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, 1999
[ ] 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)
1157 Shrewsbury Avenue, Shrewsbury, New Jersey 07702
- ---------------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number (732) 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 5,191,641 outstanding shares of Common Stock, par value $.01
per share, as of August 10, 1999.
Page 1
Exhibit index is on page 14.
<PAGE>
PROGRAMMER'S PARADISE, INC.
Index to Form 10-Q
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998 3
Condensed Consolidated Statements of Income and Comprehensive
Income for the six and three months ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the six and three Months
Ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of security holders 13
Item 6. Exhibits and Reports on Form 8-K 14
(a) Exhibit 27 - Financial Data Schedule 16
</TABLE>
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
(Unaudited) (Audited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 10,249 $ 21,167
Accounts receivable 43,153 53,002
Inventory 5,744 5,335
Prepaid expenses and other current assets 3,055 2,925
Deferred income taxes 2,779 1,988
--------- ----------
Total current assets 64,980 84,417
Equipment and leasehold improvements 2,315 2,317
Goodwill 15,654 15,595
Other assets 1,626 1,286
Deferred income taxes 1,319 1,262
--------- ----------
$ 85,894 $ 104,877
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to banks $ 0 $ 674
Accounts payable and accrued expenses 41,528 58,064
Other current liabilities 5,400 7,993
--------- ----------
Total current liabilities 46,928 66,731
Other liabilities 0 144
Notes payable - Long-term 0 1,761
Stockholders' equity
Common stock 53 50
Additional paid-in capital 35,814 33,952
Retained earnings 5,072 3,186
Treasury stock (16) (219)
Cumulative foreign currency translation adjustment (1,957) (728)
---------- -----------
Total stockholders' equity 38,966 36,241
---------- -----------
$ 85,894 $ 104,877
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
<PAGE>
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
Six months ended Three months ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 118,139 $ 103,973 $ 60,770 $ 50,780
Cost of sales 103,918 90,953 53,311 44,274
--------- --------- --------- ---------
Gross profit 14,221 13,020 7,459 6,506
Selling, general and administrative expenses 10,752 10,603 5,594 5,673
Amortization expense 595 491 310 246
--------- --------- --------- ---------
Income from operations 2,874 1,926 1,555 587
Interest, net 39 140 (25) 62
Realized foreign exchange gain (loss) 201 (22) 220 (5)
Unrealized foreign exchange gain (loss) 285 (64) 58 (27)
--------- --------- --------- ---------
Income before income taxes 3,399 1,980 1,808 617
Provision for taxes 1,448 883 845 279
--------- --------- --------- ---------
Net income $ 1,951 $ 1,097 $ 963 $ 338
========= ========= ========= =========
Net income per common share-Basic $ .38 $ .23 $ .19 $ .07
--------- --------- --------- ---------
Net income per common share-Diluted $ .36 $ .21 $ .17 $ .06
--------- --------- --------- ---------
Weighted average common shares outstanding-Basic 5,083 4,807 5,174 4,824
--------- --------- --------- ---------
Weighted average common shares outstanding-Diluted 5,483 5,308 5,555 5,322
--------- --------- --------- ---------
Reconciliation of Net Income to Comprehensive Income:
Net Income $ 1,951 $ 1,097 $ 963 $ 338
--------- --------- --------- ---------
Other comprehensive income, net of tax:
Foreign currency translation adjustments (762) (136) (325) (50)
--------- --------- --------- ---------
Comprehensive Income $ 1,189 $ 961 $ 638 $ 288
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 4
<PAGE>
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six months ended
June 30,
--------
1999 1998
---- ----
Cash provided by (used for)
Operations:
Net income $ 1,951 $ 1,097
Adjustments for non cash charges 1,212 1,028
Changes in assets and liabilities (13,046) (10,102)
-------- --------
Net cash used for operations (9,883) (7,977)
Investing:
Capital expenditures
Net cash used for investing activities (602) (654)
-------- --------
(602) (654)
Financing:
Net proceeds from issuance of common stock/ increase in
additional paid in capital 1,862 82
Other (62) 0
Sale of treasury stock 202 0
Repayments under lines of credit (2,435) (448)
-------- --------
Net cash provided by (used for) financing activities (433) (366)
-------- --------
Increase (decrease) in cash $(10,918) $ (8,997)
======== ========
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, 1999
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles 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 generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. During the current quarter , certain estimates and
accruals were adjusted based upon clarification of liabilities and or
potential loss exposure. The net impact of these adjustments and or
changes in estimates was to increase operating income by approximately
$550,000. Operating results for the six months ended June 30, 1999, are
not necessarily indicative of the results that may be expected for the
year ended December 31, 1999. For further information, refer to the
consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year-ended December 31,
1998.
2. Assets and liabilities of the foreign subsidiaries, all of which are
located in Europe, have been translated at current exchange rates, and
related revenues and expenses have been translated at average rates of
exchange in effect during the year. Resulting cumulative translation
adjustments have been recorded as a separate component of stockholders'
equity.
3. In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement requires companies
to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the
values of those derivatives would be accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting. SFAS
133 will be effective for the Company's fiscal year ending December 31,
2000. Management believes that this Statement will not have a
significant impact on the Company.
Page 6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Programmer's Paradise, Inc. is a recognized international marketer of
software targeting the software development and Information Technology
professionals within enterprise organizations. The Company operates principally
through five distribution channels in North America and Europe - Internet,
catalog, direct sales, telemarketing, and wholesale distribution. Internet sales
encompass the Company's web sites. Catalog operations include worldwide catalog
sales, advertising and publishing. Direct sales operations include Programmer's
Paradise Corporate Sales in the United States, ISP*D International Software
Partners GmbH ("ISP*D"), a wholly owned subsidiary in Munich, Germany, ISP*F
International Software Partners France SA ("ISP*F"), a majority owned subsidiary
in Paris, France, and Logicsoft Holding BV ("Logicsoft"), a wholly owned
subsidiary located in Amsterdam, The Netherlands. Telemarketing operations are
presently conducted in the United States, Germany and the United Kingdom.
Wholesale operations include distribution to dealers and large resellers through
Lifeboat Distribution Inc. in the United States and Lifeboat Associates Italia
Srl ("Lifeboat Italy") in Milan, Italy, also subsidiaries of the Company.
Website addresses are www.pparadise.com and www.supershops.com. Information
contained on our web sites is not, and should not be deemed to be, a part of
this report.
The Company's strategic focus is to expand its catalog and Internet
activities while solidifying its position as the predominant direct sales
company for corporate desktop application software. A key element of that
strategy is to build upon its distinctive catalogs - the established
Programmer's Paradise catalog, directed at independent professional programmers,
and its Programmer's Supershop catalog, directed at Information Technology
professionals working in large corporations, and to utilize the catalogs as
banner advertising for developing its internet traffic as well as being the
initial conduit to developing its telemarketing channel. The Company's focus for
direct sales is to expand revenues and income by assisting companies manage
their IT expenditures, a value-added selling approach.
International expansion has been an integral part of the Company's
strategy. The Company began European-based operations in the first quarter of
1993 when it acquired a controlling interest in Lifeboat Associates Italia Srl,
a long-standing software wholesale distributor in Italy with an orientation
towards technical software. In June 1994, the Company acquired a controlling
interest in ISP*D International Software Partners GmbH, a large software-only
dealer and a leading independent supplier of Microsoft Select licenses and other
software to many large German and Austrian 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 Ltd., 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, as a full service corporate reseller
of PC software, based in Paris and majority owned by Programmer's Paradise
France SARL. In August 1997, the Company formed Programmer's Paradise, Canada
Inc., located in Mississauga, Ontario, to serve the growing developer market in
Canada. In September 1997, the Company acquired Logicsoft Holding BV, the parent
company of Logicsoft Europe BV, the largest software-only corporate reseller of
PC software in The Netherlands. The Company estimates that it now holds the lead
position in over 40% of the European software market.
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 ended Three months ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 88.0 87.5 87.7 87.2
----- ----- ----- -----
Gross Profit 12.0 12.5 12.3 12.8
Selling, general and administrative expenses 9.1 10.2 9.2 11.2
Amortization expense 0.5 0.4 0.5 0.4
----- ----- ----- -----
Income from operations 2.4 1.9 2.6 1.2
Interest income (expense), net 0.0 0.1 0.0 0.1
Realized foreign exchange gain (loss) 0.2 0.0 0.4 0.0
Unrealized foreign exchange gain (loss) 0.3 (0.1) 0.0 (0.1)
----- ----- ----- -----
Income before income taxes 2.9 1.9 3.0 1.2
Income taxes (1.2) (0.8) 1.4 (0.5)
----- ----- ----- -----
Net income 1.7% 1.1% 1.6% 0.7%
----- ----- ----- -----
</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, 1999 increased by
$10.0 million or 20%, to $60.8 million, over the same period in 1998. This
increase primarily reflects the growth of the Company's Direct Sales channel and
the Internet channel.
Consolidated Internet sales revenues increased by 362% or $2.3 million
for the three months ended June 30, 1999 compared to the same period in 1998.
This increase was primarily due to the newly enhanced and expanded websites, the
creation of on-line specialty stores and a dramatic expansion in both product
offerings and product content. Direct sales revenues increased by 22% or $7.0
million for the three months ended June 30, 1999 compared to the same period in
1998. Sales were particularly strong in Germany, The Netherlands and the United
States. Revenue growth in the US represents a continued increase in market share
while the increase in The Netherlands and Germany is mainly attributable to
execution of the relationship selling approach with existing customers.
Consolidated catalog and Telemarketing revenues remained flat at $15 million for
the three months ended June 30, 1999 primarily due to the shift in business from
the traditional catalogs to the Internet channel. Catalog sales in the United
States decreased by 5% or $ 0.6 million, which was offset by an increase of 88%
or $0.6 million in Catalog sales in Canada. Revenues for the Distribution
channel increased 18% or $0.7 million for the three months ended June 30, 1999
primarily due to new distribution agreements signed with software publishers in
the United States.
Page 8
<PAGE>
Geographically, approximately 64% and 66% of the revenues were derived
from the European operations for the three months ended June 30, 1999 and 1998,
respectively. For the six months ended June 30, 1999 and 1998 these percentages
amount to approximately 65% and 68%, respectively.
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 period
ended June 30, 1999, gross profit as a percentage of sales decreased from 12.8 %
to 12.3% over the same period in 1998, mainly reflecting a shift in the mix of
sales through the Company's distribution channels as a result of the substantial
increase in lower margin direct sales, primarily Microsoft Select licensing
sales. Gross profit in absolute dollars for the three-month period ended June
30, 1999 increased by $953,000 over the previous year, which reflects the
strength of the direct sales channel in the quarter.
The mix of products sold and the mix of distribution channels have
affected gross margins. Historically, the gross margins attained in the catalog
channel have been higher than either the direct sales or distribution channels.
Margins within the direct sales channel are also subject to mix variations as
Microsoft Select License sales typically produce lower gross margin results. The
emergence of the Internet as a viable commerce channel has caused the Company to
experience competitive margin pressures. The Company anticipates that this
margin pressure will continue for the next few quarters.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses include all
corporate personnel costs (including salaries and health benefits), depreciation
and amortization, non-personnel-related marketing and administrative costs and
the provision for doubtful accounts. Depreciation and amortization consists
primarily of equipment depreciation and leasehold improvements.
SG&A expenses as a percentage of revenues decreased by 2% for the three
months ended June 30, 1999 compared to the same period in 1998. SG&A expenses in
absolute dollars for the three-month period ended June 30, 1999 decreased by
$79,000 when compared to the same period in 1998. This decrease mainly reflects
cost savings initiatives surrounding catalog production as well as headcount
reductions in some of the foreign subsidiaries.
Geographically, the North America operation of the Company accounted
for approximately 47% and 42% of total SG&A expenditure for the three months
ended June 30, 1999 and 1998, respectively. For the six months ended June 30,
1999 and 1998, these percentages are approximately 43% and 54%, respectively.
Page 9
<PAGE>
AMORTIZATION EXPENSE
Amortization expense includes the systematic write-off of goodwill.
Amortization expense for the three months ended June 30, 1999 increased by
$64,000 as compared to the same period in 1998. This increase reflects the
amortization of the excess of the purchase price over the fair value of the net
assets acquired in connection with the acquisition of Logicsoft. The purchase
contract with Logicsoft Holding BV included an "earn-out" feature based on
results of operations for the fiscal year ended December 31, 1998. As a result,
the Company has recorded an additional $2.2 million as goodwill at December 31,
1998, which is being amortized over a fifteen-year period.
INTEREST, NET
Interest expense for the quarter was $25,000 compared to interest
income of $62,000 for the same period last year. The repayment of the Dutch
Guilder loan mainly caused this decrease. This repayment triggered a prepayment
penalty of approximately $50,000.
REALIZED FOREIGN EXCHANGE GAIN (LOSS)
Realized foreign exchange gain for the three months ended June 30, 1999
was $220,000 compared to a realized foreign exchange loss of $5,000 in the same
period in 1998. The realized gain in the second quarter of 1999 is primarily due
to the repayment of the Dutch Guilder loan. This repayment resulted in a
realized foreign exchange gain of approximately $185,000.
UNREALIZED FOREIGN EXCHANGE GAIN (LOSS)
Unrealized foreign exchange gain for the three months ended June 30,
1999 was $58,000 compared to a unrealized foreign exchange loss of $27,000 in
the same period in 1998. The unrealized profit in this second quarter is
primarily due to the continuing rise of the US$ against the EURO from April 1,
1999 to June 30, 1999. The Company does not hedge its net asset exposure to
fluctuations in the US$ against any such local currency exchange rates. Although
the Company does maintain bank accounts in local currencies to reduce currency
exchange fluctuations, the Company is, nevertheless, subject to risks associated
with such fluctuations.
INCOME TAXES
Provision for income tax was $845,000 for the three months ended June
30, 1999, compared to $279,000 for the same period in 1998. As a percentage of
income before taxes the provision for income tax increased from 45% in 1998 to
47% in 1999. The fluctuations in the Company's effective tax rate reflect the
negative impact of certain unprofitable international subsidiaries whose current
period losses had no offsetting tax benefits.
NET INCOME
Net income was $963,000 or $.17 per share on a diluted basis with
approximately 5,555,000 weighted average common shares outstanding for the
quarter ended June 30, 1999 compared to $338,000 or $.06 per share on a diluted
basis with approximately 5,322,000 weighted average common shares outstanding
for the same period of the previous year.
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. The
Company had cash and cash equivalents of $10.2 million and net working capital
of $18.0 million at June 30, 1999.
Net cash used for operations was $9.8 million for the six months ended
June 30, 1999 compared with $8.0 million of cash used for operating activities
in the same period of the previous year. Cash was primarily used for a reduction
in accounts payable and other liabilities (approximately $20.2 million), offset
by a reduction in accounts receivable (approximately $9.8 million) as well as
net earnings for the period.
Net cash used for financing remained flat at $0.4 million for the six
months ended June 30, 1999 compared to $0.4 million in the same period of the
previous year. This primarily reflects the result of favorable permanent tax
differences due to stock options exercised in the first quarter of 1999 and
repayment of the Dutch Guilder loan in the second quarter of 1999.
Page 10
<PAGE>
Domestically, the Company has a committed line of credit whereby the
Company can borrow up to $7.5 million with interest at either the prime rate or
Euro rate plus 200 basis points. The facility expires on June 30, 1999 and is
secured by all the domestic assets of the Company and 65% of the outstanding
stock of the foreign subsidiaries and contains certain covenants that require
the Company to maintain a minimum level of tangible net worth and working
capital. At June 30, 1999, there was $ 11,000 outstanding under the line. In
June the facility was extended at the same terms for a period of 9 months,
expiring March 31, 2000.
During 1997, the Company entered into a five-year term loan agreement
in the US$ equivalent of $3.0 million bearing interest at 6.17%. The loan is
denominated in Dutch Guilders and is secured by the assets of the Company and
65% of the stock of foreign subsidiaries. Due to the strong US$ the Company
decided to prepay this Dutch Guilder loan. In May 1999 the loan was repaid.
The Company maintains a secured, demand revolving line of credit for
its German subsidiary, pursuant to which it may borrow in Deutsche marks up to
DM 1,500,000 (the equivalent of approximately $820,000 at June 30, 1999), based
upon its eligible accounts receivable and eligible 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 $160,000 at June 30, 1999). The line
bears interest at 8.25%. At June 30, 1999, there were no amounts outstanding
under this line.
In Italy, Lifeboat Italy has banking arrangements with several Italian
banks, pursuant to which it may borrow in lire on an unsecured, demand basis to
finance working capital requirements, through credit and over drafting
privileges, as well as receivables-based advances. The aggregate credit and
overdraft limits of such arrangements at June 30, 1999 were approximately Lit
2,800,000,000 (the equivalent of approximately $1.5 million at June 30, 1999).
The unsecured borrowings bear interest at market rates ranging from 6.25% to
9.00%. At June 30, 1999 there were no amounts outstanding under this line.
The Company's subsidiary in The Netherlands, Logicsoft Europe, BV,
maintains a demand revolving line of credit pursuant to which it may borrow in
guilders up to DFL 2.5 million (the equivalent of approximately $1.2 million at
June 30, 1999), and is secured by its accounts receivable and inventory. The
line bears interest at 5.875%. At June 30, 1999 there were no amounts
outstanding under this line.
In France, ISP*F maintains a demand revolving line of credit pursuant
to which it may borrow up to FRF 3.0 million (the equivalent of approximately
$490,000 at June 30, 1999), and is secured by its accounts receivable and
inventory and a FRF 3.0 million letter of credit. At June 30, 1999, there were
no amounts outstanding under this line.
CERTAIN FACTORS AFFECTING OPERATING RESULTS
Certain statements contained in, or incorporated by reference in, this
Form 10-Q are forward-looking in nature. Such statements can be identified by
the use of forward-looking terminology such as "believes", "expects", "may",
"will", "should" or "anticipates" or the negative thereof or comparable
terminology, or by discussions of strategy. The Company wishes to ensure that
such statements are accompanied by meaningful cautionary statements, so as to
ensure to the fullest extent possible the protections of the safe harbor
established in the Private Securities Litigation Reform Act of 1995.
Accordingly, such statements are qualified in their entirety by reference to and
are accompanied by the following discussion of certain important factors that
could cause actual results to differ materially from those projected in such
forward-looking statements. The Company cautions the reader that this list of
factors may not be exhaustive.
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.
Page 11
<PAGE>
YEAR 2000 COMPLIANCE
The Company believes that its present IT systems are Year 2000
compliant. The Company has also conducted an investigation and received
certification from its major suppliers that they are fully Y2K compliant.
The Company is continuing to conduct a review of key publishers to
determine whether their software products meet Year 2000 requirements. The
Company has continued to post updated information on Y2K compliance on its
websites. In the event that the Company's key publishers cannot provide the
Company with software products that meet Year 2000 requirements on a timely
basis, or if customers delay or forego software purchases based upon Year 2000
related issues, the Company's operating results could be materially adversely
affected. In general, as a reseller of software products, the Company only sells
a license to its customers from the applicable vendor and the vendor's
warranties run directly to or are passed through the Company's customer. The
Company's operating results could be materially adversely affected, however, if
it were held liable for the failure of software products resold by the Company
to be Year 2000 compliant despite its disclaimer of software product warranties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN OPERATIONS
In addition to its activities in the United States, 64% of the
Company's sales for the three month period ended June 30, 1999 were generated
internationally. Foreign operations are subject to general risks attendant to
the conduct of business in each foreign country, including economic
uncertainties and each foreign government's regulations. In addition, the
Company's international business may be affected by changes in demand or pricing
resulting from fluctuations in currency exchange rates or other factors.
FOREIGN EXCHANGE
The Company's shipments to foreign subsidiaries are invoiced in US$.
As a result, the Company believes its foreign exchange exposure caused by these
shipments is insignificant. The Company is, however, exposed to exchange
conversion differences in translating foreign results of operations to U.S.
dollars. Depending upon the strengthening or weakening of the US$, these
conversion differences could be significant.
Sales to customers in European countries and borrowings by the
Company's European subsidiaries are denominated in local currencies. The Company
does not hedge its net asset exposure to fluctuations in the U.S. Dollar against
any such local currency exchange rates. Although the Company does maintain bank
accounts in local currencies to reduce currency exchange fluctuations, the
Company is, nevertheless, subject to risks associated with such fluctuations.
Page 12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to certain legal proceedings and claims which
have arisen in the ordinary course of business and which have not been fully
adjudicated. The results of legal proceedings cannot be predicted with
certainty; however, in the opinion of management, the Company does not have a
potential liability related to any legal proceedings and claims that would have
a material adverse effect on its financial condition or results of operations.
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, 1999.
(a) The date of the Meeting was June 17, 1999
(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
--- ------- -------
William Willett 4,320,913 15,887 --
F. Duffield Meyercord 4,320,913 15,887 --
Edwin H. Morgens 4,320,913 15,887 --
Allan D. Weingarten 4,320,913 15,887 --
(c) 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
--- ------- -------
4,327,379 1,726 7,695
ITEM 5. OTHER INFORMATION
Under SEC Rule 14a-4(c)1, if a proposal is to be submitted for a vote
at the Company's next annual meeting of stockholders and the proposal is not
submitted for inclusion in the Company's proxy statement and the proxy card in
compliance with the processes of SEC Rule 14a-8, then, if the Company does not
have notice of the proposal at least 45 days before the date on which the
Company first mailed its proxy materials for the prior year's annual meeting (
or any earlier or later date specified in any overriding advance notice
provision in the Company's certificate of incorporation or by-laws), proxies
solicited by the Company may confer discretionary authority to vote on the
proposal. Based on the foregoing, the date after which notice of such a proposal
submitted outside the processes of Rule 14a-8 will be considered untimely with
respect to the Company's annual meeting of Stockholders is March 14, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three
months ended June 30, 1999.
(a) Exhibit 27 - Financial Data Schedule
Page 13
<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 16, 1999 By: /s/ John P. Broderick
- ------------------------------- --------------------------------
Date John P. Broderick, Chief Financial
Officer, Vice President of Finance
and duly authorized officer
Page 14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits Page No.
------ ----------------------- --------
27 Financial Data Schedule 16
Page 15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet at June 30, 1999 and 1998 and Consolidated
Statement of Income and Comprehensive Income for the six months ended June 30,
1999 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 10,249 11,574
<SECURITIES> 0 0
<RECEIVABLES> 44,235 36,935
<ALLOWANCES> 1,082 833
<INVENTORY> 5,744 4,982
<CURRENT-ASSETS> 64,980 58,286
<PP&E> 5,354 5,652
<DEPRECIATION> 3,038 3,560
<TOTAL-ASSETS> 85,894 76,235
<CURRENT-LIABILITIES> 46,928 41,059
<BONDS> 0 0
0 0
0 0
<COMMON> 53 49
<OTHER-SE> 38,913 33,098
<TOTAL-LIABILITY-AND-EQUITY> 85,894 76,235
<SALES> 118,139 103,973
<TOTAL-REVENUES> 118,139 103,973
<CGS> 103,918 90,953
<TOTAL-COSTS> 115,265 102,047
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 100,910 61
<INTEREST-EXPENSE> 39 140
<INCOME-PRETAX> 3,399 1,980
<INCOME-TAX> 1,448 883
<INCOME-CONTINUING> 1,951 1,097
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,951 1,097
<EPS-BASIC> 0.38 0.23
<EPS-DILUTED> 0.36 0.21
</TABLE>
