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, 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 5,109,141 outstanding shares of Common Stock, par value $.01
per share, as of November 8, 1999.
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<PAGE>
PROGRAMMER'S PARADISE, INC.
Index to Form 10-Q
<TABLE>
<CAPTION>
Page No.
--------
PART I -- FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 3
Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss) for the nine and three months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 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 6. Exhibits and Reports on Form 8-K 13
(a) Exhibit 27 - Financial Data Schedule 16
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----- ------
(Unaudited) (Audited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 7,134 $ 21,167
Accounts receivable 34,630 53,002
Inventory 6,126 5,335
Prepaid expenses and other current assets 3,002 2,925
Deferred income taxes 3,271 1,988
---------- -------------
Total current assets 54,163 84,417
Equipment and leasehold improvements 2,196 2,317
Goodwill 14,709 15,595
Other assets 1,378 1,286
Deferred income taxes 489 1,262
---------- -----------
$ 72,935 $ 104,877
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to banks $ 17 $ 674
Accounts payable and accrued expenses 30,910 58,064
Other current liabilities 5,151 7,993
---------- -----------
Total current liabilities 36,078 66,731
Other liabilities 0 144
Notes payable - Long-term 0 1,761
Stockholders' equity
Common stock 53 50
Additional paid-in capital 35,830 33,952
Retained earnings 2,750 3,186
Treasury stock (3) (219)
Accumulated other comprehensive loss (1,773) (728)
---------- -----------
Total stockholders' equity 36,857 36,241
---------- -----------
$ 72,935 $ 104,877
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $168,334 $158,434 $50,195 $54,461
------- ------- ------- -----
Cost of sales 149,846 138,707 45,928 47,754
------- ------- ------- -------
Gross profit 18,488 19,727 4,267 6,707
Selling, general and administrative expenses 17,178 15,965 6,427 5,362
Amortization expense 1,547 736 952 246
------- ------- ------- -------
Income (loss) from operations (237) 3,026 (3,112) 1,099
Interest, net 61 216 23 76
Realized foreign exchange gain (loss) 190 (11) (11) 52
Unrealized foreign exchange gain 345 84 60 108
------- ------- ------- -------
Income (loss) before income taxes 359 3,315 (3,040) 1,335
Provision (benefit) for taxes 731 1,538 (717) 655
------- ------- ------- -------
Net income (loss) $ (372) $ 1,777 $(2,323) $ 680
======= ======= ======== =======
Net income (loss) per common share-Basic $ (.07) $.37 $ (.45) $.14
------- ------- ------- -------
Net income (loss) per common share-Diluted $ (.07) $.33 $ (.45) $.13
------- ------- ------- -----
Weighted average common shares outstanding-Basic 5,120 4,805 5,194 4,800
------- ------- ------- -----
Weighted average common shares outstanding-Diluted 5,120 5,306 5,194 5,134
------- ------- ------ -----
Reconciliation of Net Income to Comprehensive Income:
Net Income (loss) $ (372) $ 1,777 $ (2,323) $ 680
------- ------- ------- -----
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (623) (70) 114 (191)
------- ------- ------- -------
Comprehensive Income (loss) $ (995) $ 1,707 $ (2,209) $ 489
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE>
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1999 1998
----- -----
<S> <C> <C>
Cash provided by (used for)
Operations:
Net income (Loss) $(372) $1,777
Adjustments for non cash charges 2,413 1,448
Changes in assets and liabilities (15,349) (7,732)
Net cash used for operations -------- -------
(13,308) (4,507)
-------- -------
Investing:
Capital expenditures (324) (1,312)
-------- -------
Net cash used for investing activities (324) (1,312)
-------- -------
Financing:
Net proceeds from issuance of common
stock/ increase in additional paid in capital 1,878 (269)
Other (60) 0
Sale of treasury stock (216) 0
Repayments under lines of credit (2,435) (599)
-------- -------
Net cash used for financing activities (401) (868)
-------- -------
Decrease in cash $(14,033) $(6,687)
========= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE>
PROGRAMMER'S PARADISE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
September 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 decrease
operating income by approximately $650,000. Operating results for the nine
months ended September 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 and Canada, 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 within accumulated other comprehensive loss which is classified 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.
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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 and advertising. 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 Europe BV, the largest
software-only corporate reseller of PC software in The Netherlands.
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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>
Nine months ended Three months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- -----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 89.0 87.5 91.5 87.7
----------- ----------- ----------- -----------
Gross Profit 11.0 12.5 8.5 12.3
Selling, general and administrative expenses 10.2 10.0 12.8 9.8
Amortization expense 0.9 0.5 1.9 0.5
----------- ----------- ----------- -----------
Income (loss) from operations (0.1) 2.0 (6.2) 2.0
Interest income, net 0.0 0.1 0.0 0.1
-
Realized foreign exchange gain (loss) 0.1 0.0 0.0 0.0
Unrealized foreign exchange gain (loss) 0.2 (1.0) 0.1 0.4
------------ ----------- ------------ -----------
Income before income taxes 0.2 2.1 (6.1) 2.5
Provision (benefit) for Income taxes 0.4 (1.0) (1.3) (1.3)
----------- ------------ ------------ -----------
Net income (loss) (0.2)% 1.1% (4.7)% 1.2%
---------- --------- ------------ -----------
</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, 1999 decreased
by $4.3 million or 8%, to $50.2 million, over the same period in 1998. This
decrease primarily reflects the significant slowdown in software sales in Europe
in reaction to the upcoming millennium. Many of our customers have initiated a
"lockdown" approach to operating systems, applications and hardware for the
balance of the year. Net sales for the nine months ended September 30, 1999
increased by $9.9 million or 6% over the same period in 1998 to $168.3 million.
This increase primarily reflects the growth of the Company's Direct sales
channel and the Internet channel.
Consolidated Internet sales revenues increased by 240% or $2.4 million
for the three months ended September 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 aggressive expansion in
both product offerings and product content. Direct sales revenues decreased by
13% or $4.3 million for the three months ended September 30, 1999 compared to
the same period in 1998. The $ 4.9 million decrease in the European Direct sales
was partially offset by an increase of $0.6 million or 28% of Direct sales in
North America. Revenue growth in the United States represents a continued
increase in market share while the decrease in Europe is mainly attributable to
the "lockdown" related to the upcoming millennium, which appears to pervade the
whole of Europe. Consolidated Catalog and Telemarketing revenues decreased by
$2.5 million for the three months ended September 30, 1999 primarily due to the
shift in business from the traditional catalogs to the Internet channel and the
disappointing demand from Developer Days '99. Sales from this year's event were
down by approximately $1 million from last year. Revenues for the Distribution
channel increased 12% or $0.4 million for the three months ended September 30,
1999.
For the nine months ended September 30, 1999 Internet sales increased
by 300% or $6.3 million 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 aggressive expansion in both product offerings and
product content. Direct sales revenues for the nine months ended September 30,
1999 increased by 6% or $5.9 million, primarily due to strong Direct sales in
North America. North American Direct sales generated $ 4.4 million or 78% more
revenue compared to the same period in 1998 and represents a continued increase
in market share since the Company introduced this channel in the US in late
1997. Consolidated Catalog and Telemarketing revenues decreased by $3.2 million
for the nine months ended September 30, 1999 primarily due to the shift in North
America's business from the traditional catalogs to the Internet channel and the
disappointing demand from Developer Days '99. Sales from this year's event were
down by approximately $ 1,000,000 from last year. Revenues for the Distribution
channel increased 14% or $1.6 million for the nine months ended September 30,
1999. This increase was mainly attributable to new distribution agreements
signed with software publishers in the United States.
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<PAGE>
Geographically, approximately 62% and 67% of the revenues were derived
from the European operations for the three months ended September 30, 1999 and
1998, respectively. For the nine months ended September 30, 1999 and 1998 these
percentages amount to approximately 64% and 67%, 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 September 30, 1999, gross profit as a percentage of sales decreased from
12.3 % to 8.5% over the same period in 1998. Margins in the Direct sales channel
are impacted by vendor rebates which are tied to sales goals. Vendor rebates can
account for as much as 4% of sales. Due to the "lockdown" effect experienced in
Europe, actual rebates earned amounted to approximately 1% of direct sales
revenues. In addition, margins are impacted by the mix of advertising dollars
recognized during the quarter in relation to the costs of producing the
respective catalogs. During the current quarter, net marketing income decreased
by $0.4 million.
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 increased by 3% for the three
months ended September 30, 1999 compared to the same period in 1998. For the
nine month period ended September 30, 1999 SG&A expenses as a percentage of
revenue increased by 0.2% compared to the same period in 1998. SG&A expenses in
absolute dollars for the three-month period ended September 30, 1999 increased
by $1.1 million when compared to the same period in 1998. The increase for both
the quarter and year to date amounts reflects an investment in infrastructure to
support the growing Internet channel. This investment includes both personnel as
well as marketing expenditures.
Geographically, the North America operations of the Company accounted
for approximately 42% and 40% of total SG&A expenditure for the three months
ended September 30, 1999 and 1998, respectively. For the nine months ended
September 30, 1999 and 1998, these percentages were approximately 43% and 41%,
respectively.
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AMORTIZATION EXPENSE
Amortization expense includes the systematic write-off of goodwill.
Amortization expense for the three months ended September 30, 1999 increased by
$706,000 as compared to the same period in 1998. This increase mainly reflects a
one-time charge for the write-off of the goodwill associated with the
acquisition of Lifeboat Italia, SRL, which amounted to approximately $ 650,000
and 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
Net interest income decreased during the three and nine month periods
ended September 30, 1999, compared to the same periods during the prior year as
a result of the utilization of cash to liquidate accounts payable balances.
REALIZED FOREIGN EXCHANGE GAIN (LOSS)
Realized foreign exchange loss for the three month period ended
September 30, 1999 was $11,000. This is a result of changes in the Euro and GBP
rates against the US$. For the nine month period ended September 30, 1999
realized foreign exchange gain amounted to $190,000. This realized gain is
primarily caused by the repayment of the Dutch Guilder loan in the second
quarter of 1999. This repayment resulted in a realized foreign exchange gain of
approximately $185,000.
UNREALIZED FOREIGN EXCHANGE GAIN
Unrealized foreign exchange gain increased during the three and nine
month periods ended September 30, 1999, compared to the same periods during the
prior year as a result of the rise of the US$ against the Euro from January 1,
1999 to September 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
Benefit for income tax was $717,000 for the three months ended
September 30, 1999, compared to a provision of $655,000 for the same period in
1998. As a percentage of income (loss) before taxes the (benefit) provision for
income tax decreased from a 49% provision in 1998 to a 24% benefit in 1999. The
fluctuations in the Company's effective tax rate reflect the negative impact of
the one-time charge for the write-off of the goodwill associated with the
acquisition pf Lifeboat Italia, SRL that amounted to approximately $650,000.
This charge is not deductible for tax purposes. Furthermore, certain
international subsidiaries operating losses had no offsetting tax benefits.
NET INCOME (LOSS)
The basic weighted average basic earnings per share is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding during the period. Diluted earnings per share is
computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding during the period increased
to include the number of additional common shares that would have been
outstanding if dilutive potential common shares had been issued. The dilutive
effect of outstanding options is reflected in diluted earnings per share by
application of the treasury stock method.
Net loss was $2,323,000 or $.45 per share on a diluted and basic basis
with approximately 5,194,000 weighted average common shares outstanding for the
quarter ended September 30, 1999 compared to net income of $680,000 or $.13 per
share on a diluted basis with approximately 5,134,000 weighted average common
shares outstanding for the same period of the previous year. In accordance with
SFAS 128 the computation of diluted earnings per share for the three month
period ended September 30, 1999 did not include any outstanding options since
including these would have an antidilutive effect on earnings per share.
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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 $7.1 million and net working capital of
$18.1 million at September 30, 1999.
Net cash used for operations was $13.3 million for the nine months
ended September 30, 1999 compared with $4.5 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 $27.2
million), offset by a reduction in accounts receivable (approximately $18.3
million). Furthermore cash was used to pay the "earn-out" amount related to the
purchase of Logicsoft Europe BV ( approximately $2.2 million).
Net cash used for financing activities was $0.4 million for the nine
months ended September 30, 1999 compared to $0.9 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.
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 March 31, 2000 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 September 30, 1999, there were no amounts outstanding under the
line.
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 $810,000 at September 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 September 30, 1999).
The line bears interest at 8.25%. At September 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 September 30, 1999 were approximately
Lit 2,800,000,000 (the equivalent of approximately $1.5 million at September 30,
1999). The unsecured borrowings bear interest at market rates ranging from 6.25%
to 9.00%. At September 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
September 30, 1999), and is secured by its accounts receivable and inventory.
The line bears interest at 5.875%. At September 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
$480,000 at September 30, 1999), and is secured by its accounts receivable and
inventory and a FRF 3.0 million letter of credit. At September 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.
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<PAGE>
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.
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, 62% of the
Company's sales for the three month period ended September 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 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 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.
November 15, 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 September 30, 1999 and 1998 and
Consolidated Statement of Income and Comprehensive Income for the nine months
ended September 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000945983
<NAME> PROGRAMMER'S PARADISE, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 DEC-31-1999
<EXCHANGE-RATE> 1,000 1,000
<CASH> 7,134 13,884
<SECURITIES> 0 0
<RECEIVABLES> 36,102 35,594
<ALLOWANCES> 1,472 863
<INVENTORY> 6,126 5,948
<CURRENT-ASSETS> 54,163 59,202
<PP&E> 5,365 5,333
<DEPRECIATION> 3,169 2,852
<TOTAL-ASSETS> 72,935 77,331
<CURRENT-LIABILITIES> 36,078 41,394
<BONDS> 0 0
0 0
0 0
<COMMON> 53 49
<OTHER-SE> 36,804 33,758
<TOTAL-LIABILITY-AND-EQUITY> 72,935 77,331
<SALES> 68,334 158,434
<TOTAL-REVENUES> 68,334 158,434
<CGS> 49,846 138,707
<TOTAL-COSTS> 15,265 155,408
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 250 13
<INTEREST-EXPENSE> 61 216
<INCOME-PRETAX> 359 3,315
<INCOME-TAX> 731 1,538
<INCOME-CONTINUING> (372) 1,777
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (372) 1,777
<EPS-BASIC> (0.07) 0.37
<EPS-DILUTED> (0.07) 0.33
</TABLE>
