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 March 31, 2001
[ ] 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
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Programmer's Paradise, Inc.
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(Name of issuer in its charter)
Delaware 13-3136104
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
1157 Shrewsbury Avenue, Shrewsbury, New Jersey 07702
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(Address of principal executive offices)
Issuer's Telephone Number (732) 389-8950
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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 5,213,625 outstanding shares of Common Stock, par value $.01 per
share, as of April 25, 2001.
Page 1
PROGRAMMER'S PARADISE, INC.
Index to Form 10-Q
Page No.
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PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000 3
Condensed Consolidated Statements of Operations and
Comprehensive Loss for the Three Months Ended March 31, 2001
and 2000 4
Pro forma Statements of Operations for the Three Months Ended
March 31, 2001 and 2000 5
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2001 and 2000 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
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 13
Page 2
PART I - FINANCIAL INFORMATION
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
March 31, December 31,
2001 2000
---- ----
(Unaudited) (Audited)
Current Assets $ 10,333 $ 2,091
Cash and cash equivalents 2,878 -
Cash held in escrow 13,842 13,048
Accounts receivable, net 2,174 2,631
Inventory - finished goods 973 2,342
Prepaid expenses and other current assets 138 -
Deferred income taxes - 12,163
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Net assets held for sale 30,338 32,275
Total current assets
850 934
Equipment and leasehold improvements, net 494 391
Other assets 249 255
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Goodwill, net $ 31,931 $ 33,855
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities Notes payable to banks $ 1,065 $ -
Accounts payable and accrued expenses 12,355 14,939
Other current liabilities 11 10
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Total current liabilities 13,431 14,949
Stockholders' equity
Common stock 53 53
Additional paid-in capital 35,478 35,476
Treasury stock (1,325) (1,325)
Retained earnings (15,173) (15,017)
Accumulated other comprehensive loss (533) (281)
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Total stockholders' equity 18,500 18,906
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$ 31,931 $ 33,855
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The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except per share data)
Three months ended
March 31,
2001 2000
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Net sales $ 24,164 $ 52,686
Cost of sales 21,627 47,351
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Gross profit 2,537 5,335
Selling, general and administrative expenses 2,847 6,038
Amortization expense 51 330
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Loss from operations (361) (1,033)
Interest income, net 98 -
Unrealized foreign exchange gain/(loss) 16 (73)
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Loss before benefit for income taxes (247) (1,106)
Benefit for income taxes (91) (407)
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Net loss $ (156) $ (699)
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Net loss per common share-Basic $ (0.03) $ (0.14)
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Net loss per common share-Diluted $ (0.03) $ (0.14)
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Weighted average common shares outstanding-Basic 4,986 5,058
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Weighted average common shares outstanding-Diluted 4,986 5,058
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Reconciliation of Net Loss to Comprehensive Loss:
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Net loss $ (156) $ (699)
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Other comprehensive loss, net of tax:
Foreign currency translation adjustments (252) (102)
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Comprehensive loss $ (408) $ (801)
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 4
PROGRAMMER'S PARADISE, INC.
PRO FORMA STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended
March 31,
(Unaudited)
2001 2000 (1)
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Net sales $ 24,164 $ 21,725
Cost of sales (21,627) (19,162)
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Gross profit 2,537 2,563
SG&A expenses 2,847 2,962
Amortization 51 325
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Loss from operations (361) (724)
Interest income (expense), net 98 (22)
Unrealized foreign exchange gain 16 29
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Loss before taxes (247) (717)
Benefit for taxes (91) (265)
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Net loss $ (156) $ (452)
============= =============
Basic net loss per common share $ (0.03) $ (0.09)
============= =============
Diluted net loss per common share $ (0.03) $ (0.09)
============= =============
Weighted average number of common shares
outstanding-basic 4,986 5,058
Weighted average number of common shares
outstanding-diluted 4,986 5,058
1. Pro forma statement of operations for the results from North America and
Programmer's Paradise, S.A.R.L. for Quarter 1 2000.
Page 5
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31,
2001 2000
---- ----
Cash flows from operating activities
Net loss $ (156) $ (699)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Deferred income taxes (138) (227)
Depreciation expense 142 271
Amortization expense 51 330
Provision for doubtful accounts 332 14
Changes in operating assets and liabilities:
Accounts receivable (1,126) 8,474
Inventory 457 66
Prepaid expenses and other current assets 1,368 1,037
Accounts payable and accrued expenses (2,584) (16,982)
Net change in other assets and liabilities (147) (1,739)
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Net cash used for operations (1,801) (9,455)
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Cash flows from investing activities:
Change in net assets held for sale 12,163 -
Increase in cash held in escrow (2,878) -
Capital expenditures (58) (297)
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Net cash provided by (used for) investing 9,227 (297)
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Cash flows from financing activities:
Net proceeds from issuance of common stock 2 27
Purchase of treasury stock - -
Borrowings (repayments) under lines of credit 1,065 (950)
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Net cash provided by (used for) financing activities 1,067 (923)
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Effect of foreign exchange rate on cash (251) (78)
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Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period 8,242 (10,753)
Cash and cash equivalents at end of period 2,091 17,597
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$ 10,333 $ 6,844
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 6
PROGRAMMER'S PARADISE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2001
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 three months ended March 31,
2001, are not necessarily indicative of the results that may be
expected for the year ended December 31, 2001. 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, 2000.
2. Assets and liabilities of the Company's Canadian Subsidiary and its
former European Subsidiaries, 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. Cumulative
translation adjustments have been classified within other comprehensive
income (loss), which is 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. Adoption of this Statement did not have a significant impact on
the Company.
4. The following table sets forth the computation of basic and diluted net
income (loss) per share:
Three months ended
March 31,
---------
2001 2000
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Numerator:
Net loss for basic and diluted net loss per share $ (156) $ (699)
Denominator:
Denominator for basic net loss per share-weighted 4,986 5,058
average common shares
Denominator for diluted net loss per share 4,986 5,058
- adjusted weighted average common shares and assumed conversion
Basic net loss per common share $ (0.03) $ (0.14)
Diluted net loss per common share $ (0.03) $ (0.14)
Page 7
Notes to Condensed Consolidated Financial Statements (continued)
5. Pursuant to an Agreement, dated December 1, 2000 ("Stock Sale
Agreement"), between the Company and PC-Ware Information Technologies
AG, a German corporation ("PC-Ware"), on January 9, 2001 the Company
sold all of the shares of its European subsidiaries (except for
Programmer's Paradise France S.A.R.L.) for 14,500,000 Euros, of which
3,275,000 Euros are being held in a 240-day escrow as security for any
claim of PC-Ware arising from alleged breaches of representations by
the Company under the Stock Sale Agreement. Such claims are subject to
a 300,000 Euro de minimus amount and a 7,500,000 Euro maximum amount.
6. On February 9, 2001, the Company entered into a Loan and Security
Agreement (the "Loan Agreement") with Hudson United Bank ("Hudson").
The Loan Agreement provides for a revolving credit facility of up to
$5,000,000 with an initial term expiring April 1, 2003. The amount of
available credit is determined by the level of certain eligible
accounts receivable. The facility bears interest at Hudson's prime rate
(8.5% at March 31, 2001) plus 1%. Additionally, the Loan Agreement
contains various covenants including a financial covenant that
generally requires the Company to maintain a current ratio (as defined
in the Loan Agreement) of 1.5 to 1. The Loan Agreement is subject to
customary event of default and acceleration provisions and is
collateralized by substantially all of the Company's assets.
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 the United States and Canada - Internet,
catalog, direct sales, telemarketing, and wholesale distribution. Internet sales
encompass the Company's two e-Commerce enabled websites:
www.programmersparadise.com and www.supershops.com. Catalog operations include
worldwide catalog sales, advertising and publishing. Direct sales operations
include Programmer's Paradise Corporate Sales in the United States.
Telemarketing operations are presently conducted in the United States and
Canada. Wholesale operations include distribution to dealers and large resellers
through Lifeboat Distribution Inc. in the United States. 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 assist companies in managing their IT expenditures, a
value-added selling approach.
Page 8
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.
Three months ended
March 31,
2001 2000
---- ----
Net sales 100.0% 100.0%
Cost of sales 89.5 89.5
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Gross profit 10.5 10.1
Selling, general and administrative expenses 11.8 11.5
Amortization expense 0.2 0.6
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Income (loss) from operations (1.5) (2.0)
Interest income (expense), net 0.4 0.0
Unrealized foreign exchange gain (loss) 0.1 (0.1)
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Income (loss) before income taxes (1.0) (2.1)
Income taxes 0.4 0.8
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Net income (loss) (0.6)% (1.3)%
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The commentary of the results from the Statements of Operations is
based upon the Pro Forma Statement of Operations as of March 31, 2001.
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. Excluding the results of the Company's former European
operations, net sales increased 11.2% to $24.2 million for the quarter ended
March 31, 2001 as compared to $21.7 million for the same period in 2000. The
increase in sales is mainly attributable to improved account management,
customer service responsiveness, and providing customers with competitive
pricing.
Gross Profit
Gross profit represents the difference between net sales and cost 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
March 31, 2001, gross profit as a percentage of sales decreased from 11.8% to
10.5% over the same period in 2000, excluding the Company's former European
operations, reflecting a shift in the mix of sales through the Company's
distribution channels as a result of the competition within the direct and
wholesale distribution sales channels. Gross profit in absolute dollars for the
three-month period ended March 31, 2001 remained consistent with the same period
in the prior year.
Gross margins have been negatively affected by the mix of products sold
and the mix of distribution channels. 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.
Page 9
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.
Excluding the Company's former European operations, SG&A expenses
decreased by 4% for the three months ended March 31, 2001 compared to the same
period in 2000. SG&A expenses in absolute dollars for the three-month period
ended March 31, 2001 decreased by $115,000 when compared to the same period in
2000. This decrease mainly reflects the results from cost containment
initiatives and improved cost control policies and procedures.
Amortization Expense
Amortization expense includes the systematic write-off of goodwill.
Excluding the Company's former European operations, amortization expense for the
three months ended March 31, 2001 decreased by $274,000 as compared to the same
period in 2000. This decrease is a result of the one time charge taken in
December 2000 for the impairment of goodwill associated from the acquisition of
Software Developers Corporation.
Unrealized Foreign Exchange Gain (Loss)
Excluding the Company's former European operations, the unrealized
foreign exchange gain for the three months ended March 31, 2001 was $16,000
compared to $29,000 in the same period in 2000. The unrealized gain in the first
three months of 2001 is primarily due to the trade activity with our Canadian
subsidiary. 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
Excluding the Company's former European operations, a net benefit for
income taxes of $91,000 was recorded for the three months ended March 31, 2001,
compared to $265,000 for the same period in 2000.
Net Loss
Excluding the Company's former European operations, net loss was
$156,000 or $.03 per share on a diluted basis with approximately 4,986,000
weighted average common shares outstanding for the quarter ended March 31, 2001
compared to a loss of $452,000 or $.09 per share on a diluted basis with
approximately 5,058,000 weighted average common shares outstanding for the same
period of the previous year.
Liquidity and Capital Resources
The Company's capital requirements have primarily been funded through
working capital generated from continued sales growth. At March 31, 2001, the
Company's cash and cash equivalents were $10.3 million and working capital of
$16.9 million.
Net cash used for operations was $1.8 million for the three months
ended March 31, 2001 compared with $9.5 million of cash used for operating
activities in the same period in 2000. Cash was primarily used during the three
months ended March 31, 2001, for a reduction in accounts payable and
Page 10
Liquidity and Capital Resources (continued)
accrued expenses (approximately $2.6 million), an increase in accounts
receivable (approximately $1.1 million), offset by a decrease in prepaid
expenses and other current assets (approximately $1.4 million).
Net cash provided by investing activities was $9.2 million for the
three months ended March 31, 2001 compared with $297,000 of cash used for
financing activities in the same period in 2000. This increase primarily
reflects the $12.2 million cash received for the sale of the European
subsidiaries completed on January 9, 2001, as well as the $2.9 million cash
being held in a 240-day escrow as security for any claim of PC-Ware in the event
there are any alleged breaches of representations by the Company under the Stock
Sale Agreement.
Net cash provided by financing activities was $1.1 million for the
three months ended March 31, 2001 compared with net cash used of $923,000 in the
same period in 2000. Net cash of $1.1 million was provided during the three
months ended March 31, 2001, by borrowings under the revolving credit facility.
On February 9, 2001, the Company entered into a Loan and Security
Agreement (the "Loan Agreement") with Hudson United Bank ("Hudson"). The Loan
Agreement provides for a revolving credit facility of up to $5.0 million with an
initial term expiring April 1, 2003. The amount of available credit is
determined by the level of certain eligible accounts receivable. The facility
bears interest at Hudson's prime rate (8.5% at March 31, 2001) plus 1%.
Additionally, the Loan Agreement contains various covenants including a
financial covenant that generally requires the Company to maintain a current
ratio (as defined in the Loan Agreement) of 1.5 to 1. The Loan Agreement is
subject to customary event of default and acceleration provisions and is
collateralized by substantially all of the Company's assets. At March 31, 2001,
there was approximately $1.1 million outstanding under the revolving credit
facility.
Forward-Looking Statements
This report includes "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. 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. 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. 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 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.
Page 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Exchange
The Company's shipments to its Canadian Subsidiary are invoiced in U.S.
dollars. The Company believes its foreign exchange exposure caused by these
shipments is insignificant. The Company is, however, exposed to exchange
conversion differences in translating results of operations for its Canadian
Subsidiary to U.S. dollars. Depending upon the strengthening or weakening of the
U.S. dollar, these conversion differences could be significant.
Sales to the customers in European countries are denominated in U.S.
dollars. 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 not maintain bank accounts in local currencies to reduce currency
exchange fluctuations, the Company is, nevertheless, subject to risks associated
with such fluctuations.
Page 12
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 submitted the Stock Sale Agreement between the Company and
PC-Ware Information Technologies AG for a vote of its stockholders at a special
meeting on December 21, 2000 (adjourned to January 3, 2001). The following
indicates the results of the voting on the Stock Sale Agreement:
3,100,694 shares (59.5%) voted for approval
4,500 shares (0.1%) voted against approval
2,950 shares (0.0%) abstained
2,101,981 shares (40.4%) were broker non-votes
-----------------------------------------------------
5,210,125 shares were outstanding and entitled to vote
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
A Current Report on Form 8-K was filed by the Company on
February 9, 2001 relating to the Loan and Security Agreement
dated February 7, 2001 between the Company and Hudson United
Bank.
Page 13
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.
May 15, 2001 By: /s/ William H. Sheehy
- ------------------------------- ------------------------
Date William H. Sheehy, Chief
Financial Officer,
Vice President of Finance
Page 14