30, 2009 and December
31, 2008, respectively.






8




DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008






Property and Equipment -
Property and equipment are recorded at cost.  Depreciation and
amortization expenses are calculated using straight-line methods over the
following estimated useful lives, in years of the respective
assets:




Computer
equipment                                   3
to 5




Office
furniture and
fixtures                       5
to 7




Tooling                                                             7




Leasehold
improvements are amortized over the shorter of the lease term or the life of the
improvements.




Repairs
and maintenance that do not improve or extend the lives of the respective assets
are expensed in the period incurred.  At the time of retirement or
other disposition of property and equipment, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in income.




Impairment of Long-Lived
Assets - The Company accounts for long-lived assets in accordance with
provisions of SFAS No.144, Accounting for the Impairment or
Disposal of Long-Lived Assets (“SFAS No. 144”).  SFAS No. 144
requires that long-lived assets and certain identifiable intangibles be reviewed
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.  As of June 30, 2009 and December 31, 2008, the Company has
determined that no adjustment for impairment is required.




Goodwill –Goodwill is the
excess of the purchase price paid over the fair value of the net assets of the
acquired business.  The Company has accounted for goodwill in
accordance with SFAS No. 142, “Goodwill and Other Intangible
Assets”, (“SFAS 142”).  SFAS 142 establishes standards for the
accounting of intangible assets that are acquired individually or with a group
of other assets and the accounting for goodwill and other intangible assets
after they have been initially recognized in the financial statements. In
accordance with SFAS 142, 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.  The annual evaluation of intangible assets require the use
of estimates about future operating results of each reporting unit to determine
their estimated fair value.  Changes in forecasted operations can
affect these estimates.  Once an impairment of an intangible asset has
been recorded, it cannot be reversed.




Deferred Financing Costs -Costs that are incurred by the Company in connection with the issuance of
debt are deferred and amortized to interest expense in the consolidated
statement of operations 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.  The Company generally does not bear associated
warranty risk because it has contracted with a third party to assume risks and
obligations.




9




DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008





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 is recognized in the period in which the services are
performed.  Revenue derived from software customization and other
professional services are rendered on either a per-diem or fixed fee basis.
 Per-diem billing is recognized as the services are 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.




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 limit.  In September
2008, the FDIC insured limit was temporarily increased from $100,000 to
$250,000.  The limit will revert back to $100,000 on January 1,
2010.  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 six months ended June 30, 2009, the Company had sales to two customers, who
collectively represented 21% of total net sales.  Accounts receivable
from these two customers as of June 30, 2009 accounted for 23% of total accounts
receivable.  During the six months ended June 30, 2008, the Company
had sales to two customers, who collectively represented of 22% of total net
sales.  Accounts receivable from these two customers at June 30, 2008
accounted for 10% of total accounts receivable.




The
Company grants credit terms to its customers in the normal course of business on
an unsecured basis and closely monitors the extension of credit to its customers
while maintaining allowances for potential credit losses.  On a
periodic basis, the Company evaluates its trade accounts receivable and
establishes an allowance for doubtful accounts, based on a history of past
write-offs, collections and current credit considerations.




The
Company purchases its inventory from four main suppliers.  Purchases
from these suppliers have been consistent over the periods
presented.  The amount purchased from these suppliers represents 83%
and 78% of inventory purchases for the six months ended June 30, 2009 and 2008,
respectively.




Fair Value of Financial Instruments -The Company adopted Statement of Financial Accounting Standards (“SFAS”)
No. 157, Fair Value
Measurements(“SFAS 157”) on January 1, 2008.  SFAS 157 defines fair
value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles, and expands disclosures about fair
value measurements.  SFAS 157 does not require any new fair value
measurements; rather, it applies under other accounting pronouncements that
require or permit fair value measurements.  The provisions of SFAS 157
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.  FSP FAS 157-2 – Effective Date of FASB Statement
No. 157delays the effective date of SFAS 157 for all nonfinancial
assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually) to fiscal year beginning after November 15,
2008.  The adoption of this standard had no significant impact on the
Company’s financial statements.




Stock-Based Compensation - The
Company accounts for share based payments in accordance with SFAS
No. 123(R), “Share-Based
Payment”, (“SFAS 123R”), which requires the Company to record as an
expense in its consolidated financial statements the fair value of all
stock-based compensation awards.  The Company uses the Black-Scholes
option-pricing model to calculate the fair value of options and warrants granted
under SFAS 123R.  The key assumptions for this valuation method
include the expected term of the option, stock price volatility, risk-free
interest rate, dividend yield, and exercise price.  The terms and
vesting schedules for stock-based awards vary by type of
grant.  Generally, the awards vest based on time-based or
performance-based conditions.






10




DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008




Loss per Common Share -The
Company calculates earnings per share in accordance with SFAS No. 128,
“Earnings per
Share”.  The 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
exercise or conversion of all the potential common shares had been issued and
were dilutive.




For all
periods presented, 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:




June
      30, 2009
                          
                          
                          June
      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
      potential dilutive securities
                          
                          
                          10,613,705
                          
                          
                          
                          6,627,489









Income Taxes -The Company
accounts for income taxes using the asset and liability method in accordance
with SFAS 109, “Accounting for
Income Taxes”(“SFAS 109”).  UnderSFAS 109, deferred tax
assets and liabilities are determined based on the differences between the
financial reporting bases and the tax bases of existing assets and liabilities,
and are measured at the prevailing enacted tax rates that will be in effect when
these differences are settled or realized.  SFAS 109 also requires
that deferred tax assets be reduced by a valuation allowance if it is more
likely than not that some portion or all of the deferred tax asset will not be
realized.





The
Company adopted the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes”(FIN 48”), on January 1, 2009.  FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return.  As a result of the implementation of FIN 48, 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 as a
result of FIN 48, 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, the Closing Date 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.






11
  DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008




Recently Issued Accounting
Standards-In
December 2007, the FASB issued SFAS 141R, Business Combinations, (“SFAS
141R”) which replaces SFAS 141. SFAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill
acquired.  SFAS 141R also establishes disclosure requirements which
will enable users to evaluate the nature and financial effects of the business
combination.  SFAS 141R is effective for business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.  The
Company will evaluate the impact that the adoption of SFAS 141R will have
on its financial statements for future potential business
combinations.





In April
2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of
Intangible Assets. FSP FAS 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS 142.  FSP FAS
142-3 aims to improve the consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used to
measure the fair value of the asset under SFAS 141R, Business Combinations
(“SFAS 141R”)and other applicable accounting literature.  FSP FAS
142-3 is effective for financial statements issued for fiscal years beginning
after December 15, 2008 and must be applied prospectively to intangible
assets acquired after the effective date.  The adoption of FSP FAS
142-3 did not have any significant effect on the Company’s condensed financial
statements




In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements—an Amendment of Accounting Research Bulletin
No. 51 (“SFAS 160”) , which establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, the amount of consolidated net income attributable to the parent and to
the noncontrolling interest, changes in a parent’s ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated.  SFAS 160 also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners.  SFAS 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15,
2008.  The adoption of SFAS 160 did not have any significant effect on
the Company’s condensed financial statements.




In June
2008, the FASB ratified the EITF consensus reached in EITF Issue No. 07-5, Determining Whether an Instrument
(or Embedded Feature)Is Indexed to an Entity’s Own Stock, which provides
guidance for determining whether an equity-based financial instrument (or
embedded feather) is indexed to an entity’s own stock. EITF No. 07-5 is
effective for interim and annual reporting periods beginning after December 15,
2008.  The adoption of EITF No. 07-5 did not have a material impact on
the Company’s condensed financial statements.




In May,
2009, the FASB issued SFAS 165, Subsequent Events (“SFAS
165”). SFAS 165 prescribes the period after the balance sheet date during which
management should evaluate transactions for potential recognition, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date and the required disclosures an entity
should make about transactions or events occurring after the balance sheet
date.  This statement is effective for interim or annual periods
ending after June 15, 2009.  The adoption of SFAS 165 did not have a
material impact on the Company’s condensed financial statements.  The
Company evaluated subsequent events through the date the accompanying financial
statements were issued, which was August 19, 2009.




In April
2009, the FASB issued FASB Staff Position No. 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, (“FSP FAS 107-1”). FSP FAS 107-1 amends FASB
Statement No. 107, Disclosures
about Fair Value of Financial Instruments, to require disclosures about
fair value of financial instruments for interim reporting periods of publicly
traded companies as well as in annual financial statements.  This FSP
also amends APB Opinion No. 28, Interim Financial Reporting, to require those
disclosures in summarized financial information at interim reporting
periods.  FSP FAS 107-1 is effective for interim reporting periods
ending after June 15, 2009.  The adoption of FSP FAS 107-1 did not
have a material impact on the Company’s condensed financial
statements.








12




DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008






NOTE
3 - PROPERTY AND EQUIPMENT
  Property
and equipment as of June 30, 2009 and December 31, 2008, consists of the
following:


June
      30,
                                  
                                  
                                  December
      31,2009
                                  
                                  
                                  2008Computer
      equipment
                                  
                                  $
                                  145,225
                                  
                                  
                                  $
                                  143,856Office
      furniture and fixtures
                                  
                                  
                                  64,069
                                  
                                  
                                  
                                  64,069Tooling
                                  
                                  
                                  27,588
                                  
                                  
                                  
                                  27,588Leasehold
      improvements
                                  
                                  
                                  27,749
                                  
                                  
                                  
                                  23,818Total
                                  
                                  
                                  264,631
                                  
                                  
                                  
                                  259,331Less
      accumulated depreciation and amortization
                                  
                                  
                                  (200,785
                                  )
                                  
                                  
                                  (181,170
                                  )Net
      property and equipment
                                  
                                  $
                                  63,846
                                  
                                  
                                  $
                                  78,161




For the
periods ended June 30, 2009 and December 31, 2008, the Company incurred
depreciation and amortization expense on property and equipment of $19,613 and
$40,967, respectively.  Depreciation and amortization expense for the
three months ended June 30, 2009 and 2008 was $9,873 and $10,156,
respectively.




NOTE
4 – REVOLVING CREDIT FACILITY




In
December 2006, the Company obtained a $6.5 million revolving credit facility,
which provides for borrowings based upon eligible accounts receivable, as
defined in the line of credit agreement. The agreement is secured by
substantially all the assets of the Company and matured in December 2008. In
March 2009, the facility was renewed for an additional two year period and
increased to $8.5 million with an $85,000 annual renewal fee. Interest accrues
at the bank’s prime rate plus 4.0% (plus 2.5% prior to renewal) (prime rate at
June 30, 2009 and December 31, 2008 was 3.25%), with 0.5% interest rate
reduction based on future profitability. The rate is subject to a floor on the
bank’s prime rate of 4.0%. Borrowings outstanding on this line of credit at June
30, 2009 and December 31, 2008, were $1,848,765 and $3,377,208, respectively.
The line of credit has a tangible net worth financial covenant that the Company
has been in compliance with. Availability under this line of credit was
$1,685,000 and $1,605,000 as of June 30, 2009 and December 31, 2008,
respectively.







13




DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008






NOTE
5 - ACCRUED LIABILITIES




Accrued
liabilities consist of the following at June 30, 2009 and December 31,
2008:







June
      30,
                              
                              
                              December
      31,2009
                              
                              
                              2008Interest
                              
                              $
                              493,470
                              
                              
                              $
                              451,166Commissions
                              
                              
                              575,000
                              
                              
                              
                              850,538Customer
      deposits
                              
                              
                              327,883
                              
                              
                              
                              -Professional
      fees
                              
                              
                              687,140
                              
                              
                              
                              1,731,324Other
      expenses
                              
                              
                              16,259
                              
                              
                              
                              16,805Salaries
      and benefits
                              
                              
                              598,011
                              
                              
                              
                              665,114Taxes
                              
                              
                              28,633
                              
                              
                              
                              93,462Vacation
                              
                              
                              260,403
                              
                              
                              
                              224,258$
                              2,986,799
                              
                              
                              $
                              4,032,667





For the
periods ended June 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 $338,887 and
$224,953, respectively.  Interest accrues monthly at an annual rate
of16%.




NOTE
6 – DEFERRED COMPENSATION




During
March 2006, the Company purchased the common stock of SBS.  As part of
the purchase price, certain employees and directors of SBS agreed to accept
Holding Share equivalents (“Holding Shares”) in exchange for previously issued
options to acquire shares of SBS stock.  Under the terms of the Stock
Purchase Agreement (“Agreement”), the recipients of these Holding Shares are
entitled to a cash settlement under one of three settlement options determined
by each recipient.  The fair value of the Holding Shares was $380,000
under the terms of the Agreement in March 2006.  For those recipients
who elected to defer their cash payments, the share value is to be re-evaluated,
and the liability adjusted to reflect changes in the fair value of the
underlying stock based on the value of the ESOP share price as determined
annually on December 31st of each subsequent year until
maturity.  Recipients have agreed to receive a settlement of Holding
Shares totaling $180,000 under one of the settlement alternatives which provides
for a payout of 20% per year for five years.  The remaining $200,000
of Holding Shares was deferred by the recipients to be settled on the earlier of
(a) May 1, 2010, (b) the recipient attains age 65, (c) the recipient terminates
his/her employment with the Company or (d) the Company experiences a “change in
control” (as defined by the Agreement).





Future
settlements of these Holding Share equivalents in 2010 include the final fixed
payment of $36,103 and the unadjusted amount of $199,484, which does not take
into account any future value of the ESOP shares at December 31, 2009, and the
commensurate revaluation of the liability.








14




DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008






NOTE
7 – DEBT




The total
amount of debt as of June 30, 2009, is summarized as follows:




June
      30,Debt
      description
                                                  Term
                                                  
                                                  2009Bank
      term loan
                                                  Matures
      December 31, 2009, principal and interest payable monthly
                                                  
                                                  $
                                                  300,000Subordinated
      debt
                                                  Matures
      November 30, 2009, principal and interest payable monthly
                                                  
                                                  
                                                  181,433Subordinated
      convertible debt
                                                  Due
      currently
                                                  
                                                  
                                                  71,500Bridge
      notes
                                                  Matures
      December 31, 2009
                                                  
                                                  
                                                  485,000Subordinated
      convertible debenture
                                                  Matures
      June 2010
                                                  
                                                  
                                                  10,4171,048,350Less
      current portion
                                                  
                                                  
                                                  
                                                  (1,048,350
                                                  )Debt,
      net of current portion
                                                  
                                                  $
                                                  -
  Total
aggregate maturities of the Company's debt as of June 30, 2009, is as
follows:
  Years
      ending December 31:2009
                                                    
                                                    
                                                    $
                                                    1,037,9332010
                                                    
                                                    
                                                    
                                                    250,0002011
                                                    
                                                    
                                                    
                                                    -2012
                                                    
                                                    
                                                    
                                                    -2013
                                                    
                                                    
                                                    
                                                    -2014
      and thereafter
                                                    
                                                    
                                                    
                                                    -Total
      debt
                                                    
                                                    
                                                    $
                                                    1,287,933


Bank Term Loan -During
December 2006, the Company borrowed $1.5 million with terms of repayment as
follows; six months of interest only payments and thirty payments of principal
and interest.  Monthly principal payments are $50,000 over the term of
the loan.  Interest accrues at the bank’s prime lending rate plus 2.5%
(prime rate at June 30, 2009 and December 31, 2008 was 3.25%), with 0.75%
interest rate reduction based on future profitability.  The rate is
subject to a floor on the bank’s prime rate of 7.75%.




Subordinated Debt, Seller of CCS
- During December 2003, in connection with DecisionPoint’s acquisition of
CCS, the Company issued subordinated debt with a three year term to the original
owner of CCS.  In January 2009, the terms of the agreement were
extended through November 30, 2009 and provide for monthly principal and
interest payments of $43,092 through October 2009 and a final payment of $9,065
in November 2009.  Interest accrues on the unpaid balance at 4% over
the prime rate, not-to-exceed 12% (prime rate was 3.25% at June 30, 2009 and
December 31, 2008).






15




DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008




Subordinated Convertible Debt,
Employees and Investors -In December 2003, the Company issued
subordinated convertible debt with a ten-year term to employees and investors in
connection with the ESOP purchase transaction.  The Company issued
additional amounts of subordinated convertible debt in 2004, 2005 and
2006.  The interest rate on the subordinated convertible debt was either
prime plus 8% with a maximum interest rate of 16% and a rate floor of 12%, or
prime plus 6% with a maximum interest rate of 14% and a rate floor of 10% (prime
rate was 3.25% at June 30, 2009 and December 31, 2008).  As of the date of
the Merger, there was $1,666,024 of convertible debt outstanding.  In
connection with the Merger, $1,594,524 of this subordinated convertible debt was
converted into 3,607,674 shares of the Company’s Common
Stock.




Bridge Notes
-In June 2007, the
Company issued subordinated convertible debt (“Bridge Notes”) totaling
$1,000,000 with a one-year term to certain management and an outside
Director.  The Bridge Notes accrued interest at 15% per annum and had
an initiation fee of 2.5% and an extension fee of 2.5% of the principal to
extend beyond September 2007.  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 of a private placement of equity securities or
from such other established price (See Note 8c).  The warrants have an
exercise price of $1.00 and a contractual term of five (5) years.  The
warrants were valued at $45,419 and have been recorded as a discount to the
Bridge Note and a credit to additional paid-in capital.  The note
discount has been fully amortized to interest expense as of June 30,
2009.  As of June 30, 2009, $485.000 of the Bridge Notes are
outstanding and have been extended until December 31, 2009, under similar terms
and conditions.




During
January 2009, $100,000 of the principal along with accrued interest was
repaid.  Concurrently with the completion of the Merger, $415,000 of
principal was converted into 415 shares of Series A Preferred
Stock.





Subordinated Convertible Debt,
Sellers of SBS -During March 2006, the Company purchased the stock of
SBS.  As part of the payment for the purchase of its common stock, its
shareholders agreed to take subordinated convertible debt in the aggregate
amount of $1,200,000.  Terms of repayment was quarterly interest only
payments with all unpaid interest and principle due March
2013.  Interest had accrued at 4% per annum.  As of December
31, 2008, $1,200,000 was outstanding.  The note holders have a right
to convert their notes into common stock, all of which was converted into
4,152,902 shares of the Company’s common stock, concurrently with the completion
of the Merger.





Subordinated Convertible Debenture,
June 2009 Financing –Immediately following the completion of the Merger
in June 2009, the Company issued a convertible subordinated debenture (“Note”)
with an aggregate face value of $250,000, net of Original Issue Discount of 10%
and issuance cost of $32,500. Terms of repayment provide that all unpaid
interest and principal are due June 2010.  Interest accrues monthly at 6%
per annum.  The Note converts at the option of the holder into restricted
shares of the Company’s common stock at $0.50 per share.  The fair
market value of the Company’s common stock was $1.00 per share on the date of
issuance.




In
addition, pursuant to the terms of the Note, the Company issued detachable
warrants which are exercisable into 500,000 restricted shares of the Company’s
common stock at an exercise price of $0.50 per share and a five year term. 
The proceeds from the issuance of the Notes were allocated between the Note and
the warrants based on the relative fair values of the components.  The
warrants were valued at $128,639.  The portion of the proceeds
allocated to the warrants is recorded as additional paid-in capital and a
discount to the Notes.  The discount is being amortized to interest
expense using the effective interest method over the term of the
Notes.  The proceeds allocated to the Notes were compared to the fair
value of the stock that would be received on the conversion, and the Company
determined that a beneficial conversion feature in the amount of $96,361
existed.  This amount has been recorded as additional paid-in capital
and a discount to the Notes.  The discount is being amortized to
interest expense using the effective interest method over the term of the
Notes.






16


DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008




Future
debt service on the subordinated convertible debt as of December 31, 2009, is as
follows:




Principle
                          
                          
                          Interest
                          
                          
                          TotalPayment
                          
                          
                          Payment
                          
                          
                          PaymentYears
      ending December 31:2009
                          
                          
                          1,037,933
                          
                          
                          
                          234,893
                          
                          
                          
                          1,272,8262010
                          
                          
                          250,000
                          
                          
                          
                          132,500
                          
                          
                          
                          382,500$
                          1,287,933
                          
                          
                          $
                          367,393
                          
                          
                          $
                          1,655,326






NOTE
8 – STOCKHOLDERS’ EQUITY





The
Company’s authorized capital stock consists of 100,000,000 shares of common
stock at a par value of $0.001 per share and 10,000,000 shares of preferred
stock at a par value of $0.001.  After the merger, there are
28,000,000 shares of the Company’s common stock issued and outstanding that is
held by approximately 50 stockholders of record, and 975 shares of the
Company's 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 shares common shares outstanding.  Of the 2,500,000 outstanding
shares, 1,500,000 shares common stock owned by the Company’s Chief Executive
Officer were cancelled pursuant to the Merger Agreement.  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, shareholders of
the Company’s 3,500,000 shares of common stock received a stock dividend of an
additional seven shares for every share held.  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 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.




During
April 2009, the Company sold 560 shares of Series A Preferred Stock at a price
of $1,000 per share in a private placement.  No underwriting discounts or
commissions were paid in connection with the sales.  The securities were
offered and sold only to accredited investors within the meaning of Rule 501(a)
under the Securities Act of 1933, as amended (the “Act”), in a transaction
conducted pursuant to section 4(2) of the Act and Regulation D
thereunder.






17




DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008


Concurrent
with the Merger, $415,000 of Bridge Notes issued in June 2007 were converted to
415 shares of the above designated Preferred Stock including the pro-rata share
of the Class A and B Warrants.




(c)
Warrants




In
connection with 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 rate of 1.74%. The warrants were recorded
as additional paid-in capital.




In
connection with the Bridge Notes, the Company issued 100,000 warrants 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 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 3 years, expected volatility 44.19%, expected
dividend yield of 0%, and a risk-free rate of 2.71%. The warrants were recorded
based on on their relative fair value allocated between the warrants and the
Note (see Note 7) which was $128,639.




NOTE
9 - ESOP PLAN




General Description -In
December 2003, the Company formed an ESOP and loaned the ESOP $1,950,000 that
the Employee Stock Ownership Plan Trust (“Trust”) used to acquire all of the
Company’s stock from its former stockholder.  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 at a minimum of $130,000 per year, to repay the ESOP
Note Receivable (“Note”) held by the Company.





Purchase of Company Stock by the Plan
- The Company loaned the Trust $1,950,000 during the period ended
December 31, 2003, to enable the Trust to purchase 6,667 shares of the Company
Common Stock from the prior owner for $1,300,000 and 3,333 shares from the
Company for $650,000.  The Note bears an interest rate of 5.25% with
annual principal and interest payments and has a 15-year term.  The
Company’s contribution expense for the six months ended June 30, 2009 was
$89,249 representing $56,312 for ESOP principal payment and $32,937 for ESOP
interest.  The Company’s contribution expense for the year ending
December 31, 2008, was $178,498 representing $107,007 for ESOP principal payment
and $71,491 for ESOP interest.  The Note is secured by the unallocated
Company stock held by the Trust.





ESOP Note Payable - The amount
owed to the Company under the ESOP Note Payable as of June 30, 2009 and December
31, 2008, was $1,165,477 and $1,254,726, respectively.





ESOP Contributions and Allocated
Shares - 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 below is only for the year ended December
31, 2008.





The ESOP
compensation expense recorded by the Plan in 2008 was $7,263,664.  The
ESOP held 5,885 shares of unallocated Company stock and 4,115 shares of
allocated Company stock as of December 31, 2008.






18


DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008




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 5,456.5 shares of common stock
for issuance. 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.




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 an aggregate of
6,680,500 shares stock (after giving effect to the share exchange and stock
dividend).




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
June 30, 2009.




The 2004
and 2009 Plans, (collectively, the “Plans”) are administered by the Board of
Directors, or a committee appointed by the Board, 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 term of stock
options granted under the Plan cannot exceed ten years.  Options shall not
have an exercise price less than the fair market value of the Company’s common
stock on the grant date, and generally vest over a period of five
years.




After
giving effect to the Merger, participants have been granted 6,588,705 options to
purchase the Company’s common stock, of which 5,256,006 have been
vested.




The
Company records compensation expense associated with stock options and other
forms of equity compensation in accordance with SFAS 123R, as interpreted by
Staff Accounting Bulletin No. 107 (“SAB 107”).  Under the fair value
recognition provisions of this statement, stock-based compensation cost is
measured at the grant date based on the value of the award and is recognized as
expense over the required service period, which is generally equal to the
vesting period. The Company estimated the fair value of the options granted
during the six months ended June 30, 2009 using the Black-Scholes option pricing
model and the following assumptions; expected volatility 44.19%, expected term
is 5 years, dividend yield of 0% and a risk free interest rate
1.87%.




As
allowed by SFAS 123R for companies with a short period of publicly traded stock
history, 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 as
permitted by SAB 107.




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.




For the
six months ended June 30, 2009, total stock-based compensation cost was $25,229
and is included in selling, general and administrative expense in the
consolidated statements of operations.









19
  DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008




At June 30, 2009, the
total outstanding, and the total exercisable, options under the Plans were as
follows:




Weighted-Weighted-
                      
                      
                      AverageAverage
                      
                      
                      Remaining
                      
                      
                      AggregateNumber
                      
                      
                      Exercise
                      
                      
                      Contractual
                      
                      
                      IntrinsicOutstanding
                      
                      
                      Price
                      
                      
                      Term
                      
                      
                      ValueTotal
      outstanding options
                      
                      
                      6,588,705
                      
                      
                      $
                      0.22
                      
                      
                      
                      5.6
      years
                      
                      
                      $
                      5,119,549Total
      exercisable options
                      
                      
                      5,256,006
                      
                      
                      $
                      0.21
                      
                      
                      
                      4.9
      years
                      
                      
                      $
                      4,139,826




During
the six months ended June 30, 2009, the Company granted to an Executive Officer
options to purchase an aggregate of 61,216 shares of common stock at an exercise
price of $0.26.  The right to purchase such shares vests pro-ratably
over five (5) years, volatility of 44.19% and risk-free interest rate of
1.87%.  A fair value of $6,304 was assigned to the options based on
the Black-Scholes option-pricing model.





During
the six months ended June 30, 2008, the Company did not grant any
options.





Activity
with respect to options granted under the Plan is summarized as
follows:




For
      the Six Months
                                  
                                  
                                  For
      the Six MonthsEnded
      June 30, 2009
                                  
                                  
                                  Ended
      June 30, 2008Weighted-
                                  
                                  
                                  
                                  
                                  
                                  Weighted-Average
                                  
                                  
                                  
                                  
                                  
                                  AverageShares
                                  
                                  
                                  Exercise
      Price
                                  
                                  
                                  Shares
                                  
                                  
                                  Exercise
      PriceBalance
      at January 1, 2009and
      2008, respectively
                                  
                                  
                                  6,527,489
                                  
                                  
                                  $
                                  0.22
                                  
                                  
                                  
                                  6,680,529
                                  
                                  
                                  $
                                  0.22Granted
      under the Plan
                                  
                                  
                                  61,216
                                  
                                  
                                  
                                  0.26
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Surrendered/cancelled
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (153,040
                                  )
                                  
                                  
                                  0.26Forfeited
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Outstanding
      at June 30, 2009and
      2008, respectively
                                  
                                  
                                  6,588,705
                                  
                                  
                                  $
                                  0.22
                                  
                                  
                                  
                                  6,527,489
                                  
                                  
                                  $
                                  0.22Exercisable
      at June 30, 2009and
      2008, respectively
                                  
                                  
                                  5,256,006
                                  
                                  
                                  $
                                  0.21
                                  
                                  
                                  
                                  4,357,110
                                  
                                  
                                  $
                                  0.21




At June
30, 2009, total unrecognized estimated employee compensation cost related to
stock options granted prior to that date was $116,800, which is expected to be
recognized over a weighted-average vesting period of 2.5
years.






20




DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008







NOTE
11 – COMMITMENTS AND CONTINGENCIES





Leases - The Company leases
its office and warehouse facilities under various operating
leases.  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 May 2011.  The South Plainfield, NJ facility
lease is a month to month rental.





The
aggregate remaining future minimum payments under these leases expiring after
December 31, 2009, are as follows:







Years
      ending December 31:2009
                          
                          
                          $
                          265,2282010
                          
                          
                          
                          228,2392011
                          
                          
                          
                          96,4132012
                          
                          
                          
                          58,9242013
                          and
      thereafter
                          
                          
                          77,136$
                          725,940




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.





NOTE
12 - INCOME TAXES





The
Company accounts for income taxes in accordance with SFAS No.
109.  Accordingly 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 bases.  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 second quarter of 2009, the Company recorded a
full valuation allowance related to the net operating loss carryforwards and
other temporary items as it was determined it is more likely than not that the
Company will not be able to use the assets to reduce future tax
liabilities.






21




DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008




The
provision for income taxes for the six months ended June 30, 2009 and the year
ended December 31, 2008, is as follows (all amounts are
approximate):




June
      30,
                              
                              
                              December
      31,2009
                              
                              
                              2008Current
      income tax expense:Federal
                              
                              $
                              -
                              
                              
                              $
                              -State
                              
                              
                              7,000
                              
                              
                              
                              16,0007,000
                              
                              
                              
                              16,000Deferred
      income tax expense (benefit):Federal
                              
                              
                              -
                              
                              
                              
                              --State
                              
                              
                              71,000
                              
                              
                              
                              (62,000
                              )71,000
                              
                              
                              
                              (62,000
                              )Income
      tax expense (benefit)
                              
                              $
                              78,000
                              
                              
                              $
                              (46,000
                              )







The
Company’s deferred tax assets and liabilities are as follows:




June
      30,
                            
                            
                            December
      31,2009
                            
                            
                            2008Allowance
      for doubtful accounts
                            
                            $
                            155,000
                            
                            
                            $
                            7,000Inventory
      reserve and uniform capitalization
                            
                            
                            61,000
                            
                            
                            
                            4,000Accrued
      expenses
                            
                            
                            362,000
                            
                            
                            
                            34,000Deferred
      revenue
                            
                            
                            174,000
                            
                            
                            
                            28,000Valuation
      allowance
                            
                            
                            (752,000
                            )
                            
                            
                            -Deferred
      tax assets - current
                            
                            
                            -
                            
                            
                            
                            73,000Property
      and equipment
                            
                            
                            (3,000
                            )
                            
                            
                            -Intangible
      assets
                            
                            
                            217,000
                            
                            
                            
                            -Stock
      based compensation
                            
                            
                            38,000
                            
                            
                            
                            -Valuation
      allowance
                            
                            
                            (252,000
                            )
                            
                            
                            -Net
      deferred tax assets - long-term
                            
                            
                            -
                            
                            
                            
                            -Total
      net deferred tax asset
                            
                            $
                            -
                            
                            
                            $
                            73,000





22


DECISIONPOINT
SYSTEMS, INC.
 
 Footnotes
to Consolidated Statements
 For
the Six Months Ended June 30, 2009 and 2008






A
reconciliation of the United States statutory income tax rate to the effective
income tax rate for the six months ended June 30, 2009 and the year ended
December 31, 2008 is as follows:







June
      30, 2009
                            
                            
                            December
      31, 2009Amount
                            
                            
                            Rate
      (%)
                            
                            
                            Amount
                            
                            
                            Rate
      (%)Tax
      at the Federal statutory rate
                            
                            $
                            (115,000
                            )
                            
                            
                            34.0
                            
                            
                            $
                            -
                            
                            
                            
                            -State
      taxes
                            
                            
                            52,000
                            
                            
                            
                            (15.3
                            )
                            
                            
                            46,000
                            
                            
                            
                            4.9Permanent
      differences
                            
                            
                            8,000
                            
                            
                            
                            (2.3
                            )
                            
                            
                            -
                            
                            
                            
                            -Valuation
      allowance
                            
                            
                            1,004,000
                            
                            
                            
                            (296.5
                            )
                            
                            
                            -
                            
                            
                            
                            -Impact
      of change from S toC
      Corporate tax status
                            
                            
                            (871,000
                            )
                            
                            
                            256.9
                            
                            
                            
                            -
                            
                            
                            
                            -Effective
      tax rate
                            
                            $
                            78,000
                            
                            
                            
                            (23.2
                            )
                            
                            $
                            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.  In accordance
with SFAS 109, 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 $871,000 with the offset being
recorded as an income tax benefit with full valuation
allowance in the statement of operations for the period ended June 30,
2009.




NOTE
13 - PROFIT SHARING PLAN





The
Company maintains a 401(k) Profit Sharing 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 plan were $140,065 and $123,887, for the six month periods
ended June 30, 2009 and 2008, respectively.




NOTE
14 - RELATED PARTY





The
Company from time to time has purchased and sold certain products from a
separate corporate entity which is wholly owned 100% by an ESOP.  This
entity is affiliated to the Company through limited overlapping management and
Board representation by the Company's CEO and CFO.  These transactions
are not financially material to the revenues, gross profit or net income (loss)
of the Company.  During the three and six months ended June 30, 2009,
products were purchased for $55,000 and $84,000, respectively.  The
products purchased and sold were at fair market values that would be realized in
ordinary arms length transactions from unaffiliated vendors and
customers.  Included in accounts receivable as of June 30, 2009 and
December 31, 2008, the affiliate owed the Company $630,000 and $594,000,
respectively.




NOTE
15 - SUBSEQUENT EVENT




During
June 2009, the Company retained an investment advisory firm in connection with a
private placement of convertible preferred stock of the Company.  It
is anticipated that this transaction will close during the third quarter of
2009.







23










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 attract and retain management, and to integrate and maintain
      technical information and management information
  systems;




·
            Our
      ability to raise capital when needed and on acceptable terms and
      conditions;




·
            The
      intensity of competition; and




·
            General
      economic conditions.




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.





OVERVIEW





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 custom programming
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. or 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”) and DecisionPoint
Systems CT, Inc. formerly known as Sentinel Business Systems, Inc.
(“SBS”).  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, the Company completed the Merger.  Immediately prior to the
Merger, the Company had 2,500,000 common shares outstanding and Holding had
10,000 shares common shares outstanding.  Pursuant to the Merger Agreement,
1,500,000 of the 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, shareholders of the Company’s 3,500,000 shares of
common stock received a stock dividend of an additional seven shares for every
share held.  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 common shares of DecisionPoint
Systems, Inc. common stock issued pursuant to the Merger.




24






Accounting
Treatment of the Merger; Financial Statement Presentation




The
Merger was accounted for as a reverse acquisition pursuant to the guidance in
Appendix B of SEC Accounting Disclosure Rules and Practices Official Text, which
provides that the “merger of a private operating company into a non-operating
public shell corporation with nominal net assets typically results in the owners
and management of the private company having actual or effective operating
control of the combined company after the transaction, with the shareholders of
the former public shell continuing only as passive investors.  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 financial statements in this Quarterly
Report are those of DecisionPoint.  Effective on the closing date the
Company adopted DecisionPoint’s year end of December 31st.




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 six months
ended June 30, 2009 as compared to the same periods ended at June 30,
2008.  These should be read in conjunction with our unaudited
financial statements and notes contained elsewhere in this Form
10-Q.




Due to
normal year end account re-classification, interim unaudited financial
statements may not always reflect the same account groupings as the audited
financial statements.  As such any prior periods amounts would be
reclassified so all amounts are comparable.




Comparison
of the Quarters Ended June 30, 2009 and 2008





Revenues
were $12.0 million for the quarter ended June 30, 2009, compared to $15.4
million for the quarter ended June 30, 2008, a decrease of $3.4 million or
22.1%.  The decrease in revenue was primarily due to the weakened
economic conditions in the US in the later part of 2008 and which, has continued
into 2009.





Cost of
sales was $9.6 million for the quarter ended June 30, 2009, compared to $12.7
million for the quarter ended June 30, 2008, a decrease of $3.1 million or
24.5%.  Our gross profit was $2.5 million for the quarter ended June
30, 2009, compared to $2.7 million for the quarter ended June 30, 2008, a
decrease of $0.2 million or 9.2%.  Although the actual dollar amount
is lower in the current period our realized gross margin has increased to 20.4%
in 2009, significantly above the 17.6% 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 our
professional services costs.





Selling,
general and administrative expenses were $2.0 million for the quarter ended June
30, 2009, compared to $2.5 million for the quarter ended June 30, 2008, a
decrease of $0.5 million or 20%.  The decrease in the current quarter
of 2009 was the result of tighter cost management and lower commission expense
associated with lower revenues.





Our
operating income was $0.5 million for the quarter ended June 30, 2009, as
compared with $0.2 million operating income for quarter ended June 30,
2008.  The improvement of $0.3 million is directly attributable to our
increased gross margin and continued cost management in 2009.





Other
expenses were $0.2 for the quarter ended June 30, 2009, compared with $0.5
million for the quarter ended June 30, 2008, a decrease of approximately $0.3
million.  We had incurred expenses in connection with the reverse
merger in the quarter ended June 30, 2009, compared to a write-off of an
investment in the quarter ended June 30, 2008.  This was an investment
in a potential acquisition which was not consummated.





Our
interest expense, which is derived from interest paid on our revolving credit
facility and subordinated debt, was $0.2 million for the quarter ended June 30,
2009, compared to $0.3 million for the quarter ended June 30,
2008.  The decrease in interest expense was the result of lower
interest charges on our revolving credit facility and subordinated debt along
with lower amounts outstanding on our revolving credit facility.  The
conversion of debt to equity concurrently with the Merger has had negligible
impact on our interest expense in the current period but will be material in
future periods.






25




Comparison
of the Six Months Ended June 30, 2009 and 2008





Revenues
were $23.7 million for the six months ended June 30, 2009, compared to $28.5
million for the same period ended June 30, 2008, a decrease of $4.8 million or
16.8%.  The decrease in revenue was primarily due to the weakened
economic conditions in the US which has continued into 2009.





Cost of
sales was $19.2 million for the six months ended June 30, 2009, compared to
$23.2 million for the same period ended June 30, 2008, a decrease of $4.0
million or 17.1%.  Our gross profit was $4.5 million for the six
months ended June 30, 2009, compared to $5.3 million for the same period ended
June 30, 2008, a decrease of $0.8 million or 15.5%.  Although the
actual dollar amount is lower in the current period our realized gross margin
has increased to 19.0% in 2009, above the 18.7% 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 our
professional services costs.





Selling,
general and administrative expenses were $4.1 million for the six months ended
June 30, 2009, compared to $5.1 million for the same period ended June 30, 2008,
a decrease of $1.0 million or 19.8%.  The decrease in the current
quarter of 2009 was the result of tighter cost management and lower commission
expense associated with lower revenues.





Operating
income was a $0.4 million for the six months ended June 30, 2009, as compared
with $0.2 million operating income for same period ended June 30,
2008.  The improvement of $0.2 million is directly attributable to our
increased gross margin and continued cost management in 2009.





Other
expenses were $0.2 for the six months ended June 30, 2009, compared with $0.6
million for the same period ended June 30, 2008, a decrease of approximately
$0.4 million.  We incurred expenses approximating $0.5 million in
connection with the reverse merger in the six months ended June 30, 2009,
compared to a write-off of an investment in the same period ended June 30,
2008.  This was an investment in a potential acquisition which was not
consummated.





Interest
expense, which is derived from interest paid on our revolving credit facility
and subordinated debt, was $0.5 million for the six months ended June 30, 2009,
compared to $0.7 million for the same period ended June 30, 2008.  The
decrease in interest expense was the result of lower interest charges on our
revolving credit facility and subordinated debt along with lower amounts
outstanding on our revolving credit facility.  The conversion of debt
to equity concurrent with the Merger has had negligible impact on our interest
expense in the current period but will be material in future
periods.




LIQUIDITY
AND CAPITAL RESOURCES





Cash
and cash flow





The
recent financial and credit crisis has reduced credit availability and liquidity
for many companies.  In addition, we have seen our revenue decrease
due to the weakened economic conditions in the U.S. which has continued into
2009.  We have been able to improve our gross margins and reduce our
selling, general and administrative expenses that have improved operating
income.  We believe that our strategic shift to higher margin software
and service revenues and tight cost control will sustain us through this
challenging period.




For the
period ended June 30, 2009 and December 31, 2008, we had cash and cash
equivalents of approximately $0.5 million and $0.9 million,
respectively.  We have used, and plan to use, such cash for general
corporate purposes, including working capital




As of
June 30, 2009, we had negative working capital of $9.8 million and total
stockholders’ deficit of $5.0 million.  Included in current
liabilities, is deferred revenue which totals $6.9 million as of June 30, 2009,
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.





In
December 2006, we obtained a $6.5 million revolving credit facility, which
provides for borrowings based upon eligible accounts receivable, as defined in
the agreement.  The credit facility is secured by substantially all of
our tangible and matured in December 2008.  In March 2009, this
facility was renewed for an additional two year period with an increase in the
facility to $8.5 million.  In connection with the renewal, we paid an
$85,000 annual renewal fee which we have deferred and are amortizing over twelve
months.  Interest accrues at the bank’s prime rate plus 4.0% (plus
2.5% prior to renewal), with 0.5% interest rate reduction based on future
profitability.  The rate is subject to a floor on the bank’s prime
rate of 4.0%.  Borrowings outstanding on this line of credit at June
30, 2009 and December 31, 2008, were $1.8 million and $3.4 million,
respectively.  The line of credit has a tangible net worth financial
covenant with which we have been in compliance.  Availability under
this line of credit was $1,685,000 and $1,605,000, as of June 30, 2009 and
December 31, 2008, respectively.






26





Our
effective interest rate beginning April 2009 through June 30, 2009, has been
8.0%.  At June 30, 2009, the total outstanding balance owed to our
bank was $2.1 million reported as $1.8 million revolving line of credit with the
balance of $0.3 million for the note payable, which is classified as all
current.





We
believe that cash on hand, plus amounts anticipated to be generated from
operations and the private placements of convertible preferred stock, as well as
borrowings available under our asset based revolving credit facility, will be
sufficient to support our operations through the 12 month period ending July
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
six months ended June 30, 2009, net cash provided from operating activities was
$0.9 million, primarily due to the net changes in working capital and the
reduced loss from operations.  Net cash used in financing activities
was $1.4 million for the six months ended June 30, 2009, primarily from a net
decrease in bank debt during the period.





During
the six months ended June 30, 2008, net cash provided by operating activities
was $1.5 million, primarily due to the positive net changes in working
capital.  Net cash used in financing activities was $1.7 million for
the six months ended June 30, 2008, primarily from a net decrease in bank debt
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 made 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.  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:




Accounts
Receivable




We have
standardized credit granting and review policies and procedures for 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 June 30, 2009, were
$650,000, or 10.8% 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
June 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





27




Inventory




Inventory
is stated at the lower of cost or market.  Cost is determined under
the first-in, first-out (FIFO) method or market.  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
revenues.




Impairment
of long-lived assets




We
account for long-lived assets in accordance with Statement of Financial
Accounting Standards 144, Accounting for the Impairment or
Disposal of Long-Lived Assets(“SFAS No. 144”).  SFAS No. 144
requires that long-lived assets and certain identifiable intangibles be reviewed
whenever events or changes in circumstances indicate that the carrying value 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.




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.  The Company generally does not bear associated warranty risk
because it has contracted with a third party to assume risks and
obligations.




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 is recognized in
the period in which the services are performed.  Revenue derived from
software customization and other professional services are rendered on either a
per-diem or fixed fee basis.  Per-diem billing is recognized as the
services are 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
account for share based payments in accordance with SFAS No. 123(R),
“Share-Based Payment”, (“SFAS 123R”), which requires the Company to record as an
expense in its financial statements the fair value of all stock-based
compensation awards.  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 financial statements.






28




Off-Balance
Sheet Arrangements




There
were no off-balance sheet arrangements as of June 30, 2009





Inflation




We do not
believe that inflation has had a material impact on our business and 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 SFAS
123(R) 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.






29




PART
II-OTHER INFORMATION








ITEM 1.     LEGAL PROCEEDINGS




We are
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 our operating results or financial
position.


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, 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(a)31.2
            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








30








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:
      August 19, 2009
              By:
              /s/
      Nicholas E.
      TomsNicholas
      E. TomsPrincipal
      Executive Officer





Date:
      August 19, 2009
            By:
            /s/
      Donald W.
      RowleyDonald
      W. RowleyPrincipal
      Financial and Accounting Officer