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, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 33-92810
Programmers 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)
1163 Shrewsbury Avenue, Shrewsbury, New Jersey 07702
(Address of principal executive offices) (Zip Code)
Issuers Telephone Number (908) 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 4,681,948 outstanding shares of Common Stock, par
value $.01 per share, as of May 7, 1996.
Page1
PROGRAMMERS PARADISE, INC.
Index to Form 10-Q
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
as of March 31, 1996 and
December 31, 1995 3
Condensed Consolidated Statements of
Income for the Three Months Ended
March 31, 1996 and 1995 4
Condensed Consolidated Statements of
Cash Flows for the Three Months
Ended March 31, 1996 and 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations. 7
PART II -- OTHER INFORMATION
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Page 2
PART I - FINANCIAL INFORMATION
PROGRAMMERS PARADISE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
ASSETS
March 31, December31,
1996 1995
Unaudited *
Current Assets
Cash and cash equivalents $ 25,724 $ 27,702
Accounts receivable 13,499 15,625
Inventory 4,395 5,452
Prepaid expenses and other current
assets 2,501 2,117
Deferred income taxes 1,251 1,342
Total current assets 47,370 52,238
Equipment and leasehold improvements 1,165 1,127
Other assets 4,015 2,940
Deferred income taxes 2,024 2,024
$ 54,574 $ 58,329
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Noted Payable to banks $ 2,369 $ 2,469
Accounts payable and accrued
expenses 24,737 27,881
Other current liabilities 217 199
Total current liabilities 27,323 30,549
Other liabilities 138 791
Stockholders equity
Common stock 47 47
Additional paid-in capital 33,405 33,405
Accumulated deficit (6,277) (6518)
Treasury stock (88) -
Cumulative foreign currency
adjustment 26 55
Total stockholders equity 27,113 26,989
$ 54,574 $ 58,329
* Condensed from audited financial statements.
The accompanying notes are an integral part of these
consolidated financial statements.
Page 3
PROGRAMMERS PARADISE INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except share and per share data)
Three
Months ended
March 31,
1996 1995
Net sales $25,961 $23,374
Cost of sales 21,913 19,546
Gross profit 4,048 3,828
Selling, general and administrative
expenses 3,983 2,910
Income from operations 65 918
Interest (income)/expense, (net) (193) 56
Income before income taxes 258 862
Income tax expense 106 201
Minority interest 89 -
Net income $ 241 $ 661
Weighted average common shares
outstanding 5,196 2,939
Net income per common share $.05 $.24
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 4
>PAGE>
PROGRAMMERS PARADISE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
Three
Months Ended
March 31,
1996 1995
Cash provided by (used for)
Operations:
Net income $ 241 $ 661
Adjustments for non cash charges 378 208
Changes in assets and liabilities (1,915) 1,762
Net cash (used for) provided by
operations (1,296) 2,631
Investing:
Capital expenditures (98) (83)
Capitalized software costs (4) (2)
Acquisitions, net of cash acquired (273) (125)
Net cash (used for) investing (375) (210)
Financing:
Purchase of treasury stock (88)
Borrowings under lines of credit 2,950 18,123
Repayments under lines of credit (3,169) 20,542)
Net cash (used for) financing
activities (307) (2,419)
Net change in cash (1,978) 2
Cash at beginning of year 27,702 3,522
Cash at end of period $25,724 $ 3,524
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 5
PROGRAMMERS PARADISE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 1996
1. The financial information included herein is unaudited;
however, such information has been prepared in accordance
with generally accepted accounting principles and reflects
all adjustments, consisting solely of normal recurring
adjustments which are, in the opinion of management,
necessary for a fair statement of results for the interim
periods. Operating results for the three month period ended
March 31, 1996, are not necessarily indicative of the
results that may be expected for the year ended December 31,
1996. For further information, refer to the consolidated
financial statements and notes thereto included in the
Companys 1995 10-K filing dated March 28, 1996.
2. On July 18, 1995, the Securities and Exchange Commission
declared effective the Companys registration statement on
Form S-1 to register 2,501,250 shares of Common Stock in an
initial public offering (including 326,250 shares to cover
the underwriters over-allotment option), which included
375,000 shares (plus 56,250 shares to cover the underwriters
over-allotment option) sold by certain stockholders of the
Company.
In May 1995, stockholders approved a four-for-three reverse
stock split. All share and per share amounts included in the
accompanying condensed consolidated financial statements and
notes have been adjusted to reflect this reverse stock
split, and the conversion of all shares of preferred stock
into common stock.
3. Net income per common share is computed using the weighted
average number of common shares and common share equivalents
outstanding during the period, assuming the exercise of
common stock options using the treasury stock method. Stock
options granted by the Company during the twelve months
immediately preceding the date of the initial filing by the
Company of its initial public offering have been included in
the calculation of the shares used in computing net income
per common share as if they were outstanding throughout the
entire period for all periods presented.
Page 6
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations.
Overview
The Company is a distributor of software, operating
through three distribution channels-cataloging, corporate
reseller and wholesale operations. Catalog operations include
worldwide catalog sales, advertising and publishing. Corporate
reseller operations include Corsoft, Inc. in the U.S. and ISP*D
International Software Partners Gmbh (ISP*D) in Munich, Germany,
wholly owned subsidiaries of the Company, and ISP*F International
Software Partners France (ISP*F), a majority owned company
located in Paris, France. Wholesale operations include
distribution to dealers and large resellers through Lifeboat
Distribution Inc. in the U.S. and Lifeboat Associates Italia Srl
(Lifeboat Italy) in Milan, Italy, also subsidiaries of the
Company.
The Company was founded in 1982 as a wholesaler and
reseller of educational software. In June 1986, the Company
acquired Lifeboat Associates, a wholesale distributor and
publisher of software founded in 1976. Later in 1986,
Programmers Paradise was started by the Company as a catalog mar
keter of technical software. In 1988, the Company acquired
Corsoft, Inc., a corporate reseller founded in 1983, and combined
it with the operations of the Programmers Paradise catalog and
Lifeboat Associates, both of which were involved in the marketing
of technical software for microcomputers. In May 1995, the
Company changed its name from "Voyager Software Corp." to
"Programmers Paradise, Inc." and consolidated its U.S. catalog
and software publishing operations in a new subsidiary,
Programmers Paradise Catalogs, Inc. and its wholesale
distribution operations in a new subsidiary, Lifeboat
Distribution, Inc. In July, 1995, the Company completed an
initial public offering of its common stock.
The Company began European-based operations in the
first quarter of 1993, when it acquired a controlling interest in
Lifeboat Italy, a long-standing software distributor in Italy.
In January and April 1994, the Company purchased the remaining
ownership interest in Lifeboat Italy. In June 1994, the Company
acquired a 90% controlling interest in ISP*D, a large software-
only dealer and a leading independent supplier of Microsoft
Select licenses and other software to many large German and Aus
trian companies. In January 1995, the remaining 10% interest in
ISP*D was purchased by the Company. In late 1994, the Company
organized a subsidiary in the United Kingdom to engage in catalog
operations, and in December 1995 the Company acquired Systematika
Limited (System Science), a leading reseller of technical
software in the United Kingdom and the publisher of the popular
System Science catalog. In January 1996, the Company formed
ISP*F International Software Partners France SA (ISP*F), as a
full service corporate reseller of PC software, based in Paris
and majority owned by Programmers Paradise France SARL. ISP*F
was formed by combining the resources and assets of L & A
Logiciels Et Applications SA (L & A France), LAN Technologie, a
division of Devnet SA, and Programmers Paradise France SARL. L &
A France is a well known corporate reseller of PC software and
also publishes the Access Direct catalog, which is targeted to
small and medium sized companies. LAN Technologie is a high-end
PC software supplier and systems integrator. The Company is
using its European-based operations as a platform for pan-
European business development, including the distribution of
local versions of its catalogs.
Page 7
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,
1996 1995
Net Sales 100.0% 100.0%
Cost of Sales 84.4 83.6
Gross Profit 15.6 16.4
Selling, general and administrative
expenses 15.3 12.5
Income from operations 0.3 3.9
Interest (income)/expense,(net) (0.7) 0.2
Income before income taxes 1.0 3.7
Income taxes (0.4) (0.9)
Minority interest 0.3 -
Net income 0.9% 2.8%
Net Sales
Net sales of the Company represents the gross
consolidated revenue of the Company less returns. Although net
sales consist primarily of sales of software, revenue from
marketing services and advertising is also included within net
sales. Net sales for the quarter ended March 31, 1996 increased
by $ 2.6 million, to $25,961,000 or 11.1%, over the first quarter
of the previous year.
The growth in net sales for the three months ended
March 31, 1996 as compared to March 31, 1995 was primarily
attributable to the acquisitions of Systematika Limited and
ISP*F, enhanced by an increase in sales at ISP*D for such period
primarily from growth in corporate reseller revenues. Sales in
Germany grew at a rate of 10.7% for the three month period ended
March 31, 1996 over the same prior year period. Domestic sales
declined by 11% for the three month period ended March 31,1996 as
compared to the previous year, due primarily to lower catalog
revenues in that quarter. While the number of catalog orders
taken during that period remained consistent with the prior year
period, the average order size was down in comparison.
Page 8
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 quarter ended ended
March 31, 1996, gross profit increased by $220,000 over the
previous year, primarily attributable to the Systematika Limited
and L & A France acquisitions. Gross profit as a percentage of
sales decreased by 0.8% for the quarter ended March 31, 1996 in
comparison to the same quarter in 1995, primarily due to a
reduction in the margin achieved from marketing revenues. In the
first quarter of 1996, the company aggressively pursued an
expansion of its customer base by selecting and mailing from
additional rental lists. The costs associated with this plan
impacted the gross margin by 0.6% for the quarter.
Selling, General and Administrative Expenses
SG&A expenses increased in absolute dollars by
$1,073,000 for the quarter ended March 31, 1996 versus the
quarter ended March 31, 1995, primarily reflecting the additional
overhead associated with the System Science and ISP*F operations.
As a percentage of net sales, SG&A increased by 2.8%, primarily
reflecting the costs associated with developing the catalog
operations in the U.K. and France, increased advertising in trade
magazines and catalogs in the U.S., and building a consulting
capability at ISP*D.
Interest Income and Expense
Net interest expense decreased by $248,000 for the
quarter ended March 31, 1996 compared to the quarter ended March
31, 1995, primarily due to the application of the net proceeds
from the initial public offering to retire the companys
outstanding domestic debt, as well as the investment of remaining
proceeds from the public offering in high grade, short term
interest bearing securities. At March 31, 1996, interest income
on these short term investments was $193,000 for the quarter then
ended.
Income Taxes
Income tax expense was $106,000 for the three months
ended March 31, 1996, compared to $201,000 in the same quarter of
the previous year, reflecting lower tax provisions at the
European operations as a result of decreased earnings, offset by
higher tax rates for the U.S. operations. The higher U.S. rates
are the result of the complete utilization of tax net operating
loss carryforwards and the reduction of the tax valuation
allowance in 1995, the benefits of which are no longer available
in 1996. Through 1995, these tax benefits were recognized for
financial reporting purposes, as allowed under generally accepted
accounting principles, as it was more likely than not that such
benefits would ultimately result in the reduction of future tax
liabilities.
Minority Interest
Minority interest represents the share of the operating
loss of ISP*F related to the 49% ownership in ISP*F which was not
owned by the Company at March 31, 1996.
Net Income
Net income was $241,000 or $.05 per share for the
quarter ended March 31, 1996 compared to $661,000 or $.24 per
share for the same period of the previous year.
Page 9
Liquidity and Capital Resources
The Companys primary capital needs have been to fund
the working capital requirements created by its sales growth and
to make acquisitions. Historically, the Companys primary sources
of financing have been borrowings under its domestic and
international lines of credit with financial institutions and the
issuance of preferred stock to private investors, financial
institutions and investment funds. In July 1995, the Company
completed an initial public offering of its common stock which
resulted in net proceeds to the Company of approximately $18
million including approximately $2.5 million received in
connection with the exercise of the over-allotment option. As of
the result of such IPO and the exercise of such over-allotment
option, and through the above mentioned acquisitions, the Company
had cash and short term investments of approximately $25.7
million at March 31, 1996.
Net cash used for operations was approximately
$1,296,000 for the three months ended March 31, 1996 compared
with $2,631,000 of cash provided by operations in the same period
of the previous year. For the first quarter of 1996, cash flow
was primarily used to reduce accounts payable, specifically amounts
due to Microsoft by ISP*D under the Microsoft Select License
program, offet by decreases in accounts receivable and inventory.
For 1995, cash flow was primarily provided by net income of the
Company and a decrease in accounts receivable, reflecting higher
cash collections resulting from strong sales in the previous
quarter.
Domestically, the Company has a secured, demand
revolving line of credit, pursuant to which the Company may
borrow up to $4.0 million, based upon 80% of its eligible
accounts receivable plus 50% of its eligible inventory, at a rate
of interest of prime plus 1.25%. The credit facility is secured
by all of the domestic assets of the Company and contains certain
covenants which require the Company to maintain a minimum level
of tangible net worth and working capital. Approximately
$1,540,000 (related to the acquisition of Systematika Limited)
and $616,000 were outstanding under the line at March 31, 1996
and 1995, respectively.
The Company maintains a secured, demand revolving line
of credit for its German subsidiary, pursuant to which it may
borrow in deutschemarks up to DM 1,500,000 ( the equivalent of
approximately $1,016,000 at March 31, 1996), based upon its
eligible accounts receivable and eligible inventory. Such
credit facility is secured by ISP*D accounts receivable and
inventory, and the creditor is entitled to the benefit of a
limited guarantee by the Company of up to DM 300,000 ( the
equivalent of approximately $203,000 at March 31, 1996). At March
31, 1996, there were no amounts outstanding under such line of
credit. Additionally, a subsidiary of ISP*D has a secured term
loan with the same bank, in the original principal amount of DM
500,000 (the equivalent of approximately $339,000 at March 31,
1996), payable in four installments and maturing in November,
1996. At March 31, 1996, there was DM 125,000 (the equivalent of
approximately $85,000) outstanding under the loan, bearing
interest at 8.00%.
The Companys Italian subsidiary, Lifeboat Italia,
maintains banking arrangements with several Italian banks,
pursuant to which it may borrow in lire on an unsecured, demand
basis to finance its working capital requirements, through credit
and overdrafting privileges, as well as receivables-based
advances. The aggregate credit and overdraft limits of such
arrangements at March 31, 1996 was Lit 3,200,000,000 ( the
equivalent of approximately $2.05 million). At March 31, 1996,
there was approximately Lit 945,000,000 ( the equivalent of
approximately $605,000) outstanding under such credit facilities,
bearing interest at rates ranging from 10.75% to 12.25% .
Page 10
PART II - OTHER INFORMATION
Item 5. Other Information
On March 18, 1996, the Company repurchased 15,000 shares of
Programmers Paradise, Inc. common stock at a price of 5.875 per
share.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K:
The Company filed a Report on Form 8-K on January 2, 1996 and fi
led an amendment thereto on Form 8-KA on March 4, 1996, with
respect to the acquisition of the stock of Systematika Limited,
an English corporation, by Programmers Paradise (UK) Limited.
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.
July 1, 1996 By:/s/ John P. Broderick
Date John P. Broderick,
Chief Financial Officer,
Vice President of Finance
and duly authorized officer