Wayside Technology Group, Inc. - Form 10-Q (305457)

1157 Shrewsbury Avenue, Shrewsbury, New Jersey 07702 (Address of principal executive offices) Registrant's Telephone Number (732) 389-8950

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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and non-accelerated filer" in Rule 12b-2 of the Exchange Act.

 

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

 

There were 4,698,877 outstanding shares of Common Stock, par value $.01 per share, as of August 2, 2007, not including 585,623 shares classified as treasury stock.

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PART I - FINANCIAL INFORMATION
WAYSIDE TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

LIABILITIES AND STOCKHOLDERS' EQUITY

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 INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)

 

	Six months ended					Three months ended
	June 30,					June 30,
	2007		2006			2007			2006
Net sales	$	90,962		$	76,800		$	44,040		$	41,438
Cost of sales		82,170			68,897			39,703			37,379
Gross profit		8,792			7,903			4,337			4,059
Selling, general and administrative expenses		6,036			5,891			2,993			2,924
Income from operations		2,756			2,012			1,344			1,135
Interest income, net		491			279			251			166
Realized foreign exchange gain		-			2			1			1
Income before income tax provision		3,247			2,293			1,596			1,302
Provision for income taxes		1,298			921			637			521
Net income	$	1,949		$	1,372		$	959		$	781
Net income per common share - Basic	$	0.44		$	0.33		$	0.22		$	0.19
Net income per common share - Diluted	$	0.42		$	0.31		$	0.20		$	0.17
Weighted average common shares
outstanding-Basic	$	4,380		$	4,137		$	4,407		$	4,172
Weighted average common shares
outstanding-Diluted	$	4,687		$	4,474		$	4,706		$	4,494
Reconciliation to comprehensive income:
Net income	$	1,949		$	1,372		$	959		$	781
Other comprehensive income, net of tax:
Unrealized gain on marketable securities		-			15			-			8
Foreign currency translation adjustments		162			58			143			47
Total comprehensive income	$	2,111		$	1,445		$	1,102		$	836

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 STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands, except share amounts)

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)

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, 2007
(Unaudited)

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 for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

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. On an on-going basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, investments, intangible assets, income taxes, 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. 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. Actual results may differ from these estimates under different assumptions or conditions. The unaudited condensed consolidated statements of income 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, 2006.

2.     In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159("SFAS 159"), "The Fair Value Option for Financial Assets and Financial Liabilities." SFAS 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. Statement 159 is effective for fiscal years beginning after November 15, 2007, and early application is allowed under certain circumstances. We are currently evaluating the impact of SFAS 159, but do not expect the adoption of SFAS 159 to have a material impact on our consolidated financial operations or cash flows.

In June 2006, the FASB issued Financial Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109" ("FIN 48"), which is a change in accounting for income taxes. FIN 48 specifies how tax benefits for uncertain tax positions are to be recognized, measured, and derecognized in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim period guidance, among other provisions. The Company is subject to the provisions of FIN 48 as of January 1, 2007, and has analyzed filing positions in all of the federal and

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state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company has identified its federal consolidated tax return and its state tax return in New Jersey and its Canadian tax return as "major" tax jurisdictions, as defined. The only periods subject to examination for the Company's federal return are the 2005 through 2006 tax years. The audit of the tax year 2004 has been completed, with no adjustments proposed by the Internal Revenue Service. The current periods subject to examination for the Company's state returns in New Jersey are years 2002 through 2006. The current periods subject to examination for the Company's Canadian tax returns are the years 2003 through 2006. The Company did not record a cumulative effect adjustment related to the adoption of FIN 48.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 ("SFAS 157"), "Fair Value Measurements," which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, provided the Company has not yet issued financial statements, including for interim periods, for that fiscal year. We are currently evaluating the impact of SFAS 157, but do not expect the adoption of SFAS 157 to have a material impact on our consolidated financial position, results of operations or cash flows.

3.     Assets and liabilities of the Company's Canadian subsidiary have been translated at current exchange rates, and related revenues and expenses have been translated at average rates of exchange in effect during the period. The revenue from our Canadian operations in the first six months of 2007 was $11.5 million as compared to $11.0 million for the first six months of 2006. The revenue from our Canadian operations for the second quarter of 2007 was $5.5 million as compared to $5.1 million for the second quarter of 2006.

4.     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 Statement No. 130, "Reporting Comprehensive Income".

5.     The Company records revenues from sales transactions when title to products sold passes to the customer. Usual sales terms are FOB shipping point, at which time title and risk of loss has passed to the customer and delivery has occurred. The majority of the Company's revenues relates to products 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 in accordance with Staff Accounting Bulletin (SAB) No. 101 and No. 104, "Revenue Recognition" and Emerging Issues Task Force (EITF) 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent". Accordingly, such revenues are recognized in net sales either at the time of sale or over the contract period, based on the nature of the contract, at the net amount retained by the Company, with no cost of goods sold.

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In accordance with EITF 00-10, "Accounting for Shipping and Handling Fees and Costs", the Company records freight billed to its customers as net sales and the related freight costs as a cost of sales. Vendor rebates and price protection are recorded when earned as a reduction to cost of sales or merchandise inventory, as applicable. Cooperative reimbursements from vendors, which are earned and available, are recorded in the period the related advertising expenditure is incurred. Cooperative reimbursements are recorded as net sales in accordance with EITF 02-16, "Accounting for Consideration Received from a Vendor by a Customer (Including a Reseller of the Vendor's Products)".

6.     Investments in available-for-sale securities at June 30, 2007 were (in thousands):

		Cost		Market value		Unrealized gain (loss)
U.S. Government Securities		$9,414		$9,414		$           -

The cost and market value of the Company's investments at June 30, 2007 by contractual maturity were (in thousands):

		Cost		Estimated Fair Value
Due in one year or less		$9,414		$9,414

Investments in available-for-sale securities at December 31, 2006 were (in thousands):

		Cost			Market value			Unrealized gain (loss)
U.S. Government Securities		$	6,941		$	6,941		-
Corporate Bonds		91			91			-
Total Marketable Securities		$	7,032		$	7,032		-

The cost and market value of the Company's investments at December 31, 2006 by contractual maturity were (in thousands):

		Cost		Estimated Fair Value
Due in one year or less		$7,032		$7,032

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7.     Balance Sheet Detail - (in thousands):

Other assets consisted of the following at June 30, 2007 and December 31, 2006:

	June 30, 2007		December 31, 2006
Accounts Receivable - long-term	$2,341		$2,855
Security Deposits	56		56
Trademarks	11		16
Total	$2,408		$2,927

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 from the customers through the accretion of interest income on the unpaid accounts receivable due in future years.

Accounts payable and accrued expenses consist of the following as of June 30, 2007 and December 31, 2006:

	June 30, 2007		December 31, 2006
Trade accounts payable	$24,419		$33,955
Other accrued expenses	1,063		1,349
	$25,482		$35,304

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8.     Basic 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 nonvested shares of restricted stock. A reconciliation of the numerators and denominators of the basic and diluted per share computations follows (in thousands, except per share data):

		Six months ended June 30,						Three months ended June 30,
		2007			2006			2007			2006
Numerator:
Net income	$	1,949		$	1,372		$	959		$	781
Denominator:
Weighted average shares (Basic)		4,380			4,137			4,407			4,172
Dilutive effect of outstanding options and nonvested shares of restricted stock		307			337			299			322
Weighted average shares including assumed conversions (Diluted)		4,687			4,474			4,706			4,494
Basic net income per share	$	0.44		$	0.33		$	0.22		$	0.19
Diluted net income per share	$	0.42		$	0.31		$	0.20		$	0.17

9.     On April 25, 2007 our Board of Directors declared a quarterly dividend of $.14 per share on our common stock payable May 19, 2007 to shareholders of record on May 2, 2007 and on July 25, 2007, our Board of Directors declared a quarterly dividend of $.15 per share of our common stock payable August 20, 2007 to shareholders of record on August 6, 2007.  Our Board intends to periodically review the amount and frequency of future payments of dividends, if any, in light of the Company's operations and need for capital. The dividend is reflected as a reduction of Additional Paid in Capital.

10.     The Company had one major vendor (which was also a major vendor in 2006), that accounted for 46.6% and 40.9% of total purchases, respectively, during the six and three months ended June 30, 2007. The Company had two major vendors that accounted for 43.5% and 12.6% of total purchases during the six months ended June 30, 2006 and 50.2% and 9%, respectively, for the three months then ended. The Company had one major customer that accounted for 13.5% and 7.2% of total net sales, respectively during the six and three months ended June 30, 2007, and 2.8% of total net accounts receivable as of June 30, 2007. That same major customer accounted for 10.3% and 10.7% of total net sales, respectively, during the six and three months ended June 30, 2006.

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11.     The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. The Company believes that it has appropriate support for the income tax positions taken and to be taken 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 Company's policy is to include any income tax related interest expense or penalties as a component of income tax expense.

The provision consists of the following:

		Six months ended June 30,						Three months ended June 30,
		2007			2006			2007			2006
Current:
Federal		$   310			$  523			$  149			$  156
State		55			92			26			24
Canada		115			77			54			37
		480			692			229			217
Deferred tax expense		818			229			408			304
		$1,298			$  921			$  637			$  521

As of June 30, 2007, the Company had U.S. deferred tax assets of approximately $2.3 million reflecting, in part, a benefit of $0.2 million in U.S. federal and state tax loss carry forwards, which will expire in varying amounts between 2007 and 2025. The full realization of the tax benefit associated with the carry forwards depends predominantly upon the Company's ability to generate taxable income during the carry forward period.

The effective tax rates for the six and three months ended June 30, 2007 and June 30, 2006 was 40%.

12.     Effective January 1, 2006, we adopted SFAS No. 123(R), "Share-Based Payment," using the modified prospective transition method. Under the modified prospective transition method, recognized compensation cost for the six and three months ended June 30, 2007 and 2006 includes 1) compensation cost for all share-based payments granted prior to, but not yet vested as of, January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of Statement 123; and 2) compensation cost for all share-based payments granted on or after January 1, 2006, based on the grant date fair value estimated in accordance with Statement 123(R). In accordance with the modified prospective method, we have not restated prior period results.

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The Company's 2006 Stock-Based Compensation Plan (the "2006 Plan") authorizes the grant of Stock Options, Stock Units, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Bonuses, and other equity-based awards. The number of shares of common stock initially available under the 2006 Plan is 800,000. In the first six months of 2007, the Company granted 10,000 shares of restricted common stock that vest over 60 months; and there were forfeitures of 12,500 shares of restricted common stock. The number of shares of common stock available for future award grants to employees and directors under this plan is 487,500.

Changes during 2007 in options outstanding for the combined plans were as follows:

		Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value ($M)(1)
Outstanding at January 1, 2007		602,335		$7.56
Granted in 2007		-		-
Canceled in 2007		-		-
Exercised in 2007		(111,945)		6.59
Outstanding at June 30, 2007		490,390		7.78		6.3		4.1
Exercisable at June 30, 2007		489,714		7.79		6.3		4.1

(1)  The intrinsic value is calculated as the difference between the market value at June 30, 2007 and the exercise price of the shares.

A summary of nonvested shares of restricted stock awards outstanding under the Company's 2006 Plan as of June 30, 2007, and changes during the six months then ended is as follows:

			Shares		Weighted Average Grant Date Fair Value
	Nonvested shares at January 1, 2007		293,500		$13.68
	Granted in 2007		10,000		15.19
	Vested in 2007		(21,750)		13.80
	Forfeited in 2007		(12,500)		14.57
	Nonvested shares at June 30, 2007		269,250		13.67

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As of June 30, 2007, there is approximately $3.7 million of total unrecognized compensation costs related to nonvested restricted stock share-based compensation arrangements. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 7.23 years.

For the six months ended June 30, 2007 and 2006, the Company recognized share-based compensation cost of approximately $302,000 and $7,000, respectively, which is included in general and administrative expense. For the three months ended June 30, 2007 and 2006 the Company recognized share-based compensation cost of approximately $153,000 and $4,000, respectively. The Company does not capitalize any share-based compensation cost.

13.     SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," requires that public companies report profits and losses and certain other information on their "reportable operating segments" in their annual and interim financial statements. The internal organization used by the Company's Chief Operating Decision Maker (CODM) to assess performance and allocate resources determines the basis for reportable operating segments. The Company's CODM is the Chief Executive Officer.

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

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

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

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

		Six months ended June 30,						Three months ended June 30,
		2007			2006			2007			2006
Revenue:
Programmer's Paradise	$	21,195		$	24,738		$	10,351		$	12,456
Lifeboat		69,767			52,062			33,689			28,982
		90,962			76,800			44,040			41,438
Gross Profit:
Programmer's Paradise	$	2,880		$	3,568		$	1,337		$	1,729
Lifeboat		5,912			4,335			3,000			2,330
		8,792			7,903			4,337			4,059
Direct Costs:
Programmer's Paradise	$	1,458		$	1,790		$	750		$	840
Lifeboat		1,400			1,021			698			529
		2,858			2,811			1,448			1,369
Segment Income:
Programmer's Paradise		1,422			1,778			587			889
Lifeboat		4,512			3,314			2,302			1,801
Segment Income		5,934			5,092			2,889			2,690
Corporate general and administrative expenses		3,178			3,080			1,545			1,555
Interest income		491			279			251			166
Foreign currency translation gain		-			2			1			1
Income before taxes	$	3,247		$	2,293		$	1,596		$	1,302
Selected Assets By Segment:
Programmer's Paradise		6,566			7,017
Lifeboat		16,566			13,060
Corporate assets		26,448			26,127
Segment Select Assets	$	49,580		$	46,204

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14.     On May 16, 2007, Jeffrey Largiader resigned from his position as Vice President Marketing and Business Development of Wayside Technology Group, Inc. (the "Company"). The resignation was effective as of the close of business on May 16, 2007. Currently, Mr. Largiader is available as a consultant to the Company.

In connection with Mr. Largiader's resignation, the Company issued a letter to Mr. Largiader (the "Resignation Letter") on May 16, 2007. Pursuant to the Resignation Letter, the Company will pay Mr. Largiader his current salary of $150,000 (plus payments for unused vacation time) in 24 equal semimonthly installments, Mr. Largiader will be entitled to participate in the Company's 401(k) plan for one year following the termination, and Mr. Largiader will be entitled to own all shares of the Company's capital stock owned by him at the time of termination as well as any vested options for such shares, which options are exercisable for one year. The Company is expensing the $150,000 ratably over the one year following the date of the Resignation Letter.

15.     During the second quarter of 2006, the Company made the decision to close down and sublease it sales office in Hauppauge, New York. Based on forecasted sublease income compared to estimated expenses, the Company recorded a liability and took a charge of approximately $97,000 during the second quarter of 2006.

The balance of the lease liability at January 1, 2007 was $41,000 and during the first six months of 2007 the Company incurred $20,000 in charges net of sublease income and accrued $7,000 in interest expense so that the remaining lease liability is $28,000 at June 30, 2007.

16.     Certain reclassifications have been made to the prior year financial statements in order to conform to current year presentation.

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 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 certain factors, including those set forth under the heading "Certain Factors Affecting Operating Results" and elsewhere in this report. The following discussion should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2006.

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Overview

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

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

Results of Operations

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

		Six months ended June 30,						Three months ended June 30,
		2007			2006			2007			2006
Net sales		100.0%			100.0%			100.0%			100.0%
Cost of sales		90.3			89.7			90.2			90.2
Gross profit		9.7			10.3			9.8			9.8
Selling, general and administrative expenses		6.7			7.7			6.8			7.1
Income from operations		3.0			2.6			3.0			2.7
Interest income, net		0.5			0.4			0.6			0.4
Realized foreign currency exchange gain (loss)		-			-			-			-
Income before income taxes		3.5			3.0			3.6			3.1
Provision for income taxes		1.4			1.2			1.4			1.2
Net income		2.1%			1.8%			2.2%			1.9%

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Net Sales

Net sales for the second quarter of 2007 increased 6% or $2.6 million to $44.0 million compared to $41.4 million for the same period in 2006. Total sales for the second quarter of 2007 for our Lifeboat segment were $33.7 million compared to $29.0 million in the second quarter of 2006, representing a 16% increase. Total sales for the second quarter of 2007 for our Programmer's Paradise segment were $10.4 million compared to $12.5 million in the second quarter of 2006, representing a 17% decrease. For the six months ended June 30, 2007, net sales increased 18% or $14.2 million to $91.0 million compared to $76.8 million for the same period in 2006. Sales for the six months ended June 30, 2007 for our Programmer's Paradise division were $21.2 million compared to $24.8 million for the same period last year. Sales for the six months ended June 30, 2007 for our Lifeboat division were $69.8 million compared to $52.1 million for the same period last year.

Sales from our Lifeboat segment showed strong growth. The 16% increase in net sales in the second quarter of 2007 compared to 2006 was mainly a result of the strengthening of our account penetration, the addition of several key product lines as well as our continued focus on the expanding virtual infrastructure-centric software market.

The 17% decrease in net sales for our Programmer's Paradise segment in the second quarter of 2007 was mainly due to increased competition in the "direct to end user" segment of our business.

Gross Profit

Gross Profit for the quarter ended June 30, 2007 was $4.3 million compared to $4.1 million in the second quarter of 2006, a 7% increase. Total gross profit for our Lifeboat segment for the quarter ended June 30, 2007 was $3.0 million compared to $2.3 million in the second quarter of 2006, representing a 29% increase. Total gross profit for our Programmer's Paradise segment for the quarter ended June 30, 2007 was $1.3 million compared to $1.7 million in the second quarter of 2006, representing a 23% decrease. For the six months ended June 30, 2007 gross profit increased by $0.9 million to $8.8 million compared to $7.9 million in the same period in 2006. Programmer's Paradise gross profit for the six months ended June 30, 2007 was $2.9 million compared to $3.6 million for the first six months of 2006. Lifeboat's gross profit for the six months ended June 30, 2007 was $5.9 million compared to $4.3 million for the first six months of 2006.

Gross profit margin, as a percentage of net sales, for the quarter ending June 30, 2007 was 9.8% unchanged compared to the second quarter of 2006. Gross profit margin for our Programmer's Paradise segment for the second quarter of 2007 was 12.9% compared to 13.9% in the second quarter of 2006. Gross profit margin for our Lifeboat segment for the second quarter of 2007 was 8.9% compared to 8.0% in the second quarter of 2006. Gross profit margin as a percentage of net sales, for the six months ended June 30, 2007 was 9.7% compared to 10.3% in the same period last year.

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On a forward-looking basis, gross profit margin in future periods may be less than that achieved in the second quarter of 2007. We continuously assess the impact of large transactions and the continued growth of our Lifeboat distribution segment with lower gross margins on the overall profitability of our Company. We foresee possible pressure on gross profit margins as a result of various factors, including the continued strong growth of our Lifeboat segment, participation by vendors in inventory price protection and rebate programs, product mix, including software maintenance and third party services, pricing strategies, market conditions and other factors, any of which could result in a reduction of gross profit margins below those realized in the second quarter of 2007.

Selling, General and Administrative Expenses

Total selling, general, and administrative ("SG&A") expenses for the second quarter of 2007 were $3.0 million compared to $2.9 million in the second quarter of 2006. As a percentage of net sales, SG&A expenses for the second quarter of 2007 were 6.8% compared to 7.1% in the second quarter of 2006. For the six months ended June 30, 2007 SG&A expenses were $6.0 million compared to $5.9 million in the same period last year. As a percentage of net sales, SG&A expenses were 6.7% compared to7.7% in 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, as well as the levels of continuing investments in key growth initiatives.

Direct selling costs for the second quarter of 2007 and 2006 were approximately $1.4 million. Total direct selling costs for our Programmer's Paradise division for the second quarter of 2007 were $0.7 million compared to $0.8 million in 2006, representing a 11% decrease. Total direct selling costs for our Lifeboat division for the second quarter of 2007 were $0.7 million compared to $0.5 million in 2006, representing a 32% increase, which was a result of the Company hiring additional sales staff to support the growth of our Lifeboat division.

Page 18

 

Income Taxes

The provision consists of the following:

		Six months ended June 30,						Three months ended June 30,
		2007			2006			2007			2006
Current:
Federal		$  310			$  523			$  149			$  156
State		55			92			26			24
Canada		115			77			54			37
		480			692			229			217
Deferred tax expense		818			229			408			304
		$1,298			$  921			$  637			$  521

As of June 30, 2007, the Company had a U.S. deferred tax asset of approximately $2.3 million reflecting, in part, a benefit of $0.2 million in U.S. federal and state tax loss carry forwards, which will expire in varying amounts between 2007 and 2025. The full realization of the tax benefit associated with the carry forwards depends predominantly upon the Company's ability to generate taxable income during the carry forward period.

The effective tax rates for the six and three months ended June 30, 2007 and June 30, 2006 was 40%.

Liquidity and Capital Resources

During the first six months of 2007 our cash and cash equivalents decreased by $2.8 million to $11.0 million at June 30, 2007, from $13.8 million at December 31, 2006. During the first six months of 2007, net cash used in operating activities was nearly offset by cash provided by operating activities, net cash used in investing activities amounted to $2.7 million and net cash used in financing activities amounted to $0.3 million offset by the effect of foreign exchange gains on cash of $0.2 million.

Net cash used in operating activities for the first six months of 2007 was nearly offset by cash provided by operating activities. Cash was generated by income excluding non-cash charges of $3.2 million a decrease in accounts receivable of $7.1 million offset by cash used primarily in connection with a decrease in accounts payable and accrued expenses of $9.8 million and an increase in inventory of $0.4 million.

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Net cash used in investing activities in the first six months of 2007 amounted to $2.7 million. In light of the current low interest rates on our short-term savings accounts we decided to invest an additional net $2.5 million in U.S. government securities. These securities are highly rated and highly liquid. These securities are classified as available-for-sale securities in accordance with SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities", and as a result, unrealized gains and losses are reported as part of accumulated other comprehensive income (loss). The remaining $0.3 million of cash used in investing activities consisted of capital expenditures.

Net cash used in financing activities for the six months ended June 30, 2007 was $0.3 million which consisted of dividend payments of $1.3 million offset by the proceeds and the resulting tax benefits from the exercise of options of $1.0 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 stock buyback program and dividends if declared by the board of directors. Our business plan furthermore contemplates to continue to use our cash to pay vendors promptly in order to obtain more favorable conditions.

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. We currently do not have any credit facility and, in the foreseeable future, we do not plan to enter into an agreement providing for a line of credit.

Contractual Obligations as of June 30, 2007 were summarized as follows:
(Dollars in thousands)

		Payment due by Period
	Total	Less than 1 year	1-3 years	3-5 years	More than  5 years
Long-term debt	-	-	-	-	-
Capital Lease Obligations	-	-	-	-	-
Operating Leases	$1,731	$271	$941	$519	-
Purchase Obligations	-	-	-	-	-
Other Long term Obligations	-	-	-	-	-
Total Contractual Obligations	$1,731	$271	$941	$519	$-

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Operating leases primarily relates to the leases of the space used for our operations in Shrewsbury, New Jersey, and Mississauga, Canada. In the third quarter of 2006, the Company extended the lease on our Shrewsbury location for an additional fifty months extending the lease until December 2012. During the second quarter of 2006, the Company made the decision to close down and sublease it sales office in Hauppauge, New York. The table above includes minimum rent payments for the Hauppauge office net of sublease income. 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.

As of June 30, 2007, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies and Estimates

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

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

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

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The Company records revenues from sales transactions when title to products sold passes to the customer. Usual sales terms are FOB shipping point, at which time title and risk of loss has passed to the customer and delivery has occurred. The majority of the Company's revenues relate to products 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 in accordance with Staff Accounting Bulletin (SAB) No. 101 and No. 104, "Revenue Recognition" and Emerging Issues Task Force (EITF) 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent". Accordingly, such revenues are recognized in net sales either at the time of sale or over the contract period, based on the nature of the contract, at the net amount retained by the Company, with no cost of goods sold.

In accordance with EITF 00-10, "Accounting for Shipping and Handling Fees and Costs", the Company records freight billed to its customers as net sales and the related freight costs as a cost of sales. Vendor rebates and price protection are recorded when earned as a reduction to cost of sales or merchandise inventory, as applicable. Cooperative reimbursements from vendors, which are earned and available, are recorded in the period the related advertising expenditure is incurred. Cooperative reimbursements are recorded as net sales in accordance with EITF 02-16, "Accounting for Consideration Received from a Vendor by a Customer (Including a Reseller of the Vendor's Products)".

The Company believes the following critical accounting policies used in the preparation of its consolidated financial statements affect its more significant judgments and estimates. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-offs may be required.

Recent Accounting Pronouncements

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 ("SFAS 159"), "The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. SFAS 159 is effective for fiscal years beginning after November 15, 2007, and early application is allowed under certain circumstances. We are currently evaluating the impact of SFAS 159, but do not expect the adoption of SFAS 159 to have a material impact on our consolidated financial operations or cash flows.

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In June 2006, the FASB issued Financial Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109" ("FIN 48"), which is a change in accounting for income taxes. FIN 48 specifies how tax benefits for uncertain tax positions are to be recognized, measured, and derecognized in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim period guidance, among other provisions. The Company is subject to the provisions of FIN 48 as of January 1, 2007, and has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company has identified its federal consolidated tax return and its state tax return in New Jersey and its Canadian tax return as "major" tax jurisdictions, as defined in FIN 48. The only periods subject to examination for the Company's federal return are the 2005 through 2006 tax years. The audit of the tax year 2004 has been completed with no adjustments proposed by the Internal Revenue Service. The periods subject to examination for the Company's state returns in New Jersey are years 2002 through 2006. The period subject to examination for the Company's Canadian tax returns are the years 2003 through 2006. The Company did not record a cumulative effect adjustment related to the adoption of FIN 48.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 ("SFAS 157"), "Fair Value Measurements," which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, provided the company has not yet issued financial statements, including for interim periods, for that fiscal year. We are currently evaluating the impact of SFAS 157, but do not expect the adoption of SFAS 157 to have a material impact on our consolidated financial position, results of operations or cash flows.

Certain Factors Affecting Operating Results

This report includes "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Statements in this report regarding future events or conditions, including statements regarding industry prospects and the Company's expected financial position, business and financing plans, are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. We strongly urge current and prospective investors to carefully consider the cautionary statements and risks contained in this report. Such risks include, but are not limited to, the continued acceptance of the Company's distribution channel by vendors and customers, the timely availability and acceptance of new products, contribution of key vendor relationships and support programs, as well as factors that affect the software industry in general.

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

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

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

Stock Volatility.  The technology sector of the United States stock markets has experienced substantial volatility in recent periods. Numerous conditions, which impact the technology sector or the stock market in general or the Company in particular, whether or not such events relate to or reflect upon the Company's operating performance, could adversely affect the market price of the Company's Common Stock.

Furthermore, fluctuations in the Company's operating results, announcements regarding litigation, the loss of a significant vendor, increased competition, reduced vendor incentives and trade credit, higher postage and operating expenses, and other developments, could have a significant impact on the market price of the Company's common stock.

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.

The Company's $9.4 million investments in marketable securities are only in highly liquid U.S. government securities. The remaining cash balance is invested in short-term savings accounts with our primary bank, JPMorgan Chase Bank. As such, the risk of significant changes in the value of our cash invested is minimal.

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Item 4T.     Controls and Procedures

Evaluation of Disclosure Controls and Procedures.  As required by Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation of the effectiveness of the design and operation of the Company's "disclosure controls and procedures" as of June 30, 2007.This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer (principal executive officer) and Chief Accounting Officer (principal financial officer). As defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, disclosure controls and procedures are controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including our Chief Executive Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based upon that evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective as of June 30, 2007. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Changes in Internal Control Over Financial Reporting.  As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer and Chief Accounting Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any change occurred during the quarter ended June 30, 2007, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation during the quarter ended June 30, 2007 there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

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

Period		Total Number of Shares Purchased (1)		Average Price Paid per Share (2)		Total Number of  Shares Purchased  as Part of Publicly  Announced Plans or Programs		Maximum Number  of Shares That May Yet Be Purchased Under  the Plan or Programs (3)
April 1 - April 30, 2007		-		-		-		274,843
May 1, 2007 - May 31, 2007		2,800		$     15.28		-		274,843
June 1, 2007 - June 30, 2007		519		$     16.14		-		274,843
Total		3,319		$   15.41		-		274,843

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

(2)  Average price paid per share reflects the averages of the closing prices of Wayside Technology Group, Inc.'s common stock on the business dates that the applicable shares of common stock were surrendered by the employee stockholders to satisfy individual tax withholding obligations upon vesting of restricted common stock.

(3)  On October 9, 2002, our Board of Directors adopted a stock repurchase program whereby the Company was authorized repurchase up to 500,000 shares of our common stock from time to time.  The stock repurchase program does not have an expiration date.

Item 4.     Submission of Matters to a Vote of Security Holders

The Company held its Annual Meeting of Stockholders (the "Meeting") during the fiscal Quarter ended June 30, 2007.

(a)      The date of the Meeting was June 7, 2007.

(b)      At the Meeting, the first proposal voted on was the election of directors, and the following persons were elected directors of the Company, each receiving the number of votes set forth opposite their names below:

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		For		Against		Abstain		Broker Non- Votes
	Simon F. Nynens	4,057,627		107,338		-		-
	William H. Willett	4,057,798		107,167		-		-
	F. Duffield Meyercord	4,057,727		107,238		-		-
	Edwin H. Morgens	4,057,598		107,367		-		-
	Allan Weingarten	4,057,598		107,367		-		-
	Mark T. Boyer	4,010,402		154,563		-		-

(c)     The other proposal voted on was to ratify Amper, Politziner and Mattia P.C. ("Amper") as the Company's independent registered accounting firm. The vote was as follows:

	For		Against		Abstain		Broker Non- Votes
Ratify Amper as the Company's 2007 independent registered accounting firm	4,132,492		26,993		5,480		-

 

 

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Item 6.     Exhibits

(a)	Exhibits.
	10.46	Resignation Letter, dated May 16, 2007, from Wayside Technology Group, Inc. to Jeffrey Largiader.*
	10.47	General Release, dated May 18, 2007, between Jeffrey Largiader and Wayside Technology Group, Inc.*
	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.
*	Incorporated by reference to an identically numbered exhibit filed in response to Item 9.01, "Financial Statements and Exhibits," of the Company's Current Report on Form 8-K filed with the Securities and Exchange commission on May 21, 2007 (File No. 000-26408).

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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 6, 2007		By:	/s/ Simon F. Nynens
Date			Simon F. Nynens, Chairman of the Board, President and Chief Executive Officer
August 6, 2007		By:	/s/ Kevin T. Scull
Date			Kevin T. Scull, Vice President and Chief Accounting Officer

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