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, 2010
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ______________ to _______________
OR
Commission file number: 000-26408
WAYSIDE TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
13-3136104
(IRS Employer Identification Number)
1157 Shrewsbury Avenue, Shrewsbury, New Jersey
(Address of principal executive offices)
07702
(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 Registered
Common Stock, par value $0.01 per share
Securities registered pursuant to section 12(g) of the Act: None
The Nasdaq Global Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No x
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or other information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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 Accelerated filer Non-
accelerated filer Smaller Reporting Company X
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No X
The aggregate market value of the Common Stock held by non-affiliates of the Registrant computed by reference to the closing sale
price for the Registrant's Common Stock as of June 30, 2010, 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 $33,966,352 (In determining the
market value of the Common Stock held by any non-affiliates, shares of Common Stock of the Registrant beneficially owned by
directors, officers and holders of more than 10% of the outstanding shares of Common Stock of the Registrant have been excluded.
This determination of affiliate status is not necessarily a conclusive determination for other purposes.)
The number of shares outstanding of the Registrant's Common Stock as of February 10, 2011 was 4,753,738 shares.
Documents Incorporated by Reference: Portions of the Registrant's definitive Proxy Statement for its 2011 Annual Meeting of
Stockholders to be filed on or before April 30, 2011 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 an information technology
(“IT”) channel company. We resell software and hardware developed by others and provide technical
services directly to customers in the United States and Canada. We also distribute software through resellers
indirectly to customers worldwide. We offer an extensive line of products from leading publishers of
software and tools for virtualization, networking, software development, database modeling, security, and
other technically sophisticated domains.
Wayside Technology Group, Inc. was incorporated in Delaware in 1982. Our Common Stock is listed on
is
the Nasdaq Global Market under
www.waysidetechnology.com, and
include
www.lifeboatdistribution.com, www.programmers.com, and www.techxtend.com. Reference to these
“uniform resource locators” or “URLs” is made as an inactive textual reference for informational purposes
only. Information on our web sites should not be considered filed with the Securities and Exchange
Commission, and is not, and should not be deemed to be, a part of this report.
the symbol “WSTG”. Our main web site address
the other web sites maintained by our business
The Company operates through two segments, Lifeboat Distribution (“Lifeboat”) and Programmer's
Paradise (“Programmers”). The Lifeboat segment distributes technical software through a worldwide
network of corporate and value-added resellers, consultants, and systems integrators. The Programmer's
segment sells technical software, hardware, and services for microcomputers, servers, and networks to
individual programmers, corporations, government agencies, and educational institutions primarily in the
United States and Canada. 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.
Competition
The software market is highly competitive. Pricing is very aggressive in both software distribution
and reselling. The Company expects pricing pressure to continue. The Company faces competition from a
wide variety of sources. In the Lifeboat segment, we compete against much larger broad-line distributors, as
well as specialty distributors and, in some cases, the direct sales teams of the vendors we represent also sell
directly to the end-customers. In the Programmers segment, we also compete against vendors who sell
directly to customers, as well as software resellers, superstores, e-commerce vendors, and other direct
marketers of software products. In both segments, 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 or 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 to attract 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
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believes that its ability to offer software developers and in IT professionals a wide selection of products at
reasonable prices with prompt delivery and high customer service levels, along with its good relationships
with vendors and suppliers, allows 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.
The market for developer and infrastructure 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 continuing evolution of the Internet as a platform in which to conduct e-commerce business
transactions has both lowered the barriers for competition and broadened customer access to products and
information, increasing competition and reducing prices. 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, however, attempted to completely bypass the reseller channel. There
can be no assurances, 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 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 Technologies Inc., Quest Software, Inc., GFI Software, Intel Corporation,
Infragistics, TechSmith Corporation, Flexera Corp., Acronis, Solarwinds, and Veeam Corporation. On a
continuous basis, we screen new products 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%, 7% and 4%, of our
overall revenue in 2010, 2009 and 2008, respectively.
Marketing and Distribution
We market products through creative marketing communications, including our web sites, local and
on-line seminars, print and electronic catalogs. We also use direct e-mail and printed material to introduce
new products and upgrades, to cross-sell products to current customers, and to educate and inform existing
and potential customers. We believe that our blend of electronic and traditional marketing and selling
programs are important marketing vehicles for software publishers and manufacturers. These programs
provide a cost-effective and service-oriented means to market and sell and fulfill software products and
meet the needs of users.
The Company had one customer that accounted for more than 10% of total sales for 2010. For the
year ended December 31, 2010, CDW Corporation accounted for 15.8% of consolidated net sales and, as of
December 31, 2010, 12.8% of total net accounts receivable. For the year ended December 31, 2009, CDW
Corporation and Software House International accounted for 10.5% and 10.7%, respectively, of
consolidated net sales. The Company had no major customers that accounted for more than 10% of total
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sales for 2008. Our top five customers accounted for 44%, 36%, and 31% of consolidated net sales in 2010,
2009 and 2008, respectively. The Company generally ships products within 48 hours of confirming a
customer’s order. This allows for minimum backlog in the business.
Sales in Canada represented 7% of our consolidated revenues in 2010, as compared to 8% in 2009,
and 11% in 2008. Sales in Canada increased in absolute dollars in 2010 as compared to 2009, but decreased
as a percentage of consolidated revenues due to overall increased sales volume in other regions. 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. Moreover, 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, 2010, Quest was the only individual vendor from whom our
purchases exceeded 10%. For the year ended December 31, 2010 Quest accounted for 11.2% of our total
purchases. For the year ended December 31, 2009, Quest was similarly the only individual vendor from
whom our purchases exceeded 10%, representing 10.2% of our total purchases. For the year ended
December 31, 2008, VMware and Quest accounted for 23.3% and 13%, respectively, of our total purchases.
VMware terminated its distributor agreement with Lifeboat Distribution, Inc. in 2008. As a result, our
Lifeboat segment ceased distributing VMware products as of October 1, 2008, the distribution of which had
accounted for $29.2 million, or 17% of our 2008 revenue. Although we successfully replaced VMware, the
loss of a key vendor or group of vendors, could disrupt our product availability and otherwise have an
adverse effect on the Company.
In 2010, the Company purchased approximately 90% of its products directly from manufacturers
and publishers and the balance from multiple distributors, as compared to 85% in 2009, and 90% in 2008.
Most suppliers or distributors will "drop ship" products directly to the customers, which reduces physical
handling by the Company. Inventory management techniques, such as “drop shipping” allow the Company
to offer a greater range of products without increased inventory requirements or associated risk.
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
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fulfillment and inventory control systems 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 of the product categories we carry.
The Company operates distribution facilities in Shrewsbury, New Jersey and Mississauga, Canada.
Management Information Systems
The Company operates management information systems on Windows 2003 and Windows 2008
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 real –
time 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 to us and are important factors
in our marketing programs.
Employees
As of December 31, 2010, Wayside Technology Group, Inc. and its subsidiaries had 102 full-time
employees and 1 part-time employee. The Company is not a party to any collective bargaining agreements
with its employees, has experienced no work stoppages and considers its relationships with its employees to
be satisfactory.
Executive Officers of the Company
Set forth below are the name, age, present title, principal occupation and certain biographical
information for our executive officers as of February 1, 2011, all of whom have been appointed by and
serve at the discretion of our board of directors.
Name
Simon F. Nynens
Richard J. Bevis
Daniel T. Jamieson
Vito Legrottaglie
Kevin T. Scull
Age
39
61
53
46
45
Position
Chairman, President and Chief Executive Officer
Vice President of Marketing
Vice President and General Manager - Lifeboat
Vice President - Operations
Vice President and Chief Accounting Officer
Page 5 of 27
Shawn J. Giordano
41
Vice President of Sales
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
of 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
had previously served as Vice President of Information Systems from 1999 to 2000 and had been with the
Company since 1996. Mr. Legrottaglie has also held the positions of Chief Technology Officer at Swell
Commerce Incorporated, Vice President of Operations for The Wine Enthusiast Companies and Director of
Information Systems at Barnes & Noble.
Kevin T. Scull was appointed Vice President and Chief Accounting Officer in January 2006. He
previously held the position 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, for Telcordia Inc. since December 2000 as Manager of Accounting Policies.
Shawn J. Giordano was appointed Vice President of Sales in August 2008. Mr. Giordano joined
Wayside Technology Group, Inc. in November 2007 as Senior Director of Sales for Programmer's Paradise
and TechXtend. Prior to joining Wayside Technology Group, Inc., 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
Page 6 of 27
following address for the Company's web site includes a hyperlink to those reports under “Financials/SEC
Filings”: http://www.waysidetechnology.com.
In January 2004, we adopted a Code of Ethical Conduct. The full text of the Code of Ethical
Conduct, which applies to all employees, officers and directors of the Company, including our Chief
Executive Officer, Chief Accounting Officer and our Controller is available at our web site,
http://www.waysidetechnology.com, under “Corporate Governance.” The Company intends to disclose any
amendment to, or waiver from, a provision of the Code of Ethical Conduct that applies to its Chief
Executive Officer, Chief Accounting Officer or Controller on its web site under “Investor Information.”
Reference to the “uniform resource locators” or “URLs” 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
from distributors. The loss of a supplier could cause a disruption in the availability of products.
Additionally, there is no assurance that as manufacturers continue to or increasingly sell directly to end
users and through the distribution channel, that they will not limit or curtail the availability of their products
to resellers like us. For example, resellers and publishers may attempt to increase the volume of software
products distributed electronically through ESD (Electronic Software Distribution) technology, through
subscription services, and through on-line shopping services, and correspondingly, decrease the volume of
products sold through us. Our inability to obtain a sufficient quantity of products, or an allocation of
products from a manufacturer in a way that favors one of our competitors, or competing distribution
channels, relative to us, could cause us to be unable to fill clients’ orders in a timely manner, or at all, which
could have a material adverse effect on our business, results of operations and financial condition. We also
rely on our suppliers to provide funds for us to market their products, including through our catalogs and
on-line marketing efforts, and to provide purchasing incentives to us. If any of the suppliers that have
historically provided these benefits to us decides to reduce such benefits, our expenses would increase,
adversely affecting our results of operations.
Page 7 of 27
The Lingering Effects of the Recent Economic Downturn May Reduce our Revenues and Profits.
The lingering ongoing effects of the general economic downturn continues to cause some of our current and
potential customers to delay or reduce technology purchases, resulting in longer sales cycles, slower
adoption of new technologies and increased price competition. We may, therefore, experience a greater
decline in demand for the products we sell, resulting in increased competition and pressure to reduce the
cost of operations. Any benefits from cost reductions may take longer to realize and may not fully mitigate
the impact of the reduced demand. In addition, weak financial and credit markets heighten the risk of
customer bankruptcies and create 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 operations and
financial condition.
The IT products and services industry is intensely competitive and actions of competitors,
including manufacturers of products we sell, can negatively affect our business. Competition has been
based primarily on price, product availability, speed of delivery, credit availability and quality and breadth
of product lines and, increasingly, also is 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 they distribute 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, or greater sales of services, which service sales 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 likely will be, dependent in large part upon our ability to provide
prompt and efficient service to clients. Our ability to provide such services is dependent largely on the
accuracy, quality and utilization of the information generated by our IT systems, which affect our ability to
manage our sales, client service, distribution, inventories and accounting systems and the reliability of our
voice and data networks.
We depend on certain key personnel. Our future success will be largely dependent on the efforts of
key management personnel. We also believe that our future success will be largely dependent on our
continued ability to attract and retain highly qualified management, sales, service and technical personnel.
We cannot assure you that we will be able to attract and retain such personnel. Further, we make a
significant investment in the training of our sales account executives. Our inability to retain such personnel
or to train them either rapidly enough to meet our expanding needs or in an effective manner for quickly
changing market conditions could cause a decrease in the overall quality and efficiency of our sales staff,
which could have a material adverse effect on our business, results of operations and financial condition.
Risks Related to Our Common Stock. The exercise of outstanding options 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 of 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
Page 8 of 27
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 of our stock than would
be the case if our public float were larger.
Our common stock is listed on the Nasdaq Global Market, and we therefore are subject to
continued listing requirements, include 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 if 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, 2013. 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. ( Removed and Reserved)
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.
2010
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$9.330
10.550
10.400
12.030
$7.750
8.950
8.540
9.620
Page 9 of 27
2009
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$7.970
7.630
8.880
8.990
$6.650
6.760
6.840
7.050
In 2010 and 2009, we declared quarterly dividends totaling $0.61 and $0.60 per share, respectively,
on our Common Stock. There can be no assurance that we will continue to pay comparable cash dividends
in the future.
During 2010, the Company granted a total of 150,500 shares of restricted stock to officers, and
employees. These shares vest over 60 months. A total of 5,875 shares of restricted Common Stock were
forfeited as a result of employees terminating employment with the Company.
During 2009, the Company granted a total of 140,000 shares of restricted stock to officers and
employees from treasury stock. These shares vest over 60 months in equal quarterly installments beginning
on May 5, 2009.
The share issuances in all of the above transactions were not registered under the Securities Act of
1933, as amended (the “Securities Act”). The issuances were exempt from registration pursuant to Section
4(2) of the Securities Act and/or Regulation D thereunder, as they were transactions by the issuer that did
not involve public offerings of securities and/or involved issuances to accredited investors.
As of February 11, 2011 there were approximately 36 record holders of our Common Stock.
During the fourth quarter of 2010, we repurchased shares of our Common Stock as follows:
Total
Number
of Shares
Purchased
Average
Price Paid
Per Share
(2)
Period
Total
Number of
Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
Average
Price
Paid Per
Share
(3)
October 1- October 31, 2010
-
$-
November 1- November 30, 2010
9,507(1)
$11.44
December 1 - December 31, 2010
Total
-
9,507
-
$11.44
-
-
-
-
$-
-
-
-
Maximum
Number of
Shares That
May Yet Be
Purchased
Under the Plans
or Programs
(4)
477,541
477,541
477,541
477,541
(1) Includes 9,507 shares surrendered to the Company by employees to satisfy individual tax withholding
obligations upon vesting of previously issued shares of Restricted Stock. These shares are not included in
the Common Stock repurchase program referred to in footnote (4) below.
(2) Average price paid per share reflects the closing price of the Company’s Common Stock on the business
date the shares were surrendered by the employee stockholder to satisfy individual tax withholding
Page 10 of 27
obligations upon vesting of Restricted Stock or the price of the Common Stock paid on the open market
purchase, as applicable.
(3) Average price paid per share reflects the price of the Company’s Common Stock purchased on the open
market.
(4) On October 9, 2002, our Board of Directors adopted a Common 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 of its Common Stock from time to time in the market or
otherwise subject to market conditions. The Common 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,
2005 and ending December 31, 2010, assuming $100 was invested on December 31, 2005 and the
reinvestment of dividends.
Company / Index
Wayside Technology Group, Inc.
S&P MidCap 400 Index
S&P 500 Computer & Electronics
Retail Index
Base
Period
Dec05
100
100
INDEXED RETURNS
Years Ending
Dec06 Dec07 Dec08 Dec09 Dec10
125.61
67.58
131.60
132.16
75.96
110.32
83.20
104.36
80.86
119.12
100
105.95
105.53
51.96
70.26
64.55
Page 11 of 27
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)
Consolidated Statement of Operations Data:
Net sales
Cost of sales
Gross profit
Selling, general and
administrative expenses
Income from operations
Other income, net
Income before income taxes
Income tax provision
Net income
Net income per common share:
Basic
Diluted
Weighted average common
shares outstanding:
Basic
Diluted
Balance Sheet Data:
Cash and cash equivalents
Marketable securities
Working capital
Total assets
Total stockholders' equity
2010
2009
2008
2007
2006
$206,730
186,720
20,010
$146,384 $174,025
157,228
130,791
16,797
15,593
$179,865
162,630
17,235
$182,319
165,350
16,969
13,207
6,803
407
7,210
2,789
$4,421
$1.01
$0.98
11,319
4,274
521
4,795
1,928
$2,867
12,207
4,590
744
5,334
2,168
$3,166
$0.65
$0.65
$0.72
$0.71
12,081
5,154
991
6,145
2,442
$3,703
$0.84
$0.80
12,163
4,806
741
5,547
2,279
$3,268
$0.78
$0.72
4,386
4,500
4,399
4,427
4,414
4,461
4,406
4,656
4,191
4,521
December 31,
2010
2009
2008
2007
2006
$10,955
4,528
19,033
68,683
26,679
$8,560
7,571
16,583
53,667
24,359
$9,349
9,367
14,806
47,485
23,884
$14,241
9,641
19,479
56,753
24,492
$13,832
7,032
16,471
57,281
21,298
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis of the Company’s financial condition and
results of operations should be read in conjunction with the Company’s Consolidated Financial Statements
and the Notes thereto. This discussion and analysis contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of certain risks and uncertainties,
including those set forth under the heading "Risk Factors" and elsewhere in this report.
Page 12 of 27
Overview
As of January 1, 2006 we organized our Company into two reportable operating segments — the
“Programmer’s Paradise” segment, which sells technical software, hardware and services directly to end-
users (such as individual programmers, corporations, government agencies, and educational institutions)
and the “Lifeboat” segment, which distributes technical software to corporate resellers, VARs, consultants
and systems integrators.
We offer a wide variety of technical and general business application software from a broad range
of publishers and manufacturers. We market these products through our catalogs, direct mail programs,
advertisements in trade magazines, as well as through Internet and e-mail promotions.
Forward-looking Statements
This report includes “forward-looking statements” within the meaning of Section 21E of the
Exchange Act. Statements in this report regarding future events or conditions, including but not limited to
statements regarding industry prospects and the Company’s expected financial position, business and
financing plans, are forward-looking statements.
Although the Company believes that the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to have been correct. We strongly
urge current and prospective investors to carefully consider the cautionary statements and risks contained in
this report, particularly the risks described under “Item 1A. Risk Factors” above. Such risks include, but
are not limited to, the continued acceptance of the Company’s distribution channel by vendors and
customers, the timely availability and acceptance of new products, contribution of key vendor relationships
and support programs, as well as factors that affect the software industry generally.
The Company operates in a rapidly changing business, and new risk factors emerge from time to
time. Management cannot predict every risk factor, nor can it assess the impact, if any, of all such risk
factors on the Company’s business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those projected in any forward-looking statements.
Accordingly, forward-looking statements should not be relied upon as a prediction of actual results
and readers are cautioned not to place undue reliance on these forward-looking statements, which speak
only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or otherwise.
The statements concerning future sales, future gross profit margin and future selling and
administrative expenses are forward looking statements involving certain risks and uncertainties such as
availability of products, product mix, pricing pressures, 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
Page 13 of 27
postage and operating expenses, and other developments, could have a significant impact on the market
price of the Company's Common Stock.
Financial Overview
We reported a net income of $4.4 million for the year 2010 as compared to a net income of $2.9
million in 2009. The increase resulted primarily resulted from the increase in revenue offset in part by
competitive pricing pressure. Our income before income taxes increased by $2.4 million to $7.2 million
compared to $4.8 million in 2009.
Income from operations amounted to $6.8 million in 2010 as compared to $4.3 million in 2009,
representing an increase of $2.5 million as compared to 2009. Gross profit increased by $4.4 million in
2010 as compared to 2009 and selling, general and administrative (“SG&A”) expenses increased by $1.9 in
million in 2010 as compared to 2009.
The Company's sales, gross profit and results of operations have fluctuated and are expected to
continue to fluctuate on a quarterly basis as a result of a number of factors, including but not limited to: the
condition of the software industry in general; shifts in demand for software products; pricing: 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,
2010
2009
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Income from operations
Other income, net
Income before income taxes
Income tax provision
Net income
100.0%
90.3
9.7
6.4
3.3
0.2
3.5
1.4
2.1%
100.0%
89.4
10.6
7.7
2.9
0.4
3.3
1.3
2.0%
2008
100.0%
90.3
9.7
7.0
2.7
0.4
3.1
1.3
1.8%
Year ended December 31, 2010 Compared to Year Ended December 31, 2009
Net Sales
Net sales for 2010 increased 41% or $60.3 million to $206.7 million compared to $146.4 million in
2009. Total sales for our Lifeboat segment in 2010 were $149.2 million compared to $98.1 million in 2009,
representing a 52% increase. Total sales for the Programmer’s Paradise segment in 2010 amounted to $57.6
million, compared to $48.3 million in 2009, representing a 19% increase.
Page 14 of 27
The increase in net sales for our Lifeboat segment was mainly a result of our continued focus on the
expanding virtual infrastructure-centric business, the addition of several key product lines, and the
strengthening of our account penetration.
In the Programmer's Paradise segment, sales for 2010 increased by $9.3 million, compared with
2009. This increase was primarily due to the fact that we had larger transactions in 2010 compared to 2009.
Gross Profit
Gross Profit for 2010 was $20.0 million compared to $15.6 million in 2009, a 28% increase. Total
gross profit for our Programmer’s Paradise segment was $6.3 million compared to $5.7 million in 2009,
representing a 12% increase. Total gross profit for our Lifeboat segment was $13.7 million compared to
$9.9 million in 2009, representing a 38% increase.
Gross profit margin, as a percentage of net sales, for 2010 was 9.7% compared to 10.7% in 2009.
Gross profit margin percentage for our Programmer’s Paradise segment in 2010 was 11.0% compared to
11.7% in 2009. Gross profit margin percentage for our Lifeboat segment in 2010 was 9.2% compared to
10.1% in 2009.
The increase in gross profit dollars and the decrease in gross profit margin was primarily caused by
the aggressive sales growth within our Lifeboat segment, offset in part, by competitive pricing pressure in
both segments, and, in part, by our having won several large bids based on aggressive pricing, which we
plan to continue to do.
Selling, General and Administrative Expenses
Total SG&A expenses for 2010 were $13.2 million compared to $11.3 million in 2009. As a
percentage of net sales, SG&A expenses for 2010 and 2009 were 6.4% and 7.7%, respectively. This dollar
increase was primarily the result of higher employee and employee-related costs (salaries, commissions,
bonus accruals and benefits and travel and entertainment) of $1.8 million.
Direct selling costs (a component of SG&A) for 2010 were $6.9 million compared to $5.5 million
in 2009. Total direct selling costs for our Programmer’s Paradise segment for 2010 were $2.9 million
compared to $2.7 million in the same period in 2009. Total direct selling costs for our Lifeboat segment for
2010 were $3.9 million compared to $2.9 million in the same period in 2009, mainly due to increased
employee related costs to manage and reward our growth in this segment.
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 continue to expand our investment in information technology and marketing, while monitoring our
sales and remaining general and administrative expenses closely.
Income Taxes
For the year ended December 31, 2010, the Company recorded a provision for income taxes of $2.8
million which consists of a provision of $1.8 million for U.S. federal income taxes, as well as a $0.5 million
provision for state and local taxes, a $0.2 million provision for Canadian taxes, and a deferred tax expense
of $0.3 million.
As of December 31, 2010, the Company had a U.S. deferred tax asset of approximately $0.9
million.
Page 15 of 27
The effective tax rate for year ended December 31, 2010 was impacted by a benefit of $78 thousand
related to the reversal of the Company’s liability related to uncertain tax positions.
For the year ended December 31, 2009, the Company recorded a provision for income taxes of $1.9
million which consists of a provision of $1.1 million for U.S. federal income taxes, as well as a $0.4 million
provision for state and local taxes, a $0.2 million provision for Canadian taxes, and a deferred tax expense
of $0.3 million.
As of December 31, 2009, the Company had a U.S. deferred tax asset of approximately $1.2
million.
Year ended December 31, 2009 Compared to Year Ended December 31, 2008
Net Sales
Net sales for 2009 decreased 16% or $27.6 million to $146.4 million compared to $174.0 million in
2008. Total sales for our Lifeboat segment were $98.1 million compared to $117.1 million in 2008,
representing a 16% decrease. Total sales for the Programmer’s Paradise segment in 2009 amounted to $48.3
million, compared to $56.9 million in 2008, representing a 15% decrease.
The decline in sales for our Lifeboat segment was primarily due to a decrease in VMware sales.
VMware terminated its distributor agreement with Lifeboat Distribution, Inc. in 2008. As a result, our
Lifeboat segment ceased distributing VMware products as of October 1, 2008, the distribution of which had
accounted for $29.2 million, or 17% of our 2008 revenue and $57.2 million, or 32% of our 2007
revenue. Excluding the effect of VMware, Lifeboat segment sales during 2009 showed strong growth,
increasing by $10.1 million from 2008, or 11.5%.
In the Programmer's Paradise segment, sales for 2009 decreased by $8.6 million, compared with the
year-earlier period. This decline was primarily due to a shift in mix of order size: We had fewer large
transactions, the decrease in revenue from which was not completely offset by increased sales of our
smaller specialized software lines in 2009.
Gross Profit
Gross Profit for 2009 was $15.6 million compared to $16.8 million in 2008, a 7% decrease. Total
gross profit for our Programmer’s Paradise segment was $5.7 million compared to $6.5 million in 2008,
representing a 13% decrease. Total gross profit for our Lifeboat segment was $9.9 million compared to
$10.3 million in 2008, representing a 3% decrease.
Gross profit margin, as a percentage of net sales, for 2009 was 10.7% compared to 9.7% in 2008.
Gross profit margin percentage for our Programmer’s Paradise segment in 2009 was 11.7% compared to
11.4% in 2008. Gross profit margin percentage for our Lifeboat segment in 2009 was 10.1% compared to
8.8% in 2008.
The increase in gross profit margin as a percentage of net sales was primarily caused by the decline
in VMware sales which carried lower margins than our other lines. The Lifeboat segment represented 67%
of total sales in 2009 and 2008.Gross profit margin percentage for our Lifeboat segment was 10.1%
compared to 11.7% for our Programmer’s Paradise segment.
Page 16 of 27
Selling, General and Administrative Expenses
Total SG&A expenses for 2009 were $11.3 million compared to $12.2 million in 2008. As a
percentage of net sales, SG&A expenses for 2009 and 2008 were 7.7% and 7.0%, respectively. This dollar
decrease was the result of lower employee and employee related costs of $0.6 million (including salaries,
bonuses, employee benefits, commissions, and travel and entertainment), and lower occupancy related costs
of $0.3 million primarily because we did not take any additional reserve related to the Long Island lease and
lower depreciation compared to 2008.
Direct selling costs (a component of SG&A) for 2009 were $5.5 million compared to $5.8 million
in 2008. Total direct selling costs for our Programmer’s Paradise segment for 2009 were $2.6 million
compared to $2.9 million in the same period in 2008. Total direct selling costs for our Lifeboat segment
were $2.9 million in each of 2009 and 2008.
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.
Income Taxes
For the year ended December 31, 2009, the Company recorded a provision for income taxes of $1.9
million which consists of a provision of $1.1 million for U.S. federal income taxes, as well as a $0.4 million
provision for state and local taxes, a $0.2 million provision for Canadian taxes, and a deferred tax expense
of $0.3 million.
As of December 31, 2009 the Company had a U.S. deferred tax asset of approximately $1.2
million.
For the year ended December 31, 2008, the Company recorded a provision for income taxes of $2.2
million which consists of a provision of $1.4 million for U.S. federal income taxes, as well as a $0.2 million
provision for state and local taxes, a $0.2 million provision for Canadian taxes, and a deferred tax expense
of $0.4 million.
As of December 31, 2008 the Company had a U.S. deferred tax asset of approximately $1.5
million.
Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, "Fair
Value Measurements and Disclosures: Improving Disclosures About Fair Value Measurements." This
ASU requires additional disclosures about the fair value measurements including transfers in and out of
Levels 1 and 2 and a higher level of disaggregation for the different types of financial instruments. For the
reconciliation of Level 3 fair value measurements, information about purchases, sales, issuances and
settlements should be presented separately. ASU 2010-06 is effective for interim and annual financial
periods beginning after December 15, 2009, and did not have a material impact on the Company's
consolidated financial statements.
Liquidity and Capital Resources
Our cash and cash equivalents increased by $2.4 million to $11.0 million at December 31, 2010
from $8.6 million at December 31, 2009. Net cash provided by operating activities amounted to $2.9
million, net cash provided by investing activities amounted to $2.9 million, net cash used in financing
activities amounted to $3.5 million and the effect of foreign exchange on cash was $0.1 million
Page 17 of 27
Net cash provided by operating activities in 2010 was $2.9 million. In 2010, cash was mainly
provided by $6.3 million from income from operations net of non-cash charges, and a $12.5 million
increase in accounts payable, offset in part by a $15.4 million increase in accounts receivable, an increase
in current assets of $0.3 million, and an increase in inventory of $0.2 million. The increase in accounts
receivable relates primarily to our increased revenue in December of 2010, compared to the comparable
period in 2009. The increase in accounts payable is primarily due to our increased net sales in December
2010 as compared to 2009 and our normal cycle of payments.
In 2010, cash provided by investing activities was $2.9 million. This resulted primarily from net
sales of $3.0 million in marketable securities. These securities are highly rated and highly liquid. These
securities are classified as available-for-sale securities in accordance with ASC Topic 320 “Investments in
Debt and Equity Securities”, and as a result, unrealized gains and losses are reported as part of accumulated
other comprehensive income. Cash also was used in investing activities in the amount of $0.2 million for
the purchase of equipment and leasehold improvements.
Net cash used in financing activities in 2010 of $3.5 million consisted of $2.9 million of dividend
payments on our Common Stock and $0.6 million for the purchases of shares of our Common Stock
In 2008, the Company's Board of Directors authorized the purchase of 500,000 shares of our
Common Stock. In 2002, the Company's Board of Directors authorized the purchase of 1,490,000 shares of
our Common Stock. In October 1999, the Company was authorized by the Board of Directors to buy back
521,013 shares of our Common Stock in both open market and private transactions, as conditions warrant.
A total of 2,033,472 shares of the Company’s stock have been bought back to date leaving a balance of
477,541 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 2011. We intend to
hold the repurchased shares in treasury for general corporate purposes, including issuances under various
stock plans. As of December 31, 2010, we held 514,259 shares of our Common Stock in treasury at an
average cost of $6.94 per share. As of December 31, 2009, we held 595,656 shares of our Common Stock
in treasury at an average cost of $5.97 per share.
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 27
Contractual Obligations
(Dollars in thousands)
Payment due by Period
Long-term debt
Capital Lease Obligations
Operating Leases(1)
Unconditional Purchase Obligations
Other Long term Obligations
reflected on the Company's
Balance Sheet under GAAP
Total Contractual Obligations
Total Less than 1 year 1-3 years
-
$139
$361
-
-
$ 215
$710
-
-
$ 76
$349
-
-
-
-
-
4-5 years After 5 years
-
-
$925
-
$425
-
$500
-
-
-
-
-
-
(1) Operating leases relate primarily to the lease of the space used for our operations in Shrewsbury, New
Jersey, and Mississauga, Canada. The commitments for operating leases include the minimum rent
payments and a proportionate share of operating expenses and property taxes.
The Company is not committed by lines of credit or standby letters of credit, and 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, 2010, 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 U.S. generally accepted accounting principles. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The
Company recognizes revenue from the sale of software and hardware for microcomputers, servers and
networks upon shipment or upon electronic delivery of the product. The Company expenses the advertising
costs associated with producing its catalogs. The costs of these catalogs are expensed in the same month the
catalogs are mailed.
On an on-going basis, the Company evaluates its estimates, including those related to product
returns, bad debts, inventories, investments, intangible assets, income taxes, stock-based compensation and
costs associated with exit or disposal activities, and contingencies and litigation.
The Company bases its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the basis for making
Page 19 of 27
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, 7.3% of the Company’s 2010 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 $4.5 million investments in marketable securities at December 31, 2010 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 27
Item 9A. Controls and procedures
Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15(b) under the
Exchange Act, our management carried out an evaluation of the effectiveness of the design and operation of
the Company’s “disclosure controls and procedures”, as such term is defined in Rules 13a-15(e) and 15d-
15(e) under the Exchange Act, as of the end of the period covered by this report. This evaluation was
carried out under the supervision and with the participation of our management, including our Company’s
President, Chairman of the Board and Chief Executive Officer (principal executive officer) and Vice
President and Chief Accounting Officer (principal financial officer). Based upon that evaluation, the
Company’s Chief Executive Officer and Chief Accounting Officer concluded that the Company’s
disclosure controls and procedures were effective, as of the end of the period covered by this report, to
ensure that information required to be disclosed by the Company in the reports it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms and is accumulated and communicated to the
Company’s management, including the Company’s Chief Executive Officer and Chief Accounting Officer,
as appropriate, to allow timely decisions regarding required disclosure.
Management Report on Internal Control Over Financial Reporting Our 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, 2010. There were no
changes in our internal control over financial reporting during the quarter ended December 31, 2010 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
This annual report does not include an attestation report of the Company's registered public
accounting firm regarding internal control over financial reporting. Management's report was not subject to
attestation by the Company's registered public accounting firm.
Item 9B. Other Information
None.
Page 21 of 27
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 2011 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A not later than April
30, 2011 (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.
2.
Consolidated Financial Statements (See Index to Consolidated Financial Statements on
page F-1 of this report);
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.
Page 22 of 27
3.
Exhibits Required by Regulation S-K, Item 601:
Exhibit No.
Description of Exhibit
3.1
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
4.1
10.18
10.19
Form of Amended and Restated By-Laws of the Company.(1)
Specimen of Common Stock Certificate.(1)
1995 Stock Plan, as amended. (3)
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
10.42
Form of Officer and Director Indemnification Agreement. (1)
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
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
Employment Agreement, dated January 12, 2006, between the Company and Simon F.
Nynens. (7)
Offer Letter, dated January 6, 2003, from the Company to Vito Legrottaglie.(8)
Resignation Letter, dated May 16, 2007, from Wayside Technology Group, Inc. to Jeffrey
Largiader. (9)
General Release, dated May 18, 2007, between Jeffrey Largiader and Wayside Technology
Group, Inc. (5)
Restricted Stock Letter, dated August 15, 2006, between Vito Legrottaglie and Wayside
Technology Group, Inc (f/k/a Programmer’s Paradise Inc.) (5)
Restricted Stock Letter, dated August 15, 2006, between Jeffrey Largiader and Wayside
Technology Group, Inc (f/k/a Programmer’s Paradise Inc.) (5)
Restricted Stock Letter, dated August 15, 2006, between Daniel Jamieson and Wayside
Technology Group, Inc (f/k/a Programmer’s Paradise Inc.) (5)
Restricted Stock Letter, dated August 15, 2006, between Allan Weingarten and Wayside
Technology Group, Inc (f/k/a Programmer’s Paradise Inc.) (5)
Restricted Stock Letter, dated August 15, 2006, between Edwin Morgens and Wayside
Technology Group, Inc (f/k/a Programmer’s Paradise Inc.) (5)
Page 23 of 27
10.53
10.54
10.55
10.56
10.57
10.58
10.59
10.60
10.61
10.62
10.63
10.64
10.65
10.66
10.67
10.68
10.69
10.72
Restricted Stock Letter, dated August 15, 2006, between Duff Meyercord and Wayside
Technology Group, Inc (f/k/a Programmer’s Paradise Inc.) (5)
Restricted Stock Letter, dated August 15, 2006, between Simon F. Nynens and Wayside
Technology Group, Inc (f/k/a Programmer’s Paradise Inc.) (5)
Restricted Stock Letter, dated August 15, 2006, between Simon F. Nynens and Wayside
Technology Group, Inc (f/k/a Programmer’s Paradise Inc.) (5)
Restricted Stock Letter, dated August 15, 2006, between Kevin Scull and Wayside
Technology Group, Inc (f/k/a Programmer’s Paradise Inc.) (5)
Restricted Stock Letter, dated January 31, 2007, between William Willett and Wayside
Technology Group, Inc (f/k/a Programmer’s Paradise Inc.) (5)
Restricted Stock Letter, dated November 19, 2007, between Richard Bevis and Wayside
Technology Group, Inc (f/k/a Programmer’s Paradise Inc.) (5)
Form of Non-Qualified Stock Option Agreement (5)
Restricted Stock Letter, dated February 5, 2008, between Kevin Scull and Wayside
Technology Group, Inc. (10)
Restricted Stock Letter, dated February 5, 2008, between Richard Bevis and Wayside
Technology Group, Inc. (10)
Restricted Stock Letter, dated February 5, 2008, between Simon Nynens and Wayside
Technology Group, Inc. (10)
Restricted Stock Letter, dated February 5, 2008, between Vito Legrottaglie and Wayside
Technology Group, Inc. (10)
Restricted Stock Letter, dated February 5, 2008, between Daniel Jamieson and Wayside
Technology Group, Inc. (10)
Restricted Stock Letter, dated February 5, 2008, between Edwin Morgens and Wayside
Technology Group, Inc. (10)
Restricted Stock Letter, dated February 5, 2008, between William Willett and Wayside
Technology Group, Inc. (10)
Restricted Stock Letter, dated February 5, 2008, between Allan Weingarten and Wayside
Technology Group, Inc. (10)
Restricted Stock Letter, dated February 5, 2008, between Mark Boyer and Wayside
Technology Group, Inc. (10)
Restricted Stock Letter, dated February 5, 2008, between Duff Meyercord and Wayside
Technology Group, Inc. (10)
Restricted Stock Letter, dated May 5, 2009, between Simon Nynens and Wayside
Technology Group, Inc. (11)
Page 24 of 27
10.73
10.74
10.75
10.76
10.77
10.78
10.79
10.80
10.81
10.82
10.83
10.84
10.85
10.86
10.87
10.88
21.1
23.1
23.2
Restricted Stock Letter, dated May 5, 2009, between Kevin Scull and Wayside Technology
Group, Inc. (11)
Restricted Stock Letter, dated May 5, 2009, between Richard Bevis and Wayside
Technology Group, Inc. (11)
Restricted Stock Letter, dated May 5, 2009, between Shawn Giordano and Wayside
Technology Group, Inc. (11)
Restricted Stock Letter, dated May 5, 2009, between Daniel Jamieson and Wayside
Technology Group, Inc. (11)
Restricted Stock Letter, dated May 5, 2009, between Vito Legrottaglie and Wayside
Technology Group, Inc. (11)
Restricted Stock Letter, dated February 9, 2010, between Kevin Scull and Wayside
Technology Group, Inc. (12)
Restricted Stock Letter, dated February 9, 2010, between Richard Bevis and Wayside
Technology Group, Inc. (12)
Restricted Stock Letter, dated February 9, 2010, between Simon Nynens and Wayside
Technology Group, Inc. (12)
Restricted Stock Letter, dated February 9, 2010, between Vito Legrottaglie and Wayside
Technology Group, Inc. (12)
Restricted Stock Letter, dated February 9, 2010, between Daniel Jamieson and Wayside
Technology Group, Inc. (12)
Restricted Stock Letter, dated February 9, 2010, between Shawn Giordano and Wayside
Technology Group, Inc. (12)
Restricted Stock Letter, dated February 9, 2010, between Edwin Morgens and Wayside
Technology Group, Inc. (12)
Restricted Stock Letter, dated February 9, 2010, between William Willett and Wayside
Technology Group, Inc. (12)
Restricted Stock Letter, dated February 9, 2010, between Allan Weingarten and Wayside
Technology Group, Inc. (12)
Restricted Stock Letter, dated February 9, 2010, between Mark Boyer and Wayside
Technology Group, Inc. (12)
Restricted Stock Letter, dated February 9, 2010, between Duff Meyercord and Wayside
Technology Group, Inc.(12)
Subsidiaries of the Registrant
Consent of EisnerAmper LLP
Consent of Amper, Politziner & Mattia, LLP
Page 25 of 27
31.1
31.2
32.1
32.2
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.
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.
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.
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 the Exhibits of the same number to the Registrant's Registration
Statement on Form S-1 or amendments thereto (File No. 333-92810).
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
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.
Incorporated by reference to Exhibit A and Exhibit B, respectively, to the Registrant’s Definitive
Annual Meeting Proxy Statement filed on April 30, 1998.
Incorporated by reference to Exhibit A of the Registrant’s Definitive Annual Meeting Proxy
Statement filed on April 28, 2006.
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.
Incorporated by reference to Exhibit 10.42 of the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 1998 filed on March 31, 1999.
Incorporated by reference to Exhibit 10.43 to the Registrant’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2006 filed on May 12, 2006.
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.
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.
(11) Incorporated by reference to exhibits of the same number filed with the Registrant’s Quarterly
Report on Form 10-Q for the Period Ended June 30, 2009 filed August 11, 2009.
(12) 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, 2010 filed May 10, 2010.
(a) The exhibits required by Item 601 of Regulation S-K are reflected above in Section (a) 3. of this
Item.
(b) The financial statement schedule is included as reflected in Section (a) 2. of this Item.
Page 26 of 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized, in Shrewsbury, New Jersey, on February 18, 2011.
WAYSIDE TECHNOLOGY GROUP, INC.
By:
Simon F. Nynens, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant in the capacities and on the dates indicated:
Signature
Title
Simon F. Nynens
Kevin T. Scull
William H. Willett
Mark. T. Boyer
Duffield Meyercord
Edwin H. Morgens
Allan D. Weingarten
Date
February 18, 2011
President and Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
Vice President and Chief Accounting Officer
(Principal Financial and Accounting Officer)
February 18, 2011
February 18, 2011
February 18, 2011
February 18, 2011
February 18, 2011
February 18, 2011
Director
Director
Director
Director
Director
Page 27 of 27
Items 8 and 15(a)
Wayside Technology Group, Inc. and Subsidiaries
Index to Consolidated Financial Statements and Schedule
Report of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Earnings
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts
Page
F-2-3
F-4
F-5
F-6
F-7
F-8
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 sheet of Wayside Technology Group, Inc. and
Subsidiaries as of December 31, 2010, and the related consolidated statements of earnings, stockholders’
equity and comprehensive income, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audit
provides 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, 2010, and the results of their earnings and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of America.
We have also audited the consolidated financial statement schedule, Schedule II – Valuation and Qualifying
Accounts, for the year ended December 31, 2010. 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/ EisnerAmper LLP
February 18, 2011
Edison, New Jersey
F-2
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 sheet of Wayside Technology Group, Inc. and
Subsidiaries as of December 31, 2009, and the related consolidated statements of earnings, stockholders’
equity and comprehensive income, and cash flows for the years ended December 31, 2009 and 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, 2009, and the results of their earnings and their cash flows for the years ended December 31,
2009 and 2008, in conformity with accounting principles generally accepted in the United States of
America.
We have also audited the consolidated financial statement schedule, Schedule II – Valuation and Qualifying
Accounts, for the years ended December 31, 2009 and 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
February 22, 2010
Edison, New Jersey
F-3
Wayside Technology Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)
December 31,
2010
2009
Assets
Current assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, net of allowances of $1,473 and
$1,097 in 2010 and 2009, respectively
Inventory, net
Prepaid expenses and other current assets
Deferred income taxes
Total current assets
Equipment and leasehold improvements, net
Accounts receivable-long-term
Other assets
Deferred income taxes
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses
Current portion - capital lease obligation
Total current liabilities
Long- term portion- capital lease obligation
Other liabilities
Total liabilities
Commitments and Contingencies
Stockholders’ equity:
Common Stock, $.01 par value; 10,000,000 shares authorized;
5,284,500 shares issued; and 4,770,241 and 4,688,844 shares
outstanding in 2010 and 2009, respectively
Additional paid-in capital
Treasury stock, at cost, 514,259 and 595,656 shares in 2010 and
2009, respectively
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
$10,955
4,528
42,486
1,164
1,250
516
60,899
545
6,866
37
336
$68,683
$41,791
75
41,866
138
-
42,004
53
25,473
(3,570)
4,267
456
26,679
$68,683
$8,560
7,571
27,040
967
998
677
45,813
432
6,901
38
483
$53,667
$29,230
-
29,230
78
29,308
53
24,826
(3,555)
2,727
308
24,359
$53,667
The accompanying notes are an integral part of the consolidated financial statements.
F-4
Wayside Technology Group, Inc. and Subsidiaries
Consolidated Statements of Earnings
(Dollars in thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Years ended December 31,
2009
2010
2008
$206,730
$146,384
$174,025
186,720
130,791
157,228
20,010
15,593
16,797
Selling, general and administrative expenses
13,207
11,319
12,207
Income from operations
6,803
4,274
4,590
Other income:
Interest income
Foreign currency transaction gain
Income before provision for income taxes
Provision for income taxes
405
2
7,210
2,789
521
-
4,795
1,928
741
3
5,334
2,168
Net income
$4,421
$2,867
$3,166
Income per common share-Basic
Income per common share-Diluted
Weighted average common shares outstanding-Basic
Weighted average common shares outstanding-Diluted
$1.01
$0.98
4,386
4,500
$0.65
$0.65
4,399
4,427
$0.72
$0.71
4,414
4,461
The accompanying notes are an integral part of the consolidated financial statements.
F-5
Wayside Technology Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
(Dollars in thousands, except share amounts)
Common Stock
Shares Amount
Additional
Paid-In
Capital
Treasury
Shares
Amount
Retained
earnings
(Deficit)
Accumulated
Other
Comprehensive
Income
Total
Balance at January 1, 2008
5,284,500
$53
$28,860
576,002
$(2,283)
$(2,599)
$461
$24,492
Net income
Other comprehensive income:
Translation adjustment
Unrealized gain on available-
for-sale securities
Comprehensive income
Dividends paid
Exercise of stock options
Share-based compensation
expense
Tax expense from share- based
compensation
Restricted stock grants
Treasury shares repurchased
Balance at December 31, 2008
Net income
Other comprehensive income:
Translation adjustment
Unrealized loss on available-
for-sale securities
Comprehensive income
Dividends paid
Share-based compensation
expense
Tax expense from share- based
compensation
Restricted stock grants
Treasury shares repurchased
Balance at December 31, 2009
Net income
Other comprehensive income:
Translation adjustment
Unrealized gain on available-
for-sale securities
Comprehensive income
Dividends paid
Share-based compensation
expense
Tax benefit from share- based
compensation
Restricted stock grants (net of
forfeitures)
Treasury shares repurchased
Balance at December 31, 2010
(2,811)
59
735
(22)
(185)
5,284,500
53
26,636
(45,000)
164
(54,000)
163,836
640,838
185
(1,449)
(3,383)
(2,106)
893
(51)
(546)
5,284,500
53
24,826
(140,000)
94,818
595,656
546
(718)
(3,555)
3,166
(469)
19
567
11
2,867
333
(36)
308
142
6
(707)
2,727
4,421
(2,881)
1,187
53
(593)
5,284,500
$53
$25,473
(144,625)
63,228
514,259
593
(608)
$(3,570)
$4,267
$456
3,166
(469)
19
2,716
(2,811)
223
735
(22)
-
(1,449)
23,884
2,867
333
(36)
3,164
(2,813)
893
(51)
-
(718)
24,359
4,421
142
6
4,569
(2,881)
1,187
53
-
(608)
$26,679
The accompanying notes are an integral part of the consolidated financial statements
F-6
Wayside Technology Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands, except share amounts)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation expense
Amortization expense
Provision for doubtful accounts receivable
Deferred income tax expense
Share-based compensation expense
Reversal of uncertain tax position liability
Loss on disposal of fixed assets
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Net change in other operating assets and liabilities
Net cash provided by (used in) operating activities
Cash flows provided by (used in) investing activities
Purchase of equipment and leasehold improvements
Purchase of available-for-sale securities
Redemptions of available-for-sale securities
Proceeds from sale of fixed assets
Net cash provided by (used in) investing activities
Cash flows used in financing activities
Purchase of treasury stock
Proceeds from stock option exercises
Tax benefit (expense) from share- based compensation
Dividends paid
Repayment of capital lease obligations
Net cash used in financing activities
Effect of foreign exchange rate on cash
Net increase (decrease) in cash and cash equivalents
Year ended December 31,
2010
2009
2008
$ 4,421
$ 2,867 $ 3,166
311
6
141
273
1,187
(78)
-
(15,436)
(197)
(249)
12,542
(4)
2,917
(176)
(6,206)
9,255
-
2,873
(608)
-
53
(2,881)
(34)
(3,470)
75
2,395
291
6
66
271
893
-
-
347
8
39
395
735
-
7
(8,972)
93
(217)
5,680
21
999
2,844
54
142
(8,263)
38
(488)
(179)
(10,379)
12,138
-
1,580
(308)
(16,788)
17,080
8
(8)
(718)
-
(51)
(2,813)
-
(3,582)
214
(789)
(1,449)
223
(22)
(2,811)
-
(4,059)
(337)
(4,892)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
8,560
$ 10,955
9,349
$ 8,560
14,241
$ 9,349
Supplementary disclosure of cash flow information:
Income taxes paid
Equipment financed with capital lease
$
$
2,142 $
247
1,995 $
-
1,336
-
The accompanying notes are an integral part of the consolidated financial statements.
F-7
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
Note 1. Description of Business
Wayside Technology Group, Inc. and Subsidiaries, the “Company,” markets software to software
development and information technology professionals in the United States and Canada. It was formerly
known as Programmer's Paradise, Inc. and changed its name to Wayside Technology Group, Inc. in August
2006. The Company operates through two segments, Lifeboat Distribution (“Lifeboat”) and Programmer's
Paradise (“Programmer’s”). The Lifeboat segment distributes technical software through a worldwide
network of corporate and value-added resellers, consultants, and systems integrators. The Programmer's
segment sells technical software, hardware, and services for microcomputers, servers, and networks to
individual programmers, corporations, government agencies, and educational institutions primarily in the
United States and Canada.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation and Operations
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. All intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make extensive use of certain estimates
and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reported periods. The significant areas of estimation include but are not limited to
accounting for allowance for uncollectible accounts, sales returns, inventory valuation and obsolescence,
income taxes, depreciation, contingencies, stock-based compensation and costs associated with exit or
disposal activities. Actual results could differ from those estimates.
Net Income Per Common Share
The Company calculates earnings per share in accordance with FASB ASC Topic 260, “Earnings Per
Share”. Basic earnings per share is calculated by dividing net income attributable to common stockholders
by the weighted average number of shares of Common Stock outstanding during the period. Diluted
earnings per share is calculated by dividing net income attributable to common stockholders by the
weighted average number of common shares outstanding, adjusted for potentially dilutive securities.
F-8
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and 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):
Numerator:
Net income
Denominator:
Weighted average shares (Basic)
Dilutive effect of outstanding options and nonvested shares
of restricted stock
Weighted average shares including assumed conversions
(Diluted)
Basic net income per share
Diluted net income per share
Cash Equivalents
Year ended December 31,
2010
2009
2008
$4,421
$2,867
$3,166
4,386
4,399
4,414
114
28
47
4,500
4,427
4,461
$1.01
$0.98
$0.65
$0.65
$0.72
$0.71
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.
Foreign Currency Translation
Assets and liabilities of the Company’s foreign subsidiaries have been translated at current exchange rates,
and related revenues and expenses have been translated at average rates of exchange in effect during the
year. Cumulative translation adjustments have been classified within accumulated other comprehensive
income, which is a separate component of stockholders’ equity in accordance ASC Topic No. 220,
“Comprehensive Income”.
F-9
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
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, 2010, the Company’s $4.5 million of
investments in marketable securities are only in highly rated and liquid U.S. government securities and
insured certificates of deposit.
The Company’s cash and cash equivalents, at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts. The Company believes it is not exposed to any significant
credit risk on cash and cash equivalents.
Marketable Securities
The Company accounts for marketable securities pursuant to the ASC Topic No. 320, “Investments in Debt
and Equity Securities.” Under this statement, the Company’s securities with a readily determinable fair
value have been classified as available for sale and are carried at fair value with an offsetting adjustment to
accumulated other comprehensive income in Stockholders’ Equity.
Financial Instruments
The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable
and accounts payable approximated fair value as of December 31, 2010 and 2009, because of the relative
short maturity of these instruments.
Inventory
Inventory, consisting primarily of finished products held for resale, is stated at the lower of cost (weighted
average) or market.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Equipment depreciation is calculated using the
straight-line method over three to five years. Leasehold improvements are amortized using the straight line
method over the estimated useful lives of the assets or the related lease terms, whichever is shorter.
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.
F-10
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
Comprehensive Income
Comprehensive income consists of net income for the period, the impact of unrealized foreign currency
translation adjustments and unrealized gains or losses on investments. The foreign currency translation
adjustments are not currently adjusted for income taxes as they relate to permanent investments in
international subsidiaries.
Revenue Recognition
The Company records revenues from sales transactions when title to products sold passes to the customer.
Usual sales terms are FOB shipping point, at which time title and risk of loss has passed to the customer.
Revenue is recognized in accordance with ASC Topic 985-605 “ Software Revenue Recognition” and ASC
Topic 605-10-S99, and ASC Topic 605-45, "Reporting Revenue Gross as a Principal versus Net as an
Agent". The majority of the Company’s revenues relates to physical products and is recognized on a gross
basis with the selling price to the customer recorded as net sales with the acquisition cost of the product to
the Company recorded as cost of sales. At the time of sale, the Company also records an estimate for sales
returns based on historical experience. Certain software maintenance products, third party services and
extended warranties sold by the Company (for which the Company is not the primary obligor) are
recognized on a net basis. Accordingly, such revenues are recognized in net sales either at the time of sale
or over the contract period, based on the nature of the contract, at the net amount retained by the Company,
with no cost of goods sold.
Vendor rebates and price protection are recorded when earned as a reduction to cost of sales or merchandise
inventory, as applicable. Cooperative reimbursements from vendors, which are earned and available, are
recorded in the period the related advertising expenditure is incurred. Cooperative reimbursements are
recorded as net sales in accordance with ASC Topic 605-50 “Accounting by a Customer (including reseller)
for Certain Consideration Received from a Vendor.”
Stock-Based Compensation
The Company has stockholder-approved stock incentive plans for employees and directors. Stock-
based compensation is recognized based on the grant date fair value and is recognized as expense on a
straight-line basis over the requisite service period, which is generally the vesting period.
Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between financial reporting and tax
basis of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when
the differences are expected to reverse. This method also requires a valuation allowance against the 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.
F-11
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, "Fair Value
Measurements and Disclosures: Improving Disclosures About Fair Value Measurements." This ASU
requires additional disclosures about the fair value measurements including transfers in and out of Levels 1
and 2 and a higher level of disaggregation for the different types of financial instruments. For the
reconciliation of Level 3 fair value measurements, information about purchases, sales, issuances and
settlements should be presented separately. ASU 2010-06 is effective for interim and annual financial
periods beginning after December 15, 2009, and did not have a material impact on the Company's
consolidated financial statements.
3. Marketable securities
Investments in available-for-sale securities at December 31, 2010 were:
U.S. Government Securities
Certificates of deposit
Total Marketable securities
Cost
$ 1,008
3,524
$ 4,532
Market value
$ 1,009
3,519
$ 4,528
Unrealized gain (loss)
$ 1
$ (5)
$ (4)
The cost and market value of our investments at December 31, 2010 by contractual maturity were:
Cost
Estimated
Fair Value
Due in one year or less
$4,532
$4,528
Investments in available-for-sale securities at December 31, 2009 were:
U.S. Government Securities
Certificates of deposit
Total Marketable securities
Cost
$ 4,064
3,517
$ 7,581
Market value
$ 4,064
3,507
$ 7,571
Unrealized gain (loss)
$ -
$ (10)
$ (10)
The cost and market value of our investments at December 31, 2009 by contractual maturity were:
Cost
Estimated
Fair Value
Due in one year or less
$7,581
$7,571
Estimated fair values of marketable securities are based on quoted market prices.
F-12
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
4. Fair Value Measurements
The Company accounts for the fair value measurements in accordance with FASB ASC Topic 820 “Fair
Value Measurement and Disclosure”, which establishes a framework for measuring fair value under
generally accepted accounting principles and expands disclosures about fair value measurements. The
Company uses the following methods for determining fair value in accordance with ASC Topic 820. For
assets and liabilities that are measured using quoted prices in active markets for the identical asset or
liability, the total fair value is the published market price per unit multiplied by the number of units held
without consideration of transaction costs (Level 1). Assets and liabilities that are measured using
significant other observable inputs are valued by reference to similar assets or liabilities, such as quoted
prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data (Level 2). For all remaining assets and
liabilities for which there are no significant
observable inputs, fair value is derived using an assessment of various discount rates, default risk, credit
quality and the overall capital market liquidity (Level 3).
The following table summarizes the basis used to measure certain financial assets and liabilities at fair value
on a recurring basis in the consolidated balance sheet:
Fair Value Measurements at December 31, 2010 Using
Quoted Prices
in Active
Markets for
Identical Items
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance at
December 31,
2010
1,009 $
1,009 $
-
$
-
3,519
$
3,519
(In thousands)
Description
U.S. Government Securities $
Certificates of deposit
$
Fair Value Measurements at December 31, 2009 Using
Quoted Prices
in Active
Markets for
Identical Items
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance at
December 31,
2009
4,064 $
4,064 $
-
$
-
3,507
$
3,507
(In thousands)
Description
U.S. Government Securities $
Certificates of deposit
$
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.
F-13
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
5. Balance Sheet Detail
Equipment and leasehold improvements consist of the following as of December 31:
Equipment
Leasehold improvements
Less accumulated depreciation and amortization
2010
2009
$
2,546 $
551
3,097
(2,552)
$
545 $
2,528
549
3,077
(2,645)
432
Accounts payable and accrued expenses consist of the following as of December 31:
Trade accounts payable
Accrued expenses
2010
2009
$ 38,998 $ 27,552
1,678
$ 41,791 $ 29,230
2,793
Accumulated other comprehensive income consists of the following as of December 31:
Foreign currency translation adjustments
Unrealized gain (loss) on marketable securities
2010
2009
$ 460
(4)
$ 456
$ 318
(10)
$ 308
6. Income Taxes
Deferred tax attributes resulting from differences between financial and accounting amounts and tax basis
of assets and liabilities at December 31, 2010 and 2009 are as follows:
Current assets
Accruals and reserves
Goodwill
Net current deferred tax assets
December 31,
2010
2009
$ 362
154
$ 516
$ 406
271
$ 677
F-14
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
Non-current assets
Accruals and reserves
Depreciation
Goodwill
Net non-current deferred tax assets
Total deferred tax assets
$ 235
101
-
$ 336
$ 852
$ 236
90
157
$ 483
$ 1,160
The provision for income taxes is as follows:
Year ended December 31,
2009
2008
2010
Current:
Federal
State
Canada
Deferred:
Federal
State
Effective Tax Rate
$ 1,800
546
170
2,516
$ 1,114
378
165
1,657
$ 1,356
213
204
1,773
211
62
273
2,789
38.7%
$
249
22
271
1,928
40.2%
$
280
115
395
2,168
40.6%
$
The effective tax rate for year ended December 31, 2010 was impacted by a benefit of $78 thousand related
to the reversal of the Company’s liability related to uncertain tax positions.
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,
2009
2008
2010
Statutory rate applied to pretax income
State income taxes, net of benefit
of federal income taxes
Foreign income taxes over U.S.
statutory rate
Other items
$ 2,456
$ 1,630
$ 1,813
399
(5)
(61)
260
25
13
239
31
85
Income tax expense
$ 2,789
$ 1,928
$ 2,168
F-15
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
The Company receives a tax deduction from the gains realized by employees on the exercise of certain non-
qualified stock options for which the tax effect of the difference between the book and tax deduction is
recognized as a component of stockholders’ equity.
The Company accounts for uncertainties in accordance with FASB ASC 740 “Income Taxes” as of
January 1, 2007. This standard clarified the accounting for uncertainties in income taxes. The standard
prescribes criteria for recognition and measurement of tax positions. It also provides guidance on
derecognition, classification, interest and penalties, and disclosures related to income taxes associated with
uncertain tax positions.
The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to
file income tax returns, as well as all open tax years in these jurisdictions. The Company has identified its
federal consolidated tax return and its state tax return in New Jersey and its Canadian tax return as major tax
jurisdictions. The only periods subject to examination for the Company's federal return are the 2008, 2009
and 2010 tax years. The audit of the tax years 2006 and 2007 has been completed, with no adjustments
proposed by the Internal Revenue Service. The current periods subject to examination for the Company's
state returns in New Jersey are years 2008, 2009 and 2010. The current periods subject to examination for
the Company’s Canadian tax returns are the years 2008 through 2010. The Company’s policy is to
recognize interest and penalties related to uncertain tax positions in income tax expense when assessed. No
liability was recorded for interest or penalties related to uncertain tax positions at December 31, 2010. The
Company did not record a cumulative effect adjustment related to adoption (January 1, 2007) of accounting
for uncertainties in income taxes.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at January 1, 2010
Decrease based on tax positions related to prior years
Net Unrecognized Tax Benefit at December 31, 2010
Federal, State
and Foreign Tax
78
(78)
-
$
$
The most recent Internal Revenue Service (“IRS”) examination was of the Company’s 2006-2007 tax
returns which were completed by the IRS as of March 1, 2010, and management believes that all uncertain
tax positions were resolved at that time.
For financial reporting purposes, income before income taxes includes the following components:
Year ended December 31
2009
2010
2008
United States
Canada
$6,696
514
$7,210
$4,382
413
$4,795
$4,825
509
$5,334
F-16
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
7. Stockholders’ 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.
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 thereunder will expire ten years from the date of grant.
Each option granted under the 1995 Director Plan becomes exercisable over a five year period, and vests in
an installment of 20% of the total option grant upon the expiration of one year from the date of the option
grant, and thereafter vests in equal quarterly installments of 5%.
In February 2002, the Board of Directors approved a plan permitting all option holders under the 1986 Plan
and the 1995 Plan to surrender all or any portion of their options on or before March 1, 2002. By March 1,
2002, a total of 7,875 options to purchase the Company’s Common Stock under the 1986 option plan and
303,550 options to purchase the Company’s Common Stock under the 1995 Plan were surrendered, of
which 305,175 were surrendered by the Company’s executive officers. All of the options surrendered were
exercisable in excess of the market price of the underlying Common Stock as of the dates of surrender.
At the annual stockholder’s meeting held on June 14, 2006, the Company’s stockholders approved the 2006
Stock-Based Compensation Plan (the “2006 Plan”). The 2006 Plan authorizes the grant of Stock Options,
Stock Units, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Bonuses, and other equity-
based awards. The number of shares of Common Stock initially available under the 2006 Plan is 800,000.
As of December 31, 2010 the number of shares of common stock available for future award grants to
employees and directors under this plan is 128,875.
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.
F-17
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
During 2008, the Company granted a total of 57,500 shares of restricted stock to officers, directors and
employees. These shares vest over 60 months. A total of 3,500 shares of restricted common stock were
forfeited as a result of employees and officers terminating employment with the Company.
During 2009, the Company granted a total of 140,000 shares of restricted stock to officers, and employees.
These shares vest over 60 months.
During 2010, the Company granted a total of 150,500 shares of restricted stock to officers, and employees.
These shares vest over 60 months. A total of 5,875 shares of restricted common stock were forfeited as a
result of employees and officers terminating employment with the Company.
Changes during 2008, 2009 and 2010 in options outstanding for the combined plans were as follows:
Outstanding at January 1, 2008
Granted in 2008
Canceled in 2008
Exercised in 2008
Outstanding at December 31, 2008
Granted in 2009
Canceled in 2009
Exercised in 2009
Outstanding at December 31, 2009
Granted in 2010
Canceled in 2010
Exercised in 2010
Outstanding at December 31, 2010
Exercisable at December 31, 2010
Weighted
Average
Number
Exercise
of
Price
Options
7.85
442,890
-
-
(5,000)
12.85
(45,000) 4.96
8.12
392,890
-
-
-
-
-
-
392,890
-
-
-
392,890
392,890
8.12
-
-
-
8.12
$8.12
The options exercisable at December 31, 2010 and 2009 were 392,890 and 392,890, respectively.
The aggregate intrinsic value of options outstanding and options exercisable as of December 31, 2010 was
$1.3 million. The intrinsic value is calculated as the difference between the market value as of
December 31, 2010 and the exercise price of the shares. The market value as of December 31, 2010 was
$11.26 as reported by The NASDAQ Global Mark
F-18
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
Stock options outstanding at December 31, 2010 are summarized as follows:
Range of Exercise
Prices
$2.00 – $2.99
3.00 – 6.99
7.00 – 9.99
10.00–12.99
Outstanding
Options as of
December 31,
2010
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Options
Exercisable
as of
December 31,
2010
18,500
28,750
290,000
55,640
392,890
1.7
0.2
3.4
4.3
3.2
$2.13
3.73
8.03
12.85
$8.12
18,500
28,750
290,000
55,640
392,890
Weighted
Average
Exercise
Price
$2.13
3.73
8.03
12.85
$8.12
Under the various plans, options that are cancelled can be reissued. At December 31, 2010 no options were
reserved for future issuance.
A summary of nonvested shares of restricted stock awards outstanding under the Company’s 2006 Plan as
of December 31, 2010 and changes during the year then ended is as follows:
Nonvested shares at January 1, 2008
Granted in 2008
Vested in 2008
Forfeited in 2008
Nonvested shares at December 31, 2008
Granted in 2009
Vested in 2009
Forfeited in 2009
Nonvested shares at December 31, 2009
Granted in 2010
Vested in 2010
Forfeited in 2010
Nonvested shares at December 31, 2010
Weighted
Average Grant
Date
Fair Value
13.47
10.68
13.00
14.85
12.76
7.55
11.52
-
$11.03
8.57
10.49
9.21
$10.18
Shares
267,250
57,500
(56,500)
(3,500)
264,750
140,000
(77,500)
-
327,250
150,500
(113,225)
(5,875)
358,650
As of December 31, 2010, there was approximately $3.7 million of total unrecognized compensation cost
related to nonvested share-based compensation arrangements. The unrecognized compensation cost is
expected to be recognized over a weighted-average period of 4.2 years.
For the years ended December 31, 2010, 2009 and 2008, we recognized share-based compensation cost of
approximately $1.2 million, $0.9 million and $0.7 million, respectively, which is included in general and
administrative expenses. The Company does not capitalize any share-based compensation cost.
F-19
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
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,
2010, 2009 and 2008, the Company expensed approximately $131 thousand, $116 thousand and $130
thousand, respectively, related to this plan.
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. The commitments for operating leases include the minimum rent payments and a
proportionate share of operating expenses and property taxes.
2011
2012
2013
2014
2015
$ 425
418
82
-
-
$ 925
Rent expense for the years ended December 31, 2010, 2009 and 2008 was approximately $387 thousand,
$354 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 paid the former executive his current salary of $150 thousand (plus
payments for unused vacation time) in 24 equal semimonthly installments. The Company expensed the
$150 thousand ratably over the term of the consulting agreement which was one year following the
Resignation Letter.
In the event that Simon Nynens’, President and Chief Executive officer, employment is terminated without
cause or by the rendering of a non-renewal notification, he is entitled to receive severance payments equal
to twelve months salary and immediate vesting of all outstanding stock awards. Additionally, in the event
that a change of control of the Company occurs (as described in the employment agreement), Mr. Nynens
outstanding stock awards become immediately vested and he is entitled to the pro-rata performance bonus
based upon stock price at the date of such change in control.
F-20
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
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.
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,
2010, 2009 and 2008 were as follows
Net sales to Unaffiliated Customers:
United States
Canada
Total
Identifiable Assets by Geographic Areas at December 31,
United States
Canada
Total
2010
2009
2008
$ 191,682 $ 135,020 $ 155,193
18,832
15,048 11,364
$206,730 $146,384 $174,025
2010
$ 64,237
4,446
2009
$ 50,236
3,431
2008
$ 44,690
2,795
$68,683 $53,667
$47,485
ASC Topic 280, “Segment Reporting,” requires that public companies report profits and losses and certain
other information on their “reportable operating segments” in their annual and interim financial statements.
The internal organization used by the Company’s Chief Operating Decision Maker (CODM) to assess
performance and allocate resources determines the basis for reportable operating segments. The Company’s
CODM is the Chief Executive Officer.
The Company is organized into two reportable operating segments — the “Programmer’s Paradise”
segment, which sells technical software, hardware and services directly to end-users (such as individual
programmers, corporations, government agencies, and educational institutions) and the “Lifeboat” segment,
which distributes technical software to corporate resellers, VARs, consultants and systems integrators.
F-21
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
As permitted by ASC Topic 280, the Company has utilized the aggregation criteria in combining its
operations in Canada with the domestic segments as they provide the same products and services to similar
clients and are considered together when the CODM decides how to allocate resources.
Segment income is based on segment revenue less the respective segment’s cost of revenues as well as
segment direct costs (including such items as payroll costs and payroll related costs, such as profit sharing,
incentive awards and insurance) and excluding general and administrative expenses not attributed to a
business unit. The Company only identifies accounts receivable and inventory by segment as shown below
as “Selected Assets”; it does not allocate its other assets, including capital expenditures by segment.
Revenue:
Programmer’s Paradise
Lifeboat
Gross Profit:
Programmer’s Paradise
Lifeboat
Direct Costs:
Programmer’s Paradise
Lifeboat
Income Before Taxes:
Programmer’s Paradise
Lifeboat
Segment Income
General and administrative
Interest income
Foreign currency translation gains
Income before taxes
Selected Assets By Segment:
Programmer’s Paradise
Lifeboat
Segment Select Assets
Corporate Assets
Total Assets
Year Ended
December 31,
2010
$57,579
149,151
206,730
2009
$48,326
98,058
146,384
2008
$56,893
117,132
174,025
$6,509
10,288
16,797
$2,876
2,915
5,791
3,632
7,373
11,005
6,415
741
3
$5,334
$6,307
13,703
20,010
$2,932
3,934
6,866
3,375
9,769
13,144
6,341
405
2
$7,210
$5,652
9,941
15,593
$2,650
2,866
5,516
3,002
7,075
10,077
5,803
521
-
$4,795
$26,644
23,872
50,516
18,167
$68,683
$21,591
13,317
34,908
18,759
$53,667
The Company had one customer that accounted for more than 10% of total sales for 2010. For the year
ended December 31, 2010, CDW accounted for 15.8% of consolidated net sales and 12.8% total net
accounts receivable as of December 31, 2010. For the year ended December 31, 2009, CDW and Software
House International accounted for 10.5% and 10.7% of consolidated net sales, respectively. The Company
had no major customers that accounted for more than 10% of total sales for 2008. Our top five customers
accounted for 44%, 36%, and 31% of consolidated net sales in 2010, 2009 and 2008, respectively.
F-22
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
11. Loss on Lease
During the second quarter of 2006, the Company made the decision to close down and sublease its sales
office in Hauppauge, New York. Based on forecasted sublease income compared to estimated expenses, the
Company recorded a liability and took a charge of approximately $97 thousand during the second quarter of
2006.
The Company’s tenant terminated its sublease in December 2007. After considering information provided
by the Company’s leasing agent the Company took an additional charge of $76 thousand in the fourth
quarter of 2007.
In 2008, the Company took an additional charge of $141 thousand to fully reserve for the remaining costs of
the lease, as it was determined that due to the downturn in the commercial real estate market in Long Island
and with only a short time remaining on our lease that it would be unlikely to secure another subtenant.
12. Quarterly Results of Operations (Unaudited)
The following table presents summarized quarterly results for 2010:
First
Second
Third
Fourth
Net sales
Gross profit
Net income
$40,358
3,969
624
$48,443
4,685
1,054
$52,994
5,134
1,257
$64,935
6,224
1,486
Basic net income per
common share
Diluted net income
per common share
$0.14
$0.24
$0.29
$0.34
$0.14
$0.23
$0.28
$0.33
The following table presents summarized quarterly results for 2009:
First
Second
Third
Fourth
Net sales
Gross profit
Net income
$31,750
3,467
578
$37,032
4,081
790
$35,310
3,695
599
$42,292
4,350
900
Basic net income per
common share
Diluted net income
per common share
$0.13
$0.18
$0.14
$0.20
$0.13
$0.18
$0.13
$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
Balance
Year ended December 31, 2008
Allowances for accounts receivable
Reserve for inventory obsolescence
Year ended December 31, 2009
Allowances for accounts receivable
Reserve for inventory obsolescence
Year ended December 31, 2010
Allowances for accounts receivable
Reserve for inventory obsolescence
$908
$39
$1,086
$56
$1,097
$20
$457
$15
$126
$(10)
$480
$-
$279
$(2)
$115
$26
$104
$2
$1,086
$56
$1,097
$20
$1,473
$18
F-24
Subsidiaries
Exhibit 21.1
Name
Jurisdiction of Organization
Lifeboat Distribution, Inc.
Programmer’s Paradise, Inc.
Programmers Paradise
TechXtend, Inc.
Lifeboat Distribution, Europe
Delaware
Delaware
Canada
Delaware
Netherlands
F-25
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-136211) of
Wayside Technology Group, Inc. (the “Company”), pertaining to the Company’s 2006 Stock- Based Compensation
Plan, and in Registration Statement on Form S-8 (333-72249) of the Company pertaining to the Company’s 1986
Stock Option Plan, the Company’s 1995 Stock Plan and the Company’s 1995 Non-Employee Director Plan, of our
report dated February 18, 2011, relating to the consolidated financial statements and financial statement schedule of
the Company, which appear in the Annual Report (Form 10-K) of the Company for the year ended December 31,
2010.
Exhibit 23.1
/s/ EisnerAmper LLP
February 18, 2011
Edison, New Jersey
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-136211) of
Wayside Technology Group, Inc. (the “Company”), pertaining to the Company’s 2006 Stock- Based Compensation
Plan, and in Registration Statement on Form S-8 (333-72249) of the Company pertaining to the Company’s 1986
Stock Option Plan, the Company’s 1995 Stock Plan and the Company’s 1995 Non-Employee Director Plan, of our
report dated February 22, 2010, relating to the 2009 and 2008 consolidated financial statements and financial
statement schedule of the Company, which appear in the Annual Report (Form 10-K) of the Company for the year
ended December 31, 2010.
Exhibit 23.2
/s/ Amper, Politziner & Mattia, LLP
February 18, 2011
Edison, New Jersey