UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10‐K





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


For
the fiscal year ended December 31, 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 _______________





Commission
file number: 000-26408





WAYSIDE
TECHNOLOGY GROUP, INC.


(Exact
name of registrant as specified in its charter)




Delaware
            
            13-3136104(State
      or other jurisdiction of incorporation)
            
            (IRS
      Employer Identification Number)1157
      Shrewsbury Avenue, Shrewsbury, New Jersey
            
            07702(Address
      of principal executive offices)
            
            (Zip
      Code)





Registrant's
telephone number, including area code: (732) 389-8950





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


Title of Each
      Class
              
              Name of Each Exchange
      on Which RegisteredCommon Stock, par value $0.01
      per share
              
              The Nasdaq Global
      Market


Securities
registered pursuant to section 12(g) of the Act: None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes oNo x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes oNo x





Indicate
by check mark whether the Registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes xNo 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 (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes oNo o




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S‐K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or other information statements
incorporated by reference in Part III of this Form 10‐K or any amendment to this
Form 10‐K. 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 (as
defined in Rule 12b-2 of the Exchange Act).





Large
accelerated filer oAccelerated filer oNon-accelerated
filer oSmaller Reporting Company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes oNo x




The aggregate market value of the
Common Stock held by non-affiliates of the Registrant computed by reference to
the closing sale price for the Registrant's Common Stock as of June 30, 2009,
which was the last business day of the Registrant’s most recently completed
second fiscal quarter, as reported on The NASDAQ Global Market, was
approximately $26,834,275. (In determining the market value of the Common Stock
held by any non-affiliates, shares of Common Stock of the Registrant
beneficially owned by directors, officers and holders of more than 10% of the
outstanding shares of Common Stock of the Registrant have been excluded. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.)
 
 The number of shares outstanding of the
Registrant's Common Stock as of February 12, 2010 was 4,828,797
shares.
 
 Documents Incorporated by
Reference: Portions of the Registrant's definitive Proxy Statement for
its 2010 Annual Meeting of
Stockholders to be filed on or before April 30, 2010 are incorporated by
reference into Part III of this Report.
  Page
1
   PART
I
 
 Item
1. Business
 
 General
  Wayside Technology Group, Inc. (the
"Company," "us," "we," or "our") is a marketer of software in the United States
and Canada targeting software development and information technology
professionals within enterprise organizations.
 
 Wayside Technology Group, Inc. was
incorporated in Delaware in 1982. Our Common Stock is listed on The NASDAQ
Global Market under the symbol “WSTG”. Our main web site address is www.waysidetechnology.com,
and the other web sites maintained by our business include www.programmers.com,
www.lifeboatdistribution.com,
and www.techxtend.com.  Reference
to these “uniform resource locators” or “URL” is made as an inactive textual
reference for informational purposes only. Information on our web sites should
not be considered filed with the Securities and Exchange Commission, and is not,
and should not be deemed to be, a part of this report.
 
 The
Company markets software to software development and information technology
professionals in the United States and Canada. It operates through two segments,
Programmer's Paradise and Lifeboat. The Programmer's Paradise segment sells
technical software, hardware, and services for microcomputers, servers, and
networks to individual programmers, corporations, government agencies, and
educational institutions. The Lifeboat segment distributes technical software to
corporate and value-added resellers, consultants, and systems integrators. For
each of our segments, revenues from unaffiliated customers, income and total
assets among other financial information, is presented in Note 10 in the Notes
to our Consolidated Financial Statements.
 
 The
Company’s catalogs are full color “magalogs” and offer some of the most complete
collections of microcomputer technical software, including programming
languages, tools, utilities, libraries, development systems, interfaces and
communication products.
 
 Competition
 
 The software distribution market is
highly competitive. Pricing is very aggressive and the Company expects pricing
pressure to continue. The Company faces competition from a wide variety of
sources including: vendors who sell directly to customers; software resellers;
superstores; catalogers; web sites; and other direct marketers of software
products. Some of our competitors are significantly larger and have
substantially greater resources than the Company. Many of our competitors
compete principally on the basis of price, product availability, customer
service and technical support.
 
 There can
be no assurance that the Company can compete effectively against existing
competitors or new competitors that may enter the market and that it can
generate profit margins which represent a fair return to the Company. In
addition, price is an important competitive factor in the personal computer
software market and there can be no assurance that the Company will not be
subject to increased price competition. An increase in the amount of competition
faced by the Company, or its failure to compete effectively against its
competitors, could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
 The Company competes in acquiring
prospective buyers and in sourcing new products from software developers and
publishers, as well as in marketing its current product line to its customers.
The Company believes that its ability to offer software developers and
information technology (“IT”) professionals
a wide selection of products at low prices with prompt delivery and high
customer service
levels, along with its good relationships with vendors and suppliers, allow it
to compete effectively in acquiring prospective buyers and marketing its current
product line to its customers. The Company competes to gain distribution rights
for new products primarily on the basis of its reputation and its relationships
with software publishers.
  Page
2
 
 The
market for developer software products is characterized by rapid changes in
technology, user requirements, and customer specifications. The manner in which
software products are distributed and sold is changing, and new methods of
distribution and sale may emerge or expand. Software developers and publishers
have sold, and may intensify their efforts to sell, their products directly to
end-users. The evolution of the Internet as a viable platform in which to
conduct e-commerce business transactions has both lowered the barriers for
competition and broadened customer access to products and information. From time
to time, certain software developers and publishers have instituted programs for
the direct sale of large order quantities of software to certain major corporate
accounts. These types of programs may continue to be developed and used by
various developers and publishers. While Microsoft and other vendors currently
sell new releases or upgrades directly to end users, they have not attempted to
completely bypass the reseller channel. There can be no assurances, however,
that software developers and publishers will continue using resellers to the
same extent they currently do. Future efforts by software developers and
publishers to bypass third party sales channels could materially and adversely
affect the Company’s business, result of operations and financial
conditions.
 
 In addition, resellers and publishers
may attempt to increase the volume of software products distributed
electronically through ESD (Electronic Software Distribution) technology,
through subscription services, and through on-line shopping services. Any of
these competitive programs, if successful, could have a material adverse effect
on the Company's business, result of operations and financial condition. For a
description of additional risks relating to competition in our industry, please
refer to “Item 1.A. Risk Factors--We rely on our suppliers for product
availability, marketing funds, purchasing incentives and competitive products to
sell” and “--The IT products and services industry is intensely competitive and
actions of competitors, including manufacturers of products we sell, can
negatively affect our business.”
 
 Products
 
 The
Company offers a wide variety of products from a broad range of publishers and
manufacturers, including CA Inc., Quest Software, Inc., GFI Software, Intel
Corporation, Infragistics, TechSmith Corporation, Flexera Corp., Vizioncore Inc.
and Veeam Corporation.  On a continuous basis, new products are
screened for inclusion in our catalogs and web sites based on their features,
quality, price, profit margins and warranties, as well as on current sales
trends. Since the Company predominantly sells software, sales of hardware and
peripherals represented only 7%, 4% and 3%, respectively, of our overall revenue
in 2009, 2008 and 2007.
 
 Marketing
and Distribution
 
 We market
products through creative marketing communications, our catalogs, our web sites,
industry magazines, and national trade shows. We also use direct e-mail and
printed material to introduce new products and upgrades, to cross-sell products
to current customers, and to educate and inform existing and potential
customers. We believe that our catalogs are important marketing vehicles for
software publishers and manufacturers. These catalogs provide a cost-effective
and service-oriented means to market, sell and fulfill software
products.
 
 The
Company had two major customers that accounted for more than 10% of total sales
for 2009. For the year ended December 31, 2009, CDW Corporation and Software
House International accounted for 10.5% and 10.7% of consolidated net sales,
respectively. These same customers accounted for 11.3% and 4.1% of total net
accounts receivable as of December 31, 2009.  The Company had no major
customers that accounted for more than 10% of total sales for 2008. One
customer, CDW Corporation, accounted for 10.9%, of consolidated net sales in
2007. Our top five customers accounted for 36%, 31%, and 28% of consolidated net
sales in 2009, 2008 and 2007, respectively. The Company generally ships products
within 48 hours of confirming a customer’s order. This allows for minimum
backlog in the business.
  Page
3
 
 Sales in Canada represented 8% of our
consolidated revenues in 2009 as compared to 11% in 2008, and 13% in 2007. For
geographic financial information, please refer to Note 10 in the Notes to our
Consolidated Financial Statements.
 
 Customer
Support
 
 We
believe that providing a high level of customer service is necessary to compete
effectively and is essential to continued sales and revenue growth. Our account
representatives assist our customers with all aspects of purchasing decisions,
process products ordered and respond to customer inquiries on order status,
product pricing and availability. The account representatives are trained to
answer all basic questions about the features and functionality of products. To
deal with technical issues, we maintain an in-house technical support
staff.
 
 Purchasing
and Fulfillment
 
 The
Company's success is dependent, in part, upon the ability of its suppliers to
develop and market products that meet the changing requirements of the
marketplace. The Company believes it enjoys good relationships with its vendors.
The Company and its principal vendors have cooperated frequently in product
introductions and in other marketing programs. As is customary in the industry,
the Company has no long-term supply contracts with any of its suppliers.
Substantially all of the Company's contracts with its vendors are terminable
upon 30 days' notice or less. The manner in which software products are
distributed and sold is changing, and new methods of distribution and sale may
emerge or expand. Software publishers have sold, and may intensify their efforts
to sell, their products directly to end-users. The Company’s business and
results of operations may be adversely affected if the terms and conditions of
the Company’s authorizations with its vendors were to be significantly modified
or if certain products become unavailable to the Company.
 
 We
believe that effective purchasing from a diverse vendor base is a key element of
our business strategy. For the year ended December 31, 2009, Quest was the
only individual vendor from whom our purchases exceeded 10%. For the year ended
December 31, 2009 Quest represented 10.2% of total purchases. For the year ended
December 31, 2008, VMware accounted for 23.3% of total purchases and Quest
represented 13% of total purchases. For the years ended December 31, 2007,
VMware accounted for 36.8% of total purchases. VMware terminated its distributor
agreement with Lifeboat Distribution, Inc. in 2008. As a result, our Lifeboat
segment ceased distributing VMware products as of October 1, 2008, the
distribution of which had accounted for $29.2 million, or 17% of our 2008
revenue and $57.2 million or 32% of our 2007 revenue. The loss of any of these
vendors, or any other key vendor, could disrupt product availability and
otherwise have an adverse effect on the Company.
 
 In 2009,
the Company purchased approximately 85% of its products directly from
manufacturers and publishers and the balance from multiple distributors, as
compared to 90% in 2008, and 90% in 2007. Most suppliers or distributors will
"drop ship" products directly to the customers, which reduces physical handling
by the Company. These inventory management techniques allow the Company to offer
a greater range of products without increased inventory
requirements.
 
 Inventory
levels may vary from period to period, due in part to increases or decreases in
sales levels, the Company's practice of making large-volume purchases when it
deems the terms of such purchases to be attractive, and the addition of new
suppliers and products. Moreover, the Company's order fulfillment and inventory
control allow the Company to order certain products just in time for next day
shipping. The Company promotes the use of electronic data interchange ("EDI")
with its suppliers, which helps reduce overhead and the use of paper in the
ordering process. Although brand names and individual products are important to
our business, we believe that competitive sources of supply are available for
substantially all product categories we carry.
  Page
4
 
 The
Company operates distribution facilities in Shrewsbury, New Jersey and
Mississauga, Canada.
 
 Management
Information Systems
 
 The
Company operates management information systems on Windows NT and MPE platforms
that allow for centralized management of key functions, including inventory,
accounts receivable, purchasing, sales and distribution. We are dependent on the
accuracy and proper utilization of our information technology systems, including
our telephone, web sites, e-mail and fax systems.
 
 The
management information systems allow the Company to monitor sales trends,
provide product availability and order status information, track direct
marketing campaign performance and to make marketing event driven purchasing
decisions. In addition to the main system, the Company has systems of networked
personal computers, as well as microcomputer-based desktop publishing systems,
which facilitate data sharing and provide an automated office
environment.
 
 The
Company recognizes the need to continually upgrade its management information
systems to most effectively manage its operations and customer database. In that
regard, the Company anticipates that it will, from time to time, require
software and hardware upgrades for its present management information
systems.
 
 Trademarks
 
 The
Company conducts its business under the various trademarks and service marks of
Programmer's Paradise, the "Island Man" cartoon character logo, and Lifeboat.
The Company protects these trademarks and service marks and believes that they
have significant value and are important factors in its marketing
programs.
 
 Employees
 
 As of
December 31, 2009, Wayside Technology Group, Inc. and its subsidiaries had 91
full-time employees and 1 part-time employee. The Company is not a party to any
collective bargaining agreements with its employees, has experienced no work
stoppages and considers its relationships with its employees to be
satisfactory.
 
 Executive
Officers of the Company
 
 Set forth
below are the name, age, present title, principal occupation and certain
biographical information for our executive officers as of February 1, 2010,
all of whom have been appointed by and serve at the discretion of our board of
directors.
  Page
5
 
 Name
              Age
              Position
 Simon
      F. Nynens
              38
              Chairman,
      President and Chief Executive
Officer
 Richard
      J. Bevis
              60
              Vice
      President Marketing
 Daniel
      T. Jamieson
              52
              Vice
      President and General
Manager-Lifeboat
 Vito
      Legrottaglie
              45
              Vice
      President - Operations
 Kevin
      T. Scull
              44
              Vice
      President and Chief Accounting
Officer
 Shawn
      J. Giordano
              40
              Vice
      President-Programmers and TechXtend
 
 Simon F. Nynens was appointed
President and Chief Executive Officer in January 2006. Mr. Nynens also serves on
the Board of Directors and was named Chairman in June 2006. He previously held
the position of Executive Vice President and Chief Financial Officer ( June
2004- January 2006) and Vice President and Chief Financial Officer (January
2002- June 2004). Prior to January 2002, Mr. Nynens served as the Vice President
and Chief Operating Officer of the Company's European operations.
 
 Richard J. Bevis was appointed
Vice President Marketing in July 2007. Prior to joining Wayside Technology
Group, Inc., Mr. Bevis worked for Covance Inc., a drug development service
company,as
Senior Director Marketing Communication from 2003 to 2007. He also held the
position of Vice President Corporate Communications for Eyretel, PLC. from 2002
to 2003.
 
 Daniel T. Jamieson was
appointed Vice President and General Manager of Lifeboat in April 2003. Prior to
that, and since 1992, Mr. Jamieson held various sales and marketing management
positions within the Company.
 
 Vito Legrottaglie was
appointed to the position of Vice President of Operations in April 2007. He
previously held the position of Vice President of Information Systems since June
2003. Mr. Legrottaglie has previously served as Vice President of Information
Systems from 1999 to 2000 and had been with the Company since 1996. Mr.
Legrottaglie has also held the positions of Chief Technology Officer at Swell
Commerce Incorporated, Vice President of Operations for The Wine Enthusiast
Companies and Director of Information Systems at Barnes &
Noble.
 
 Kevin T. Scullwas appointed
Vice President and Chief Accounting Officer in January 2006. He previously held
the position of Corporate Controller of the Company since January 2003. Prior to
joining Wayside Technology Group, Inc., Mr. Scull  worked for Niksun
Inc. as Accounting Manager since January 2001 and, prior to that, he worked for
Telcordia Inc. since December 2000 as Manager of Accounting
Policies.
 
 Shawn J. Giordanowas
appointed Vice President of Sales in August 2008. Mr. Giordano joined Wayside
Technology Group in November 2007 as Senior Director of Sales for Programmer's
Paradise and TechXtend. Prior to joining Wayside Technology Group, he worked for
CA, Inc. (Computer Associates), a business consulting and software development
company, from 2000 to 2007, most recently as Director of Channel Sales. Mr.
Giordano began his career at Microwarehouse, Inc., and in over eight years with
that company, progressed through positions of increasing responsibility in
sales, marketing, and management. Mr. Giordano received a bachelor of science
degree in management information science from the Stillman School of Business,
Seton Hall University.
  Page
6
 
 Available
Information
 
 Under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company is
required to file annual, quarterly and current reports, proxy and information
statements and other information with the SEC. You may read and copy any
document we file with the SEC at the SEC's public reference room at 100 F
Street, N.E., Washington, D.C. 20549.  Please call the SEC at
1-800-SEC-0330 for further information about the public reference
room.  The SEC maintains a web site at http:  www.sec.gov
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.  The Company
files electronically with the SEC. The Company makes available, free of charge,
through its internet web site its reports on Forms 10-K, 10-Q and 8-K, and
amendments to those reports, as soon as reasonably practicable after they are
filed with the SEC. The following address for the Company's web site includes a
hyperlink to those reports under “Financials/SEC Filings”:http://www.waysidetechnology.com.
 
 In
January 2004, we adopted a Code of Ethical Conduct. The full text of the Code of
Ethical Conduct, which applies to all employees, officers and directors of the
Company, including our Chief Executive Officer, Chief Accounting Officer and our
Controller is available at our web site,http://www.waysidetechnology.com,
under “Corporate Governance.” The Company intends to disclose any amendment to,
or waiver from, a provision of the Code of Ethical Conduct that applies to its
Chief Executive Officer, Chief Accounting Officer or Controller on its web site
under “Investor Information.”
 
 Reference to the “uniform resource
locators” or “URL” contained in this section is made as an inactive textual
reference for informational purposes only. Information on our web sites should
not be considered filed with the Securities and Exchange Commission, and is not,
and should not be deemed to be part of this report.
 
 Item 1A.
Risk Factors
 
 Investors
should carefully consider the risk factors set forth below as well as the other
information contained in this report. Any of the following risks could
materially and adversely affect our business, financial condition or results of
operations. Additional risks and uncertainties not currently known to us or
those currently viewed by us to be immaterial may also materially and adversely
affect our business, financial condition or results of operations.
 
 Changes in the
information technology industry and/or economic environment may reduce demand
for the products and services we sell.Our results of operations are
influenced by a variety of factors, including the condition of the IT industry,
general economic conditions, shifts in demand for, or availability of, computer
products and software and IT services and industry introductions of new
products, upgrades or methods of distribution. The information technology
products industry is characterized by abrupt changes in technology, rapid
changes in customer preferences, short product life cycles and evolving industry
standards. Net sales can be dependent on demand for specific product categories,
and any change in demand for or supply of such products could have a material
adverse effect on our net sales, and/or cause us to record write-downs of
obsolete inventory, if we fail to react in a timely manner to such
changes.
 
 We rely on our
suppliers for product availability, marketing funds, purchasing incentives and
competitive products to sell.We acquire products for resale both
directly from manufacturers and indirectly through distributors. The loss of a
supplier could cause a disruption in the availability of products. Additionally,
there is no assurance that as manufacturers continue to sell directly to end
users and through the distribution channel, they will not limit or curtail the
availability of their product to resellers like us. For example, resellers and
publishers may attempt to increase the volume of software products distributed
electronically through ESD (Electronic Software Distribution) technology,
through subscription services, and through on-line shopping services, and
correspondingly, decrease the volume of product sold through us.  Our
inability to obtain a sufficient quantity of product, or an allocation of
products from a manufacturer in a way that favors one of our competitors, or
competing distribution channels, relative to us, could cause us to be unable to
fill clients’ orders in a timely manner, or at all, which could have a material
adverse effect on our business, results of operations and financial condition.
We also rely on our suppliers to provide funds for us to market their products,
including through our catalogs and on-line marketing efforts, and to provide
purchasing incentives to us.  If any of the suppliers that have
historically provided these benefits to us decide to reduce the benefits, our
expenses would increase, adversely affecting our results of
operations.
  Page
7
 
 The Current
Economic Downturn May Reduce our Revenues and Profits.  The
ongoing general economic downturn is causing some of our current and potential
customers to delay or reduce technology purchases and results in longer sales
cycles, slower adoption of new technologies and increased price competition. We
may therefore experience a decline in demand for the products we sell, resulting
in increased competition and pressure to reduce the cost of operations. Any
benefits from cost reductions may take longer to realize and may not fully
mitigate the impact of the reduced demand. In addition, weak financial and
credit markets heighten the risk of customer bankruptcies and a corresponding
delay in collecting receivables from those customers and may also affect our
vendors' ability to supply products, which could disrupt our operations. 
The realization of any or all of these risks could have a material adverse
effect on our business, results of operation and financial
condition.
 
 The IT products
and services industry is intensely competitive and actions of competitors,
including manufacturers of products we sell, can negatively affect our business.Competition has been based primarily on price, product availability,
speed of delivery, credit availability and quality and breadth of product lines
and, increasingly, is also based on the ability to tailor specific solutions to
client needs. We compete with manufacturers, including manufacturers of products
we sell, as well as a large number and wide variety of marketers and resellers
of IT products and services. In addition, manufacturers are increasing the
volume of software products distributed electronically directly to end-users and
in the future will likely pay lower referral fees for sales of certain software
licensing agreements sold by us.     Generally, pricing is
very aggressive in the industry, and we expect pricing
pressures to continue. There can be no assurance that we will be able to
negotiate prices as favorable as those negotiated by our competitors or that we
will be able to offset the effects of price reductions with an increase in the
number of clients, higher net sales, cost reductions, greater sales of services,
which are typically at higher gross margins, or otherwise. Price reductions by
our competitors that we either cannot or choose not to match could result in an
erosion of our market share and/or reduced sales or, to the extent we match such
reductions, could result in reduced operating margins, any of which could have a
material adverse effect on our business, results of operations and financial
condition.
 
 Disruptions in
our information technology and voice and data networks could affect our ability
to service our clients and cause us to incur additional expenses.We
believe that our success to date has been, and future results of operations will
be, dependent in large part upon our ability to provide prompt and efficient
service to clients. Our ability to provide such services is largely dependent on
the accuracy, quality and utilization of the information generated by our IT
systems, which affect our ability to manage our sales, client service,
distribution, inventories and accounting systems and the reliability of our
voice and data networks.
 
 We depend on
certain key personnel.Our future success will be largely dependent on
the efforts of key management personnel. We also believe that our future success
will be largely dependent on our continued ability to attract and retain highly
qualified management, sales, service and technical personnel. We cannot assure
you that we will be able to attract and retain such personnel. Further, we make
a significant investment in the training of our sales account executives. Our
inability to retain such personnel or to train them either rapidly enough to
meet our expanding needs or in an effective manner for quickly changing market
conditions could cause a decrease in the overall quality and efficiency of our
sales staff, which could have a material adverse effect on our business, results
of operations and financial condition.
  Page
8
 
 RisksRelated to Our
Common Stock.The
exercise of outstanding options or any other issuance of shares by us may dilute
your ownership of our common stock. Our common stock is thinly traded. As a
result of the thin trading market for our stock, its market price may fluctuate
significantly more than the stock market as a whole or the stock prices of
similar companies.  Without a larger float, our common stock will be
less liquid than the stock of companies with broader public ownership, and, as a
result, the trading prices for our common stock may be more volatile. Among
other things, trading of a relatively small volume of our common stock may have
a greater impact on the trading price for our stock than would be the case if
our public float were larger.
 
 Our common stock is listed on The
NASDAQ Global Market, and we are therefore subject to continued listing
requirements, including requirements with respect to the market value and number
of publicly-held shares, number of stockholders, minimum bid price, number of
market makers and either (i) stockholders’ equity or (ii) total market value of
stock, total assets and total revenues. If we fail to satisfy one or more of the
requirements, we may be delisted from The NASDAQ Global Market. If we are
delisted from The NASDAQ Global Market, we do not qualify for listing on The
NASDAQ Capital Market, and we are not able to list our common stock on another
exchange, our common stock could be quoted on the OTC Bulletin Board or on the
“pink sheets”. As a result, we could face significant adverse consequences
including, among others, a limited availability of market quotations for our
securities and a decreased ability to issue additional securities or obtain
additional financing in the future.
 
 Item
1B.  Unresolved Staff Comments
 
 Not
applicable.
 
 Item
2. Properties
 
 The
Company leases 18,000 square feet of space in Shrewsbury, New Jersey for its
corporate headquarters and warehouse under a lease expiring in December
2012.  Total annual rent expense for these premises is approximately
$225,000. Additionally, the Company leases approximately 3,700 square feet of
office and warehouse space in Mississauga, Canada, under a lease, which expires
November 30, 2010. Total annual rent expense for these premises is approximately
$30,000. We believe that each of the properties is in good operating condition
and such properties are adequate for the operation of the Company’s business as
currently conducted.
 
 Item
3. Legal Proceedings
 
 There are
no material legal proceedings to which the Company or any of its subsidiaries is
a party or of which any of their property is the subject.
 
 Item
4. Submission of Matters to a Vote of Security Holders
 
 There
were no matters submitted during the fourth quarter of 2009 to a vote of
security holders, through the solicitation of proxies or otherwise.
 
 PART
II
 
 Item
5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
 
 Shares of our Common Stock, par value
$0.01, trade on The NASDAQ Global Market under the symbol
“WSTG”.  Following is the range of low and high sales prices for our
Common Stock as reported on The NASDAQ Global Market.
  Page
9
 
 2009
                
                High
                
                
                LowFirst
      Quarter
                
                $
                7.970
                
                
                $
                6.650Second
      Quarter
                
                
                7.630
                
                
                
                6.760Third
      Quarter
                
                
                8.880
                
                
                
                6.840Fourth
      Quarter
                
                
                8.990
                
                
                
                7.0502008First
      Quarter
                
                $
                11.370
                
                
                $
                7.490Second
      Quarter
                
                
                10.820
                
                
                
                7.090Third
      Quarter
                
                
                9.000
                
                
                
                6.450Fourth
      Quarter
                
                
                7.740
                
                
                
                4.930
  In 2009
and 2008, we declared quarterly dividends totaling $0.60 per share on our Common
Stock. There can be no assurance that we will continue to pay comparable cash
dividends in the future.
 
 During
2009, the Company granted a total of 140,000 shares of restricted stock to
officers and employees from treasury stock. These shares vest over 60 months in
equal quarterly installments beginning on May 5, 2009.
 
 The share
issuances in all of the above transactions were not registered under the
Securities Act of 1933, as amended (the “Securities Act”).  The
issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act and/or Regulation D thereunder, as they were transactions by the
issuer that did not involve public offerings of securities and/or involved
issuances to accredited investors.
 
 As of
February 11, 2010 there were approximately 38 record holders of our Common
Stock.
 
 During
the fourth quarter of 2009, we repurchased shares of our Common Stock as
follows:
 Period
              
              Total
      Number of Shares Purchased
              
              
              Average
      Price Paid Per Share(2)
              
              
              Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs
              
              
              Average
      Price Paid Per Share(3)
              
              
              Maximum
      Number of Shares That May Yet Be Purchased Under the Plans or
      Programs(4)October
      1- October 31, 2009
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              $
              -
              
              
              
              -November
      1- November 30, 2009
              
              
              30,080
              (1)
              
              $
              7.89
              
              
              
              23,576
              
              
              $
              7.88
              
              
              
              550,680December
      1 - December 31, 2009
              
              
              48,894
              
              
              $
              7.33
              
              
              
              48,894
              
              
              $
              7.33
              
              
              
              501,786Total
              
              
              78,974
              
              
              $
              7.55
              
              
              
              72,470
              
              
              $
              7.51
              
              
              
              501,786
 
 (1)  Includes
6,504 shares surrendered to the Company by employees to satisfy individual tax
withholding obligations upon vesting of previously issued shares of restricted
common stock.
 
 (2)
Average price paid per share reflects the closing price of Wayside Technology
Group, Inc. common stock on the business date the shares were surrendered by the
employee stockholder to satisfy individual tax withholding obligations upon
vesting of restricted common stock or the price of  the stock paid on
the open market purchase, as applicable.
  Page
10
 
 (3)
Average price paid per share reflects the price of Wayside Technology Group,
Inc. common stock purchased on the open market.
 
 (4) On
October 9, 2002, our Board of Directors adopted a stock repurchase program
whereby the Company was authorized to repurchase up to 500,000 shares of our
common stock from time to time. On July 31, 2008, the Company approved the
increase of its common stock repurchase program by 500,000 shares. The company
expects to purchase shares from time to time in the market or otherwise subject
to market conditions. The stock repurchase program does not have an expiration
date.
 
 
 STOCK
PRICE PERFORMANCE GRAPH
 
 Set forth below is
a line graph comparing the yearly percentage change in the cumulative total
shareholder return on the Company’s Common Stock with the cumulative total
return of the S&P Midcap 400 Index and the S&P 500 Computer and
Electronics Retail Index for the period commencing December 31, 2004 and ending
December 31, 2009, assuming $100 was invested on December 31, 2004 and the
reinvestment of dividends.
 
 
  INDEXED
      RETURNSBase
              Years
      EndingPeriodCompany
      / Index
              Dec04
              Dec05
              Dec06
              Dec07
              Dec08
              Dec09Wayside
      Technology Group, Inc.
              100
              84.43
              111.11
              68.27
              57.06
              70.24S&P
      MidCap 400 Index
              100
              112.56
              124.17
              134.08
              85.50
              117.46S&P
      500 Computer & Electronics Retail Index
              100
              105.33
              111.60
              111.16
              54.74
              74.00
  Page
11
   Item
6.  Selected Financial Data
 
 The following tables set forth, for the
periods indicated, selected consolidated financial and other data for Wayside
Technology Group, Inc. and its Subsidiaries. You should read the selected
consolidated financial and other data below in conjunction with our consolidated
financial statements and the related notes and with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Form 10-K.
  Year
      Ended December 31,(In
      thousands, except per share data)2005
                
                
                2006
                
                
                2007
                
                
                2008
                
                
                2009Consolidated
      Statement of Operations Data:Net
      sales
                
                $
                137,655
                
                
                $
                182,319
                
                
                $
                179,865
                
                
                $
                174,025
                
                
                $
                146,384Cost
      of sales
                
                
                122,685
                
                
                
                165,350
                
                
                
                162,630
                
                
                
                157,228
                
                
                
                130,791Gross
      profit
                
                
                14,970
                
                
                
                16,969
                
                
                
                17,235
                
                
                
                16,797
                
                
                
                15,593Selling,
      general andadministrative
      expenses
                
                
                12,203
                
                
                
                12,163
                
                
                
                12,081
                
                
                
                12,207
                
                
                
                11,319Income
      from operations
                
                
                2,767
                
                
                
                4,806
                
                
                
                5,154
                
                
                
                4,590
                
                
                
                4,274Other
      income, net
                
                
                300
                
                
                
                741
                
                
                
                991
                
                
                
                744
                
                
                
                521Income
      before income taxes
                
                
                3,067
                
                
                
                5,547
                
                
                
                6,145
                
                
                
                5,334
                
                
                
                4,795Income
      tax provision
                
                
                414
                
                
                
                2,279
                
                
                
                2,442
                
                
                
                2,168
                
                
                
                1,928Net
      income
                
                $
                2,653
                
                
                $
                3,268
                
                
                $
                3,703
                
                
                $
                3,166
                
                
                $
                2,867Net
      income per common share:Basic
                
                $
                0.67
                
                
                $
                0.78
                
                
                $
                0.84
                
                
                $
                0.72
                
                
                $
                0.65Diluted
                
                $
                0.61
                
                
                $
                0.72
                
                
                $
                0.80
                
                
                $
                0.71
                
                
                $
                0.65Weighted
      average commonshares
      outstanding:Basic
                
                
                3,976
                
                
                
                4,191
                
                
                
                4,406
                
                
                
                4,414
                
                
                
                4,399Diluted
                
                
                4,384
                
                
                
                4,521
                
                
                
                4,656
                
                
                
                4,461
                
                
                
                4,427December
      31,2005
                
                
                
                2006
                
                
                
                2007
                
                
                
                2008
                
                
                
                2009Balance
      Sheet Data:Cash
      and cash equivalents
                
                $
                7,369
                
                
                $
                13,832
                
                
                $
                14,241
                
                
                $
                9,349
                
                
                $
                8,560Marketable
      securities
                
                
                7,884
                
                
                
                7,032
                
                
                
                9,641
                
                
                
                9,367
                
                
                
                7,571Working
      capital
                
                
                14,595
                
                
                
                16,471
                
                
                
                19,479
                
                
                
                14,806
                
                
                
                16,583Total
      assets
                
                
                44,268
                
                
                
                57,281
                
                
                
                56,753
                
                
                
                47,485
                
                
                
                53,667Total
      stockholders' equity
                
                
                17,998
                
                
                
                21,298
                
                
                
                24,492
                
                
                
                23,884
                
                
                
                24,359
  Page
12
   Item
7.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations
 
 The following management’s
discussion and analysis of the Company’s financial condition and results of
operations should be read in conjunction with the Company’s Consolidated
Financial Statements and the Notes thereto.  This discussion
and analysis contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain risks and uncertainties, including those set forth under the
heading "Risk Factors" and elsewhere in this report.
 
 Overview
 
 As of January 1, 2006 we have organized
our Company into two reportable operating segments — the “Programmer’s Paradise”
segment, which sells technical software, hardware and services directly to
end-users (such as individual programmers, corporations, government agencies,
and educational institutions) and the “Lifeboat” segment, which distributes
technical software to corporate resellers, VARs, consultants and systems
integrators.
 
 We offer a wide variety of technical
and general business application software from a broad range of publishers and
manufacturers. We market these products through our catalogs, direct mail
programs, advertisements in trade magazines, as well as through Internet and
e-mail promotions.
 
 Forward-looking
Statements
 
 This
report includes “forward-looking statements” within the meaning of Section 21E
of the Exchange Act. Statements in this report regarding future events or
conditions, including but not limited to statements regarding industry prospects
and the Company’s expected financial position, business and financing plans, are
forward-looking statements.
 
 Although
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. We strongly urge current and prospective investors
to carefully consider the cautionary statements and risks contained in this
report, particularly the risks described under “Item 1A. Risk Factors”
above.  Such risks include, but are not limited to, the continued
acceptance of the Company’s distribution channel by vendors and customers, the
timely availability and acceptance of new products, contribution of key vendor
relationships and support programs, as well as factors that affect the software
industry generally.
 
 The Company operates in a rapidly
changing business, and new risk factors emerge from time to time. Management
cannot predict every risk factor, nor can it assess the impact, if any, of all
such risk factors on the Company’s business or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from
those projected in any forward-looking statements.
 
 Accordingly, forward-looking statements
should not be relied upon as a prediction of actual results and readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
 
 The
statements concerning future sales, future gross profit margin and future
selling and administrative expenses are forward looking statements involving
certain risks and uncertainties such as availability of products, product mix,
market conditions and other factors, which could result in a fluctuation of
sales below recent experience.
  Page
13
 
 Stock Volatility.The
technology sector of the United States stock markets has experienced substantial
volatility in recent periods. Numerous conditions which impact the technology
sector or the stock market in general or the Company in particular, whether or
not such events relate to or reflect upon the Company's operating performance,
could adversely affect the market price of the Company's Common Stock.
Furthermore, fluctuations in the Company's operating results, announcements
regarding litigation, the loss of a significant vendor, increased competition,
reduced vendor incentives and trade credit, higher postage and operating
expenses, and other developments, could have a significant impact on the market
price of the Company's Common Stock.
 
 Financial
Overview
 
 We
reported a net income of $2.9 million for the year 2009 as compared to a net
income of $3.2 million in 2008. The
decrease primarily resulted from the decline in revenue. Our income before
income taxes decreased by $0.5 million to $4.8 million compared to $5.3 million
in 2008.
 
 Income
from operations amounted to $4.3 million in 2009 as compared to $4.6 million in
2008, representing a decrease of $0.3 million as compared to 2008. Gross profit
decreased by $1.2 million and Selling, General and Administrative (“SG&A”)
expenses decreased by $0.9 million.
 
 The Company's sales, gross profit and
results of operations have fluctuated and are expected to continue to fluctuate
on a quarterly basis as a result of a number of factors, including but not
limited to: the condition of the software industry in general; shifts in demand
for software products; industry shipments of new software products or upgrades;
the timing of new merchandise and catalog offerings; fluctuations in response
rates; fluctuations in postage, paper, shipping and printing costs and in
merchandise returns; adverse weather conditions that affect response,
distribution or shipping; shifts in the timing of holidays; and changes in the
Company's product offerings. The Company's operating expenditures are based on
sales forecasts. If revenues do not meet expectations in any given quarter,
operating results may be materially adversely affected.
 
 Results
of Operations
 
 The following table sets forth for the
years indicated the percentage of net sales represented by selected items
reflected in the Company’s Consolidated Statements of Earnings. The year-to-year
comparison of financial results is not necessarily indicative of future
results:
  Years
      ended December 31,2007
                
                
                2008
                
                
                2009Net
      sales
                
                
                100.0
                %
                
                
                100.0
                %
                
                
                100.0
                %Cost
      of sales
                
                
                90.4
                
                
                
                90.3
                
                
                
                89.4Gross
      profit
                
                
                9.6
                
                
                
                9.7
                
                
                
                10.6Selling,
      general and administrative expenses
                
                
                6.7
                
                
                
                7.0
                
                
                
                7.7Income
      from operations
                
                
                2.9
                
                
                
                2.7
                
                
                
                2.9Other
      income, net
                
                
                0.5
                
                
                
                0.4
                
                
                
                0.4Income
      before income taxes
                
                
                3.4
                
                
                
                3.1
                
                
                
                3.3Income
      tax provision
                
                
                1.4
                
                
                
                1.3
                
                
                
                1.3Net
      income
                
                
                2.0
                %
                
                
                1.8
                %
                
                
                2.0
                %
 Page
14


Year
ended December 31, 2009 Compared to Year Ended December 31, 2008
 
 Net
Sales
 
 Net sales
for 2009 decreased 16% or $27.6 million to $146.4 million compared to $174.0
million in 2008. Total sales for our Lifeboat segment were $98.1 million
compared to $117.1 million in 2008, representing a 16% decrease. Total sales for
the Programmer’s Paradise segment in 2009 amounted to $48.3 million, compared to
$56.9 million in 2008, representing a 15% decrease.
 
 The decline in sales for our Lifeboat
segment was primarily due to a decrease in VMware sales.   VMware
terminated its distributor agreement with Lifeboat Distribution, Inc. in 2008.
As a result, our Lifeboat segment ceased distributing VMware products as of
October 1, 2008, the distribution of which had accounted for $29.2 million, or
17% of our 2008 revenue and $57.2 million, or 32% of our 2007
revenue.  Excluding the effect of VMware, Lifeboat segment sales
during 2009 showed strong growth, increasing by $10.1 million from 2008, or
11.5%.
 
 In the
Programmer's Paradise segment, sales for 2009 decreased by $8.6 million,
compared with the year-earlier period. This decline was primarily due to a shift
in mix of order size:  We had fewer large transactions, the decrease
in revenue from which was not completely offset by increased sales of our
smaller specialized software lines in 2009.
 
 Gross
Profit
 
 Gross
Profit for 2009 was $15.6 million compared to $16.8 million in 2008, a 7%
decrease. Total gross profit for our Programmer’s Paradise segment was $5.7
million compared to $6.5 million in 2008, representing a 13% decrease. Total
gross profit for our Lifeboat segment was $9.9 million compared to $10.3 million
in 2008, representing a 3% decrease.
 
 Gross
profit margin, as a percentage of net sales, for 2009 was 10.7% compared to 9.7%
in 2008. Gross profit margin percentage for our Programmer’s Paradise segment in
2009 was 11.7% compared to 11.4% in 2008. Gross profit margin percentage for our
Lifeboat segment in 2009 was 10.1% compared to 8.8% in 2008.
 
 The
increase in gross profit margin as a percentage of net sales was primarily
caused by the decline in VMware sales which carried lower margins than our other
lines. The Lifeboat segment represented 67% of total sales in 2009 and
2008.Gross profit margin percentage for our Lifeboat segment was 10.1% compared
to 11.7% for our Programmer’s Paradise segment.
 
 Selling,
General and Administrative Expenses
 
 Total
SG&A expenses for 2009 were $11.3 million compared to $12.2 million in 2008.
As a percentage of net sales, SG&A expenses for 2009 and 2008 were 7.7% and
7.0%, respectively. This decrease was the result of lower employee and employee
related costs of $0.6 million (including salaries, bonuses, employee benefits,
commissions, and travel and entertainment), and lower occupancy related costs of
$0.3 million primarily because we did not take any additional reserve related to
the Long Island lease and lower depreciation compared to 2008.
 
 The
Company expects that its SG&A expenses, as a percentage of net sales, may
vary depending on changes in sales volume, as well as the levels of continuing
investments in key growth initiatives. We plan to expand our investment in
information technology and marketing, while monitoring our sales and remaining
general and administrative expenses closely.
  Page
15
 
 Direct selling costs (a component of
SG&A) for 2009 were $5.5 million compared to $5.8 million in 2008. Total
direct selling costs for our Programmer’s Paradise segment for 2009 were $2.6
million compared to $2.9 million in the same period in 2008. Total direct
selling costs for our Lifeboat segment were $2.9 million in each of 2009 and
2008.
 
 Income
Taxes
 
 For the
year ended December 31, 2009, the Company recorded a provision for income taxes
of $1.9 million which consists of a provision of $1.1 million for U.S. federal
income taxes, as well as a $0.4 million provision for state and local taxes, a
$0.2 million provision for Canadian taxes, and a deferred tax expense of $0.3
million.
 
 As of
December 31, 2009 the Company had a U.S. deferred tax asset of approximately
$1.2 million.
 
 For the
year ended December 31, 2008, the Company recorded a provision for income taxes
of $2.2 million which consists of a provision of $1.4 million for U.S. federal
income taxes, as well as a $0.2 million provision for state and local taxes, a
$0.2 million provision for Canadian taxes, and a deferred tax expense of $0.4
million.
 
 As of
December 31, 2008 the Company had a U.S. deferred tax asset of approximately
$1.5 million.
 
 Year
ended December 31, 2008 Compared to Year Ended December 31, 2007
 
 Net
Sales
 
 Net sales
for 2008 decreased 3.3% or $5.8 million to $174.0 million compared to $179.9
million in 2007. Total sales for our Lifeboat segment were $117.1 million
compared to $135.1 million in 2007, representing a 13% decrease. Total sales for
the Programmer’s Paradise segment in 2008 amounted to $56.9 million, compared to
$44.8 million in 2007, representing a 27% increase.
 
 The decline in sales for our Lifeboat
segments was primarily due to a decrease in VMware sales in our Lifeboat
segment. VMware terminated its distributor agreement with Lifeboat Distribution,
Inc. in 2008. As a result, our Lifeboat segment ceased distributing VMware
products as of October 1, 2008, the distribution of which had accounted for
$29.2 million in 2008, or 17% of our 2008 revenue and $57.2 million in 2007, or
32% of our 2007 revenue.  Our remaining distribution sales showed
strong growth. Excluding VMware, sales during 2008 increased by $10.0 million
from 2007, or 12.9%.
 
 In the
Programmer's Paradise segment, sales for 2008 increased by $12.1 million,
compared with the year-earlier period, primarily due to our customer service
centric sales approach, aggressive pricing and an increase in orders by
customers utilizing our flexible payment option arrangement.
 
 Gross
Profit
 
 Gross
Profit for 2008 was $16.8 million compared to $17.2 million in 2007, a 3%
decrease. Total gross profit for our Programmer’s Paradise segment was $6.5
million compared to $5.8 million in 2007, representing a 13% increase. Total
gross profit for our Lifeboat segment was $10.3 million compared to $11.5
million in 2007, representing a 10% decrease.
 
 Gross
profit margin, as a percentage of net sales, for 2008 was 9.7% compared to 9.6%
in 2007. Gross profit margin percentage for our Programmer’s Paradise segment
was 11.4% compared to 12.9% in 2007. Gross profit margin percentage for our
Lifeboat segment in 2008 was 8.8% compared to 8.5% in 2007.
 
 The
increase in gross profit margin as a percentage of net sales was primarily
caused by the decline in VMware sales which carry lower margins than our other
lines. The Lifeboat segment represented 67% of total sales in 2008 compared to
75% in 2007. Gross profit margin percentage for our Lifeboat segment was 8.8%
compared to 11.4% for our Programmer’s Paradise segment.
  Page
16
 
 Selling,
General and Administrative Expenses
 
 Total
SG&A expenses for 2008 were $12.2 million compared to $12.1 million in 2007.
As a percentage of net sales, SG&A expenses for 2008 and 2007 were 7.0% and
6.7%, respectively. This increase was the result of increased employee related
costs (including bonuses, benefits and stock compensation), professional fees
and an additional charge related to the sublease of our Long Island office
compared to 2007.
  The
Company expects that its SG&A expenses, as a percentage of net sales, may
vary depending on changes in sales volume, as well as the levels of continuing
investments in key growth initiatives. We plan to expand our investment in
information technology and marketing, while monitoring our sales and remaining
general and administrative expenses closely.
 
 Direct
selling costs representing (such items as payroll costs and payroll related
costs, including profit sharing, incentive awards and insurance), for each of
2008 and 2007 were approximately $5.8 million. Total direct selling costs for
our Programmer’s Paradise segment were $2.9 million in each of 2008 and 2007.
Total direct selling costs for our Lifeboat segment were $2.9 million in each of
2008 and 2007.
 
 Income
Taxes
 
 For the
year ended December 31, 2008, the Company recorded a provision for income taxes
of $2.2 million which consists of a provision of $1.4 million for U.S. federal
income taxes, as well as a $0.2 million provision for state and local taxes, a
$0.2 million provision for Canadian taxes, and a deferred tax expense of $0.4
million.
 
 As of
December 31, 2008 the Company had a U.S. deferred tax asset of approximately
$1.5 million. The Company fully utilized its U.S. federal loss carry forwards
during 2007 as well as the majority of its state tax loss carry
forwards.
 
 For the
year ended December 31, 2007, the Company recorded a provision for income taxes
of $2.4 million which consists of a provision of $1.0 million for U.S. federal
income taxes as well as a $0.2 million provision for Canadian taxes, and a
deferred tax expense of $1.2 million
 
 As of December 31, 2007, the Company
had a U.S. deferred tax asset of approximately $1.9 million. The Company fully
utilized its U.S. federal loss carry forwards during 2007 as well as the
majority of its state tax loss carry forwards.
 
 Recent
Accounting Pronouncements
 
 As of
December 31, 2009, the Financial Accounting Standards Board (“FASB”) issued
several pronouncements of significance to the Company which are discussed in
detail below.
 
 In
May 2009, the FASB issued guidance now codified as FASB ASC Topic 855,
“Subsequent Events,” which establishes general standards of accounting for, and
disclosures of, events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. This
pronouncement is effective for interim or fiscal periods ending after
June 15, 2009. The adoption of this pronouncement did not have a material
impact on our consolidated financial position, results of operations or cash
flows. However, the provisions of FASB ASC Topic 855 resulted in additional
disclosures with respect to subsequent events. The Company evaluated all events
or transactions that occurred after December 31, 2009 up through February 22,
2010, the date we filed this annual report on Form 10-K.  During this
period no material subsequent events came to our attention.
 Page
17


In
June 2009, the FASB issued guidance now codified as FASB ASC Topic 105,
“Generally Accepted Accounting Principles,” as the single source of
authoritative nongovernmental U.S. GAAP. FASB ASC Topic 105 does not change
current U.S. GAAP, but is intended to simplify user access to all authoritative
U.S. GAAP by providing all authoritative literature related to a particular
topic in one place. All existing accounting standard documents will be
superseded and all other accounting literature not included in the FASB
Codification will be considered non-authoritative. These provisions of FASB ASC
Topic 105 are effective for interim and annual periods ending after
September 15, 2009 and, accordingly, are effective for the Company for the
current fiscal reporting period. The adoption of this pronouncement did not have
an impact on the Company’s financial condition or results of operations, but
will impact our financial reporting process by eliminating all references to
pre-codification standards. On the effective date of this Statement, the
Codification superseded all then-existing non-SEC accounting and reporting
standards, and all other non-grandfathered non-SEC accounting literature not
included in the Codification became non-authoritative.
 
 In
April 2009, the FASB issued guidance now codified as FASB ASC Topic 320,
“Investments — Debt and Equity Securities” and Topic 325 “Investments — Other,”
which is designed to create greater clarity and consistency in accounting for
and presenting impairment losses on securities. The pronouncement is effective
for periods ending after June 15, 2009. The adoption of this guidance did
not have a material impact on our consolidated financial position, results of
operations or cash flows.
 
 In
April 2009, the FASB issued guidance now codified as FASB ASC Topic 825,
“Financial Instruments,” which amends previous Topic 825 guidance to require
disclosures about fair value of financial instruments in interim as well as
annual financial statements. This pronouncement is effective for periods ending
after June 15, 2009. The adoption of this pronouncement did not have a
material impact on our consolidated financial position, results of operations or
cash flows.
 
 Liquidity
and Capital Resources
 
 Our cash and cash equivalents decreased
by $0.8 million to $8.6 million at December 31, 2009 from $9.3 million at
December 31, 2008.  Net cash provided by operating activities amounted
to $1.0 million, net cash provided by investing activities amounted to $1.6
million, net cash used in financing activities amounted to $3.6 million and the
effect of foreign exchange on cash was $0.2 million.
 
 Net cash provided by operating
activities in 2009 was $1.0 million. In 2009, cash was mainly provided by $4.4
million from income from operations net of non-cash charges, and a $5.7 million
increase in accounts payable and a decrease in inventory of $0.1 million, offset
by a $9.0 million increase in accounts receivable. The increase in accounts
receivable relates primarily to our increased revenue in December of 2009,
compared to the comparable period in 2008. The increase in accounts payable is
primarily due to our increased net sales in December 2009 as compared to 2008
and our normal cycle of payments.
 
 In 2009, cash provided in
investing activities was $1.6 million. This primarily resulted from net sales of
$1.8 million in marketable securities. These securities are highly rated and
highly liquid. These securities are classified as available-for-sale securities
in accordance with ASC Topic 320 “Investments in Debt and Equity Securities”,
and as a result, unrealized gains and losses are reported as part of accumulated
other comprehensive income. Cash was also used in investing activities in the
amount of $0.2 million for the purchase of equipment and leasehold
improvements.
 
 Net cash
used in financing activities in 2009 of $3.6 million consisted of $2.8 million
of dividend payments on our Common Stock and $0.7 million for the purchases of
shares of our Common Stock
 
 In 2008, the Company's Board of
Directors authorized the purchase of 500,000 shares of our Common Stock. In
2002, the Company's Board of Directors authorized the purchase of 1,490,000
shares of our Common Stock. In October 1999, the Company was authorized by the
Board of Directors to buy back  521,013 shares of our Common Stock in
both open market and private transactions, as conditions warrant. A total of
2,009,227 shares of the Company’s stock have been bought back to date leaving a
balance of 501,786 shares of Common Stock that the Company is authorized to buy
back in the future.
  Page
18
 
 The
repurchase program is expected to remain effective for the remainder of 2010. We
intend to hold the repurchased shares in treasury for general corporate
purposes, including issuances under various stock plans. As of December 31,
2009, we held 595,656 shares of our Common Stock in treasury at an average cost
of $5.97 per share.  As of December 31, 2008, we held 640,838 shares
of our Common Stock in treasury at an average cost of $5.28 per
share.
 
 The
Company’s current and anticipated use of its cash and cash equivalents is, and
will continue to be, to fund working capital, operational expenditures, the
stock repurchase program and dividends, if any, declared by the board of
directors. Our business plan furthermore contemplates to continue to use our
cash to pay vendors promptly in order to obtain more favorable
conditions.
 
 The
Company believes that the cash flows from operations and funds held in cash and
cash equivalents will be sufficient to fund the Company’s working capital and
cash requirements for at least the next 12 months.  We currently do
not have any credit facility and, in the foreseeable future, we do not plan to
enter into an agreement providing for a line of credit.
 
 The
ongoing general economic downturn is causing some of our current and potential
customers to delay or reduce technology purchases and results in longer sales
cycles, slower adoption of new technologies and increased price competition. We
have taken steps to reduce our costs of operations. While we have reduced our
cost of sales as a percentage of net sales for in 2009 compared to 2008, this
was primarily due to the decline in VMware sales which carried lower margins
than our other lines, and our selling, general and administrative expenses have
increased as a percentage of net sales over the same period. Any benefits from
cost reduction measures we implement may take longer to realize and may not
fully mitigate the impact of the reduced demand. Limited access to financing may
also affect our vendors' ability to supply products, and could result in changes
in vendor terms and conditions, such as rebates, cash discounts and cooperative
marketing efforts, which may result in downward pressure on our gross margins.
The realization of any or all of these risks could have a material adverse
effect on our business, results of operation and financial
condition.
  Contractual
      Obligations(Dollars
      in thousands)Payment
      due by PeriodTotal
                
                
                Less
      than 1 year
                
                
                1-3
      years
                
                
                4-5
      years
                
                
                After
      5 yearsLong-term
      debt
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Capital
      Lease Obligations
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Operating
      Leases(1)
                
                $
                987
                
                
                $
                366
                
                
                $
                621
                
                
                
                -
                
                
                
                -Unconditional
      Purchase Obligations
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Other
      Long term Obligationsreflected
      on the Company'sBalance
      Sheet under GAAP
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      Contractual Obligations
                
                $
                987
                
                
                $
                366
                
                
                $
                621
                
                
                
                -
                
                
                
                -
  (1)
Operating leases primarily relates to the lease of the space used for our
operations in Shrewsbury, New Jersey, and Mississauga, Canada as well as our
former sales office in Hauppauge New York. The commitments for operating leases
include the minimum rent payments and a proportionate share of operating
expenses and property taxes.
  Page
19
 
 (2) In
addition to the contractual obligations disclosed in this table, we have
unrecognized tax benefits totaling $78,000 with respect to which, based on
uncertainties associated with the items, we are unable to make reasonably
reliable estimates of the period of potential cash settlements, if any, with
taxing authorities. As a result, such potential liabilities are not listed in
the table. See Note 6 to our Consolidated Financial Statements.
 
 The
Company is not committed by lines of credit, standby letters of credit, has no
standby repurchase obligations or other commercial commitments.
 
 Foreign
Exchange
 
 The Company’s Canadian business is
subject to changes in demand or pricing resulting from fluctuations in currency
exchange rates or other factors. We are subject to fluctuations in the Canadian
Dollar-to-U.S. Dollar exchange rate.
 
 Off-
Balance Sheet Arrangements
 
 As of
December 31, 2009, we did not have any off-balance sheet arrangements, as
defined in Item 303 (a)(4)(ii) of SEC Regulation S-K.
 
 Critical
Accounting Policies and Estimates
 
 Management’s
discussion and analysis of the Company’s financial condition and results of
operations are based upon the Company's consolidated financial statements that
have been prepared in accordance with generally accepted accounting principles.
The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. The Company recognizes revenue from the sale of software and
hardware for microcomputers, servers and networks upon shipment or upon
electronic delivery of the product. The Company expenses the advertising costs
associated with producing its catalogs. The costs of these catalogs are expensed
in the same month the catalogs are mailed.
 
 On an on-going basis, the Company
evaluates its estimates, including those related to product returns, bad debts,
inventories, investments, intangible assets, income taxes, stock-based
compensation and costs associated with exit or disposal activities, and
contingencies and litigation.
 
 The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates.
 
 The Company believes the following
critical accounting policies used in the preparation of its consolidated
financial statements affect its more significant judgments and
estimates.
 
 The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. If the financial condition of the Company's
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required.
 The
Company writes down its inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-offs may be
required.
 Page
20
   The Company has considered future
taxable income and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance related to deferred tax assets.
In the event the Company were to determine that it would not be able to realize
all or part of its net deferred tax assets in the future, an adjustment to the
deferred tax assets would be charged to income in the period such determination
was made.
 
 Under
the fair value recognition provision, stock-based compensation cost is measured
at the grant date based on the fair value of the award and is recognized as
expense on a straight-line basis over the requisite service period, which is the
vesting period. We make certain assumptions in order to value and expense our
various share-based payment awards. In connection with valuing stock options, we
use the Black-Scholes model, which requires us to estimate certain subjective
assumptions. The key assumptions we make are: the expected volatility of our
stock; the expected term of the award; and the expected forfeiture rate. In
connection with our restricted stock programs we make assumptions principally
related to the forfeiture rate. We review our valuation assumptions periodically
and, as a result, we may change our valuation assumptions used to value stock
based awards granted in future periods. Such changes may lead to a significant
change in the expense we recognize in connection with share-based
payments.
 
 Item
7A.  Quantitative and Qualitative Disclosures about Market
Risk
 
 In addition to its activities in the
United States, 7.8% of the Company’s 2009 sales were generated in Canada. We are
subject to general risks attendant to the conduct of business in Canada,
including economic uncertainties and foreign government regulations. In
addition, the Company’s Canadian business is subject to changes in demand or
pricing resulting from fluctuations in currency exchange rates or other
factors.
 
 The Company’s $7.6 million investments
in marketable securities at December 31, 2009 are invested in highly rated and
liquid U.S. government securities and insured certificates of
deposit.
 
 Item
8.  Financial Statements and Supplementary Data
 
 See Index to Consolidated Financial
Statements at Item 15(a).
 
 Item
9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
 
 None.
 
 Item
9A.  Controls and procedures
 
 Evaluation of Disclosure Controls
and Procedures.As required by Rule 13a-15(b) under the Exchange Act, our
management carried out an evaluation of the effectiveness of the design and
operation of the Company’s “disclosure controls and procedures”, as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end
of the period covered by this report.  This evaluation was carried out
under the supervision and with the participation of our management, including
our Company’s President, Chairman of the Board and Chief Executive Officer
(principal executive officer) and Vice President and Chief Accounting Officer
(principal financial officer). Based upon that evaluation, the Company’s Chief
Executive Officer and Chief Accounting Officer concluded that the Company’s
disclosure controls and procedures were effective, as of the end of the period
covered by this report, to ensure that information required to be disclosed by
the Company in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s rules and forms and is accumulated
and communicated to the Company’s management, including the Company’s Chief
Executive Officer and Chief Accounting Officer, as appropriate, to allow timely
decisions regarding required disclosure.
  Page
21
 
 Management Report on Internal
Control Over Financial ReportingOur management is responsible
for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. 
Internal control over financial reporting is a process designed by, or under the
supervision of, our Chief Executive Officer and Chief Accounting Officer, and
effected by the Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of our financial reporting and
the preparation of financial statements for external purposes in accordance with
GAAP. Internal control over financial reporting includes maintaining records in
reasonable detail that accurately and fairly reflect our transactions and
disposition of assets; providing reasonable assurance that transactions are
recorded as necessary for preparation of our financial statements in accordance
with GAAP; providing reasonable assurance that receipts and expenditures of the
Company, are made in accordance with authorizations of  management and
directors of the Company; and providing  reasonable assurance that
unauthorized acquisition, use or disposition of Company assets that could have a
material effect on our financial statements would be prevented or detected on a
timely basis. Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance that a
misstatement of our financial statements would be prevented or detected. 
In addition, projections of any evaluation of effectiveness to future periods
are subject to the risk that, owing to changes in conditions, controls may
become inadequate, or that the degree of compliance with policies or procedures
may deteriorate.
  Management,
with the participation of our Chief Executive Officer and Chief Accounting
Officer, conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that the Company’s
internal control over financial reporting was effective as of December 31, 2009.
There were no changes in our internal control over financial reporting during
the quarter ended December 31, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
  This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this annual report.
 
 Item
9B.  Other Information
 
 None.
 
 PART
III
 
 Item
10.  Directors and Executive Officers of the Registrant
 
 The information required hereunder,
with the exception of the information relating to the executive officers of the
Registrant that is presented in Part I under the heading “Executive Officers of
the Company,” and the information relating to the Company’s Code of Ethical
Conduct that is presented in Part I under the heading “Available Information,”
is incorporated by reference herein from our Definitive Proxy Statement for the
2010 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A not
later than April 30, 2010 (the “Definitive Proxy Statement”) under the sections
captioned "Election of Directors," “Corporate Governance” and “Section 16 (a)
Beneficial Ownership Reporting Compliance.”
 
 Item
11. Executive Compensation
 
 The information required hereunder is
incorporated by reference herein from the Definitive Proxy Statement under the
sections captioned "Executive Compensation" and “Corporate
Governance.”
  Page
22
 
 Item
12.  Security Ownership of Certain Beneficial Owners and
Management
 
 The information required hereunder is
incorporated by reference herein from the Definitive Proxy Statement under the
sections captioned "Executive Compensation – Securities Authorized for Issuance
under Equity Compensation Plans" and “Security Ownership of Certain Beneficial
Owners and Management.”
 
 Item
13.  Certain Relationships and Related Party Transactions, and
Director Independence
 
 The information required hereunder is
incorporated by reference herein from the Definitive Proxy Statement under the
sections captioned “Executive Compensation,” "Corporate Governance" and
"Transactions with Related Persons.”
 
 Item
14. Principal Accounting Fees and Services
 
 The
information required hereunder is incorporated by reference herein from the
Definitive Proxy Statement under the section captioned “Appointment of
Independent Registered Public Accounting Firm.”
 
 PART
IV
 
 Item
15 Exhibits and Financial Statement Schedules
 
 (a)           The
following documents are filed as part of this Report:
 
 1.
              Consolidated Financial
      Statements (See Index to Consolidated Financial Statements on page
      F-1 of this report);
  2.
              Financial Statement
      Schedule:
 Schedule II   Valuation
and Qualifying Accounts
 
 All other
schedules are omitted since the required information is not present or is not
present in amounts sufficient to require submission of the schedule, or because
the information required is included in the consolidated financial statements or
notes thereto.
 
 3.           Exhibits Required by Regulation S-K,
Item 601:
  Exhibit No.
                Description of
      Exhibit
  3.1
              Amended
      and Restated Certificate of Incorporation of the Company.
    (1)
  3.2
              Form
      of Amended and Restated By-Laws of the
  Company.(1a)
 
 4.1
              Specimen
      of Common Stock Certificate.(1a)
 
 10.18
              1995
      Stock Plan, as amended. (3)
 
 10.19
              1995
      Non-Employee Director Plan, as amended.
(3)
  10.19(a)
              2006
      Stock-Based Compensation Plan. (4)
 
 10.19(b)
              First
      Amendment to 2006 Stock-Based Compensation Plan.
  (5)
 
 10.19(c)
              Second
      Amendment to 2006 Stock-Based Compensation Plan.
  (5)
  Page
23
 
 10.20
              Form
      of Officer and Director Indemnification Agreement.
  (1a)
 
 10.42
              Lease
      dated as of May 14, 1997 between Robert C. Baker, et al as Landlord and
      the Company (6)
 
 10.42(a)
              Modification
      of Lease, dated as of July 27, 2006, between SBC Holdings, L.P. (successor
      in interest to Robert C. Baker, et al.) and the Company.
    (2)
 
 10.43
              Employment
      Agreement, dated January 12, 2006, between the Company and Simon F. Nynens.
      (7)
 
 10.45
              Offer
      Letter, dated January 6, 2003, from the Company to Vito
      Legrottaglie.(8)
 
 10.46
              Resignation
      Letter, dated May 16, 2007, from Wayside Technology Group, Inc. to Jeffrey
      Largiader. (9)
 
 10.47
              General
      Release, dated May 18, 2007, between Jeffrey Largiader and Wayside
      Technology Group, Inc. (5)
 
 10.48
              Restricted
      Stock Letter, dated August 15, 2006, between Vito Legrottaglie and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)
 
 10.49
              Restricted
      Stock Letter, dated August 15, 2006, between Jeffrey Largiader and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)
 10.50
                    Restricted
      Stock Letter, dated August 15, 2006, between Daniel Jamieson and Wayside
      Technology
      Group, Inc (f/k/a Programmer’s Paradise Inc.)
  (5)
 10.51
              Restricted
      Stock Letter, dated August 15, 2006, between Allan Weingarten and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)
  10.52
              Restricted
      Stock Letter, dated August 15, 2006, between Edwin Morgens and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)
 
 10.53
              Restricted
      Stock Letter, dated August 15, 2006, between Duff Meyercord and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)
 
 10.54
              Restricted
      Stock Letter, dated August 15, 2006, between Simon F. Nynens and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)
  10.55
              Restricted
      Stock Letter, dated August 15, 2006, between Simon F. Nynens and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)
 
 10.56
              Restricted
      Stock Letter, dated August 15, 2006, between Kevin Scull and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
      (5)
 
 10.57
              Restricted
      Stock Letter, dated January 31, 2007, between William Willett and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)
 
 10.58
              Restricted
      Stock Letter, dated November 19, 2007, between Richard Bevis and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)
  10.59
              Form
      of Non-Qualified Stock Option Agreement
(5)
  Page
24
 
 10.60
              Restricted
      Stock Letter, dated February 5, 2008, between Kevin Scull and Wayside
      Technology Group, Inc. (10)
  10.61
              Restricted
      Stock Letter, dated February 5, 2008, between Richard Bevis and Wayside
      Technology Group, Inc. (10)
  10.62
              Restricted
      Stock Letter, dated February 5, 2008, between Simon Nynens and Wayside
      Technology Group, Inc. (10)
  10.63
              Restricted
      Stock Letter, dated February 5, 2008, between Vito Legrottaglie and
      Wayside Technology Group, Inc. (10)
  10.64
              Restricted
      Stock Letter, dated February 5, 2008, between Daniel Jamieson and Wayside
      Technology Group, Inc. (10)
  10.65
              Restricted
      Stock Letter, dated February 5, 2008, between Edwin Morgens and Wayside
      Technology Group, Inc. (10)
 
 10.66
              Restricted
      Stock Letter, dated February 5, 2008, between William Willett and Wayside
      Technology Group, Inc. (10)
  10.67
              Restricted
      Stock Letter, dated February 5, 2008, between Allan Weingarten and Wayside
      Technology Group, Inc. (10)
  10.68
              Restricted
      Stock Letter, dated February 5, 2008, between Mark Boyer and Wayside
      Technology Group, Inc. (10)
 10.69
              Restricted
      Stock Letter, dated February 5, 2008, between Duff Meyercord and Wayside
      Technology Group, Inc. (10)
 
 10.72
              Restricted
      Stock Letter, dated May 5, 2009, between Simon Nynens and Wayside
      Technology Group, Inc. (11)
 
 10.73
              Restricted
      Stock Letter, dated May 5, 2009, between Kevin Scull and Wayside
      Technology Group, Inc. (11)
 
 10.74
              Restricted
      Stock Letter, dated May 5, 2009, between Richard Bevis and Wayside
      Technology Group, Inc. (11)
 
 10.75
              Restricted
      Stock Letter, dated May 5, 2009, between Shawn Giordano and Wayside
      Technology Group, Inc. (11)
 
 10.76
              Restricted
      Stock Letter, dated May 5, 2009, between Daniel Jamieson and Wayside
      Technology Group, Inc. (11)
 
 10.77
              Restricted
      Stock Letter, dated May 5, 2009, between Vito Legrottaglie and Wayside
      Technology Group, Inc. (11)
 
 21.1
              Subsidiaries
      of the Registrant
 
 23.1
              Consent
      of Amper, Politziner & Mattia,
LLP
 
 31.1
              Certification
      pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
      Act of 1934, of Simon F. Nynens, the Chief Executive Officer of the
      Company.
  Page
25
 
 31.2
              Certification
      pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
      Act of 1934, of Kevin T. Scull, the Chief Accounting Officer of the
      Company.
 
 32.1
              Certification
      pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002, of Simon F. Nynens, the Chief Executive
      Officer of the Company.
 
 32.2
              Certification
      pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002, of Kevin T. Scull, the Chief Accounting
      Officer of the Company.
 
 
 (1)
              The
      Restated Certificate of Incorporation was initially filed as an Exhibit of
      the same number to the Registrant's Registration Statement on Form S-1 or
      amendments thereto (File No. 333-92810) and
      the Certificate of Amendment to the Restated Certificate of Incorporation
      was initially filed as an Exhibit to the Registrant’s Quarterly
      Report on Form 10-Q for the quarter ended September 30, 2006 filed on
      November 3, 2006.  Both are refiled
    herewith.
 
 (1a)
              Incorporated
      by reference to the Exhibits of the same number to the Registrant's
      Registration Statement on Form S-1 or amendments thereto (File No.
      333-92810).
 
 (2)
              Incorporated
      by reference to the Exhibits of the same number to the Registrant’s
      Quarterly Report on Form 10-Q for the quarter ended September 30,
      2006 filed on November 3, 2006.
 
 (3)
              Incorporated
      by reference to Exhibit A and Exhibit B, respectively, to the Registrant’s
      Definitive Annual Meeting Proxy Statement filed on April 30,
      1998.
 
 (4)
              Incorporated
      by reference to Exhibit A of the Registrant’s Definitive Annual Meeting
      Proxy Statement filed on April 28,
2006.
 
 (5)
              Incorporated
      by reference to exhibits of the same number filed with the Registrant’s
      Annual Report on Form 10-K for the Year Ended December 31, 2007 filed on
      March 13, 2008.
 
 (6)
              Incorporated
      by reference to Exhibit 10.42 of the Registrant’s Annual Report on Form
      10-K for the year ended December 31, 1998 filed on March 31,
      1999.
 
 (7)
              Incorporated
      by reference to Exhibit 10.43 to the Registrant’s Quarterly Report on Form
      10-Q for the quarter ended March 31, 2006 filed on May 12,
      2006.
 
 (8)
              Incorporated
      by reference to exhibits of the same number filed with the Registrant's
      Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 filed
      on May 15, 2007.
 
 (9)
              Incorporated
      by reference to exhibits of the same number filed with the Registrant's
      Current Report on Form 8-K filed on May 21,
  2007.
 
 (10)
              Incorporated
      by reference to exhibits of the same number filed with the Registrant’s
      Quarterly Report on Form 10-Q for the Period Ended March 31, 2008 filed on
      May 12, 2008.
  Page
26
   (11)
              Incorporated
      by reference to exhibits of the same number filed with the Registrant’s
      Quarterly Report on Form 10-Q for the Period Ended June 30, 2009
      filed on August 11, 2009.
 
 (b)
              The
      exhibits required by Item 601 of Regulation S-K are reflected above in
      Section (a) 3. of this Item.
 
 (c)
              The
      financial statement schedule is included as reflected in Section (a) 2. of
      this Item.
  Page
27
 
 SIGNATURES
 
 Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized, in Shrewsbury, New Jersey, on February 22, 2010.
  WAYSIDE
      TECHNOLOGY GROUP, INC.By:
                /s/ Simon
      F. NynensSimon
      F. Nynens, President and
                  Chief
      Executive Officer
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated:
  Signature
                
                Title
                
                DatePresident
      and Chief Executive Officer and
                
                February
      22, 2010/s/
      Simon
      F. Nynens
                
                Chairman
      of the Board of DirectorsSimon
      F. Nynens
                
                (Principal
      Executive Officer)Vice
      President and Chief Accounting Officer
                
                February
      22, 2010/s/
      Kevin
      T. Scull
                
                (Principal
      Financial and Accounting Officer)Kevin
      T. Scull/s/
      William
      H. Willett
                
                Director
                
                February
      22, 2010William
      H. Willett/s/
      Mark.
      T. Boyer
                
                Director
                
                February
      22, 2010Mark.
      T. Boyer/s/
      Duffield
      Meyercord
                
                Director
                
                February
      22, 2010Duffield
      Meyercord/s/
      Edwin
      H. Morgens
                
                Director
                
                February
      22, 2010Edwin
      H. Morgens/s/
      Allan
      D. Weingarten
                
                Director
                
                February
      22, 2010Allan
      D. Weingarten
  
 
 Items
8 and 15(a)
 
 Wayside
Technology Group, Inc. and Subsidiaries
 
 Index
to Consolidated Financial Statements and Schedule
 
 
 
 
 PageReport
      of Independent Registered Public Accounting Firm
              F-2Consolidated
      Balance Sheets
              F-3Consolidated
      Statements of Earnings
              F-4Consolidated
      Statements of Stockholders’ Equity and Comprehensive
Income
              F-5Consolidated
      Statements of Cash Flows
              F-6Notes
      to Consolidated Financial Statements
              F-7Schedule
      II – Valuation and Qualifying Accounts
              F-24
  F-1
 
 Report
of Independent Registered Public Accounting Firm
 
 The Board
of Directors and Stockholders
 Wayside
Technology Group, Inc. and Subsidiaries
 
 We have
audited the accompanying consolidated balance sheets of Wayside Technology
Group, Inc.  and Subsidiaries as of December 31, 2009 and 2008, and
the related consolidated statements of earnings, stockholders’ equity and
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2009.  These financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these financial statements based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audits provide
a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Wayside
Technology Group, Inc. and Subsidiaries as of December 31, 2009 and 2008, and
the results of their earnings and their cash flows for each of the three years
in the period ended December 31, 2009, in conformity with accounting principles
generally accepted in the United States of America.
 
 We have
also audited the consolidated financial statement schedule, Schedule II –
Valuation and Qualifying Accounts, for each of the three years in the period
ended December 31, 2009. In our opinion, this financial schedule, when
considered in relation to the consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information stated
therein.
  
 /s/  Amper,
Politziner & Mattia, LLP
 
 February
22 2010
 Edison,
New
Jersey
  F-2
 
 Wayside
Technology Group, Inc. and Subsidiaries
 Consolidated
Balance Sheets
 (Dollars
in thousands, except per share amounts)
  December
      31,2008
              
              
              2009AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              9,349
              
              
              $
              8,560Marketable
      securities
              
              
              9,367
              
              
              
              7,571Accounts
      receivable, net of allowances of $1,086  and
                $1,097
      in 2008 and 2009, respectively
              
              
              16,940
              
              
              
              27,040Inventory,
      net
              
              
              1,058
              
              
              
              967Prepaid
      expenses and other current assets
              
              
              776
              
              
              
              998Deferred
      income taxes
              
              
              712
              
              
              
              677Total
      current assets
              
              
              38,202
              
              
              
              45,813Equipment
      and leasehold improvements, net
              
              
              549
              
              
              
              432Accounts
      receivable-long-term
              
              
              7,860
              
              
              
              6,901Other
      assets
              
              
              66
              
              
              
              38Deferred
      income taxes
              
              
              808
              
              
              
              483$
              47,485
              
              
              $
              53,667Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Accounts
      payable and accrued expenses
              
              $
              23,396
              
              
              $
              29,230Total
      current liabilities
              
              
              23,396
              
              
              
              29,230Other
      liabilities
              
              
              205
              
              
              
              78Total
      liabilities
              
              
              23,601
              
              
              
              29,308Commitments
      and ContingenciesStockholders’
      equity:Common
      Stock, $.01 par value; 10,000,000 shares authorized; 5,284,500 shares
      issued; and 4,643,662 and 4,688,844 shares outstanding in 2008 and 2009,
      respectively
              
              
              53
              
              
              
              53Additional
      paid-in capital
              
              
              26,636
              
              
              
              24,826Treasury
      stock, at cost, 640,838 and 595,656 shares in 2008 and 2009,
      respectively
              
              
              (3,383
              )
              
              
              (3,555
              )Retained
      earnings
              
              
              567
              
              
              
              2,727Accumulated
      other comprehensive income
              
              
              11
              
              
              
              308Total
      stockholders’ equity
              
              
              23,884
              
              
              
              24,359$
              47,485
              
              
              $
              53,667
 
 
 The
accompanying notes are an integral part of the consolidated financial
statements.
  F-3
   Wayside
Technology Group, Inc. and Subsidiaries
 Consolidated
Statements of Earnings
 (Dollars
in thousands, except per share amounts)
  Years
      ended December 31,2007
              
              
              2008
              
              
              2009Net
      sales
              
              $
              179,865
              
              
              $
              174,025
              
              
              $
              146,384Cost
      of sales
              
              
              162,630
              
              
              
              157,228
              
              
              
              130,791Gross
      profit
              
              
              17,235
              
              
              
              16,797
              
              
              
              15,593Selling,
      general and administrative expenses
              
              
              12,081
              
              
              
              12,207
              
              
              
              11,319Income  from
      operations
              
              
              5,154
              
              
              
              4,590
              
              
              
              4,274Other
      income:
                Interest
      income
              
              
              989
              
              
              
              741
              
              
              
              521Foreign
      currency transaction gain
              
              
              2
              
              
              
              3
              
              
              
              -Income
      before provision for income taxes
              
              
              6,145
              
              
              
              5,334
              
              
              
              4,795Provision
      for income taxes
              
              
              2,442
              
              
              
              2,168
              
              
              
              1,928Net
      income
              
              $
              3,703
              
              
              $
              3,166
              
              
              $
              2,867Income
      per common share-Basic
              
              $
              0.84
              
              
              $
              0.72
              
              
              $
              0.65Income
      per common share-Diluted
              
              $
              0.80
              
              
              $
              0.71
              
              
              $
              0.65Weighted
      average common shares outstanding-Basic
              
              
              4,406
              
              
              
              4,414
              
              
              
              4,399Weighted
      average common shares outstanding-Diluted
              
              
              4,656
              
              
              
              4,461
              
              
              
              4,427
  
 The accompanying
notes are an integral part of the consolidated financial statements.
  F-4
   Wayside
Technology Group, Inc. and Subsidiaries
 Consolidated
Statements of Stockholders’ Equity and Comprehensive Income
 (Dollars
in thousands, except share amounts)
  AccumulatedAdditional
                
                
                
                
                
                
                
                
                Retained
                
                
                OtherCommon
      Stock
                
                
                Paid-In
                
                
                Treasury
                
                
                earnings
                
                
                ComprehensiveShares
                
                
                Amount
                
                
                Capital
                
                
                Shares
                
                
                Amount
                
                
                (Deficit)
                
                
                Income
                
                
                TotalBalance
      at January 1, 2007
                
                
                5,284,500
                
                
                $
                53
                
                
                $
                29,252
                
                
                
                687,879
                
                
                $
                (1,905
                )
                
                $
                (6,302
                )
                
                $
                200
                
                
                $
                21,298Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,703
                
                
                
                
                
                
                
                3,703Other
      comprehensive income:Translation
      adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                253
                
                
                
                253Unrealized
      gain on available-for-sale securities
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                8
                
                
                
                8Comprehensive
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,964Dividends
      paid
                
                
                
                
                
                
                
                
                
                
                (2,047
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (2,047
                )Exercise
      of stock options
                
                
                
                
                
                
                
                
                
                
                588
                
                
                
                (159,445
                )
                
                
                486
                
                
                
                
                
                
                
                
                
                
                
                1,074Tax
      benefit from exercises of non-qualified stock options
                
                
                
                
                
                
                
                
                
                
                522
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                522Share-based
      compensation expense
                
                
                
                
                
                
                
                
                
                
                605
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                605Restricted
      stock grants
                
                
                
                
                
                
                
                
                
                
                (60
                )
                
                
                (17,500
                )
                
                
                60
                
                
                
                
                
                
                
                
                
                
                
                -Treasury
      shares repurchased
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                65,068
                
                
                
                (924
                )
                
                
                
                
                
                
                
                
                
                
                (924
                )Balance
      at December 31, 2007
                
                
                5,284,500
                
                
                
                53
                
                
                
                28,860
                
                
                
                576,002
                
                
                
                (2,283
                )
                
                
                (2,599
                )
                
                
                461
                
                
                
                24,492Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,166
                
                
                
                
                
                
                
                3,166Other
      comprehensive income:Translation
      adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (469
                )
                
                
                (469
                )Unrealized
      gain on available-for-sale securities
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                19
                
                
                
                19Comprehensive
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,716Dividends
      paid
                
                
                
                
                
                
                
                
                
                
                (2,811
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (2,811
                )Exercise
      of stock options
                
                
                
                
                
                
                
                
                
                
                59
                
                
                
                (45,000
                )
                
                
                164
                
                
                
                
                
                
                
                
                
                
                
                223Share-based
      compensation expense
                
                
                
                
                
                
                
                
                
                
                735
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                735Tax
      expense from share- based compensation
                
                
                
                
                
                
                
                
                
                
                (22
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (22
                )Restricted
      stock grants
                
                
                
                
                
                
                
                
                
                
                (185
                )
                
                
                (54,000
                )
                
                
                185
                
                
                
                
                
                
                
                
                
                
                
                -Treasury
      shares repurchased
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                163,836
                
                
                
                (1,449
                )
                
                
                
                
                
                
                
                
                
                
                (1,449
                )Balance
      at December 31, 2008
                
                
                5,284,500
                
                
                
                53
                
                
                
                26,636
                
                
                
                640,838
                
                
                
                (3,383
                )
                
                
                567
                
                
                
                11
                
                
                
                23,884Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,867
                
                
                
                
                
                
                
                2,867Other
      comprehensive income:Translation
      adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                333
                
                
                
                333Unrealized
      loss on available-for-sale securities
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (36
                )
                
                
                (36
                )Comprehensive
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,164Dividends
      paid
                
                
                
                
                
                
                
                
                
                
                (2,106
                )
                
                
                
                
                
                
                
                
                
                
                (707
                )
                
                
                
                
                
                
                (2,813
                )Share-based
      compensation expense
                
                
                
                
                
                
                
                
                
                
                893
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                893Tax
      expense from share- based compensation
                
                
                
                
                
                
                
                
                
                
                (51
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (51
                )Restricted
      stock grants
                
                
                
                
                
                
                
                
                
                
                (546
                )
                
                
                (140,000
                )
                
                
                546
                
                
                
                
                
                
                
                
                
                
                
                -Treasury
      shares repurchased
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                94,818
                
                
                
                (718
                )
                
                
                
                
                
                
                
                
                
                
                (718
                )Balance
      at December 31, 2009
                
                
                5,284,500
                
                
                $
                53
                
                
                $
                24,826
                
                
                
                595,656
                
                
                $
                (3,555
                )
                
                $
                2,727
                
                
                $
                308
                
                
                $
                24,359
 
 The
accompanying notes are an integral part of the consolidated financial
statements
  F-5
 
 Wayside
Technology Group, Inc. and Subsidiaries
 Consolidated
Statements of Cash Flows
 (Dollars
in thousands, except share amounts)
 
 Year
      ended December 31,2007
              
              
              2008
              
              
              2009Cash
      flows from operating activitiesNet
      income
              
              $
              3,703
              
              
              $
              3,166
              
              
              $
              2,867Adjustments
      to reconcile net income to net cash provided by (used) in operating
      activities:Depreciation
      expense
              
              
              351
              
              
              
              347
              
              
              
              291Amortization
      expense
              
              
              10
              
              
              
              8
              
              
              
              6Provision
      for doubtful accounts receivable
              
              
              47
              
              
              
              39
              
              
              
              66Deferred
      income tax expense
              
              
              1,170
              
              
              
              395
              
              
              
              271Share-based
      compensation expense
              
              
              605
              
              
              
              735
              
              
              
              893Loss
      on disposal of fixed assets
              
              
              -
              
              
              
              7
              
              
              
              -Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              2,627
              
              
              
              2,844
              
              
              
              (8,972
              )Inventory
              
              
              149
              
              
              
              54
              
              
              
              93Prepaid
      expenses and other current assets
              
              
              (320
              )
              
              
              142
              
              
              
              (217
              )Accounts
      payable and accrued expenses
              
              
              (3,205
              )
              
              
              (8,263
              )
              
              
              5,680Net
      change in other operating assets and liabilities
              
              
              114
              
              
              
              38
              
              
              
              21Net
      cash provided by (used) in operating activities
              
              
              5,251
              
              
              
              (488
              )
              
              
              999Cash
      flows provided by (used) in investing activitiesPurchase
      of equipment and leasehold improvements
              
              
              (482
              )
              
              
              (308
              )
              
              
              (179
              )Purchase
      of available-for-sale securities
              
              
              (21,189
              )
              
              
              (16,788
              )
              
              
              (10,379
              )Redemptions
      of available-for-sale securities
              
              
              18,588
              
              
              
              17,080
              
              
              
              12,138Proceeds
      from sale of fixed assets
              
              
              -
              
              
              
              8
              
              
              
              -Net
      cash provided by (used) in investing activities
              
              
              (3,083
              )
              
              
              (8
              )
              
              
              1,580Cash
      flows used in financing activitiesPurchase
      of treasury stock
              
              
              (924
              )
              
              
              (1,449
              )
              
              
              (718
              )Proceeds
      from stock option exercises
              
              
              1,074
              
              
              
              223
              
              
              
              -Tax
      benefit (expense) from share- based compensation
              
              
              522
              
              
              
              (22
              )
              
              
              (51
              )Dividends
      paid
              
              
              (2,684
              )
              
              
              (2,811
              )
              
              
              (2,813
              )Net
      cash used in financing activities
              
              
              (2,012
              )
              
              
              (4,059
              )
              
              
              (3,582
              )Effect
      of foreign exchange rate on cash
              
              
              253
              
              
              
              (337
              )
              
              
              214Net
      increase (decrease)  in cash and cash
equivalents
              
              
              409
              
              
              
              (4,892
              )
              
              
              (789
              )Cash
      and cash equivalents at beginning of year
              
              
              13,832
              
              
              
              14,241
              
              
              
              9,349Cash
      and cash equivalents at end of year
              
              $
              14,241
              
              
              $
              9,349
              
              
              $
              8,560Supplementary
      disclosure of cash flow information:
                Income
      taxes paid
              
              $
              563
              
              
              $
              1,366
              
              
              $
              1,995
 
  The accompanying
notes are an integral part of the consolidated financial statements.
  F-6
 
 Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars in tables in thousands,
except per share amounts)
 
 
 Note
1.Description of Business
 
 Wayside
Technology Group, Inc. and Subsidiaries, the “Company,” markets software to
software development and information technology professionals in the United
States and Canada. It was formerly known as Programmer's Paradise, Inc. and
changed its name to Wayside Technology Group, Inc. in August 2006. It operates
through two segments, Programmer's Paradise and Lifeboat. The Programmer's
Paradise segment sells technical software, hardware, and services for
microcomputers, servers, and networks to individual programmers, corporations,
government agencies, and educational institutions. Its solutions include
technical and general business application software from various publishers and
manufacturers. This segment markets these products through catalogs, direct mail
programs, and advertisements in trade magazines, as well as through Internet and
email promotions. Its catalogs offer collections of microcomputer technical
software, including programming languages, tools, utilities, libraries,
development systems, interfaces, and communication products. The Lifeboat
segment distributes technical software to corporate and value-added resellers,
consultants, and systems integrators.
 
 Note
2. Summary of Significant Accounting Policies
 
 Principles
of Consolidation and Operations
 
 The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All intercompany transactions and balances have been
eliminated.
 
 Use
of Estimates
 
 The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make extensive use of certain estimates and assumptions
which affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported
periods.   The significant areas of estimation include but are
not limited to accounting for allowance for uncollectible accounts, sales
returns, inventory valuation and obsolescence, income taxes, depreciation,
contingencies, stock-based compensation and costs associated with exit or
disposal activities. Actual results could differ from those
estimates.
 
 Net
Income Per Common Share
 
 The
Company calculates earnings per share in accordance with FASB ASC Topic 260,
“Earnings Per Share”. Basic earnings  per share is calculated by
dividing net income  attributable to common stockholders by the
weighted average number of shares of Common Stock outstanding during the period.
Diluted earnings per share is calculated by dividing net income attributable to
common stockholders by the weighted average number of common shares outstanding,
adjusted for potentially dilutive securities.
  F-7
   Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars in tables inthousands, except per
share amounts)
 
 
 A
reconciliation of the numerators and denominators of the basic and diluted per
share computations follows (in thousands, except per share data):
 
 Year
      ended December 31,2007
              
              
              2008
              
              
              2009Numerator:Net
      income
              
              $
              3,703
              
              
              $
              3,166
              
              
              $
              2,867Denominator:Weighted
      average shares (Basic)
              
              
              4,406
              
              
              
              4,414
              
              
              
              4,399Dilutive
      effect of outstanding options and nonvested shares of restricted
      stock
              
              
              250
              
              
              
              47
              
              
              
              28Weighted
      average shares including assumed conversions (Diluted)
              
              
              4,656
              
              
              
              4,461
              
              
              
              4,427Basic
      net income per share
              
              $
              0.84
              
              
              $
              0.72
              
              
              $
              0.65Diluted
      net income per share
              
              $
              0.80
              
              
              $
              0.71
              
              
              $
              0.65
 
 Cash
Equivalents
 
 The
Company considers all liquid short-term investments with original maturities of
90 days or less to be cash equivalents.
 
  Accounts
Receivable
  Accounts
receivable principally represents amounts collectible from our customers. The
Company performs ongoing credit evaluations of its customers but generally does
not require collateral to support any outstanding obligation. Allowances for
potential uncollectible amounts are estimated and deducted from total accounts
receivable.
 
 Allowance for Doubtful Accounts
Receivable
 
 We
provide allowances for doubtful accounts related to accounts receivable for
estimated losses resulting from the inability of our customers to make required
payments. We take into consideration the overall quality and aging of the
receivable portfolio along with specifically identified customer risks. If
actual customer payment performance were to deteriorate to an extent not
expected, additional allowances may be required.
  F-8
 
 Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars in tables inthousands, except per
share amounts)
 
 
 Foreign
Currency Translation
 
 Assets
and liabilities of the foreign subsidiary in Canada have been translated at
current exchange rates, and related revenues and expenses have been translated
at average rates of exchange in effect during the year.  Cumulative
translation adjustments have been classified within accumulated other
comprehensive income, which is a separate component of stockholders’ equity in
accordance ASC Topic No. 220, “Comprehensive Income”.
 
 Concentration
of Credit Risk
 
 Financial
instruments that potentially subject the Company to concentrations in credit
risk consist of cash, cash equivalents, and marketable securities. At December
31, 2009, the Company’s $7.6 million of investments in marketable securities are
only in highly rated and liquid U.S. government securities and insured
certificates of deposit.
 
 The
Company’s cash and cash equivalents, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts. The Company
believes it is not exposed to any significant credit risk on cash and cash
equivalents.
 
 Marketable
Securities
 
 The
Company accounts for marketable securities pursuant to the ASC Topic No. 320,
“Investments in Debt and Equity Securities.” Under this statement, the Company’s
securities with a readily determinable fair value have been classified as
available for sale and are carried at fair value with an offsetting adjustment
to accumulated other comprehensive income in Stockholders’ Equity.
 
 Financial
Instruments
 
 The
carrying amounts of financial instruments, including cash and cash equivalents,
accounts receivable and accounts payable approximated fair value as of December
31, 2009 and 2008, because of the relative short maturity of these
instruments.
 
 Inventory
 
 Inventory,
consisting primarily of finished products held for resale, is stated at the
lower of cost (weighted average) or market.
 
 Equipment
and Leasehold Improvements
 
 Equipment
and leasehold improvements are stated at cost. Equipment depreciation is
calculated using the straight-line method over three to five
years.  Leasehold improvements are amortized  using the
straight line method over the estimated useful lives of the assets or the
related lease terms, whichever is shorter.
  F-9
   Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars intables in thousands, except per
share amounts)
 
 Accounts
receivable-long-term
 
 Accounts
receivable–long-term result from product sales with extended payment terms that
are discounted to their present values at the prevailing market rates. In
subsequent periods, the accounts receivable are increased to the amounts due and
payable by the customers through the accretion of interest income on the unpaid
accounts receivable due in future years. The amounts due under these long-term
accounts receivable due within one year are reclassified to the current portion
of accounts receivable.
 
 Comprehensive
Income
 
 Comprehensive
income consists of net income for the period, the impact of unrealized foreign
currency translation adjustments and unrealized gains or losses on
investments.  The foreign currency translation adjustments are not
currently adjusted for income taxes as they relate to permanent investments in
international subsidiaries.
 
 Revenue
Recognition
 
 The
Company records revenues from sales transactions when title to products sold
passes to the customer. Usual sales terms are FOB shipping point, at which time
title and risk of loss has passed to the customer.   Revenue is
recognized in accordance with ASC Topic 985-605 “ Software Revenue Recognition”
and  ASC Topic 605-10-S99, and ASC Topic 605-45, "Reporting Revenue
Gross as a Principal versus Net as an Agent". The majority of the Company’s
revenues relates to physical products and is recognized on a gross basis with
the selling price to the customer recorded as net sales with the acquisition
cost of the product to the Company recorded as cost of sales. At the time of
sale, the Company also records an estimate for sales returns based on historical
experience. Certain software maintenance products, third party services and
extended warranties sold by the Company (for which the Company is not the
primary obligor) are recognized on a net basis. Accordingly, such revenues are
recognized in net sales either at the time of sale or over the contract period,
based on the nature of the contract, at the net amount retained by the Company,
with no cost of goods sold.
 
 Vendor
rebates and price protection are recorded when earned as a reduction to cost of
sales or merchandise inventory, as applicable. Cooperative reimbursements from
vendors, which are earned and available, are recorded in the period the related
advertising expenditure is incurred. Cooperative reimbursements are recorded as
net sales in accordance with ASC Topic 605-50 “Accounting by a Customer
(including reseller) for Certain Consideration Received from a
Vendor.”
  Stock-Based
Compensation
 
 The
Company has stockholder-approved stock incentive plans for employees and
directors. Stock- based compensation is recognized based on the grant date fair
value and is recognized as expense on a straight-line basis over the requisite
service period, which is generally the vesting period.
  F-10
   Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars
in tables inthousands, except per share amounts)
 
 Income
Taxes
 
 The
Company utilizes the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities
and are measured using enacted tax rates and laws that will be in effect when
the differences are expected to reverse. This method also requires a valuation
allowance against net deferred tax asset if, based on the weighted available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
  Impact
of Accounting Pronouncements
 
 As of
December 31, 2009, the Financial Accounting Standards Board (“FASB”) issued
several pronouncements of significance to the Company which are discussed in
detail below.
  
 In
June 2009, the FASB issued guidance now codified as FASB ASC Topic 105,
“Generally Accepted Accounting Principles,” as the single source of
authoritative nongovernmental U.S. GAAP. FASB ASC Topic 105 does not change
current U.S. GAAP, but is intended to simplify user access to all authoritative
U.S. GAAP by providing all authoritative literature related to a particular
topic in one place. All existing accounting standard documents will be
superseded and all other accounting literature not included in the FASB
Codification will be considered non-authoritative. These provisions of FASB ASC
Topic 105 are effective for interim and annual periods ending after
September 15, 2009 and, accordingly, are effective for the Company for the
current fiscal reporting period. The adoption of this pronouncement did not have
an impact on the Company’s financial condition or results of operations, but
will impact our financial reporting process by eliminating all references to
pre-codification standards. On the effective date of this Statement, the
Codification superseded all then-existing non-SEC accounting and reporting
standards, and all other non-grandfathered non-SEC accounting literature not
included in the Codification became non-authoritative.
 
 In
April 2009, the FASB issued guidance now codified as FASB ASC Topic 320,
“Investments — Debt and Equity Securities” and Topic 325 “Investments - Other,”
which is designed to create greater clarity and consistency in accounting for
and presenting impairment losses on securities. The pronouncement is effective
for periods ending after June 15, 2009. The adoption of this guidance did
not have a material impact on our consolidated financial position, results of
operations or cash flows.
 
 In
April 2009, the FASB issued guidance now codified as FASB ASC Topic 825,
“Financial Instruments,” which amends previous Topic 825 guidance to require
disclosures about fair value of financial instruments in interim as well as
annual financial statements. This pronouncement is effective for periods ending
after June 15, 2009. The adoption of this pronouncement did not have a
material impact on our consolidated financial position, results of operations or
cash flows.
  F-11
 
 3.  Marketable
securities
 
 Investments
in available-for-sale securities at December 31, 2009 were:
  Cost
                
                
                Market
      value
                
                
                Unrealized
      (loss)U.S.
      Government Securities
                
                $
                4,064
                
                
                $
                4,064
                
                
                $
                -Certificates
      of deposit
                
                
                3,517
                
                
                
                3,507
                
                
                $
                (10
                )Total
      Marketable securities
                
                $
                7,581
                
                
                $
                7,571
                
                
                $
                (10
                )
 The cost
and market value of our investments at December 31, 2009 by contractual maturity
were:
  EstimatedCost
                
                
                Fair
      ValueDue
      in one year or less
                
                $
                7,581
                
                
                $
                7,571
  Investments
in available-for-sale securities at December 31, 2008 were:
  Cost
                
                
                Market
      value
                
                
                Unrealized
      gain (loss)U.S.
      Government Securities
                
                $
                8,057
                
                
                $
                8,087
                
                
                $
                30Certificates
      of deposit
                
                
                1,284
                
                
                
                1,280
                
                
                $
                (4
                )Total
      Marketable securities
                
                $
                9,341
                
                
                $
                9,367
                
                
                $
                26
 The cost
and market value of our investments at December 31, 2008 by contractual maturity
were:
  EstimatedCost
                
                
                Fair
      ValueDue
      in one year or less
                
                $
                9,341
                
                
                $
                9,367
  Estimated
fair values of marketable securities are based on quoted market
prices.
  F-12
   Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars intables in thousands,
except per share amounts)
 
 
 
 4.  Fair
Value Measurements
 
 Effective
January 1, 2008, the Company adopted FASB ASC Topic 820 “Fair Value
Measurement and Disclosure”, which establishes a framework for measuring fair
value under generally accepted accounting principles and expands disclosures
about fair value measurements. The Company uses the following methods for
determining fair value in accordance with ASC Topic 820. For assets and
liabilities that are measured using quoted prices in active markets for the
identical asset or liability, the total fair value is the published market price
per unit multiplied by the number of units held without consideration of
transaction costs (Level 1). Assets and liabilities that are measured using
significant other observable inputs are valued by reference to similar assets or
liabilities, such as quoted prices for similar assets or liabilities, quoted
prices in markets that are not active, or other inputs that are observable or
can be corroborated by observable market data (Level 2). For all remaining
assets and liabilities for which there are no significant observable
inputs, fair value is derived using an assessment of various discount rates,
default risk, credit quality and the overall capital market liquidity (Level
3).
 
 The
following table summarizes the basis used to measure certain financial assets
and liabilities at fair value on a recurring basis in the consolidated balance
sheet:
 
 Fair Value Measurements at December 31, 2009 Using(In
      thousands)
                Description
              
              Balance
      at
                December 31,
                2009
              
              
              Quoted Prices
                in
      Active
                Markets
      for
                Identical
      Items
                (Level
      1)
              
              
              Significant
                Other
                Observable
                Inputs
                (Level
      2)
              
              
              Significant
                Unobservable
                Inputs
                (Level
      3)U.S.
      Government Securities
              
              $
              4,064
              
              
              $
              4,064
              
              
              $
              -
              
              
              $
              -Certificates
      of deposit
              
              $
              3,507
              
              
              
              
              
              
              $
              3,507
 
 
 
 Fair Value Measurements at December 31, 2008 Using(In
      thousands)
                Description
              
              Balance
      at
                December 31,
                2008
              
              
              Quoted Prices
                in
      Active
                Markets
      for
                Identical
      Items
                (Level
      1)
              
              
              Significant
                Other
                Observable
                Inputs
                (Level
      2)
              
              
              Significant
                Unobservable
                Inputs
                (Level
      3)U.S.
      Government Securities
              
              $
              8,087
              
              
              $
              8,087
              
              
              $
              -
              
              
              $
              -Certificates
      of deposit
              
              $
              1,280
              
              
              
              
              
              
              $
              1,280
  F-13
   Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars
in tables in thousands, except per share amounts)
   U.S. Government
Securities - U.S. government securities are valued using quoted
market prices. Accordingly, U.S. government securities are categorized in
Level 1 of the fair value hierarchy.
  Certificates of
deposit-The fair value of certificates of deposit is estimated
using third-party quotations. These deposits are categorized in Level 2 of the
fair value hierarchy.
 
 5.
Balance Sheet Detail
 
 Equipment
and leasehold improvements consist of the following as of December
31:
  2008
              
              
              2009Equipment
              
              $
              2,330
              
              
              $
              2,528Leasehold
      improvements
              
              
              549
              
              
              
              5492,879
              
              
              
              3,077Less
      accumulated depreciation and amortization
              
              
              (2,330
              )
              
              
              (2,645
              )$
              549
              
              
              $
              432
 
 Accounts
payable and accrued expenses consist of the following as of December
31:
 
 2008
              
              
              2009Trade
      accounts payable
              
              $
              21,212
              
              
              $
              27,552Accrued
      expenses
              
              
              2,184
              
              
              
              1,678$
              23,396
              
              
              $
              29,230
 
 Accumulated
other comprehensive income consists of the following as of December
31:
  2008
              
              
              2009Foreign
      currency translation adjustments
              
              $
              (15
              )
              
              $
              318Unrealized
      gain (loss) on marketable securities
              
              
              26
              
              
              
              (10
              )$
              11
              
              
              $
              308
 
 6.  Income
Taxes
 Deferred
tax attributes resulting from differences between financial and accounting
amounts and tax basis of assets and liabilities at December 31, 2008 and 2009
are as follows:
  F-14
   Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars
in tables inthousands, except per share amounts)
 
 December
      31,2008
              
              
              2009Current
      assetsAccruals
      and reserves
              
              $
              441
              
              
              $
              406Goodwill
              
              
              271
              
              
              
              271Net
      current deferred tax assets
              
              $
              712
              
              
              $
              677
 
 Non-current
      assetsAccruals
      and reserves
              
              $
              236
              
              
              $
              236Depreciation
              
              
              158
              
              
              
              90Goodwill
              
              
              414
              
              
              
              157Net non-current deferred tax
      assets
              
              $
              808
              
              
              $
              483Total
      deferred tax assets
              
              $
              1,520
              
              
              $
              1,160
 
 The
provision for income taxes is as follows:
  Year
      ended December 31,2007
              
              
              2008
              
              
              2009Current:Federal
              
              $
              1,036
              
              
              $
              1,356
              
              
              $
              1,114State
              
              
              -
              
              
              
              213
              
              
              
              378Canada
              
              
              236
              
              
              
              204
              
              
              
              1651,272
              
              
              
              1,773
              
              
              
              1,657Deferred:Federal
              
              
              830
              
              
              
              280
              
              
              
              249State
              
              
              340
              
              
              
              115
              
              
              
              221,170
              
              
              
              395
              
              
              
              271$
              2,442
              
              
              $
              2,168
              
              
              $
              1,928Effective
      Tax Rate
              
              
              39.7
              %
              
              
              40.6
              %
              
              
              40.2
              %
 
 
 The
reasons for the difference between total tax expense and the amount computed by
applying the U.S. statutory federal income tax rate to income before income
taxes are as follows:
 
 Year
      ended December 31,2007
              
              
              2008
              
              
              2009Statutory
      rate applied to pretax income
              
              $
              2,089
              
              
              $
              1,813
              
              
              $
              1,630State
      income taxes, net of benefit
                of
      federal income taxes
              
              
              333
              
              
              
              239
              
              
              
              260Foreign
      income taxes over U.S.
                statutory
      rate
              
              
              35
              
              
              
              31
              
              
              
              25Other
      items
              
              
              (15
              )
              
              
              85
              
              
              
              13Income
      tax expense
              
              $
              2,442
              
              
              $
              2,168
              
              
              $
              1,928
  F-15
 
 Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars intables inthousands, except per
share amounts)
 
 The
Company receives a tax deduction from the gains realized by employees on the
exercise of certain non-qualified stock options for which the benefit is
recognized as a component of stockholders’ equity.
 
 We
adopted the provisions of FASB ASC 740 “Income Taxes” as of January 1,
2007. This standard clarified the accounting for uncertainties in income taxes.
The standard prescribes criteria for recognition and measurement of tax
positions. It also provides guidance on derecognition, classification, interest
and penalties, and disclosures related to income taxes associated with uncertain
tax positions.
 
 The
Company has analyzed filing positions in all of the federal and state
jurisdictions where it is required to file income tax returns, as well as all
open tax years in these jurisdictions. The Company has identified its
federal consolidated tax return and its state tax return in New Jersey and its
Canadian tax return as “major” tax jurisdictions, as defined. The only periods
subject to examination for the Company's federal return are the 2008 and 2009
tax years. The audit of the tax years 2006 and 2007 has been completed, with no
adjustments proposed by the Internal Revenue Service.  The current
periods subject to examination for the Company's state returns in New Jersey are
years 2008 and 2009. The current periods subject to examination for the
Company’s Canadian tax returns are the years 2006 through 2009. The Company did
not record a cumulative effect adjustment related to adoption of accounting for
uncertainties in income taxes.
 
 A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:
 
 Federal,
      State and Foreign TaxBalance
      at January 1, 2009
              
              $
              230Additions
      based on tax positions related to current year
              
              
              -Gross
      Unrecognized Tax Benefit at December 31, 2009
              
              $
              230Net  Unrecognized
      Tax Benefit at December 31, 2009
              
              $
              78
 
 The net
Unrecognized Tax Benefit is included as a component of Other Liabilities within
the Consolidated Balance Sheet.The
amount of unrecognized tax benefits that, if recognized, would affect the
effective tax rate is $78 thousand. Interest expense and penalties related to
unrecognized tax benefits are classified as income tax expense.  The
amount of interest and penalties was insignificant for the years ended December
31, 2009, 2008 and 2007.
 
 For
financial reporting purposes, income before income taxes includes the following
components:
  Year
      ended December 312007
              
              
              2008
              
              
              2009United
      States
              
              $
              5,556
              
              
              $
              4,825
              
              
              $
              4,382Canada
              
              
              589
              
              
              
              509
              
              
              
              413$
              6,145
              
              
              $
              5,334
              
              
              $
              4,795
 
 7.  Stockholder’s
Equity and Stock Based Compensation
 
 The
Company’s 1986 Employee Stock Option Plan (“1986 Plan”), as amended on
June 15, 1994, provides for the grant of options to purchase up to
698,133 shares of the Company’s Common Stock to employees, officers and
directors of the Company.  The terms of the options are for a maximum
of ten
  F-16
 
 Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars intables inthousands, except per
share amounts)
 
 years
from date of grant and generally are exercisable at an exercise price equal to
but not less than the fair market value of the Common Stock on the date that the
option is granted. The options generally vest in equal annual installments over
five years. There are no additional options available for grant under the
Company’s 1986 Plan.
 
 On
April 21, 1995, the Board of Directors adopted the Company’s 1995
Non-Employee Director Plan (“1995 Director Plan”).  The 1995 Director
Plan, as amended on May 7, 1998, provides for the grant of options
to purchase up to 187,500 shares of the Company’s Common Stock to persons
who are members of the Company’s Board of Directors and not employees or
officers of the Company.
 
 The 1995
Director Plan requires that options granted there under will expire ten years
from the date of grant.  Each option granted under the 1995 Director
Plan becomes exercisable over a five year period, and vests in an installment of
20% of the total option grant upon the expiration of one year from the date of
the option grant, and thereafter vests in equal quarterly installments of
5%.
 
 In
February 2002, the Board of Directors approved a plan permitting all option
holders under the 1986 Plan and the 1995 Plan to surrender all or any portion of
their options on or before March 1, 2002. By March 1, 2002, a total of 7,875
options to purchase the Company’s Common Stock under the 1986 option plan and
303,550 options to purchase the Company’s Common Stock under the 1995 Plan were
surrendered, of which 305,175 were surrendered by the Company’s executive
officers. All of the options surrendered were exercisable in excess of the
market price of the underlying Common Stock as of the dates of
surrender.
 
 At the
annual stockholder’s meeting held on June 14, 2006, the Company’s stockholders
approved the 2006 Stock-Based Compensation Plan (the “2006 Plan”). The 2006 Plan
authorizes the grant of Stock Options, Stock Units, Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Stock Bonuses, and other equity-based awards.
The number of shares of Common Stock initially available under the 2006 Plan is
800,000.  As of December 31, 2009 the number of shares of common stock
available for future award grants to employees and directors under this plan is
273,500.
 
 In August
of 2006, the Company granted a total of 315,000 shares of restricted common
stock to officers, directors and employees. Included in this grant were 200,000
restricted shares granted to the Company’s CEO in accordance with his employment
agreement. These 200,000 restricted shares vest over 120 months. The remaining
shares granted vest over 60 months.
 
 During
2007, the Company granted a total of 30,000 shares of restricted stock to
officers, directors and employees. These shares vest over 60 months. A total of
12,500 shares of restricted common stock were forfeited as a result of employees
and officers terminating employment with the Company.
 
 During
2008, the Company granted a total of 57,500 shares of restricted stock to
officers, directors and employees. These shares vest over 60 months. A total of
3,500 shares of restricted common stock were forfeited as a result of employees
and officers terminating employment with the Company.
 
 During
2009, the Company granted a total of 140,000 shares of restricted stock to
officers, and employees. These shares vest over 60 months.
  F-17
 
 Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars
intables in
thousands, except per share amounts)
 
 Changes
during 2007, 2008 and 2009 in options outstanding for the combined plans were as
follows:
 Number
                of
                Options
              
              
              Weighted
      Average Exercise PriceOutstanding
      at January 1, 2007
              
              
              602,335
              
              
              $
              7.56Granted
      in 2007
              
              
              -
              
              
              
              -Canceled
      in 2007
              
              
              -
              
              
              
              -Exercised
      in 2007
              
              
              (159,445
              )
              
              
              6.75Outstanding
      at December 31, 2007
              
              
              442,890
              
              
              
              7.85Granted
      in 2008
              
              
              -
              
              
              
              -Canceled
      in 2008
              
              
              (5,000
              )
              
              
              12.85Exercised
      in 2008
              
              
              (45,000
              )
              
              
              4.96Outstanding
      at December 31, 2008
              
              
              392,890
              
              
              
              8.12Granted
      in 2009
              
              
              -
              
              
              
              -Canceled
      in 2009
              
              
              -
              
              
              
              -Exercised
      in 2009
              
              
              -
              
              
              
              -Outstanding
      at December 31, 2009
              
              
              392,890
              
              
              
              8.12Exercisable
      at December 31, 2009
              
              
              392,890
              
              
              $
              8.12
 
 The
options exercisable at December 31, 2008 and 2009 were 392,890 and 392,890,
respectively.
 
 The
aggregate intrinsic value of options outstanding and options exercisable as of
December 31, 2009 was $0.2 million. The intrinsic value is calculated as
the difference between the market value as of December 31, 2009 and the
exercise price of the shares. The market value as of December 31, 2009 was
$7.95 as reported by The NASDAQ Global Market.
 
 Stock
options outstanding at December 31, 2009 are summarized as
follows:
 
 Range
      of Exercise
                Prices
              
              
              Outstanding
      Options as of
                December
      31, 2009
              
              
              Weighted
      Average Remaining Contractual Life
              
              
              Weighted
      Average Exercise Price
              
              
              Options
      Exercisable
                as
      of
                December
      31, 2009
              
              
              Weighted
      Average
                Exercise
                Price$2.00
      – $2.99
              
              
              
              18,500
              
              
              
              2.7
              
              
              $
              2.13
              
              
              
              18,500
              
              
              $
              2.133.00
      – 6.99
              
              
              
              28,750
              
              
              
              0.8
              
              
              
              3.73
              
              
              
              28,750
              
              
              
              3.737.00
      – 9.99
              
              
              
              290,000
              
              
              
              4.4
              
              
              
              8.03
              
              
              
              290,000
              
              
              
              8.0310.00–12.99
              
              
              
              55,640
              
              
              
              5.3
              
              
              
              12.85
              
              
              
              55,640
              
              
              
              12.85392,890
              
              
              
              4.2
              
              
              $
              8.12
              
              
              
              392,890
              
              
              $
              8.12
 
 Under the
various plans, options that are cancelled can be reissued. At December 31,
2009 no options were reserved for future issuance.
  F-18
   Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars
in tables inthousands, except per share amounts)
 
 A summary
of nonvested shares of restricted stock awards outstanding under the Company’s
2006 Plan as of December 31, 2009 and changes during the year then ended is as
follows:
 
 Shares
              
              
              Weighted
      Average Grant DateFair ValueNonvested
      shares at January 1, 2007
              
              
              293,500
              
              
              $
              13.68Granted
      in 2007
              
              
              30,000
              
              
              
              12.69Vested
      in 2007
              
              
              (43,750
              )
              
              
              13.76Forfeited
      in 2007
              
              
              (12,500
              )
              
              
              14.57Nonvested
      shares at December 31, 2007
              
              
              267,250
              
              
              
              13.47Granted
      in 2008
              
              
              57,500
              
              
              
              10.68Vested
      in 2008
              
              
              (56,500
              )
              
              
              13.00Forfeited
      in 2008
              
              
              (3,500
              )
              
              
              14.85Nonvested
      shares at December 31, 2008
              
              
              264,750
              
              
              
              12.76Granted
      in 2009
              
              
              140,000
              
              
              
              7.55Vested
      in 2009
              
              
              (77,500
              )
              
              
              11.52Forfeited
      in 2009
              
              
              -
              
              
              
              -Nonvested
      shares at December 31, 2009
              
              
              327,250
              
              
              $
              11.03
 
 As of
December 31, 2009, there was approximately $3.6 million of total unrecognized
compensation cost related to nonvested share-based compensation arrangements.
The unrecognized compensation cost is expected to be recognized over a
weighted-average period of 4.8 years.
 
 For the
years ended December 31, 2007, 2008 and 2009, we recognized share-based
compensation cost of approximately $0.6 million, $0.7 million and $0.9 million,
respectively, which is included in general and administrative
expenses.  The Company does not capitalize any share-based
compensation cost.
 
 The
actual tax benefits realized from non-qualified stock option exercises totaled
$0.5million, $0.0 million and $0 million for the years ended December 31,
2007, 2008 and 2009, respectively. In accordance with ASC 178, in the
Consolidated Statement of Cash Flows, the Company classified tax benefits from
stock option exercises as cash provided by financing activities.
 
 8.  Defined
Contribution Plan
 
 The
Company maintains a defined contribution plan covering substantially all
domestic employees. Participating employees may make contributions to the plan,
through payroll deductions. Matching contributions are made by the Company equal
to 50% of the employee’s contribution to the extent such employee contribution
did not exceed 6% of their compensation.  During the years ended
December 31, 2007, 2008 and 2009, the Company expensed approximately $121
thousand, $130 thousand and $116 thousand, respectively, related to this
plan.
  F-19
 
 Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars
in tables inthousands, except per share amounts)
 
 9.  Commitments
and Contingencies
 
 Leases
 
 Operating
leases relate to the lease of the space used for our operations in Shrewsbury,
New Jersey and Mississauga, Canada as well as our former sales office in
Hauppauge New York. The commitments for operating leases include the minimum
rent payments and a proportionate share of operating expenses and property
taxes.
 
 2010
              
              $
              3662011
              
              
              3182012
              
              
              3032013
              
              
              -2014
              
              
              -$
              987
 
 Rent
expense for the years ended December 31, 2007, 2008 and 2009 was approximately
$380 thousand, $371 thousand and $354 thousand, respectively.
 
 Employment
Agreements
 
  In the
second quarter of 2007 the Vice President of Marketing and Business Development
resigned from his position with the Company.
  
 In
connection with the resignation, the Company issued a letter (the "Resignation
Letter").  Pursuant to the Resignation Letter, the Company paid the
former executive his current salary of $150 thousand (plus payments for unused
vacation time) in 24 equal semimonthly installments. The Company expensed the
$150 thousand ratably over the term of the consulting agreement which was one
year following the Resignation Letter.
 
 In the
event that Simon Nynens’, President and Chief Executive officer, employment is
terminated without cause or by the rendering of a non-renewal notification, he
is entitled to receive severance payments equal to twelve months salary and
immediate vesting of all outstanding stock awards. Additionally, in the event
that a change of control of the Company occurs (as described in the employment
agreement), Mr. Nynens outstanding stock awards become immediately vested and he
is entitled to the pro-rata performance bonus based upon stock price at the date
of such change in control.
 
 The
Company has entered into a letter agreement with Mr. Legrottaglie, Vice
President of Information Systems.  Mr. Legrottaglie is entitled to
severance payments for six months at the then applicable annual base salary if
the Company terminates his employment for any reason other than for
cause.
  F-20
   Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars
intables in
thousands, except per share amounts)
 
 Other
 
 The
Company is not committed by lines of credit, standby letters of credit, has no
standby repurchase obligations or other commercial commitments. Other than
employment arrangements and other management compensation arrangements, the
Company is not engaged in any transactions with related parties.
 
 10.
Industry, Segment and Geographic Information
 
 The
Company markets software to software development and information technology
professionals in the United States and Canada.
 
 Geographic
revenue and identifiable assets related to operations as of and for the years
ended December 31, 2007, 2008 and 2009 were as follows:
 2007
              
              
              2008
              
              
              2009Net
      sales to Unaffiliated Customers:United
      States
              
              $
              156,602
              
              
              $
              155,193
              
              
              $
              135,020Canada
              
              
              23,263
              
              
              
              18,832
              
              
              
              11,364Total
              
              $
              179,865
              
              
              $
              174,025
              
              
              $
              146,384
 Identifiable
      Assets by Geographic Areas at December 31,
                
                2008
                
                
                2009United
      States
                
                $
                44,690
                
                
                $
                50,236Canada
                
                
                2,795
                
                
                
                3,431Total
                
                $
                47,485
                
                
                $
                53,667
  
 ASC Topic
280, “Segment Reporting,” requires that public companies report profits and
losses and certain other information on their “reportable operating segments” in
their annual and interim financial statements. The internal organization used by
the Company’s Chief Operating Decision Maker (CODM) to assess performance and
allocate resources determines the basis for reportable operating segments. The
Company’s CODM is the Chief Executive Officer.
 
 The
Company is organized into two reportable operating segments — the “Programmer’s
Paradise” segment, which sells technical software, hardware and services
directly to end-users (such as individual programmers, corporations, government
agencies, and educational institutions) and the “Lifeboat” segment, which
distributes technical software to corporate resellers, VARs, consultants and
systems integrators.
 
 As
permitted by ASC Topic 280, the Company has utilized the aggregation criteria in
combining its operations in Canada with the domestic segments as they provide
the same products and services to similar clients and are considered together
when the CODM decides how to allocate resources.
  F-21
  
 Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars
intables in
thousands, except per share amounts)
 
 Segment
income is based on segment revenue less the respective segment’s cost of
revenues as well as segment direct costs (including such items as payroll costs
and payroll related costs, such as profit sharing, incentive awards and
insurance) and excluding general and administrative expenses not attributed to a
business unit. The Company only identifies accounts receivable and inventory by
segment as shown below as “Selected Assets”; it does not allocate its other
assets, including capital expenditures by segment.
 
 Year
      EndedDecember
      31,Revenue:
              
              2007
              
              
              2008
              
              
              2009Programmer’s
      Paradise
              
              $
              44,814
              
              
              $
              56,893
              
              
              $
              48,326Lifeboat
              
              
              135,051
              
              
              
              117,132
              
              
              
              98,058179,865
              
              
              
              174,025
              
              
              
              146,384Gross
      Profit:Programmer’s
      Paradise
              
              $
              5,781
              
              
              $
              6,509
              
              
              $
              5,652Lifeboat
              
              
              11,454
              
              
              
              10,288
              
              
              
              9,94117,235
              
              
              
              16,797
              
              
              
              15,593Direct
      Costs:Programmer’s
      Paradise
              
              $
              2,891
              
              
              $
              2,876
              
              
              $
              2,650Lifeboat
              
              
              2,885
              
              
              
              2,915
              
              
              
              2,8665,776
              
              
              
              5,791
              
              
              
              5,516Income
      Before Taxes:Programmer’s
      Paradise
              
              
              2,890
              
              
              
              3,632
              
              
              
              3,002Lifeboat
              
              
              8,569
              
              
              
              7,373
              
              
              
              7,075Segment
      Income
              
              
              11,459
              
              
              
              11,005
              
              
              
              10,077General
      and administrative
              
              
              6,305
              
              
              
              6,415
              
              
              
              5,803Interest
      income
              
              
              989
              
              
              
              741
              
              
              
              521Foreign
      currency translation gains
              
              
              2
              
              
              
              3
              
              
              
              -Income
      before taxes
              
              $
              6,145
              
              
              $
              5,334
              
              
              $
              4,795
  Selected
      Assets By Segment:Programmer’s
      Paradise
                
                $
                18,329
                
                
                $
                21,591Lifeboat
                
                
                7,529
                
                
                
                13,317Segment
      Select Assets
                
                
                25,858
                
                
                
                34,908Corporate
      Assets
                
                
                21,627
                
                
                
                18,759Total
      Assets
                
                $
                47,485
                
                
                $
                53,667
 
 The
Company had two major customers that accounted for more than 10% of total sales
for 2009. For the year ended December 31, 2009, CDW and Software House
International accounted for 10.5% and 10.7% of consolidated net sales,
respectively. These same customers accounted for 11.3% and 4.1% of total net
accounts receivable as of December 31, 2009.  The Company had no major
customers that accounted for more than 10% of total sales for 2008. One
customer, CDW Corporation, accounted for 10.9%, of consolidated net sales in
2007. Our top five customers accounted for 36%, 31%, and 28% of consolidated net
sales in 2009, 2008 and 2007, respectively.
  F-22
 
 Wayside
Technology Group, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Dollars
in tables in
thousands, except per share amounts)
 
 11. Loss on Lease
 
 During
the second quarter of 2006, the Company made the decision to close down and
sublease it sales office in Hauppauge, New York. Based on forecasted sublease
income compared to estimated expenses, the Company recorded a liability and took
a charge of approximately $97 thousand during the second quarter of
2006.
 
 The
Company’s tenant terminated its sublease in December 2007. After considering
information provided by the Company’s leasing agent the Company took an
additional charge of $76 thousand in the fourth quarter of 2007.
 
 In 2008,
the Company took an additional charge of $141 thousand to fully reserve for the
remaining costs of the lease, as it was determined that due to the downturn in
the commercial real estate market in Long Island and with only a short time
remaining on our lease that it would be unlikely to secure another
subtenant.
 
 
 12.
Quarterly Results of Operations (Unaudited)
 
 The
following table presents summarized quarterly results for 2009:
 First
              
              
              Second
              
              
              Third
              
              
              FourthNet
      sales
              
              $
              31,750
              
              
              $
              37,032
              
              
              $
              35,310
              
              
              $
              42,292Gross
      profit
              
              
              3,467
              
              
              
              4,081
              
              
              
              3,695
              
              
              
              4,350Net
      income
              
              
              578
              
              
              
              790
              
              
              
              599
              
              
              
              900Basic
      net income per common share
              
              $
              0.13
              
              
              $
              0.18
              
              
              $
              0.14
              
              
              $
              0.20Diluted
      net income per common share
              
              $
              0.13
              
              
              $
              0.18
              
              
              $
              0.13
              
              
              $
              0.20
 
 The
following table presents summarized quarterly results for 2008:
 First
              
              
              Second
              
              
              Third
              
              
              FourthNet
      sales
              
              $
              40,506
              
              
              $
              48,096
              
              
              $
              45,392
              
              
              $
              40,031Gross
      profit
              
              
              3,745
              
              
              
              4,298
              
              
              
              4,252
              
              
              
              4,501Net
      income
              
              
              629
              
              
              
              823
              
              
              
              811
              
              
              
              903Basic
      net income per common share
              
              $
              0.14
              
              
              $
              0.19
              
              
              $
              0.18
              
              
              $
              0.21Diluted
      net income per common share
              
              $
              0.14
              
              
              $
              0.18
              
              
              $
              0.18
              
              
              $
              0.20
  F-23
   Wayside
Technology Group, Inc. and Subsidiaries
 Schedule
II--Valuation and Qualifying Accounts
 (In
Thousands)
 
 Description
              
              Beginning
                Balance
              
              
              Charged
      to Cost and Expense
              
              
              Deductions
              
              
              Ending
      BalanceYear
      ended December 31, 2007Allowances
      for accounts receivable
              
              $
              946
              
              
              $
              109
              
              
              $
              147
              
              
              $
              908Reserve
      for inventory obsolescence
              
              $
              52
              
              
              $
              (2
              )
              
              $
              11
              
              
              $
              39Year
      ended December 31, 2008Allowances
      for accounts receivable
              
              $
              908
              
              
              $
              457
              
              
              $
              279
              
              
              $
              1,086Reserve
      for inventory obsolescence
              
              $
              39
              
              
              $
              15
              
              
              $
              (2
              )
              
              $
              56Year
      ended December 31, 2009Allowances
      for accounts receivable
              
              $
              1,086
              
              
              $
              126
              
              
              $
              115
              
              
              $
              1,097Reserve
      for inventory obsolescence
              
              $
              56
              
              
              $
              (10
              )
              
              $
              26
              
              
              $
              20
 
 F-24