UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to__________
Commission File No. 33-92810
Programmer's Paradise, Inc.
(Name of issuer in its charter)
Delaware 13-3136104
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1163 Shrewsbury Avenue, Shrewsbury, New Jersey 07702
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number (908) 389-8950
Check whether the issuer (1) 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 the number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable
date.
There were 4,759,473 outstanding shares of Common Stock, par
value $.01 per share, as of August 6, 1996.
Page1
Exhibit index is on page 14.
<PAGE>
PROGRAMMER'S PARADISE, INC.
Index to Form 10-Q
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
as of June 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Income
for the Three Months and Six Months Ended
June 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended
June 30, 1996 and 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 7
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule 15
(b) None
Page2
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
ASSETS
<CAPTION>
June December
30, 31,
1996 1995
(Unaudited) *
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 8,603 $ 27,702
Accounts receivable 18,367 15,625
Inventory 5,948 5,452
Prepaid expenses and other current assets 2,508 2,117
Deferred income taxes 933 1,342
Total current assets 36,360 52,238
Equipment and leasehold improvements 1,808 1,127
Other assets 13,890 2,940
Deferred income taxes 2,024 2,024
$ 54,081 $ 58,329
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to banks $ 1,583 $ 2,469
Accounts payable and accrued expenses 23,040 27,881
Other current liabilities 660 199
Total current liabilities 25,284 30,549
Other liabilities 136 791
Notes payable to banks - long term 1,342 -
Stockholders' equity
Common stock 47 47
Additional paid-in capital 33,404 33,405
Accumulated deficit (5,749) (6,518)
Treasury stock (376) -
Cumulative foreign currency adjustment (8) 55
Total stockholders' equity 27,319 26,989
$ 54,081 $ 58,329
</TABLE>
* Condensed from audited financial statements.
The accompanying notes are an integral part of these
consolidated financial statements.
Page 3
<PAGE>
PROGRAMMER'S PARADISE INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except share and per share data)
<CAPTION>
Six months Three months
ended ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 51,143 $ 44,873 $ 25,118 $ 21,571
Cost of sales 42,720 37,599 20,743 18,053
Gross profit 8,422 7,274 4,374 3,518
Selling, general and
administrative expenses 7,790 5,907 3,807 3,068
Income from operations 632 1,367 567 450
Interest (income)/expense,(net) (287) 112 (94) 57
Income before income taxes 919 1,255 661 393
Income tax expense 383 221 276 20
Minority interest 233 - 143 -
Net income $ 769 $ 1,034 $ 528 $ 373
Weighted average common shares 5,173 3,186 5,144 3,186
outstanding
Net income per common share $.15 $.32 $.10 $.12
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 4
<PAGE>
PROGRAMMER'S PARADISE, INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Cash provided by (used for)
Operations:
Net income $ 769 $ 1,034
Adjustments for non cash charges 547 293
Changes in assets and liabilities (10,434) (591)
Net cash (used for) provided by operations (9,118) 736 547
Investing:
Capital expenditures (276) (266)
Capitalized software costs (14) (3)
Acquisitions, net of cash acquired (9,360) (125)
Net cash (used for) investing (9,650) (394)
Financing:
Purchase of treasury stock (376) -
Proceeds from exercise of stock options - 9
Borrowings under lines of credit 5,478 23,718
Repayments under lines of credit (5,433) (24,639)
Net cash (used for) financing activities (331) (912)
Net change in cash (19,099) (570)
Cash at beginning of year 27,702 3,522
Cash at end of period $ 8,603 $ 2,952
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 5
<PAGE>
PROGRAMMER'S PARADISE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 1996
1. The financial information included herein is unaudited;
however, such information has been prepared in accordance
with generally accepted accounting principles and reflects
all adjustments, consisting solely of normal recurring
adjustments which are, in the opinion of management,
necessary for a fair statement of results for the interim
periods. Operating results for the three month and six month
periods ended June 30, 1996, are not necessarily indicative
of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the
consolidated financial statements and notes thereto included
in the Company's 1995 10-K filing dated March 28, 1996.
2. On July 18, 1995, the Securities and Exchange Commission
declared effective the Company's registration statement on
Form S-1 to register 2,501,250 shares of Common Stock in an
initial public offering (including 326,250 shares to cover
the underwriters' over-allotment option), which included
375,000 shares (plus 56,250 shares to cover the
underwriters' over-allotment option) sold by certain
stockholders of the Company.
In May 1995, stockholders approved a four-for-three reverse
stock split. All share and per share amounts included in the
accompanying condensed consolidated financial statements and
notes have been adjusted to reflect this reverse stock
split, and the conversion of all shares of preferred stock
into common stock.
3. Net income per common share is computed using the weighted
average number of common shares and common share equivalents
outstanding during the period, assuming the exercise of
common stock options using the treasury stock method. Stock
options granted by the Company during the twelve months
immediately preceding the date of the initial filing by the
Company of its initial public offering have been included in
the calculation of the shares used in computing net income
per common share as if they were outstanding throughout the
entire period for all periods presented.
Page 6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The Company is a distributor of software, operating
through three distribution channels-cataloging, corporate
reseller and wholesale operations. Catalog operations include
worldwide catalog sales, advertising and publishing. Corporate
reseller operations include Corsoft, Inc. in the U.S. and ISP*D
International Software Partners Gmbh ("ISP*D") in Munich, Germany,
wholly owned subsidiaries of the Company, and ISP*F International
Software Partners France ("ISP*F"), a majority owned company
located in Paris, France. Wholesale operations include
distribution to dealers and large resellers through Lifeboat
Distribution Inc. in the U.S. and Lifeboat Associates Italia Srl
("Lifeboat Italy") in Milan, Italy, also subsidiaries of the
Company.
The Company was founded in 1982 as a wholesaler and
reseller of educational software. In June 1986, the Company
acquired Lifeboat Associates, a wholesale distributor and
publisher of software founded in 1976. Later in 1986,
Programmer's Paradise was started by the Company as a catalog mar
keter of technical software. In 1988, the Company acquired
Corsoft, Inc., a corporate reseller founded in 1983, and combined
it with the operations of the Programmer's Paradise catalog and
Lifeboat Associates, both of which were involved in the marketing
of technical software for microcomputers. In May 1995, the
Company changed its name from "Voyager Software Corp." to
"Programmer's Paradise, Inc." and consolidated its U.S. catalog
and software publishing operations in a new subsidiary,
Programmer's Paradise Catalogs, Inc. and its wholesale
distribution operations in a new subsidiary, Lifeboat
Distribution, Inc. In July, 1995, the Company completed an
initial public offering of its common stock.
The Company began European-based operations in the
first quarter of 1993, when it acquired a controlling interest in
Lifeboat Italy, a long-standing software distributor in Italy.
In January and April 1994, the Company purchased the remaining
ownership interest in Lifeboat Italy. In June 1994, the Company
acquired a 90% controlling interest in ISP*D, a large software-
only dealer and a leading independent supplier of Microsoft
Select licenses and other software to many large German and Aus
trian companies. In January 1995, the remaining 10% interest in
ISP*D was purchased by the Company. In late 1994, the Company
organized a subsidiary in the United Kingdom to engage in catalog
operations, and in December 1995 the Company acquired Systematika
Limited ("System Science"), a leading reseller of technical
software in the United Kingdom and the publisher of the popular
System Science catalog. In January 1996, the Company formed
ISP*F International Software Partners France SA ("ISP*F"), as a
full service corporate reseller of PC software, based in Paris
and majority owned by Programmers' Paradise France SARL. ISP*F
was formed by combining the resources and assets of L & A
Logiciels Et Applications SA ("L & A France"), LAN Technologie, a
division of Devnet SA, and Programmers' Paradise France SARL. L
& A France is a well known corporate reseller of PC software and
also publishes the Access Direct catalog, which is targeted to
small and medium sized companies. LAN Technologie is a high-end
PC software supplier and systems integrator. The Company is
using its European-based operations as a platform for pan-
European business development, including the distribution of
local versions of its catalogs.
In June, 1996, the Company acquired substantially all
of the assets and business of Software Developer's Company, Inc.
("SDC") related to The Programmer's Supershop catalog business,
inbound and outbound telemarketing, reseller operations, and web
site, and all of the operations of SDEV Germany, its German
subsidiary. SDC had been the Company's largest direct mail
competitor, offering a similar array of technical software.
Page 7
<PAGE>
Results of Operations
The following table sets forth for the periods
indicated certain financial information derived from the
Company's consolidated statement of operations expressed as a
percentage of net sales.
<TABLE>
<CAPTION>
Six months Three months
ended ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 83.6 83.8 82.6 83.7
Gross Profit 16.4 16.2 17.4 16.3
Selling, general and administrative
expenses 15.2 13.2 15.2 14.2
Income from operations 1.2 3.0 2.2 2.1
Interest (income)/expense,(net) (.06) 0.2 (0.4) 0.3
Income before income taxes 1.8 2.8 2.6 1.8
Income taxes (0.7) (0.5) (1.1) (0.1)
Minority interest 0.4 - 0.6 -
Net income 1.5% 2.3% 2.1% 1.7%
</TABLE>
Net Sales
Net sales of the Company represents the gross
consolidated revenue of the Company less returns. Although net
sales consist primarily of sales of software, revenue from
marketing services and advertising is also included within net
sales. Net sales for the quarter ended June 30, 1996 increased
by $ 3.5 million, to $25,118,000, or 16.4%, over the first quarter
of the previous year. Net sales for the six months ended June
30, 1996 increased by $ 6.3 million, to $51,143,000, or 14.0%
over the same period in 1995.
The growth in net sales for the three months and six
months ended June 30, 1996 as compared to the previous year was
primarily attributable to the acquisitions of Systematika Limited
and ISP*F. Domestic sales increased by 0.9% for the six month
period ended June 30, 1996 over 1995, but for the three month
period increased by 16% over the previous year, due primarily to
higher catalog revenues in that quarter. Additionally, the six
month 1995 revenues includes approximately $3.2 million in
revenues from the since terminated contract with AT&T. On a
proforma basis, domestic sales grew at a rate of 22.6% for the
period. European sales remained consistent with the prior year
for the six months ended June 30, 1996, but decreased 9.6% for the
three month period primarily due to lower reseller sales at ISP*D.
Page 8
<PAGE>
Gross Profit
Gross profit represents the difference between net
sales and costs of sales. Cost of sales is composed primarily of
amounts paid by the Company to publishers and vendors plus
catalog printing and mailing costs. Publisher and vendor rebates
are credited against cost of sales. For the three month and six
month periods ended June 30, 1996, gross profit increased by
$857,000 and $1,148,000, respectively, over the previous year,
primarily attributable to the Systematika Limited and ISP*F
acquisitions. Gross profit as a percentage of sales increased by
1.1% and 0.2% for the respective three months and six months
periods ended June 30, 1996 in comparison to the same periods in
1995. The increase in the three month period primarily reflected
higher margins achieved from marketing revenues and catalog sales
as well from commissions earned from The Software Developer's
Company as part of transition management.
Selling, General and Administrative Expenses
SG&A expenses increased by $739,000 for the three
months ended June 30, 1996, and by $1,884,000 for the six months
then ended when compared to the same periods in 1995, primarily
reflecting the additional overhead associated with the System
Science and ISP*F operations. As a percentage of net sales, SG&A
increased by 1.0% for the three months ended June 30, 1996, and
increased by 2.0% for the six month period compared to the
previous year, primarily reflecting the abnormally high cost
structure associated with the French subsidiary.
Interest Income and Expense
Net interest expense decreased for the three months and
six months ended June 30, 1996 by $151,000 and $399,000
respectively compared to the same periods ended June 30, 1995,
primarily due to the application of the net proceeds from the
initial public offering to retire the company's outstanding
domestic debt, as well as the investment of remaining proceeds
from the public offering in high grade, short term interest
bearing securities. At June 30, 1996, interest income on these
short term investments was $165,000 and $368,000 for the
respective three month and six months then ended.
Income Taxes
Income tax expense was $383,000 for the six months
ended June 30, 1996, compared to $221,000 in the same period in
1995. This increase over the previous year period primarily
reflects a higher tax provision on earnings for the U.S.
operations, offset by lower tax provisions at the European
operations resulting from lower earnings and tax benefits
realized from net operating loss carrybacks and carryforwards.
The higher U.S. provision is the result of the complete
utilization of tax net operating loss carryforwards and the
reduction of the tax valuation allowance in 1995, the benefits of
which are no longer available in 1996.
Minority Interest
Minority interest represents the share of the operating
loss of ISP*F related to the 49% ownership which was not owned by
the Company at June 30, 1996.
Net Income
Net income was $528,000 or $.10 per share for the
quarter ended June 30, 1996 compared to $373,000 or $.12 per
share for the same period of the previous year. Net income for
six months ended June 30, 1996 was $769,000 or $.15 per share
versus $1,034,000 or $.32 per share for the six months ended June
30, 1995.
Page 9
<PAGE>
Liquidity and Capital Resources
The Company's primary capital needs have been to fund
the working capital requirements created by its sales growth and
to make acquisitions. Historically, the Company's primary
sources of financing have been borrowings under its domestic and
international lines of credit with financial institutions and the
issuance of preferred stock to private investors, financial
institutions and investment funds. In July 1995, the Company
completed an initial public offering of its common stock which
resulted in net proceeds to the Company of approximately $18
million including approximately $2.5 million received in
connection with the exercise of the over-allotment option. The
Company had cash and short term investments of approximately $8.6
million at June 30, 1996.
Net cash used for operations was approximately
$9,118,000 for the six months ended June 30, 1996 compared with
$736,000 of cash provided by operations in the same period of the
previous year. For the first six months of 1996, cash flow was
primarily used to reduce accounts payable, specifically amounts
due to Microsoft by ISP*D under the Microsoft Select License
program, offet by decreases in accounts receivable and inventory.
For 1995, cash flow was primarily provided by a combination of
net income of the Company and a decrease in accounts receivable,
offset by an increase in inventory as well as a decrease in
accounts payable resulting from payments of Select License
obligations.
Net cash used for investing was approximately
$9,650,000 for the six months ended June 30, 1996, versus
$210,000 for the same period in 1995, and is primarily
attributable to the acquisition of net assets from The Software
Developer's Company, Inc. in June 1996.
Domestically, the Company has a secured, demand
revolving line of credit, pursuant to which the Company may
borrow up to $4.0 million, based upon 80% of its eligible
accounts receivable plus 50% of its eligible inventory, at a rate
of interest of prime plus 1.25%. The credit facility is secured
by all of the domestic assets of the Company and contains certain
covenants which require the Company to maintain a minimum level
of tangible net worth and working capital. Approximately
$1,542,000 (related to the acquisition of Systematika Limited)
and $1,857,000 were outstanding under the line at June 30, 1996
and 1995, respectively.
The Company maintains a secured, demand revolving line
of credit for its German subsidiary, pursuant to which it may
borrow in deutschemarks up to DM 1,500,000 ( the equivalent of
approximately $984,000 at June 30, 1996), based upon its eligible
accounts receivable and eligible inventory. Such credit
facility is secured by ISP*D's accounts receivable and inventory,
and the creditor is entitled to the benefit of a limited
guarantee by the Company of up to DM 300,000 ( the equivalent of
approximately $197,000 at June 30, 1996). At June 30, 1996, there
were no amounts outstanding under such line of credit.
Additionally, a subsidiary of ISP*D has a secured term loan with
the same bank, in the original principal amount of DM 500,000
(the equivalent of approximately $328,000 at June 30, 1996),
payable in four installments and maturing in November, 1996. At
June 30, 1996, there was DM 125,000 (the equivalent of
approximately $82,000) outstanding under the loan, bearing
interest at 7.75%.
The Company's Italian subsidiary, Lifeboat Italia,
maintains banking arrangements with several Italian banks,
pursuant to which it may borrow in lire on an unsecured, demand
basis to finance its working capital requirements, through credit
and overdrafting privileges, as well as receivables-based
advances. The aggregate credit and overdraft limits of such
arrangements at June 30, 1996 was Lit 3,200,000,000 ( the
equivalent of approximately $2.08 million). At June 30, 1996,
there was approximately Lit 1,219,000,000 ( the equivalent of
approximately $792,000) outstanding under such credit facilities,
bearing interest at rates ranging from 11.00% to 12.50% .
Page 10
<PAGE>
The Company's subsidiary in France, ISP*F, maintains
banking arrangements with two French banks, pursuant to which it
may borrow in French francs on a secured, demand basis to finance
its working capital requirements, through overdrafting privileges
and receivables-based advances. These overdraft arrangements are
secured by its eligible accounts receivable, and the banks are
entitled to the benefit of personal guarantees of up to FF 400,000
(the equivalent of approximately $78,000 at June 30, 1996).
The aggregate overdraft limits of such arrangements at June 30,
1996 was FF 600,000 (the equivalent of approximately $117,000).
At June 30, 1996, there was approximately FF 549,000 (the
equivalent of approximately $107,000) outstanding under such
credit facilities, bearing interest at rates ranging from 10.9%
to 11.45%.
Page 11
<PAGE>
PART II - OTHER INFORMATION
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, 1996.
(a) The date of the Meeting was June 11, 1996
(b) At the Meeting, the following persons were
elected as directors of the Company, each receiving the number of
votes set forth opposite their names below:
For Against Abstain
Roger Paradis 4,290,958 11,640 -
Edwin H. Morgens " " -
Daniel S. Bricklin " " -
Edward F. Glassmeyer " " -
F. Duffield Meyercord " " -
(c) At the Meeting, the Stockholders approved an
amendment to the Company's 1995 Stock Plan to increase the number
of shares available for issuance thereunder by 200,000 shares.
The results of the voting was as follows:
For Against Abstain Unvoted
4,091,568 193,880 5,150 12,000
(d) The Stockholders also ratified the selection
of Ernst & Young LLP as the independent auditors of the Company.
Such ratification was approved as follows:
For Against Abstain
4,287,898 11,300 3,400
Item 5. Other Information
On April 2, 1996, the Company repurchased 50,000 shares of
Programmer's Paradise, Inc. common stock at a price of $5.75 per
share.
Page 12
<PAGE>
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.
PROGRAMMER'S PARADISE, INC.
August 15, 1996 By: /s/ John P. Broderick
Date John P. Broderick, Chief Financial
Officer, Vice President of Finance
and duly authorized officer
Page 13
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits Page No.
27 Financial Data Schedule 15
Page 14
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> $8,603
<SECURITIES> 0
<RECEIVABLES> 19,405
<ALLOWANCES> (1,038)
<INVENTORY> 5,948
<CURRENT-ASSETS> 36,360
<PP&E> 3,046
<DEPRECIATION> (1,238)
<TOTAL-ASSETS> $54,081
<CURRENT-LIABILITIES> $25,284
<BONDS> 0
0
0
<COMMON> 47
<OTHER-SE> 27,272
<TOTAL-LIABILITY-AND-EQUITY> $54,081
<SALES> $51,143
<TOTAL-REVENUES> 51,143
<CGS> 42,720
<TOTAL-COSTS> 50,510
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 155
<INTEREST-EXPENSE> (287)
<INCOME-PRETAX> 919
<INCOME-TAX> 383
<INCOME-CONTINUING> 769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 769
<EPS-PRIMARY> $.15
<EPS-DILUTED> $.15
Page 15
</TABLE>
