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, 2000
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to __________
Commission File No. 000-26408
---------
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 5,210,125 outstanding shares of Common Stock, par value $.01
per share, as of November 7, 2000.
Exhibit Index is on page 14.
Page 1
<PAGE>
PROGRAMMER'S PARADISE, INC.
Index to Form 10-Q
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 3
Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss) for the nine and three months ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 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) Exhibits 15
(b) Reports on Form 8-K
</TABLE>
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 30, December 31,
2000 1999
------------ ------------
(Unaudited) (Audited)
Current Assets
Cash and cash equivalents $ 1,281 $ 17,597
Accounts receivable, net 35,405 46,316
Inventory - finished goods 6,746 5,620
Prepaid expenses and other current assets 3,196 4,468
Deferred income taxes 1,752 1,713
---------- ----------
Total current assets 48,380 75,714
Equipment and leasehold improvements, net 1,717 2,135
Goodwill, net 13,801 14,543
Other assets 1,213 1,505
Deferred income taxes 1,808 1,860
---------- ----------
$ 66,919 $ 95,757
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to banks $ 803 $ 2,628
Accounts payable and accrued expenses 31,950 50,383
Other current liabilities 2,478 7,897
---------- ----------
Total current liabilities 35,231 60,908
Stockholders' equity
Common stock 52 53
Additional paid-in capital 35,476 35,872
Retained earnings 262 2,457
Treasury stock (1,325) (1,356)
Accumulated other comprehensive loss (2,777) (2,177)
----------- ----------
Total stockholders' equity 31,688 34,849
----------- ----------
$ 66,919 $ 95,757
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
<PAGE>
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,
--------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $147,650 $168,334 $ 42,304 $50,195
Cost of sales 132,589 149,846 37,636 45,928
--------- --------- --------- --------
Gross profit 15,061 18,488 4,668 4,267
Selling, general and administrative expenses 16,958 17,178 4,989 6,427
Amortization expense 1,059 1,547 326 952
--------- --------- --------- --------
Loss from operations (2,956) (237) (647) (3,112)
Interest, net (10) 61 1 23
Realized foreign exchange gain (loss) 33 190 13 (11)
Unrealized foreign exchange gain (loss) (155) 345 82 60
--------- --------- --------- --------
Income (loss) before income taxes (3,088) 359 (551) (3,040)
Provision (benefit) for taxes (893) 731 (99) (717)
--------- --------- --------- --------
Net loss $ (2,195) $ (372) $ (452) $(2,323)
========= ========= ========= ========
Net loss per common share-Basic $ (.44) $ (.07) $ (.09) $ (.45)
--------- --------- --------- --------
Net loss per common share-Diluted $ (.44) $ (.07) $ (.09) $ (.45)
--------- --------- --------- --------
Weighted average common shares outstanding-Basic 4,983 5,120 4,985 5,194
--------- --------- --------- --------
Weighted average common shares outstanding-Diluted 4,983 5,120 4,985 5,194
--------- --------- --------- --------
Reconciliation of Net Loss to Comprehensive Income (Loss):
---------------------------------------------------------
Net loss $ (2,195) $ (372) $ (452) $(2,323)
--------- --------- --------- --------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (600) (623) (498) 114
--------- --------- --------- --------
Comprehensive Income (loss)
$ (2,795) $ (995) $ (950) $(2,209)
========= ========= ========= ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
Page 4
<PAGE>
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine months ended
September 30,
-----------------
2000 1999
---- ----
Cash provided by (used for)
Operations:
Net loss $ (2,195) $ (372)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 724 812
Amortization 1,150 1,562
Provision for doubtful accounts 425 39
Change in operating assets and liabilities:
Accounts receivable 10,486 18,332
Inventory (1,126) (791)
Prepaid and other current assets 1,271 (77)
Deferred income taxes 14 (509)
Accounts payable & accrued expenses (18,433) (27,154)
Cumulative foreign currency (600) (1,046)
Other accrued liabilities (5,357) (4,104)
---------- ---------
Net cash used for operations (13,641) (13,308)
---------- ---------
Investing:
Capital expenditures (484) (324)
---------- ---------
Net cash used for investing activities (484) (324)
---------- ---------
Financing:
Net proceeds from issuance of common stock (396) 1,818
Sale of treasury stock 30 216
Repayments under lines of credit (1,825) (2,435)
---------- ---------
Net cash used for financing activities (2,191) (401)
---------- ---------
Net decrease in cash and cash equivalents $ (16,316) $(14,033)
Cash and cash equivalents, beginning of period 17,597 21,167
---------- ---------
Cash and cash equivalents, end of period $ 1,281 $ 7,134
========== =========
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, 2000
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. Operating results for
the nine months ended September 30, 2000, are not necessarily indicative of
the results that may be expected for the year ended December 31, 2000. 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, 1999.
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 within accumulated other comprehensive
income (loss), which is classified as a separate component of stockholders'
equity in accordance with FASB Statement No. 130, "Reporting Comprehensive
Income".
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, 2001.
Management believes that adoption of this Statement will not have a
significant impact on the Company.
4. Sale of European Subsidiaries
On August 2, 2000, the Company and PC-Ware Information Techno-
logies AG ("PC-Ware") of Leipzig, Germany executed a letter of intent,
which contemplates the purchase by PC-Ware of 100% of the stock of the
Company's European subsidiaries for 14.5 million Euros in cash. Upon
signing the purchase agreement, PC-Ware will pay 5% of the purchase price
and the balance will be paid at the time of closing, Subject to an escrow
of a 3.625 million Euro letter of credit to cover possible breach of
warranty claims asserted within 240 days of the closing.
The purchase will require the approval of the stockholders of the
Company and is subject to the execution of a definitive purchase agreement
containing customary representations and conditions. Subject to the
foregoing, the purchase is expected to close in December 2000.
PC-Ware is a specialist service provider and developer for information
technology with a focus on software and associated services. PC-Ware's full
service concept includes not only procurement and license management for
software, but also customized consulting and support services. PC-Ware is
one of the three largest Microsoft Select partners in Germany.
Page 6
<PAGE>
5. Notes Payable
On August 10, 2000, the Company and PNC Bank, National Association
(the "Lender") entered into a forbearance agreement ("Forbearance
Agreement") whereby (i) the Lender has agreed to forbear from exercising
its rights and remedies arising as a result of defaults then outstanding
until December 31, 2000 (unless certain other events of default occur prior
to such date), (ii) the amount the Company can borrow has been reduced from
$7.5 million to the lesser of (x) $2 million and (y) 60% of certain of the
Company's accounts receivable, (iii) the expiration date has been extended
to December 31, 2000 and (iv) the Company paid a fee of $40,000 to the
Lender and a field audit cost of approximately $9,000.
Under the Forbearance Agreement the amount borrowed bears interest at
PNC's Prime Rate (9.5% at September 30, 2000) plus 1%. As of September 30,
2000, the Company had outstanding borrowings of approximately $803,000
under the Agreement.
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.programmersparadise.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.
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,
------------------ -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 89.8 89.0 89.0 91.5
------- ------- ------ -------
Gross Profit 10.2 11.0 11.0 8.5
Selling, general and administrative expenses 11.5 10.2 11.8 12.8
Amortization expense 0.7 0.9 0.8 1.9
-------- -------- ------- --------
Loss from operations (2.0) (0.1) (1.6) (6.2)
Interest income, net 0.0 0.0 0.0 0.0
Realized foreign exchange gain 0.0 0.1 0.0 0.0
Unrealized foreign exchange gain (loss) (0.1) 0.2 0.2 0.1
--------- -------- ------- --------
Income (loss) before income taxes (2.1) 0.2 (1.4) (6.1)
Provision (benefit) for income taxes (0.6) 0.4 (0.2) (1.3)
--------- -------- -------- ---------
Net loss (1.5)% (0.2)% (1.2)% (4.8)%
---------- -------- -------- ---------
</TABLE>
Page 7
<PAGE>
Net Sales
Net sales of the Company represent the gross consolidated revenue of
the Company less returns. Although net sales consist primarily of sales of
software, revenue from marketing services and advertising are also included
within net sales. Net sales for the quarter ended September 30, 2000 decreased
by $7.9 million or 16%, to $42.3 million, over the same period in 1999. The
decrease resulted from an increase of net sales in North America of 19% and a
decrease of net sales in Europe of 37%. In Europe, the decrease was primarily
attributed to a deferral of opportunities resulting from the Y2K issues at
year-end 1999. Net sales for the nine months ended September 30, 2000 was $147.7
million, a decrease of $20.7 million or 12% over the same period in 1999. This
decrease resulted from an increase of net sales in North America of 9% and a
decrease in Europe of 25%. The growth in North America resulted from an
increased growth of our corporate relation team, expansion of key account
management initiatives and customer marketing programs in partnership with key
software publishers. In Europe, the decline in net sales primarily are the
slower than expected recovery from the year-end 1999 Y2K issues and slower
transition to Microsoft Windows 2000.
Direct sales revenues decreased by $9.8 million or 33% for the three
months ended September 30, 2000 compared to the same period in 1999. Direct
sales in Europe decreased by $10.5 million or 39%, which was offset by a $0.7
million or 25% increase in North American direct sales as compared to the same
period in 1999. Direct sales for the nine months ended September 30, 2000
decreased by $25.2 million or 24% compared to the same period in 1999. For the
nine months ended September 30, 2000, European direct sales decreased by $26.5
million or 28%, while North American direct sales increased by $1.4 million or
14% compared to the same period in 1999. Revenue growth in the United States
represents a continued increase in market share while the decrease in Europe is
mainly attributable to a change in the buying patterns of our larger European
customers.
Consolidated Catalog and Internet revenues for the three months ended
September 30, 2000 were $17.6 million as compared to $17.2 million for the same
period in 1999. North America net sales were $15.0 million or a 7% increase over
the same period in 1999, while European net sales were $2.6 million or a 21%
decrease over the same period in 1999. The increase in the North America net
sales was primarily the result of increased customer service activities aimed at
increasing sales from existing customers and developing new customers. Catalog
and Internet sales for the nine months ended September 30, 2000 was $51.3
million as compared to $51.1 million in the same period in 1999.
Revenues for the Distribution channel increased 44% or $1.7 million for
the three months ended September 30, 2000 as compared to the same period in
1999. For the nine months ended September 30, 2000, revenues increased $3.6
million or 28%. The Company's distribution channel in the North America market,
Lifeboat Associates, consistently delivered competitive pricing and excellent
customer service to customers for hard to find software products. Sales
continued to grow during the three months ended September 30, 2000 as a result
of new publisher's software products being added into the portfolio and the
implementation of publisher relation management initiatives to retain and
attract new publishers.
Geographically, approximately 46% and 62% of the revenues were derived
from the European operations for the three months ended September 30, 2000 and
1999, respectively. For the nine months ended September 30, 2000 and 1999 these
percentages amount to approximately 55% and 64%, respectively.
Net Sales
--------------------------------------------------------------------------------
(in millions - unaudited)
Quarter North America Europe Consolidated
--------------------------------------------------------------------
Ended 2000 1999 2000 1999 2000 1999
--------------------------------------------------------------------------------
March 31 $ 21.5 $ 19.8 $ 31.2 $ 37.6 $ 52.7 $ 57.4
June 30 21.7 21.6 31.0 39.2 52.7 60.7
September 30 22.9 19.2 19.4 31.0 42.3 50.2
--------------------------------------------------------------------------------
Total $ 66.1 $ 60.6 $ 81.6 $ 107.8 $ 147.7 $ 168.3
--------------------------------------------------------------------------------
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 period
ended September 30, 2000, gross profit as a percentage of sales increased to
11.0% from 8.5% over the same period in 1999, mainly as a result of increased
margin growth within the Catalog / Internet and Distribution channels. The
reseller channel gross margin increased slightly during the same period. For the
nine months ended September 30, 2000, gross profit as a percentage of sales was
10.2% as compared to 11.0% for the same period in 1999. North America gross
profit as a percentage of net sales was 12.7% for the nine months ended
September 30, 2000 as compared to 13.7% for the same period in 1999. European
gross profit percentage declined to 8.2% for the nine months ended September 30,
2000 as compared to 9.5% for the same period 1999. This decline is attributable
to tighter price competition within the German marketplace.
Gross Profit
--------------------------------------------------------------------------------
(in millions - unaudited)
Quarter North America Europe Consolidated
--------------------------------------------------------------------
Ended 2000 1999 2000 1999 2000 1999
--------------------------------------------------------------------------------
March 31 $ 2.5 $ 2.9 $ 2.8 $ 3.9 $ 5.3 $ 6.8
June 30 2.9 3.3 2.2 4.1 5.1 7.4
September 30 3.0 2.1 1.7 2.2 4.7 4.3
--------------------------------------------------------------------------------
Total $ 8.4 $ 8.3 $ 6.7 $ 10.2 $ 15.1 $ 18.5
--------------------------------------------------------------------------------
Gross Profit %
--------------------------------------------------------------------------------
March 31 $ 11.6% $ 14.6% $ 9.0% $ 10.4% $ 10.1% $ 11.8%
June 30 13.3 15.3 7.1 10.5 9.7 12.2
September 30 13.1 10.9 8.8 7.1 11.0 8.5
--------------------------------------------------------------------------------
Total $ 12.7% $ 13.7% $ 8.2% $ 9.5% $ 10.2% $ 11.0%
--------------------------------------------------------------------------------
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 provided the Company
another competitive means to reach its customer base and compete more
effectively in the market place.
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 amortization of leasehold improvements.
SG&A expenses decreased by $1.4 million or 22% for the three months
ended September 30, 2000 compared to the same period in 1999. SG&A expenses for
North America were $2.5 million for the three months ended September 30, 2000 as
compared to $2.7 million for the same period in 1999. In Europe, SG&A expenses
for the three months ended September 30, 2000 were $2.4 million as compared to
$3.7 million in the same period in 1999. For the nine-month period ended
September 30, 2000, SG&A expenses decreased by $220,000 or 1% compared to the
same period in 1999. The decrease in SG&A was primarily the result of improved
cost controls and a reduction of staff total compensation expense.
Geographically, the European operations of the Company accounted for
approximately 49% and 58% of total SG&A expenditure for the three months ended
September 30, 2000 and 1999, respectively. For the nine months ended September
30, 2000 and 1999, these percentages were approximately 50% and 57%,
respectively.
Page 9
<PAGE>
Amortization Expense
Amortization expense includes the systematic write-off of goodwill.
Amortization expense for the three months ended September 30, 2000 decreased
$626,000 as compared to the same period in 1999. This decrease mainly reflected
a one-time charge in 1999 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.
Amortization expense for the nine months ended September 30, 2000 decreased
$488,000 as compared to the same period in 1999.
Interest, net
Net interest income for the three months ended September 30, 2000
decreased to $1,000 as compared to $23,000 for the same period in 1999. This
decrease was primarily a result of higher bank loans outstanding and limited
excess cash for investment purposes. For the nine months ended September 30,
2000, net interest expense was $10,000 compared to net interest income of
$61,000 for the comparable period in 1999. The decrease of $71,000 is primarily
the result of less cash in European subsidiaries for investment.
Realized foreign exchange gain (loss)
Realized foreign exchange gain for the three months ended September 30,
2000 was $13,000, as compared to a loss of $11,000 for the comparable period in
1999. For the nine months ended September 30, 2000 realized foreign exchange
gain amounted to $33,000, as compared to $190,000 for the same period in 1999.
The realized foreign exchange gain is a result of the weakening of the Euro
against the Dollar offset slightly by the stronger GBP.
Unrealized foreign exchange gain (loss)
Unrealized foreign exchange gain for the three months ended September
30, 2000 was $82,000 as compared to $60,000 for the same period in 1999. For the
nine month period ended September 30, 2000, the unrealized foreign exchange loss
was $155,000 as compared to a gain of $345,000 for the same period in 1999. The
unrealized foreign exchange gain during the three months ended September 30,
2000 is a result of the weakening of the Euro against the Dollar offset slightly
by the stronger Great Britain Pound. 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.
Income Taxes
The income tax benefit was $99,000 for the three months ended September
30, 2000, compared to a $717,000 benefit for the same period in 1999. As a
percentage of loss before taxes the benefit for income tax decreased from a 24%
benefit in 1999 to a 18% benefit in 2000. 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 recorded in September 1999. This
charge is not deductible for tax purposes. Furthermore certain international
subsidiaries were unprofitable. These current period losses had no offsetting
tax benefits. For the nine months ended September 30, 2000, the benefit was
$893,000 as compared to a $731,000 provision in the same period in 1999. The
benefit recorded for the nine months ended September 30, 2000 is based on an
overall effective tax rate of 37% in North America and 27% in Europe.
Net Loss
Net loss was $452,000 or $.09 per share on a diluted basis with
approximately 4,985,000 weighted average common shares outstanding for the
quarter ended September 30, 2000 compared to a net loss of $2,323,000 or $.45
per share on a diluted basis with approximately 5,194,000 weighted average
common shares outstanding for the same period of the previous year. For the nine
months ended September 30, 2000, net loss was $2,195,000 or $.44 per share on a
diluted basis with approximately 4,983,000 weighted average common shares
outstanding as compared to a net loss of $372,000 or $.07 per share on a diluted
basis with approximately 5,120,000 weighted average shares outstanding for the
same period in 1999.
Page 10
<PAGE>
Liquidity and Capital Resources
The Company's primary capital needs have been to fund the working
capital requirements created by its sales growth and to make acquisitions. The
Company had cash and cash equivalents of $1.3 million and net working capital of
$13.1 million at September 30, 2000.
Net cash used for operations was $13.6 million for the nine months
ended September 30, 2000 compared with $13.3 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 $23.7
million), offset by a reduction in accounts receivable (approximately $10.5
million).
Net cash used for investing activities was $484,000 million for the
nine months ended September 30, 2000 compared to $324,000 million in the same
period of the previous year. Cash was primarily used to purchase fixed assets
and capitalized software.
Net cash used for financing activities was $2.2 million for the nine
months ended September 30, 2000 compared to $401,000 in the same period of the
previous year. Cash was primarily used to repay the Company's line of credit.
The Company and PNC Bank, National Association (the "Lender") entered
into a letter agreement, dated February 24, 1998 (the "Letter Agreement"),
providing for a line of credit of up to $7.5 million. The Company and the Lender
executed amendment no. 1 to the Letter Agreement, dated June 30, 1999, which
extended the expiration date to March 31, 2000. The Company and the Lender
executed a second amendment, dated March 31, 2000, which extended the expiration
date to June 30, 2000.
On August 10, 2000, the Company and the Lender entered into a
forbearance agreement ("Forbearance Agreement") whereby (i) the Lender has
agreed to forbear from exercising its rights and remedies arising as a result of
defaults then outstanding until December 31, 2000 (unless certain other events
of default occur prior to such date), (ii) the amount the Company can borrow has
been reduced from $7.5 million to the lesser of (x) $2 million and (y) 60% of
certain of the Company's accounts receivable, (iii) the expiration date has been
extended to December 31, 2000 and (iv) the Company paid a fee of $40,000 to the
Lender and a field audit cost of about $9,000.
Under the Forbearance Agreement the amount borrowed bears interest at
PNC's Prime Rate (9.5% at September 30, 2000) plus 1%. As of September 30, 2000,
the Company had outstanding borrowings of approximately $803,000 under the
Letter Agreement.
The Company has initiated discussions with banks and financing
companies to determine a level of interest for providing borrowing facilities.
The pending sale of the European subsidiaries will provide cash resources in the
amount of 14,500,000 Euros less transaction costs and repayment of any
outstanding loan balance to the Lender. The Company is unable to predict the
effect upon it if such sale does not occur and the Company is unable to obtain
alternative borrowing facilities to those it has with the Lender which terminate
on December 31, 2000.
Forward-Looking Statements
This report includes "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Statements in
this report regarding future events or conditions, including statements
regarding industry prospects and the Company's expected financial position,
business and financing plans, are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations are disclosed in this report
as well as the Company's most recent annual report on Form 10-K, and include
risks and uncertainties related to the continued acceptance of the Company's
distribution channel by vendors and customers, the timely availability and
acceptance of new products, and contribution of key vendor relationships and
support programs, as well as factors that affect software industry generally.
Page 11
<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 and readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign operations
In addition to its activities in the United States, 46% of the
Company's sales for the three-month period ended September 30, 2000 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 U.S.
Dollars. 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 U.S. Dollars,
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.
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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
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On August 7, 2000, the Company filed a Current Report on Form 8-K
relating to a Letter of Intent, dated August 2, 2000, between
PC-Ware Information Technologies AG of Leipzig, Germany and the
Company for PC-Ware Information Technologies to acquire the
Company's European subsidiaries.
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, 2000 By: /s/ William H. Sheehy
---------------------- ----------------------------------------
Date William H. Sheehy, Chief Financial Officer,
Vice President of Finance and duly authorized
Officer
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EXHIBIT INDEX
Exhibit
Number Description of Exhibits
------- -----------------------
27 Financial Data Schedule
Page 14
