UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FORM 10-K
For the fiscal year ended December 31, 2011
OR
(cid:134) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number: 000-26408
WAYSIDE TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(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
Common Stock, par value $0.01 per share
Name of Each Exchange on Which Registered
The Nasdaq Global Market
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:134)
No ⌧
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 (cid:134)
No ⌧
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 ⌧ No (cid:134)
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 ⌧ No (cid:134)
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. (cid:134)
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 (cid:134)
Non-accelerated filer (cid:134)
Accelerated filer (cid:134)
Smaller Reporting Company ⌧
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134) No ⌧
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, 2011, 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 $50,073,948. (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 13, 2012 was 4,670,985 shares.
Documents Incorporated by Reference: Portions of the Registrant’s definitive Proxy Statement for its 2012 Annual Meeting of
Stockholders to be filed on or before April 30, 2012 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 The Nasdaq Global Market
under the symbol “WSTG”. Our main web site address is www.waysidetechnology.com, and the other web sites maintained by our
business include www.lifeboatdistribution.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 Company operates through two segments, Lifeboat Distribution (“Lifeboat”) and the TechXtend (“TechXtend”) segment
(formerly the “Programmer’s Paradise” segment). The Lifeboat segment distributes technical software through a worldwide network
of corporate and value-added resellers, consultants, and systems integrators. The TechXtend 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 TechXtend 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 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, results 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., Intel Corporation, Vmware, TechSmith Corporation, Flexera Corp., Acronis, Solarwinds,
Astaro, 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%, 4% and 7%, of our overall revenue in 2011, 2010 and 2009,
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 three customers that accounted for more than 10% of total sales for 2011. For the year ended December
31, 2011, CDW Corporation, Insight and Software House International accounted for 14.0%, 11.0% and 10.5%, respectively, of
consolidated net sales and, as of December 31, 2011, 12.4%, 6.8%, and 4.7%, respectively, of total net accounts receivable. For the
year ended December 31, 2010, CDW Corporation accounted for 15.8% of consolidated net sales. For the year ended December 31,
2009,
Page 3
CDW Corporation and Software House International accounted for 10.5% and 10.7%, respectively, of consolidated net sales. Our top
five customers accounted for 42%, 44%, and 36% of consolidated net sales in 2011, 2010 and 2009, 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 2011, as compared to 7% in 2010, and 8% in 2009. 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, 2011, Veeam software and Quest were the only individual vendors from whom our purchases exceeded 10% of our
total purchases. For the year ended December 31, 2011, Veeam and Quest accounted for 12.6% and 11.2%, respectively, of our total
purchases. For the years ended December 31, 2010 and 2009, Quest was the only individual vendor from whom our purchases
exceeded 10% of our total purchases, representing 11.2% and 10.2%, respectively, of our total purchases. 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 2011, the Company purchased approximately 90% of its products directly from manufacturers and publishers and the
balance from multiple distributors, as compared to 90% in 2010, and 85% in 2009. 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 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
Page 4
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, TechXtend, 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, 2011, Wayside Technology Group, Inc. and its subsidiaries had 109 full-time employees and 3 part-time
employees. The Company is not a party to any collective bargaining agreements with its employees, has experienced no work
stoppages and considers its relationships with its employees to be satisfactory.
Executive Officers of the Company
Set forth below are the name, age, present title, principal occupation and certain biographical information for our executive
officers as of February 1, 2012, 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
Shawn J. Giordano
Age
40
62
54
47
46
42
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
Vice President of Sales
Page 5
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 following address for the Company’s web site includes a hyperlink to those reports under
“Financials/SEC Filings”: http://www.waysidetechnology.com.
Page 6
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.
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
Page 7
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
trading prices for our Common Stock may be more volatile. Among other things, trading of a relatively
Page 8
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. The Company also leases office space in
Almere, Netherlands under a lease which expires October 31, 2012, at an annual rent of approximately $12,000. 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.
2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2010
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
High
Low
$
$
15.350
15.300
13.880
12.550
9.330
10.550
10.400
12.030
11.270
13.060
10.000
9.510
7.750
8.950
8.540
9.620
Page 9
In 2011 and 2010, we declared quarterly dividends totaling $0.64 and $0.61 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 2011, the Company granted a total of 15,000 shares of restricted stock to employees. These shares vest over 60
months. A total of 8,375 shares of restricted common stock were forfeited as a result of employees terminating employment with the
Company.
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.
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 10, 2012 there were approximately 32 record holders of our Common Stock.
During the fourth quarter of 2011, we repurchased shares of our Common Stock as follows:
Period
October 1- October 31, 2011
November 1- November 30, 2011
December 1 - December 31, 2011
Total
Total
Number of
Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
Maximum
Number of
Shares That
May Yet Be
Purchased
Under the Plans
or Programs
(4)
Average
Price
Paid Per
Share
(3)
$
—
—
—
—
—
—
—
—
398,257
398,257
398,257
398,257
Total
Number
of Shares
Purchased
Average
Price Paid
Per Share
(2)
—
$
—
8,164(1) $
12.10
—
8,164
$
—
12.10
(1) Includes 8,164 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.
Page 10
(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 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, 2006 and ending December 31, 2011, assuming $100 was invested on
December 31, 2006 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
Dec06
Dec07
Dec08
INDEXED RETURNS
Years Ending
Dec09
100
100
100
61.44
107.98
99.61
51.35
68.86
49.05
63.22
94.60
66.31
Dec10
95.45
119.80
60.93
Dec11
108.50
117.72
46.04
Page 11
Item 6. Selected Financial Data
The following tables set forth, for the periods indicated, selected consolidated financial and other data for Wayside
Technology Group, Inc. and its Subsidiaries. You should read the selected consolidated financial and other data below in conjunction
with our consolidated financial statements and the related notes and with “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included elsewhere in this Form 10-K.
Year Ended December 31,
(In thousands, except per share data)
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
$
$
$
$
$
2011
2010
2009
2008
2007
$
$
$
$
250,169
226,928
23,241
14,623
8,618
369
8,987
3,448
5,539
1.26
1.20
4,412
4,606
$
$
$
$
206,730
186,720
20,010
13,207
6,803
407
7,210
2,789
4,421
1.01
0.98
4,386
4,500
146,384 $
130,791
15,593
11,319
4,274
521
4,795
1,928
2,867
$
0.65
0.65
$
$
4,399
4,427
December 31,
2011
2010
2009
$
9,202
5,375
19,337
74,861
28,934
$
10,955
4,528
19,033
68,683
26,679
8,560 $
7,571
16,583
53,667
24,359
$
$
$
$
$
174,025
157,228
16,797
12,207
4,590
744
5,334
2,168
3,166
0.72
0.71
4,414
4,461
2008
9,349
9,367
14,806
47,485
23,884
179,865
162,630
17,235
12,081
5,154
991
6,145
2,442
3,703
0.84
0.80
4,406
4,656
2007
14,241
9,641
19,479
56,753
24,492
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
Page 12
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 13
Overview
As of January 1, 2006 we organized our Company into two reportable operating segments — the “TechXtend” segment
(formerly 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 14
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 $5.5 million for the year 2011 as compared to a net income of $4.4 million in 2010. The increase
resulted primarily from the increase in revenue, offset in part by competitive pricing pressure which lowered gross profit margin
percentage and increased selling, general and administrative (“SG&A”) expenses. Our income before income taxes increased by $1.8
million to $9.0 million compared to $7.2 million in 2010.
Income from operations amounted to $8.6 million in 2011 as compared to $6.8 million in 2010, representing an increase of
$1.8 million as compared to 2010. Gross profit increased by $3.2 million in 2011 as compared to 2010, and SG&A expenses increased
by $1.4 in million in 2011 as compared to 2010.
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 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:
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
2011
Years ended December 31,
2010
2009
100.0%
90.7
9.3
5.9
3.4
0.2
3.6
1.4
2.2%
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%
Year ended December 31, 2011 Compared to Year Ended December 31, 2010
Net Sales
Net sales for 2011 increased 21%, or $43.4 million to $250.1 million compared to $206.7 million in 2010. Total sales for our
Lifeboat segment in 2011 were $192.7 million compared to $149.1 million in 2009, representing a 29% increase. Total sales for the
TechXtend segment in 2011 amounted to $57.4 million, compared to $57.6 million in 2010.
Page 15
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.
Gross Profit
Gross Profit for 2011 was $23.2 million compared to $20.0 million in 2010, a 16% increase. Total gross profit for our
Lifeboat segment was $16.8 million compared to $13.7 million in 2010, representing a 23% increase. Total gross profit for our
TechXtend segment was $6.4 million compared to $6.3 million in 2010, representing a 2% increase. Vendor rebates and discounts for
2011 amounted to $2.9 million compared to $2.7 million for 2010. Vendor rebates are dependent on reaching certain targets set by our
vendors.
Gross profit margin, i.e. gross profit as a percentage of net sales, for 2011 was 9.3% compared to 9.7% in 2010. Gross profit
margin for our Lifeboat segment in 2011 was 8.7% compared to 9.2% in 2010. Gross profit margin for our TechXtend segment in
2010 was 11.2% compared to 11.0% in 2010.
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 continued pressure on discounts and rebates earned and 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 2011 were $14.6 million compared to $13.2 million in 2010. As a percentage of net sales, SG&A
expenses for 2011 and 2010 were 5.9% and 6.4%, respectively. This dollar increase was primarily the result of higher employee and
employee-related costs (salaries, commissions, bonus accruals, benefits and travel and entertainment) of $1.1 million and increased
credit card processing fees of $0.2 million due to increased sales volume.
Direct selling costs (a component of SG&A) for 2011 were $7.8 million compared to $6.9 million in 2010. Total direct
selling costs for our TechXtend segment for 2011 were $3.0 million compared to $2.9 million in the same period in 2010. Total direct
selling costs for our Lifeboat segment for 2011 were $4.7 million compared to $3.9 million in the same period in 2010, 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, 2011, the Company recorded a provision for income taxes of $3.4 million which consists of
a provision of $2.4 million for U.S. federal income taxes, as well as a $0.5 million provision for state and local taxes, a $0.3 million
provision for foreign taxes, and a deferred tax expense of $0.3 million.
As of December 31, 2011, the Company had a U.S. deferred tax asset of approximately $0.6 million.
Page 16
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, 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.
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
TechXtend segment in 2010 amounted to $57.6 million, compared to $48.3 million in 2009, representing a 19% increase.
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 TechXtend 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
TechXtend 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 TechXtend 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 TechXtend 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
Page 17
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.
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.
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board, “FASB” issued ASU 2011-05, “Presentation of Comprehensive
Income”, an amendment to FASB ASC Topic 220, “Comprehensive Income”. The update gives companies the option to present the
total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in the update do not
change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be
reclassified to net income. The ASU is effective for the Company for fiscal years, and interim periods within those years, beginning
after December 15, 2011. In December 2011, the FASB issued ASU 2011-12 “Deferral of the Effective Date for Amendments to the
Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update
No. 2011-05.” This update stated that the specific requirement to present items that are reclassified from other comprehensive income
to net income alongside their respective components of net income and other comprehensive income will be deferred. All other
requirements of ASU 2011-05 will be required to be adopted. The amendments should be applied retrospectively for all prior periods
presented. Early adoption is permitted because compliance with the amendments is already permitted. The Company does not expect
the adoption of these provisions to have a material impact on our consolidated financial position, results of operations or cash flows.
Page 18
Liquidity and Capital Resources
Our cash and cash equivalents decreased by $1.8 million to $9.2 million at December 31, 2011 from $11.0 million at
December 31, 2010. Net cash provided by operating activities amounted to $3.7 million, net cash used in investing activities
amounted to $1.1 million, net cash used in financing activities amounted to $4.3 million and the effect of foreign exchange on cash
was $0.1 million.
Net cash provided by operating activities in 2011 was $3.7 million. In 2011, cash was mainly provided by $7.4 million from
net income net of non-cash charges, and a $4.1 million increase in accounts payable, offset in part by a $6.9 million increase in
accounts receivable, an increase in current assets of $0.7 million, and an increase in inventory of $0.1 million. The increase in
accounts receivable relates primarily to our increased revenue in December of 2011, compared to the comparable period in 2010. The
increase in accounts payable is primarily due to our increased net sales in December 2011 as compared to 2010 and our normal cycle
of payments.
In 2011, cash used in investing activities was $1.1 million. This resulted primarily from net purchases of $0.9 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 2011 of $4.3 million consisted of $3.0 million of dividend payments on our Common
Stock and $1.5 million for the purchases of shares of our Common Stock offset by the tax benefit from share based compensation of
$0.2 million.
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 2,112,756 shares of the Company’s stock have been bought back to date leaving a
balance of 398,257 shares of Common Stock that the Company is authorized to buy back in the future.
The repurchase program is expected to remain in effect for 2012. We intend to hold the repurchased shares in treasury for
general corporate purposes, including issuances under various stock plans. As of December 31, 2011, we held 604,622 shares of our
Common Stock in treasury at an average cost of $8.25 per share. 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.
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 19
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
4-5 years
After 5 years
—
132
404
—
—
536
$
$
$
—
76
353
—
—
429
$
$
$
—
56
51
—
—
107
—
—
—
—
—
—
—
—
—
—
—
(1) Operating leases relate primarily to the lease of the space used for our operations in Shrewsbury, New Jersey, Mississauga, Canada
and Almere, Netherlands. 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, 2011, 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 accounting principles generally accepted in
the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
The Company recognizes revenue from the sale of software and hardware for microcomputers, servers and networks upon shipment or
upon electronic delivery of the product. The Company expenses the advertising costs associated with producing its catalogs. The costs
of these catalogs are expensed in the same month the catalogs are mailed.
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, 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 20
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, 7.5% of the Company’s 2011 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 $5.4 million investments in marketable securities at December 31, 2011 are invested in 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 21
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 SEC’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, 2011. There were no changes
in our internal control over financial reporting during the quarter ended December 31, 2011 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 22
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 2012 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A not later
than April 30, 2012 (the “Definitive Proxy Statement”) under the sections captioned “Election of Directors,” “Corporate Governance”
and “Section 16 (a) Beneficial Ownership Reporting Compliance.”
Item 11. Executive Compensation
The information required hereunder is incorporated by reference herein from the Definitive Proxy Statement under the
sections captioned “Executive Compensation” and “Corporate Governance.”
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required hereunder is incorporated by reference herein from the Definitive Proxy Statement under the
sections captioned “Executive Compensation — Securities Authorized for Issuance under Equity Compensation Plans” and “Security
Ownership of Certain Beneficial Owners and Management”.
Item 13. Certain Relationships and Related Party Transactions, and Director Independence
The information required hereunder is incorporated by reference herein from the Definitive Proxy Statement under the
sections captioned “Executive Compensation,” “Corporate Governance” and “Transactions with Related Persons.”
Item 14. Principal Accounting Fees and Services
The information required hereunder is incorporated by reference herein from the Definitive Proxy Statement under the
section captioned “Appointment of Independent Registered Public Accounting Firm”.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements (See Index to Consolidated Financial Statements on page F-1 of this report);
2. Financial Statement Schedule:
Schedule II Valuation and Qualifying Accounts
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is included in the consolidated financial statements or notes
thereto.
Page 23
3. Exhibits Required by Regulation S-K, Item 601:
Exhibit No.
3.1
3.1(a)
3.2
4.1
10.18
10.19
10.19(a)
10.19(b)
10.19(c)
10.20
10.42
10.42(a)
10.43
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
Description of Exhibit
Form of Amended and Restated Certificate of Incorporation of the Company. (1)
Certificate of Amendment of Restated Certificate of Incorporation of the Company. (2)
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)
2006 Stock-Based Compensation Plan. (4)
First Amendment to 2006 Stock-Based Compensation Plan. (5)
Second Amendment to 2006 Stock-Based Compensation Plan. (5)
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)
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)
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 24
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 25
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 26
31.1
31.2
32.1
32.2
101
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
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.
The following financial information from Wayside Technology Group, Inc.’s Annual Report on Form 10-K for the
year ended December 31, 2011, filed with the SEC on February 24, 2012, formatted in XBRL (Extensible Business
Reporting Language) includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Earnings, (3)
Consolidated Statements of Stockholders’ Equity and Comprehensive Income, (4) Consolidated Statements of Cash
Flows, and (5) the Notes to the Consolidated Financial Statements, tagged as blocks of text. (13)
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).
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.
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.
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.
Page 27
(12)
(13)
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.
Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed
or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed
not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under
these sections.
(b)
The exhibits required by Item 601 of Regulation S-K are reflected above in Section (a) 3. of this Item.
(c)
The financial statement schedule is included as reflected in Section (a) 2. of this Item.
Page 28
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 24, 2012.
SIGNATURES
WAYSIDE TECHNOLOGY GROUP, INC.
By:
/s/ Simon F. Nynens
Simon F. Nynens, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates indicated:
Signature
Title
/s/ Simon F. Nynens
Simon F. Nynens
/s/ Kevin T. Scull
Kevin T. Scull
/s/ William H. Willett
William H. Willett
/s/ Mark. T. Boyer
Mark. T. Boyer
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)
Director
Director
/s/ Duffield Meyercord
Duffield Meyercord
Director
/s/ Edwin H. Morgens
Edwin H. Morgens
Director
/s/ Allan D. Weingarten
Allan D. Weingarten
Director
/s/ Mike Faith
Mike Faith
Director
Page 29
Date
February 24, 2012
February 24, 2012
February 24, 2012
February 24, 2012
February 24, 2012
February 24, 2012
February 24, 2012
February 24, 2012
Wayside Technology Group, Inc. and Subsidiaries
Index to Consolidated Financial Statements and Schedule
Items 8 and 15(a)
Reports 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
F-1
Page
F-2-3
F-4
F-5
F-6
F-7
F-8
F-24
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Wayside Technology Group, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Wayside Technology Group, Inc. and Subsidiaries as of December
31, 2011 and 2010, and the related consolidated statements of earnings, stockholders’ equity and comprehensive income, and cash
flows for each of the years in the two-year period ended December 31, 2011. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Wayside Technology Group, Inc. and Subsidiaries as of December 31, 2011 and 2010, and the results of their operations
and their cash flows for each of the years in the two-year period ended December 31, 2011, in conformity with accounting principles
generally accepted in the United States of America.
In connection with our audits of the consolidated financial statements referred to above, we also audited the consolidated financial
statement schedule, Schedule II — Valuation and Qualifying Accounts, for each of the years in the two-year period ended
December 31, 2011. 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
Edison, New Jersey
February 24, 2012
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 statements of earnings, stockholders’ equity and comprehensive income, and cash
flows for the year ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our 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 results
of operations and cash flows of Wayside Technology Group, Inc. and Subsidiaries for the year ended December 31, 2009 in
conformity with accounting principles generally accepted in the United States of America.
In connection with our audit of the consolidated statements referred to above, we also audited the consolidated financial statement
schedule, Schedule II — Valuation and Qualifying Accounts, for the year ended December 31, 2009. In our opinion, this financial
schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects,
the information stated therein.
/s/ Amper, Politziner & Mattia, LLP
Edison, New Jersey
February 22, 2010
F-3
Wayside Technology Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, net of allowances of $1,513 and $1,473 in 2011 and 2010, 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
Total liabilities
Commitments and Contingencies
Stockholders’ equity:
Common Stock, $.01 par value; 10,000,000 shares authorized; 5,284,500 shares issued; and
4,679,878 and 4,770,241 shares outstanding in 2011 and 2010, respectively
Additional paid-in capital
Treasury stock, at cost, 604,622 and 514,259 shares in 2011 and 2010, respectively
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
December 31,
2011
2010
$
$
$
$
9,202
5,375
47,066
1,240
1,997
329
65,209
458
8,889
54
251
74,861
45,796
76
45,872
55
45,927
53
26,725
(4,991)
6,818
329
28,934
74,861
$
$
$
$
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
The accompanying notes are an integral part of the consolidated financial statements.
F-4
Wayside Technology Group, Inc. and Subsidiaries
Consolidated Statements of Earnings
(In thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Income from operations
Other income:
Interest income
Foreign currency transaction gain
Income before provision for income taxes
Provision for income taxes
Net income
Income per common share-Basic
Income per common share-Diluted
Weighted average common shares outstanding-Basic
Weighted average common shares outstanding-Diluted
2011
Years ended December 31,
2010
2009
$
250,169
$
206,730
$
146,384
226,928
186,720
130,791
23,241
14,623
8,618
368
1
8,987
3,448
5,539
1.26
1.20
4,412
4,606
$
$
$
20,010
13,207
6,803
405
2
7,210
2,789
4,421
1.01
0.98
4,386
4,500
$
$
$
15,593
11,319
4,274
521
—
4,795
1,928
2,867
0.65
0.65
4,399
4,427
$
$
$
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
(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, 2009
5,284,500 $
53 $
26,636
640,838 $
(3,383) $
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
(2,106)
893
(51)
(546)
(140,000)
546
94,818
(718)
Balance at December 31,
2009
Net income
5,284,500
53
24,826
595,656
(3,555)
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
Net income
Other comprehensive
income:
Translation adjustment
Unrealized loss on
available- for-sale
securities
Comprehensive income
Dividends paid
Share-based
compensation expense
Stock options exercised
Tax benefit from share-
based compensation
Restricted stock grants
(net of forfeitures)
Treasury shares
repurchased
Balance at December 31,
2011
1,187
53
(593)
(144,625)
593
63,228
(608)
5,284,500
53
25,473
514,259
(3,570)
1,059
(11)
237
(18,750)
82
(33)
(6,625)
33
115,738
(1,536)
567 $
2,867
11 $
23,884
2,867
333
333
(36)
(707)
(36)
3,164
(2,813)
893
(51)
—
(718)
2,727
4,421
308
24,359
4,421
142
142
6
(2,881)
6
4,569
(2,881)
1,187
53
—
(608)
4,267
5,539
456
26,679
5,539
(112)
(112)
(15)
(2,988)
(15)
5,412
(2,988)
1,059
71
237
—
(1,536)
5,284,500
$
53
$
26,725
604,622
$
(4,991) $
6,818
$
329
$
28,934
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
(In thousands, except share amounts)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by 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
Gain 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 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
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
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplementary disclosure of cash flow information:
Income taxes paid
Equipment financed with capital lease
2011
Year ended December 31,
2010
2009
$
5,539
$
4,421
$
2,867
321
4
161
272
1,059
—
(12)
(6,876)
(76)
(738)
4,069
(22)
3,701
(234)
(5,623)
4,760
(1,097)
(1,536)
71
237
(2,988)
(83)
(4,299)
(58)
(1,753)
10,955
9,202
2,762
—
$
$
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
8,560
10,955
2,142
247
$
$
291
6
66
271
893
—
—
(8,972)
93
(217)
5,680
21
999
(179)
(10,379)
12,138
1,580
(718)
—
(51)
(2,813)
—
(3,582)
214
(789)
9,349
8,560
1,995
—
$
$
$
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)
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 the “TechXtend” segment
(formerly 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, value added resellers (VARs), consultants and systems integrators.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Operations
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany
transactions and balances have been eliminated.
Use of Estimates
The preparation of 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 reporting 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. 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:
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
2011
Year ended December 31,
2010
2009
$
5,539 $
4,421 $
4,412
194
4,386
114
4,606
4,500
$
$
1.26 $
1.20 $
1.01 $
0.98 $
2,867
4,399
28
4,427
0.65
0.65
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, 2011, the Company’s $5.4 million of marketable securities are in 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, 2011 and 2010, 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 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 relate 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 June 2011, the Financial Accounting Standards Board, “FASB” issued ASU 2011-05, “Presentation of Comprehensive
Income”, an amendment to FASB ASC Topic 220, “Comprehensive Income”. The update gives companies the option to present the
total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in the update do not
change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be
reclassified to net income. The ASU is effective for the Company for fiscal years, and interim periods within those years, beginning
after December 15, 2011. In December 2011, the FASB issued ASU 2011-12 “Deferral of the Effective Date for Amendments to the
Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No.
2011-05.” This update stated that the specific requirement to present items that are reclassified from other comprehensive income to
net income alongside their respective components of net income and other comprehensive income will be deferred. All other
requirements of ASU 2011-05 will be required to be adopted. The amendments should be applied retrospectively for all prior periods
presented. Early adoption is permitted because compliance with the amendments is already permitted. The Company does not expect
the adoption of these provisions to have a material impact on our consolidated financial position, results of operations or cash flows.
3. Marketable Securities
Investments in available-for-sale securities at December 31, 2011 were:
Certificates of deposit
Total Marketable securities
Cost
Market value
Unrealized (loss)
$
5,394
5,394
$
5,375
5,375
$
$
(19)
(19)
The cost and market value of our investments at December 31, 2011 by contractual maturity were:
Due in one year or less
$
5,394
$
5,375
Investments in available-for-sale securities at December 31, 2010 were:
Cost
Estimated
Fair Value
U.S. Government Securities
Certificates of deposit
Total Marketable securities
Cost
Market value
$
$
1,008
3,524
4,532
$
$
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:
Due in one year or less
$
4,532
$
4,528
F-12
Cost
Estimated
Fair Value
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:
Description
Certificates of deposit
Description
U.S. Government Securities
Certificates of deposit
Balance at
December 31,
2011
$
5,375
Balance at
December 31,
2010
Fair Value Measurements at December 31, 2011 Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices
in Active
Markets for
Identical Items
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
$
5,375
Fair Value Measurements at December 31, 2010 Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices
in Active
Markets for
Identical Items
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
$
$
1,009 $
1,009 $
— $
—
3,519
$
3,519
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
Accounts payable and accrued expenses consist of the following as of December 31:
Trade accounts payable
Accrued expenses
2011
2010
$
$
$
$
2,696
560
3,256
(2,798)
458
2011
42,417
3,379
45,796
$
$
$
$
2,546
551
3,097
(2,552)
545
2010
38,998
2,793
41,791
Accumulated other comprehensive income consists of the following as of December 31:
Foreign currency translation adjustments
Unrealized (loss) on marketable securities
6. Income Taxes
2011
2010
$
$
348
(19)
329
$
$
460
(4)
456
Deferred tax attributes resulting from differences between financial and accounting amounts and tax basis of assets and liabilities at
December 31, 2011 and 2010 are as follows:
Current assets
Accruals and reserves
Goodwill
Net current deferred tax assets
F-14
December 31,
2010
2011
$
$
329
—
329
$
$
362
154
516
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
Net non-current deferred tax assets
Total deferred tax assets
The provision for income taxes is as follows:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Effective Tax Rate
$
$
$
224
27
251
580
$
$
$
235
101
336
852
2011
Year ended December 31,
2010
2009
$
$
$
$
2,452
460
264
3,176
172
100
272
3,448
38.4%
1,800 $
546
170
2,516
211
62
273
2,789 $
38.7%
1,114
378
165
1,657
249
22
271
1,928
40.2%
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:
Statutory rate applied to pretax income
State income taxes, net of federal income tax benefit
Foreign income taxes over U.S. statutory rate
Other items
Income tax expense
$
$
F-15
2011
Year ended December 31,
2010
2009
3,056 $
325
(4)
71
3,448
$
2,456 $
399
(5)
(61)
2,789
$
1,630
260
25
13
1,928
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”. 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 2009, 2010 and 2011 tax years. The audit of the tax years 2006 and 2007 has been completed, with no
adjustments proposed by the Internal Revenue Service “IRS”. The current periods subject to examination for the Company’s state
returns in New Jersey are years 2009, 2010 and 2011. The current periods subject to examination for the Company’s Canadian tax
returns are the years 2009 through 2011. 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, 2011 and 2010.
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 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:
United States
Canada
2011
Year ended December 31,
2010
2009
$
$
8,229
758
8,987
$
$
6,696
514
7,210
$
$
4,382
413
4,795
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, 2011, the number of shares of common stock available for future
award grants to employees and directors under this plan is 122,250.
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.
During 2011, the Company granted a total of 15,000 shares of restricted stock to employees. These shares vest over 60 months. A total
of 8,375 shares of restricted common stock were forfeited as a result of employees terminating employment with the Company.
Changes during 2009, 2010 and 2011 in options outstanding for the combined plans were as follows:
Outstanding at January 1, 2009
Outstanding at December 31, 2009
Outstanding at December 31, 2010
Granted in 2009
Canceled in 2009
Exercised in 2009
Granted in 2010
Canceled in 2010
Exercised in 2010
Granted in 2011
Canceled in 2011
Exercised in 2011
Outstanding at December 31, 2011
Exercisable at December 31, 2011
Number
of
Options
Weighted
Average
Exercise
Price
392,890
—
—
—
392,890
—
—
—
392,890
—
—
18,750
374,140
374,140
$
8.12
—
—
—
8.12
—
—
—
8.12
—
—
3.85
8.33
8.33
The options exercisable at December 31, 2011 and 2010 were 374,140 and 392,890, respectively.
The aggregate intrinsic value of options outstanding and options exercisable as of December 31, 2011 was $1.5 million. The intrinsic
value is calculated as the difference between the market value as of December 30, 2011(the last trading day of 2011) and the exercise
price of the shares. The market value as of December 30, 2011 was $12.20 as reported by The Nasdaq Global Market.
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, 2011 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,
2011
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Options
Exercisable
as of
December 31,
2011
Weighted
Average
Exercise
Price
18,500
10,000
290,000
55,640
374,140
0.7
0.0
2.4
3.3
2.4
$
$
2.13
3.50
8.03
12.85
8.33
18,500
10,000
290,000
55,640
374,140
$
$
2.13
3.50
8.03
12.85
8.33
Under the various plans, options that are cancelled can be reissued. At December 31, 2011 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, 2011 and
changes during the year then ended is as follows:
Nonvested shares at January 1, 2009
Nonvested shares at December 31, 2009
Granted in 2009
Vested in 2009
Forfeited in 2009
Granted in 2010
Vested in 2010
Forfeited in 2010
Granted in 2011
Vested in 2011
Forfeited in 2011
Nonvested shares at December 31, 2010
Nonvested shares at December 31, 2011
Weighted
Average Grant
Date
Fair Value
12.76
7.55
11.52
—
11.03
8.57
10.49
9.21
10.18
14.35
10.28
8.45
10.44
Shares
264,750
140,000
(77,500)
—
327,250
150,500
(113,225)
(5,875)
358,650
15,000
(103,000)
(8,375)
262,275
$
$
$
As of December 31, 2011, there was approximately $2.7 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 3.5 years.
For the years ended December 31, 2011, 2010 and 2009, we recognized share-based compensation cost of approximately $1.1 million,
$1.2 million and $0.9 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, 2011, 2010 and 2009, the Company expensed approximately $147 thousand, $131 thousand and $116 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.
2012
2013
2014
2015
2016
$
$
429
94
13
—
—
536
Rent expense for the years ended December 31, 2011, 2010 and 2009 was approximately $332 thousand, $387 thousand and $354
thousand, respectively.
Employment Agreements
In the event that Simon Nynens’, President and Chief Executive officer, employment is terminated without cause or by the rendering
of a non-renewal notification, he is entitled to receive severance payments equal to twelve months salary and immediate vesting of all
outstanding stock awards. Additionally, in the event that a change of control of the Company occurs (as described in the employment
agreement), Mr. Nynens outstanding stock awards become immediately vested and he is entitled to the pro-rata performance bonus
based upon stock price at the date of such change in control.
The Company has entered into a letter agreement with Mr. Legrottaglie, Vice President of Information Systems. Mr. Legrottaglie is
entitled to severance payments for six months at the then applicable annual base salary if the Company terminates his employment for
any reason other than for cause.
F-20
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
Other
The Company is not committed by lines of credit, standby letters of credit, has no standby repurchase obligations or other commercial
commitments. Other than employment arrangements and other management compensation arrangements, the Company is not engaged
in any transactions with related parties.
10. Industry, Segment and Geographic Information
The Company markets software to software development and information technology professionals in the United States and Canada.
We also operate a sales branch in Europe to serve our customers in this region of the world.
Geographic revenue and identifiable assets related to operations as of and for the years ended December 31, 2011, 2010 and 2009
were as follows. Revenue is allocated to a geographic area based on the location of the sale, which is generally the customer’s country
of domicile. No one country other than the United Sates represents more than 10% of net sales for 2011, 2010 or 2009.
Net sales to Unaffiliated Customers:
United States
Canada
Other
Total
Identifiable Assets by Geographic Areas at December 31,
United States
Canada
Total
2011
2010
2009
209,946 $
18,672
21,551
250,169 $
174,180 $
15,048
17,502
206,730
$
123,197
11,364
11,823
146,384
2011
2010
2009
69,309 $
5,552
74,861
$
64,237 $
4,446
68,683
$
50,236
3,431
53,667
$
$
$
$
ASC Topic 280, “Segment Reporting,” requires that public companies report profits and losses and certain other information on their
“reportable operating segments” in their annual and interim financial statements. The internal organization used by the Company’s
Chief Operating Decision Maker (CODM) to assess performance and allocate resources determines the basis for reportable operating
segments. The Company’s CODM is the Chief Executive Officer.
The Company is organized into two reportable operating segments — the “TechXtend” segment (formerly 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, value added 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:
TechXtend
Lifeboat
Gross Profit:
TechXtend
Lifeboat
Direct Costs:
TechXtend
Lifeboat
Income Before Taxes:
TechXtend
Lifeboat
Segment Income
General and administrative
Interest income
Foreign currency translation gains
Income before taxes
Selected Assets By Segment:
TechXtend
Lifeboat
Segment Select Assets
Corporate Assets
Total Assets
2009
48,326
98,058
146,384
5,652
9,941
15,593
2,650
2,866
5,516
3,002
7,075
10,077
5,803
521
—
4,795
2011
57,449
192,720
250,169
6,437
16,804
23,241
3,058
4,715
7,773
3,379
12,089
15,468
6,850
368
1
8,987
27,881
29,314
57,195
17,666
74,861
$
$
$
$
$
$
$
$
$
$
$
$
Year Ended
December 31,
2010
57,579 $
149,151
206,730
6,307 $
13,703
20,010
2,932 $
3,934
6,866
3,375
9,769
13,144
6,341
405
2
7,210
$
26,644
23,872
50,516
18,167
68,683
The Company had three customers that accounted for more than 10% of total sales for 2011. For the year ended December 31, 2011,
CDW Corporation, Insight and Software House International accounted for 14.0%, 11.0% and 10.5%, respectively, of consolidated
net sales and, as of December 31, 2011, 12.4%, 6.8%, and 4.7%, respectively of total net accounts receivable. For the year ended
December 31, 2010, CDW
F-22
Wayside Technology Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in tables in thousands, except share and per share amounts)
Corporation accounted for 15.8% of consolidated net sales. 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. Our top five customers accounted for
42%, 44%, and 36% of consolidated net sales in 2011, 2010 and 2009, respectively.
11. Quarterly Results of Operations (Unaudited)
The following table presents summarized quarterly results for 2011:
First
Second
Third
Fourth
Net sales
Gross profit
Net income
Basic net income per
common share
Diluted net income per
common share
$
$
$
51,549 $
4,825
843
60,661
5,601
1,228
0.19 $
0.18 $
0.28
0.26
$
$
$
63,741
5,757
1,494
0.34
0.33
$
$
$
74,218
7,058
1,974
0.45
0.43
The following table presents summarized quarterly results for 2010:
First
Second
Third
Fourth
Net sales
Gross profit
Net income
Basic net income per
common share
Diluted net income per
common share
$
$
$
40,358 $
3,969
624
48,443
4,685
1,054
0.14 $
0.14 $
0.24
0.23
$
$
$
52,994
5,134
1,257
0.29
0.28
$
$
$
64,935
6,224
1,486
0.34
0.33
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, 2009
Allowances for accounts receivable
Reserve for inventory obsolescence
Year ended December 31, 2010
Allowances for accounts receivable
Reserve for inventory obsolescence
Year ended December 31, 2011
Allowances for accounts receivable
Reserve for inventory obsolescence
1,086
56
1,097
20
1,473
18
$
$
$
$
$
$
$
$
$
$
$
$
F-24
126
$
(10) $
$
480
— $
161
31
$
$
115
26
104
2
121
14
$
$
$
$
$
$
1,097
20
1,473
18
1,513
35
Name
Jurisdiction of Organization
Subsidiaries
Exhibit 21.1
Lifeboat Distribution, Inc.
Programmer’s Paradise, Inc.
Programmers Paradise
TechXtend, Inc.
Lifeboat Distribution, Europe
Delaware
Delaware
Canada
Delaware
Netherlands
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of Wayside Technology Group, Inc. (the “Company”) on
Form S-8 (No. 333-136211), pertaining to the Company’s 2006 Stock- Based Compensation Plan, and on Form S-8 (333-72249)
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 24, 2012, on our audits of the consolidated financial statements and financial statement
schedule as of December 31, 2011 and 2010 and for each of the years in the two-year period ended December 31, 2011, which report
is included in this Annual Report on Form 10-K.
Exhibit 23.1
/s/ EisnerAmper LLP
Edison, New Jersey
February 24, 2012
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of Wayside Technology Group, Inc. (the “Company”) on
Form S-8 (No. 333-136211), pertaining to the Company’s 2006 Stock- Based Compensation Plan, and on Form S-8 (333-72249)
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, on our audit of consolidated financial statements and financial statement
schedule for the year ended December 31, 2009, which report is included in this Annual Report on Form 10-K.
Exhibit 23.2
/s/ Amper, Politziner & Mattia, LLP
Edison, New Jersey
February 24, 2012
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Simon F. Nynens, certify that:
1. I have reviewed this annual report on Form 10-K of Wayside Technology Group, Inc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 24, 2012
/s/ Simon F. Nynens
Simon F. Nynens
President and Chief Executive Officer and Chairman of the Board
Exhibit 31.2
CERTIFICATION OF CHIEF ACCOUNTING OFFICER
I, Kevin T. Scull, certify that:
1. I have reviewed this annual report on Form 10-K of Wayside Technology Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 24, 2012
/s/ Kevin T. Scull
Kevin T. Scull
Vice President and Chief Accounting Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Wayside Technology Group, Inc. (the “Company”) on Form 10-K for the period ending
December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Simon F. Nynens,
certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Simon F. Nynen
Simon F. Nynens
President and Chief Executive Officer
February 24, 2012
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by
Company and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Wayside Technology Group, Inc (the “Company”) on Form 10-K for the period ending
December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin T. Scull, certify,
pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Kevin T. Scull
Kevin T. Scull
Vice President and Chief Accounting Officer
February 24, 2012
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by
Company and furnished to the Securities and Exchange Commission or its staff upon request.
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