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, 2005

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934.
        For the transition period from ______________ to _______________

                        Commission file number: 000-26408

                           PROGRAMMER'S PARADISE, INC.
             (Exact name of registrant as specified in its charter)
Delaware                                    13-3136104
(State or other jurisdiction of             (IRS Employer Identification Number)
incorporation)

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: None
Securities registered pursuant to section 12(g) of the Act: Common Stock,
                                                            par value $0.01
                                                            per share
                                                            (Title Of Class)

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act. Yes [ ] No [ 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 [ ] No [ 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 [X] No [ ]

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. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
Act). Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer
[X]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [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,  2005,  the last  business day of the
Registrant's most recently  completed second fiscal quarter,  as reported on The
NASDAQ Capital Market, was approximately $33,398,000. (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
March 8, 2006 was 4,143,262 shares.

     Documents   Incorporated  by  Reference:   Portions  of  the   Registrant's
definitive  Proxy  Statement for its 2005 Annual Meeting of  Stockholders  to be
filed on or before April 30, 2006 are incorporated by reference into Part III of
this Report.

                                  Page 1 of 22
<PAGE>


PART I

Item 1 Business

General

     Programmer's  Paradise,  Inc. (the  "Company") is a marketer of software in
the United States and Canada  targeting  software  development  and  information
technology professionals within enterprise organizations.

     Programmer's  Paradise,  Inc.  was  incorporated  in Delaware in 1982.  Our
Common Stock is listed on The NASDAQ Captial Market under the symbol "PROG". Our
main    Web    site     addresses    are     www.programmersparadise.com     and
www.lifeboatdistribution.com.  Information  on  our  Web  sites  should  not  be
considered  filed  with the  Securities  and  Exchange  Commission.  Information
contained  on our Web sites is not,  and  should  not be deemed to be, a part of
this report.

     The Company  operates in one primary  business  segment:  the  marketing of
technical software and hardware for microcomputers,  servers and networks in the
United  States and  Canada.  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.  Through our wholly owned subsidiary,  Lifeboat  Distribution
Inc., we  distribute  products to dealers and resellers in the United States and
Canada.

     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
direct 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.  The market for developer
software  products  is  characterized  by  rapid  changes  in  technology,  user
requirements,  and customer  specifications.  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.

     There can be no assurance that the Company can compete  effectively against
existing  competitors or new competitors  that may enter the market and 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  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.
The

                                  Page 2 of 22

<PAGE>

Company competes to gain distribution  rights for new products  primarily on the
basis of its reputation and its relationships with software publishers.

     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.  Future
efforts by such entities to bypass  third-party  sales channels could materially
and adversely affect the Company's result of operations.

     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 result of operations.

Products

     The  Company  offers  a wide  variety  of  products  from a broad  range of
publishers and manufacturers,  including Microsoft,  Computer  Associates,  IBM,
VMware,  Borland,  Quest  software,   Compuware,   Infragistics,   ComponentOne,
Macrovision,  and Adobe.  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.  In 2005 and
2004,  hardware and  peripherals  represented  5% and 6%,  respectively,  of our
overall revenue. In 2003 these sales represented 7% of our overall revenue.

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. 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 has two primary
catalogs:  Programmer's Paradise,  targeting software developers;  and Corporate
Developer's Paradise,  targeting information technology professionals working in
large  corporations.  These  catalogs  are full color  "magalogs"  that  combine
traditional  catalog sales  offerings  with detailed  product  descriptions  and
announcements, and which contain cooperative vendor advertising.

     The  Company  offers  additional  catalogs  aimed  at  specific  audiences.
Significant  increases in postal or shipping rates and in paper costs could have
a material adverse effect on the Company.  We continually  attract new customers
through  advertisements  in  trade  magazines,  as well as  through  selectively
mailing  catalogs  and  other  direct  mail  material.  Prospect  names are also
provided to us by publishers  whose  products we market.  In 2005, the Company's
cooperative and fee-based  advertising  reimbursements  as a percentage of sales
decreased to 3.5% from 4% in 2004.

     One customer,  CDW  Corporation,  accounted for 14.2%,  12.7%, and 11.8% of
consolidated  net  sales in 2005,  2004,  and  2003,  respectively,  and 7.2% of
accounts  receivable as of December 31, 2005. Our top five  customers  accounted
for 27%,  22%,  and 22% of  consolidated  net  sales in 2005,  2004,  and  2003,
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 of 22

<PAGE>

     Canadian sales represented 12% of consolidated revenues in 2005 as compared
to 11% in 2004, and 15% in 2003.(for  geographic financial  information,  please
refer to Note Nine to our Notes to 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. For technical issues we have 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 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, 2005, Ingram
Micro and  VMware  were the only  individual  vendors  from  whom our  purchases
exceeded 10% of total purchases. For the year ended December 31, 2005, 2004, and
2003, Ingram Micro accounted for 17.5%, 25.0%, and 27.7%,  respectively of total
purchases.  VMware accounted for 35.1%, 22.9%, and 13.8% respectively,  of total
purchases.  The loss of these  vendors,  or any other key vendor,  could have an
adverse effect on the Company.

     In 2005, the Company purchased  approximately 79% of its purchases directly
from manufacturers and publishers and the balance from multiple distributors, as
compared to 72% in 2004, and 69% in 2003.  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.

     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,

                                  Page 4 of 22

<PAGE>


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, 2005, Programmer's Paradise, Inc. and its
subsidiaries had 115 full-time and 1 part-time employees. 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,
2006,  all of whom have been  appointed  by and serve at the  discretion  of our
board of directors.  The company's  former President and CEO resigned in January
2006 see Note 8 for additional details.

Name                    Age Position
---------------------------------------------------------------
Simon F. Nynens         34   President and Chief Executive Officer
Jeffrey C. Largiader    49   Vice President - Sales & Marketing
Daniel T. Jamieson      48   Vice President and General Manager-Lifeboat
Steven R. McNamara      47   Vice President and General Manager - Canada
Vito Legrottaglie       42   Vice President - Information Systems
Kevin T. Scull          40   Vice President and Chief Accounting Officer


Simon F. Nynens was appointed  President and Chief Executive  Officer in January
2006. Mr. Nynens also serves on the Board of Directors.  He previously  held the
position of Executive  Vice  president  and Chief  Financial  Officer since June
2004.  Previously,  Mr.  Nynens  served as Vice  President  and chief  financial
officer  since January 2002.  Prior to that  appointment,  he served as the vice
president and chief operating officer of the company's European operations.

     Jeffrey C.  Largiader was appointed Vice  President-Sales  and Marketing in
April 2003. Mr.  Largiader has served as the  Vice-President  - Marketing  since
1989.

                                  Page 5 of 22

<PAGE>

     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 with the company.

     Steven R.  McNamara  has served as Vice  President  and  General  Manager -
Canada since June 1997.

     Vito  Legrottaglie  was  appointed  to the  position of Vice  President  of
Information  Systems in June 2003, after rejoining the Company in February 2003.
Mr.  Legrottaglie had 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. Scull was appointed Vice President and Chief Accounting Officer in
January  2006. He  previously  held the position as Corporate  Controller of the
company since January 2003. Prior to joining  Programmer's  Paradise,  Inc., Mr.
Scull previously 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.

Available Information

     Under the Securities  Exchange Act of 1934, 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:    http://www.programmersparadise.com/company
/overview.pasp.  The information contained on our website is not part of, and is
not  incorporated  in,  this or any other  report we file with or furnish to the
SEC.

     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 Financial Officer
and  Controller  is  available  at web site,  http://www.programmersparadise.com
/company/overview.pasp.  The Company  intends to disclose any  amendment  to, or
waiver  from,  a provision  of the Code of Ethical  Conduct  that applies to our
Chief Executive Officer,  Chief Accounting Officer or Controller on our investor
relations web site.


Item 1A. Risk Factors

     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.  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,

                                  Page 6 of 22

<PAGE>


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. 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  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.

     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.

     Risks Related to Our Common Stock. The exercise of outstanding  options 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

                                  Page 7 of 22

<PAGE>


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.


Item 2 Properties

     The Company  leases 25,250 square feet of space in  Shrewsbury,  New Jersey
for its corporate  headquarters and warehouse under a ten-year lease expiring in
June 2007.  Total  annual  rent  expense  for these  premises  is  approximately
$280,000.  Additionally,  the Company  leases two buildings  with  approximately
3,600 and  3,700  square  feet of office  and  warehouse  space in  Mississauga,
Canada,  under  leases,  which  expire  July 31,  2007 and  November  30,  2007,
respectively.  Total  annual rent  expense for these  premises is  approximately
$65,000.  The Company leases  approximately 4,000 square feet of office space in
Hauppauge, New York for a satellite sales office under a lease expiring in April
2010.  Total annual rent expense amount to approximately  $70,000.  In addition,
the Company  leases  approximately  1,200  square feet of office  space in Mount
Laurel,  New Jersey for a satellite sales office under a lease expiring in March
2006.  Total  annual rent  expense for the  satellite  sales  office  amounts to
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  legal  proceedings  pending  against  the  Company  or any of its
subsidiaries.

Item 4 Submission of Matters to a Vote of Security Holders

There were no matters  submitted  during the fourth quarter of 2005 to a vote of
security holders.

PART II

Item 5 Market for Registrant's  Common Equity,  Related  Stockholder Matters and
Issuer Purchases of Equity Securities

     Programmer's  Paradise,  Inc. Common Stock, par value $0.01,  trades on The
NASDAQ Capital Market under the symbol "PROG". Following is the range of low and
high  closing  prices for our Common  Stock as  reported  on The NASDAQ  Capital
Market.  High Low 2005 First Quarter $14.790 $11.250 Second Quarter 12.600 8.210
Third Quarter 11.160 8.820 Fourth Quarter 12.670 9.300

                                     High              Low
2005
First Quarter                      $14.790          $11.250
Second Quarter                      12.600            8.210
Third Quarter                       11.160            8.820
Fourth Quarter                      12.670            9.300

2004
First Quarter                       $8.060           $6.130
Second Quarter                       8.680            6.720
Third Quarter                       10.990            7.740
Fourth Quarter                      14.780            9.950

     In 2005, we declared  quarterly  dividends  totaling $0.49 per share on our
Common Stock.  These  dividends  are reflected in the financial  statements as a
reduction in additional paid in capital.

                                  Page 8 of 22

<PAGE>


     During 2005,  we issued  128,425  shares of our Common Stock from  treasury
stock to employees and former  employees,  pursuant to the exercise of incentive
stock  options  granted to them prior to 2005 under the  Company's  stock option
plans.

     During 2004,  we issued  115,880  shares of our Common Stock from  treasury
stock to employees and former  employees,  pursuant to the exercise of incentive
stock  options  granted to them prior to 2004 under the  Company's  stock option
plans.

Item 6 Selected Financial Data

     The  following  tables  set  forth,  for the  periods  indicated,  selected
consolidated  financial and other data for Programmer's  Paradise,  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)
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------
                                              2001          2002            2003            2004            2005
-------------------------------------------------------------------------------------------------------------------
Consolidated Statement of Operations Data:
<S>                                         <C>           <C>              <C>            <C>             <C>

Net sales                                   $89,536       $65,157          $69,569        $103,582        $137,655
Cost of sales                                80,656        56,540           60,609          91,243         122,685
-------------------------------------------------------------------------------------------------------------------
Gross profit                                  8,880         8,617            8,960          12,339          14,970
Selling, general and
administrative expenses                      13,020         8,926            8,143          10,173          12,203
Amortization of goodwill                         25             -                -               -
Impairment of goodwill                          230             -                -               -               -
Cost of restructuring                           362             -                -               -               -
Settlement of escrow                              -           348                -               -               -
                                            -----------------------------------------------------------------------
Income (loss) from operations               (4,757)         (657)              817           2,166           2,767
Other income, net                               318           415              230             112             300
                                            -----------------------------------------------------------------------
Income (loss) before income taxes           (4,439)         (242)            1,047           2,278           3,067
Income tax provision (benefit)                   83         (270)               81           4,044)            414
                                            -----------------------------------------------------------------------
Net income (loss)                          $(4,522)           $28             $966           $6,322         $2,653
                                            =======================================================================
Net income (loss) per share:
  Basic                                     $(0.91)         $0.01            $0.26            $1.65          $0.67
                                            =======================================================================
   Diluted                                   $(0.91)         $0.01            $0.25            $1.51          $0.61
                                            =======================================================================

Weighted average common
shares outstanding:
   Basic                                    4,987          4,459             3,724           3,828           3,976
                                            =======================================================================
   Diluted                                  4,987          4,480             3,900           4,180           4,384
                                             =======================================================================
</TABLE>

<TABLE>
<CAPTION>

                                                    December 31,
-------------------------------------------------------------------------------------------------------------------
                                                    2001         2002          2003           2004         2005
-------------------------------------------------------------------------------------------------------------------
<S>                                                <C>           <C>          <C>            <C>          <C>
Balance Sheet Data(1):
Cash and cash equivalents                          $11,425       $6,072       $5,878         $4,888       $7,369
Marketable securities                                    -        5,110        5,033          6,595        7,884

</TABLE>

                                  Page 9 of 22

<PAGE>

<TABLE>
<CAPTION>
<S>                                                 <C>          <C>          <C>            <C>          <C>

Working capital                                     13,367       11,167       10,703         12,756       14,595
Total assets                                        24,057       19,468       20,489         32,914       44,268
Total stockholders' equity                          14,058       11,696       11,195         16,495       17,998

</TABLE>


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.

Overview

     Programmer's Paradise,  Inc. is a marketer of software in the United States
and  Canada   targeting   software   development  and   information   technology
professionals  within  enterprise  organizations.  The  Company  operates in one
primary business segment:  the marketing of technical  software and hardware for
microcomputers, servers and networks in the United States and Canada. 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
well-known catalogs, direct mail programs, advertisements in trade magazines, as
well as  through  Internet  and e-mail  promotions.  Through  our  wholly  owned
subsidiary,  Lifeboat  Distribution Inc., we distribute  products to dealers and
resellers in the United States and Canada.

Forward-looking Statements

     This report  includes  "forward-looking  statements"  within the meaning of
Section 21E of the  Securities  Exchange Act of 1934, as amended.  Statements in
this  report  regarding  future  events  or  conditions,   including  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.  Such risks  include,  but not 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

                                 Page 10 of 22

<PAGE>


availability  of products,  product mix,  market  conditions  and other factors,
which could result in a fluctuation of sales below recent experience.

     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 $2.7 million for the year 2005,  as compared to
a net income of $6.3 million in 2004. The decrease in net income of $3.6 million
was  mainly  due to a  $4.1  million  reversal  of our  deferred  tax  valuation
allowance in December  2004.  For 2005, we reversed the  remaining  $0.9 million
balance  of our  deferred  tax  valuation  allowance,  resulting  in a net  2005
provision  for income  taxes of $0.4  million.  Both  reversals  were due to our
positive outlook  regarding our expected  profitability in the coming years. The
2005  reversal was also caused by the change in New Jersey tax law that allows a
full deduction for net operating loss carryovers beginning in 2006.

     Income from operations amounted to $2.8 million in 2005 as compared to $2.2
million in 2004,  an  increase  of $0.6  million or 28% in 2005,  as compared to
2004.  The 33% increase in sales  combined with a 1% point decrease in our gross
margin  percentage  resulted in an increase in gross profit of $2.6 million.  We
invested $2 million in Selling,  General and  Administrative  (SG&A) expenses to
achieve this growth.

     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: 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 Operations.  The year-to-year  comparison of financial  results is
not necessarily indicative of future results:

                                 Page 11 of 22

<PAGE>

                                        Years ended December 31,
                                      2003             2004             2005
                                    -----------------------------------------
Net sales                           100.0%            100.0%           100.0%
Cost of sales                        87.1%             88.1%            89.1%
                                     ----------------------------------------
Gross profit                         12.9%             11.9%            10.9%
Selling, general and
administrative expenses              11.7%              9.8%             8.9%
                                     ----------------------------------------
Income from operations                1.2%              2.1%             2.0%
Other income, net                     0.3%              0.1%             0.2%
                                      ---------------------------------------
Income before income taxes            1.5%              2.2%             2.2%
Income tax provision (benefit)        0.1%            (3.9)%             0.3%
                                      ---------------------------------------
Net Income                            1.4%              6.1%             1.9%
                                      =======================================


Year ended December 31, 2005 Compared to Year Ended December 31, 2004

Net Sales

     Net sales in 2005  increased  by 33% or $34.1  million  to  $137.7  million
compared  to $103.6  million  in 2004.  On a  quarterly  basis,  net sales  have
increased  from $30.2  million in the first  quarter of 2005 to $42.0 million in
the fourth  quarter of 2005 and from $20.7  million in the first quarter of 2004
to $31.0 million in the fourth  quarter of 2004.  The main factor for our growth
in 2005 on a  yearly  and  quarterly  basis  was a  strong  demand  for our core
products and increased productivity of our sales representatives in 2005.

     On a forward-looking  basis, the market and overall demand for the software
we sell  continues to be volatile.  Furthermore,  the fourth quarter of 2005 was
positively  impacted  by  several  large  deals  that we won  due to  aggressive
pricing.  This  could  have a  negative  impact  on our  future  revenue  growth
percentage.

Gross Profit

     Gross profit in absolute  dollars for the year ended  December 31, 2005 was
$15.0 million as compared to $12.3 million in 2004. Gross profit as a percentage
of net sales decreased to 10.9% in 2005, compared to 11.9% in 2004. The increase
in gross profit  dollars and the decrease in gross profit margin as a percentage
of net sales  reflect a shift in the  product  mix of sales.  Gross  margin as a
percentage of net sales has  consistently  decreased in the last several  years.
This is a result of the strong demand for our core products that  typically have
lower margins.

     On a  forward-looking  basis,  gross profit margin in future periods may be
less than that achieved in 2005. We have several  initiatives  to increase gross
margin percentages, including increased management control over pricing, a focus
on high margin products and/or markets and selling services.  However, we do not
expect  these  initiatives  to have an  immediate  positive  impact on our gross
margin percentages. The objective of these initiatives is to slow the decline in
our gross  margin  percentage.  We foresee  possible  pressure  on gross  profit
margins as a result of various factors, including the continued participation by
vendors  in  inventory  price  protection  and  rebate  programs,  product  mix,
including  software  maintenance and third party services,  pricing  strategies,
market conditions and other factors, any of which could result in a reduction of
gross profit margins below those realized in 2005.

Selling, General and Administrative Expenses

     SG&A  expenses for 2005 were $12.2 million as compared to $10.2 million for
2004,  an increase  of $2.0  million or 20.0%.  The primary  drivers in selling,
general and  administrative  expenses were payroll and employee  related  costs.
Payroll  costs  increased by $1.2 million as a result of our  investment  in our
sales   account   executive   team  that  started   towards  the  end  of  2004.
Employee-related  costs (which includes items such as profit sharing,  incentive
awards  and  insurance)  increased  $0.3  million.   Facility  related  expenses
increased  by $0.3  million as a result of the  opening of the  satellite  sales
office in Hauppauge,  New York.

                                 Page 12 of 22

<PAGE>


The remaining  $0.2 million was mainly related to a bad debt expense of $302,000
as the result of a bankruptcy filing by Amherst Technologies, LLC.

On a forward  looking  basis,  we do not expect to  increase  our SG&A  expenses
significantly. We have several initiatives in place to actually increase control
over SG&A expenses.  Our SG&A expenses have increased over 20% on a yearly basis
for the last two  years.  The  objective  of these  initiatives  is to slow this
continued  increase  in SG&A  expenses.  There can be no  assurances  that these
initiatives  will actually  result in a slower increase in SG&A expenses in 2006
as compared to 2005.


Income Taxes

     For the year ended December 31, 2005, the Company  recorded a provision for
income taxes of  approximately  $414,000 which consists of provision of $257,000
for U.S.  Federal  taxes and $160,000 for state and local taxes income taxes and
$18,000  for foreign  taxes  offset by a deferred  tax benefit of $21,000.  As a
result of the Company's  performance  in 2005,  and the fact that New Jersey law
allows a full deduction for net operating loss carryovers  beginning in 2006 the
$900,000 of deferred  income tax valuation  allowance was reversed in the fourth
quarter of 2005 by reducing the income tax provision.


     For the year ended December 31, 2004,  the Company  recorded a net deferred
tax  benefit in the amount of $4.1  million  dollars  related to a reversal of a
deferred tax asset valuation  allowance.  The Company believed at that time that
uncertainty  still existed  regarding the  realizability of certain deferred tax
assets and, accordingly, left a $900,000 valuation allowance remaining.


Year ended December 31, 2004 Compared to Year Ended December 31, 2003

Net Sales

     Net sales in 2004  increased  by 49% or $34.0  million  to  $103.6  million
compared  to $69.6  million  in 2003.  On a  quarterly  basis,  net  sales  have
increased  from $20.7  million in the first  quarter of 2004 to $31.0 million in
the fourth  quarter of 2004 and from $15.2  million in the first quarter of 2003
to $20.0 million in the fourth  quarter of 2003. We attribute this growth in net
sales on a yearly and quarterly basis primarily to the improved productivity and
expansion  of our  account  executive  team  and a more  favorable  IT  spending
environment in 2004.

Gross Profit

     Gross profit in absolute  dollars for the year ended  December 31, 2004 was
$12.3 million as compared to $9.0 million in 2003.  Gross profit as a percentage
of net sales decreased to 11.9% in 2004, compared to 12.9% in 2003. The increase
in gross profit  dollars and the decrease in gross profit margin as a percentage
of net sales reflect a shift in the product mix of sales

Selling, General and Administrative Expenses

     SG&A  expenses for 2004 were $10.1  million as compared to $8.1 million for
2003,  an increase  of $2.0  million or 25.0%.  The primary  drivers in selling,
general and  administrative  expenses were payroll and employee  related  costs.
Payroll  costs  increased  by $0.5  million as a result of the  expansion of the
sales account executive team.  Employee-related costs (which includes items such
as profit  sharing,  incentive  awards and  insurance)  increased  $0.9 million.
Commission  costs  increased $0.4 million due to the increase in

                                 Page 13 of 22

<PAGE>


sales.  Selling and marketing  expenses  increased by $0.2 million of which $0.1
million was for credit card  processing  fees due to higher level of sales.  The
remaining $0.1 million was mainly related to marketing related activities.


Income Taxes

     For the year ended  December 31, 2004,  the Company  recorded a benefit for
income  taxes of  approximately  $4.0  million  which  primarily  consists  of a
deferred  income tax  benefit of $4.1 offset by the  current  provision  of $0.1
million.

     Statement of Financial  Accounting Standards No. 109, Accounting for Income
Taxes (SFAS No. 109),  requires the Company to record a valuation allowance when
it is "more  likely than not that some portion or all of the deferred tax assets
will not be realized."  Since  December 31, 2000,  the Company has  maintained a
100% valuation  allowance  equal to the net deferred tax assets.  Based upon the
Company's  profitable  operations  since  December  31,  2002,  and its expected
profitability  in future years,  the Company has  concluded  that the results of
future  operations  will generate  sufficient  taxable income to realize certain
deferred tax assets.  The Company has reduced its valuation  allowance which was
provided for in prior years. The Company believed that uncertainty  still exists
regarding the realizability of certain deferred tax assets, and accordingly, has
established a $0.9 million valuation allowance, based on management's estimates,
against these specific deferred tax assets.

As a result,  in  accordance  with SFAS No.  109,  the  Company  recorded  a net
deferred tax benefit  (including  the net change in valuation  allowance) in the
amount of $4.1 million.

Recent Accounting Pronouncements

     During the two years ended  December 31,  2005,  the  Financial  Accounting
Standards  Board ("FASB") issued several  pronouncements  of significance to the
Company  which are  discussed  in detail  below.  In  addition,  the FASB issued
several other  pronouncements,  including  standards on inventory  (SFAS No. 151
"Inventory Costs, an amendment of ARB 43, Chapter 4"),  exchanges of nonmonetary
assets  (SFAS  No.  153  "Exchanges  of  Nonmonetary  Assets"),  which we either
currently  comply with or are not  anticipating to have a significant  impact on
our future financial condition or results of operations.

     In May 2005 the FASB issued Statement of Financial Accounting Standards No.
154 ("SFAS 154"),  "Accounting  Changes and Error  Corrections,"  which replaces
Accounting  Principles  Board  No.  20 ("APB  20"),  "Accounting  Changes,"  and
Statement of Financial Accounting Standards No. 3, "Reporting Accounting Changes
in Interim  Financial  Statements." SFAS 154 applies to all voluntary changes in
accounting  principle,  and  changes the  requirements  for  accounting  for and
reporting of a change in accounting principle.  SFAS 154 requires  retrospective
application  to prior  periods'  financial  statements of a voluntary  change in
accounting principle unless it is impracticable. APB 20 previously required that
most voluntary  changes in accounting  principle be recognized with a cumulative
effect  adjustment  in net  income  of the  period  of the  change.  SFAS 154 is
effective for accounting changes made in annual periods beginning after December
15,  2005.  We are not able to  assess at this  time the  future  impact of this
statement on our consolidated financial position or results of operations.

     In December 2004, the FASB issued SFAS No. 123(R),  "Share-Based  Payment,"
which is a revision of SFAS No. 123, "Accounting for Stock-Based  Compensation".
SFAS 123(R) requires that the compensation cost relating to share-based  payment
transactions be recognized in financial  statements.  The compensation cost will
be  measured  based on the fair  value of the  equity or  liability  instruments
issued. In April 2005, the SEC announced that the accounting  provisions of SFAS
123(R) are to be applied in the first quarter of the fiscal year beginning after
June 15,  2005.  As a result,  we are now  required  to adopt SFAS 123(R) in the
first quarter of fiscal 2006 and will recognize stock-based compensation expense
using

                                 Page 14 of 22

<PAGE>


the  modified  prospective  method.  We have  disclosed  the pro forma impact of
adopting  SFAS No.  123(R) on net  income and  earnings  per share for the years
ended  December  31,  2005 and 2004 in Note 1, which  includes  all  share-based
payment  transactions to date. The pro forma  disclosures  previously  permitted
under  SFAS  123  no  longer  will  be an  alternative  to  financial  statement
recognition.  Under the modified  prospective  adoption method, the Company will
record  expense  relating to  employee  stock-based  compensation  awards in the
periods subsequent to adoption without  restatement of prior periods in the year
of  adoption.  This  expense  will be based on all  unvested  options  as of the
adoption date as well as all future stock-based  compensation  awards.  Based on
the current  unvested  options  outstanding of 6,603 shares,  the Company's 2006
pretax  expense for those options is expected to be  approximately  $9 thousand.
This amount may increase to the extent that options are granted in 2006.

Liquidity and Capital Resources

     In 2005,  our cash and cash  equivalents  increased by $2.5 million to $7.4
million at December 31, 2005,  from $4.9 million at December 31, 2004.  Net cash
provided by  operating  activities  amounted to $5.5  million;  net cash used in
investing  activities  amounted  to $1.6  million,  and cash  used in  financing
activities amounted to $1.3 million.

     Net cash  provided by operating  activities  in 2005 was $5.5  million.  In
2005,  cash was mainly  provided by $3.4 million from income from operations net
of non-cash  charges,  and a $10.0  million  increase  in  accounts  payable and
accrued expenses, offset by a $7.4 million increase in accounts receivable and a
$0.5 million increase in other operating assets and liabilities. The increase in
accounts receivable relates primarily to our increased revenue.  The increase in
accounts  payable is  primarily  due to our  increased  net sales and our normal
cycle of payments.

     Cash used in investing  activities in 2005  amounted to $1.6 million.  As a
result of the current low interest rates on our short-term  savings  accounts in
2005 we decided to invest in highly rated and highly  liquid  available-for-sale
securities.  The company purchased $16.1 million of these securities during 2005
and redeemed  $14.8 million during 2005.  These  securities are highly rated and
highly liquid. These securities are classified as available-for-sale  securities
in accordance  with SFAS 115  "Accounting  for Certain  Investments  in Debt and
Equity Securities",  and as a result unrealized gains and losses are reported as
part of other comprehensive income (loss). The balance of cash used in investing
activities  of $0.4 million  consisted of purchases of equipment  and  leasehold
improvements.

     Net cash used in financing  activities in 2005 of $1.4 million consisted of
$1.9  million  dividends  paid on our Common  Stock  offset by $0.5 million from
proceeds from the exercise of stock options.

     On  October  9, 2002,  the  Company's  Board of  Directors  authorized  the
purchase of 500,000  shares of our Common  Stock.  On September  16,  2002,  the
Company's  Board of Directors  authorized  the purchase of 500,000 shares of our
Common  Stock.  These two  purchase  approvals  are in  addition  to approval of
490,000  shares in September 2002 and 521,013 shares in October 1999 the company
was  authorized  to buy back in both open  market and private  transactions,  as
conditions  warrant.

     The repurchase program is expected to remain effective for the remainder of
2006. We intend to hold the repurchased shares in treasury for general corporate
purposes,  including  issuances under various stock option plans. As of December
31, 2005, we owned 1,289,665  shares of Common Stock at an average cost of $2.81
per share. As of December 31, 2004, we owned 1,418,090 shares of Common Stock at
an average cost of $2.91 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.

                                 Page 15 of 22

<PAGE>

     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.

<TABLE>
<CAPTION>

Contractual Obligations
(Dollars in thousands)
                                                              Payment due by Period
                                          Total     Less than 1 year    1-3 years       4-5 years   After 5 years
----------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                    <C>          <C>             <C>             <C>

Long-term debt                                 -                    -            -              -              -
Capital Lease Obligations                      -                    -            -              -              -
Operating Leases(1)                       $1,153                 $614         $513             26              -
Unconditional Purchase Obligations             -                    -            -              -              -
Other Long term Obligations                    -                    -            -              -              -
----------------------------------------------------------------------------------------------------------------------
Total Contractual Obligations             $1,153                 $614         $513            $26              -
===================================================================================================================

</TABLE>

(1) Operating  leases  primarily  relates to the lease of the space used for our
operations in Shrewsbury,  New Jersey,  Mississauga  Canada,  Mount Laurel,  New
Jersey and Hauppauge, New York.


     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,  2005,  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

     The  Company's  discussion  and  analysis of its  financial  condition  and
results  of  operations  are based  upon the  Company's  consolidated  financial
statements  that have been prepared in  accordance  with  accounting  principles
generally  accepted in the United States of America.  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.

                                 Page 16 of 22

<PAGE>

     On an on-going basis, the Company evaluates its estimates,  including those
related  to  product  returns,  bad  debts,   inventories,   income  taxes,  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.

Item 7A Quantitative and Qualitative Disclosures about Market Risk

     In addition to its  activities in the United  States,  12% of the Company's
2005 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 $7.9 million investments in marketable securities are only in
highly rated and highly liquid U.S. government securities and corporate bonds

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 of December 31, 2005.  This  evaluation was carried
out  under  the  supervision  and  with  the  participation  of our  management,
including our Company's Chief Executive Officer and Chief Financial Officer.  As
defined in Rules  13a-15(e)  and 15d-15(e)  under the Exchange  Act,  disclosure
controls and  procedures  are controls and other  procedures of the Company that
are designed 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

                                 Page 17 of 22

<PAGE>

specified  in  the  Securities  and  Exchange   Commission's  rules  and  forms.
Disclosure  controls and procedures include,  without  limitation,  controls and
procedures  designed to ensure that information  required to be disclosed by the
Company in the reports it files or submits under the Exchange Act 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.

     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 December 31, 2005. It should be noted that the
design of any system of controls is based in part upon certain assumptions about
the likelihood of future  events,  and there can be no assurance that any design
will  succeed  in  achieving  its  stated  goals  under  all  potential   future
conditions, regardless of how remote.

     Changes in Internal Control Over Financial  Reporting.  As required by Rule
13a-15(d) under the Exchange Act, our management,  including our Chief Executive
Officer and Chief  Accounting  Officer,  also  conducted  an  evaluation  of our
internal  control  over  financial  reporting  to  determine  whether any change
occurred  during  the  quarter  ended  December  31,  2005  that has  materially
affected,  or is reasonably  likely to materially  affect,  our internal control
over  financial  reporting.  Based on that  evaluation  during the quarter ended
December  31,  2005  there  has been no  change  in our  internal  control  over
financial  reporting that has materially  affected,  or is reasonably  likely to
materially affect, our internal control over financial reporting.

Item 9B  Other Information

     None.

PART III

Item 10 Directors and Executive Officers of the Registrant

     This 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 2005 Annual Meeting of Stockholders,
to be filed  pursuant  to  Regulation  14A not later  than  April 30,  2006 (the
"Definitive  Proxy  Statement")  under  the  sections  captioned   "Election  of
Directors," and "Compliance with Section 16 (a) of the Exchange Act".

Item 11 Executive Compensation

     The information required hereunder is incorporated by reference herein from
the  Definitive   Proxy  Statement  under  the  section   captioned   "Executive
Compensation".

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 section captioned  "Security  Ownership
of Certain Beneficial Owners and Management".

                                 Page 18 of 22

<PAGE>

Item 13 Certain Relationships and Related Transactions

     The information required hereunder is incorporated by reference herein from
the  Definitive   Proxy  Statement  under  the  section   captioned   "Executive
Compensation" and "Certain Transactions".

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

2.1       Agreement for the Sale and Purchase of Shares,  dated as of January 9,
          2001 between the Company and PC-Ware Information Technologies, AG.+

3.1       Form of Amended  and  Restated  Certificate  of  Incorporation  of the
          Company.*

3.2       Form of Amended and Restated By-Laws of the Company.*

4.1       Specimen of Common Stock Certificate.*

10.8      Agreement dated as of December 29, 1994,  between Lifeboat  Publishing
          and Software Garden, Inc.; License for Trademark "Dan Bricklin", dated
          as of December  29,  1994,  between  the Company and Daniel  Bricklin;
          First Amendment to Software  License  Agreement and Trademark  License
          Agreement dated March 30, 1995.*

10.17     1986 Stock Option Plan and Form of Employee Stock Option Agreement.*

10.18     1995 Stock Plan, as amended. ***

10.19     1995 Non-Employee Director Plan, as amended. ***

10.20     Form of Officer and Director Indemnification Agreement.*

                                 Page 19 of 22

<PAGE>


10.38     Employment  Agreement  dated July 15, 2002 between William Willett and
          the Company ****

10.39     First  Amendment,  dated  as  of  December  16,  2003,  to  Employment
          Agreement between William Willett and the Company ****

10.42     Lease  dated as of May 14,  1997  between  Robert C.  Baker,  et al as
          Landlord and the Company **

21.1      Subsidiaries of the Registrant ++

23.1      Consent of Amper, Politziner & Mattia, P.C.

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.

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.

*    Incorporated  by  reference  to exhibits of the same number  filed with the
     Registrant's Registration Statement on Form S-1 or amendments thereto (File
     No. 33-92810).

**   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.

***  Incorporated by reference to Exhibit A and Exhibit B, respectively,  to the
     Registrant's Definitive Annual Meeting Proxy filed on April 30, 1998.

**** 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,
     2003 filed on March 29, 2004.

+    Incorporated by reference to Annex I to the Registrant's Definitive Special
     Meeting Proxy Statement filed on December 1, 2000.

++   Incorporated by reference to Exhibit 21.1 of the Registrant's Annual Report
     on Form 10-K for the year ended December 31, 2002 filed on March 20, 2003


(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 20 of 22

<PAGE>

                                   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 March 13, 2006.

                             PROGRAMMER'S PARADISE, INC.


                             By: /s/  Simon F. Nynens
                                ------------------------------
                                Simon 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:

<TABLE>
<CAPTION>

Signature                                   Title                                     Date

<S>                                 <C>                                              <C>

                                    President and Chief Executive Officer             March 13, 2006
/s/  Simon F. Nynens                (Principal Executive Officer)
---------------------------
Simon F. Nynens


                                    Vice President and Chief Accounting Officer       March 13, 2006
/s/  Kevin T. Scull                 (Principal Financial and Accounting Officer)
---------------------------
Kevin T. Scull


/s/  William H. Willett             Chairman of the Board of Directors                March 13, 2006
---------------------------
William H. Willett


 /s/  Mark T. Boyer                 Director                                          March 13, 2006
-------------------
Mark. T. Boyer

/s/  F. Duffield Meyercord          Director                                          March 13, 2006
---------------------------
F. Duffield Meyercord


/s/  Edwin H. Morgens               Director                                          March 13, 2006
---------------------------
Edwin H. Morgens


/s/  Allan D. Weingarten            Director                                          March 13, 2006
---------------------------
Allan D. Weingarten

</TABLE>

                                 Page 21 of 22

<PAGE>


                                Items 8 and 15(a)

Programmer's Paradise, Inc. and Subsidiaries

Index to Consolidated Financial Statements and Schedule

                                                                           Page
                                                                           ----
Report of Independent Registered Public Accounting Firm                    F-2
Consolidated Balance Sheets                                                F-3
Consolidated Statements of Earnings                                        F-4
Consolidated Statements of Stockholders' Equity and                        F-5
Comprehensive Income (Loss)
Consolidated Statements of Cash Flows                                      F-6
Notes to Consolidated Financial Statements                                 F-7
Schedule II - Valuation and Qualifying Accounts                            F-23

                                      F-1

<PAGE>

             Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Programmer's Paradise, Inc. and Subsidiaries

We have audited the  accompanying  consolidated  balance sheets of  Programmer's
Paradise,  Inc.  and  Subsidiaries  as of December  31,  2005 and 2004,  and the
related   consolidated   statements  of  earnings,   stockholders'   equity  and
comprehensive  income (loss),  and cash flows for each of the three years in the
period  ended   December  31,  2005.   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 audit 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 audit 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
Programmer's  Paradise,  Inc. and Subsidiaries as of December 31, 2005 and 2004,
and the results of its  earnings  and its cash flows for each of the three years
in the period ended December 31, 2005, 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 ended December
31, 2005. 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.



January 27, 2006
Edison, New Jersey                        /s/  Amper, Politziner & Mattia, P.C.

                                      F-2

<PAGE>

<TABLE>
<CAPTION>

                  Programmer's Paradise, Inc. and Subsidiaries
                           Consolidated Balance Sheets
                ( Dollars in thousands, except per share amounts)


                                                                                December 31,

                                                                           2004               2005
                                                                      --------------------------------
Assets
Current assets:
<S>                                                                    <C>                <C>

Cash and cash equivalents                                               $4,888             $7,369
 Marketable securities                                                    6,595              7,884
 Accounts receivable, net of allowances of $755 and
 $1,231 in 2004 and 2005, respectively                                   14,173             21,185
Inventory, net of allowances of $43 and $31 in 2004 and 2005,
 respectively                                                             1,423              1,956
 Prepaid expenses and other current assets                                  673                688
 Deferred income taxes                                                    1,423              1,783
                                                                     ---------------------------------
Total current assets                                                     29,175             40,865

Equipment and leasehold improvements, net                                   303                434
Other assets                                                                581                453
Deferred income taxes                                                     2,855              2,516
                                                                     ---------------------------------
                                                                        $32,914            $44,268
                                                                     =================================
Liabilities and Stockholders' Equity
Current liabilities:
 Accounts payable and accrued expenses                                  $15,994            $25,751
 Dividend payable                                                           425                519
                                                                     ---------------------------------
Total current liabilities                                                16,419             26,270
                                                                     ---------------------------------
Commitments and Contingencies

Stockholders' equity:
Common Stock $.01 par value:  Authorized, 10,000,000 shares,
 issued 5,284,500                                                            53                 53
Additional paid-in capital                                               32,642             30,948
Treasury stock, at cost, 1,418,090 and 1,289,665 shares in 2004 and
 2005, respectively                                                      (4,130)            (3,620)
Accumulated deficit                                                     (12,223)            (9,570)
Accumulated other comprehensive income                                      153                187
                                                                     ---------------------------------
Total stockholders' equity                                           16,495                   17,998
                                                                     ---------------------------------
                                                                    $32,914                   $44,268
                                                                     =================================
</TABLE>


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


                                      F-3
<PAGE>


                  Programmer's Paradise, Inc. and Subsidiaries
                       Consolidated Statements of Earnings
                ( Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                              Year ended December 31
                                                   2003             2004               2005
                                                ------------------------------------------------
<S>                                              <C>               <C>               <C>

Net sales                                        $69,569           $103,582           $137,655
Cost of sales                                     60,609             91,243            122,685
                                                ------------------------------------------------

Gross profit                                       8,960             12,339             14,970

Selling, general and administrative expenses       8,143             10,173             12,203
                                                ------------------------------------------------

Income from operations                               817              2,166              2,767

Other income (expense):
Interest income                                      133                156                313
Foreign currency transaction gain (loss)              97                (44)               (13)
                                                ------------------------------------------------

Income before provision (benefit) for income taxes 1,047              2,278              3,067

Provision (benefit) for income taxes                  81             (4,044)               414
                                                ------------------------------------------------

Net income                                          $966             $6,322             $2,653
                                                ================================================
Income per common share-Basic                      $0.26              $1.65              $0.67
                                                ================================================
Income per common share-Diluted                    $0.25              $1.51              $0.61
                                                ================================================
Weighted average common shares outstanding-Basic   3,724              3,828              3,976
                                                ================================================
Weighted average common shares outstanding-Diluted 3,900              4,180              4,384
                                                ================================================
</TABLE>

                                      F-4

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

<PAGE>

                  Programmer's Paradise, Inc. and Subsidiaries
 Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
                  (Dollars in thousands, except share amounts)


<TABLE>
<CAPTION>


                                                                                                Accumulated
                                                          Additional                            other
                                     Common Stock         Paid-In     Treasury   Accumulated    comprehensive
                                     ------------------
                                     Shares      Amount   Capital     Stock       Deficit       Income (loss)    Total
                                     --------------------------------------------------------------------------------------
<S>                                  <C>         <C>      <C>         <C>         <C>           <C>              <C>

Balance at January 1, 2003           5,230,250   $52      $35,484     $(4,184)    $(19,511)     $(145)           $11,696
Net income                                                                        966                            966
Other comprehensive income:
Translation adjustment                                                                          223              223
Comprehensive Income                                                                                             1,189
Dividend paid                                             (1,113)                                                (1,113)
Dividend declared payable                                 (375)                                                  (375)
Purchase of 172,394 treasury
 stock shares                                                         (377)                                      (377)
Exercise of stock options            54,250      1        103         71                                         175
                                     --------------------------------------------------------------------------------------
Balance at December 31, 2003         5,284,500   53       34,099      (4,490)     (18,545)      78               11,195
Net income                                                                        6,322                          6,322
Other comprehensive income:
Translation adjustment                                                                           97              97
Unrealized   loss   on   available-
for-sale securities                                                                             (22)             (22)
Comprehensive Income                                                                                             6,397
Dividend paid                                             (1,225)                                                (1,225)
Dividend declared payable                                 (425)                                                  (425)
Exercise of stock options                                             360                                        360
Tax  benefit   from   exercises  of
non-qualified stock options                               193                                                     193
                                   ----------------------------------------------------------------------------------------
Balance at December 31, 2004         5,284,500   53       32,642      (4,130)     (12,223)      153              16,495
Net income                                                                        2,653                          2,653
Other comprehensive income:
Translation adjustment                                                                           22              22
Unrealized   gain   on   available-
for-sale securities                                                                             12               12
Comprehensive Income                                                                                             2,687
Dividend paid                                             (1,433)                                                (1,433)
Dividend declared payable                                 (519)                                                  (519)
Exercise of stock options                                             510                                        510
Tax  benefit   from   exercises  of
non-qualified stock options                               258                                                     258
                                     --------------------------------------------------------------------------------------
Balance at December 31, 2005         5,284,500   $53      $30,948     $(3,620)    $(9,570)      $187             $17,998
                                     ======================================================================================

</TABLE>
                                      F-5

<PAGE>

<TABLE>
<CAPTION>

                  Programmer's Paradise, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                  (Dollars in thousands, except share amounts)


                                                                          Year ended December 31
                                                                    2003                  2004             2005
                                                        --------------------------------------------------------------
<S>                                                       <C>                         <C>               <C>

Cash flows from operating activities
Net Income                                                $           966             $         6,322   $        2,653
Adjustments to reconcile net income to net cash
 provided by operating activities:
    Depreciation expense                                              291                         176              236
    Amortization expense                                               22                          15               10
    Provision for doubtful accounts                                  (106)                        133              477
     receivable
    Benefit for deferred income taxes                                   -                      (4,128)             (21)
    Changes in operating assets and liabilities:
      Accounts receivable                                          (1,336)                     (7,045)          (7,369)
      Inventory                                                        32                        (304)            (533)
      Prepaid expenses and other current assets                       (69)                       (340)             (15)
      Accounts payable and accrued expenses                         1,147                       7,118           10,015
      Net change in other operating assets and                         (4)                        (22)              (2)
        liabilities
                                                        ===============================================================
Net cash provided by operating activities                             943                       1,925            5,451
Cash flows used in investing activities
Purchase of equipment and leasehold improvements
                                                                     (122)                       (187)            (367)
Purchases of available-for-sale securities                         (5,473)                     (7,084)         (16,077)
Redemptions of available-for-sale securities                        5,550                       5,500           14,800
                                                        --------------------------------------------------------------
Net cash used in investing activities                                 (45)                     (1,771)          (1,644)
Cash flows used in financing activities
Purchase of treasury stock                                           (377)                          -                -
Proceeds from stock option exercise                                   175                         359              510
Dividends paid                                                     (1,113)                     (1,600)          (1,858)
                                                        --------------------------------------------------------------
Net cash used in financing activities                              (1,315)                     (1,241)          (1,348)
                                                        --------------------------------------------------------------
Effect of foreign exchange rate on cash                               223                          97               22
                                                        --------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                 (194)                       (990)           2,481
Cash and cash equivalents at beginning of year                      6,072                       5,878            4,888
                                                        ==============================================================
Cash and cash equivalents at end of year                $           5,878           $           4,888$           7,369
                                                        ==============================================================

Supplementary disclosure of cash flow information:
Income taxes paid                                       $              73           $             38    $          170
Interest paid                                           $              26           $             19    $            -


</TABLE>

                                      F-6

<PAGE>

                  Programmer's Paradise, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                (Dollars in thousands, except per share amounts)




Note 1.  Description of Business

Programmer's  Paradise,  Inc.  operates in one  primary  business  segment:  the
marketing of technical  software  and hardware for  microcomputers,  servers and
networks in the United  States and Canada.  We offer a wide variety of technical
and general business  application  software from a broad range of publishers and
manufacturers.  We market our products through our well-known  catalogs,  direct
mail programs, advertisements in trade magazines as well as through Internet and
e-mail promotions.  Through our wholly owned subsidiary,  Lifeboat  Distribution
Inc., we  distribute  products to dealers and resellers in the United States and
Canada.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation and Operations

The  consolidated  financial  statements  include the  accounts of  Programmer's
Paradise, Inc. and its wholly owned subsidiaries.  All significant  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.
Actual results could differ from those estimates.

Net Income Per Common Share

The Company  calculates  earnings  per share in  accordance  with  Statement  of
Financial  Accounting  Standards  (SFAS) No. 128,  "Earnings  Per Share".  Basic
earnings  or loss  per  share  is  calculated  by  dividing  net  income  (loss)
attributable to common  stockholders by the weighted average number of shares of
Common Stock outstanding  during the period.  Diluted earnings or loss per share
is calculated by dividing net income (loss)  attributable to common stockholders
by the  weighted  average  number of common  shares  outstanding,  adjusted  for
potentially dilutive securities.


Cash Equivalents

The Company  considers all highly liquid  short-term  investments  with original
maturities of 90 days or less to be cash equivalents.

                                      F-7

<PAGE>


                  Programmer's Paradise, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)
                (Dollars in thousands, except per share amounts)


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.


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 other comprehensive  income
(loss), which is a separate component of stockholders' equity in accordance with
FASB Statement No. 130, "Reporting 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,  2005  the  Company's  $7.9  million   investments  in  marketable
securities are only in highly rated and highly liquid U.S. government securities
and corporate bonds.

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.

                                      F-8

<PAGE>

                  Programmer's Paradise, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)
                (Dollars in thousands, except per share amounts)

Investments in Securities

The Company accounts for investments in securities pursuant to the SFAS No. 115,
"Accounting for Certain  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 Stockholder's  Equity. Net unrealized gains and losses
on  marketable   securities  are  credited  or  charged  to  accumulated   other
comprehensive income.


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,  2005,  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 over the estimated useful lives of the assets or the
related lease terms, whichever is shorter.


Comprehensive Income (Loss)

Comprehensive  income (loss) consists of net income or loss for the period,  the
impact of unrealized  foreign  currency  translation  adjustments and unrealized
gains or losses on investments.

Revenue Recognition

The Company records revenues from sales transactions when title to products sold
passes to the customer. The Company's shipping terms dictate that the passage of
title  occurs  upon  receipt of products by the  customer.  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 in accordance with Staff
Accounting  Bulletin  (SAB)  No.  101 and No.  104,  "Revenue  Recognition"  and
Emerging Issues Task Force (EITF) 99-19, "Reporting Revenue Gross as a Principal
versus Net as an Agent". 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.

                                      F-9

<PAGE>


                  Programmer's Paradise, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)
                (Dollars in thousands, except per share amounts)

In accordance  with EITF 00-10,  "Accounting  for Shipping and Handling Fees and
Costs", the Company records freight billed to its customers as net sales and the
related  freight costs as a cost of sales.  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 EITF 02-16.

Stock-Based Compensation

As permitted by SFAS No. 123, "Accounting for Stock-Based  Compensation",  which
establishes a fair value based method of accounting for stock-based compensation
plans, the Company has elected to follow Accounting Principles Board Opinion No.
25  "Accounting  for Stock  Issued to  Employees"  for  recognizing  stock-based
compensation expense for financial statement purposes. For companies that choose
to continue  applying the intrinsic value method,  SFAS No. 123 mandates certain
pro forma disclosures as if the fair value method had been utilized. The Company
accounts for stock based  compensation  to consultants  in accordance  with EITF
96-18,  "Accounting  for  Equity  Instruments  That Are  Issued  to  Other  Than
Employees for Acquiring,  or in Conjunction with Selling, Goods or Services" and
SFAS No. 123.

In December  2003,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  - Transition  and  Disclosure - an amendment of FASB Statement No.
123", which provides optional  transition  guidance for those companies electing
to  voluntarily  adopt the  accounting  provisions of SFAS No. 123. In addition,
SFAS No. 148 mandates  certain new  disclosures  that are  incremental  to those
required  by SFAS No.  123.  The Company  continued  to account for  stock-based
compensation in accordance with APB No.25.

The following  table  illustrates  the effect on income  attributable  to common
stockholders  and  earnings  per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based employee compensation.

<TABLE>
<CAPTION>

                                                              Year ended December 31
                                                       ------------------------------------
                                                         2003         2004         2005
                                                     ----------------------------------------
                                                     ----------------------------------------
<S>                                                         <C>        <C>          <C>

Net income  as reported                                     $966       $6,322       $2,653
Deduct: Total stock-based employee
 compensation expense
determined under fair value based method,
net of related tax effect:                                  (50)        (896)        (174)
                                                     ----------------------------------------
Net income pro forma                                        $916       $5,426       $2,479
                                                     ========================================
Basic net income per share, as reported                    $0.26        $1.65        $0.67
Diluted net income per share, as reported                  $0.25        $1.51        $0.61
Basic net income per share, pro forma                      $0.25        $1.42        $0.62
Diluted net income per share, pro forma                    $0.23        $1.30        $0.57

</TABLE>

                                      F-10

<PAGE>

                  Programmer's Paradise, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)
                (Dollars in thousands, except per share amounts)


Under SFAS No. 123 the fair value of each option  grant is estimated on the date
of grant  using  the  Black-Scholes  option-pricing  model  with  the  following
weighted-average assumptions:

                                      Year ended December 31
                                --------------------------------------
                                   2003         2004        2005
                                --------------------------------------
----------------------------------------------------------------------
Expected life (in years)               4.2         4.0          4.0
Risk-free interest rate          3.38%         3.66%       3.78%
Volatility                        53%             59%         59%
Dividend yield                    10%              4%         4.2%


Income Taxes

The Company utilizes the 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.

Advertising Costs

Advertising  costs are  charged to expense in the period  incurred.  Advertising
costs for 2003,  2004,  and 2005 amounted to  approximately  $2,167,  $2,258 and
$2,416, respectively.



Impact of Accounting Pronouncements

During the two years ended December 31, 2005, the Financial Accounting Standards
Board ("FASB")  issued several  pronouncements  of  significance  to the Company
which are discussed in detail below. In addition,  the FASB issued several other
pronouncements, including standards on inventory (SFAS No. 151 "Inventory Costs,
an amendment of ARB 43, Chapter 4"),  exchanges of nonmonetary  assets (SFAS No.
153 "Exchanges of Nonmonetary Assets"), which we either currently comply with or
are not  anticipating  to have a  significant  impact  on our  future  financial
condition or results of operations.

                                      F-11

<PAGE>


                  Programmer's Paradise, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)
                (Dollars in thousands, except per share amounts)


In May 2005 the FASB issued Statement of Financial  Accounting Standards No. 154
("SFAS  154"),  "Accounting  Changes  and  Error  Corrections,"  which  replaces
Accounting  Principles  Board  No.  20 ("APB  20"),  "Accounting  Changes,"  and
Statement of Financial Accounting Standards No. 3, "Reporting Accounting Changes
in Interim  Financial  Statements." SFAS 154 applies to all voluntary changes in
accounting  principle,  and  changes the  requirements  for  accounting  for and
reporting of a change in accounting principle.  SFAS 154 requires  retrospective
application  to prior  periods'  financial  statements of a voluntary  change in
accounting principle unless it is impracticable. APB 20 previously required that
most voluntary  changes in accounting  principle be recognized with a cumulative
effect  adjustment  in net  income  of the  period  of the  change.  SFAS 154 is
effective for accounting changes made in annual periods beginning after December
15,  2005.  We are not able to  assess at this  time the  future  impact of this
statement on our consolidated financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123(R),  "Share-Based Payment," which
is a revision of SFAS No. 123, "Accounting for Stock-Based  Compensation".  SFAS
123(R)  requires  that the  compensation  cost relating to  share-based  payment
transactions be recognized in financial  statements.  The compensation cost will
be  measured  based on the fair  value of the  equity or  liability  instruments
issued. In April 2005, the SEC announced that the accounting  provisions of SFAS
123(R) are to be applied in the first quarter of the fiscal year beginning after
June 15,  2005.  As a result,  we are now required to adopt  SFAS 123(R)  in the
first quarter of fiscal 2006 and will recognize stock-based compensation expense
using the modified prospective method. We have disclosed the pro forma impact of
adopting  SFAS No.  123(R) on net  income and  earnings  per share for the years
ended  December  31,  2005 and 2004 in Note 1, which  includes  all  share-based
payment  transactions to date. The pro forma  disclosures  previously  permitted
under  SFAS  123  no  longer  will  be an  alternative  to  financial  statement
recognition.  Under this  adoption  method,  the  Company  will  record  expense
relating to employee  stock-based  compensation awards in the periods subsequent
to  adoption.  This  expense  will be based on all  unvested  options  as of the
adoption date as well as all future stock-based  compensation  awards.  Based on
the current  unvested  options  outstanding of 6,603 shares,  the Company's 2006
pretax expense for those options is expected to be approximately $9. This amount
may increase to the extent that options are granted in 2006.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year
presentation.

3.  Marketable securities

Investments in available-for-sale securities at December 31, 2005 were:

                                      Cost    Market value    Unrealized loss
    U.S. Government Securities      $ 6,840   $ 6,840         $    -
    Corporate Bonds                 $ 1,054   $ 1,044         $ (10)
                                    -------   -------         ------
    Total Marketable securities     $ 7,894   $ 7,884         $ (10)
                                    =======   =======         ======

                                      F-12

<PAGE>


                  Programmer's Paradise, Inc. and Subsidiaries
       Notes to Consolidated Financial Statements (continued) (Dollars in
                      thousands, except per share amounts)


The cost and market value of our investments at December 31, 2005 by contractual
maturity were:
                                                          Estimated
                                     Cost                 Fair Value

  Due in one year or less            $7,844               $7,834
  Due in greater than one year           50                   50
                                     ------               ------
  Total investments                  $7,894               $7,884
                                     ======               ======

Investments in available-for-sale securities at December 31, 2004 were:

                               Cost       Market value     Unrealized loss
  U.S. Government Securities   $ 4,608    $ 4,604           $  (4)
  Corporate Bonds              $ 2,009    $ 1,991           $ (18)
  Total Marketable securities  $ 6,617    $ 6,595           $ (22)

The cost and market value of our  investments in U.S.  Government  securities at
December 31, 2004 by contractual maturity were: Estimated Cost Fair Value

                                                          Estimated
                                     Cost                 Fair Value

  Due in one year or less            $5,614               $5,606
  Due in greater than one year        1,003                  989
                                     ------               ------
  Total investments                  $6,617               $6,595
                                     ======               ======


Estimated  fair  values of  marketable  securities  are  based on quoted  market
prices.


4. Balance Sheet Detail

Equipment  and leasehold  improvements  consists of the following as of December
31:

                                                2004            2005
                                          ---------------------------------

Equipment                                  $        2,210  $        2,044
Leasehold improvements                                293             303
                                          ---------------------------------
                                                    2,503           2,347
Less accumulated depreciation and
 amortization                                      (2,200)         (1,913)
                                          ---------------------------------
                                          $           303 $           434
                                          =================================

                                      F-13

<PAGE>


                  Programmer's Paradise, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)
                (Dollars in thousands, except per share amounts)


Accounts  payable and accrued  expenses  consist of the following as of December
31:

                                   2004            2005
                              --------------------------------

Trade accounts payable          $       15,056$        24,258
Other accrued expenses                     938          1,493
                              --------------------------------
                               $        15,994$        25,751
                              ================================

5.  Income Taxes

Deferred  tax  attributes  resulting  from  differences  between  financial  and
accounting  amounts and tax basis of assets and liabilities at December 31, 2004
and 2005 are as follows:


                                                      December 31
                                                  2004            2005
                                          --------------------------------
Current assets and liabilities
Accruals and reserves                         $      326      $      629
Goodwill                                             271             271
Net operating loss carry forwards                    914             883
                                          --------------------------------
Deferred tax assets                                1,511           1,783

Valuation allowance                                  (88)              -
                                          ================================
Net current deferred tax assets              $     1,423     $     1,783
                                          ================================

 Non-current assets and liabilities
Accruals and reserves                         $      216      $       76
Depreciation                                          84
                                                      80
Goodwill                                           1,527           1,252
Net operating loss carry forwards                  1,764           1,024
Business credits                                      35              84
                                          --------------------------------
Deferred tax assets                                3,626           2,516

Valuation allowance                                 (771)              -
                                          ================================
 Net non-current deferred tax assets         $     2,855     $     2,516
                                          ================================

The net change in the valuation  allowance for the year ended  December 31, 2004
and 2005 was ($5,362) and ($859) respectively.

                                      F-14

<PAGE>

                  Programmer's Paradise, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)
                (Dollars in thousands, except per share amounts)





The provision (benefit) for income taxes is as follows:

                                   Year ended December 31
                            2003            2004            2005
                      -------------------------------------------------
Current:
   Federal               $        -      $       19      $      257
   State                          -              72             160
   Canada                        81             (7)              18
                      -------------------------------------------------
                                 81              84             435
Deferred:
   Federal                        -      $  (3,676)      $      663
   State                          -           (452)             (684)
   Canada                         -                 -               -
                      -------------------------------------------------
                                  -         (4,128)            (21)
                      =================================================
                      $          81   $     (4,044)   $         414
                      =================================================

The reasons for the  difference  between  total tax  expense  (benefit)  and the
amount computed by applying the U.S. statutory federal income tax rate to income
before income taxes are as follows:

<TABLE>
<CAPTION>

                                                  Year ended December 31
                                                2003      2004       2005
                                             --------------------------------
                                             --------------------------------
<S>                                            <C>        <C>        <C>

Statutory rate applied to pretax income         $  356    $   795    $ 1,042
Federal alternative minimum tax                      -         19         47
State income taxes, net of benefit
 of federal income taxes                            46        133        181
Foreign income taxes over U.S.
 statutory rate                                      2          8          3
Net decrease in valuation allowance               (323)    (5,362)      (859)
Other items                                          -        422          -
Settlement of prior year's tax                       -        (59)         -
                                             ---------------------------------
Income tax expense (benefit)                     $  81   $ (4,044)    $  414
                                             =================================

</TABLE>

                                  F-15

<PAGE>

                  Programmer's Paradise, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)
                (Dollars in thousands, except per share amounts)


As of December 31, 2005, the Company had  approximately  $3.8 million in federal
net operating loss carryovers,  which expire in varying amounts between 2006 and
2023.

Based upon the Company's profitable  operations since December 31, 2002, and its
expected  profitability  in future  years,  the Company has  concluded  that the
results of future operations will generate  sufficient taxable income to realize
certain deferred tax assets as of December 31, 2005. The Company has reduced its
valuation allowance which was provided in prior years.

For the year ended  December 31, 2004,  the Company  recorded a net deferred tax
benefit  in the  amount of $4.0  million  dollars  related  to a  reversal  of a
deferred tax asset valuation  allowance.  The Company believed at that time that
uncertainty  still existed  regarding the  realizability of certain deferred tax
assets and, accordingly, established a $900 thousand dollar valuation allowance.
As a result of the Company's  performance  in 2005, and the fact that New Jersey
law allows a full deduction for net operating loss carryovers beginning in 2006,
the $900 thousand dollar of deferred income tax valuation allowance was reversed
in the fourth quarter of 2005, by reducing the income tax provision.

The Company's  ability to utilize  certain net operating  loss carry forwards is
restricted to approximately  $1.5 million per year cumulatively,  as a result of
an ownership change pursuant to Section 382 of the Internal Revenue Code.

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.

For  financial  reporting  purposes,  income  before  income taxes  includes the
following components:

                               Year ended December 31
                          2003          2004      2005
                     ---------------------------------------
United States                $816      $2,147    $3,022
Canada                        231         131        45
                     ---------------------------------------
                           $1,047      $2,278    $3,067
                     =======================================

During the years ended  December  31,  2003,  2004 and 2005,  the  Company  paid
approximately $73, $38 and $ 170, respectively, in income taxes.

                                      F-16

<PAGE>


                  Programmer's Paradise, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)
                (Dollars in thousands, except per share amounts)

6.  Stockholder's Equity and Stock Option Plans

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 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 Employee
Stock Plan ("1995 Plan"). The 1995 Plan, as amended on May 7, 1998, provides for
the grant of options to purchase up to  1,137,500 shares of the Company's Common
Stock to officers, directors, employees and consultants of the Company. The 1995
Plan  requires  that  each  option  shall  expire on the date  specified  by the
Compensation  Committee,  but not more than ten years  from its date of grant in
the case of Incentive Stock Options ("ISO's") and Non-Qualified Options. Options
granted  under the plan are  exercisable  at an exercise  price equal to but not
less than the fair market  value of the Common  Stock on the grant  date.  ISO's
shall  either  be  fully  exercisable  on the  date of  grant  or  shall  become
exercisable  thereafter in such  installments as the committee may specify.  The
options granted in 2005 were fully exercisable on the date of grant.

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.

On September 9, 2002, the Company  granted 418,750 options at an option price of
$2.13 per share to  officers  and  key-employees.  The  options  granted  vested
immediately  on September 9, 2002.The  Company also granted  options to purchase
16,875 shares to Directors on September 9, 2002. Each Director  received options
to purchase  3,375  shares of the  Company's  Common Stock at an option price of
$2.13 per share.  The options granted to Directors vest in an installment of 20%
of the total  option  grant one year  after the date of the  option  grant,  and
thereafter  in equal  quarterly  installments  of 5%,  subject  to the terms and
conditions set forth in the 1995 Non-Employee Director Plan.

                                      F-17

<PAGE>


                  Programmer's Paradise, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)
                (Dollars in thousands, except per share amounts)

On March 6, 2003, the Company granted 20,000 options at an option price of $2.01
per  share  to  Vito   Legrottaglie  the  Company's  Vice  President  and  Chief
Information Officer. The options granted vested immediately on March 6, 2003.

On June 10,  2004,  the Company  granted  495,000  options at an option price of
$8.03 per share to  officers  and  key-employees  of the  Company.  The  options
granted  vested  immediately  on June 10,  2004.  Each  director  of the Company
received  options to purchase 25,000 shares of the Company's  Common Stock at an
option price of $8.03 per share.


On April 21,  2005,  the Company  granted  60,640  options at an option price of
$12.85,  at market price, to officers and directors of the Company.  The options
granted  vested  immediately.  The Company  granted  options to purchase  14,320
shares to  William H.  Willett,  the  Company's  President  and Chief  Executive
Officer;  options to  purchase  14,320  shares to Simon  Nynens,  the  Company's
Executive Vice President and Chief Financial Officer;  options to purchase 5,000
shares to Jeffrey  Largiader,  the Company's Vice President Sales and Marketing,
options to  purchase  5,000  shares to Vito  Legrottaglie,  the  Company's  Vice
President and Chief Information Officer, options to purchase 5,000 shares to Dan
Jamieson, Vice President and General Manager of the Company's Lifeboat division,
and options to purchase 5,000 shares to Steve  McNamara,  the Vice President and
General Manager of Programmer's  Paradise  Canada.  Each director of the Company
received  options to purchase  3,000 shares of the Company's  Common Stock at an
option price of $12.85 per share.


Changes during 2003, 2004 and 2005 in options outstanding for the combined plans
were as follows:

                                                                Weighted
                                                   Number       Average
                                                     of         Exercise
                                                  Options        Price
                                               -----------------------------

Outstanding at January 1, 2003                      658,037      $3.12
   Granted in 2003                                   20,000       2.01
   Canceled in 2003                                  (5,625)      0.67
   Exercised in 2003                                (83,375)       2.11
                                               ---------------
Outstanding at December 31, 2003                    589,037       3.24
   Granted in 2004                                  495,000       8.03
   Canceled in 2004                                    (937)      4.00
   Exercised in 2004                               (115,880)       3.10
                                               ---------------
Outstanding at December 31, 2004                    967,220       5.71
   Granted in 2005                                   60,640      12.85
   Canceled in 2005                                  (6,545)      3.36
   Exercised in 2005                               (128,425)      3.97
                                               ---------------
Outstanding at December 31, 2005                    892,890      $6.46
                                               ===============
                                               ===============
Exercisable at December 31, 2005                    886,287      $6.49
                                               ===============

                                      F-18

<PAGE>

                  Programmer's Paradise, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)
                (Dollars in thousands, except per share amounts)


The options  exercisable at December 31, 2004 and 2005 were 944,685 and 886,287,
respectively.  The weighted  average fair value of options  granted during 2003,
2004 and 2005 is $2.01, $8.03 and $12.85 respectively.


Stock options outstanding at December 31, 2005 are summarized as follows:

<TABLE>
<CAPTION>



                            Outstanding       Weighted                    Options Exercisable
                              Options          Average       Weighted            as of          Weighted Average
    Range of Exercise          as of          Remaining      Average            December            Exercise
         Prices          December 31, 2005   Contractual  Exercise Price        31, 2005              Price
                                                Life
--------------------------------------------------------------------------------------------------------------------
<S>                              <C>               <C>      <C>                   <C>                  <C>

      $2.00 - $2.24              246,000           6.7          $2.12             241,272              $2.12
        2.25 - 3.99               28,750           3.4           3.73              26,875               3.72
        4.00 - 5.99                    -           -             -                      -                  -
        6.00 - 7.99               82,500           1.9           6.60              82,500               6.60
        8.00 - 9.99              475,000           8.4      8.03     12.85         475,000              8.03
                                  60,640           9.3                             60,640              12.85
10.00-12.99
                         -------------------                              ---------------------
                                 892,890                                          886,287
                         ===================                              =====================

</TABLE>


Under  the  various  plans,  options  that are  cancelled  can be  reissued.  At
December 31, 2005, no options were reserved for future issuance.


7.  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,
2003,  2004 and 2005,  the Company  expensed  approximately  $84,  $106 and $121
respectively, related to this plan.

                                      F-19

<PAGE>


                  Programmer's Paradise, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)
                (Dollars in thousands, except per share amounts)

8.  Commitments

Operating  leases  relates to the lease of the space used for our  operations in
Shrewsbury and Mount Laurel, New Jersey, Mississauga,  Canada and Hauppauge, New
York. The commitments for operating leases include the minimum rent payments and
a  proportionate  share of operating  expenses and  property  taxes.  The future
minimum rental payments for the remaining  terms of the Company's  leases in the
U.S. and Canada are as follows:


2006                                                            614
2007                                                            364
2008                                                             73
2009                                                             76
2010                                                             26
Thereafter                                                        -
                                                     ---------------
                                                            $ 1,153
                                                     ===============


Rent  expense  for the  years  ended  December  31,  2003,  2004  and  2005  was
approximately $483, 478 and $606 respectively.

On January 9, 2006,  the company  appointed  Simon  Nynens  President  and Chief
Executive  officer and entered into an employment  agreement  which expires June
30,  2007.  The  agreement  provides  for a base salary and a bonus,  if certain
targets are met. Additionally,  should the stockholders of the company approve a
long-term  incentive plan consisting of stock options,  restricted  stock and/or
other  equity-based  compensation  ( a "LTIP"),  Mr.  Nynens will be eligible to
participate  in  the  LTIP  based  upon  and   consistent   with  the  Company's
participation for a President and Chief Executive Officer.

In the event that Mr. Nynens  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.

                                      F-20

<PAGE>

                  Programmer's Paradise, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)
                (Dollars in thousands, except per share amounts)



     On  January  9, 2006,  William  Willett  resigned  as  President  and Chief
Executive  Officer.  In connection  with the resignation the Company has entered
into a Consulting  Agreement  with Mr.  Willett.  Under terms of the  Consulting
Agreement,  Mr. Willett will remain  Chairman of the Board until the 2006 Annual
Meeting of Shareholders. Mr. Willett's termination of employment will be treated
as a voluntary  termination  under the Employment  Agreement between Mr. Willett
and the Company dated July 15, 2002 (the "Willett  Employment  Agreement").  The
Willett  Employment  Agreement  is  amended  such that only the  non-competition
provisions  will  survive and be extended  for a period of time equal to that of
the Consulting  Agreement.  Mr. Willett will provide consulting  services to the
Company for a one-year period beginning in July 2006. The total  compensation to
Mr. Willett for these consulting services will be $250,000, and Mr. Willett will
be obligated to perform up to 200 hours to assist the Chief Executive Officer of
the Company.


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.

The Company is not committed by lines of credit,  standby letters of credit, has
no standby repurchase obligations or other commercial  commitments.  The Company
is not engaged in any transactions with related parties.

9. Industry segment and Geographic information

Programmer's  Paradise,  Inc.  operates in one  primary  business  segment:  the
marketing of technical  software  and hardware for  microcomputers,  servers and
networks in the United States and Canada.

Geographic  revenue and identifiable  assets related to operations as of and for
the years ended December 31, 2003, 2004 and 2005 were as follows

                                         -------------------------------------
                                               2003        2004         2005
                                         -------------------------------------
Net sales to Unaffiliated Customers:
              United States                 $ 59,366     $ 92,254    $ 121,068
              Canada                          10,203       11,328       16,587
                                         -------------------------------------
              Total                          $69,569    $103,582    $137,655
                                         =====================================

Identifiable Assets by Geographic                     ------------------------
 Areas at December 31,                                   2004        2005
                                                      ------------------------
                                                      ------------------------
              United States                           $ 28,230    $ 37,031
              Canada                                     4,684       7,237
                                                      ------------------------
              Total                                       $32,914     $44,268
                                                      ========================

                                      F-21

<PAGE>


                  Programmer's Paradise, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)
                (Dollars in thousands, except per share amounts)



One  customer,  CDW  Corporation,  accounted  for  14.2%,  12.7%,  and  11.8% of
consolidated  net  sales in 2005,  2004,  and  2003,  respectively,  and 7.2% of
accounts  receivable as of December 31, 2005. Our top five  customers  accounted
for 27%,  22%,  and 22% of  consolidated  net  sales in 2005,  2004,  and  2003,
respectively. The Company generally ships products within 48 hours of confirming
a customer's order. This allows for minimum backlog in the business.

10. Quarterly Results of Operations (Unaudited)

The following table presents summarized quarterly results for 2005:

                         -------------------------------------------------
                            First       Second       Third      Fourth
                         -------------------------------------------------

Net sales                    $30,170      $30,052     $35,471     $41,962
Gross profit                   3,430        3,370       3,877       4,293

Net income                       300          185         603       1,565

Basic net income per
common share                   $0.08        $0.05       $0.15       $0.39
Diluted net income per
common share                   $0.07        $0.04       $0.14       $0.36

The following table presents summarized quarterly results for 2004:

                         -------------------------------------------------
                            First       Second       Third      Fourth
                         -------------------------------------------------

Net sales                    $20,679      $25,093     $26,788     $31,022
Gross profit                   2,601        3,068       3,214       3,456

Net income                       362          523         626       4,811

Basic net income per
common share                   $0.10        $0.14       $0.16       $1.25
Diluted net income per
common share                   $0.09        $0.13       $0.15       $1.10

                                      F-22

<PAGE>

<TABLE>
<CAPTION>

                  Programmer's Paradise, Inc. and Subsidiaries
                 Schedule II--Valuation and Qualifying Accounts
                                 (In Thousands)

                                                          Charged to
                                             Beginning    Costand                       Ending
                 Description                  Balance     Expense        Deductions     Balance
 -------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>           <C>        <C>

 Year ended December 31, 2003:
    Allowances for accounts receivable          $728          $392          $498         $622
    Reserve for obsolescence                    $174             -           $42         $132
    Valuation allowance deferred taxes        $6,544         $(323)            -       $6,221
 Year ended December 31, 2004:
    Allowances for accounts receivable          $622          $393          $260         $755
    Reserve for obsolescence                    $132             -           $89          $43
    Valuation allowance deferred taxes        $6,221       $(5,362)            -         $859
 Year ended December 31, 2005:
    Allowances for accounts receivable          $755          $910          $434       $1,231
    Reserve for obsolescence                     $43             -           $12          $31
    Valuation allowance deferred taxes          $859         $(859)            -           $-

</TABLE>

                                      F-23