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 September 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 4,778,173 outstanding shares of Common Stock, par
value $.01 per share, as of November 7, 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 September 30, 1996 and
December 31, 1995 3
Condensed Consolidated Statements of
Income for the Three Months and Nine
Months Ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
September 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 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27-Financial Data Schedule 15
(b) Reports on Form 8-K 12
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
ASSETS
<CAPTION>
September 31, December 31,
1996 1995
(Unaudited) *
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 8,211 $ 27,702
Accounts receivable 20,575 15,625
Inventory 5,758 5,452
Prepaid expenses and other
current assets 2,343 2,117
Deferred income taxes 897 1,342
Total current assets 37,784 52,238
Equipment and leasehold improvements 1,724 1,127
Other assets 14,208 2,940
Deferred income taxes 2,024 2,024
$55,740 $ 58,329
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to banks $ 1,210 $ 2,469
Accounts payable and accrued
expenses 24,771 27,881
Other current liabilities 480 199
Total current liabilities 26,461 30,549
Other liabilities 231 791
Notes payable to banks - long term 1,263 -
Stockholders' equity
Common stock 47 47
Additional paid-in capital 33,409 33,405
Accumulated deficit (5,308) (6,518)
Treasury stock (376) -
Cumulative foreign currency
adjustment 13 55
Total stockholders' equity 27,785 26,989
$55,740 $ 58,329
</TABLE>
* Condensed from audited financial statements.
The accompanying notes are an integral part of these
consolidated financial statements.
Page 3
<PAGE>
<TABLE>
PROGRAMMER'S PARADISE INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per share data)
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $85,757 $66,545 $34,614 $21,674
Cost of sales 71,922 56,036 29,202 18,439
Gross profit 13,835 10,509 5,412 3,235
Selling, general and
administrative expenses 12,282 8,768 4,548 2,906
Amortization expense 265 71 208 26
Income from operations 1,288 1,670 656 303
Interest (income)/expense,(net) (219) (42) 68 (154)
Income before income taxes 1,507 1,712 588 457
Income tax expense 721 211 338 (10)
Minority interest 424 - 191 -
Net income $ 1,210 $ 1,501 $ 441 $ 467
Weighted average common shares
outstanding 5,131 3,693 5,117 4,780
Net income per common share $ 0.24 $ 0.41 $ 0.09 $ 0.10
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 4
<PAGE>
<TABLE>
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
Nine Months
Ended
September 30,
1996 1995
Cash provided by (used for)
<C> <S> <S>
Operations:
Net income $ 1,210 $ 1,501
Adjustments for non cash charges 750 685
Changes in assets and liabilities (8,996) 519
Net cash (used for) provided by
operations (7,036) 2,705
Investing:
Capital expenditures (367) (456)
Capitalized software costs (16) (7)
Acquisitions, net of cash acquired (11,295) (125)
Net cash (used for) investing (11,678) (588)
Financing:
Purchase of treasury stock (376)
Net proceeds from sale of common
stock 4 18,214
Borrowings under lines of credit 7,447 27,480
Repayments under lines of credit (7,852) (30,205)
Net cash (used for) financing
activities (777) 15,489
Net change in cash (19,491) 17,606
Cash at beginning of year 27,702 3,522
Cash at end of period $ 8,211 $ 21,128
</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
September 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 nine
month periods ended September 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.
3. On June 28, 1996, the Company acquired from Software Developer's
Company, Inc. substantially all of the assets and business
related to THE PROGRAMMER'S SUPERSHOP catalog.
4. 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 Programmer's 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 Programmer's 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 The Software Developer's Company,
Inc. ("SDC") related to THE PROGRAMMER'S SUPERSHOP ("TPS")
catalog business, inbound and outbound telemarketing, reseller
operations, web site, and all of the operations of 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>
Nine months ended Three months ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 83.9 84.2 84.4 85.1
Gross profit 16.1 15.8 15.6 14.9
Selling, general and administrative
expenses 14.3 13.2 13.1 13.4
Amortization expense 0.3 0.1 0.6 0.1
Income from operations 1.5 2.5 1.9 1.4
Interest (income)/expense,(net) (0.3) (0.1) 0.2 (0.7)
Income before income taxes 1.8 2.6 1.7 2.1
Income taxes (0.9) (0.3) (1.0) -
Minority interest 0.5 - 0.6 -
Net income 1.4% 2.3% 1.3% 2.1%
</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 September 30, 1996
increased by $12,940,000, to $34,614,000, or 59.7%, over the
quarter ended September 30, 1995. Net sales for the nine months
ended September 30, 1996 increased by $19,211,000, to
$85,757,000, or 28.9% over the same period in 1995.
The growth in net sales for the three months and nine
months ended September 30, 1996 as compared to the previous year
was primarily attributable to the acquisitions of SDC and System
Science and the organization of ISP*F, enhanced by higher revenues
domestically and in Germany. Total domestic sales increased by 26.8%
for the nine month period ended September 30, 1996 over 1995, and
for the three month period increased by 81.8% over the previous year.
Included in the nine month revenues of 1995 are approximately
$3.2 million in corporate reseller revenues from the since
terminated contract with AT&T. On a pro forma basis, after
adjusting for the lost AT&T revenues, domestic sales grew at a
rate of 17.5% for the nine months ended September 30, 1996 as
compared to the same period in 1995, and increased 14.1% over the
three months then ended compared to the previous year. These
increases are primarily the result of higher catalog revenues,
and are reflected in increased catalog mailings during each of
these periods. Domestic catalog mailings totaled approximately
4.4 million for the nine months ended September 30, 1996,
compared to approximately 2.3 million for the same period in
1995, and for the three months then ended totaled approximately
1.5 million versus approximately 1.2 million for the same period
in the prior year. Total sales in Europe increased by 30.2% for
the nine months in 1996 as compared to the same period in 1995,
and for the three month period increased 40.8% over the previous
year. The growth in European sales during those periods
primarily reflects higher corporate reseller sales at ISP*D in
addition to the acquisition of System Science and formation of ISP*F.
Sales in Germany increased 10.5% for the nine months ended September
30, 1996, and increased 33.1% for the three months then ended,
compared to the same periods in the previous year.
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 nine
month periods ended September 30, 1996, gross profit increased by
$2,177,000 and $3,326,000, respectively, over the previous year,
primarily attributable to the SDC and System Science acquisitions
and the ISP*F formation, as well as higher revenues in the U.S.
and in Germany. As a percentage of sales, gross profit increased
by 0.7% and 0.3% for the respective three months and nine months
periods ended September 30, 1996 in comparison to the same
periods in 1995. This positive change reflects a shift in
channel mix toward the catalog as a result of increased catalog
drops.
Selling, General and Administrative Expenses
SG&A expenses increased by $1,643,000 for the three
months ended September 30, 1996, and by $3,514,000 for the nine
months then ended when compared to the same periods in 1995,
primarily reflecting the additional overhead associated with the
System Science, ISP*F and TPS operations. As a percentage of net
sales, SG&A decreased by 0.3% for the three months ended
September 30, 1996, and increased by 1.1% for the nine month
period compared to the previous year. The percentage increase
for the nine month period primarily reflects the abnormally high
cost structure then associated with the French subsidiary. The
improvement in the three month comparison reflects operating
efficiencies realized from the addition of the TPS business, and
was achieved despite one time charges incurred to restructure the
French operations and reduce their operating expense run rates.
Interest Income and Expense
Net interest income increased for the nine months ended
September 30, 1996 by $177,000 compared to the same period in the
previous year, 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 September 30, 1996, interest
income on these short term investments was $398,000 for the nine
months then ended. During the three month period ended September
30, 1996, net interest income decreased by $222,000 compared to the
same period in 1995, primarily reflecting the use of the Company's
funds to acquire substantially all of the assets of SDC and the
financing costs associated with the acquisition of System Science.
Amortization Expense
Amortization expense increased by $181,000 and $194,000
for the three and nine months periods ended September 30, 1996
compared to the same periods in 1995, reflecting the amortization
of the excess of the purchase price over the fair value of net
assets acquired during 1996. The acquisition of substantially
all of the net assets of SDC resulted in goodwill of
approximately $9.5 million which is being amortized over a period
of 15 years.
Income Taxes
Income tax expense was $721,000 for the nine months
ended September 30, 1996, compared to $211,000 in the same period
in 1995. The increase over the previous year period primarily
reflects a higher tax provision on earnings for the U.S.
operations, which is the result of the complete reduction of the
tax valuation allowance in 1995. This is offset by lower tax
provisions at the European operations resulting from lower
earnings and tax benefits realized from net operating loss
carrybacks and carryforwards.
Page 9
<PAGE>
Minority Interest
Minority interest represents the share of the operating
loss of ISP*F related to the 49% ownership not owned by the
Company at September 30, 1996.
Net Income
Net income was $441,000 or $.09 per share on approximately
5,117,000 weighted average common shares outstanding for the
quarter ended September 30, 1996 compared to $467,000 or $.10 per
share on approximately 4,780,000 weighted average common shares
outstanding for the same period of 1995. Net income for nine months
ended September 30, 1996 was $1,210,000 or $.24 per share on
approximately 5,131,000 weighted average common shares outstanding
versus $1,501,000 or $.41 per share on approximately 3,693,000
weighted average common shares outstanding for the nine months ended
September 30, 1995.
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. 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
cash equivalents of approximately $8.2 million at September 30,
1996.
Net cash used for operations was approximately
$7,036,000 for the nine months ended September 30, 1996 compared
with $2,705,000 of cash provided by operations in the same period
of the previous year. For the first nine months of 1996, cash
was primarily used to reduce accounts payable, specifically to
make regular payments on amounts due to Microsoft by ISP*D under
the Microsoft Select License program, offset by a decrease in
inventory and net income generated by the Company. For 1995, in
addition to the proceeds received from the IPO which were used to
reduce debt and invest in short term securities, 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 primarily related to the release of Windows '95 during
the third quarter.
Net cash used for investing was approximately
$11,678,000 for the nine months ended September 30, 1996, versus
$588,000 for the same period in 1995, and is primarily
attributable to the acquisition of substantially all of the assets
from SDC 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 .50%. 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
$1,463,000 (related to the acquisition of Systematika Limited)
was outstanding under the line at September 30, 1996. There was
no debt outstanding under this line of credit at September 30,
1995.
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 September 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 September 30, 1996). At
September 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
Page 10
<PAGE>
$328,000 at September 30, 1996), payable in four installments and
maturing in November, 1996. At September 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 Italy,
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 September 30, 1996 was Lit 3,200,000,000 (the
equivalent of approximately $2.1 million). At June 30, 1996,
there was approximately Lit 882,000,000 (the equivalent of
approximately $582,000) outstanding under such credit facilities,
bearing interest at rates ranging from 11.00% to 12.50% .
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 FRF
400,000 (the equivalent of approximately $77,000 at September 30,
1996). The aggregate overdraft limits of such arrangements at
September 30, 1996 was FRF 600,000 (the equivalent of
approximately $116,000). At September 30, 1996, there was
approximately FRF 321,000 (the equivalent of approximately
$62,000) outstanding under such credit facilities, bearing
interest at rates ranging from 14.65% to 16.56%.
Page 11
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a Report on Form 8-K on July 15, 1996 and filed
an amendment thereto on Form 8-K/A on September 16, 1996, with
respect to the acquisition of substantially all of the assets of
The Software Developer's Company, Inc.
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.
November 14, 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
<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> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 8,211
<SECURITIES> 0
<RECEIVABLES> 22,628
<ALLOWANCES> (756)
<INVENTORY> 5,758
<CURRENT-ASSETS> 37,784
<PP&E> 3,154
<DEPRECIATION> (1,430)
<TOTAL-ASSETS> 55,740
<CURRENT-LIABILITIES> 26,461
<BONDS> 0
0
0
<COMMON> 47
<OTHER-SE> 27,738
<TOTAL-LIABILITY-AND-EQUITY> 55,740
<SALES> 85,757
<TOTAL-REVENUES> 85,757
<CGS> 71,922
<TOTAL-COSTS> 84,469
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (60)
<INTEREST-EXPENSE> (219)
<INCOME-PRETAX> 1,507
<INCOME-TAX> 721
<INCOME-CONTINUING> 1,210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,210
<EPS-PRIMARY> $0.24
<EPS-DILUTED> $0.24
</TABLE>
