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, 2008





OR





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


For the
transition period from ______________ to _______________





Commission
file number: 000-26408





WAYSIDE
TECHNOLOGY GROUP, INC.


(Exact
name of registrant as specified in its charter)




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





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





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


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


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





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


Yes oNo x




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


Yes oNo x





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





Indicate
by check mark 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, a non-accelerated filer or a smaller reporting company (as
defined in Rule 12b-2 of the Exchange Act). Large accelerated filer oAccelerated
filer oNon-accelerated filer oSmaller Reporting
Company x


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





The aggregate market value of the
Common Stock held by non-affiliates of the Registrant computed by reference to
the closing sale price for the Registrant's Common Stock as of June 30, 2008,
which was the last business day of the Registrant’s most recently completed
second fiscal quarter, as reported on The NASDAQ Global Market, was
approximately $29,402,989. (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 6, 2009 was 4,639,536 shares.





Documents Incorporated by
Reference: Portions of the Registrant's definitive Proxy Statement for
its 2009 Annual Meeting of
Stockholders to be filed on or before April 30, 2009 are incorporated by
reference into Part III of this Report.













PART
I





Item
1 Business





General





Wayside Technology Group, Inc. (the
"Company," "us," "we," or "our") is a marketer of software in the United States
and Canada targeting software development and information technology
professionals within enterprise organizations.





Wayside Technology Group, Inc. was
incorporated in Delaware in 1982. Our Common Stock is listed on The NASDAQ
Global Market under the symbol “WSTG”. Our main web site address is www.waysidetechnology.com,
and the other web sites maintained by our business include www.programmers.com,
www.lifeboatdistribution.com,
and www.techxtend.com.  Reference
to these “uniform resource locators” or “URL” is made as an inactive textual
reference for informational purpose only. Information on our web sites should
not be considered filed with the Securities and Exchange Commission, and is not,
and should not be deemed to be, a part of this report.





The Company markets software to
software development and information technology professionals in the United
States and Canada. It operates through two segments, Programmer's Paradise and
Lifeboat. The Programmer's Paradise segment sells technical software, hardware,
and services for microcomputers, servers, and networks to individual
programmers, corporations, government agencies, and educational institutions.
The Lifeboat segment distributes technical software to corporate and value-added
resellers, consultants, and systems integrators. For each of our segments,
revenues from unaffiliated customers, income and total assets among other
financial information, is presented in Note 10 in the Notes to our Consolidated
Financial Statements.





The Company’s catalogs are full color
“magalogs” and offer some of the most complete collections of microcomputer
technical software, including programming languages, tools, utilities,
libraries, development systems, interfaces and communication
products.





Competition





The software distribution market is
highly competitive. Pricing is very aggressive and the Company expects pricing
pressure to continue. The Company faces competition from a wide variety of
sources including: vendors who sell 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.





There can
be no assurance that the Company can compete effectively against existing
competitors or new competitors that may enter the market and that it can
generate profit margins which represent a fair return to the Company. In
addition, price is an important competitive factor in the personal computer
software market and there can be no assurance that the Company will not be
subject to increased price competition. An increase in the amount of competition
faced by the Company, or its failure to compete effectively against its
competitors, could have a material adverse effect on the Company's business,
financial condition and results of operations.





The Company competes in acquiring
prospective buyers and in sourcing new products from software developers and
publishers, as well as in marketing its current product line to its customers.
The Company believes that its ability to offer software developers and
information technology (“IT”) professionals a wide selection of products at low
prices with prompt delivery and high customer service levels, along with its
good relationships with vendors and suppliers, allow it to compete effectively
in acquiring prospective buyers and marketing its current product line to its
customers. The Company competes to gain distribution rights for new products
primarily on the basis of its reputation and its relationships with software
publishers.




Page 2 of
26





The
market for developer software products is characterized by rapid changes in
technology, user requirements, and customer specifications. The manner in which
software products are distributed and sold is changing, and new methods of
distribution and sale may emerge or expand. Software developers and publishers
have sold, and may intensify their efforts to sell, their products directly to
end-users. The evolution of the Internet as a viable platform in which to
conduct e-commerce business transactions has both lowered the barriers for
competition and broadened customer access to products and information. From time
to time, certain software developers and publishers have instituted programs for
the direct sale of large order quantities of software to certain major corporate
accounts. These types of programs may continue to be developed and used by
various developers and publishers. While Microsoft and other vendors currently
sell new releases or upgrades directly to end users, they have not attempted to
completely bypass the reseller channel. .There can be no assurances, however,
that software developers and publishers will continue using resellers to the
same extent they currently do. Future efforts by software developers and
publishers to bypass third party sales channels could materially and adversely
affect the Company’s business, result of operations and financial
conditions.





In addition, resellers and publishers
may attempt to increase the volume of software products distributed
electronically through ESD (Electronic Software Distribution) technology,
through subscription services, and through on-line shopping services. Any of
these competitive programs, if successful, could have a material adverse effect
on the Company's business, result of operations and financial condition. For a
description of additional risks relating to competition in our industry, please
refer to “Item 1.A. Risk Factors--We rely on our suppliers for product
availability, marketing funds, purchasing incentives and competitive products to
sell” and “--The IT products and services industry is intensely competitive and
actions of competitors, including manufacturers of products we sell, can
negatively affect our business.”





Products





The
Company offers a wide variety of products from a broad range of publishers and
manufacturers, including CA Inc., Quest Software, Inc., GFI Software, Intel
Corporation, Infragistics, TechSmith Corporation, Macrovision Corp., Vizioncore
Inc. and Mindjet Corporation.  On a continuous basis, new products are
screened for inclusion in our catalogs and web sites based on their features,
quality, price, profit margins and warranties, as well as on current sales
trends. Since the Company predominantly sells software, sales of hardware and
peripherals represented only 4%, 3% and 2%, respectively, of our overall revenue
in 2008, 2007 and 2006.





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 had no major customers that accounted for more than 10% of total sales
for 2008. One customer, CDW Corporation, accounted for 10.9%, and 15.8% of
consolidated net sales in 2007 and 2006, respectively. Our top five customers
accounted for 31%, 28%, and 28% of consolidated net sales in 2008, 2007 and
2006, 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
26





Sales in Canada represented 11% of our
consolidated revenues in 2008 as compared to 13% in 2007, and 13% in 2006. For
geographic financial information, please refer to Note 10 in the Notes to our
Consolidated Financial
Statements.





Customer
Support





We
believe that providing a high level of customer service is necessary to compete
effectively and is essential to continued sales and revenue growth. Our account
representatives assist our customers with all aspects of purchasing decisions,
process products ordered and respond to customer inquiries on order status,
product pricing and availability. The account representatives are trained to
answer all basic questions about the features and functionality of products. To
deal with technical issues, we maintain an in-house technical support
staff.





Purchasing
and Fulfillment





The
Company's success is dependent, in part, upon the ability of its suppliers to
develop and market products that meet the changing requirements of the
marketplace. The Company believes it enjoys good relationships with its vendors.
The Company and its principal vendors have cooperated frequently in product
introductions and in other marketing programs. As is customary in the industry,
the Company has no long-term supply contracts with any of its suppliers.
Substantially all of the Company's contracts with its vendors are terminable
upon 30 days' notice or less. The manner in which software products are
distributed and sold is changing, and new methods of distribution and sale may
emerge or expand. Software publishers have sold, and may intensify their efforts
to sell, their products directly to end-users. The Company’s business and
results of operations may be adversely affected if the terms and conditions of
the Company’s authorizations with its vendors were to be significantly modified
or if certain products become unavailable to the Company.





We
believe that effective purchasing from a diverse vendor base is a key element of
our business strategy. For the year ended December 31, 2008, VMware and
Quest were the only individual vendors from whom our purchases exceeded
10%.  For the year ended December 31, 2008, VMware accounted for 23.3%
of total purchases and Quest represented 13% of total purchases. For the years
ended December 31, 2007 and 2006, VMware accounted for 36.8% and 53.4%,
respectively of total purchases.  For the years ended December 31,
2006 Ingram Micro accounted for 11.2% of total purchases. VMware terminated its
distributor agreement with Lifeboat Distribution, Inc. in 2008. As a result, our
Lifeboat segment ceased distributing VMware products as of October 1, 2008, the
distribution of which had accounted for $29.2 million in 2008, or 17% of our
2008 revenue, and $57.2 million in 2007, or 32% of our 2007 revenue. Although
our Programmer’s Paradise segment will continue selling VMware products, due to
the uncertain economic environment, we cannot currently estimate the impact on
our future sales and gross margins from the termination of the distributor
agreement.   The loss of any of these vendors, or any other key
vendor, could disrupt product availability and otherwise have an adverse effect
on the Company.





In 2008,
the Company purchased approximately 90% of its products directly from
manufacturers and publishers and the balance from multiple distributors, as
compared to 90% in 2007, and 86% in 2006. Most suppliers or distributors will
"drop ship" products directly to the customers, which reduces physical handling
by the Company. These inventory management techniques allow the Company to offer
a greater range of products without increased inventory
requirements.





Inventory
levels may vary from period to period, due in part to increases or decreases in
sales levels, the Company's practice of making large-volume purchases when it
deems the terms of such purchases to be attractive, and the addition of new
suppliers and products. Moreover, the Company's order fulfillment and inventory
control allow the Company to order certain products just in time for next day
shipping. The Company promotes the use of electronic data interchange ("EDI")
with its suppliers, which helps reduce overhead and the use of paper in the
ordering process. Although brand names and individual products are important to
our business, we believe that competitive sources of supply are available for
substantially all product categories we carry.




Page 4 of
26





The
Company operates distribution facilities in Shrewsbury, New Jersey and
Mississauga, Canada.





Management
Information Systems





The
Company operates management information systems on Windows NT and MPE platforms
that allow for centralized management of key functions, including inventory,
accounts receivable, purchasing, sales and distribution. We are dependent on the
accuracy and proper utilization of our information technology systems, including
our telephone, web sites, e-mail and fax systems.





The
management information systems allow the Company to monitor sales trends,
provide product availability and order status information, track direct
marketing campaign performance and to make marketing event driven purchasing
decisions. In addition to the main system, the Company has systems of networked
personal computers, as well as microcomputer-based desktop publishing systems,
which facilitate data sharing and provide an automated office
environment.





The
Company recognizes the need to continually upgrade its management information
systems to most effectively manage its operations and customer database. In that
regard, the Company anticipates that it will, from time to time, require
software and hardware upgrades for its present management information
systems.





Trademarks





The
Company conducts its business under the various trademarks and service marks of
Programmer's Paradise, the "Island Man" cartoon character logo, and Lifeboat.
The Company protects these trademarks and service marks and believes that they
have significant value and are important factors in its marketing
programs.





Employees





As of
December 31, 2008, Wayside Technology Group, Inc. and its subsidiaries had 94
full-time and 3 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, 2009,
all of whom have been appointed by and serve at the discretion of our board of
directors.





Name
                    
                    Age
                    
                    PositionSimon
      F. Nynens
                    
                    37
                    
                    Chairman,
      President and Chief Executive OfficerRichard
      J. Bevis
                    
                    59
                    
                    Vice
      President MarketingDaniel
      T. Jamieson
                    
                    51
                    
                    Vice
      President and General Manager-LifeboatVito
      Legrottaglie
                    
                    44
                    
                    Vice
      President-OperationsKevin
      T. Scull
                    
                    43
                    
                    Vice
      President and Chief Accounting OfficerShawn
      J. Giordano
                    
                    39
                    
                    Vice
      President-Programmers and
TechXtend
  Page 5 of
26


Simon F. Nynens was appointed
President and Chief Executive Officer in January 2006. Mr. Nynens also serves on
the Board of Directors and was named Chairman in June 2006. He previously held
the position of Executive Vice President and Chief Financial Officer ( June
2004- January 2006) and Vice President and Chief Financial Officer (January
2002- June 2004). Prior to January 2002, Mr. Nynens served as the Vice President
and Chief Operating Officer of the Company's European operations.





Richard J. Bevis was appointed
Vice President Marketing in July 2007. Prior to joining Wayside Technology
Group, Inc., Mr. Bevis worked for Covance Inc., a drug development service
company,as
Senior Director Marketing Communication from 2003 to 2007. He also held the
position of Vice President Corporate Communications for Eyretel, PLC. from 2002
to 2003.





Daniel T. Jamieson was
appointed Vice President and General Manager of Lifeboat in April 2003. Prior to
that, and since 1992, Mr. Jamieson held various sales and marketing management
positions within the Company.





Vito Legrottaglie was
appointed to the position of Vice President of Operations in April 2007. He
previously held the position of Vice President of Information Systems since June
2003. Mr. Legrottaglie has previously served as Vice President of Information
Systems from 1999 to 2000 and had been with the Company since 1996. Mr.
Legrottaglie has also held the positions of Chief Technology Officer at Swell
Commerce Incorporated, Vice President of Operations for The Wine Enthusiast
Companies and Director of Information Systems at Barnes &
Noble.





Kevin T. Scullwas appointed
Vice President and Chief Accounting Officer in January 2006. He previously held
the position of Corporate Controller of the Company since January 2003. Prior to
joining Wayside Technology Group, Inc., Mr. Scull  worked for Niksun
Inc. as Accounting Manager since January 2001 and, prior to that, he worked for
Telcordia Inc. since December 2000 as Manager of Accounting
Policies.




Shawn J. Giordanowas
appointed Vice President of Sales in August 2008. Mr. Giordano joined Wayside
Technology Group in November 2007 as Senior Director of Sales for Programmer's
Paradise and TechXtend. Prior to joining Wayside Technology Group, he worked for
CA, Inc. (Computer Associates), a business consulting and software development
company, from 2000 to 2007, most recently as Director of Channel Sales. Mr.
Giordano began his career at Microwarehouse, Inc., and in over eight years with
that company, progressed through positions of increasing responsibility in
sales, marketing, and management. Mr. Giordano received a bachelor of science
degree in management information science from the Stillman School of Business,
Seton Hall University.





Available
Information





Under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company is
required to file annual, quarterly and current reports, proxy and information
statements and other information with the SEC. You may read and copy any
document we file with the SEC at the SEC's public reference room at 100 F
Street, N.E., Washington, D.C. 20549.  Please call the SEC at
1-800-SEC-0330 for further information about the public reference
room.  The SEC maintains a web site at http:  www.sec.gov
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.  The Company
files electronically with the SEC. The Company makes available, free of charge,
through its internet web site its reports on Forms 10‐K, 10-Q and 8‐K, and
amendments to those reports, as soon as reasonably practicable after they are
filed with the SEC. The following address for the Company's web site includes a
hyperlink to those reports under “Financials/SEC Filings”:http://www.waysidetechnology.com.




Page 6 of
26





In
January 2004, we adopted a Code of Ethical Conduct. The full text of the Code of
Ethical Conduct, which applies to all employees, officers and directors of the
Company, including our Chief Executive Officer, Chief Accounting Officer and our
Controller is available at our web site,http://www.waysidetechnology.com,
under “Corporate Governance.” The Company intends to disclose any amendment to,
or waiver from, a provision of the Code of Ethical Conduct that applies to its
Chief Executive Officer, Chief Accounting Officer or Controller on its web site
under “Investor Information.”





Reference to the “uniform resource
locators” or “URL” contained in this section is made as an inactive textual
reference for informational purposes only. Information on our web sites should
not be considered filed with the Securities and Exchange Commission, and is not,
and should not be deemed to be part of this report.





Item 1A.
Risk Factors





Investors
should carefully consider the risk factors set forth below as well as the other
information contained in this report. Any of the following risks could
materially and adversely affect our business, financial condition or results of
operations. Additional risks and uncertainties not currently known to us or
those currently viewed by us to be immaterial may also materially and adversely
affect our business, financial condition or results of operations.





Changes in the
information technology industry and/or economic environment may reduce demand
for the products and services we sell.Our results of operations are
influenced by a variety of factors, including the condition of the IT industry,
general economic conditions, shifts in demand for, or availability of, computer
products and software and IT services and industry introductions of new
products, upgrades or methods of distribution. The information technology
products industry is characterized by abrupt changes in technology, rapid
changes in customer preferences, short product life cycles and evolving industry
standards. Net sales can be dependent on demand for specific product categories,
and any change in demand for or supply of such products could have a material
adverse effect on our net sales, and/or cause us to record write-downs of
obsolete inventory, if we fail to react in a timely manner to such
changes.





We rely on our
suppliers for product availability, marketing funds, purchasing incentives and
competitive products to sell.We acquire products for resale both
directly from manufacturers and indirectly through distributors. The loss of a
supplier could cause a disruption in the availability of products. For
example, VMware, Inc. in 2008 terminated its VMware distributor agreement with
Lifeboat Distribution, Inc.  As a result, our Lifeboat segment
ceased distributing VMware products as of October 1, 2008, the distribution of
which had accounted for$29.2 million in 2008, or 17% of our 2008
revenue, and $57.2 million in 2007, or 32% of our 2007 revenue.Although our
Programmer’s Paradise segment will continue selling VMware products, due to the
uncertain economic environment, we cannot currently estimate the impact on our
future sales and gross margins from the termination of the distributor
agreement.





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 Current
Economic Downturn May Reduce our Revenues and
Profits.    Recent turmoil in U.S. and foreign credit
markets, equity markets, and in the global financial services industry,
including the bankruptcy, failure, collapse or sale of various financial
institutions, the tightening in credit markets, and an unprecedented level of
intervention from the U.S. and foreign governments, may continue to place
pressure on the global economy and affect overall consumer
spending.  We may therefore experience a rapid decline in demand for
the products we sell resulting in a more competitive environment and pressure to
reduce the cost of operations. Any benefits from cost reductions may take longer
to realize and may not fully mitigate the impact of the reduced demand.
Deterioration in the financial and credit markets heightens the risk of customer
bankruptcies and a corresponding delay in collecting receivables from those
customers and may also affect our vendors' ability to supply products, which
could disrupt our operations.  The realization of any or all of these
risks could have a material adverse effect on our business, results of operation
and financial condition.




Page 7 of
26





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.





RisksRelated to Our
Common Stock.The
exercise of outstanding options or any other issuance of shares by us may dilute
your ownership of our common stock. Our common stock is thinly traded. As a
result of the thin trading market for our stock, its market price may fluctuate
significantly more than the stock market as a whole or the stock prices of
similar companies.  Without a larger float, our common stock will be
less liquid than the stock of companies with broader public ownership, and, as a
result, the trading prices for our common stock may be more volatile. Among
other things, trading of a relatively small volume of our common stock may have
a greater impact on the trading price for our stock than would be the case if
our public float were larger.




Page 8 of
26





Our
common stock is listed on The NASDAQ Global Market, and we are therefore subject
to continued listing requirements, including requirements with respect to the
market value and number of publicly-held shares, number of stockholders, minimum
bid price, number of market makers and either (i) stockholders’ equity or (ii)
total market value of stock, total assets and total revenues.  If we
fail to satisfy one or more of the requirements, we may be delisted from The
NASDAQ Global Market.  If we are delisted from The NASDAQ Global
Market, we do not qualify for listing on The NASDAQ Capital Market, and we are
not able to list our common stock on another exchange, our common stock could be
quoted on the OTC Bulletin Board or on the “pink sheets”. As a result, we could
face significant adverse consequences including, among others, a limited
availability of market quotations for our securities and a decreased ability to
issue additional securities or obtain additional financing in the
future.





Item
1B Unresolved Staff Comments





Not applicable.





Item
2 Properties





The
Company leases 18,000 square feet of space in Shrewsbury, New Jersey for its
corporate headquarters and warehouse under a lease expiring in December
2012.  Total annual rent expense for these premises is approximately
$225,000. Additionally, the Company leases approximately 3,700 square feet of
office and warehouse space in Mississauga, Canada, under a lease, which expires
November 30, 2010. Total annual rent expense for these premises is approximately
$30,000. We believe that each of the properties is in good operating condition
and such properties are adequate for the operation of the Company’s business as
currently conducted.





Item
3 Legal Proceedings





There are
no material legal proceedings to which the Company or any of its subsidiaries is
a party or of which any of their property is the subject.





Item
4 Submission of Matters to a Vote of Security Holders





There
were no matters submitted during the fourth quarter of 2008 to a vote of
security holders, through the solicitation of proxies or otherwise.





PART
II





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





Shares of our Common Stock, par value
$0.01, trade on The NASDAQ Global Market under the symbol
“WSTG”.  Following is the range of low and high sales prices for our
Common Stock as reported on The NASDAQ Global Market.




High
                  
                  
                  Low2008First
      Quarter
                  
                  $
                  11.370
                  
                  
                  $
                  7.490Second
      Quarter
                  
                  
                  10.820
                  
                  
                  
                  7.090Third
      Quarter
                  
                  
                  9.000
                  
                  
                  
                  6.450Fourth
      Quarter
                  
                  
                  7.740
                  
                  
                  
                  4.9302007First
      Quarter
                  
                  $
                  16.080
                  
                  
                  $
                  14.500Second
      Quarter
                  
                  
                  16.580
                  
                  
                  
                  13.700Third
      Quarter
                  
                  
                  18.650
                  
                  
                  
                  13.220Fourth
      Quarter
                  
                  
                  14.060
                  
                  
                  
                  8.710




Page 9 of
26





In 2008
and 2007, we declared quarterly dividends totaling $0.60 and $0.44 per share,
respectively, on our Common Stock. These dividends are reflected in the
financial statements as a reduction in additional paid in capital. There can be
no assurance that we will continue to pay comparable cash dividends in the
future.





During
2008, we issued 45,000 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 2006 under the Company’s stock option plans.
The aggregate exercise price received by us in connection with these option
exercises was $223,200. During 2008, the Company granted a total of 57,500
shares of restricted stock to officers, directors and employees from treasury
stock. These shares vest over 60 months in equal quarterly installments
beginning on February 5, 2008.  A total of 3,500 shares of restricted
common stock were forfeited as a result of employees and officers terminating
employment with the Company and returned to treasury stock.




As of
February 24, 2009 there were approximately 39 record holders of our Common
Stock.





During the fourth quarter of 2008, we
repurchased shares of our Common Stock as follows:





Total
      Number of Shares Purchased
                                              
                                              
                                              Average
      Price Paid Per Share
                                              
                                              Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs
                                              
                                              
                                              Average
      Price Paid Per Share
                                              
                                              Maximum
      Number of Shares That May Yet Be Purchased Under the Plans or
      ProgramsPeriod
                                              
                                              
                                              
                                              
                                              (2)
                                              
                                              
                                              
                                              
                                              (3)
                                              
                                              (4)October
      1- October 31, 2008
                                              
                                              
                                              4,226
                                              
                                              
                                              $
                                              7.16
                                              
                                              
                                              
                                              4,226
                                              
                                              
                                              $
                                              7.16
                                              
                                              
                                              
                                              601,400November
      1- November 30, 2008
                                              
                                              
                                              17,160
                                              (1)
                                              
                                              $
                                              7.22
                                              
                                              
                                              
                                              13,023
                                              
                                              
                                              $
                                              7.05
                                              
                                              
                                              
                                              588,377December
      1 - December 31, 2008
                                              
                                              
                                              14,121
                                              
                                              
                                              $
                                              6.94
                                              
                                              
                                              
                                              14,121
                                              
                                              
                                              $
                                              6.94
                                              
                                              
                                              
                                              574,256Total
                                              
                                              
                                              35,507
                                              
                                              
                                              $
                                              7.10
                                              
                                              
                                              
                                              31,370
                                              
                                              
                                              $
                                              7.02
                                              
                                              
                                              
                                              574,256







(1)  Includes
4,137 shares surrendered to the Company by employees to satisfy individual tax
withholding obligations upon vesting of previously issued shares of restricted
common stock.





(2) Average
price paid per share reflects the closing price of Wayside Technology Group,
Inc. common stock on the business date the shares were surrendered by the
employee stockholder to satisfy individual tax withholding obligations upon
vesting of restricted common stock or the price of  the stock paid on
the open market purchase, as applicable.




Page 10
of 26





(3) Average
price paid per share reflects the price of Wayside Technology Group, Inc. common
stock purchased on the open market.





(4) On
October 9, 2002, our Board of Directors adopted a stock repurchase program
whereby the Company was authorized to repurchase up to 500,000 shares of our
common stock from time to time. On July 31, 2008, the Company approved the
increase of its common stock repurchase program by 500,000 shares. The company
expects to purchase shares from time to time in the market or otherwise subject
to market conditions. The stock repurchase program does not have an expiration
date.








STOCK
PRICE PERFORMANCE GRAPH





Set forth below is
a line graph comparing the yearly percentage change in the cumulative total
shareholder return on the Company’s Common Stock with the cumulative total
return of the S&P Midcap 400 Index and the S&P 500 Computer and
Electronics Retail Index for the period commencing December 31, 2003 and ending
December 31, 2008, assuming $100 was invested on December 31, 2003 and the
reinvestment of dividends.














INDEXED
      RETURNSBase
                      
                      
                      Years
      EndingPeriodCompany
      / Index
                      
                      Dec03
                      
                      
                      Dec04
                      
                      
                      Dec05
                      
                      
                      Dec06
                      
                      
                      Dec07
                      
                      
                      Dec08Wayside
      Technology Group, Inc.
                      
                      
                      100
                      
                      
                      
                      223.87
                      
                      
                      
                      189.01
                      
                      
                      
                      248.74
                      
                      
                      
                      152.83
                      
                      
                      
                      127.73S&P
      MidCap 400 Index
                      
                      
                      100
                      
                      
                      
                      116.48
                      
                      
                      
                      131.11
                      
                      
                      
                      144.64
                      
                      
                      
                      156.18
                      
                      
                      
                      99.59S&P
      500 Computer & Electronics Retail Index
                      
                      
                      100
                      
                      
                      
                      116.74
                      
                      
                      
                      122.97
                      
                      
                      
                      130.28
                      
                      
                      
                      129.77
                      
                      
                      
                      63.90





Page 11
of 26






Item
6 Selected Financial Data





The following tables set forth, for the
periods indicated, selected consolidated financial and other data for Wayside
Technology Group, Inc. and its Subsidiaries. You should read the selected
consolidated financial and other data below in conjunction with our consolidated
financial statements and the related notes and with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Form 10‐K.





Year Ended December
      31,(In
      thousands, except per share data)2004
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      2005
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      2006
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      2007
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      2008Consolidated
      Statement of Operations Data:Net
      sales
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      103,582
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      137,655
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      182,319
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      179,865
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      174,025Cost
      of sales
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      91,243
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      122,685
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      165,350
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      162,630
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      157,228Gross
      profit
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      12,339
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      14,970
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      16,969
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      17,235
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      16,797Selling,
      general andadministrative
      expenses
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      10,173
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      12,203
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      12,163
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      12,081
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      12,207Income
      from operations
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      2,166
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      2,767
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      4,806
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      5,154
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      4,590Other
      income, net
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      112
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      300
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      741
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      991
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      744Income
      before income taxes
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      2,278
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      3,067
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      5,547
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      6,145
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      5,334Income
      tax provision (benefit)
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      (4,044
                                                                                                                                                      )
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      414
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      2,279
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      2,442
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      2,168Net
      income
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      6,322
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      2,653
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      3,268
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      3,703
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      3,166Net
      income per share:Basic
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      1.65
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      0.67
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      0.78
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      0.84
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      0.72Diluted
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      1.51
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      0.61
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      0.72
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      0.80
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      0.71Weighted
      average commonshares
      outstanding:Basic
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      3,828
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      3,976
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      4,191
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      4,406
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      4,414Diluted
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      4,180
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      4,384
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      4,521
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      4,656
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      4,461December
      31,2004
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      2005
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      2006
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      2007
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      2008Balance
      Sheet Data:Cash
      and cash equivalents
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      4,888
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      7,369
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      13,832
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      14,241
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      $
                                                                                                                                                      9,349Marketable
      securities
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      6,595
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      7,884
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      7,032
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      9,641
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      9,367Working
      capital
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      12,756
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      14,595
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      16,471
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      19,479
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      14,806Total
      assets
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      32,914
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      44,268
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      57,281
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      56,753
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      47,485Total
      stockholders' equity
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      16,495
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      17,998
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      21,298
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      24,492
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      
                                                                                                                                                      23,884








Item
7 Management’s Discussion and Analysis of Financial Condition and Results of
Operations





The following management’s
discussion and analysis of the Company’s financial condition and results of
operations should be read in conjunction with the Company’s Consolidated
Financial Statements and the Notes thereto.  This discussion
and analysis contains, in addition to historical information, forward-looking
statements that include risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under the heading "Risk
Factors" and elsewhere in this report.




Page 12
of 26





Overview





As of January 1, 2006 we have organized
our Company into two reportable operating segments — the “Programmer’s Paradise”
segment, which sells technical software, hardware and services directly to
end-users (such as individual programmers, corporations, government agencies,
and educational institutions) and the “Lifeboat” segment, which distributes
technical software to corporate resellers, VARs, consultants and systems
integrators.





We offer a wide variety of technical
and general business application software from a broad range of publishers and
manufacturers. We market these products through our catalogs, direct mail
programs, advertisements in trade magazines, as well as through Internet and
e-mail promotions.





Forward-looking
Statements





This
report includes “forward-looking statements” within the meaning of Section 21E
of the Exchange Act. Statements in this report regarding future events or
conditions, including but not limited to statements regarding industry prospects
and the Company’s expected financial position, business and financing plans, are
forward-looking statements.





Although
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. We strongly urge current and prospective investors
to carefully consider the cautionary statements and risks contained in this
report. Such risks include, but are not limited to, the continued acceptance of
the Company’s distribution channel by vendors and customers, the timely
availability and acceptance of new products, contribution of key vendor
relationships and support programs, as well as factors that affect the software
industry generally.





The Company operates in a rapidly
changing business, and new risk factors emerge from time to time. Management
cannot predict every risk factor, nor can it assess the impact, if any, of all
such risk factors on the Company’s business or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from
those projected in any forward-looking statements.





Accordingly, forward-looking statements
should not be relied upon as a prediction of actual results and readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.





The
statements concerning future sales, future gross profit margin and future
selling and administrative expenses are forward looking statements involving
certain risks and uncertainties such as availability of products, product mix,
market conditions and other factors, which could result in a fluctuation of
sales below recent experience.





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.




Page 13
of 26





Financial
Overview





We
reported a net income of $3.2 million for the year 2008 as compared to a net
income of $3.7 million in 2007. The decrease primarily
resulted from competitive pricing pressure. Our income before income
taxes decreased by $0.8 million to $5.3 million compared to $6.1 million in
2007.





Income
from operations amounted to $4.6 million in 2008 as compared to $5.2 million in
2007, a decrease of $0.6 million as compared to 2007. Gross profit decreased by
$0.4 million and Selling, General and Administrative (“SG&A”) expenses
increased by $0.1 million.





The Company's sales, gross profit and
results of operations have fluctuated and are expected to continue to fluctuate
on a quarterly basis as a result of a number of factors, including: the
condition of the software industry in general; shifts in demand for software
products; industry shipments of new software products or upgrades; the timing of
new merchandise and catalog offerings; fluctuations in response rates;
fluctuations in postage, paper, shipping and printing costs and in merchandise
returns; adverse weather conditions that affect response, distribution or
shipping; shifts in the timing of holidays; and changes in the Company's product
offerings. The Company's operating expenditures are based on sales forecasts. If
revenues do not meet expectations in any given quarter, operating results may be
materially adversely affected.





Results
of Operations





The following table sets forth for the
years indicated the percentage of net sales represented by selected items
reflected in the Company’s Consolidated Statements of Earnings. The year-to-year
comparison of financial results is not necessarily indicative of future
results:





Years
      ended December 31,2006
                                            
                                            
                                            2007
                                            
                                            
                                            2008Net
      sales
                                            
                                            
                                            100.0
                                            %
                                            
                                            
                                            100.0
                                            %
                                            
                                            
                                            100.0
                                            %Cost
      of sales
                                            
                                            
                                            90.7
                                            
                                            
                                            
                                            90.4
                                            
                                            
                                            
                                            90.3Gross
      profit
                                            
                                            
                                            9.3
                                            
                                            
                                            
                                            9.6
                                            
                                            
                                            
                                            9.7Selling,
      general and administrative expenses
                                            
                                            
                                            6.7
                                            
                                            
                                            
                                            6.7
                                            
                                            
                                            
                                            7.0Income
      from operations
                                            
                                            
                                            2.6
                                            
                                            
                                            
                                            2.9
                                            
                                            
                                            
                                            2.7Other
      income, net
                                            
                                            
                                            0.4
                                            
                                            
                                            
                                            0.5
                                            
                                            
                                            
                                            0.4Income
      before income taxes
                                            
                                            
                                            3.0
                                            
                                            
                                            
                                            3.4
                                            
                                            
                                            
                                            3.1Income
      tax provision
                                            
                                            
                                            1.2
                                            
                                            
                                            
                                            1.4
                                            
                                            
                                            
                                            1.3Net
      income
                                            
                                            
                                            1.8
                                            %
                                            
                                            
                                            2.0
                                            %
                                            
                                            
                                            1.8
                                            %





Year
ended December 31, 2008 Compared to Year Ended December 31, 2007





Net
Sales





Net sales
for 2008 decreased 3.3% or $5.8 million to $174.0 million compared to $179.9
million in 2007. Total sales for our Lifeboat segment were $117.1 million
compared to $135.1 million in 2007, representing a 13% decrease. Total sales for
the Programmer’s Paradise segment in 2008 amounted to $56.9 million, compared to
$44.8 million in 2007, representing a 27% increase.





The decline in sales for our Lifeboat
segments was primarily due to a decrease in VMware sales in our Lifeboat
segment. VMware terminated its distributor agreement with Lifeboat Distribution,
Inc. in 2008. As a result, our Lifeboat segment ceased distributing VMware
products as of October 1, 2008, the distribution of which had
accountedfor $29.2 million in 2008,
or 17% of our 2008 revenue, and $57.2 million in 2007, or 32% of our 2007
revenue.Our remaining
distribution sales showed strong growth. Excluding VMware, sales during 2008
increased by $10.0 million from 2007, or 12.9%.




Page 14
of 26





In the
Programmer's Paradise segment, sales for 2008 increased by $12.1 million,
compared with the year-earlier period, primarily due to our customer service
centric sales approach, aggressive pricing and an increase in orders by
customers utilizing our flexible payment option arrangement.





Gross
Profit





Gross
Profit for 2008 was $16.8 million compared to $17.2 million in 2007, a 3%
decrease. Total gross profit for our Programmer’s Paradise segment was $6.5
million compared to $5.8 million in 2007, representing a 13% increase. Total
gross profit for our Lifeboat segment was $10.3 million compared to $11.5
million in 2007, representing a 10% decrease.





Gross
profit margin, as a percentage of net sales, for 2008 was 9.7% compared to 9.6%
in 2007. Gross profit margin percentage for our Programmer’s Paradise segment
was 11.4% compared to 12.9% in 2007. Gross profit margin percentage for our
Lifeboat segment in 2008 was 8.8% compared to 8.5% in 2007.





The
increase in gross profit margin as a percentage of net sales was primarily
caused by the decline in VMware sales which carry lower margins than our other
lines. The Lifeboat segment represented 67% of total sales in 2008 compared to
75% in 2007. Gross profit margin percentage for our Lifeboat segment was 8.8%
compared to 11.4% for our Programmer’s Paradise segment.





Selling,
General and Administrative Expenses





Total
SG&A expenses for 2008 were $12.2 million compared to $12.1 million in 2007.
As a percentage of net sales, SG&A expenses for 2008 and 2007 were 7.0% and
6.7%, respectively. This increase was the result of increased employee related
costs (including bonuses, benefits and stock compensation), professional fees
and an additional charge related to the sublease of our Long Island office
compared to 2007.


The
Company expects that its SG&A expenses, as a percentage of net sales, may
vary depending on changes in sales volume, as well as the levels of continuing
investments in key growth initiatives. We plan to expand our investment in
information technology and marketing, while  monitoring our sales and
remaining general and administrative expenses closely.





Direct
selling costs representing (such items as payroll costs and payroll related
costs, including  profit sharing, incentive awards and insurance), for
each of 2008 and 2007 were approximately $5.8 million. Total direct selling
costs for our Programmer’s Paradise segment were $2.9 million in each of 2008
and 2007. Total direct selling costs for our Lifeboat segment were $2.9 million
in each of 2008 and 2007.





Income
Taxes





For the
year ended December 31, 2008, the Company recorded a provision for income taxes
of $2.2 million which consists of a provision of $1.4 million for U.S. federal
income taxes, as well as a $0.2 million provision for state and local taxes, a
$0.2 million provision for Canadian taxes, and a deferred tax expense of $0.4
million.





As of
December 31, 2008 the Company had a U.S. deferred tax asset of approximately
$1.5 million. The Company fully utilized its U.S. federal loss carry forwards
during 2007 as well as the majority of its state tax loss carry
forwards.




Page 15
of 26





For the
year ended December 31, 2007, the Company recorded a provision for income taxes
of $2.4 million which consists of a provision of $1.0 million for U.S. federal
income taxes as well as a $0.2 million provision for Canadian taxes, and a
deferred tax expense of $1.2 million





As of
December 31, 2007 the Company had a U.S. deferred tax asset of approximately
$1.9 million. The Company  fully utilized its U.S. federal loss carry
forwards during 2007 as well as the majority of its state tax loss carry
forwards.





Year
ended December 31, 2007 Compared to Year Ended December 31, 2006





Net
Sales





Net sales
for 2007 decreased 1% or $2.4 million to $179.9 million compared to $182.3
million in 2006. Total sales for the Programmer’s Paradise segment in 2007
amounted to $44.8 million, compared to $53.7 million in 2006, representing a
16.6% decrease. Total sales for our Lifeboat segment were $135.1 million
compared to $128.6 million in 2006, representing a 5% increase, primarily as a
result of the addition of new lines and increased account penetration to offset
the decline of $17.3 million in VMware sales compared to 2006. Our remaining
distribution sales showed strong growth. Excluding VMware, sales during 2007
increased by $23.7 million from 2006, or 44%.





In the
Programmer's Paradise segment, sales for 2007 decreased by $8.9 million,
compared with the year-earlier period, primarily due to declining VMware sales
as well as increased competition in the “direct to end user” segment of our
business. The decline in VMware sales was mainly due to a change in the
government’s general services administration (“GSA”) program by VMware. VMware
has selected an exclusive reseller/distributor for GSA government sales. Instead
of invoicing the government and recognizing the revenue, Programmer’s Paradise
now receives a referral fee for VMware GSA sales.





Gross
Profit





Gross
Profit for 2007 was $17.2 million compared to $17.0 million in 2006, a 2%
increase. Total gross profit for our Programmer’s Paradise segment was $5.8
million compared to $7.3 million in 2006, representing a 21% decrease. Total
gross profit for our Lifeboat segment was $11.5 million compared to $9.7 million
in 2006, representing an 18% increase.





Gross
profit margin, as a percentage of net sales, for 2007 was 9.6% compared to 9.3%
in the 2006. Gross profit margin percentage for our Programmer’s Paradise
segment was 12.9% compared to 13.6% in 2006. Gross profit margin percentage for
our Lifeboat segment was 8.5% compared to 7.5% in 2006.





The
increase in gross profit margin as a percentage of net sales was primarily
caused by the decline in VMware sales which carry lower margins than our other
lines. The Lifeboat segment represented 75% of total sales in 2007 compared to
71% in 2006. Gross profit margin percentage for our Lifeboat segment was 8.5%
compared to 12.9% for our Programmer’s Paradise segment.





Selling,
General and Administrative Expenses





Total
SG&A expenses for 2007 were $12.1 million compared to $12.2 million in 2006.
This decrease was mainly the result of lower occupancy costs and a decrease in
bad debt expense compared to 2006. As a percentage of net sales, SG&A
expenses for 2007 and 2006 each were 6.7%.





The
Company expects that its SG&A expenses, as a percentage of net sales, may
vary depending on changes in sales volume, as well as the levels of continuing
investments in key growth initiatives. We plan to expand our investment in
information technology and marketing, while we monitor our sales and general and
administrative expenses closely.




Page 16
of 26





Direct
selling costs for 2007 were $5.8 million compared to $5.6 million in 2006, a 4%
increase. Total direct selling costs for our Programmer’s Paradise segment were
$2.9 million compared to $3.4 million in 2006, representing a 15% decrease
mainly as a result of employing fewer sales staff as we focused on increasing
the productivity per sales executive. Total direct selling costs for our
Lifeboat segment were $2.9 million compared to $2.2 million in 2006,
representing a 32% increase, which was a result of the Company hiring additional
sales staff to support the growth of our Lifeboat segment.





Income
Taxes





For the
year ended December 31, 2007, the Company recorded a provision for income taxes
of $2.4 million which consists of a provision of $1.0 million for U.S. federal
income taxes as well as a $0.2 million provision for Canadian taxes, and a
deferred tax expense of $1.2 million.





As of
December 31, 2007 the Company had a U.S. deferred tax asset of approximately
$1.9 million. The Company has fully utilized its U.S. federal loss carry
forwards during 2007 as well as the majority of its state tax loss carry
forwards.  The remaining state tax loss carry forwards will expire in
varying amounts between 2007 and 2025.





For the
year ended December 31, 2006, the Company recorded a provision for income taxes
of $2.3 million which consists of a provision of $0.9 million for U.S. federal
income taxes, a $0.1 million provision for state and local taxes, a $0.1 million
provision for Canadian taxes, as well as a deferred tax expense of $1.2
million.





As of
December 31, 2006, the Company had a U.S. deferred tax asset of approximately
$3.1 million reflecting, in part, a benefit of $1.7 million in U.S. federal and
state tax loss carry forwards.





Recent
Accounting Pronouncements





As of
December 31, 2008, the Financial Accounting Standards Board (“FASB”) issued
several pronouncements of significance to the
Company which are discussed in detail below.





In May 2008, the FASB issued SFAS
No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No.
162"), which identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States.  The FASB
believes that the GAAP hierarchy should be directed to entities because it is
the entity (not its auditor) that is responsible for selecting accounting
principles for financial statements that are presented in conformity with
GAAP. SFAS No. 162 is effective 60 days following the Securities and
Exchange Commission’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles.”The
Company does not expect the adoption of SFAS No. 162 to have a material effect
on its consolidated financial statements.





In June 2008, the FASB issued
FASB Staff Position EITF 03-6-1, "Determining Whether Instruments Granted in
Share-Based Payment Transactions are Participating Securities" ("EITF 03-6-1").
EITF 03-6-1 applies to the calculation of earnings per share for share-based
payment awards with rights to dividends or dividend equivalents under Statement
No. 128, “Earnings Per Share.” Unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents will be considered
participating securities and will be included in the computation of earnings per
share pursuant to the two-class method. The effective date of EITF 03-6-1 is for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those years. Early adoption is not permitted.
Once effective, all prior period earnings per share data presented will be
adjusted retrospectively.  The Company is currently evaluating the
potential impact, if any, the adoption of EITF 03-6-1 may have on
its  consolidated financial statements.




Page 17
of 26





Liquidity
and Capital Resources





Our cash and cash equivalents decreased
by $4.9 million to $9.3 million at December 31, 2008 from $14.2 million at
December 31, 2007.  Net cash used by operating activities amounted to
$0.5 million, net cash used in financing activities amounted to $4.1 million and
the effect of foreign exchange on cash was $0.3 million.





Net cash used by operating activities
in 2008 was $0.5 million. In 2008, cash was mainly provided by $4.7 million from
income from operations net of non-cash charges, and a $2.8 million decrease in
accounts receivable and a decrease in other current assets of $0.2 million
offset by a $8.3 million decrease in accounts payable and accrued expenses. The
decrease in accounts receivable relates primarily to our decreased revenue in
the fourth quarter of 2008 compared to the comparable period in 2007 ($40.0
million compared to $47.1 million). The decrease in accounts payable is
primarily due to our decreased net sales in the fourth quarter of this year as
compared to 2007 and our normal cycle of payments.





In 2008, cash used in investing
activities nearly offset cash provided by investing activities. The Company
purchased $16.8 million of marketable  securities during 2008 and sold
$17.1 million of marketable securities during 2008. These securities are highly
rated and liquid. They 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
accumulated other comprehensive income. Cash was also used in investing
activities in the amount of $0.3 million for the purchase of equipment and
leasehold improvements.





Net cash
used in financing activities in 2008 of $4.1 million consisted of $2.8 million
of dividend payments on our Common Stock and $1.5 million for the purchases of
shares of our Common Stock, offset by $0.2 million from proceeds from the
exercise of stock options.





In 2008, the Company's Board of
Directors authorized the purchase of 500,000 shares of our Common Stock. In
2002, the Company's Board of Directors authorized the purchase of 1,490,000
shares of our Common Stock. In October 1999, the Company was authorized by the
Board of Directors to buy back  521,013 shares of our Common Stock in
both open market and private transactions, as conditions warrant. A total of
1,936,757 shares of the Company’s stock have been bought back to date leaving a
balance of 574,256 shares of Common Stock that the Company is authorized to buy
back in the future.





The
repurchase program is expected to remain effective for the remainder of 2009. We
intend to hold the repurchased shares in treasury for general corporate
purposes, including issuances under various stock plans. As of December 31,
2008, we held 640,838 shares of our Common Stock at an average cost of $5.28 per
share. As of December 31, 2007 we held 576,002 shares of our Common Stock at an
average cost of $3.96 per share.





The
Company’s current and anticipated use of its cash and cash equivalents is, and
will continue to be, to fund working capital, operational expenditures, the
stock repurchase program and dividends, if any, declared by the board of
directors. Our business plan furthermore contemplates to continue to use our
cash to pay vendors promptly in order to obtain more favorable
conditions.





The
Company believes that the cash flows from operations and funds held in cash and
cash equivalents will be sufficient to fund the Company’s working capital and
cash requirements for at least the next 12 months.  We currently do
not have any credit facility and, in the foreseeable future, we do not plan to
enter into an agreement providing for a line of credit.





Page 18
of 26








Contractual
      Obligations(Dollars
      in thousands)Payment
      due by PeriodTotal
                                              
                                              
                                              Less
      than 1 year
                                              
                                              
                                              1-3
      years
                                              
                                              
                                              4-5
      years
                                              
                                              
                                              After
      5 yearsLong-term
      debt
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Capital
      Lease Obligations
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Operating
      Leases(1)
                                              
                                              $
                                              1,434
                                              
                                              
                                              $
                                              429
                                              
                                              
                                              $
                                              1,005
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Unconditional
      Purchase Obligations
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Other
      Long term Obligationsreflected
      on the Company'sBalance
      Sheet under GAAP
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Total Contractual
    Obligations
                                              
                                              $
                                              1,434
                                              
                                              
                                              $
                                              429
                                              
                                              
                                              $
                                              1,005
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -


(1)
Operating leases primarily relates to the lease of the space used for our
operations in Shrewsbury, New Jersey, and Mississauga, Canada as well as our
former sales office in Hauppauge New York. The commitments for operating leases
include the minimum rent payments and a proportionate share of operating
expenses and property taxes.





(2) In
addition to the contractual obligations disclosed in this table, we have
unrecognized tax benefits totaling $78,000 with respect to which, based on
uncertainties associated with the items, we are unable to make reasonably
reliable estimates of the period of potential cash settlements, if any, with
taxing authorities. As a result, such potential liabilities are not listed in
the table. See Note 5 to our Consolidated Financial Statements.





The
Company is not committed by lines of credit, standby letters of credit, has no
standby repurchase obligations or other commercial commitments.





Foreign
Exchange





The Company’s Canadian business is
subject to changes in demand or pricing resulting from fluctuations in currency
exchange rates or other factors. We are subject to fluctuations in the Canadian
Dollar-to-U.S. Dollar exchange rate.





Off-Balance
Sheet Arrangements





As of
December 31, 2008, we did not have any off-balance sheet arrangements, as
defined in Item 303 (a)(4)(ii) of SEC Regulation S‐K.





Critical
Accounting Policies and Estimates





Management’s
discussion and analysis of the Company’s financial condition and results of
operations are based upon the Company's consolidated financial statements that
have been prepared in accordance with  GAAP. The preparation of these
financial statements requires the Company to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. The Company recognizes
revenue from the sale of software and hardware for microcomputers, servers and
networks upon shipment or upon electronic delivery of the product. The Company
expenses the advertising costs associated with producing its catalogs. The costs
of these catalogs are expensed in the same month the catalogs are
mailed.





On an on-going basis, the Company
evaluates its estimates, including those related to product returns, bad debts,
inventories, investments, intangible assets, income taxes, stock-based
compensation and costs associated with exit or disposal activities, and
contingencies and litigation.




Page 19
of 26





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.





The
Company has considered future taxable income and ongoing prudent and feasible
tax planning strategies in assessing the need for the valuation allowance
related to deferred tax assets. In the event the Company were to determine that
it would not be able to realize all or part of its net deferred tax assets in
the future, an adjustment to the deferred tax assets would be charged to income
in the period such determination was made.





Under
the fair value recognition provision, stock-based compensation cost is measured
at the grant date based on the fair value of the award and is recognized as
expense on a straight-line basis over the requisite service period, which is the
vesting period. We make certain assumptions in order to value and expense our
various share-based payment awards. In connection with valuing stock options, we
use the Black-Scholes model, which requires us to estimate certain subjective
assumptions. The key assumptions we make are: the expected volatility of our
stock; the expected term of the award; and the expected forfeiture rate. In
connection with our restricted stock programs we make assumptions principally
related to the forfeiture rate. We review our valuation assumptions periodically
and, as a result, we may change our valuation assumptions used to value stock
based awards granted in future periods. Such changes may lead to a significant
change in the expense we recognize in connection with share-based
payments.





Item
7A Quantitative and Qualitative Disclosures about Market Risk





In addition to its activities in the
United States, 10.8% of the Company’s 2008 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 $9.4 million investments
in marketable securities at December 31, 2008 are invested in highly rated and
liquid U.S. government securities and insured certificates of
deposit.





Item
8 Financial Statements and Supplementary Data





See Index to Consolidated Financial
Statements at Item 15(a).





Item
9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure





None.




Page 20
of 26





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, 2008.  This evaluation was carried out under the supervision and
with the participation of our management, including our Company’s Chief
Executive Officer and Chief Accounting 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 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, 2008.  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.




Management Report on Internal
Control Over Financial ReportingOur management is responsible
for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. 
Internal control over financial reporting is a process designed by, or under the
supervision of, our Chief Executive Officer and Chief Accounting Officer, and
effected by the Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of our financial reporting and
the preparation of financial statements for external purposes in accordance with
GAAP. Internal control over financial reporting includes maintaining records in
reasonable detail that accurately and fairly reflect our transactions and
disposition of assets; providing reasonable assurance that transactions are
recorded as necessary for preparation of our financial statements in accordance
with GAAP; providing reasonable assurance that receipts and expenditures of the
Company, are made in accordance of with authorizations of  management
and directors of the Company; and providing  reasonable assurance that
unauthorized acquisition, use or disposition of Company assets that could have a
material effect on our financial statements would be prevented or detected on a
timely basis. Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance that a
misstatement of our financial statements would be prevented or detected. 
In addition, projections of any evaluation of effectiveness to future periods
are subject to the risk that, owing to changes in conditions, controls may
become inadequate, or that the degree of compliance with policies or procedures
may deteriorate.




Management, with the participation of
our Chief Executive Officer and Chief Accounting Officer, conducted an
evaluation of the effectiveness of our internal control over financial reporting
based on the framework in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, management concluded that the Company’s internal control over
financial reporting was effective as of December 31, 2008. There were no changes
in our internal control over financial reporting during the quarter ended
December 31, 2008 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.




Page 21
of 26







This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this annual report.





Item
9B  Other Information





None.





PART
III





Item
10 Directors and Executive Officers of the Registrant





The information required hereunder,
with the exception of the information relating to the executive officers of the
Registrant that is presented in Part I under the heading “Executive Officers of
the Company,” and the information relating to the Company’s Code of Ethical
Conduct that is presented in Part I under the heading “Available Information,”
is incorporated by reference herein from our Definitive Proxy Statement for the
2009 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A not
later than April 30, 2009 (the “Definitive Proxy Statement”) under the sections
captioned "Election of Directors," “Corporate Governance” and “Section 16 (a)
Beneficial Ownership Reporting Compliance.”





Item
11 Executive Compensation





The information required hereunder is
incorporated by reference herein from the Definitive Proxy Statement under the
sections captioned "Executive Compensation" and “Corporate
Governance.”





Item
12 Security Ownership of Certain Beneficial Owners and Management





The information required hereunder is
incorporated by reference herein from the Definitive Proxy Statement under the
sections captioned "Executive Compensation – Securities Authorized for Issuance
under Equity Compensation Plans" and “Security Ownership of Certain Beneficial
Owners and Management”.





Item
13 Certain Relationships and Related Party Transactions, and Director
Independence





The information required hereunder is
incorporated by reference herein from the Definitive Proxy Statement under the
sections captioned “Executive Compensation,” "Corporate Governance" and
"Transactions with Related Persons."





Item
14 Principal Accounting Fees and Services





The
information required hereunder is incorporated by reference herein from the
Definitive Proxy Statement under the section captioned  “ Appointment
of Independent Registered Public Accounting Firm”.





PART
IV




Item
15 Exhibits and Financial Statement Schedules




(a)
            The
      following documents are filed as part of this
  Report:




1.
            Consolidated
      Financial Statements (See Index to Consolidated Financial
      Statements on page F-1 of this
  report);




Page 22
of 26





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
      Exhibit3.1
                                                                                                                      Form
      of Amended and Restated Certificate of Incorporation of the Company.
      (1)3.1(a)
                                                                                                                      Certificate
      of Amendment of Restated Certificate of Incorporation of the
      Company.(2)3.2
                                                                                                                      Form
      of Amended and Restated By-Laws of the Company.(1)4.1
                                                                                                                      Specimen
      of Common Stock Certificate.(1)10.17
                                                                                                                      1986
      Stock Option Plan and Form of Employee Stock Option Agreement.
      (1)10.18
                                                                                                                      1995
      Stock Plan, as amended. (3)10.19
                                                                                                                      1995
      Non-Employee Director Plan, as amended. (3)10.19(a)
                                                                                                                      2006
      Stock-Based Compensation Plan. (4)10.19(b)
                                                                                                                      First
      Amendment to 2006 Stock-Based Compensation Plan. (5)10.19(c)
                                                                                                                      Second
      Amendment to 2006 Stock-Based Compensation Plan. (5)10.20
                                                                                                                      Form
      of Officer and Director Indemnification Agreement. (1)10.42
                                                                                                                      Lease
      dated as of May 14, 1997 between Robert C. Baker, et al as Landlord and
      the Company (6)10.42(a)
                                                                                                                      Modification
      of Lease, dated as of July 27, 2006, between SBC Holdings, L.P. (successor
      in interest to Robert C. Baker, et al.) and the Company.
    (2)10.43
                                                                                                                      Employment
      Agreement, dated January 12, 2006, between the Company and Simon F. Nynens.
      (7)10.45
                                                                                                                      Offer
      Letter, dated January 6, 2003, from the Company to Vito
      Legrottaglie.(8)10.46
                                                                                                                      Resignation
      Letter, dated May 16, 2007, from Wayside Technology Group, Inc. to Jeffrey
      Largiader. (9)10.47
                                                                                                                      General
      Release, dated May 18, 2007, between Jeffrey Largiader and Wayside
      Technology Group, Inc. (5)10.48
                                                                                                                      Restricted
      Stock Letter, dated August 15, 2006, between Vito Legrottaglie and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)10.49
                                                                                                                      Restricted
      Stock Letter, dated August 15, 2006, between Jeffrey Largiader and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)




Page 23
of 26





10.50
                                                                                                                          Restricted
      Stock Letter, dated August 15, 2006, between Daniel Jamieson and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)10.51
                                                                                                                          Restricted
      Stock Letter, dated August 15, 2006, between Allan Weingarten and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)10.52
                                                                                                                          Restricted
      Stock Letter, dated August 15, 2006, between Edwin Morgens and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)10.53
                                                                                                                          Restricted
      Stock Letter, dated August 15, 2006, between Duff Meyercord and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)10.54
                                                                                                                          Restricted
      Stock Letter, dated August 15, 2006, between Simon F. Nynens and
      Wayside  Technology Group, Inc (f/k/a Programmer’s Paradise
      Inc.) (5)10.55
                                                                                                                          Restricted
      Stock Letter, dated August 15, 2006, between Simon F. Nynens and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)10.56
                                                                                                                          Restricted
      Stock Letter, dated August 15, 2006, between Kevin Scull and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)10.57
                                                                                                                          Restricted
      Stock Letter, dated January 31, 2007, between William Willett and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)10.58
                                                                                                                          Restricted
      Stock Letter, dated November 19, 2007, between Richard Bevis and Wayside
      Technology Group, Inc (f/k/a Programmer’s Paradise Inc.)
    (5)10.59
                                                                                                                          Form
      of Non-Qualified Stock Option Agreement (5)10.60
                                                                                                                          Restricted
      Stock Letter, dated February 5, 2008, between Kevin Scull and Wayside
      Technology Group, Inc. (10)10.61
                                                                                                                          Restricted
      Stock Letter, dated February 5, 2008, between Richard Bevis and Wayside
      Technology Group, Inc. (10)10.62
                                                                                                                          Restricted
      Stock Letter, dated February 5, 2008, between Simon Nynens and Wayside
      Technology Group, Inc. (10)10.63
                                                                                                                          Restricted
      Stock Letter, dated February 5, 2008, between Vito Legrottaglie and
      Wayside Technology Group, Inc. (10)10.64
                                                                                                                          Restricted
      Stock Letter, dated February 5, 2008, between Daniel Jamieson and Wayside
      Technology Group, Inc. (10)10.65
                                                                                                                          Restricted
      Stock Letter, dated February 5, 2008, between Edwin Morgens and Wayside
      Technology Group, Inc. (10)10.66
                                                                                                                          Restricted
      Stock Letter, dated February 5, 2008, between William Willett and Wayside
      Technology Group, Inc. (10)10.67
                                                                                                                          Restricted
      Stock Letter, dated February 5, 2008, between Allan Weingarten and Wayside
      Technology Group, Inc. (10)10.68
                                                                                                                          Restricted
      Stock Letter, dated February 5, 2008, between Mark Boyer and Wayside
      Technology Group, Inc.
(10)




Page 24
of 26






10.69
                                                                                                                                                                          Restricted
      Stock Letter, dated February 5, 2008, between Duff Meyercord and Wayside
      Technology Group, Inc. (10)21.1
                                                                                                                                                                          Subsidiaries
      of the Registrant23.1
                                                                                                                                                                          Consent
      of Amper, Politziner & Mattia, LLP31.1
                                                                                                                                                                          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.


(1)
            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.
      033-92810).





(2)
            Incorporated
      by reference to the Exhibits of the same number to the Registrant’s
      Quarterly Report on Form 10-Q for the quarter ended September 30,
      2006 filed on November 3, 2006.





(3)
            Incorporated
      by reference to Exhibit A and Exhibit B, respectively, to the Registrant’s
      Definitive Annual Meeting Proxy Statement filed on April 30,
      1998.





(4)
            Incorporated
      by reference to Exhibit A of the Registrant’s Definitive Annual Meeting
      Proxy Statement filed on April 28,
2006.





(5)
            Incorporated
      by reference to exhibits of the same number filed with the Registrant’s
      Annual Report on Form 10‐K for the Year Ended December 31, 2007 filed on
      March 13, 2008.





(6)
            Incorporated
      by reference to Exhibit 10.42 of the Registrant’s Annual Report on Form
      10‐K for the year ended December 31, 1998 filed on March 31,
      1999.





(7)
            Incorporated
      by reference to Exhibit 10.43 to the Registrant’s Quarterly Report on Form
      10-Q for the quarter ended March 31, 2006 filed on May 12,
      2006.





(8)
            Incorporated
      by reference to exhibits of the same number filed with the Registrant's
      Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 filed
      on May 15, 2007.





(9)
            Incorporated
      by reference to exhibits of the same number filed with the Registrant's
      Current Report on Form 8‐K filed on May 21,
  2007.





(10)
            Incorporated
      by reference to exhibits of the same number filed with the Registrant’s
      Quarterly Report on Form 10-Q for the Period Ended March 31, 2008 filed
      May 12, 2008.





(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 25
of 26








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 12, 2009.





WAYSIDE
      TECHNOLOGY GROUP, INC.By:
                            /s/ Simon
      F. NynensSimon
      F. Nynens, President andChief
      Executive Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated:





Signature
                              
                              Title
                              
                              DatePresident
      and Chief Executive Officer and
                              
                              March
      12, 2009/s/
      Simon
      F. Nynens
                              
                              Chairman
      of the Board of DirectorsSimon
      F. Nynens
                              
                              (Principal
      Executive Officer)Vice
      President and Chief Accounting Officer
                              
                              March
      12, 2009/s/
      Kevin
      T. Scull
                              
                              (Principal
      Financial and Accounting Officer)Kevin
      T. Scull/s/
      William
      H. Willett
                              
                              Director
                              
                              March
      12, 2009William
      H. Willett/s/
      Mark
      T. Boyer
                              
                              Director
                              
                              March
      12, 2009Mark
      T. Boyer/s/
      F.
      Duffield Meyercord
                              
                              Director
                              
                              March
      12, 2009F.
      Duffield Meyercord/s/
      Edwin
      H. Morgens
                              
                              Director
                              
                              March
      12, 2009Edwin
      H. Morgens/s/
      Allan
      D. Weingarten
                              
                              Director
                              
                              March
      12, 2009Allan
      D. Weingarten








Page 26
of 26





Items
8 and 15(a)





Wayside
Technology Group, Inc. and Subsidiaries





Index
to Consolidated Financial Statements and Schedule














PageReport
      of Independent Registered Public Accounting Firm
              F-2Consolidated
      Balance Sheets
              F-3Consolidated
      Statements of Earnings
              F-4Consolidated
      Statements of Stockholders’ Equity and Comprehensive
Income
              F-5Consolidated
      Statements of Cash Flows
              F-6Notes
      to Consolidated Financial Statements
              F-7Schedule
      II – Valuation and Qualifying Accounts
              F-24








F-1





Report
of Independent Registered Public Accounting Firm





The Board
of Directors and Stockholders


Wayside
Technology Group, Inc. and Subsidiaries





We have
audited the accompanying consolidated balance sheets of Wayside Technology
Group, Inc.  and Subsidiaries as of December 31, 2008 and 2007, and
the related consolidated statements of earnings, stockholders’ equity and
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2008.  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 audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audits provide
a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Wayside
Technology Group, Inc. and Subsidiaries as of December 31, 2008 and 2007, and
the results of their earnings and their cash flows for each of the three years
in the period ended December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America.





As
discussed in Note 6 to the consolidated financial statements, in 2007, the
Company adopted the provisions of FIN 48, “Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109.”





We have
also audited the consolidated financial statement schedule, Schedule II –
Valuation and Qualifying Accounts, for each of the three years in the period
ended December 31, 2008. In our opinion, this financial schedule, when
considered in relation to the consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information stated
therein.








/s/
Amper, Politziner & Mattia, LLP


March 11,
2009


Edison,
New Jersey











F-2








Wayside
Technology Group, Inc. and Subsidiaries


Consolidated
Balance Sheets




(Dollars
in thousands, except pershare
amounts)




December
      31,2007
                          
                          
                          2008AssetsCurrent
      assets:Cash
      and cash equivalents
                          
                          $
                          14,241
                          
                          
                          $
                          9,349Marketable
      securities
                          
                          
                          9,641
                          
                          
                          
                          9,367Accounts
      receivable, net of allowances of $908 and
                            $1,086
      in 2007 and 2008, respectively
                          
                          
                          24,824
                          
                          
                          
                          16,940Inventory,
      net
                          
                          
                          1,116
                          
                          
                          
                          1,058Prepaid
      expenses and other current assets
                          
                          
                          927
                          
                          
                          
                          776Deferred
      income taxes
                          
                          
                          830
                          
                          
                          
                          712Total
      current assets
                          
                          
                          51,579
                          
                          
                          
                          38,202Equipment
      and leasehold improvements, net
                          
                          
                          619
                          
                          
                          
                          549Accounts
      receivable-long-term
                          
                          
                          3,402
                          
                          
                          
                          7,860Other
      assets
                          
                          
                          67
                          
                          
                          
                          66Deferred
      income taxes
                          
                          
                          1,086
                          
                          
                          
                          808$
                          56,753
                          
                          
                          $
                          47,485Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Accounts
      payable and accrued expenses
                          
                          $
                          32,100
                          
                          
                          $
                          23,396Total
      current liabilities
                          
                          
                          32,100
                          
                          
                          
                          23,396Other
      liabilities
                          
                          
                          161
                          
                          
                          
                          205Total
      liabilities
                          
                          
                          32,261
                          
                          
                          
                          23,601Commitments
      and ContingenciesStockholders’
      equity:Common
      Stock, $.01 par value; 10,000,000 shares authorized; 5,284,500 shares
      issued; and 4,708,498 and 4,643,662 shares outstanding in 2007 and 2008,
      respectively
                          
                          
                          53
                          
                          
                          
                          53Additional
      paid-in capital
                          
                          
                          28,860
                          
                          
                          
                          26,636Treasury
      stock, at cost, 576,002 and 640,838 shares in 2007 and 2008,
      respectively
                          
                          
                          (2,283
                          )
                          
                          
                          (3,383
                          )Retained
      earnings (deficit)
                          
                          
                          (2,599
                          )
                          
                          
                          567Accumulated
      other comprehensive income
                          
                          
                          461
                          
                          
                          
                          11Total
      stockholders’ equity
                          
                          
                          24,492
                          
                          
                          
                          23,884$
                          56,753
                          
                          
                          $
                          47,485







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





F-3





Wayside
Technology Group, Inc. and Subsidiaries


Consolidated
Statements of Earnings


(Dollars
in thousands, except per share amounts)








Years
      ended December 31,2006
                                  
                                  
                                  2007
                                  
                                  
                                  2008Net
      sales
                                  
                                  $
                                  182,319
                                  
                                  
                                  $
                                  179,865
                                  
                                  
                                  $
                                  174,025Cost
      of sales
                                  
                                  
                                  165,350
                                  
                                  
                                  
                                  162,630
                                  
                                  
                                  
                                  157,228Gross
      profit
                                  
                                  
                                  16,969
                                  
                                  
                                  
                                  17,235
                                  
                                  
                                  
                                  16,797Selling,
      general and administrative expenses
                                  
                                  
                                  12,163
                                  
                                  
                                  
                                  12,081
                                  
                                  
                                  
                                  12,207Income  from
      operations
                                  
                                  
                                  4,806
                                  
                                  
                                  
                                  5,154
                                  
                                  
                                  
                                  4,590Other
      income:Interest
      income
                                  
                                  
                                  738
                                  
                                  
                                  
                                  989
                                  
                                  
                                  
                                  741Foreign
      currency transaction gain
                                  
                                  
                                  3
                                  
                                  
                                  
                                  2
                                  
                                  
                                  
                                  3Income
      before provision for income taxes
                                  
                                  
                                  5,547
                                  
                                  
                                  
                                  6,145
                                  
                                  
                                  
                                  5,334Provision
      for income taxes
                                  
                                  
                                  2,279
                                  
                                  
                                  
                                  2,442
                                  
                                  
                                  
                                  2,168Net
      income
                                  
                                  $
                                  3,268
                                  
                                  
                                  $
                                  3,703
                                  
                                  
                                  $
                                  3,166Income
      per common share-Basic
                                  
                                  $
                                  0.78
                                  
                                  
                                  $
                                  0.84
                                  
                                  
                                  $
                                  0.72Income
      per common share-Diluted
                                  
                                  $
                                  0.72
                                  
                                  
                                  $
                                  0.80
                                  
                                  
                                  $
                                  0.71Weighted
      average common shares outstanding-Basic
                                  
                                  
                                  4,191
                                  
                                  
                                  
                                  4,406
                                  
                                  
                                  
                                  4,414Weighted
      average common shares outstanding-Diluted
                                  
                                  
                                  4,521
                                  
                                  
                                  
                                  4,656
                                  
                                  
                                  
                                  4,461








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




F-4






Wayside
Technology Group, Inc. and Subsidiaries


Consolidated
Statements of Stockholders’ Equity and Comprehensive Income


(Dollars
in thousands, except share amounts)




AccumulatedAdditional
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          Retained
                                                                          
                                                                          
                                                                          OtherCommon
      Stock
                                                                          
                                                                          
                                                                          Paid-In
                                                                          
                                                                          
                                                                          Treasury
                                                                          
                                                                          
                                                                          earnings
                                                                          
                                                                          
                                                                          ComprehensiveShares
                                                                          
                                                                          
                                                                          Amount
                                                                          
                                                                          
                                                                          Capital
                                                                          
                                                                          
                                                                          Shares
                                                                          
                                                                          
                                                                          Amount
                                                                          
                                                                          
                                                                          (Deficit)
                                                                          
                                                                          
                                                                          Income
                                                                          
                                                                          
                                                                          TotalBalance
      at January 1, 2006
                                                                          
                                                                          
                                                                          5,284,500
                                                                          
                                                                          
                                                                          $
                                                                          53
                                                                          
                                                                          
                                                                          $
                                                                          30,948
                                                                          
                                                                          
                                                                          
                                                                          1,289,665
                                                                          
                                                                          
                                                                          $
                                                                          (3,620
                                                                          )
                                                                          
                                                                          $
                                                                          (9,570
                                                                          )
                                                                          
                                                                          $
                                                                          187
                                                                          
                                                                          
                                                                          $
                                                                          17,998Net
      income
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          3,268
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          3,268Other
      comprehensive income:Translation
      adjustment
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          3
                                                                          
                                                                          
                                                                          
                                                                          3Unrealized
      gain on available-for-sale
      securities
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          10
                                                                          
                                                                          
                                                                          
                                                                          10Comprehensive
      income
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          3,281Dividends
      paid
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (1,712
                                                                          )
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (1,712
                                                                          )Dividends
      declared payable
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (638
                                                                          )
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (638
                                                                          )Exercise
      of stock options
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          368
                                                                          
                                                                          
                                                                          
                                                                          (290,555
                                                                          )
                                                                          
                                                                          
                                                                          848
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          1,216Tax
      benefit from exercises ofnon-qualified
      stock options
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          901
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          901Share-based
      compensationexpense
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          305
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          305Restricted
      stock grants
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (920
                                                                          )
                                                                          
                                                                          
                                                                          (315,000
                                                                          )
                                                                          
                                                                          
                                                                          920
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          -Treasury
      shares repurchased
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          3,769
                                                                          
                                                                          
                                                                          
                                                                          (53
                                                                          )
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (53
                                                                          )Balance
      at December 31, 2006
                                                                          
                                                                          
                                                                          5,284,500
                                                                          
                                                                          
                                                                          
                                                                          53
                                                                          
                                                                          
                                                                          
                                                                          29,252
                                                                          
                                                                          
                                                                          
                                                                          687,879
                                                                          
                                                                          
                                                                          
                                                                          (1,905
                                                                          )
                                                                          
                                                                          
                                                                          (6,302
                                                                          )
                                                                          
                                                                          
                                                                          200
                                                                          
                                                                          
                                                                          
                                                                          21,298Net
      income
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          3,703
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          3,703Other
      comprehensive income:Translation
      adjustment
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          253
                                                                          
                                                                          
                                                                          
                                                                          253Unrealized
      gain on available-for-sale
      securities
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          8
                                                                          
                                                                          
                                                                          
                                                                          8Comprehensive
      income
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          3,964Dividends
      paid
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (2,047
                                                                          )
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (2,047
                                                                          )Exercise
      of stock options
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          588
                                                                          
                                                                          
                                                                          
                                                                          (159,445
                                                                          )
                                                                          
                                                                          
                                                                          486
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          1,074Tax
      benefit from exercises ofnon-qualified
      stock options
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          522
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          522Share-based
      compensationexpense
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          605
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          605Restricted
      stock grants
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (60
                                                                          )
                                                                          
                                                                          
                                                                          (17,500
                                                                          )
                                                                          
                                                                          
                                                                          60
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          -Treasury
      shares repurchased
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          65,068
                                                                          
                                                                          
                                                                          
                                                                          (924
                                                                          )
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (924
                                                                          )Balance
      at December 31, 2007
                                                                          
                                                                          
                                                                          5,284,500
                                                                          
                                                                          
                                                                          
                                                                          53
                                                                          
                                                                          
                                                                          
                                                                          28,860
                                                                          
                                                                          
                                                                          
                                                                          576,002
                                                                          
                                                                          
                                                                          
                                                                          (2,283
                                                                          )
                                                                          
                                                                          
                                                                          (2,599
                                                                          )
                                                                          
                                                                          
                                                                          461
                                                                          
                                                                          
                                                                          
                                                                          24,492Net
      income
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          3,166
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          3,166Other
      comprehensive income:Translation
      adjustment
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (469
                                                                          )
                                                                          
                                                                          
                                                                          (469
                                                                          )Unrealized
      gain on available-for-sale
      securities
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          19
                                                                          
                                                                          
                                                                          
                                                                          19Comprehensive
      income
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          2,716Dividends
      paid
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (2,811
                                                                          )
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (2,811
                                                                          )Exercise
      of stock options
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          59
                                                                          
                                                                          
                                                                          
                                                                          (45,000
                                                                          )
                                                                          
                                                                          
                                                                          164
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          223Share-based
      compensationexpense
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          735
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          735Tax
      expense from share-basedcompensation
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (22
                                                                          )
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (22
                                                                          )Restricted
      stock grants
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (185
                                                                          )
                                                                          
                                                                          
                                                                          (54,000
                                                                          )
                                                                          
                                                                          
                                                                          185
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          -Treasury
      shares repurchased
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          163,836
                                                                          
                                                                          
                                                                          
                                                                          (1,449
                                                                          )
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          (1,449
                                                                          )Balance
      at December 31, 2008
                                                                          
                                                                          
                                                                          5,284,500
                                                                          
                                                                          
                                                                          $
                                                                          53
                                                                          
                                                                          
                                                                          $
                                                                          26,636
                                                                          
                                                                          
                                                                          
                                                                          640,838
                                                                          
                                                                          
                                                                          $
                                                                          (3,383
                                                                          )
                                                                          
                                                                          $
                                                                          567
                                                                          
                                                                          
                                                                          $
                                                                          11
                                                                          
                                                                          
                                                                          $
                                                                          23,884


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




F-5





Wayside
Technology Group, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows


(Dollars
in thousands, except share amounts)





Year
      ended December 31,2006
                                    
                                    
                                    2007
                                    
                                    
                                    2008Cash
      flows from operating activitiesNet
      income
                                    
                                    $
                                    3,268
                                    
                                    
                                    $
                                    3,703
                                    
                                    
                                    $
                                    3,166Adjustments
      to reconcile net income to net cash provided by (used) in operating
      activities:Depreciation
      expense
                                    
                                    
                                    259
                                    
                                    
                                    
                                    351
                                    
                                    
                                    
                                    347Amortization
      expense
                                    
                                    
                                    11
                                    
                                    
                                    
                                    10
                                    
                                    
                                    
                                    8Provision
      for doubtful accounts receivable
                                    
                                    
                                    190
                                    
                                    
                                    
                                    47
                                    
                                    
                                    
                                    39Deferred
      income tax expense
                                    
                                    
                                    1,214
                                    
                                    
                                    
                                    1,170
                                    
                                    
                                    
                                    395Share-based
      compensation expense
                                    
                                    
                                    305
                                    
                                    
                                    
                                    605
                                    
                                    
                                    
                                    735Loss
      on disposal of fixed assets
                                    
                                    
                                    6
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    7Changes
      in operating assets and liabilities:Accounts
      receivable
                                    
                                    
                                    (9,502
                                    )
                                    
                                    
                                    2,627
                                    
                                    
                                    
                                    2,844Inventory
                                    
                                    
                                    691
                                    
                                    
                                    
                                    149
                                    
                                    
                                    
                                    54Prepaid
      expenses and other current assets
                                    
                                    
                                    81
                                    
                                    
                                    
                                    (320
                                    )
                                    
                                    
                                    142Accounts
      payable and accrued expenses
                                    
                                    
                                    9,554
                                    
                                    
                                    
                                    (3,205
                                    )
                                    
                                    
                                    (8,263
                                    )Net
      change in other operating assets and liabilities
                                    
                                    
                                    8
                                    
                                    
                                    
                                    114
                                    
                                    
                                    
                                    38Net
      cash provided by (used) in operating activities
                                    
                                    
                                    6,085
                                    
                                    
                                    
                                    5,251
                                    
                                    
                                    
                                    (488
                                    )Cash
      flows provided by (used) in investing activitiesPurchase
      of equipment and leasehold improvements
                                    
                                    
                                    (329
                                    )
                                    
                                    
                                    (482
                                    )
                                    
                                    
                                    (308
                                    )Purchase
      of available-for-sale securities
                                    
                                    
                                    (17,089
                                    )
                                    
                                    
                                    (21,189
                                    )
                                    
                                    
                                    (16,788
                                    )Redemptions
      of available-for-sale securities
                                    
                                    
                                    17,950
                                    
                                    
                                    
                                    18,588
                                    
                                    
                                    
                                    17,080Proceeds
      from sale of fixed assets
                                    
                                    
                                    10
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    8Net
      cash provided by (used) in investing activities
                                    
                                    
                                    542
                                    
                                    
                                    
                                    (3,083
                                    )
                                    
                                    
                                    (8
                                    )Cash
      flows used in financing activitiesPurchase
      of treasury stock
                                    
                                    
                                    (53
                                    )
                                    
                                    
                                    (924
                                    )
                                    
                                    
                                    (1,449
                                    )Proceeds
      from stock option exercises
                                    
                                    
                                    1,216
                                    
                                    
                                    
                                    1,074
                                    
                                    
                                    
                                    223Tax
      benefit (expense) from stock options exercises
                                    
                                    
                                    901
                                    
                                    
                                    
                                    522
                                    
                                    
                                    
                                    (22
                                    )Dividends
      paid
                                    
                                    
                                    (2,231
                                    )
                                    
                                    
                                    (2,684
                                    )
                                    
                                    
                                    (2,811
                                    )Net
      cash used in financing activities
                                    
                                    
                                    (167
                                    )
                                    
                                    
                                    (2,012
                                    )
                                    
                                    
                                    (4,059
                                    )Effect
      of foreign exchange rate on cash
                                    
                                    
                                    3
                                    
                                    
                                    
                                    253
                                    
                                    
                                    
                                    (337
                                    )Net
      increase (decrease)  in cash and cash
equivalents
                                    
                                    
                                    6,463
                                    
                                    
                                    
                                    409
                                    
                                    
                                    
                                    (4,892
                                    )Cash
      and cash equivalents at beginning of year
                                    
                                    
                                    7,369
                                    
                                    
                                    
                                    13,832
                                    
                                    
                                    
                                    14,241Cash
      and cash equivalents at end of year
                                    
                                    $
                                    13,832
                                    
                                    
                                    $
                                    14,241
                                    
                                    
                                    $
                                    9,349Supplementary
      disclosure of cash flow information:Income
      taxes paid
                                    
                                    $
                                    294
                                    
                                    
                                    $
                                    563
                                    
                                    
                                    $
                                    1,366





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




F-6






Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars in tables in thousands,
except per share amounts)








1.   Description
of Business





Wayside
Technology Group, Inc. and Subsidiaries, the “Company,” markets software to
software development and information technology professionals in the United
States and Canada. It was formerly known as Programmer's Paradise, Inc. and
changed its name to Wayside Technology Group, Inc. in August 2006. It operates
through two segments, Programmer's Paradise and Lifeboat. The Programmer's
Paradise segment sells technical software, hardware, and services for
microcomputers, servers, and networks to individual programmers, corporations,
government agencies, and educational institutions. Its solutions include
technical and general business application software from various publishers and
manufacturers. This segment markets these products through catalogs, direct mail
programs, and advertisements in trade magazines, as well as through Internet and
email promotions. Its catalogs offer collections of microcomputer technical
software, including programming languages, tools, utilities, libraries,
development systems, interfaces, and communication products. The Lifeboat
segment distributes technical software to corporate and value-added resellers,
consultants, and systems integrators.





2.   Summary
of Significant Accounting Policies





Principles
of Consolidation and Operations





The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All intercompany transactions and balances have been
eliminated.





Use
of Estimates





The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make extensive use of certain estimates and assumptions
which affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported
periods.   The significant areas of estimation include but are
not limited to accounting for allowance for uncollectible accounts, sales
returns, inventory valuation and obsolescence, income taxes, depreciation,
contingencies, stock-based compensation and costs associated with exit or
disposal activities. Actual results could differ from those
estimates.





Net
Income Per Common Share





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





F-7





Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars in tables inthousands, except per
share amounts)








A
reconciliation of the numerators and denominators of the basic and diluted per
share computations follows (in thousands, except per
share data):




Year
      ended December 312006
                          
                          
                          2007
                          
                          
                          2008Numerator:Net
      income
                          
                          $
                          3,268
                          
                          
                          $
                          3,703
                          
                          
                          $
                          3,166Denominator:Weighted
      average shares (Basic)
                          
                          
                          4,191
                          
                          
                          
                          4,406
                          
                          
                          
                          4,414Dilutive
      effect of outstanding options and nonvested shares of restricted
      stock
                          
                          
                          330
                          
                          
                          
                          250
                          
                          
                          
                          47Weighted
      average shares including assumed conversions (Diluted)
                          
                          
                          4,521
                          
                          
                          
                          4,656
                          
                          
                          
                          4,461Basic
      net income per share
                          
                          $
                          0.78
                          
                          
                          $
                          0.84
                          
                          
                          $
                          0.72Diluted
      net income per share
                          
                          $
                          0.72
                          
                          
                          $
                          0.80
                          
                          
                          $
                          0.71




Cash
Equivalents





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




Accounts
Receivable




Accounts
receivable principally represents amounts collectible from our customers. The
Company performs ongoing credit evaluations of its customers but generally does
not require collateral to support any outstanding obligation. Allowances for
potential uncollectible amounts are estimated and deducted from total accounts
receivable.





Allowance for Doubtful Accounts
Receivable





We
provide allowances for doubtful accounts related to accounts receivable for
estimated losses resulting from the inability of our customers to make required
payments. We take into consideration the overall quality and aging of the
receivable portfolio along with specifically identified customer risks. If
actual customer payment performance were to deteriorate to an extent not
expected, additional allowances may be required.








F-8






Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars in tables inthousands, except per
share amounts)








Foreign
Currency Translation





Assets
and liabilities of the foreign subsidiary in Canada have been translated at
current exchange rates, and related revenues and expenses have been translated
at average rates of exchange in effect during the year.  Cumulative
translation adjustments have been classified within accumulated other
comprehensive income, which is a separate component of stockholders’ equity in
accordance with FASB Statement No. 130, “Reporting Comprehensive Income”. The
foreign currency translation adjustments are not currently adjusted for income
taxes as they relate to permanent investments in international
subsidiaries.





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, 2008, the Company’s $9.4 million of investments in marketable securities are
only in highly rated and liquid U.S. government securities and insured
certificates of deposit.





The
Company’s cash and cash equivalents, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts. The Company
believes it is not exposed to any significant credit risk on cash and cash
equivalents.





Marketable
Securities





The
Company accounts for marketable securities pursuant to the 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 accumulated other comprehensive income in Stockholders’
Equity.





Financial
Instruments





The
carrying amounts of financial instruments, including cash and cash equivalents,
accounts receivable and accounts payable approximated fair value as of December
31, 2008 and 2007, 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.





F-9





Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars intables in thousands, except per
share amounts)








Accounts
receivable-long-term





Accounts
receivable–long-term result from product sales with extended payment terms that
are discounted to their present values at the prevailing market rates. In
subsequent periods, the accounts receivable are increased to the amounts due and
payable by the customers through the accretion of interest income on the unpaid
accounts receivable due in future years. The amounts due under these long-term
accounts receivable due within one year are reclassified to the current portion
of accounts receivable.





Comprehensive
Income





Comprehensive
income consists of net income for the period, the impact of unrealized foreign
currency translation adjustments and unrealized gains or losses on
investments.  The foreign currency translation adjustments are not
currently adjusted for income taxes as they relate to permanent investments in
international subsidiaries.





Revenue
Recognition





The
Company records revenues from sales transactions when title to products sold
passes to the customer. Usual sales terms are FOB shipping point, at which
time title and risk of loss has passed to the customer and delivery has
occurred.  Revenue is recognized in accordance with Statements of
Position (“SOP”) 97-2 “ Software Revenue Recognition”, 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". The majority of the Company’s revenues relates to physical products and
is recognized on a gross basis with the selling price to the customer recorded
as net sales with the acquisition cost of the product to the Company recorded as
cost of sales. At the time of sale, the Company also records an estimate for
sales returns based on historical experience. Certain software maintenance
products, third party services and extended warranties sold by the Company (for
which the Company is not the primary obligor) are recognized on a net basis.
Accordingly, such revenues are recognized in net sales either at the time of
sale or over the contract period, based on the nature of the contract, at the
net amount retained by the Company, with no cost of goods sold.





Vendor
rebates and price protection are recorded when earned as a reduction to cost of
sales or merchandise inventory, as applicable. Cooperative reimbursements from
vendors, which are earned and available, are recorded in the period the related
advertising expenditure is incurred. Cooperative reimbursements are recorded as
net sales in accordance with EITF 02-16 “Accounting by a Customer (including
reseller) for Certain Consideration Received from a Vendor.”





Stock-Based
Compensation





The
Company has stockholder-approved stock incentive plans for employees and
directors. Stock- based compensation is recognized in accordance with SFAS No.
123(R), "Share-Based Payment." For the years  ended December 31, 2008,
2007 and 2006 stock –based compensation includes 1) compensation cost for all
share-based payments granted prior to, but not yet vested as of, January 1,
2006, based on the grant date fair value estimated in accordance with the
original provisions of Statement 123; and 2) compensation cost for all
share-based payments granted on or after January 1, 2006, based on the grant
date fair value estimated in accordance with Statement 123(R).





F-10





Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars
in tables inthousands, except per share amounts)








Income
Taxes





The
Company utilizes the 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 2006,
2007, and 2008 amounted to approximately $2.4 million, $1.4 million and $2.4
million, respectively.





Impact
of Accounting Pronouncements





As of
December 31, 2008, the Financial Accounting Standards Board (“FASB”) issued
several pronouncements of significance to the Company which are discussed in
detail below.





In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS No. 162"), which identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States.  The FASB believes that the GAAP hierarchy should be
directed to entities because it is the entity (not its auditor) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. SFAS No. 162 is effective 60 days
following the Securities and Exchange Commission’s approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting
Principles.”The
Company does not expect the adoption of SFAS No. 162 to have a material effect
on its  consolidated financial statements.





In June
2008, the FASB issued FASB Staff Position EITF 03-6-1, "Determining Whether
Instruments Granted in Share-Based Payment Transactions are Participating
Securities" ("EITF 03-6-1"). EITF 03-6-1 applies to the calculation of earnings
per share for share-based payment awards with rights to dividends or dividend
equivalents under Statement No. 128, “Earnings Per Share.” Unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents will be considered participating securities and will be included in
the computation of earnings per share pursuant to the two-class method. The
effective date of EITF 03-6-1 is for financial statements issued for fiscal
years beginning after December 15, 2008, and all interim periods within those
years. Early adoption is not permitted. Once effective, all prior period
earnings per share data presented will be adjusted
retrospectively.  The Company is currently evaluating the potential
impact, if any, the adoption of EITF 03-6-1 may have on
its  consolidated financial statements.








F-11





Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars intables in thousands,
except per share amounts)








3.  Marketable
securities





Investments in
available-for-sale securities at December 31, 2008 were:




Cost
              
              
              Market
      value
              
              
              Unrealized gain
      (loss)U.S.
      Government Securities
              
              $
              8,057
              
              
              $
              8,087
              
              
              $
              30Certificates of
      deposit
              
              
              1,284
              
              
              
              1,280
              
              
              $
              (4
              )Total
      Marketable securities
              
              $
              9,341
              
              
              $
              9,367
              
              
              $
              26








The cost and
market value of our investments at December 31, 2008 by contractual maturity
were:




EstimatedCost
              
              Fair
      ValueDue in
      one year or less
              
              $
              9,341
              
              
              $
              9,367






Investments in
available-for-sale securities at December 31, 2007 were:




Cost
              
              
              Market
      value
              
              
              Unrealized
      gainU.S.
      Government Securities
              
              $
              9,633
              
              
              $
              9,641
              
              
              $
              8Total
      Marketable securities
              
              $
              9,633
              
              
              $
              9,641
              
              
              $
              8






The cost and
market value of our investments at December 31, 2007 by contractual maturity
were:




EstimatedCost
              
              Fair
      ValueDue in
      one year or less
              
              $
              9,633
              
              
              $
              9,641






Estimated fair
values of marketable securities are





4.  Fair
Value Measurements





Effective
January 1, 2008, the Company adopted SFAS No. 157. SFAS No. 157
defines fair value, establishes a framework for measuring fair value under
generally accepted accounting principles and expands disclosures about fair
value measurements. In February 2008, the FASB issued FSP 157-2, “Partial
Deferral of the Effective Date of Statement 157,” which deferred the effective
date of SFAS No. 157 for all nonfinancial assets and nonfinancial
liabilities , except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually), to fiscal years
beginning after November 15, 2008. The Company uses the following methods
for determining fair value in accordance with SFAS No. 157. For assets and
liabilities that are measured using quoted prices in active markets for the
identical asset or liability, the total fair value is the published market price
per unit multiplied by the number of units held without consideration of
transaction costs (Level 1). Assets and liabilities that are measured using
significant other observable inputs are valued by reference to similar assets or
liabilities, such as quoted prices for similar assets or liabilities, quoted
prices in markets that are not active, or other inputs that are observable or
can be corroborated by observable market data (Level 2). For all remaining
assets and liabilities for which there are no significant observable inputs,
fair value is derived using an assessment of various discount rates, default
risk, credit quality and the overall capital market liquidity (Level
3).





F-12





Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars
in tables inthousands, except per share amounts)





The
following table summarizes the basis used to measure certain financial assets
and liabilities at fair value on a recurring basis in the consolidated balance
sheet:





Fair Value Measurements at December 31, 2008 Using(In
      thousands)
                          Description
                        Balance
      at
                          December 31,
                          2008
                        
                        Quoted Prices
                          in
      Active
                          Markets
      for
                          Identical
      Items
                          (Level
      1)
                        
                        Significant
                          Other
                          Observable
                          Inputs
                          (Level
      2)
                        
                        Significant
                          Unobservable
                          Inputs
                          (Level
      3)U.S.
      Government Securities
                        
                        $
                        8,087
                        
                        
                        $
                        8,087
                        
                        
                        $
                        -
                        
                        
                        $Certificates
      of deposit
                        
                        $
                        1,280
                        
                        
                        
                        
                        
                        
                        $
                        1,280




U.S. Government
Securities - U.S. government securities are valued using quoted
market prices. Accordingly, U.S. government securities are categorized in
Level 1 of the fair value hierarchy.




Certificates of
deposit-The fair value of certificates of deposit is estimated
using third-party quotations. These deposits are categorized in Level 2 of the
fair value hierarchy.




5.
Balance Sheet Detail





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





2007
                        
                        
                        2008Equipment
                        
                        $
                        2,391
                        
                        
                        $
                        2,330Leasehold
      improvements
                        
                        
                        542
                        
                        
                        
                        5492,933
                        
                        
                        
                        2,879Less
      accumulated depreciation and amortization
                        
                        
                        (2,314
                        )
                        
                        
                        (2,330
                        )$
                        619
                        
                        
                        $
                        549











F-13





Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars
in tables inthousands, except per share amounts)





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





2007
                    
                    
                    2008Trade
      accounts payable
                    
                    $
                    30,597
                    
                    
                    $
                    21,212Other
      accrued expenses
                    
                    
                    1,503
                    
                    
                    
                    2,184$
                    32,100
                    
                    
                    $
                    23,396




6.  Income
Taxes





Deferred
tax attributes resulting from differences between financial and accounting
amounts and tax basis of assets and liabilities at December 31, 2007 and 2008
are as follows:





December
      31,2007
                
                
                2008Current
      assetsAccruals
      and reserves
                
                $
                465
                
                
                $
                441Goodwill
                
                
                271
                
                
                
                271Net
      operating loss carry forwards
                
                
                5
                
                
                
                -Business
      credits
                
                
                89
                
                
                
                -Net
      current deferred tax assets
                
                $
                830
                
                
                $
                712





Non-current
      assetsAccruals
      and reserves
                    
                    $
                    236
                    
                    
                    $
                    236Depreciation
                    
                    
                    147
                    
                    
                    
                    158Goodwill
                    
                    
                    703
                    
                    
                    
                    414Net non-current deferred tax
      assets
                    
                    $
                    1,086
                    
                    
                    $
                    808Total deferred tax
      assets
                    
                    $
                    1,916
                    
                    
                    $
                    1,520








F-14





Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars
in tables inthousands, except per share amounts)











The
provision for income taxes is as follows:





Year
      ended December 31,2006
                      
                      
                      2007
                      
                      
                      2008Current:Federal
                      
                      $
                      851
                      
                      
                      $
                      1,036
                      
                      
                      $
                      1,356State
                      
                      
                      135
                      
                      
                      
                      -
                      
                      
                      
                      213Canada
                      
                      
                      79
                      
                      
                      
                      236
                      
                      
                      
                      2041,065
                      
                      
                      
                      1,272
                      
                      
                      
                      1,773Deferred:Federal
                      
                      
                      833
                      
                      
                      
                      830
                      
                      
                      
                      280State
                      
                      
                      381
                      
                      
                      
                      340
                      
                      
                      
                      1151,214
                      
                      
                      
                      1,170
                      
                      
                      
                      395$
                      2,279
                      
                      
                      $
                      2,442
                      
                      
                      $
                      2,168Effective
      Tax Rate
                      
                      
                      41.1
                      %
                      
                      
                      39.7
                      %
                      
                      
                      40.6
                      %





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





Year
      ended December 31,2006
                  
                  
                  2007
                  
                  
                  2008Statutory
      rate applied to pretax income
                  
                  $
                  1,885
                  
                  
                  $
                  2,089
                  
                  
                  $
                  1,813State
      income taxes, net of benefit
                    of
      federal income taxes
                  
                  
                  321
                  
                  
                  
                  333
                  
                  
                  
                  239Foreign
      income taxes over U.S.
                    statutory
      rate
                  
                  
                  12
                  
                  
                  
                  35
                  
                  
                  
                  31Other
      items
                  
                  
                  61
                  
                  
                  
                  (15
                  )
                  
                  
                  85Income
      tax expense
                  
                  $
                  2,279
                  
                  
                  $
                  2,442
                  
                  
                  $
                  2,168





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.





In June
2006, the FASB issued Financial Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109”
(“FIN 48”), which is a change in accounting for income taxes. FIN 48 specifies
how tax benefits for uncertain tax positions are to be recognized, measured, and
derecognized in financial statements; requires certain disclosures of uncertain
tax matters; specifies how reserves for uncertain tax positions should be
classified on the balance sheet; and provides transition and interim period
guidance, among other provisions.








F-15





Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars intables inthousands, except per
share amounts)








The
Company has adopted the provisions of FIN 48 as of January 1,
2007, and has analyzed filing positions in all of the federal and state
jurisdictions where it is required to file income tax returns, as well as all
open tax years in these jurisdictions. The Company has identified its
federal consolidated tax return and its state tax return in New Jersey and its
Canadian tax return as “major” tax jurisdictions, as defined. The only periods
subject to examination for the Company's federal return are the 2005 through
2008 tax years. The audit of the tax year 2004 has been completed, with no
adjustments proposed by the Internal Revenue Service.  The Company’s
2006 and 2007 federal consolidated tax returns are currently being examined by
the Internal Revenue Service. The current periods subject to examination for the
Company's state returns in New Jersey are years 2004 through 2008. The
current periods subject to examination for the Company’s Canadian tax returns
are the years 2004 through 2008. The State of New Jersey is currently in the
process of examining tax years 2004- 2006. The Company did not record a
cumulative effect adjustment related to the adoption of FIN 48.





A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:




Federal,
      State and Foreign TaxBalance
      at January 1, 2008
                    
                    $
                    230Additions
      based on tax positions related to current year
                    
                    
                    -Gross
      Unrecognized Tax Benefit at December 31, 2008
                    
                    $
                    230Net  Unrecognized
      Tax Benefit at December 31, 2008
                    
                    $
                    78





The net
Unrecognized Tax Benefit is included as a component of Other Liabilities within
the Consolidated Balance Sheet. Interest expense and penalties related to
unrecognized tax benefits are classified as income tax expense.





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





Year
      ended December 312006
                  
                  
                  2007
                  
                  
                  2008United
      States
                  
                  $
                  5,350
                  
                  
                  $
                  5,556
                  
                  
                  $
                  4,825Canada
                  
                  
                  197
                  
                  
                  
                  589
                  
                  
                  
                  509$
                  5,547
                  
                  
                  $
                  6,145
                  
                  
                  $
                  5,334





7.  Stockholder’s
Equity and Stock Based Compensation





The
Company’s 1986 Employee Stock Option Plan (“1986 Plan”), as amended on
June 15, 1994, provides for the grant of options to purchase up to
698,133 shares of the Company’s Common Stock to employees, officers and
directors of the Company.  The terms of the options are for a maximum
of ten 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.








F-16





Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars intables inthousands, except per
share amounts)








On
April 21, 1995, the Board of Directors adopted the Company’s 1995
Non-Employee Director Plan (“1995 Director Plan”).  The 1995 Director
Plan, as amended on May 7, 1998, provides for the grant of options to purchase
up to 187,500 shares of the Company’s Common Stock to persons who are
members of the Company’s Board of Directors and not employees or officers of the
Company.





The 1995
Director Plan requires that options granted there under will expire ten years
from the date of grant.  Each option granted under the 1995 Director
Plan becomes exercisable over a five year period, and vests in an installment of
20% of the total option grant upon the expiration of one year from the date of
the option grant, and thereafter vests in equal quarterly installments of
5%.





In
February 2002, the Board of Directors approved a plan permitting all option
holders under the 1986 Plan and the 1995 Plan to surrender all or any portion of
their options on or before March 1, 2002. By March 1, 2002, a total of 7,875
options to purchase the Company’s Common Stock under the 1986 option plan and
303,550 options to purchase the Company’s Common Stock under the 1995 Plan were
surrendered, of which 305,175 were surrendered by the Company’s executive
officers. All of the options surrendered were exercisable in excess of the
market price of the underlying Common Stock as of the dates of
surrender.





At the
annual stockholder’s meeting held on June 14, 2006, the Company’s stockholders
approved the 2006 Stock-Based Compensation Plan (the “2006 Plan”). The 2006 Plan
authorizes the grant of Stock Options, Stock Units, Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Stock Bonuses, and other equity-based awards.
The number of shares of Common Stock initially available under the 2006 Plan is
800,000. The number of shares of common stock available for future award grants
to employees and directors under this plan is 413,500.





In August
of 2006, the Company granted a total of 315,000 shares of restricted common
stock to officers, directors and employees. Included in this grant were 200,000
restricted shares granted to the Company’s CEO in accordance with his employment
agreement. These 200,000 restricted shares vest over 120 months. The remaining
shares granted vest over 60 months.





During
2007, the Company granted a total of 30,000 shares of restricted stock to
officers, directors and employees. These shares vest over 60 months. A total of
12,500 shares of restricted common stock were forfeited as a result of employees
and officers terminating employment with the Company.





During
2008, the Company granted a total of 57,500 shares of restricted stock to
officers, directors and employees. These shares vest over 60 months. A total of
3,500 shares of restricted common stock were forfeited as a result of employees
and officers terminating employment with the Company.





F-17





Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars
intables in
thousands, except per share amounts)





Changes
during 2006, 2007 and 2008 in options outstanding for the combined plans were as
follows:





Number
                  of
                  Options
                
                
                Weighted
      Average Exercise PriceOutstanding
      at January 1, 2006
                
                
                892,890
                
                
                $
                6.46Granted
      in 2006
                
                
                -
                
                
                
                -Canceled
      in 2006
                
                
                -
                
                
                
                -Exercised
      in 2006
                
                
                (290,555
                )
                
                
                4.19Outstanding
      at December 31, 2006
                
                
                602,335
                
                
                
                7.56Granted
      in 2007
                
                
                -
                
                
                
                -Canceled
      in 2007
                
                
                -
                
                
                
                -Exercised
      in 2007
                
                
                (159,445
                )
                
                
                6.75Outstanding
      at December 31, 2007
                
                
                442,890
                
                
                
                7.85Granted
      in 2008
                
                
                -
                
                
                
                -Canceled
      in 2008
                
                
                (5,000
                )
                
                
                12.85Exercised
      in 2008
                
                
                (45,000
                )
                
                
                4.96Outstanding
      at December 31, 2008
                
                
                392,890
                
                
                
                8.12Exercisable
      at December 31, 2008
                
                
                392,890
                
                
                $
                8.12





The
options exercisable at December 31, 2007 and 2008 were 442,890 and 392,890,
respectively.





The
aggregate intrinsic value of options outstanding and options exercisable as of
December 31, 2008 was $0.2 million. The intrinsic value is calculated as
the difference between the market value as of December 31, 2008 and the
exercise price of the shares. The market value as of December 31, 2008 was
$7.00 as reported by The NASDAQ Global Market.





Stock
options outstanding at December 31, 2008 are summarized as
follows:





Range
      of Exercise
                  Prices
                
                Outstanding
      Options as of
                  December
      31, 2008
                
                
                Weighted
      Average RemainingContractual Life
                
                
                Weighted
      Average Exercise Price
                
                
                Options
      Exercisable
                  as
      of
                  December 31,
      2008
                
                
                Weighted
      AverageExercise
                  Price$
                2.00
      – $2.99
                
                
                
                18,500
                
                
                
                3.7
                
                
                $
                2.13
                
                
                
                18,500
                
                
                $
                2.133.00
      – 6.99
                
                
                
                28,750
                
                
                
                1.5
                
                
                
                3.73
                
                
                
                28,750
                
                
                
                3.737.00
      – 9.99
                
                
                
                290,000
                
                
                
                5.4
                
                
                
                8.03
                
                
                
                290,000
                
                
                
                8.0310.00–12.99
                
                
                
                55,640
                
                
                
                6.3
                
                
                
                12.85
                
                
                
                55,640
                
                
                
                12.85392,890
                
                
                
                5.2
                
                
                $
                8.12
                
                
                
                392,890
                
                
                $
                8.
      12





Under the
various plans, options that are cancelled can be reissued. At December 31,
2008 no options were reserved for future issuance.





F-18





Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars
in tables inthousands, except per share
amounts)





A summary
of nonvested shares of restricted stock awards outstanding under the Company’s
2006 Plan as of December 31, 2008 and changes during the year then ended is as
follows:





Shares
                  
                  
                  Weighted
      Average Grant Date
                    Fair
      ValueNonvested
      shares at January 1, 2006
                  
                  
                  -
                  
                  
                  $
                  -Granted
      in 2006
                  
                  
                  315,000
                  
                  
                  
                  13.68Vested
      in 2006
                  
                  
                  (21,500
                  )
                  
                  
                  13.77Forfeited
      in 2006
                  
                  
                  -
                  
                  
                  
                  -Nonvested
      shares at December 31, 2006
                  
                  
                  293,500
                  
                  
                  
                  13.68Granted
      in 2007
                  
                  
                  30,000
                  
                  
                  
                  12.69Vested
      in 2007
                  
                  
                  (43,750
                  )
                  
                  
                  13.76Forfeited
      in 2007
                  
                  
                  (12,500
                  )
                  
                  
                  14.57Nonvested
      shares at December 31, 2007
                  
                  
                  267,250
                  
                  
                  
                  13.47Granted
      in 2008
                  
                  
                  57,500
                  
                  
                  
                  10.68Vested
      in 2008
                  
                  
                  (56,500
                  )
                  
                  
                  13.00Forfeited
      in 2008
                  
                  
                  (3,500
                  )
                  
                  
                  14.85Nonvested
      shares at December 31, 2008
                  
                  
                  264,750
                  
                  
                  
                  12.76





As of
December 31, 2008, there was approximately $3.38 million of total unrecognized
compensation cost related to nonvested share-based compensation arrangements.
The unrecognized compensation cost is expected to be recognized over a
weighted-average period of 5.79 years.





For the
years ended December 31, 2006, 2007 and 2008, we recognized share-based
compensation cost of approximately $0.3 million, $0.6 million and $0.7 million,
respectively, which is included in general and administrative
expenses.  The Company does not capitalize any share-based
compensation cost.





The
actual tax benefits realized from non-qualified stock option exercises totaled
$0.9, $0.5 and $0 million for the years ended December 31, 2006, 2007 and
2008, respectively. In accordance with FSP 123(R)-3, in the Consolidated
Statement of Cash Flows, the Company classified tax benefits from stock option
exercises as cash provided by financing activities.





8.  Defined
Contribution Plan





The
Company maintains a defined contribution plan covering substantially all
domestic employees. Participating employees may make contributions to the plan,
through payroll deductions. Matching contributions are made by the Company equal
to 50% of the employee’s contribution to the extent such employee contribution
did not exceed 6% of their compensation.  During the years ended
December 31, 2006, 2007 and 2008, the Company expensed approximately $118
thousand, $121 thousand and $130 thousand, respectively, related to this
plan.








F-19





Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars
in tables inthousands, except per share amounts)





9.  Commitments
and Contingencies





Leases





Operating
leases relate to the lease of the space used for our operations in Shrewsbury,
New Jersey and Mississauga, Canada as well as our former sales office in
Hauppauge New York. The commitments for operating leases include the minimum
rent payments and a proportionate share of operating expenses and property
taxes.





2009
                
                $
                4292010
                
                
                3752011
                
                
                3222012
                
                
                3082013
                
                
                -$
                1,434





Rent
expense for the years ended December 31, 2006, 2007 and 2008 was approximately
$516 thousand, $380 thousand and $371 thousand, respectively.





Employment
Agreements




In the
second quarter of 2007 the Vice President of Marketing and Business Development
resigned from his position with the Company.




In
connection with the resignation, the Company issued a letter (the "Resignation
Letter").  Pursuant to the Resignation Letter, the Company will pay
the former executive his current salary of $150 thousand (plus payments for
unused vacation time) in 24 equal semimonthly installments. The
Company  expensed the $150 thousand ratably over the term of the
consulting agreement which is one year following the Resignation
Letter.





In the
event that Simon Nynens’, President and Chief Executive officer, employment is
terminated without cause or by the rendering of a non-renewal notification, he
is entitled to receive severance payments equal to twelve months salary and
immediate vesting of all outstanding stock awards. Additionally, in the event
that a change of control of the Company occurs (as described in the employment
agreement), Mr. Nynens outstanding stock awards become immediately vested and he
is entitled to the pro-rata performance bonus based upon stock price at the date
of such change in control.





The
Company has entered into a letter agreement with Mr. Legrottaglie, Vice
President of Information Systems.  Mr. Legrottaglie is entitled to
severance payments for six months at the then applicable annual base salary if
the Company terminates his employment for any reason other than for
cause.





F-20





Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars
intables in
thousands, except per share amounts)





Other





The
Company is not committed by lines of credit, standby letters of credit, has no
standby repurchase obligations or other commercial commitments. Other than
employment arrangements and other management compensation arrangements, the
Company is not engaged in any transactions with related parties.





10.
Industry, Segment and Geographic Information





The
Company markets software to software development and information technology
professionals in the United States and Canada.





Geographic
revenue and identifiable assets related to operations as of and for the years
ended December 31, 2006, 2007 and 2008 were as follows


2006
                                                    
                                                    
                                                    2007
                                                    
                                                    
                                                    2008Net
      sales to Unaffiliated Customers:United
      States
                                                    
                                                    $
                                                    159,285
                                                    
                                                    
                                                    $
                                                    156,602
                                                    
                                                    
                                                    $
                                                    155,193Canada
                                                    
                                                    
                                                    23,034
                                                    
                                                    
                                                    
                                                    23,263
                                                    
                                                    
                                                    
                                                    18,832Total
                                                    
                                                    $
                                                    182,319
                                                    
                                                    
                                                    $
                                                    179,865
                                                    
                                                    
                                                    $
                                                    174,025Identifiable
      Assets by Geographic Areas at December 31,
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    2007
                                                    
                                                    
                                                    2008United
      States
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    $
                                                    50,499
                                                    
                                                    
                                                    $
                                                    44,690Canada
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    6,254
                                                    
                                                    
                                                    
                                                    2,795Total
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    $
                                                    56,753
                                                    
                                                    
                                                    $
                                                    47,485








SFAS No.
131, “Disclosures about Segments of an Enterprise and Related Information,”
requires that public companies report profits and losses and certain other
information on their “reportable operating segments” in their annual and interim
financial statements. The internal organization used by our Chief





Operating
Decision Maker (CODM) to assess performance and allocate resources determines
the basis for our reportable operating segments. Our CODM is our Chief Executive
Officer.





As of
January 1, 2006 we have organized our Company into two reportable operating
segments — the “Programmer’s Paradise” segment, which sells technical software,
hardware and services directly to end-users (such as individual programmers,
corporations, government agencies, and educational institutions) and the
“Lifeboat” segment, which distributes technical software to corporate resellers,
VARs, consultants and systems integrators.





As
permitted by SFAS No. 131, we have utilized the aggregation criteria in
combining our operations in Canada with the domestic segments because they
provide the same products and services to similar clients and are considered
together when the CODM decides how to allocate resources.








F-21





Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars
intables in
thousands, except per share amounts)





Segment
income is based on segment revenue less the respective segments cost of revenues
as well as segment direct costs (including such items as payroll costs and
payroll related costs, such as profit sharing, incentive awards and insurance)
and excluding general and administrative expenses not attributed to a business
unit. The Company only identifies accounts receivable and inventory by segment
as shown below as “Selected Assets”; it does not allocate its other assets,
including capital expenditures by segment.





Year
      EndedDecember
      31,Revenue:
                                      
                                      2006
                                      
                                      
                                      2007
                                      
                                      
                                      2008Programmer’s
      Paradise
                                      
                                      $
                                      53,744
                                      
                                      
                                      $
                                      44,814
                                      
                                      
                                      $
                                      56,893Lifeboat
                                      
                                      
                                      128,575
                                      
                                      
                                      
                                      135,051
                                      
                                      
                                      
                                      117,132182,319
                                      
                                      
                                      
                                      179,865
                                      
                                      
                                      
                                      174,025Gross
      Profit:Programmer’s
      Paradise
                                      
                                      $
                                      7,284
                                      
                                      
                                      $
                                      5,781
                                      
                                      
                                      $
                                      6,509Lifeboat
                                      
                                      
                                      9,685
                                      
                                      
                                      
                                      11,454
                                      
                                      
                                      
                                      10,28816,969
                                      
                                      
                                      
                                      17,235
                                      
                                      
                                      
                                      16,797Direct
      Costs:Programmer’s
      Paradise
                                      
                                      $
                                      3,386
                                      
                                      
                                      $
                                      2,891
                                      
                                      
                                      $
                                      2,876Lifeboat
                                      
                                      
                                      2,193
                                      
                                      
                                      
                                      2,885
                                      
                                      
                                      
                                      2,9155,579
                                      
                                      
                                      
                                      5,776
                                      
                                      
                                      
                                      5,791Income
      Before Taxes:Programmer’s
      Paradise
                                      
                                      
                                      3,899
                                      
                                      
                                      
                                      2,890
                                      
                                      
                                      
                                      3,632Lifeboat
                                      
                                      
                                      7,491
                                      
                                      
                                      
                                      8,569
                                      
                                      
                                      
                                      7,373Segment
      Income
                                      
                                      
                                      11,390
                                      
                                      
                                      
                                      11,459
                                      
                                      
                                      
                                      11,005General
      and administrative
                                      
                                      
                                      6,584
                                      
                                      
                                      
                                      6,305
                                      
                                      
                                      
                                      6,415Interest
      income
                                      
                                      
                                      738
                                      
                                      
                                      
                                      989
                                      
                                      
                                      
                                      741Foreign
      currency translation gain (loss)
                                      
                                      
                                      3
                                      
                                      
                                      
                                      2
                                      
                                      
                                      
                                      3Income
      before taxes
                                      
                                      $
                                      5,547
                                      
                                      
                                      $
                                      6,145
                                      
                                      
                                      $
                                      5,334Selected
      Assets By Segment:Programmer’s
      Paradise
                                      
                                      
                                      
                                      
                                      
                                      $
                                      8,593
                                      
                                      
                                      $
                                      18,329Lifeboat
                                      
                                      
                                      
                                      
                                      
                                      
                                      17,347
                                      
                                      
                                      
                                      7,529Segment
      Select Assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      25,940
                                      
                                      
                                      
                                      25,858Corporate
      Assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      30,813
                                      
                                      
                                      
                                      21,627Total
      Assets
                                      
                                      
                                      
                                      
                                      
                                      $
                                      56,753
                                      
                                      
                                      $
                                      47,485





The
Company had no major customers that accounted for more than 10% of total sales
for 2008. One customer, CDW Corporation, accounted for 10.9% and 15.8% of
consolidated net sales in 2007 and 2006, respectively. Our top five customers
accounted for 31%, 28%, and 28% of consolidated net sales in 2008, 2007 and
2006, respectively.





F-22





Wayside
Technology Group, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Dollars
in tables in
thousands, except per share amounts)





11. Loss on Lease





During
the second quarter of 2006, the Company made the decision to close down and
sublease it sales office in Hauppauge, New York. Based on forecasted sublease
income compared to estimated expenses, the Company recorded a liability and took
a charge of approximately $97 thousand during the second quarter of
2006.





The
Company’s tenant terminated its sublease in December 2007. After considering
information provided by the Company’s leasing agent the Company took an
additional charge of $76 thousand in the fourth quarter of 2007.





In 2008,
the Company took an additional charge of $141 thousand as it was determined that
due to the downturn in the commercial real estate market in Long Island and with
only a short time remaining on our lease that it would be unlikely to secure
another subtenant.





12.
Quarterly Results of Operations (Unaudited)





The
following table presents summarized quarterly results for 2008:


First
                        
                        
                        Second
                        
                        
                        Third
                        
                        
                        FourthNet
      sales
                        
                        $
                        40,506
                        
                        
                        $
                        48,096
                        
                        
                        $
                        45,392
                        
                        
                        $
                        40,031Gross
      profit
                        
                        
                        3,745
                        
                        
                        
                        4,298
                        
                        
                        
                        4,252
                        
                        
                        
                        4,501Net
      income
                        
                        
                        629
                        
                        
                        
                        823
                        
                        
                        
                        811
                        
                        
                        
                        903Basic
      net income per common share
                        
                        $
                        0.14
                        
                        
                        $
                        0.19
                        
                        
                        $
                        0.18
                        
                        
                        $
                        0.21Diluted
      net income per common share
                        
                        $
                        0.14
                        
                        
                        $
                        0.18
                        
                        
                        $
                        0.18
                        
                        
                        $
                        0.20





The
following table presents summarized quarterly results for 2007:


First
                          
                          
                          Second
                          
                          
                          Third
                          
                          
                          FourthNet
      sales
                          
                          $
                          46,922
                          
                          
                          $
                          44,040
                          
                          
                          $
                          41,790
                          
                          
                          $
                          47,112Gross
      profit
                          
                          
                          4,455
                          
                          
                          
                          4,337
                          
                          
                          
                          4,126
                          
                          
                          
                          4,317Net
      income
                          
                          
                          990
                          
                          
                          
                          959
                          
                          
                          
                          822
                          
                          
                          
                          931Basic
      net income per common share
                          
                          $
                          0.23
                          
                          
                          $
                          0.22
                          
                          
                          $
                          0.19
                          
                          
                          $
                          0.21Diluted
      net income per common share
                          
                          $
                          0.21
                          
                          
                          $
                          0.20
                          
                          
                          $
                          0.18
                          
                          
                          $
                          0.20





F-23





Wayside
Technology Group, Inc. and Subsidiaries


Schedule
II--Valuation and Qualifying Accounts


(In
Thousands)





Description
                      
                      Beginning
                        Balance
                      
                      
                      Charged
      to Cost and Expense
                      
                      
                      Deductions
                      
                      
                      Ending
      BalanceYear
      ended December 31, 2006Allowances
      for accounts receivable
                      
                      $
                      1,231
                      
                      
                      $
                      501
                      
                      
                      $
                      786
                      
                      
                      $
                      946Reserve
      for inventory obsolescence
                      
                      $
                      31
                      
                      
                      $
                      62
                      
                      
                      $
                      41
                      
                      
                      $
                      52Year
      ended December 31, 2007Allowances
      for accounts receivable
                      
                      $
                      946
                      
                      
                      $
                      109
                      
                      
                      $
                      147
                      
                      
                      $
                      908Reserve
      for inventory obsolescence
                      
                      $
                      52
                      
                      
                      $
                      (2
                      )
                      
                      $
                      11
                      
                      
                      $
                      39Year
      ended December 31, 2008Allowances
      for accounts receivable
                      
                      $
                      908
                      
                      
                      $
                      457
                      
                      
                      $
                      279
                      
                      
                      $
                      1,086Reserve
      for inventory obsolescence
                      
                      
                      39
                      
                      
                      $
                      15
                      
                      
                      $
                      (2
                      )
                      
                      $
                      56











F-24