10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2011

OR

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

For the transition period from                       to                      

Commission File No. 000-26408

Wayside Technology Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	13-3136104
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

1157 Shrewsbury Avenue, Shrewsbury, New Jersey 07702

(Address of principal executive offices)

(732) 389-8950

Registrant’s Telephone Number

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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” and “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Check One:

Large Accelerated Filer  o	Accelerated Filer  o
Non-Accelerated Filer  o	Smaller Reporting Company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

There were 4,703,036 outstanding shares of common stock, par value $.01 per share, (“Common Stock”) as of August 8, 2011, not including 581,464 shares classified as treasury stock.

PART I — FINANCIAL INFORMATION

WAYSIDE TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	June 30,			December 31,
	2011			2010
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	11,667		$	10,955
Marketable securities	1,394			4,528
Accounts receivable, net of allowances of $1,658 and $1,473, respectively	38,443			42,486
Inventory, net	1,345			1,164
Prepaid expenses and other current assets	1,378			1,250
Deferred income taxes	452			516
Total current assets	54,679			60,899
Equipment and leasehold improvements, net	514			545
Accounts receivable-long-term	6,370			6,866
Other assets	38			37
Deferred income taxes	336			336
Total assets	$	61,937		$	68,683
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	34,643		$	41,791
Current portion - capital lease obligation	82			75
Total current liabilities	34,725			41,866
Long- term portion- capital lease obligation	97			138
Total liabilities	34,822			42,004
Commitments and contingencies
Stockholders’ equity
Common Stock, $.01 par value; 10,000,000 shares authorized, 5,284,500 shares issued; 4,722,893 and 4,770,241 shares outstanding, respectively	53			53
Additional paid-in capital	26,198			25,473
Treasury stock, at cost, 561,607 and 514,259 shares, respectively	(4,519		)	(3,570		)
Retained earnings	4,835			4,267
Accumulated other comprehensive income	548			456
Total stockholders’ equity	27,115			26,679
Total liabilities and stockholders’ equity	$	61,937		$	68,683

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

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WAYSIDE TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(In thousands, except per share data)

	Six months ended				Three months ended
	June 30,				June 30,
	2011		2010		2011		2010
Net sales	$	112,210	$	88,800	$	60,661	$	48,442
Cost of sales	101,784		80,147		55,060		43,757
Gross profit	10,426		8,653		5,601		4,685
Selling, general and administrative expenses	7,170		6,190		3,640		3,160
Income from operations	3,256		2,463		1,961		1,525
Interest income, net	172		212		86		104
Realized foreign exchange gain	1		3		1		2
Income before income tax provision	3,429		2,678		2,048		1,631
Provision for income taxes	1,358		1,000		820		576
Net income	$	2,071	$	1,678	$	1,228	$	1,055
Net income per common share - Basic	$	0.47	$	0.38	$	0.28	$	0.24
Net income per common share — Diluted	$	0.45	$	0.38	$	0.26	$	0.23
Weighted average common shares outstanding-Basic	4,414		4,376		4,414		4,380
Weighted average common shares outstanding-Diluted	4,647		4,461		4,645		4,493
Dividends paid per common share	$	0.32	$	0.30	$	0.16	$	0.15

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

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WAYSIDE TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands, except share amounts)

	Common Stock			Additional Paid-In			Treasury					Retained			Accumulated Other Comprehensive
	Shares	Amount		Capital			Shares		Amount			Earnings			Income		Total
Balance at January 1, 2011	5,284,500	$	53	$	25,473		514,259		$	(3,570	)	$	4,267		$	456	$	26,679
Net Income												2,071					2,071
Other comprehensive income :
Translation adjustment															88		88
Unrealized gain on available- for-sale securities															4		4
Comprehensive income																	2,163
Dividends paid												(1,503		)			(1,503		)
Exercise of stock options				(11		)	(18,750	)	82								71
Share-based compensation expense				589													589
Tax benefit from share- based compensation				188													188
Restricted stock grants(net of forfeitures)				(41		)	(8,775	)	41								—
Treasury shares repurchased							74,873		(1,072		)						(1,072		)
Balance at June 30, 2011	5,284,500	$	53	$	26,198		561,607		$	(4,519	)	$	4,835		$	548	$	27,115

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

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WAYSIDE TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six months ended
	June 30,
	2011			2010
Net income	$	2,071		$	1,678
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	157			151
Deferred income taxes	64			204
Share-based compensation expense	589			596
Provision for doubtful accounts receivable	105			—
Reversal of uncertain tax position liability	—			(78		)
Changes in operating assets and liabilities:
Accounts receivable	4,513			(2,364		)
Inventory	(180		)	(349		)
Prepaid expenses and other current assets	(126		)	(162		)
Accounts payable and accrued expenses	(7,181		)	3,545
Net change in other assets and liabilities	(3		)	(2		)
Net cash provided by operating activities	9			3,219
Cash flows from investing activities:
Purchases of available-for-sale securities	—			(4,509		)
Redemptions of available-for-sale securities	3,137			4,242
Capital expenditures	(124		)	(131		)
Net cash provided by (used in) investing activities	3,013			(398		)
Cash flows from financing activities:
Dividend paid	(1,503		)	(1,420		)
Treasury stock repurchased	(1,072		)	(354		)
Tax benefit from share- based compensation	188			11
Repayment of capital lease obligations	(41		)	—
Proceeds from stock option exercises	71			—
Net cash used in financing activities	(2,357		)	(1,763		)
Effect of foreign exchange rate on cash	47			(7		)
Net increase in cash and cash equivalents	712			1,051
Cash and cash equivalents at beginning of period	10,955			8,560
Cash and cash equivalents at end of period	$	11,667		$	9,611
Supplementary disclosure of cash flow information:
Income taxes paid	$	1,231		$	814

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

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WAYSIDE TECHNOLOGY GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

June 30, 2011

1.The accompanying unaudited condensed consolidated financial statements of Wayside Technology Group, Inc. and its subsidiaries (collectively, the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete audited financial statements.

The preparation of these condensed consolidated 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. On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, investments, intangible assets, income taxes, stock-based compensation and costs associated with exit or disposal activities, and contingencies and litigation. The Company bases its estimates on its historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In the opinion of the Company’s management, all adjustments that are of a normal recurring nature, considered necessary for fair presentation, have been included in the accompanying financial statements. The Company’s actual results may differ from these estimates under different assumptions or conditions. The unaudited condensed consolidated statements of earnings for the interim periods are not necessarily indicative of results for the full year. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K filed with the Securities Exchange Commission for the year ended December 31, 2010.

2.Assets and liabilities of the Company’s foreign subsidiaries have been translated at current exchange rates, and related sales and expenses have been translated at average rates of exchange in effect during the period. The sales from our Canadian operations in the first six months of 2011 were $8.8 million as compared to $7.1 million for the first six months of 2010. The sales from our Canadian operations for the second quarter of 2011 were $4.2 million as compared to $3.7 million for the second quarter of 2010.

3.Cumulative translation adjustments and unrealized gains (losses) on available-for-sale securities have been classified within accumulated other comprehensive income, which is a separate component of stockholders’ equity in accordance with FASB ASC Topic 220, “Comprehensive Income.”

4.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 have passed to the customer and delivery has occurred. Revenue is recognized in accordance with ASC Topic 985-605 “ Software Revenue Recognition” and ASC Topic 605-10-S99, and ASC Topic 605 -45, “Reporting Revenue Gross as a Principal versus Net as an Agent”. The majority of the Company’s revenues relates to physical products and is recognized on a gross basis with the selling price to the customer recorded as net sales and 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.

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

5.Vendor rebates and vendor 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,

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are recorded in the period in which the related advertising expenditure is incurred. Cooperative reimbursements are recorded as reduction in cost of sales in accordance with ASC Topic 605-50 “Accounting by a Customer (including reseller) for Certain Consideration Received from a Vendor.”

6.The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximated fair value at June 30, 2011 and December 31, 2010, because of the relative short maturity of these instruments.

Investments in available-for-sale securities at June 30, 2011 were (in thousands):

	Cost		Market value		Unrealized Gain (loss)
U.S. Government Securities	$	1,005	$	1,005	$	—
Certificates of deposit	389		389		$	—
Total Marketable securities	$	1,394	$	1,394	$	—

The cost and market value of the Company’s investments at June 30, 2011, determined by contractual maturity, were (in thousands):

			Estimated
	Cost		Fair Value
Due in one year or less	$	1,394	$	1,394

Investments in available-for-sale securities at December 31, 2010 were (in thousands):

	Cost		Market value		Unrealized Gain (loss)
U.S. Government Securities	$	1,008	$	1,009	$	1
Certificates of deposit	3,524		3,519		$	(5	)
Total Marketable securities	$	4,532	$	4,528	$	(4	)

The cost and market value of the Company’s investments at December 31, 2010, determined by contractual maturity, were (in thousands):

			Estimated
	Cost		Fair Value
Due in one year or less	$	4,532	$	4,528

7.The Company accounts for the fair value measurement 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).

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

			Fair Value Measurements at June 30, 2011 Using
(In thousands) Description	Balance at June 30, 2011		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government Securities	$	1,005	$	1,005	$	—	$	—
Certificates of deposit	$	389	$	—	$	389	$	—

			Fair Value Measurements at December 31, 2010 Using
(In thousands) Description	Balance at December 31, 2010		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government Securities	$	1,009	$	1,009	$	—	$	—
Certificates of deposit	$	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.

8.Balance Sheet Detail — (in thousands):

Equipment and leasehold improvements consist of the following as of June 30, 2011 and December 31, 2010:

	June 30, 2011			December 31, 2010
Equipment	$	2,661		$	2,546
Leasehold improvements	563			551
	3,224			3,097
Less accumulated depreciation and amortization	(2,710		)	(2,552		)
	$	514		$	545

Accounts payable and accrued expenses consist of the following as of June 30, 2011 and December 31, 2010:

	June 30, 2011		December 31, 2010
Trade accounts payable	$	31,681	$	38,998
Other accrued expenses	2,962		2,793
	$	34,643	$	41,791

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Accumulated other comprehensive income consists of the following as of June 30, 2011 and December 31, 2010:

	June 30, 2011		December 31, 2010
Foreign currency translation adjustments	$	548	$	460
Unrealized (loss) on marketable securities	—		(4		)
	$	548	$	456

9.Basic Earnings Per Share (“EPS”) is computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted EPS is computed considering the potentially dilutive effect of outstanding stock options and non-vested shares of restricted stock. A reconciliation of the numerators and denominators of the basic and diluted per share computations follows (in thousands, except share and per share data):

	Six months ended				Three months ended
	June 30,				June 30,
	2011		2010		2011		2010
Numerator:
Net income	$	2,071	$	1,678	$	1,228	$	1,055
Denominator:
Weighted average shares (Basic)	4,414		4,376		4,414		4,380
Dilutive effect of outstanding options and non-vested shares of restricted stock	233		85		231		113
Weighted average shares including assumed conversions (Diluted)	4,647		4,461		4,645		4,493
Basic net income per share	$	0.47	$	0.38	$	0.28	$	0.24
Diluted net income per share	$	0.45	$	0.38	$	0.26	$	0.23

10.The Company had one major vendor that accounted for 11.9% and 13.9% of total purchases during the six and three months, respectively, that ended June 30, 2011. The Company had no major vendors that accounted for more than 10% of total purchases for the six and three months ended June 30, 2010. The Company had three major customers that accounted for 14.5%, 11.0% and 10.7%, respectively, of its total net sales during the six months ended June 30, 2011, and 14.6%, 11.4% an 11.0% of total net sales for the three months then ended. These same customers accounted for 15.1%, 3.5% and 11.3%, respectively, of total net accounts receivable as of June 30, 2011. The Company had two major customers that accounted for 19.1% and 10.0% of total net sales during the three months ended June 30, 2010, and 18.2% and 9.7% for the six months then ended.

11.The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. With a few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2007. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. The Company believes that it has appropriate support for the income tax positions it takes and expects to take on its tax returns, and

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that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

The provision consists of the following (in thousands):

	Six months ended						Three months ended
	June 30,						June 30,
	2011			2010			2011			2010
Current:
Federal	$	922		$	535		$	566		$	320
State	268			179			165			117
Canada	103			82			46			44
	1,293			796			777			481
Deferred tax expense	65			204			43			95
	$	1,358		$	1,000		$	820		$	576
Effective tax rate	39.6		%	37.3		%	40.0		%	35.3		%

The effective tax rate for the six and three months ended June 30, 2010 was impacted by a benefit of $78,000 related to the reversal of the Company’s liability related to uncertain tax positions.

12.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 total number of shares of Common Stock initially available for award under the 2006 Plan was 800,000. As of June 30, 2011, the number of shares of Common Stock available for future award grants to employees and directors under the 2006 Plan is 120,100.

During 2006, the Company granted a total of 315,000 shares of Restricted 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 grants of Restricted Stock 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 of Restricted Stock vest over 60 months. In 2007, a total of 12,500 shares of Restricted Stock were forfeited as a result of employees and officers terminating employment with the Company.

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

During 2009, the Company granted a total of 140,000 shares of Restricted Stock to officers and employees. These shares of Restricted Stock vest over 20 equal quarterly installments.

During 2010, the Company granted a total of 150,500 shares of Restricted Stock to officers and employees. These shares of Restricted Stock vest over 60 months. In 2010, a total of 5,875 shares of Restricted Stock were forfeited as a result of employees and officers terminating employment with the Company.

In February 2011, the Company granted a total of 15,000 shares of Restricted Stock to employees. These shares of Restricted Stock vest over 60 months. In 2011, a total of 6,225 shares of Restricted Stock were forfeited as a result of employees terminating employment with the Company.

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In July 2008, the Company approved the increase of its Common Stock repurchase program by 500,000 shares. The Company expects to purchase shares of Common Stock under this plan from time to time in the market or otherwise, subject to market conditions.

Changes during 2011 in options outstanding under the Company’s combined plans (i.e., the 2006 Plan, the 1995 Non-Employee Director Plan and the 1995 Stock Option Plan) were as follows:

	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value $(M)(1)
Outstanding at January 1, 2011	392,890	$	8.12
Granted in 2011	—	—
Canceled in 2011	—	—
Exercised in 2011	18,750	3.85
Outstanding at June 30, 2011	374,140	$	8.33	2.9	$	2.0
Exercisable at June 30, 2011	374,140	$	8.33	2.9	$	2.0

(1) The intrinsic value of an option is calculated as the difference between the market value on the last trading day of the quarter (June 30, 2011) and the exercise price of the outstanding options. The market value as of June 30, 2011 was $13.56 per share represented by the closing price as reported by The Nasdaq Global Market on that day.

A summary of non-vested shares of Restricted Stock awards outstanding under the Company’s 2006 Plan as of June 30, 2011, and changes during the three months then ended is as follows:

	Shares		Weighted Average Grant Date Fair Value
Non-vested shares at January 1, 2011	358,650		$	10.18
Granted in 2011	15,000		14.35
Vested in 2011	(55,800	)	10.55
Forfeited in 2011	(6,225	)	8.60
Non-vested shares at June 30, 2011	311,625		$	10.35

As of June 30, 2011, there is approximately $3.2 million of total unrecognized compensation costs related to non-vested share-based compensation arrangements. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 3.9 years.

For the six months ended June 30, 2011 and 2010, the Company recognized share-based compensation cost of approximately $589,000 and $596,000, respectively, which is included in the Company’s general and administrative expense.

13.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 public 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.

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As permitted by ASC Topic 280, the Company has utilized the aggregation criteria in combining its operations in Canada with the domestic segments as the Canadian operations provide the same products and services to similar clients and are considered together when the Company’s CODM decides how to allocate resources.

Segment income is based on segment revenue less the applicable 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 an individual segment 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.

The following segment reporting information of the Company is provided (in thousands):

	Six months ended				Three months ended
	June 30				June 30,
	2011		2010		2011		2010
Revenue:
TechXtend	$	23,708	$	23,873	$	11,710	$	12,632
Lifeboat	88,502		64,927		48,951		35,810
	112,210		88,800		60,661		48,442
Gross Profit:
TechXtend	$	2,714	$	2,657	$	1,303	$	1,334
Lifeboat	7,712		5,996		4,298		3,351
	10,426		8,653		5,601		4,685
Direct Costs:
TechXtend	$	1,459	$	1,394	$	740	$	683
Lifeboat	2,269		1,806		1,152		968
	3,728		3,200		1,892		1,651
Segment Income:
TechXtend	$	1,255	$	1,263	$	563	$	651
Lifeboat	5,443		4,190		3,146		2,383
Segment Income	6,698		5,453		3,709		3,034
Corporate general and administrative expenses	$	3,442	$	2,990	$	1,748	$	1,509
Interest income	172		212		86		104
Foreign currency translation gain	1		3		1		2
Income before taxes	$	3,429	$	2,678	$	2,048	$	1,631
Selected Assets By Segment:
TechXtend	$	19,516
Lifeboat	26,642
Corporate assets	15,779
Segment Selected Assets	$	61,937

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of risk and uncertainties, including those set forth under the heading “Certain Factors Affecting Results of Operations and Stock Price” and elsewhere in this report and those set forth in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission. The following discussion should be read in conjunction with the accompanying unaudited  condensed consolidated financial statements and related notes included in this report and the consolidated financial statements and related notes included in our 2010 Annual Report on Form 10-K.

Overview

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  end-users through corporate resellers, value added resellers (VARs), consultants and systems integrators.

More generally, 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 loss of any major vendor; condition of the software industry in general; shifts in demand for software products;  our customers’ ability to meet their payment obligations in a timely manner; industry shipments of new software products or upgrades; the timing of new merchandise and catalog offerings; fluctuations in response rates; fluctuations in postage, paper, shipping and printing costs and in merchandise returns; adverse weather conditions that affect response, distribution or shipping; shifts in the timing of holidays; and changes in the Company’s product offerings. The Company’s operating expenditures are based on sales forecasts. If revenues do not meet expectations in any given quarter, operating results may be materially adversely affected.

Results of Operations

The following table sets forth for the periods indicated certain financial information derived from the Company’s unaudited condensed consolidated statements of earnings expressed as a percentage of net sales. This comparison of financial results is not necessarily indicative of future results:

	Six months ended				Three months ended
	June 30,				June 30,
	2011		2010		2011		2010
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	90.7		90.3		90.8		90.3
Gross profit	9.3		9.7		9.2		9.7
Selling, general and administrative expenses	6.4		6.9		6.0		6.5
Income from operations	2.9		2.8		3.2		3.2
Interest income, net	.2		.2		0.2		0.2
Realized foreign currency exchange gain	—		—		—		—
Income before income taxes	3.1		3.0		3.4		3.4
Provision for income taxes	1.2		1.1		1.4		1.2
Net income	1.9	%	1.9	%	2.0	%	2.2	%

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Net Sales

Net sales for the second quarter of 2011 increased 25% or $12.2 million to $60.7 million compared to $48.4 million for the same period in 2010. Total sales for the second quarter of 2011 for our TechXtend segment were $11.7 million compared to $12.6 million in the second quarter of 2010, representing a 7% decrease. The decrease in sales in the TechXtend division was primarily due to fewer large sales transactions in the second quarter of 2011. Total sales for the second quarter of 2011 for our Lifeboat segment were $49.0 million compared to $35.8 million in the second quarter of 2010, representing an increase of $13.1 million or 37%.

For the six months ended June 30, 2011, net sales increased 26% or $23.4 million to $112.2 million compared to $88.8 million for the same period in 2010. Sales for the six months ended June 30, 2011 for our Lifeboat segment increased 36% or $23.6 million to $88.5 million compared to $64.9 million for the same period last year. Sales for the six months ended June 30, 2011 for our TechXtend segment decreased 1% or $0.2 million to $23.7 million compared to $23.9 million for the same period last year.

Sales from our Lifeboat segment showed strong growth. The increase in net sales for the three and six months ended June 30, 2011 compared to the same periods in 2010, 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 the quarter ended June 30, 2011 was $5.6 million compared to $4.7 million for the second quarter of 2010, representing a 20% increase. Total gross profit for our TechXtend segment was $1.3 million compared to $1.3 million in the second quarter of 2010, representing a 2% decrease. Total gross profit for our Lifeboat segment was $4.3 million compared to $3.4 million in the second quarter of 2010, representing a 28% increase. This increase in gross profit for the Lifeboat segment was due to aggressive sales volume growth within that segment. Vendor rebates and discounts for the quarter ended June 30, 2011 amounted to $0.8 million compared to $0.7 million for the second quarter of 2010. Vendor rebates are dependent on reaching certain targets set by our vendors.

For the six months ended June 30, 2011 gross profit increased by $1.8 million to $10.4 million compared to $8.7 million for the same period in 2010. TechXtend gross profit for the six months ended June 30, 2011 was $2.7 million compared to $2.7 million for the first six months of 2010. Lifeboat’s gross profit for the six months ended June 30, 2011 was $7.7 million compared to $6.0 million for the first six months of 2010. Vendor rebates and discounts for the six month period ended June 30, 2011 amounted to $1.4 million compared to $1.1 million for the six month period ended June 30, 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 the quarter ended June 30, 2011 was 9.2% compared to 9.7% for the second quarter of 2010. Gross profit margin for the six months ended June 30, 2011 was 9.3% compared to 9.7% in the same period last year. Gross profit margin for our TechXtend segment for the second quarter of 2011 was 11.1% compared to 10.6% for the second quarter of 2010.  Gross profit margin for our Lifeboat segment for the second quarter of 2011 was 8.8% compared to 9.4% for the second quarter of 2010.

The increase in gross profit dollars and the decrease in gross profit margin as a percentage of net sales were primarily caused by the aggressive sales growth within our Lifeboat segment, competitive pricing pressure in both segments, and also 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 selling, general, and administrative (“SG&A”) expenses for the second quarter of 2011 were $3.6 million compared to $3.2 million for the second quarter of 2010, which was mainly the result of an increase in employee and employee- related expenses (salaries, commissions,  bonus accruals and benefits)  of $0.3 million in 2011 compared

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to 2010. As a percentage of net sales, SG&A expenses for the second quarter of 2011 were 6.0% compared to 6.5% for the second quarter of 2010. For the six months ended June 30, 2011 SG&A expenses were $7.2 million compared to $6.2 million in the same period last year, due mainly to an increase in employee and employee-related expenses of $0.7 million in 2011, compared to 2010, and an increase in credit card fees and provision for doubtful accounts of $0.2 million. As a percentage of net sales, SG&A expenses were 6.4% for the six months ended June 30, 2011 compared to 6.9% for the same period last year.

The Company expects that its SG&A expenses, as a percentage of net sales, may vary by quarter depending on changes in sales volume, and levels of continuing investments in information technology and marketing. We continue to monitor our SG&A expenses closely.

Direct selling costs (a component of SG&A) for the second quarter of 2011 were $1.9 million compared to $1.7 million for the second quarter of 2010. Total direct selling costs for our TechXtend segment for the second quarter of 2011were $0.7 million compared to $0.7 million for the same period in 2010. Total direct selling costs for our Lifeboat segment for the second quarter of 2010 were $1.2 million compared to $1.0 million for the same period in 2010, mainly due to increased employee related costs to manage and reward our growth in this segment.

Foreign Currency Transactions Gain (Loss)

The realized foreign exchange gain for the second quarter ended June 30, 2011 was $1,000 compared to $2,000 for the same period in 2010. For the six months ended June 30, 2011 the realized foreign exchange gain was $1,000 compared to $3,000 in the same period last year. Foreign exchange gains and losses primarily result from our trade activity with our Canadian subsidiary. Although the Company does maintain bank accounts in Canadian currencies to reduce currency exchange fluctuations, the Company is, nevertheless, subject to risks associated with such fluctuations.

Income Taxes

For the quarter ended June 30, 2011, the Company recorded a provision for income taxes of $820,000, which consists of a provision of $566,000 for U.S. federal income taxes as well as a $165,000 provision for state and local taxes and $46,000 for Canadian taxes, and a deferred tax expense of $43,000. For the quarter ended June 30, 2010, the Company recorded a provision for income taxes of $576,000, which consisted of a provision of $320,000 for U.S. federal income taxes as well as a $117,000 provision for state and local taxes and $44,000 for Canadian taxes, and a deferred tax expense of $95,000.

For the six months ended June 30, 2011 the Company recorded a provision for income taxes of $1,358,000, which consists of a provision of $922,000 for U.S. federal income taxes as well as a $268,000 provision for state and local taxes and $103,000 for Canadian taxes, and a deferred tax expense of $65,000. For the six months ended June 30, 2010 the Company recorded a provision for income taxes of $1,000,000, which consisted of a provision of $535,000 for U.S. federal income taxes as well as a $179,000 provision for state and local taxes and $82,000 for Canadian taxes, and a deferred tax expense of $204,000.

The effective tax rate for the six and three months ended June 30, 2010 was impacted by a benefit of $78,000 related to the reversal of the Company’s liability related to uncertain tax positions.

Liquidity and Capital Resources

During the first six months of 2011 our cash and cash equivalents increased by $0.7 million to $11.7 million at June 30, 2011, from $11.0 million at December 31, 2010. During the first six months of 2011, net cash provided by operating activities amounted to $0 million; net cash provided by investing activities amounted to $3.0 million and net cash used in financing activities amounted to $2.4 million.

Net cash provided by operating activities in the first six months of 2011 was $0 million and primarily resulted from a $4.5 million decrease in accounts receivable and $3.0 million from net income excluding non-cash charges offset by

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a decrease in accounts payable of $7.2 million. The decreases in accounts receivable and accounts payable were mainly due to lower sales volume compared to the fourth quarter of 2010.

Net cash provided by investing activities in the first six months of 2011 amounted to $3.0 million. This primarily resulted from sales of $3.1 million in marketable securities offset by capital expenditures of $0.1 million. These marketable securities are highly rated , highly liquid and 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.

Net cash used in financing activities in the first six months of 2010 amounted to $2.4 million. This consisted primarily of dividends paid of $1.5 million and Common Stock repurchases of $1.1 million.

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  Common Stock repurchase program and dividends if declared by the board of directors. The Company’s business plan contemplates our continuing use of our cash to pay vendors promptly in order to obtain more favorable terms.

We believe that the funds held in cash  and cash equivalents will be sufficient to fund our working capital and cash requirements for at least the next 12 months. Currently we 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.

Contractual Obligations as of June 30, 2011 were summarized as follows:

(Dollars in thousands)

Payment due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-Term Debt	—		—		—		—		—
Capital Lease Obligations	$	179	$	82	$	97	—		—
Operating Leases (1)	$	534	$	349	$	185	—		—
Purchase Obligations	—		—		—		—		—
Other Long Term Obligations	—		—		—		—		—
Total Contractual Obligations	$	713	$	431	$	282	$	—	$	—

(1) Operating leases primarily relate to the leases of the space used for our operations in Shrewsbury, New Jersey, and Mississauga, Canada. The commitments for operating leases include the minimum rent payments and a proportionate share of operating expenses and property taxes.

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

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 June 30, 2011, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

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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 unaudited condensed consolidated financial statements that have been prepared in accordance with GAAP. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Generally, 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 as previously described herein. The Company expenses the advertising costs associated with producing its catalogs. The costs of these catalogs are expensed in the same month the catalogs are mailed.

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

 The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company’s actual results may differ from these estimates.

The Company believes the following critical accounting policies described below, used in the preparation of its unaudited condensed 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 in an amount 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 was 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 an expense as it is amortized 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 compensation awards. In connection with valuing stock options, we use the Black-Scholes model, which requires us to consider certain facts and to estimate certain subjective assumptions. The key facts and assumptions we consider are: (i) the expected volatility of our Common Stock; (ii) the expected term of the award; and (iii) the expected forfeiture rate. In connection with valuing shares of our Restricted Stock 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 Common Stock based compensation awards granted in future periods. Such changes may lead to a significant change in the expense we recognize in connection with share-based compensation.

Certain Factors Affecting Results of Operations and Stock Price

This report includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements in this report regarding future events or conditions, including statements regarding industry prospects and the Company’s expected financial position, results of operations (including sales and gross profit margin), business and financing plans, are forward-looking statements. These

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statements can be identified by forward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate” and “continue” or similar words. 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 be correct. Substantial risks and uncertainties unknown at this time could cause actual results to differ materially from those indicated by such forward-looking statements, including, but not limited to, the continued acceptance of the Company’s distribution channel by vendors and customers, the timely availability and acceptance of new products, product mix, market conditions, contribution of key vendor relationships and support programs, as well as factors that affect the software industry in general and other factors. We strongly urge current and prospective investors to carefully consider the cautionary statements and risk factors contained in this report and our annual report on Form 10-K for the year ended December 31, 2010.

The Company operates in a rapidly changing business environment, and new risk factors emerge from time to time. Management cannot predict every risk factor, nor can it assess the impact, if any, that all such risk factors may have on the Company’s business or the extent to which any one risk factor, or any combination of risk 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. Unless otherwise required by law, 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.

Stock Volatility. The technology sector and the United States stock markets continue to experience substantial volatility. Numerous conditions, which impact the technology sector or the stock markets in general, and/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 operating expenses, and other developments, could have a significant impact on the market price of the Company’s Common Stock.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

In addition to its activities in the United States, the Company also conducts business 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. See “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Foreign Currency Transactions Gain (Loss).”

The Company’s $1.4 million investments in marketable securities at June 30, 2011 are invested in highly rated and liquid U.S. government securities and insured certificates of deposit. The remaining cash balance is invested in short-term savings accounts with our primary banks, JPMorgan Chase Bank and Citibank. As such, we believe that the risk of significant changes in the value of our cash invested is minimal.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15(b) under the Exchange Act, our management is responsible for and 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

17

supervision and with the participation of various members of our management, including our Company’s President, Chairman of the Board and Chief Executive Officer (principal executive officer) and Vice President and Chief Accounting Officer (principal financial officer). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Accounting Officer concluded that the Company’s disclosure controls and procedures were effective, as of the end of the period covered by this report, to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act, that occurred during the quarter ended June 30, 2011, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 2- Unregistered Sales of Equity Securities and Use of Proceeds

The table below sets forth the purchase of Common Stock by the Company and its affiliated purchasers during the second quarter of 2011.

ISSUER PURCHASE OF EQUITY SECURITIES

Period	Total Number of Shares Purchased		Average Price Paid Per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Average Price Paid Per Share (3)		Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (4)
April 1, 2011- April 30, 2011	—		—		—	—		445,005
May 1, 2011- May 31, 2011	27,934	(1)	$	13.97	17,981	$	13.96	427,024
June 1, 2011- June 30, 2011	4,125		$	14.81	4,125	$	14.81	422,899
Total	32,059		$	14.08	22,106	$	14.12	422,899

(1) Includes 9,953 shares surrendered to the Company by employees to satisfy individual tax withholding obligations upon vesting of previously issued shares of Restricted Stock. These shares are not included in the Common Stock repurchase program referred to in footnote (4) below.

(2) Average price paid per share reflects the closing price of the Company’s Common Stock on the business date the shares were surrendered by the employee stockholder to satisfy individual tax withholding 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.

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(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 an additional 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.

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Item 6. Exhibits

(a)           Exhibits

31.1         Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, of Simon F. Nynens, the Chief Executive Officer (principal executive officer) of the Company.

31.2         Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, of Kevin T. Scull, the Chief Accounting Officer (principal financial officer) of the Company.

32.1         Certification pursuant to 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 (principal executive officer) of the Company.

32.2         Certification pursuant to 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 (principal financial officer) of the Company.

SIGNATURES

Pursuant to the requirements 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.

	WAYSIDE TECHNOLOGY GROUP, INC
August  9, 2011	By:	/s/ Simon F. Nynens
Date	Simon F. Nynens, Chairman of the Board, President and Chief Executive Officer
August  9, 2011	By:	/s/ Kevin T. Scull
Date	Kevin T. Scull, Vice President and Chief Accounting Officer

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Simon F. Nynens, certify that:

1.I have reviewed this quarterly report on Form 10-Q 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 officer(s) 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 15(d) -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 upon 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 officer(s) 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 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: August 9, 2011

/s/ Simon F. Nynens

Simon F. Nynens

Chairman of the Board

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Kevin T. Scull, certify that:

1.I have reviewed this quarterly report on Form 10-Q 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 officer(s) 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 15(d) -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 upon 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 officer(s) 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 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: August 9, 2011

/s/ Kevin T. Scull

Kevin T. Scull

Vice President and Chief Accounting Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Wayside Technology Group, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 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. Nynens

Simon F. Nynens

Chairman of the Board

President and Chief Executive Officer (Principal Executive Officer)

August 9, 2011

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.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Wayside Technology Group, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 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 (Principal Financial Officer)

August 9, 2011

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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CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (USD $) In Thousands, except Per Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Net sales	$ 60,661	$ 48,442	$ 112,210	$ 88,800
Cost of sales	55,060	43,757	101,784	80,147
Gross profit	5,601	4,685	10,426	8,653
Selling, general and administrative expenses	3,640	3,160	7,170	6,190
Income from operations	1,961	1,525	3,256	2,463
Interest income, net	86	104	172	212
Realized foreign exchange gain	1	2	1	3
Income before income tax provision	2,048	1,631	3,429	2,678
Provision for income taxes	820	576	1,358	1,000
Net income	$ 1,228	$ 1,055	$ 2,071	$ 1,678
Net income per common share - Basic (in dollars per share)	$ 0.28	$ 0.24	$ 0.47	$ 0.38
Net income per common share - Diluted (in dollars per share)	$ 0.26	$ 0.23	$ 0.45	$ 0.38
Weighted average common shares outstanding-Basic (in shares)	4,414	4,380	4,414	4,376
Weighted average common shares outstanding-Diluted (in shares)	4,645	4,493	4,647	4,461
Dividends paid per common share (in dollars per share)	$ 0.16	$ 0.15	$ 0.32	$ 0.30

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (USD $) In Thousands, except Share data	Total	Common Stock	Additional Paid-In Capital	Treasury	Retained Earnings	Accumulated Other Comprehensive Income	Comprehensive income
Balance at Dec. 31, 2010	$ 26,679	$ 53	$ 25,473	$ (3,570)	$ 4,267	$ 456
Balance (in shares) at Dec. 31, 2010		5,284,500		514,259
Increase (Decrease) in Stockholders' Equity
Net Income	2,071				2,071		2,071
Other comprehensive income :
Translation adjustment	88					88	88
Unrealized gain on available-for-sale securities	4					4	4
Comprehensive income	2,163						2,163
Dividends paid	(1,503)				(1,503)
Exercise of stock options	71		(11)	82
Exercise of stock options (in shares)				(18,750)
Share-based compensation expense	589		589
Tax benefit from share-based compensation	188		188
Restricted stock grants (net of forfeitures)			(41)	41
Restricted stock grants (net of forfeitures) (in shares)				(8,775)
Treasury shares repurchased	(1,072)			(1,072)
Treasury shares repurchased (in shares)				74,873
Balance at Jun. 30, 2011	$ 27,115	$ 53	$ 26,198	$ (4,519)	$ 4,835	$ 548
Balance (in shares) at Jun. 30, 2011		5,284,500		561,607

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Current assets
Cash and cash equivalents	$ 11,667	$ 10,955
Marketable securities	1,394	4,528
Accounts receivable, net of allowances of $1,658 and $1,473, respectively	38,443	42,486
Inventory, net	1,345	1,164
Prepaid expenses and other current assets	1,378	1,250
Deferred income taxes	452	516
Total current assets	54,679	60,899
Equipment and leasehold improvements, net	514	545
Accounts receivable-long-term	6,370	6,866
Other assets	38	37
Deferred income taxes	336	336
Total assets	61,937	68,683
Current liabilities
Accounts payable and accrued expenses	34,643	41,791
Current portion - capital lease obligation	82	75
Total current liabilities	34,725	41,866
Long- term portion- capital lease obligation	97	138
Total liabilities	34,822	42,004
Commitments and contingencies
Stockholders' equity
Common Stock, $.01 par value; 10,000,000 shares authorized, 5,284,500 shares issued; 4,722,893 and 4,770,241 shares outstanding, respectively	53	53
Additional paid-in capital	26,198	25,473
Treasury stock, at cost, 561,607 and 514,259 shares, respectively	(4,519)	(3,570)
Retained earnings	4,835	4,267
Accumulated other comprehensive income	548	456
Total stockholders' equity	27,115	26,679
Total liabilities and stockholders' equity	$ 61,937	$ 68,683

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Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements

Fair Value Measurements

7. The Company accounts for the fair value measurement 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 condensed consolidated balance sheets:

			Fair Value Measurements at June 30, 2011 Using
(In thousands) Description	Balance at June 30, 2011		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government Securities	$	1,005	$	1,005	$	—	$	—
Certificates of deposit	$	389	$	—	$	389	$	—

			Fair Value Measurements at December 31, 2010 Using
(In thousands) Description	Balance at December 31, 2010		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government Securities	$	1,009	$	1,009	$	—	$	—
Certificates of deposit	$	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.

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Stock Based Compensation

6 Months Ended

Jun. 30, 2011

Stock Based Compensation

Stock Based Compensation

12.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 total number of shares of Common Stock initially available for award under the 2006 Plan was 800,000. As of June 30, 2011, the number of shares of Common Stock available for future award grants to employees and directors under the 2006 Plan is 120,100.

During 2006, the Company granted a total of 315,000 shares of Restricted 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 grants of Restricted Stock 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 of Restricted Stock vest over 60 months. In 2007, a total of 12,500 shares of Restricted Stock were forfeited as a result of employees and officers terminating employment with the Company.

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

During 2009, the Company granted a total of 140,000 shares of Restricted Stock to officers and employees. These shares of Restricted Stock vest over 20 equal quarterly installments.

During 2010, the Company granted a total of 150,500 shares of Restricted Stock to officers and employees. These shares of Restricted Stock vest over 60 months. In 2010, a total of 5,875 shares of Restricted Stock were forfeited as a result of employees and officers terminating employment with the Company.

In February 2011, the Company granted a total of 15,000 shares of Restricted Stock to employees. These shares of Restricted Stock vest over 60 months. In 2011, a total of 6,225 shares of Restricted Stock were forfeited as a result of employees terminating employment with the Company.

In July 2008, the Company approved the increase of its Common Stock repurchase program by 500,000 shares. The Company expects to purchase shares of Common Stock under this plan from time to time in the market or otherwise, subject to market conditions.

Changes during 2011 in options outstanding under the Company’s combined plans (i.e., the 2006 Plan, the 1995 Non-Employee Director Plan and the 1995 Stock Option Plan) were as follows:

	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value $(M)(1)
Outstanding at January 1, 2011	392,890	$	8.12
Granted in 2011	—	—
Canceled in 2011	—	—
Exercised in 2011	18,750	3.85
Outstanding at June 30, 2011	374,140	$	8.33	2.9	$	2.0
Exercisable at June 30, 2011	374,140	$	8.33	2.9	$	2.0

(1) The intrinsic value of an option is calculated as the difference between the market value on the last trading day of the quarter (June 30, 2011) and the exercise price of the outstanding options. The market value as of June 30, 2011 was $13.56 per share represented by the closing price as reported by The Nasdaq Global Market on that day.

A summary of non-vested shares of Restricted Stock awards outstanding under the Company’s 2006 Plan as of June 30, 2011, and changes during the three months then ended is as follows:

	Shares		Weighted Average Grant Date Fair Value
Non-vested shares at January 1, 2011	358,650		$	10.18
Granted in 2011	15,000		14.35
Vested in 2011	(55,800	)	10.55
Forfeited in 2011	(6,225	)	8.60
Non-vested shares at June 30, 2011	311,625		$	10.35

As of June 30, 2011, there is approximately $3.2 million of total unrecognized compensation costs related to non-vested share-based compensation arrangements. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 3.9 years.

For the six months ended June 30, 2011 and 2010, the Company recognized share-based compensation cost of approximately $589,000 and $596,000, respectively, which is included in the Company’s general and administrative expense.

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Comprehensive Income

6 Months Ended

Jun. 30, 2011

Comprehensive Income.

Comprehensive Income

3. Cumulative translation adjustments and unrealized gains (losses) on available-for-sale securities have been classified within accumulated other comprehensive income, which is a separate component of stockholders’ equity in accordance with FASB ASC Topic 220, “Comprehensive Income.”

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Earnings Per Share

6 Months Ended

Jun. 30, 2011

Earnings Per Share

Earnings Per Share

9.Basic Earnings Per Share (“EPS”) is computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted EPS is computed considering the potentially dilutive effect of outstanding stock options and non-vested shares of restricted stock. A reconciliation of the numerators and denominators of the basic and diluted per share computations follows (in thousands, except share and per share data):

	Six months ended				Three months ended
	June 30,				June 30,
	2011		2010		2011		2010
Numerator:
Net income	$	2,071	$	1,678	$	1,228	$	1,055
Denominator:
Weighted average shares (Basic)	4,414		4,376		4,414		4,380
Dilutive effect of outstanding options and non-vested shares of restricted stock	233		85		231		113
Weighted average shares including assumed conversions (Diluted)	4,647		4,461		4,645		4,493
Basic net income per share	$	0.47	$	0.38	$	0.28	$	0.24
Diluted net income per share	$	0.45	$	0.38	$	0.26	$	0.23

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Document and Entity Information	6 Months Ended
	Jun. 30, 2011	Aug. 08, 2011
Document and Entity Information
Entity Registrant Name	Wayside Technology Group, Inc.
Entity Central Index Key	0000945983
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		4,703,036
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2

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Major customers

6 Months Ended

Jun. 30, 2011

Major customers

Major customers

10.The Company had one major vendor that accounted for 11.9% and 13.9% of total purchases during the six and three months, respectively, that ended June 30, 2011. The Company had no major vendors that accounted for more than 10% of total purchases for the six and three months ended June 30, 2010. The Company had three major customers that accounted for 14.5%, 11.0% and 10.7%, respectively, of its total net sales during the six months ended June 30, 2011, and 14.6%, 11.4% an 11.0% of total net sales for the three months then ended. These same customers accounted for 15.1%, 3.5% and 11.3%, respectively, of total net accounts receivable as of June 30, 2011. The Company had two major customers that accounted for 19.1% and 10.0% of total net sales during the three months ended June 30, 2010, and 18.2% and 9.7% for the six months then ended.

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Balance Sheet Detail

6 Months Ended

Jun. 30, 2011

Balance Sheet Detail

Balance Sheet Detail

8. Balance Sheet Detail — (in thousands):

Equipment and leasehold improvements consist of the following as of June 30, 2011 and December 31, 2010:

	June 30, 2011			December 31, 2010
Equipment	$	2,661		$	2,546
Leasehold improvements	563			551
	3,224			3,097
Less accumulated depreciation and amortization	(2,710		)	(2,552		)
	$	514		$	545

Accounts payable and accrued expenses consist of the following as of June 30, 2011 and December 31, 2010:

	June 30, 2011		December 31, 2010
Trade accounts payable	$	31,681	$	38,998
Other accrued expenses	2,962		2,793
	$	34,643	$	41,791

Accumulated other comprehensive income consists of the following as of June 30, 2011 and December 31, 2010:

	June 30, 2011		December 31, 2010
Foreign currency translation adjustments	$	548	$	460
Unrealized (loss) on marketable securities	—		(4		)
	$	548	$	456

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Basis of Presentation

6 Months Ended

Jun. 30, 2011

Basis of Presentation

Basis of Presentation

1. The accompanying unaudited condensed consolidated financial statements of Wayside Technology Group, Inc. and its subsidiaries (collectively, the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete audited financial statements.

The preparation of these condensed consolidated 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. On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, investments, intangible assets, income taxes, stock-based compensation and costs associated with exit or disposal activities, and contingencies and litigation. The Company bases its estimates on its historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In the opinion of the Company’s management, all adjustments that are of a normal recurring nature, considered necessary for fair presentation, have been included in the accompanying financial statements. The Company’s actual results may differ from these estimates under different assumptions or conditions. The unaudited condensed consolidated statements of earnings for the interim periods are not necessarily indicative of results for the full year. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K filed with the Securities Exchange Commission for the year ended December 31, 2010.

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Revenue Recognition

6 Months Ended

Jun. 30, 2011

Revenue Recognition

Revenue Recognition

4. 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 have passed to the customer and delivery has occurred. Revenue is recognized in accordance with ASC Topic 985-605 “ Software Revenue Recognition” and ASC Topic 605-10-S99, and ASC Topic 605 -45, “Reporting Revenue Gross as a Principal versus Net as an Agent”. The majority of the Company’s revenues relates to physical products and is recognized on a gross basis with the selling price to the customer recorded as net sales and 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.

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

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Cooperative reimbursements from vendors

6 Months Ended

Jun. 30, 2011

Cooperative reimbursements from vendors

Cooperative reimbursements from vendors

5. Vendor rebates and vendor 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 in which the related advertising expenditure is incurred. Cooperative reimbursements are recorded as reduction in cost of sales in accordance with ASC Topic 605-50 “Accounting by a Customer (including reseller) for Certain Consideration Received from a Vendor.”

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Segment Reporting

6 Months Ended

Jun. 30, 2011

Segment Reporting

Segment Reporting

13.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 public 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.

As permitted by ASC Topic 280, the Company has utilized the aggregation criteria in combining its operations in Canada with the domestic segments as the Canadian operations provide the same products and services to similar clients and are considered together when the Company’s CODM decides how to allocate resources.

Segment income is based on segment revenue less the applicable 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 an individual segment 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.

The following segment reporting information of the Company is provided (in thousands):

	Six months ended				Three months ended
	June 30				June 30,
	2011		2010		2011		2010
Revenue:
TechXtend	$	23,708	$	23,873	$	11,710	$	12,632
Lifeboat	88,502		64,927		48,951		35,810
	112,210		88,800		60,661		48,442
Gross Profit:
TechXtend	$	2,714	$	2,657	$	1,303	$	1,334
Lifeboat	7,712		5,996		4,298		3,351
	10,426		8,653		5,601		4,685
Direct Costs:
TechXtend	$	1,459	$	1,394	$	740	$	683
Lifeboat	2,269		1,806		1,152		968
	3,728		3,200		1,892		1,651
Segment Income:
TechXtend	$	1,255	$	1,263	$	563	$	651
Lifeboat	5,443		4,190		3,146		2,383
Segment Income	6,698		5,453		3,709		3,034
Corporate general and administrative expenses	$	3,442	$	2,990	$	1,748	$	1,509
Interest income	172		212		86		104
Foreign currency translation gain	1		3		1		2
Income before taxes	$	3,429	$	2,678	$	2,048	$	1,631
Selected Assets By Segment:
TechXtend	$	19,516
Lifeboat	26,642
Corporate assets	15,779
Segment Selected Assets	$	61,937

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Marketable securities

6 Months Ended

Jun. 30, 2011

Marketable securities

Marketable securities

6. The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximated fair value at June 30, 2011 and December 31, 2010, because of the relative short maturity of these instruments.

Investments in available-for-sale securities at June 30, 2011 were (in thousands):

	Cost		Market value		Unrealized Gain (loss)
U.S. Government Securities	$	1,005	$	1,005	$	—
Certificates of deposit	389		389		$	—
Total Marketable securities	$	1,394	$	1,394	$	—

The cost and market value of the Company’s investments at June 30, 2011, determined by contractual maturity, were (in thousands):

			Estimated
	Cost		Fair Value
Due in one year or less	$	1,394	$	1,394

Investments in available-for-sale securities at December 31, 2010 were (in thousands):

	Cost		Market value		Unrealized Gain (loss)
U.S. Government Securities	$	1,008	$	1,009	$	1
Certificates of deposit	3,524		3,519		$	(5	)
Total Marketable securities	$	4,532	$	4,528	$	(4	)

The cost and market value of the Company’s investments at December 31, 2010, determined by contractual maturity, were (in thousands):

			Estimated
	Cost		Fair Value
Due in one year or less	$	4,532	$	4,528

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Net income	$ 2,071	$ 1,678
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	157	151
Deferred income taxes	64	204
Share-based compensation expense	589	596
Provision for doubtful accounts receivable	105
Reversal of uncertain tax position liability		(78)
Changes in operating assets and liabilities:
Accounts receivable	4,513	(2,364)
Inventory	(180)	(349)
Prepaid expenses and other current assets	(126)	(162)
Accounts payable and accrued expenses	(7,181)	3,545
Net change in other assets and liabilities	(3)	(2)
Net cash provided by operating activities	9	3,219
Cash flows from investing activities:
Purchases of available-for-sale securities		(4,509)
Redemptions of available-for-sale securities	3,137	4,242
Capital expenditures	(124)	(131)
Net cash provided by (used in) investing activities	3,013	(398)
Cash flows from financing activities:
Dividend paid	(1,503)	(1,420)
Treasury stock repurchased	(1,072)	(354)
Tax benefit from share- based compensation	188	11
Repayment of capital lease obligations	(41)
Proceeds from stock option exercises	71
Net cash used in financing activities	(2,357)	(1,763)
Effect of foreign exchange rate on cash	47	(7)
Net increase in cash and cash equivalents	712	1,051
Cash and cash equivalents at beginning of period	10,955	8,560
Cash and cash equivalents at end of period	11,667	9,611
Supplementary disclosure of cash flow information:
Income taxes paid	$ 1,231	$ 814

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Foreign Currency Translation

6 Months Ended

Jun. 30, 2011

Foreign Currency Translation

Foreign Currency Translation

2. Assets and liabilities of the Company’s foreign subsidiaries have been translated at current exchange rates, and related sales and expenses have been translated at average rates of exchange in effect during the period. The sales from our Canadian operations in the first six months of 2011 were $8.8 million as compared to $7.1 million for the first six months of 2010. The sales from our Canadian operations for the second quarter of 2011 were $4.2 million as compared to $3.7 million for the second quarter of 2010.

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Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

11.The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. With a few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2007. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. The Company believes that it has appropriate support for the income tax positions it takes and expects to take on its tax returns, and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

The provision consists of the following (in thousands):

	Six months ended						Three months ended
	June 30,						June 30,
	2011			2010			2011			2010
Current:
Federal	$	922		$	535		$	566		$	320
State	268			179			165			117
Canada	103			82			46			44
	1,293			796			777			481
Deferred tax expense	65			204			43			95
	$	1,358		$	1,000		$	820		$	576
Effective tax rate	39.6		%	37.3		%	40.0		%	35.3		%

The effective tax rate for the six and three months ended June 30, 2010 was impacted by a benefit of $78,000 related to the reversal of the Company’s liability related to uncertain tax positions.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data	Jun. 30, 2011	Dec. 31, 2010
CONDENSED CONSOLIDATED BALANCE SHEETS
Accounts receivable, allowance (in dollars)	$ 1,658	$ 1,473
Common Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common Stock, shares authorized	10,000,000	10,000,000
Common Stock, shares issued	5,284,500	5,284,500
Common Stock, shares outstanding	4,722,893	4,770,241
Treasury stock, shares	561,607	514,259