UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
[ ] TRANSITION REPORT PURSUANT TO 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
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 Exchange Act of 1934 during the preceding
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 5,230,250 outstanding shares of Common Stock, par value $.01 per
share, as of November 5, 2001.
PROGRAMMER'S PARADISE, INC.
Index to Form 10-Q
Page No.
--------
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
2001 and December 31, 2000 3
Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) for the Nine and Three Months
ended September 30, 2001 and 2000 4
Pro Forma Condensed Consolidated Statements of Operations
for the Nine and Three Months ended September 30, 2001 and 2000 5
Condensed Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 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 12
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
2
PART I - FINANCIAL INFORMATION
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 30, December 31,
2001 2000
---- ----
(Unaudited) (Audited)
Current Assets
Cash and cash equivalents $ 11,002 $ 2,091
Cash held in escrow 3,048 -
Accounts receivable, net 14,127 13,048
Inventory - finished goods 1,091 2,631
Prepaid expenses and other current assets 826 2,342
Net assets held for sale - 12,163
-------- -----------
Total current assets 30,094 32,275
Equipment and leasehold improvements, net 751 934
Other assets 351 391
Goodwill, net 236 255
-------- -----------
$ 31,432 $ 33,855
======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 13,988 $ 14,939
Other current liabilities 11 10
-------- -----------
Total current liabilities 13,999 14,949
Stockholders' equity
Common stock 53 53
Additional paid-in capital 35,482 35,476
Treasury stock (1,451) (1,325)
Retained earnings (16,163) (15,017)
Accumulated other comprehensive loss (488) (281)
--------- ------------
Total stockholders' equity 17,433 18,906
$ 31,432 $ 33,855
======== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except per share data)
Nine months ended Three months ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
Net sales $ 72,468 $147,650 $ 24,177 $ 42,304
Cost of sales 65,161 132,589 21,859 37,636
--------- -------- ---------- ---------
Gross profit 7,307 15,061 2,318 4,668
Selling, general and administrative expenses 8,200 16,234 2,733 4,753
Depreciation 391 724 110 236
Amortization 144 1,059 47 326
--------- -------- ---------- ---------
Loss from operations (1,428) (2,956) (572) (647)
Interest income (expense), net 300 (10) 106 1
Unrealized foreign exchange gain (loss) 47 (122) 38 95
Loss before income taxes (1,081) (3,088) (428) (551)
Provision (benefit) for taxes 65 (893) - (99)
--------- -------- ---------- ---------
Net loss $ (1,146) $ (2,195) $ (428) $ (452)
========== ========= =========== ==========
Net loss per common share-Basic and Diluted $ (0.23) $ (0.44) $ (0.09) $ (0.09)
========== ========= =========== ==========
Weighted average common shares outstanding-
Basic and Diluted 4,992 4,983 4,995 4,985
========= ======== ========== =========
Reconciliation of Net Loss to Comprehensive Loss:
- -------------------------------------------------
Net loss $ (1,146) $(2,195) $ (428) $ (452)
--------- -------- ---------- ---------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (207) (600) 39 498)
--------- -------- ---------- ---------
Comprehensive loss $ (1,353) $(2,795) $ (389) $ (950)
========== ======== ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
PROGRAMMER'S PARADISE, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Nine months ended Three months ended
September 30, September 30,
------------ ------------
2001 2000 (a) 2001 2000 (a)
---- -------- ---- --------
Net sales $ 72,468 $ 66,891 $ 24,177 $ 23,143
Cost of sales 65,161 58,507 21,859 20,180
---------- ---------- ----------- ---------
Gross profit 7,307 8,384 2,318 2,963
Selling, general and administrative expenses 8,200 7,970 2,733 2,372
Depreciation 391 444 110 153
Amortization 144 975 47 326
---------- ---------- ----------- ---------
Income (loss) from operations (1,428) (1,005) (572) 112
Interest income, net 300 - 106 21
Unrealized foreign exchange gain 47 97 38 25
---------- ---------- ----------- ---------
Income (loss) before income taxes (1,081) (908) (428) 158
Provision (benefit) for taxes 65 (277) - 111
---------- ---------- ----------- ---------
Net income (loss) $ (1,146) $ (631) $ (428) $ 47
========== ========== =========== =========
Net income (loss) per common share-Basic and
Diluted $ (0.23) $ (0.13) $ (0.09) $ 0.01
========== ========== =========== =========
Weighted average common shares outstanding-
Basic and Diluted 4,992 4,985 4,995 4,985
========== ========== =========== =========
(a) Pro forma statement of operations for the results from North America and
Programmer's Paradise, S.A.R.L. for the nine and three month periods ended
September 30, 2000.
5
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine months ended
September 30,
-------------
2001 2000
---- ----
Cash flows from operating activities:
Net loss $ (1,146) $ (2,195)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Deferred income taxes - 14
Depreciation 391 724
Amortization 144 1,150
Provision for doubtful accounts 432 425
Changes in operating assets and liabilities:
Accounts receivable (1,408) 10,486
Inventory 1,540 (1,126)
Prepaid expenses and other current assets 1,515 1,271
Accounts payable and accrued expenses (1,090) (18,433)
Net change in other assets and liabilities (86) (5,357)
---------- ---------
Net cash provided by (used for) operations 292 (13,041)
---------- ---------
Cash flows from investing activities:
Change in net assets held for sale 12,163 -
Increase in cash held in escrow (3,048) -
Capital expenditures (207) (484)
--------- ---------
Net cash provided by (used for) investing 8,908 (484)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock 6 (396)
Sale (purchase) of treasury stock (126) 30
Borrowings under lines of credit 14,598 2,375
Repayments under lines of credit (14,598) (4,200)
--------- ---------
Net cash used for financing activities (120) (2,191)
--------- ---------
Effect of foreign exchange rate on cash (169) (600)
--------- ---------
Net increase (decrease) in cash and cash equivalents $ 8,911 $ (16,316)
Cash and cash equivalents at beginning of period 2,091 17,597
--------- ---------
Cash and cash equivalents at end of period $ 11,002 $ 1,281
========= ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
PROGRAMMER'S PARADISE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2001
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States 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 accounting principles generally
accepted in the United States 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 and three months ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
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 periods. 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. The Company adopted SFAS 133 on January 1, 2001.
Adoption of this Statement did not have a significant impact on the Company's
results of operations or financial condition.
4. Basic and diluted earnings per share are calculated in accordance with FASB
Statement No. 128, "Earnings per Share". Basic earnings per share are computed
by dividing net income (loss) by the number of weighted shares of common stock
outstanding during the period. Diluted earnings per share is determined in the
same manner as basic earnings per share except that the number of shares is
increased assuming exercise of dilutive stock options, warrants and convertible
securities. Potentially dilutive securities have been excluded from the
calculation for all periods presented as their effect is antidilutive.
5. Certain prior period balances have been reclassified to conform with the
current period presentation.
6. In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests. Other intangible assets will continue to be
amortized over their useful lives. The Company is currently reviewing the impact
of these standards and will be performing a fair value analysis at a later date
in connection with the adoption of SFAS No. 142 on January 1, 2002.
7. In September 2001 (just prior to expiration of the time to make claims
against the escrow), PC-Ware made claims aggregating 2,190,127 Euros (plus
interest) (the equivalent of approximately $1,997,000) against the escrow. On
October 19, 2001, 735,789 Euros (the equivalent of approximately $654,373) were
distributed from the escrow account to the Company. The Company believes that
PC-Ware's claims are without merit and intends to vigorously dispute each of
such baseless claims in the arbitration proceedings, which will resolve the
disputed claims.
7
8. In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of", effective for fiscal years beginning after December 15, 2001. SFAS No. 144
supercedes SFAS No. 121, removes goodwill from its scope and identifies the
methods to be used in determining fair value. The Company is currently reviewing
the impact of this standard and will be performing an analysis at a later date
in connection with the adoption of SFAS No. 144 on January 1, 2002.
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 e-Commerce enabled website: www.programmersparadise.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 in the United States and Canada.
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 Corporate Developer's Paradise 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.
Results of Operations
The following table and related text is based upon the Pro Forma Statements
of Operations for the nine and three-month periods ended September 30, 2001 and
2000. The following table sets forth certain financial information expressed as
a percentage of net sales.
Nine months ended Three months ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 89.9 87.5 90.4 87.2
---- ---- ---- ----
Gross Profit 10.1 12.5 9.6 12.8
Selling, general and
administrative expenses 11.3 11.9 11.3 10.2
Depreciation 0.5 0.7 0.5 0.6
Amortization 0.2 1.4 0.2 1.4
---- ---- ---- ----
Income (loss) from operations (1.9) (1.5) (2.4) 0.6
Interest income, net 0.4 0.0 0.5 0.0
Unrealized foreign exchange gain (loss) (0.0) (0.1) 0.1 0.1
---- ---- ---- ----
Income (loss) before income taxes (1.5) (1.4) (1.8) 0.7
Income taxes (benefit) (0.1) (0.4) (0.0) 0.5
---- ---- ---- ----
Net income (loss) (1.6)% (1.0)% (1.8)% 0.2%
---- ---- ---- ----
8
Net Sales
Net sales of the Company represents the gross 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, 2001 increased by $1.0 million or 4%, to
$24.1 million, over the same period in 2000. For the nine months ended September
30, 2001, net sales increased by $5.6 million or 8% over the nine months ended
September 30, 2000. The increase in net sales is primarily attributed 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 comprised 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, 2001, gross profit as a percentage of sales decreased from
13% to 10% over the same period in 2000. Gross profit in absolute dollars for
the three-month period ended September 30, 2001 decreased by $645,000 over the
same period in 2000. For the nine months ended September 30, 2001, the gross
profit decreased by $1.1 million over the same period in 2000. These decreases
are mainly attributable to a shift in sales mix through the Company's
distribution channels and as a result of additional competitive pressures within
the direct sales channel.
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. Gross
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), non-personnel-related
marketing and administrative costs and the provision for doubtful accounts.
SG&A expenses for the three-month period ended September 30, 2001 increased
by $361,000 over the same period in 2000. For the nine months ended September
30, 2001, SG&A expenses increased by $230,000 over the same period in 2000. The
increase mainly reflects additional reserves against uncollectable invoices and
increased marketing and selling expenses.
Depreciation
Depreciation expense for the three-month period ended September 30, 2001
decreased to $110,000 from $153,000 over the same period in 2000. For the nine
months ended September 30, 2001, depreciation expense totaled $391,000 as
compared to $444,000 for the comparable period in 2000. This decrease is
attributable to an increase in capitalized items becoming fully depreciated,
such as furniture, computers, and equipment.
9
Amortization
Amortization expense includes the systematic write-off of goodwill.
Amortization expense for the three months ended September 30, 2001, decreased by
$279,000 as compared to the same period in 2000. Amortization expense for the
nine months ended September 30, 2001 decreased by $831,000. 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.
Interest, net
Net interest income for the three months ended September 30, 2001 increased
to $106,000 compared to $21,000 for the same period in 2000. For the nine months
ended September 30, 2001, net interest income was $300,000 compared to net
interest expense of $0 for the comparable period in 2000. The increase for the
nine-month period ended September 30, 2000 is attributable to the interest
earned on investments from the proceeds of the sale of the Company's European
subsidiaries.
Unrealized Foreign Exchange Gain (Loss)
Unrealized foreign exchange gain for the three months ended September 30,
2001 was $38,000 compared to $25,000 in the same period in 2000. For the nine
months ended September 30, 2001, the unrealized foreign exchange gain was
$47,000 as compared to $97,000 for the comparable period in 2000. The unrealized
gain in the first nine 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 the risk of currency exchange fluctuations, the
Company is, nevertheless, subject to risks associated with such fluctuations.
Income Taxes
The Company did not record any income taxes for the three months ended
September 30, 2001 compared to an expense of $111,000 for the same period in
2000. For the nine months ended September 30, 2001, the Company recorded a
provision for income taxes of $65,000 as compared to a benefit for income taxes
of $277,000 for the comparable period in 2000.
Net Income (Loss)
Net loss for the quarter ended September 30, 2001 was $428,000 or $.09 per
share on a diluted basis with approximately 4,995,000 weighted average
10
common shares outstanding compared to net income of $47,000 or $.01 per share on
a diluted basis with approximately 4,985,000 weighted average common shares
outstanding for the same period of the previous year. For the nine months ended
September 30, 2001, net loss was $1.1 million or $.23 per share on a diluted
basis with approximately 4,992,000 weighted average common shares outstanding
compared to net loss of $631,000 or $.13 per share on a diluted basis with
approximately 4,985,000 weighted average common shares outstanding for the same
period in 2000.
Liquidity and Capital Resources
The Company's capital requirements have primarily been funded through
working capital generated from continued sales growth. At September 30, 2001,
the Company's cash and cash equivalents were $11.0 million and working capital
was $16.1 million.
Net cash provided by operations was $292,000 for the nine months ended
September 30, 2001 compared with $13.0 million of cash used for operating
activities in the same period of the previous year. During the nine months ended
September 30, 2001, cash was provided by a reduction of inventory and prepaid
expenses (approximately $3.1 million) and offset by an increase in accounts
receivable (approximately $1.4 million) and accounts payable (approximately $1.1
million).
Net cash provided by investing activities was $8.9 million for the nine
months ended September 30, 2001 compared with $484,000 of cash used for
investing activities in the same period in 2000. This increase primarily
reflects the $12.2 million cash received for the sale of the European
subsidiaries to PC-Ware Information Technologies AG ("PC-Ware") completed on
January 9, 2001, less the $3.0 million cash being held in a 240-day escrow as
security for any claim of PC-Ware in the event there are any breaches of
representations by the Company under the Agreement for the Sale and Purchase of
Shares, dated December 1, 2000 between the Company and PC-Ware (the "Agreement
for the Sale and Purchase of Shares"). A claim has been brought by PC-Ware
against the Company's escrow balance. For further information, see Part II -
Legal Proceedings.
Net cash used by financing activities was $120,000 for the nine months
ended September 30, 2001 compared with net cash used of $2.2 million in the same
period in 2000. Net cash of $126,000 was used during the nine months ended
September 30, 2001, to purchase 31,500 shares of the Company's stock.
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 (6.00% at September 30, 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 September 30, 2001, there were zero amounts
outstanding under the revolving credit facility.
11
Foreign Exchange
As a result of the sale by the Company of its European subsidiaries,
3,275,000 Euros (the equivalent of approximately $2,986,000 at September 30,
2001) is being held in escrow as security for the Company's obligation to
indemnify PC-Ware in the event the Company has breached certain representations
and warranties made to PC-Ware under the Agreement for the Sale and Purchase of
Shares, subject to a 300,000 Euro de minimus amount and a 7.5 million Euro
maximum amount. The balance in the escrow account at September 30, 2001 is
3,343,000 Euros (the equivalent of approximately $3,048,000), which represents
the initial deposit of 3,275,000 Euros plus net interest earned of 68,000 Euros
(the equivalent of approximately $62,000). The amount is subject to change based
upon fluctuations in the Euro to U.S. dollar exchange rate until converted to
U.S. dollars and until settlement of any potential claims. A claim has been
brought by PC-Ware against the Company's escrow balance. For further information
see Part II - Legal Proceedings.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests. Other intangible assets will continue to be
amortized over their useful lives. The Company is currently reviewing the impact
of these standards and will be performing a fair value analysis at a later date
in connection with the adoption of SFAS No. 142 on January 1, 2002.
In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of", effective for fiscal years beginning after December 15, 2001. SFAS No. 144
supercedes SFAS No. 121, removes goodwill from its scope and identifies the
methods to be used in determining fair value. The Company is currently reviewing
the impact of this standard and will be performing an analysis at a later date
in connection with the adoption of SFAS No. 144 on January 1, 2002.
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
12
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Operations
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 Company's 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 maintain bank accounts in local currencies to reduce the risk of
currency exchange fluctuations, the Company is, nevertheless, subject to risks
associated with such fluctuations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As indicated under Liquidity and Capital Resources, a 3,275,000 Euro escrow
(the equivalent of approximately $2,986,000) was established to secure the
Company's indemnity obligations to PC-Ware in connection with the Company's sale
of its European subsidiaries to PC-Ware. In September 2001 (just prior to
expiration of the time to make claims against the escrow), PC-Ware made claims
aggregating 2,190,127 Euros (plus interest) (the equivalent of approximately
$1,997,000) against the escrow. On October 19, 2001, 735,789 Euros (the
equivalent of approximately $654,373) were distributed from the escrow account
to the Company.
The Company believes that PC-Ware's claims are without merit and intends to
vigorously dispute each of such baseless claims in the arbitration proceedings,
which will resolve the disputed claims.
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, 2001.
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.
November 13, 2001 By: /s/William H. Sheehy
- ----------------------------- --------------------
Date William H. Sheehy, Chief Financial Officer,
Vice President of Finance
14