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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission file number: 33-92810
PROGRAMMER'S PARADISE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3136104
- ---------------------------- ------------------------------------
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation)
1157 Shrewsbury Avenue, Shrewsbury, New Jersey 07702
- ---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 389-8950
Securities registered pursuant to section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act: Common Stock, par value $0.01 per share
---------------------------------------
(Title Of Class)
Indicate by check mark whether the registrant: (1) has 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates
of the Registrant computed by reference to the closing sale price for the
Registrant's Common Stock on March 12, 2002, as reported on the NASDAQ National
Market, was approximately $10,150,000.
The number of shares outstanding of the Registrant's Common Stock as of
March 12, 2002 was 4,915,672 shares.
Page 1 of 22 Pages
In determining the market value of the Common Stock held by any
non-affiliates, shares of Common Stock of the Registrant beneficially owned by
directors, officers and holders of more than 10% of the outstanding shares of
Common Stock of the Registrant have been excluded. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
Documents Incorporated by Reference: Portions of the Registrant's
definitive Proxy Statement for its 2002 Annual Meeting of Stockholders to be
filed on or before April 30, 2002 are incorporated by reference into Part III of
this Report.
Page 2 of 22 Pages
PART I
Item 1 Business
General
Programmer's Paradise, Inc. (the "Company") is a recognized marketer of
software in the United States and Canada targeting software development and
information technology professionals within enterprise organizations.
Programmer's Paradise, Inc. was incorporated in Delaware in 1982. Our
common stock is listed on the NASDAQ National Market under the symbol "PROG".
Our Web site addresses are www.programmersparadise.com and
www.programmersparadise.ca. Information on our Web sites should not be
considered filed with the Securities and Exchange Commission. Information
contained on our Web sites is not, and should not be deemed to be, a part of
this report.
The Company operates in one primary business segment: the marketing of
technical software and hardware for microcomputers, servers and networks in the
United States and Canada. We offer a wide variety of technical and general
business application software, PC hardware and components from a broad range of
publishers and manufacturers. We market our products through our well-known
catalogs, direct mail programs, advertisements in trade magazines, as well as
through Internet and e-mail promotions. Through our wholly owned subsidiary,
Lifeboat Distribution Inc., we distribute products to dealers and resellers in
the United States and Canada.
The Company's catalogs are full color "magalogs" and offer some of the
most complete collections of microcomputer technical software, including
programming languages, tools, utilities, libraries, development systems,
interfaces and communication products. The Company has created a niche for
hard-to-source technical software programs.
Pursuant to an Agreement, dated December 1, 2000, the Company sold all
of the shares of its European subsidiaries to PC-Ware Information Technologies
AG, a German corporation ("PC-Ware"), on January 9, 2001. For more information
regarding this sale, reference is made to Management Discussion and Analysis of
Financial Condition and Results of Operations, Part I, Item 7, and to Note
Twelve to the Consolidated Financial Statements, Part II, Item 8.
As of October 1, 2001, the Company no longer negotiates Microsoft
Select and Enterprise volume licensing agreements for new customers. We believe
that these activities required significant dedication of sales and support
resources with limited return on the investment. There were no other changes in
the reseller agreement with Microsoft, and the Company is authorized to market
and sell all other Microsoft software.
As a result of our shift in focus, we announced in December 2001 that
we had made significant reductions in our support staff. For more information
regarding this restructuring, reference is made to Management Discussion and
Analysis of Financial Condition and Results of Operations, Part I, Item 7, and
to Note Eleven to the Consolidated Financial Statements, Part II, Item 8.
Page 3 of 22 Pages
Competition
The software distribution market is highly competitive. Pricing is very
aggressive, and the Company expects pricing pressure to continue. The Company
faces competition from a wide variety of sources including: vendors who sell
direct to customers; software resellers; superstores; catalogers; Web sites; and
other direct marketers of software products. Some of these sources are
significantly larger and have substantially greater resources than the Company.
Many of these competitors compete principally on the basis of price, product
availability, customer service and technical support. The market for developer
software products is characterized by rapid changes in technology, user
requirements, and customer specifications. The Company competes in acquiring
prospective buyers and in sourcing new products from software developers and
publishers, as well as in marketing its current product line to its customers.
There can be no assurance that the Company can continue to compete
effectively against existing competitors or new competitors that may enter the
market. In addition, price is an important competitive factor in the personal
computer software market and there can be no assurance that the Company will not
be subject to increased price competition. An increase in the amount of
competition faced by the Company, or its failure to compete effectively against
its competitors, could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company believes that its ability to offer software developers and
IT professionals a wide selection of products at low prices with prompt delivery
and high customer service levels, along with its good relationships with vendors
and suppliers, allow it to compete effectively. The Company competes to gain
distribution rights for new products primarily on the basis of its reputation
and its relationships with software publishers.
The manner in which software products are distributed and sold is also
changing, and new methods of distribution and sale may emerge or expand.
Software developers and publishers have sold, and may intensify their efforts to
sell, their products directly to end-users. The evolution of the Internet as a
viable platform in which to conduct e-commerce business transactions has both
lowered the barriers for competition and broadened customer access to products
and information. From time to time certain software developers and publishers
have instituted programs for the direct sale of large order quantities of
software to certain major corporate accounts. These types of programs may
continue to be developed and used by various developers and publishers. While
Microsoft and other vendors currently sell new releases or upgrades directly to
end users, they have not attempted to completely bypass the reseller channel.
Future efforts by such entities to bypass third-party sales channels could
materially and adversely affect the Company's operations.
In addition, resellers and publishers may attempt to increase the
volume of software products distributed electronically through ESD technology,
through CD-ROM based subscription services, and through on-line shopping
services. Any of these competitive programs, if successful, could have a
material adverse effect on the Company's operations and financial condition.
Page 4 of 22 Pages
Products
The Company offers a wide variety of products from a broad range of
publishers and manufacturers, including Microsoft, Computer Associates, WebGain,
Borland, Compuware, eHelp, Infragistics, ComponentOne, Installshield, Adobe and
IBM. On a continuous basis, new products are screened for inclusion in our
catalogs and Web sites based on their features, quality, price, margins and
warranties, as well as on current sales trends. In 2001, Hardware and
Peripherals as a percentage of sales were less than 5%.
Marketing and Distribution
We extend our brand and market our products through creative marketing
communications, our catalogs, our Web site, industry magazines, and national
trade shows. We also use direct mail, both e-mail and print, to introduce new
products and upgrades, to cross-sell products to current customers, and to
educate and inform.
We believe that our catalogs are important marketing vehicles for
software publishers and manufacturers. These catalogs provide a cost-effective
and service-oriented means to market, sell and fulfill software products.
The Company has two primary established catalogs: Programmer's
Paradise, targeting software developers; and Corporate Developer's Paradise,
targeting information technology professionals working in large corporations.
The Corporate Developer's Paradise catalog is the result of our decision to
rename our "Programmer's SuperShop" catalog. These catalogs are full color
"magalogs" that combine traditional catalog sales offerings with detailed
product descriptions and announcements, and which contain cooperative
advertising.
In addition to its two flagship catalogs, the Company offers additional
catalogs aimed at specific audiences. Significant increases in postal or
shipping rates and in paper costs could have a material adverse effect on the
Company. We continually attract new customers through advertisements in trade
magazines, as well as through selectively mailing catalogs and other direct mail
material. Prospect names are also provided to us by publishers whose products we
market. In 2001, the Company's cooperative and fee-based advertising
reimbursements as a percentage of sales decreased to 5% from 6.5% in 2000.
No customer accounted for more than 10% of consolidated net sales in
1999, 2000, or 2001. No material part of the business is dependent upon a single
customer or a few customers. The Company generally ships product within 48 hours
of confirming a customer's order. This allows for minimum backlog in the
business.
Canadian sales accounted for 9% of consolidated revenues in 2001 (for
geographic financial information, please refer to Note Nine to our Notes to
Consolidated Financial Statements).
Customer Support
We believe that providing a high level of customer service is necessary
to compete effectively and is essential to continued sales and revenue growth.
Our account representatives assist our customers with all aspects of purchasing
decisions, process products ordered and respond to customer inquiries on order
status, product pricing and availability. The account representatives are
trained to answer all basic questions about the features and functionality of
products. On technical issues, there is an in-house technical support staff.
Page 5 of 22 Pages
Purchasing and Fulfillment
The Company's success is dependent, in part, upon the ability of its
suppliers to develop and market products that meet the changing requirements of
the marketplace. The Company believes it enjoys good relationships with its
vendors. The Company and its principal vendors have cooperated frequently in
product introductions and in other marketing programs. As is customary in the
industry, the Company has no long-term supply contracts with any of its
suppliers. Substantially all the Company's contracts with its vendors are
terminable upon 30 days' notice or less. The manner in which software products
are distributed and sold is changing, and new methods of distribution and sale
may emerge or expand. Software publishers have sold, and may intensify their
efforts to sell, their products directly to end-users. The Company's business
and results of operations may be adversely affected if the terms and conditions
of the Company's authorizations were to be significantly modified or if certain
products become unavailable to the Company.
In 2001 the Company purchased approximately 63% of its products
directly from manufacturers and publishers and the balance from multiple
distributors. Most suppliers or distributors will "drop ship" products directly
to the customers, which reduces physical handling by the Company. These
inventory management techniques allow the Company to offer a greater range of
products without increased inventory requirements.
For the year ended December 31, 2001, Ingram Micro, Microsoft and
Computer Associates were the only vendors that exceeded 10% of total purchases.
The loss of any of these vendors, or any other key vendor, could have an adverse
effect on the Company. As from October 1, 2001, the Company is no longer an
authorized Microsoft Select Large Account Reseller (LAR) and no longer
negotiates Microsoft Select and Enterprise volume licensing agreements for new
customers. For 2001, these sales amounted to approximately $17 million and
generated approximately $0.8 million in Gross Profit Margin, which was
insufficient to cover all related costs. There were no other changes in the
reseller agreement with Microsoft.
Inventory levels may vary from period to period, due in part to
increases or decreases in sales levels, the Company's practice of making
large-volume purchases when it deems the terms of such purchases to be
attractive, and the addition of new suppliers and products. Moreover, the
Company's order fulfillment and inventory control allow the Company to order
certain products just in time for next day shipping. The Company promotes the
use of electronic data interchange ("EDI") with its suppliers, which helps
reduce overhead and the use of paper in the ordering process. Although brand
names and individual products are important to our business, we believe that
competitive sources of supply are available for substantially all product
categories we carry.
The Company operates distribution facilities in Shrewsbury, New Jersey
and Mississauga, Canada.
Management Information Systems
The Company operates management information systems on Windows NT and
MPE platforms that allow for centralized management of key functions, including
inventory, accounts receivable, purchasing, sales and distribution. We are
dependent on the accuracy and proper utilization of our information technology
systems, including our telephone, Web sites, e-mail and fax systems.
Page 6 of 22 Pages
The management information systems allow the Company to monitor sales
trends, provide product availability and order status information, track direct
marketing campaign performance and to make marketing event driven purchasing
decisions. In addition to the main system, the Company has systems of networked
personal computers, as well as microcomputer-based desktop publishing systems,
which facilitate data sharing and provide an automated office environment.
The Company recognizes the need to continually upgrade its management
information systems to most effectively manage its operations and customer
database. In that regard, the Company anticipates that it will, from time to
time, require software and hardware upgrades for its present management
information systems.
Trademarks
The Company conducts its business under the various trademarks and
service marks of Programmer's Paradise, the "Island Man" cartoon character logo,
and Lifeboat. The Company registered and protects these trademarks and service
marks and believes that they have significant value and are important factors in
its marketing programs. The Company intends to use and protect these and related
marks, as necessary.
Employees
As of December 31, 2001, Programmer's Paradise, Inc. and its
subsidiaries had 77 full-time and 3 part-time employees. The Company is not a
party to any collective bargaining agreements with its employees, has
experienced no work stoppages and considers its relationships with its employees
to be satisfactory.
Executive Officers of the Company
The executive officers of the Company are as follows:
Name Age Position
- --------------------------------------------------------------------------------
William H. Willett 65 President, Chief Executive Officer and
Chairman of the Board
Simon F. Nynens 30 Chief Financial Officer and Vice President
Marc J. Lieberman 45 Vice President - Sales
Jeffrey C. Largiader 45 Vice President - Marketing
John J. LoRe 55 Vice President - Information Technology and
Chief Information Officer
William H. Willett has served as a director of the Company since 1996. In July
1998, Mr. Willett was appointed to the position of Chairman, President and Chief
Executive Officer. Prior to joining the Company and since 1994, Mr. Willett was
the President and Chief Operating Officer of Colorado Prime Foods located in New
York.
Page 7 of 22 Pages
Simon F. Nynens has served as Vice-President and Chief Financial Officer since
January 2002. Between February 2001 and January 2002, he served as Vice
President. Prior to that, Mr. Nynens served as the Vice-President and Chief
Operating Officer of the Company's European operations from November 1999
through January 2001, and prior to that, he was European Controller and
Corporate Controller of the Company. Prior to joining Programmer's Paradise,
Inc., Mr. Nynens worked as a Registered Accountant with Ernst & Young in
Amsterdam, The Netherlands.
Marc J. Lieberman has served as Vice-President - Sales since December 2001.
Prior to joining Programmer's Paradise, Mr. Lieberman served as Vice President
of sales and Vice President of Business Development during an eight-year tenure
at Micro Warehouse, Inc.
Jeffrey C. Largiader has served as the Vice-President - Marketing since 1989.
Prior to that and since 1983, he held various sales and product management
positions with the Company and a predecessor, Lifeboat Associates, Inc.
John J. LoRe has served as the Company's Vice-President - Information Technology
and Chief Information Officer since September 2000. Prior to this post he served
as Vice President and Chief Information Officer of Best Manufacturing of New
York. Between 1992 and 1998, Mr. LoRe held similar positions with Fila USA, Inc.
of Baltimore, Maryland and Disney Direct Marketing, Inc. of New York. Preceding
this, he had global responsibility for Information and Technology for Polo Ralph
Lauren Corporation from 1986 through 1992.
Item 2 Properties
The Company leases 25,250 square feet of space in Shrewsbury, New
Jersey for its corporate headquarters and warehouse under a ten-year lease
expiring in June 2007. Total annual rent expense for these premises is
approximately $280,000. Additionally, the Company leases approximately 3,600
square feet of office space and warehouse in Mississauga, Canada, under a
three-year lease, which expires on July 31, 2003. Total annual rent expense for
these premises is approximately $23,000. For a further discussion regarding
lease obligations see Note Eight to the Consolidated Financial Statements, Part
II, Item 8.
Item 3 Legal Proceedings
The information required by this item is incorporated by reference to
Note Twelve to the Consolidated Financial Statements, Part II, Item 8.
Item 4 Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of 2001 to a
vote of security holders.
Page 8 of 22 Pages
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
Programmer's Paradise, Inc. Common Stock, par value $0.01, is traded on
the NASDAQ National Market System under the symbol "PROG". Following is the
range of low and high closing prices for our stock as reported on the NASDAQ for
the quarters indicated.
High Low
---- ---
2000
First Quarter 7.125 5.500
Second Quarter 5.625 3.063
Third Quarter 3.938 3.125
Fourth Quarter 3.563 2.438
2001
First Quarter 4.094 2.656
Second Quarter 4.250 3.300
Third Quarter 4.480 3.660
Fourth Quarter 4.150 2.500
We have never paid cash dividends on our capital stock, and we do not
anticipate doing so in the foreseeable future. The closing sale price of our
stock on the NASDAQ on March 12, 2001, was $2.57. On March 12, 2002, 5,230,250
shares of the Company's Common Stock were outstanding. On such date, there were
approximately 63 holders of record.
During 2001, 20,125 shares of the Common Stock were issued to employees
and former employees, pursuant to the exercise of incentive stock options
granted to them prior to such year under the Company's stock option plans. Such
shares were issued pursuant to Rule 701 promulgated under the Securities Act of
1933, at a weighted average exercise price of $0.32.
Page 9 of 22 Pages
Item 6 Selected Financial Data
Year Ended December 31,
-----------------------------------------------------------------------
(In thousands, except per share data)
- -------------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001
- -------------------------------------------------------------------------------------------------------------------
Consolidated Statement of Operations Data (1):
Net sales $176,157 $234,429 $244,139 $216,543 $89,536
Cost of sales 150,452 205,241 218,014 194,964 80,656
-----------------------------------------------------------------------
Gross profit 25,705 29,188 26,125 21,759 8,880
Selling, general and
administrative expenses 18,574 22,682 24,422 25,648 13,020
Amortization of goodwill 914 979 1,795 1,385 25
Impairment of goodwill 7,000 230
Cost of restructuring 362
Impairment of investment 590
Loss on Sale of European subsidiaries 2,081
-----------------------------------------------------------------------
Income (loss) from operations 6,217 5,527 (92) (15,125) (4,757)
Other income, net 154 356 665 134 318
-----------------------------------------------------------------------
Income before income taxes 6,371 5,883 573 (14,991) (4,439)
Income tax provision 2,407 2,441 1,302 2,483 83
-----------------------------------------------------------------------
Net income (loss) $ 3,964 $ 3,442 $ (729) $(17,474) $(4,522)
=======================================================================
Net income (loss) per share
Basic $0.84 $0.72 $(0.14) $(3.51) $(0.91)
=======================================================================
Diluted $0.75 $0.66 $(0.14) $(3.51) $(0.91)
=======================================================================
Weighted average common
Shares outstanding
Basic 4,740 4,797 5,100 4,983 4,987
=======================================================================
Diluted 5,280 5,249 5,100 4,983 4,987
=======================================================================
December 31,
- ----------------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001
- ----------------------------------------------------------------------------------------------------------------------
Balance Sheet Data(1):
Cash and cash equivalents $20,571 $ 21,167 $17,597 $ 2,091 $11,425
Working capital 16,077 17,686 14,806 17,326 13,367
Total assets 86,368 104,877 95,757 33,855 24,057
Notes payable - current 958 674 2,628 - -
Notes payable - long term 2,220 1,761 - - -
Total stockholders' equity $32,213 $ 36,241 $34,849 $18,906 $14,058
(1) Comparability of the Consolidated Statement of Operations and Balance
Sheet Data is affected by acquisitions occurring throughout the periods
presented as well as by the sale of our European Operations on January
9, 2001. Reference is made to the Pro Forma data for our continuing
operations, Part I, Item 7 Management Discussion and Analysis of
Financial Condition and Results of Operations.
Page 10 of 22 Pages
Item 7 Management Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto.
Overview
We reported a net loss of $4.5 million for the year 2001, a 74% or $13
million decrease compared to our reported net loss in 2000 of $17.5 million. Our
reported Pro Forma loss in 2000 amounted to $12.4 million. The difference
between the reported net loss of $17.5 million and the Pro Forma reported net
loss of $12.4 million primarily relates to the sale of our European Operations.
Pursuant to an Agreement, dated December 1, 2000, we sold our European
subsidiaries to PC-Ware Information Technologies AG, a German corporation
("PC-Ware"), on January 9, 2001 for 14.5 million Euros, subject to post-closing
adjustments, including finalization of the closing balance sheet, in accordance
with the Stock Purchase Agreement between the Company and PC Ware, which remains
to be resolved between the parties.
In order to reflect and compare the results from continuing operations,
the following information is based on the Pro Forma Statements of Operations for
the Years ended December 31, 2001, 2000 and 1999. The following Pro Forma data
is provided for the Company's continuing operations:
Year Ended December 31,
-----------------------------------------------------------------
(In thousands, except per share data)
- -------------------------------------------------------------------------------------------------------------
1999 2000 2001
- -------------------------------------------------------------------------------------------------------------
Consolidated Statement of Operations Data:
Net sales $83,047 $ 88,625 $89,536
Cost of sales 71,760 77,576 80,656
--------------------------------------------------------
Gross profit 11,288 11,049 8.880
Selling, general and administrative expenses 10,357 12,101 13,020
Amortization of goodwill 1,215 1,302 25
Impairment of goodwill 600 7,000 230
Cost of restructuring 362
Impairment of investment 590
--------------------------------------------------------
Income (loss) from operations (884) (9,944) (4,757)
Other income, net 547 359 318
--------------------------------------------------------
Loss before income taxes (337) (9,585) (4,439)
Income tax provision (benefit) (308) 2,834 83
--------------------------------------------------------
Net loss $ (29) $(12,419) $(4,522)
========================================================
Net loss per share
Basic and Diluted $ (0.00) $ (2.50) $ (0.91)
========================================================
Weighted average common
Shares outstanding
Basic and diluted 5,100 4,983 4,987
========================================================
Page 11 of 22 Pages
We reported a net loss of $4.5 million for the year 2001, a 64% or $7.9
million decrease compared to our reported Pro Forma net loss in 2000 of $12.4
million. Our decrease in net loss primarily resulted from $8 million lower costs
for Amortization and Impairment of Goodwill and a $2.7 million decrease in
Provision for Income taxes. The benefit from these two items was primarily
offset by a decrease in Gross Profit Margin of $2.2 million and increased SG&A
expenses.
The Company operates in one primary business segment: the marketing of
technical software and hardware for microcomputers, servers and networks in the
United States and Canada. We offer a wide variety of technical and general
business application software, PC hardware and components from a broad range of
publishers and manufacturers. We market our products through our well-known
catalogs, direct mail programs, advertisements in trade magazines, as well as
through Internet and e-mail promotions. Through our wholly owned subsidiary,
Lifeboat Distribution Inc., we distribute products to dealers and resellers in
the United States and Canada.
The Company's sales and results of operations have fluctuated and are
expected to continue to fluctuate on a quarterly basis as a result of a number
of factors, including: the condition of the software industry in general; shifts
in demand for software products; industry shipments of new software products or
upgrades; the timing of new merchandise and catalog offerings; fluctuations in
response rates; fluctuations in postage, paper, shipping and printing costs and
in merchandise returns; adverse weather conditions that affect response,
distribution or shipping; shifts in the timing of holidays; and changes in the
Company's product offerings. The Company's operating expenditures are based on
sales forecasts. If revenues do not meet expectations in any given quarter,
operating results may be materially adversely affected.
Results of Operations
The following table sets forth for the years indicated certain
financial information derived from the Company's Consolidated Pro Forma
Statement of Operations expressed as a percentage of net sales:
Years ended December 31,
1999 2000 2001
----------------------------------------
Net sales 100% 100% 100%
Cost of sales 86.4% 87.5% 90.1%
Gross profit 13.6% 12.5% 9.9%
Selling, general and administrative expenses 12.5% 13.7% 14.5%
Amortization of goodwill 1.5% 1.5% 0.0%
Impairment of goodwill 0.7% 7.9% 0.3%
Cost of restructuring 0.0% 0.0% 0.4%
Impairment of investment 0.0% 0.7% 0.0%
Loss from operations (1.1)% (11.2)% (5.3)%
Other income, net 0.7% 0.4% 0.3%
Loss before income taxes (0.4)% (10.8)% (5.0)%
Income tax provision (benefit) (0.4)% 3.2% (0.1)%
Net loss (0.0)% (14.0)% (5.1)%
Page 12 of 22 Pages
Year ended December 31, 2001 Compared to Year Ended December 31, 2000
Net Sales
Net sales in 2001 slightly increased 1% or $0.9 million to $89.5
million compared to $88.6 million in 2000. The overall increase in revenues in
2001 is primarily attributable to increased licensing revenue for certain
vendors, including Microsoft. In the first 9 months of 2001, our revenue
increased by $5.6 million or 8% over the nine months ended September 30, 2000.
Primarily due to a weak demand from our customer base and the negative impact of
the change in the reseller agreement with Microsoft, as discussed in Part 1,
Item 1 of this report, sales in the fourth quarter of 2001 decreased $4.7
million or 21% compared to the same period in 2000.
Our business plan contemplates that sales for 2002 will be lower than
in recent years, primarily due to the impact of the change in the reseller
agreement with Microsoft, as discussed in Part 1, Item 1 of this Report.
Gross Profit Margin
Gross profit as a percentage of net sales decreased to 9.9% in 2001,
compared to 12.5% in 2000. Gross profit in absolute dollars for the year ended
December 31, 2001 was $8.9 million as compared to $11.0 million in 2000. The
decrease in Gross Profit Margin reflects a shift in the mix of sales as a result
of the substantial increase in lower margin direct sales and Microsoft Select
licensing sales as well as continued pricing pressures.
Our business plan contemplates that our Gross Profit Margin will
increase as compared to recent years, primarily due to the impact of the change
in the reseller agreement with Microsoft, as discussed in Part 1, Item 1 of this
Report.
Restructuring Cost
In December 2001, we announced and implemented a restructuring plan
aimed at improving productivity per employee, including reductions in marketing,
Internet Development and e-Commerce teams, warehouse and support staff. Our goal
is to significantly reduce annual operating expenses by realigning resources
around our core sales and marketing initiatives. This plan includes a
restructuring charge of approximately $0.4 million incurred in 2001. As a result
of this restructuring, we terminated approximately 30 employees, resulting in
severance payments and termination benefits of approximately $0.3 Million in
December 2001. Remaining costs of approximately $0.1 million related to
abandoned equipment and leasehold improvements. All costs are incurred and
charged to the appropriate accounts in December 2001. At December 31, 2001 the
Company had a remaining accrual of $0.2 million related to severance payments
that will be paid in 2002.
Selling, General and Administrative Expenses
SG&A expenses for the year ended December 31, 2001 were $13.0 million
as compared to $12.1 million for the same period in 2000, an increase of $0.9
million or 7%. This increase was primarily due to increased legal fees related
to the sale of our European Operations as well as costs related to closing our
credit facility with Hudson United in December 2001.
Page 13 of 22 Pages
Each year SG&A has increased in absolute dollars. As a result of the
restructuring plan described above we anticipate that SG&A in absolute dollars
will decline in 2002, however there can be no assurance that this will actually
occur. Loss on Investment
In 1999, the Company acquired an interest in Healy Hudson GmbH ("Healy
Hudson"), a privately held German Internet e-Commerce software company. This
investment was accounted for under the cost method.
During the fourth quarter of 2000, the Company evaluated the carrying
value of Healy Hudson. Based upon the financial market conditions, which make it
difficult to raise additional capital and financial performance including
continuing losses, significant cash burn rate and declining cash balances, the
Company determined a valuation allowance of $590,000 was necessary.
Goodwill
During the fourth quarter of 2000, the goodwill from the acquisition of
Software Developers Corporation ("SDC") in June 1996 was evaluated and
determined to be impaired and was adjusted accordingly, as a result of the
Company's ongoing evaluation of the realizability of such goodwill. The goodwill
was the result of excess purchase price over the net assets acquired from SDC.
There had been a decline in sales generated from the Programmer's SuperShop
Catalog, which became more substantial in 2000. In 2000, the customer list and
catalog production and distribution processes were evaluated and the Company
determined the value previously recognized was impaired.
Projections of sales, gross profit and undiscounted cash flows were
prepared using catalog mailing plans and historical data. Based upon these
valuations, the Company determined goodwill to be impaired in the amount of $7.0
million and the remaining goodwill related to SDC as of December 31, 2000 was
$255,000. During the Fourth Quarter of 2001, due to the continued decline in
sales, the remaining goodwill in the amount of $230,000 was evaluated and
determined to be impaired and was adjusted accordingly, as a result of the
Company's ongoing evaluation of the realization of such goodwill.
Income Taxes
Prior to 1995, the Company had accumulated net operating loss carry
forwards and other deductible temporary differences for income tax purposes of
approximately $10.5 million, which could be used to offset taxable income
through the year 2005. The Company's initial public offering triggered an
ownership change, which imposes a limit on the use of these net operating loss
carry forwards. See Note Five to the Consolidated Financial Statements. The
Company had recorded a US deferred tax asset at December 31, 2001 of
approximately $6.7 million reflecting, in part, a benefit of $3.3 million in
federal and state tax loss carry forwards, which will expire in varying amounts
between 2002 and 2021.
Statement of Financial Accounting Standards No. 109 requires that a
valuation allowance be recorded for deferred tax assets if it is more likely
than not that some or all of the deferred tax assets will not be realized. The
ultimate realization of the deferred tax assets depends upon the existence of
future taxable income. In following the guidance set forth in FASB 109, the
Company has recorded a valuation allowance for the full amount.
For the year ended December 31, 2001, the Company recorded a provision
for income taxes of $0.1 million that consisted of a benefit of $1.1 million for
federal and state taxes respectively, offset by a deferred tax valuation
allowance of $1.2 million.
Page 14 of 22 Pages
Year ended December 31, 2000 Compared to Year Ended December 31, 1999
Net Sales
Net sales in 2000 increased 6.7% or $5.6 million to $88.6 million
compared to $83.0 million in 1999. The overall increase in revenues in 2000 is
primarily attributable to improved account management and increased licensing
revenue.
Gross Profit
Gross profit as a percentage of net sales decreased to 12.5% in 2000,
compared to 13.6% in 1999. Gross profit in absolute dollars for the year ended
December 31, 2000 was $11.0 million as compared to $11.3 million in 1999. The
decline in gross profit is primarily the result of a shift in the mix of sales
as a result of the substantial increase in lower margin direct sales and
Microsoft Select licensing sales as well as the increased competitive
environment.
Selling, General and Administrative Expenses
SG&A expenses for the year ended December 31, 2000 were $12.1 million
as compared to $10.4 million for the same period in 1999, an increase of $1.7
million or 16%. This increase was primarily the result from an increase in staff
within the Internet Development and e-Commerce teams and an increase in the
allowance for doubtful accounts.
Income Taxes
For the year ended December 31, 2000, the Company recorded a provision
for income taxes of $2.8 million that consisted of a benefit of $4.3 million for
foreign and federal and state taxes respectively, offset by a deferred tax
valuation allowance of $7.1 million. For the year ended December 31, 1999, the
Company recorded a benefit for federal and state taxes of $0.3 million.
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
expects the adoption of FAS No. 142 to have no impact on the Company's operating
results and financial position.
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 expects the
adoption of SFAS No. 144 to have no impact on the Company's operating results
and financial position.
Page 15 of 22 Pages
Liquidity and Capital Resources
Our cash and cash equivalents increased to $11.4 million at December
31, 2001, from $2,091 at December 31, 2000. Net cash provided by investing
activities amounted to $9.6 million, offset in part by $0.1 million in financing
activities.
Net cash of $9.6 million provided by investing activities consisted
primarily of $12.2 million generated by the sale of our European Operations,
partly offset by 2.5 million Euros (the equivalent of approximately $2.3 million
at December 31, 2001) that is being held in escrow. The funds held in escrow are
stated separately and are not included in our cash and cash equivalents position
at December 31, 2001.
Net cash provided by operating activities was $32,000 and primarily
resulted from a $6.6 million decrease in trade receivables and other current
assets and a $1.9 million decrease in inventories partly offset by our net loss
in 2001 of $4.5 million and a decrease in accounts payable and accrued expenses
of $5.0 million. Days sales outstanding remained flat at 51 days for 2001
compared to 2000. The decrease in accounts payable and accounts receivable is
primarily due to the impact of the changes in the reseller agreement with
Microsoft, as discussed in Part 1, Item 1 of this report. The decrease in
inventory is primarily a result of the decision to have most suppliers or
distributors "drop ship" products directly to the customers, which reduces
physical handling by the Company.
Cash used for financing activities of $0.1 million consisted primarily
of the purchase of our own stock under the buyback program discussed below.
In October 1999, the Company's Board of Directors authorized the
purchase of up to 521,013 shares of its common stock, approximately 10% of its
total outstanding shares in October of 1999, in both open market and private
transactions, as conditions warrant. The repurchase program is expected to
remain effective for 2002. We intend to hold the repurchased shares in treasury
for general corporate purposes, including issuances under various stock option
plans. As per December 31, 2001, we had repurchased approximately 265,000
shares.
The Company's current and anticipated use of its cash and cash
equivalents is, and will continue to be, to fund working capital and operational
expenditures, and for the stock buyback program. Our business plan furthermore
contemplates the use of cash to pay vendors promptly in order to obtain more
favorable conditions.
The Company believes that the funds held in cash and cash equivalents
will be sufficient to fund the Company's working capital and cash requirements
at least through December 31, 2002.
In December 2001, the Company determined that there was no need for any
additional lines of credit and as a result terminated its revolving credit
facility of up to $5 million with Hudson United Bank as per December 31, 2001.
As of December 31, 2001, there were no borrowings against this credit facility.
We currently do not have any credit facility and, in the foreseeable future, we
do not plan to enter into an agreement providing for a line of credit. In
conjunction with this termination, the Company expensed all capitalized fees
related to this facility and incurred closing costs. The total amount expensed
in December 2001 for these charges, included in selling, general and
administrative expenses, was $0.2 million.
Page 16 of 22 Pages
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements that have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. The Company recognizes revenue
from the sale of software and hardware for microcomputers, servers and networks
upon shipment or upon electronic delivery of the product. The Company
capitalizes the advertising costs associated with producing its catalogs. The
costs of these catalogs are amortized over the estimated shelf life of the
catalogs, generally 3-5 months. On an on-going basis, the Company evaluates its
estimates, including those related to product returns, bad debts, inventories,
investments, intangible assets, income taxes, restructuring and contingencies
and litigation.
The Company bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
The Company believes the following critical accounting policies used in
the preparation of its consolidated financial statements affect its more
significant judgments and estimates. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. If the financial condition of the Company's
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required. The Company writes down
its inventory for estimated obsolescence or unmarketable inventory equal to the
difference between the cost of inventory and the estimated market value based
upon assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by management, additional
inventory write-offs may be required. The Company records a valuation allowance
to reduce its deferred tax assets to the amount that is more likely than not to
be realized. While the Company has considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the need for the
valuation allowance, in the event the Company were to determine that it would be
able to realize its deferred tax assets in the future in excess of its net
recorded amount, an adjustment to the deferred tax asset would increase income
in the period such determination was made.
Contractual Obligations
(Dollars in thousands)
Payment due by Period
Total Less than 1 year 1-3 years 4-5 years After 5 years
- -----------------------------------------------------------------------------------------------------------------------
Long-term debt
Capital Lease Obligations
Operating Leases 2,648 458 891 866 433
Unconditional Purchase Obligations
Other Long term Obligations
- -----------------------------------------------------------------------------------------------------------------------
Total Contractual Obligations 2,648 458 891 866 433
=======================================================================================================================
Page 17 of 22 Pages
Operating leases primarily relates to the lease of the space used for
our operations in Shrewsbury, NJ and Mississauga, Canada.
The Company is not committed by Lines of Credit, Standby Letters of
Credit, has no standby repurchase obligations or other commercial commitments.
The Company is not engaged in any transactions with related or certain other
parties.
Foreign Exchange
As of December 31, 2001 an amount of 2.5 million Euros (the equivalent
of approximately $2.3 million at December 31, 2001) is being held in escrow
related the sale of our European Operations. The amount is subject to
fluctuations in the Euro-to-U.S. dollar exchange rate and is at risk until
converted to U.S. dollars after settlement of the claims.
Certain Factors Affecting Operating Results
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. We strongly urge current and prospective investors
to carefully consider the cautionary statements and risks contained in this
Report. Such risks include, but not are not limited to, the continued acceptance
of the Company's distribution channel by vendors and customers, the timely
availability and acceptance of new products, contribution of key vendor
relationships and support programs, as well as factors that affect the software
industry generally.
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.
The statement concerning future sales and future Gross Profit Margin
are forward looking statements involving certain risks and uncertainties such as
availability of products, product mix, market conditions and other factors,
which could result in a fluctuation of sales below recent experience.
Stock Volatility. The technology sector of the United States stock
markets has experienced substantial volatility in recent periods. Numerous
conditions, which impact the technology sector or the stock market in general or
the Company in particular, whether or not such events relate to or reflect upon
the Company's operating performance, could adversely affect the market price of
the Company's Common Stock. Furthermore, fluctuations in the Company's operating
results, announcements regarding litigation, the loss of a significant vendor,
increased competition, reduced vendor incentives and trade credit, higher
postage and operating expenses, and other developments, could have a significant
impact on the market price of the Company's Common Stock.
Page 18 of 22 Pages
Item 7A Quantitative and Qualitative Disclosures about Market Risk
In addition to its activities in the United States, 9% of the Company's
2001 sales were generated in Canada. We are subject to general risks attendant
to the conduct of business in Canada, including economic uncertainties and
foreign government regulations. In addition, the Company's Canadian business is
subject to changes in demand or pricing resulting from fluctuations in currency
exchange rates or other factors.
In 2001, the Company did not invest in marketable securities. Cash is
invested in short-term savings accounts with our primary bank, The Bank of New
York. As such, the risk of significant changes in the value of our cash invested
is minimal.
Information regarding quantitative and qualitative market risks related
to Euro 2.5 million that is being held in escrow is set forth in Part I, Item 7
of Report under the heading "Foreign Exchange."
Item 8 Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements at Item 14(a).
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
There were no disagreements with accountants on accounting and financial
disclosure matters during the periods reported herein.
PART III
Item 10 Directors and Executive Officers of the Registrant
This information required hereunder is incorporated be reference herein
from our Definitive Proxy Statement for the Annual Meeting of Stockholders to be
held June 11, 2002, to be filed pursuant to Regulation 14A not later than April
30, 2002 (the "Definitive Proxy Statement").
Item 11 Executive Compensation
The information required hereunder is incorporated by reference herein
from the Definitive Proxy Statement.
Item 12 Security Ownership of Certain Beneficial Owners and Management
The information required hereunder is incorporated by reference herein
from the Definitive Proxy Statement.
Item 13 Certain Relationships and Related Transactions
The information required hereunder is incorporated by reference herein
from the Definitive Proxy Statement.
Page 19 of 22 Pages
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements (See Index to Consolidated
Financial Statements on page F-1 of this report);
2. Financial Statement Schedule:
Schedule II Valuation and Qualifying Accounts
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the
consolidated financial statements or notes thereto.
3. Exhibits required Securities and Exchange Commission Regulation S-K,
Item 601:
Exhibit No. Description of Exhibit
2.1 Agreement for the Sale and Purchase of Shares, dated as of January
9, 2001, between the Company and PC-Ware Information Technologies,
AG.+
3.1 Form of Amended and Restated Certificate of Incorporation of the
Company.*
3.2 Form of Amended and Restated By-Laws of the Company.*
4.1 Specimen of Common Stock Certificate.*
10.5 Lease, dated as of August 27, 1987, by and between Robert C. Baker,
Robert C. Baker, Trustee under Trust Agreement dated March 15, 1984
for the Benefit of Ashley S. Baker, Gerald H. Baker, Harvey B.
Oshins, Baker 1985 Family Partnership, Gregory J. Stepic and John G.
Orrico ("Landlord") and Computer Library, Inc., and First
Modification of Lease, dated as of April 24, 1991, between Landlord
and the Company.*
10.8 Agreement dated as of December 29, 1994, between Lifeboat Publishing
and Software Garden, Inc.; License for Trademark "Dan Bricklin",
dated as of December 29, 1994, between the Company and Daniel
Bricklin; First Amendment to Software License Agreement and
Trademark License Agreement dated March 30, 1995.*
10.17 1986 Stock Option Plan and Form of Employee Stock Option Agreement.*
10.18 1995 Stock Plan.*
Page 20 of 22 Pages
10.19 1995 Non-Employee Director Plan.*
10.20 Form of Officer and Director Indemnification Agreement.*
10.38 Employment Agreement dated July 14, 1998 between William Willett and
the Company*
10.42 Lease dated as of May 14, 1997 between Robert C. Baker, et al as
Landlord and the Company **
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP
* Incorporated by reference to exhibits of the same number filed with the
Registrant's Registration Statement on Form S-1 or amendments thereto
(File No. 33-92810).
** Incorporated by reference to Exhibit 10.42 pf the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998 filed on
March 31, 1999.
+ Incorporated by reference to Annex I to the Registrant's Definitive
Special Meeting Proxy Statement filed on December 1, 2001.
(b) The Company did not file any reports on Form 8-K during the last quarter
of the year ended December 31,2001.
(c) The exhibits required by Item 601 of Regulation S-K are reflected above in
section (a) 3. of this Item.
(d) The financial statement schedule is included as reflected in Section (a)
2. of this Item.
Page 21 of 22 Pages
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Shrewsbury, New
Jersey, on March 20, 2002.
PROGRAMMER'S PARADISE, INC.
By: /s/ William H. Willett
--------------------------------
William H. Willett, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ William H. Willett President, Chief Executive Officer and March 20, 2002
- ------------------------- Chairman of the Board of Directors
William H. Willett
/s/ Simon F. Nynens Vice President, Chief Financial and March 20, 2002
- ------------------------- Accounting Officer
Simon F. Nynens
/s/ Mark. T. Boyer
- ------------------------- Director March 20, 2002
Mark. T. Boyer
/s/ F. Duffield Meyercord
- ------------------------- Director March 20, 2002
F. Duffield Meyercord
/s/ Edwin H. Morgens Director March 20, 2002
- -------------------------
Edwin H. Morgens
/s/ James W. Sight Director March 20, 2002
- -------------------------
James W. Sight
/s/ Allan D. Weingarten Director March 20, 2002
- -------------------------
Allan D. Weingarten
Page 22 of 22 Pages
Items 8 and 14(a)
Programmer's Paradise, Inc. and Subsidiaries
Index to Consolidated Financial Statements and Schedule
Page
----
Report of Independent Auditors F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
Schedule II - Valuation and Qualifying Accounts F-19
F - 1
Report of Independent Auditors
The Board of Directors and Stockholders
Programmer's Paradise, Inc.
We have audited the accompanying consolidated balance sheets of Programmer's
Paradise, Inc. and subsidiaries as of December 31, 2000 and 2001, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2001. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Programmer's
Paradise, Inc. and subsidiaries at December 31, 2000 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
MetroPark, New Jersey
March 1, 2002
F - 2
Programmer's Paradise, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
December 31
2000 2001
----------------------------------
Assets
Current assets:
Cash and cash equivalents $ 2,091 $11,425
Cash held in escrow 2,335
Accounts receivable, net of allowances of $530 and
$791 in 2000 and 2001, respectively 13,048 8,449
Inventory, net of allowances of $441 and $210 in 2000 and 2001, 2,631 686
respectively
Prepaid expenses and other current assets 2,342 471
Net assets of European subsidiaries held for sale 12,163
----------------------------------
Total current assets 32,275 23,366
Equipment and leasehold improvements, net 934 634
Goodwill, net of accumulated amortization of $18,669 in 2000. 255
Other assets 391 57
----------------------------------
$33,855 $24,057
==================================
Liabilities and stockholders' equity Current liabilities:
Accounts payable and accrued expenses $14,939 $9,649
Other current liabilities 10 350
----------------------------------
Total current liabilities 14,949 9,999
Stockholders' equity:
Common Stock $.01 par value: Authorized, 10,000,000 shares, issued
5,287,813 and 5,307,938 in 2000 and 2001, respectively 53 53
Additional paid-in capital 35,476 35,483
Treasury stock, at cost, 224,800 and 263,407 shares in 2000 and 2001,
respectively (1,325) (1,473)
Retained earnings/(deficit) (15,017) (19,539)
Accumulated other comprehensive loss (281) (466)
----------------------------------
Total stockholders' equity 18,906 14,058
----------------------------------
$33,855 $24,057
==================================
See accompanying notes.
F - 3
Programmer's Paradise, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
Year ended December 31
1999 2000 2001
---------------------------------------------------------------
Net sales $244,139 $216,543 $89,536
Cost of sales 218,014 194,964 80,656
---------------------------------------------------------------
Gross profit 26,125 21,579 8,880
Selling, general and administrative expenses 24,422 25,648 13,020
Amortization of goodwill 1,795 1,385 25
Impairment of goodwill 7,000 230
Cost of Restructuring - - 362
Impairment of investment - 590 -
Loss on sale of European subsidiaries - 2,081 -
---------------------------------------------------------------
Loss from operations (92) (15,125) (4,757)
Other (expense) income:
Interest expense (408) (353) (71)
Interest income 548 301 389
Unrealized foreign exchange gain 525 186 -
---------------------------------------------------------------
Income (loss) before provision for income taxes 573 (14,991) (4,439)
Provision for income taxes 1,302 2,483 83
---------------------------------------------------------------
Net loss $ (729) $(17,474) $(4,522)
===============================================================
Basic and Diluted net loss per common share $ (0.14) $ (3.51) $ (0.91)
===============================================================
Weighted average common shares outstanding 5,100 4,983 4,987
===============================================================
See accompanying notes
F - 4
Programmer's Paradise, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
Accumulated
Additional Retained other
Common Stock Paid-In Treasury Earning Comprehensive
Shares Amount Capital Stock (Deficit) Income (loss) Total
--------------------------------------------------------------------------------------------
Balance at January 1, 1999 4,951,070 $50 $33,952 $(219) $3,186 $(728) $36,241
Net loss (729) (729)
Other comprehensive loss:
Translation adjustment (1,449) (1,449)
Comprehensive loss (2,178)
Exercise of stock options,
including $1,054 in income tax
benefits 284,568 3 1,676 223 1,902
Issuance of common stock for
severance and bonus 44,800 244 244
Purchase of 231,500 treasury
stock shares (1,360) (1,360)
--------------------------------------------------------------------------------------------
Balance at December 31, 1999 5,280,438 53 35,872 (1,356) 2,457 (2,177) 34,849
Net loss (17,474) (17,474)
Other comprehensive loss:
Translation adjustment (1,164) (1,164)
Comprehensive loss (18,638)
Translation balance included in
net assets held for sale 3,060 3,060
Tax benefit from stock options (365) (365)
Repayment of proceeds from
stock option exercise (35) (35)
Exercise of stock options 7,375 4 31 35
--------------------------------------------------------------------------------------------
Balance at December 31, 2000 5,287,813 53 35,476 (1,325) (15,017) (281) 18,906
Net loss (4,522) (4,522)
Other comprehensive loss: (185)
Translation adjustment (185)
Comprehensive loss (4,707)
Purchase of 38,607 treasury (148)
stock shares (148)
Exercise of stock options 20,125 7 7
--------------------------------------------------------------------------------------------
Balance at December 31, 2001 5,307,938 $53 $35,483 $(1,473) $(19,539) $(466) $14,058
============================================================================================
See accompanying notes
F - 5
Programmer's Paradise, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31
1999 2000 2001
-------------------------------------------------------
Cash flows from operating activities
Net loss $ (729) $ (17,474) $(4,522)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Impairment of investment 590
Deferred income taxes 4 2,834
Depreciation expense 1,177 957 501
Amortization expense 1,929 1,609 303
Loss on sale of European subsidiaries 2,081
Impairment of goodwill 7,000 230
Changes in operating assets and liabilities, net
of assets held for sale:
Accounts receivable 6,687 (3,027) 4,599
Inventory (285) 791 1,945
Prepaid expenses and other current assets (815) 406 1,871
Accounts payable and accrued expenses (7,437) 6,822 (4,950)
Net change in other operating assets and liabilities 937 (354) 55
-------------------------------------------------------
Net cash provided by operating activities 1,468 2,235 32
Cash flows from investing activities
Purchase of equipment, leasehold improvements and other
(996) (581) (201)
Change in net assets held for sale (14,407) 12,163
Increase in cash held in escrow (2,335)
Purchases of businesses, net of cash acquired (2,274)
-------------------------------------------------------
Net cash provided by (used in) investing activities (3,270) (14,988) 9,627
Cash flows from financing activities
Borrowings (repayments) under lines of credit 2,628 (2,628)
Repayments under long term debt (2,435)
Purchase of treasury stock (1,137) (148)
Repayment of proceeds from stock option exercise (35)
Net proceeds from issuance of common stock 625 35 7
-------------------------------------------------------
Net cash used in financing activities (319) (2,628) (141)
-------------------------------------------------------
Effect of foreign exchange rate on cash (1,449) (125) (184)
-------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,570) (15,506) 9,334
Cash and cash equivalents at beginning of year 21,167 17,597 2,091
-------------------------------------------------------
Cash and cash equivalents at end of year $ 17,597 $ 2,091 $ 11,425
=======================================================
See accompanying notes.
F - 6
Note 1. Description of Business
Programmer's Paradise, Inc. operates in one primary business segment: the
marketing of technical software and hardware for microcomputers, servers and
networks in the United States and Canada. We offer a wide variety of technical
and general business application software and PC hardware and components from a
broad range of publishers and manufacturers. We market our products through our
well-known catalogs, direct mail programs, advertisements in trade magazines as
well as through Internet and e-mail promotions. Through our wholly owned
subsidiary, Lifeboat Distribution Inc., we distribute marketed products to
dealers and resellers in the United States and Canada.
Prior to January 2001, the Company also had operations in Europe. Pursuant to an
Agreement, dated December 1, 2000, the Company sold all of the shares of its
European subsidiaries to PC-Ware Information Technologies AG, a German
corporation ("PC-Ware"), on January 9, 2001.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation and Operations
The consolidated financial statements include the accounts of Programmer's
Paradise, Inc. and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
Use of Estimates
The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to product returns, bad debts, inventories, investments,
intangible assets, income taxes, restructuring and contingencies and litigation.
The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
Net Loss Per Common Share
Basic loss per share is computed using average shares outstanding during the
period. Diluted loss per share is equal to basic loss per share as we had
generated net losses for the years ended December 31, 2001, 2000 and 1999,
thereby making the potential effects of dilutive securities anti-dilutive.
Securities that could potentially dilute basic earnings per share in the future
include employee stock options (Note six).
F - 7
Cash Equivalents
The Company considers all highly liquid short-term investments with original
maturities of 90 days or less to be cash equivalents.
Foreign Currency Translation
Assets and liabilities of the foreign subsidiary in Canada have been translated
at current exchange rates, and related revenues and expenses have been
translated at average rates of exchange in effect during the year. 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".
Inventory
Inventory, consisting primarily of finished products held for resale, is stated
at the lower of cost (weighted average) or market.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation and
amortization are calculated using the straight-line method over three to five
years. Leasehold improvements are amortized over the estimated useful lives of
the assets or the related lease terms, whichever is shorter.
Accounting for Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets used in
operations when events and circumstances indicate that an asset's carrying value
may not be recoverable. An impairment loss is recognized when the sum of the
expected future undiscounted net cash flows is less than the carrying value of
the asset. An impairment loss would be measured by comparing the amount by which
the carrying value exceeds the fair value of the asset being evaluated for
impairment.
Goodwill
Goodwill represents the excess of costs over fair values of net assets acquired
and is being amortized on a straight-line basis substantially over the estimated
live of 15 years. Intangible assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable.
During the fourth quarter ended December 31, 2000, the goodwill from the
acquisition of Software Developers Corporation ("SDC") in June 1996 was
determined the to be impaired and was adjusted accordingly as a result of the
Company's ongoing evaluation of the realizability of such goodwill. The goodwill
was the result of excess purchase price over assets from SDC.
F - 8
In 2000, the catalog production and distribution processes were evaluated and it
was determined that the value previously recognized was impaired. The customers
buying patterns were beginning to change based upon increased competition from
other direct market resellers and the accessibility to procure software products
through competing websites.
The impairment of goodwill was determined by analyzing the historical trends and
future undiscounted net cash flow projections of the Programmer's SuperShop
Catalog. The number of customers mailed were reviewed and based upon the data it
was evident the amount of catalogs mailed were declining. Additionally, the
volume of catalog sales was analyzed and the sales amounts were decreasing.
Gross profit dollars during the period was experiencing pricing pressures from
competitors and increased distributors and websites to procure software
products. This is leading to decreasing gross profit dollars and increased
catalog and production costs. Finally, the buying patterns of customers was
analyzed and determined that repeat buying was not increasing, and the number of
one-time buyer's greater than 36 months making a second purchase were not
materializing. Projections of sales, gross profit and undiscounted net cash
flows were prepared using catalog mailing plans and historical data. Based upon
these valuations, goodwill was determined to be impaired in the amount of $7.0
million and the remaining goodwill related to SDC as of December 31, 2000 is
$255,000. The impairment of SDC goodwill is included in loss from operations
amount within the Statement of Operations.
During the Fourth Quarter of 2001 the remaining goodwill in the amount of
$230,000 was evaluated and, due to a decline in sales, determined to be impaired
and was adjusted accordingly, as a result of the Company's ongoing evaluation of
the realization of such goodwill.
Investment in Healy Hudson
In 2000, the Company acquired an interest in Healy Hudson GmbH ("Healy Hudson"),
a privately held Internet e-Commerce software company. This investment was
accounted for under the cost method. During the fourth quarter of 2000, the
Company evaluated the carrying value of Healy Hudson. Based upon the financial
market conditions, which make it difficult to raise additional capital and
financial performance including continuing losses, significant cash burn rate
and declining cash balances, the Company determined a valuation allowance of
$590,000 is necessary.
Treasury Shares
The Company intends to hold the shares in treasury for general corporate
purposes, including issuances under various employee stock option plans. The
Company accounts for the treasury shares using the cost method.
Stock-Based Compensation
As permitted by FASB Statement No. 123 "Accounting for Stock-Based Compensation"
(FASB 123), the Company has elected to follow Accounting Principal Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock option plans.
F - 9
Under APB 25, no compensation expense is recognized at the time of option grant
because the exercise price of the Company's employee stock option equals the
fair market value of the underlying common stock on the date of grant.
Revenue Recognition
The Company recognizes revenue from the sale of software and hardware for
microcomputers, servers and networks upon shipment or upon electronic delivery
of the product.
Advertising Costs
The Company capitalizes the advertising costs associated with producing its
catalogs. The costs of these catalogs are amortized over the estimated shelf
life of the catalogs, generally 3-5 months. The unamortized balance of
non-reimbursed advertising costs at any period end is minimal. Advertising costs
for 1999, 2000, and 2001 amounted to approximately $6,611, $4,391 and $4,024
respectively.
Income Taxes
The Company utilizes the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities
and are measured using enacted tax rates and laws that will be in effect when
the differences are expected to reverse. This method also requires a valuation
allowance against net deferred tax asset if, based on the weighted available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
Impact of 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 expects the adoption of FAS No.
142 to have no impact on the Company's operating results and financial position.
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 expects the adoption
of SFAS No. 144 to have no impact on the Company's operating results and
financial position.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
F - 10
3. Notes Payable to Banks
On February 9, 2001, the Company entered into a Loan and Security Agreement (the
"Loan Agreement") with Hudson United Bank ("Hudson"). In December 2001 the
Company determined that there was no need for any additional lines of credit and
as a result, the Company has terminated its revolving credit facility of up to
$5 million with Hudson United Bank as per December 31, 2001. As of December 31,
2001, there were no borrowings against this credit facility. In connection with
this termination, as of December 31, 2001 the Company expensed all capitalized
fees incurred to acquire the facility and accrued closing costs. The total
amount expensed for these charges, included in Selling, General and
administrative expenses, was $0.2 million.
Interest paid was approximately $316, $298 and $71 for the years ended December
31, 1999, 2000 and 2001, respectively.
4. Balance Sheet Detail
Equipment and leasehold improvements consists of the following as of December
31:
2000 2001
-------------------------
Equipment $ 2,594 $ 1,717
Leasehold improvements 294 298
-------------------------
2,888 2,015
Less accumulated depreciation and amortization (1,954) (1,381)
-------------------------
$ 934 $ 634
=========================
Accounts payable and accrued expenses consists of the following as of December
31:
2000 2001
-------------------------
Trade accounts payable $ 6,497 $ 3,600
Accrued inventory 6,649 5,114
Other accrued expenses 1,793 935
-------------------------
$ 14,939 $ 9,649
=========================
F - 11
5. Income Taxes
The provision for income taxes is as follows:
Year ended December 31
1999 2000 2001
--------------------------------------------------
Current:
Federal $ (145) $ - $ 44
State 5 - 39
Foreign 1,764 - -
--------------------------------------------------
1,624 - 83
Deferred:
Federal (244) 2,195 -
State (17) 639 -
Foreign (61) (351) -
--------------------------------------------------
(322) 2,483 -
--------------------------------------------------
$ 1,302 $ 2,483 $ 83
==================================================
The reasons for the difference between total tax expense and the amount computed
by applying the U.S. statutory federal income tax rate to income before income
taxes are as follows:
Year ended December 31
1999 2000 2001
--------------------------------
Statutory rate applied to pretax income $ 195 (5,247) (1,509)
Impairment of goodwill - 748 -
Amortization of goodwill 341 113 -
State income taxes, net of benefit
of federal income taxes (8) (704) (173)
Foreign income taxes over U.S.
statutory rate 763 495 56
Net increase(decrease) in valuation allowance 7,078 (379)
Loss on sale of foreign subsidiaries - - 1,997
Other items 11 - 8
Settlement of prior year's tax - - 83
--------------------------------
Income tax expense $ 1,302 2,483 83
================================
Significant components of the Company's deferred tax assets are as follows as
of:
December 31
2000 2001
--------------------------------
Fixed assets $ 1,314 $ 200
Accruals and reserves 4,607 3,196
Net operating loss carryforwards 2,436 3,287
Credit carry forwards 16 16
--------------------------------
Deferred tax assets $ 8,373 $ 6,699
--------------------------------
Valuation allowance (7,078) (6,699)
--------------------------------
Deferred tax assets $ 1,295 $ 0
================================
F - 12
As of December 31, 2001, the Company had approximately $8,885 in federal net
operating loss carryovers, which expire in varying amounts between 2002 and 2021
($862 in 2002, $1,576 in 2003 and $6,447 in 2004 and beyond). As a result of the
current uncertainty of realizing the benefits of the tax loss carry forward,
valuation allowances equal to the tax benefits for the U.S. deferred taxes have
been established. The full realization of the tax benefit associated with the
carry forward depends predominantly upon the Company's ability to generate
taxable income during the carry forward period. The valuation allowance will be
evaluated at the end of each reporting period, considering positive and negative
evidence about whether the deferred tax asset will be realized. At that time,
the allowance will either be increased or reduced; reduction could result in the
complete elimination of the allowance if positive evidence indicates that the
value of the deferred tax assets is no longer impaired and the allowance is no
longer required. The Company's ability to utilize certain net operating loss
carry forwards is restricted to approximately $1.5 million per year
cumulatively, as a result of an ownership change pursuant to Section 382 of the
Internal Revenue Code.
For financial reporting purposes, income (loss) before income taxes includes the
following components:
Year ended December 31
1999 2000 2001
--------------------------------------------
United States $ (721) $(12,574) $(4,311)
Foreign 1,294 (2,417) (128)
--------------------------------------------
$ 573 $(14,991) $(4,439)
============================================
During the years ended December 31, 1999, 2000 and 2001, the Company paid
approximately $1,471, $783 and $125, respectively, in income taxes.
6. Stockholder's Equity and Stock Option Plans
The Company's 1986 Employee Stock Option Plan, as amended on June 15, 1994,
provides for the grant of options to purchase up to 698,133 shares of the
Company's common stock to employees, officers and directors of the Company. The
terms of the options are for a maximum of ten years from date of grant and
generally are exercisable at an exercise price equal to but not less than the
fair market value of the common stock on the date that the option is granted.
The options generally vest in equal annual installments over five years. There
are no additional options available for grant under the Company's 1986 Employee
Stock Option Plan.
F - 13
On April 21, 1995, the Board of Directors adopted the Company's 1995 Employee
Stock Plan ("1995 Plan"). The 1995 Plan, as amended on May 7, 1998, provides for
the grant of options to purchase up to 1,137,500 shares of the Company's common
stock to officers, directors, employees and consultants of the Company. The 1995
Plan requires that each option shall expire on the date specified by the
Compensation Committee, but not more than ten years from its date of grant in
the case of ISO's and Non-Qualified Options. Options granted under the plan are
exercisable at an exercise price equal to but not less than the fair market
value of the common stock on the grant date. ISO's generally vest in equal
annual installments over five years.
On April 21, 1995, the Board of Directors adopted the Company's 1995
Non-Employee Director Plan ("1995 Director Plan"). The 1995 Director Plan, as
amended on May 7, 1998, provides for the grant of options to purchase up to
187,500 shares of the Company's common stock to persons who are members of the
Company's Board of Directors and not employees or officers of the Company. The
1995 Director Plan requires that options granted there under will expire ten
years from the date of grant. Each option granted under the 1995 Director Plan
becomes exercisable over a five year period, and vests in an installment of 20%
of the total option grant upon the expiration of one year from the date of the
option grant, and thereafter vests in equal quarterly installments of 5%.
FASB 123 requires pro forma information regarding net income and earnings per
share as if the Company had accounted for its employee stock options under the
fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1999, 2000 and 2001,
respectively: risk free interest rates of 6.64%, 4.63% and 4.47%, dividend
yields of 0% in all three periods, volatility factors of the expected market
price of the Company's common stock of .87, .73 and .61, and a weighted-average
expected life of the option of 5.5 years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
Year ended December 31
---------------------------
1999 2000 2001
--------------------------
Net loss as reported $ (729) $(17,474) $(4,522)
Net loss pro forma $(1,731) $(17,718) $(4,737)
Basic and diluted net loss per share, as reported $ (.14) $ (3.51) $ (0.91)
Basic and diluted net loss per share, pro forma $ (.34) $ (3.56) $ (0.95)
The weighted average fair value of options granted during 1999, 2000 and 2001 is
$6.54, $6.23 and $2.24 respectively.
F - 14
Changes during 1999, 2000 and 2001 in options outstanding for the combined plans
were as follows:
Weighted
Number Average
of Exercise
Options Price
-----------------------------
Outstanding at January 1, 1999 1,156,879 $5.25
Granted in 1999 55,000 6.23
Canceled in 1999 (99,222) 6.33
Exercised in 1999 (326,418) 2.57
---------------
Outstanding at December 31, 1999 786,239 6.28
Granted in 2000 162,000 5.45
Canceled in 2000 (181,663) 5.53
Exercised in 2000 (14,475) 2.10
---------------
Outstanding at December 31, 2000 752,101 6.30
Granted in 2001 18,750 3.85
Canceled in 2001 (168,350) 8.34
Exercised in 2001 (20,125) 0.32
---------------
Outstanding at December 31, 2001 582,376 5.84
===============
Exercisable at December 31, 2001 457,741 5.97
===============
The options exercisable at December 31, 2000 and 1999 were 564,635 and 543,472
respectively.
Stock options outstanding at December 31, 2001 are summarized as follows:
Outstanding Weighted Options Exercisable
Options Average Weighted as of Weighted Average
Range of Exercise as of Remaining Average December Exercise
Prices December Contractual Exercise Price 31, 2001 Price
31, 2001 Life
- --------------------------------------------------------------------------------------------------------------------
$0.00 - 2.58 13,125 1.7 $0.67 13,125 $0.67
2.59 - 3.88 43,750 9.0 3.65 5,000 3.50
3.89 - 5.18 46,500 3.3 4.00 46,500 4.00
5.19 - 6.47 424,201 6.4 6.19 348,326 6.26
6.48 - 7.76 38,800 5.1 7.18 34,790 7.21
7.77 - 9.06 10,000 6.4 8.50 7,000 8.48
9.07 - 10.35 5,000 8.1 9.75 2,000 9.75
10.36 - 11.64 1,000 3.0 10.50 1,000 10.50
-------------- --------------
582,376 457,741
============== ==============
Under the various plans, options that are cancelled can be reissued. At December
31, 2001 703,466 shares were reserved for future issuance.
F - 15
7. Defined Contribution Plan
The Company maintains a defined contribution plan covering substantially all
domestic employees. Participating employees may make contributions to the plan,
through payroll deductions. Matching contributions are made by the Company equal
to 50% of the employee's contribution to the extent such employee contribution
did not exceed 6% of their compensation. During the years ended December 31,
1999, 2000 and 2001, the Company expensed approximately $95, $93 and $97
respectively, related to this plan.
8. Commitments
Operating leases relates to the lease of the space used for our operations in
Shrewsbury, NJ and Mississauga, Canada and certain equipment under long-term
operating leases that include certain renewal options. The commitments for
operating leases include the minimum rent payments and a proportionate share of
operating expenses and property taxes. The future minimum rental payments for
the US and Canada for the remaining terms of the leases are as follows:
2001 $ 458
2002 458
2003 433
2004 433
2005 433
2006 and thereafter 433
--------------
$ 2,648
==============
The Company is not committed by lines of credit, standby letters of credit, has
no standby repurchase obligations or other commercial commitments. The Company
is not engaged in any transactions with related or certain other parties.
Rent expense for the years ended December 31, 1999, 2000 and 2001 was
approximately $1,050, $1,135 and $455 respectively.
The Company has royalty agreements, which require payments based on sale of
certain products. Royalty expense for the years ended December 31, 1999, 2000
and 2001 was approximately $131, $19 and $3, respectively.
F - 16
9. Industry segment and Geographic information
Programmer's Paradise, Inc. operates in one primary business segment: the
marketing of technical software and hardware for microcomputers, servers and
networks in the United States and Canada. Prior to January 2001, the Company
also operated in Europe.
Geographic revenue and identifiable assets related to operations as of and for
the years ended December 31 were as follows
---------------------------------
1999 2000 2001
---------------------------------
Net sales to Unaffiliated Customers:
United States $ 75,298 $ 81,700 $ 81,339
Canada 5,432 6,925 8,197
Europe 163,409 127,918 -
---------------------------------
Total $244,139 $ 216,543 $ 89,536
=================================
Identifiable Assets by Geographic Areas:
United States $ 27,372 $ 19,918 $ 20,938
Canada 1,503 1,774 3,119
Europe 66,882 12,163 -
---------------------------------
Total $ 95,757 $33,855 $ 24,057
=================================
"Europe" is comprised of Austria, France, Germany, Italy, the Netherlands and
the United Kingdom.
10. Quarterly Results of Operations (Unaudited)
The following table presents summarized quarterly results for 2001:
-------------------------------------------------
First Second Third Fourth
-------------------------------------------------
Revenues $24,164 $24,127 $24,177 $17,068
Gross profit 2,537 2,452 2,318 1,573
Net loss (156) (562) (428) (3,376)
Basic and dilutive
net loss per share $ (0.03) $ (0.11) $ (0.09) $(0.68)
The net loss for the fourth quarter of 2001 was primarily the result of the
lower sales volume, which was primarily due to the changes in the reseller
agreement with Microsoft, restructuring costs ($362), impairment of goodwill
from the Software Developers Corporation acquisition from June 1996 ($230),
costs related to the cancellation of the credit facility with Hudson United
($170), legal fees incurred due to the sale of our European operations ($250)
and an increase in the allowance for doubtful accounts ($346).
F - 17
The following table presents summarized quarterly results for 2000:
-------------------------------------------------
First Second Third Fourth
-------------------------------------------------
Revenues $52,686 $51,949 $42,304 $ 69,604
Gross profit 5,335 5,057 4,668 6,519
Net income/(loss) (699) (1,044) (452) (15,279)
Basic and dilutive
net loss per share $ (0.14) $ (0.21) $ (0.09) $ (3.07)
The net loss for the fourth quarter of 2000 was primarily the result of the
impairment of goodwill from the Software Developers Corporation acquisition from
June 1996 ($7,000), the loss on the sale of the European subsidiaries ($2,081),
and an increase in the valuation allowance for the deferred tax assets as set
forth in the Statement of Financial Accounting Standards No. 109 ($2,834).
11. Restructuring Cost
In December 2001, we announced and implemented a restructuring plan aimed at
improving productivity per employee, including reductions in marketing, internet
development and e-commerce teams, warehouse and support staff. Our goal is to
significantly reduce annual operating expenses by realigning resources around
our core sales and marketing initiatives. This plan includes a restructuring
charge of $0.4 million incurred in the fourth quarter of 2001. As a result of
this restructuring, we terminated approximately 30 employees, resulting in
severance payments and termination benefits of approximately $0.3 Million in
December 2001. Remaining costs of approximately $0.1 million related to
abandoned equipment and leasehold improvements. All costs are incurred and
charged to the appropriate accounts in December 2001. At December 31, 2001 the
Company had a remaining accrual of $0.2 million related to severance payments
that will be paid in 2002.
12. Litigation
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 for 14,500,000 Euros, subject to post-closing
adjustments, including finalization of the closing balance sheet, in accordance
with the Stock Sale Agreement between the Company and PC Ware, which remains to
be resolved between the parties. As security for any claim of PC-Ware arising
from alleged breaches of representations by the Company under the Stock Sale
Agreement, 3,275,000 Euros are being held in a 240-day escrow. Such claims are
subject to a 300,000 Euro de minimus amount and a 7,500,000 Euro maximum amount.
In September 2001, PC-Ware made claims aggregating 2,190,127.16 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 remaining claims are without merit and
intends to vigorously dispute each in the arbitration proceedings, which will
resolve the disputed claims.
F - 18
Programmer's Paradise, Inc. and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
(In Thousands)
Charged to Amounts
Beginning Cost and transferred Ending
Description Balance Expense to net assets Deductions Balance
held for sale
---------------------------------------------------------------
Year ended December 31, 1999:
Allowances for accounts receivable $1,180 919 669 $1,430
Reserve for Obsolescence $ 478 205 296 $ 387
Year ended December 31, 2000:
Allowances for accounts receivable $1,430 918 (1,442) 376 $ 530
Reserve for Obsolescence $ 387 376 (257) 65 $ 441
Year ended December 31, 2001:
Allowances for accounts receivable $ 530 1,328 1,067 $ 791
Reserve for Obsolescence $ 441 345 576 $ 210
F - 19