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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to __________
Commission File No. 000-26408
---------
Programmer's Paradise, Inc.
-------------------------------
(Name of issuer in its charter)
Delaware 13-3136104
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
1157 Shrewsbury Avenue, Shrewsbury, New Jersey 07702
- ----------------------------------------------------
(Address of principal executive offices)
Issuer's Telephone Number (732) 389-8950
--------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
There were 4,256,400 outstanding shares of Common Stock, par value $.01
per share, as of August 1, 2002, not including 973,850 shares classified as
Treasury Stock.
Page 1
PART I - FINANCIAL INFORMATION
PROGRAMMER'S PARADISE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
June 30, December 31,
2002 2001
---------- -------------
(Unaudited) (Audited)
Current assets
Cash and cash equivalents $ 3,686 $ 11,425
Marketable Securities 5,283 -
Cash held in escrow 2,614 2,335
Accounts receivable, net 8,839 8,449
Inventory - finished goods 805 686
Refundable Income taxes 337 -
Prepaid expenses and other current assets 444 471
------------- ---------------
Total current assets 22,008 23,366
Equipment and leasehold improvements, net 524 634
Other assets 46 57
------------- ---------------
Total assets $ 22,578 $ 24,057
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 7,819 $ 9,649
Other current liabilities 350 350
------------- ---------------
Total current liabilities 8,169 9,999
Commitments and contingencies
Stockholders' equity
Common stock 53 53
Additional paid-in capital 35,483 35,483
Treasury stock (2,145) (1,473)
Retained earnings (19,010) (19,539)
Accumulated other comprehensive loss 28 (466)
-------------- ----------------
Total stockholders' equity 14,409 14,058
-------------- ----------------
Total liabilities and stockholders' equity $ 22,578 $ 24,057
============== ================
The accompanying notes are an integral part of these consolidated financial statements.
Page 2
PROGRAMMER'S PARADISE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands, except per share data)
Six months ended Three months ended
June 30, June 30,
---------------------------- ------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net sales $ 34,473 $ 48,291 $ 16,926 $ 24,127
Cost of sales 29,953 43,302 14,678 21,675
---------- --------- ---------- ----------
Gross profit 4,520 4,989 2,248 2,452
Selling, general and administrative expenses 4,366 5,845 2,197 2,947
---------- --------- ---------- ----------
Income (loss) from operations 154 (856) 51 (495)
Interest income, net 130 194 78 96
Unrealized foreign exchange gain (loss) (7) 9 2 (7)
----------- --------- ---------- -----------
Income (loss) before taxes 277 (653) 131 (406)
Provision (benefit) for taxes (252) 65 (300) 156
----------- ---------- ----------- -----------
Net income (loss) $ 529 $ (718) $ 431 $ (562)
=========== ========== =========== ===========
Earnings per share-Basic and Diluted $ 0.11 $ (0.14) $ 0.09 $ (0.11)
=========== ========== =========== ===========
Weighted average number of common shares outstanding
Basic 4,852 4,990 4,784 4,994
========== ========= =========== ===========
Diluted 4,861 4,990 4,794 4,994
========== ========== =========== ===========
Reconciliation of net income (loss) to comprehensive
income (Loss):
Net income (loss) $ 529 $ (718) $ 431 $ (562)
---------- ---------- ----------- -----------
Other comprehensive income (loss), net of tax:
Unrealized gain on available-for-sale securities 100 - 100 -
Foreign currency translation adjustments 394 (246) 437 6
---------- ---------- ----------- -----------
Comprehensive income (loss) $ 1,023 $ (964) $ 968 $ (556)
========== ========== =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 3
PROGRAMMER'S PARADISE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six months Ended
June 30,
--------------------------
2002 2001
---- ----
Cash flows from operating activities
Net income (loss) $ 529 $ (718)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Allowance for doubtful accounts 231 350
Depreciation and amortization 201 378
Changes in operating assets and liabilities:
Accounts receivable (621) (924)
Inventory (118) 421
Prepaid expenses and other current assets 28 1,232
Refundable income taxes (337) -
Accounts payable and accrued expenses (1,830) (3,342)
Net change in other assets and liabilities (3) (107)
----------- ----------
Net cash used for operating activities (1,820) (2,710)
----------- ----------
Cash flows from investing activities:
Change in net assets held for sale - 12,163
Purchases of available-for-sale securities (5,183) -
(Increase) decrease in cash held in escrow (279) (2,797)
Capital expenditures (78) (127)
----------- ----------
Net cash provided by (used for) investing activities (5,540) 9,239
----------- ----------
Cash flows from financing activities:
Net proceeds from issuance of Common Stock - 6
Purchase of treasury shares (672) -
----------- ----------
Net cash provided by (used for) financing activities (672) 6
----------- ----------
Effect of foreign exchange rate on cash 393 (208)
----------- ----------
Net increase (decrease) in cash and cash equivalents (7,739) 6,327
Cash and cash equivalents - beginning of period 11,425 2,091
----------- ----------
Cash and cash equivalents - end of period $ 3,686 $ 8,418
=========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 4
PROGRAMMER'S PARADISE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2002
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
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. In the opinion of
Management all adjustments that are of a normal recurring nature,
considered necessary for fair presentation, have been included. Actual
results may differ from these estimates under different assumptions or
conditions. The unaudited condensed consolidated statements of income for
the interim periods are not necessarily indicative of results for the full
year. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 2001.
2. Assets and liabilities of the Company's Canadian Subsidiary 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 and unrealized gains on
available-for-sale securities have been classified within other
comprehensive income (loss), which is a separate component of stockholders
equity in accordance with FASB Statement No. 130. "Reporting Comprehensive
Income".
3. In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 144 provides a single accounting model
for long-lived assets to be disposed of. Although retaining many of the
fundamental recognition and measurement provisions of SFAS No. 121, the
Statement significantly changes the criteria that would have to be met to
classify an asset as held-for-sale. Under SFAS No. 144, assets
held-for-sale are stated at the lower of their fair values or carrying
amounts and depreciation is no longer recognized. The Company adopted SFAS
No. 144 effective January 1, 2002. There was no impact on the Company as a
result of adopting SFAS No. 144.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145, among other things, rescinds SFAS No. 4, which
required all gains and losses from the extinguishment of debt to be
classified as an extraordinary item and amends SFAS No. 13 to require that
certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. This statement is not expected to have an
impact on the Company.
Page 5
Notes to Condensed Consolidated Financial Statements (continued)
4. 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 as of
September 2001 of approximately $1,997,000) against the escrow.
On October 19, 2001, 735,789 Euros (the equivalent as of October 2001 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.
5. The Company computes comprehensive income in accordance with Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. Other
comprehensive income, as defined, includes all changes in equity during a
period from non-owner sources, such as unrealized gains and losses on
available-for-sale securities and foreign currency translation.
6. Investments in available-for-sale securities as per June 30, 2002 were as
follows:
Cost Market value Unrealized Gain (loss)
----- ------------ ----------------------
U.S.Government securities 5,183 5,283 100
7. Basic EPS is computed by dividing net earnings (loss) by the weighted
average number of shares outstanding during the period. Diluted EPS is
computed considering the potentially dilutive effect of outstanding stock
options. A reconciliation of the numerator and denominators of the basic
and diluted per share computations follows (in thousands, except per share
data):
Six months ended
June 30,
-----------------------
2002 2001
---- -----
Numerator:
Net Income (loss) $ 529 $ (718)
Denominator:
Weighted average shares (Basic) 4,852 4,990
Dilutive effect of outstanding options 9 0
--------- ---------
Weighted average shares including assumed conversions (Diluted) 4,861 4,990
Basic and Diluted net income (loss) per share $ 0.11 $ (0.14)
Page 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
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 and 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. 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 periods indicated certain financial
information derived from the Company's consolidated statement of operations
expressed as a percentage of net sales.
Three months ended
June 30,
------------------
2002 2001
---- ----
Net sales 100.0% 100.0%
Cost of sales 86.7 89.8
----- ------
Gross profit 13.3 10.2
Selling, general and administrative expenses 13.0 12.2
----- ------
Income (loss) from operations 0.3 (2.1)
Interest income, net 0.5 0.4
Unrealized foreign exchange gain (loss) 0.0 (0.0)
----- ------
Income (loss) before income taxes 0.8 (1.7)
Provision (benefit) for income taxes (1.7) 0.6
------ ------
Net income (loss) 2.5% (2.3)%
Net Sales
Net sales in the second quarter of 2002 decreased 30% or $7.2 million to $16.9
million compared to $24.1 million for the same period in 2001. For the six
months period ended June 30, 2002, net sales decreased by $13.8 million or 29%
over the six months ended June 30, 2001. The revenue decline mainly reflects the
continued difficult business environment and the decision to cease selling
Microsoft Select and Enterprise license agreements. As stipulated in our most
recent annual report on Form 10-K, 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.
Page 7
Gross Profit
Gross profit as a percentage of net sales increased to 13.3% for the quarter
ended June 30, 2002, compared to 10.2% for the same period in 2001. Gross profit
in absolute dollars for the three-month period ended June 30, 2002 was $2.2
million as compared to $2.5 million for the same period in 2001. For the six
month period ended June 30, 2002, the gross profit decreased by $469 for the
same period in 2001. The decrease in gross profit dollars and the increase in
Gross Profit Margin as a percentage reflects a shift in the mix of sales as a
result of the substantial increase in higher margin sales compared to large
revenue and low margin sales such as Microsoft Select and Enterprise licensing.
As stipulated in our annual report on Form 10-K, our business plan contemplates
that our Gross Profit Margin as a percentage will increase as compared to recent
years, primarily due to the impact of the change in the reseller agreement with
Microsoft.
Selling, General and Administrative Expenses
SG&A expenses for the quarter ended June 30, 2002 were $2.2 million as compared
to $2.9 million for the same period in 2001, a decrease of $0.7 million or 25%.
For the six month period ended June 30, 2002, SG&A expenses decreased by $1.5
million or 25%. The decrease in SG&A was primarily due to lower
personnel-related expenses, cost containment initiatives and improved cost
control policies and procedures.
Each year SG&A has increased in absolute dollars. As a result of the
restructuring plan described in our most recent annual report on form 10-K, we
anticipate that SG&A in absolute dollars will decline in 2002; however there can
be no assurance that this will actually occur.
Income Taxes
Income taxes consist of a refundable income tax benefit of $337,000 as per June
30, 2002. For the quarter ended June 30, 2002, the Company recorded a benefit
for income taxes of approximately $ 300,000, which consists of a provision of
$15,000 for Canadian taxes as well as a $315,000 benefit for domestic taxes. For
the six-month period ended June 30, 2002, the Company recorded a $252,000 income
tax benefit compared to a provision for income taxes of $65,000 for the
comparable period in 2001. The Job Creation and Worker Assistance Act of 2002
(Job Creation Act), enacted March 9, 2002 temporarily extends the carry back
period to five years for losses arising in tax years 2001 and 2002. As a result,
the Company will file a carry back claim for a refund in the amount of
approximately $315,000.
The loss carry forwards offset the provision for income taxes for our US
operations. As per June 30, 2002, the Company had recorded a US deferred tax
asset of approximately $6.4 million reflecting, in part, a benefit of $3.2
million in federal and state tax loss carry forwards, which will expire in
varying amounts between 2002 and 2021. 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.
Page 8
Liquidity and Capital Resources
In the first six months of 2002, our cash and cash equivalents decreased by $7.7
million to $3.7 million at June 30, 2002, from $11.4 million at December 31,
2001. Net cash used for operating activities amounted to $1.8 million; net cash
used in investing activities amounted to $5.6 million and cash used for
financing activities amounted to $0.2 million.
Net cash used for operating activities in the first six months of 2002 was $1.8
million and primarily resulted from a $1.8 million decrease in accounts payable
and accrued expenses. In accordance with our business plan, as stipulated in our
most recent annual report on Form 10-K, we have used our cash to pay vendors
promptly in order to obtain more favorable conditions.
Cash used for investing activities amounted to $5.6 million. As a result of the
current low interest rates on our short-term savings accounts we decided to
invest $5.2 million in US Government securities. These securities are highly
rated and highly liquid. These securities are classified as available-for-sale
securities in accordance with SFAS 130, and as a result unrealized gains and
losses are reported as part of other comprehensive income (loss). On June 30,
2002, the unrealized gains amounted to $100,000.
Cash used for financing activities in the first six months of 2002 of $672,000
consisted of the purchase of approximately 247,000 shares of our own stock under
the buyback program discussed below.
In June 2002, the Company's Board of Directors authorized the purchase of an
additional 490,000 shares of our common stock, in addition to the 521,013 shares
the Company was authorized to buy back in October 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 June 30, 2001, we owned approximately 510,000 shares at an
average price of $4.20.
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 to
continue to use our 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. 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.
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 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.
Page 9
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.
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.
Page 10
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
In addition to its activities in the United States, the Company also conducts
business 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.
The Company's $5.2 million investments in marketable securities are only in
highly rated and highly liquid U.S. government Securities. The remaining cash
balance 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 II, Item I of this
Report under the heading "Legal proceedings".
Page 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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 as of September 2001 of approximately $1,997,000)
against the escrow. On October 19, 2001, 735,789 Euros (the equivalent as of
October 2001 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.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders (the "Meeting") during the
fiscal quarter ended June 30, 2002.
(a) The date of the Meeting was June 11, 2001.
(b) At the meeting, the following persons were elected as directors of the
Company, each receiving the number of votes set forth opposite their
names below:
For Against Abstain
--------- ------- -------
William Willett 4,653,018 21,711 -
F. Duffield Meyercord 4,653,018 21,711 -
Edwin H. Morgens 4,653,018 21,711 -
Allan D. Weingarten 4,653,018 21,711 -
James W. Sight 4,653,018 21,711 -
Mark T. Boyer 4,653,018 21,711 -
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
The Company filed a current report on Form 8-K/A on May 13, 2002, to
amend a current report on Form 8-K filed on April 19, 2002, relating to
a change in the Company's certifying accountant.
Page 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROGRAMMER'S PARADISE, INC.
August 7, 2002 By: /s/ Simon F. Nynens
- ---------------------- ------------------------------------------
Date Simon F. Nynens, Chief Financial Officer
and Vice President
Page 13