<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
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 No. 000-23221
TEKGRAF, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 58-2033795
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
980 CORPORATE WOODS PARKWAY, VERNON HILLS, ILLINOIS 60061
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(847) 913-5888
(Registrant's telephone number, including area code)
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:
The number of shares outstanding of the Registrant's common stock, par value
$.001, as of April 14, 2000, the latest practicable date, was 6,328,331 shares.
<PAGE>
TEKGRAF, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 ............ 3
Consolidated Statements of Operations for the three months ended
March 31, 2000 and 1999 ........................................................... 4
Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999 ........................................................... 5
Notes to Consolidated Financial Statements ........................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations ......................................................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk ........................ 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings ................................................................. 13
Item 2. Changes of Securities and Use of Proceeds ......................................... 13
Item 4. Submissions of Matters to a Vote of Security Holders .............................. 13
Item 6. Exhibits and Reports on Form 8-K .................................................. 13
Signatures .................................................................................... 14
Index of Exhibits ............................................................................. 15
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
TEKGRAF, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------------------------
2000 1999
------------------------------------
(UNAUDITED)
($ IN THOUSANDS) ($ IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,458 $ 1,704
Accounts receivable, less allowance for doubtful accounts of $796,900
and $782,000 at March 31, 2000 and December 31, 1999, respectively 13,899 17,095
Inventories, net 10,804 12,900
Prepaid expenses and other assets 145 313
Income taxes receivable 108 147
Deferred income taxes 853 800
------- -------
Total current assets 27,267 32,959
------- -------
Property and equipment, net 1,996 1,965
Goodwill, net 2,268 2,315
Other assets 92 101
------- -------
Total assets $31,623 $37,340
======= =======
LIABILITIES
Current liabilities:
Current debt $ 4,271 $ 4,264
Accounts payable 9,613 14,507
Accrued expenses 1,954 2,145
Contract obligation and deferred income 2,256 2,754
------- -------
Total current liabilities 18,094 23,670
------- -------
Deferred income taxes 299 299
------- -------
Total liabilities 18,393 23,969
------- -------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Class A Common Stock $.001 par value, 31,666,667 shares authorized;
6,328,331 and 3,202,032 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively 6 3
Class B Common Stock $.001 par value, 3,333,333 shares authorized at December 31, 1999;
No shares outstanding at March 31, 2000 and 3,126,299 outstanding at December 31, 1999 0 3
Preferred Stock, $.001 par value, 5,000,000 shares authorized; no shares
issued and outstanding at March 31, 2000 and December 31, 1999 0 0
Due from stockholders (1,775) (1,780)
Additional paid-in capital 22,557 22,557
Accumulated deficit (7,558) (7,412)
------- -------
Total stockholders' equity 13,230 13,371
------- -------
Total liabilities and stockholders' equity $31,623 $37,340
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
TEKGRAF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
----------------------------------------
MARCH 31, MARCH 31,
----------------------------------------
2000 1999
----------------------------------------
($ IN THOUSANDS) ($ IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $ 23,703 $ 24,336
Cost of goods sold 19,372 20,451
---------- ----------
Gross profit 4,331 3,885
Operating expenses:
Selling, general and administrative 4,272 3,825
Depreciation 128 53
Amortization of goodwill 47 162
---------- ----------
Loss from operations (116) (155)
Other (income)/ expense (2) 4
Interest expense, net 85 25
---------- ----------
Loss before benefit for income taxes (199) (184)
Benefit for income taxes (53) (9)
---------- ----------
Net loss $ (146) $ (175)
========== ==========
Basic and diluted weighted average shares outstanding 6,161,664 6,161,664
========== ==========
Basic and diluted net loss per share $ (0.02) $ (0.03)
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
TEKGRAF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
--------------------------------------
MARCH 31, 2000 MARCH 31, 1999
--------------------------------------
(UNAUDITED) (UNAUDITED)
--------------------------------------
($ IN THOUSANDS) ($ IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (146) $ (175)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Provision for doubtful accounts receivable 15 100
Provision /write-down of inventory 75 58
Depreciation 128 53
Amortization of goodwill 47 162
Gain on sale of Prisym 0 (32)
Deferred taxes (53) (60)
Changes in net assets and liabilities, net of acquisitions:
Accounts receivable 3,181 853
Inventories 2,021 (784)
Prepaid expenses and other assets 216 35
Accounts payable and accrued expenses (5,085) 1,194
Deferred income and contract obligation (498) 0
Income taxes 0 (246)
------- -------
Total adjustments 47 1,333
------- -------
Net cash (used in) provided by operating activities (99) 1,158
------- -------
Cash flows from investing activities:
Purchase of property and equipment (159) (162)
Proceeds from sale of Prisym 0 979
------- -------
Net cash (used in) provided by investing activities (159) 817
------- -------
Cash flows from financing activities:
Proceeds, net, from credit facility 2,007 0
Repayment of debt (2,000) (713)
Loan to stockholder (8) 0
Payments from stockholders for deficient net asset values 13 460
------- -------
Net cash provided by (used in) financing activities 12 (253)
------- -------
(Decrease) increase in cash and cash equivalents (246) 1,722
Cash and cash equivalents, beginning of year 1,704 1,703
------- -------
Cash and cash equivalents, end of period $ 1,458 $ 3,425
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information 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 financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 2000. For further information, refer to the consolidated
financial statements and the footnotes included in the Form 10-K for the
year ended December 31, 1999.
2. INVENTORIES
Inventories, net of reserves, at March 31, 2000 and 1999 consist of the
following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
-----------------------------------
2000 1999
-----------------------------------
($ in thousands) ($ in thousands)
-----------------------------------
<S> <C> <C>
Component materials $ 510 $ 370
Service parts 2,121 2,442
Finished goods 8,173 10,088
------- -------
Inventories, net $10,804 $12,900
======= =======
</TABLE>
3. NET LOSS PER COMMON SHARE
Basic and diluted net loss per common share are computed by dividing net
loss by the weighted average number of common shares and common share
equivalents outstanding during the period. There were no common share
equivalents during any of the periods presented. At March 31, 2000, the
basic and diluted weighted average shares exclude the escrow shares and were
determined as follows:
<TABLE>
<S> <C>
Shares outstanding from beginning of period 6,328,331
Weighted average escrow shares (166,667)
---------
Basic and diluted weighted average shares 6,161,664
=========
</TABLE>
4. 1999 ACQUISITIONS AND DIVESTITURES
Effective April 1, 1999, the Company completed the acquisition of certain
assets of Calcomp Technology, Inc. (the "Services Acquisition"). The
acquired assets consist of those assets used in Calcomp's U.S. and Canadian
service businesses and its worldwide parts business. The Company paid
$400,000 in cash and assumed certain liabilities of Calcomp as consideration
for the acquired assets. The U.S and Canadian service businesses primarily
involve the field maintenance and repair of Calcomp printers and plotter
products in the U.S. and Canada. The worldwide parts business involves the
supply of Calcomp printer parts and components to successors of Calcomp's
service divisions outside the U.S. and Canada.
6
<PAGE>
On March 25, 1999, the Company sold its ownership interest in Prisym
Technologies, Inc. of Georgia ("Prisym") with an effective date of February
28, 1999. The Company sold its 60% ownership to the other shareholders of
Prisym, for a gain of approximately $32,000. The gain has been included in
other income in the consolidated statement of operations for the three
months ended March 31, 1999. The Company no longer has any interest in
Prisym.
The following unaudited pro forma summary combines the consolidated results
of the Company as if the Calcomp acquisition and the Prisym divestiture had
occurred as of January 1, 1999. The pro forma summary gives no effect to any
efficiencies or additional costs that might have occurred, if any, had the
companies actually been combined for the entire period presented. The pro
forma summary does not purport to represent what the Company's results of
operations would actually have been if the Calcomp acquisition and the
Prisym divestiture had occurred as of January 1, 1999 or to project the
Company's results of operations of operations for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PROFORMA COMBINED MARCH 31, MARCH 31,
-------------------------------
(IN THOUSANDS) 2000 1999
-------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Statement of Operations Data:
Net sales $23,703 $25,836
Cost of goods sold 19,372 21,382
------- -------
Gross profit 4,331 4,454
Operating expenses:
Selling, general and
administrative 4,272 4,368
Depreciation 128 60
Amortization of goodwill 47 161
------- -------
Operating loss (116) (135)
Other income (2) (8)
Interest expense 85 25
------- -------
Loss before taxes (199) (152)
(Benefit) provision for income taxes (53) 3
------- -------
Net loss $ (146) $ (155)
======= =======
</TABLE>
5. INCOME TAXES
The Company's effective tax rate was (26.6)% and (5.0)% for the three months
ended March 31, 2000 and 1999, respectively. The difference between the
Company's effective and statutory tax rates for 2000 and 1999 was primarily
due to the amortization of non-deductible goodwill and state taxes, net of
the federal benefit.
6. CLASS B COMMON STOCK CONVERSION TO CLASS A COMMON STOCK
All Class B Common Stock was converted to Class A Common Stock pursuant to a
vote of the securities holders at a special meeting of shareholders held on
January 21, 2000. Prior to the conversion, there was no active trading
market for the Class B Common Stock; however, each share of Class B Common
Stock could be converted into one share of Class A Common Stock. Each share
of Class B Common Stock entitled the holder to five votes per share, while
the Class A Common Stock entitled the holder to one vote per share. The
Company issued 2,192,000 shares (giving effect to the Company's 400-for-1
stock split in June 1997 and its 0.83333325-for-one reverse stock split
effected in October 1997) of Class B Common
7
<PAGE>
Stock as the consideration used in five acquisitions completed in June
1997. At that time, 1,141,333 shares (again, giving effect to the stock
split and reverse stock split) were already held by the stockholders of
the Company. Accordingly, the Company had 3,333,333 shares of Class B
Common Stock outstanding. During 1999 and 1998, 32,867 and 174,167 shares
of Class B Common Stock were converted to Class A Common Stock on a
one-for-one basis, respectively.
7. DISSENTER'S RIGHTS FOR CLASS B COMMON STOCK
Prior to the January 21, 2000 special meeting of shareholders related to the
reclassification of Class B Common Stock, stockholders of record who owned
1,191,333 shares of Class B Common Stock, notified the Company of their
intent to exercise dissenters' rights if the actions contemplated by the
special meeting were approved. The Company received demands from these
stockholders. Pursuant to Georgia law, the Company responded to these
demands by offering the dissenting stockholders $1.73 per share (plus
accrued interest), representing the Company's estimate of the fair value as
of the relevant date, after taking into account relevant premiums and
discounts. The dissenting stockholders rejected the Company's offer and have
asserted that $4.50 per share was the fair value as of the relevant date.
The Company has until May 29, 2000 to resolve this dispute with the
dissenting stockholders or to file a court action for determination of the
fair value of the stock and accrued interest. Currently, the Company cannot
predict the outcome of this matter. The Company has secured a commitment
from the bank to increase the credit line to $12.5 million, subject to
certain contingencies. Management believes that the funds from its
expanded credit facility will be adequate to fund the repurchase of the
dissenter's shares.
8. IMPAIRMENT OF GOODWILL AND RESTRUCTURING CHARGES AND OTHER EXPENSES
Management of the Company, since each of the respective acquisitions, has
continually reviewed the recoverability of the goodwill, as events and
changes in circumstances have warranted, to determine whether or not any of
the goodwill associated with the acquisitions has been impaired. During
1999, in light of several factors including the continued change in the
manner in which acquired assets are being utilized and the history and
forecasted revenues and earnings of the related acquisitions, the Company
reviewed and completed an analysis and determined that $6,193,318 of the
unamortized goodwill is impaired and therefore not recoverable, resulting in
a writedown of goodwill in the 1999 statement of operations.
In connection with the acquisitions, many functions formerly performed in
regional offices have been in transition and have been consolidated and
centralized, resulting in certain office or warehouse locations no longer
being necessary to the Company's business operations. Accordingly, $230,000
was charged to operations during 1999 related to these leased premises no
longer in use. Additionally, associated with the related centralization and
consolidation and as part of management's overall strategic plan, certain
costs amounting to $617,061 have been incurred, including employee
severance. These costs have been combined with the above described amount
and are reflected as Restructuring Charges and Other Expenses in the 1999
statement of operations.
8
<PAGE>
The following table provides a rollforward of the liabilities incurred in
connection with the 1999 business restructuring.
<TABLE>
<CAPTION>
($ in thousands) THREE MONTHS
DECEMBER 31, ENDED MARCH 31, MARCH 31,
1999 2000 2000
TYPE OF COST BALANCE PAYMENTS BALANCE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee Separations $334 $(153) $181
Facility Closings 184 (26) 158
Other 60 0 60
---------------------------------------
Total $578 $(179) $399
</TABLE>
For the three months ended March 31, 2000, restructuring reserve balances
were reduced by $179,000. Employee separations of $153,000 were charged
against the restructuring reserve for the three months ended March 31, 2000,
with a balance of $181,000 as of March 31, 2000. Facility closings of
$26,000 were charged against the restructuring reserve for the three months
ended March 31, 2000, with a balance of $158,000 as of March 31, 2000.
9. SEGMENT DISCLOSURES
The Company's operations were previously classified into two business units:
graphics and technology. With the acquisition of the U.S. and Canadian
service businesses and the worldwide parts business of Calcomp Technology,
Inc., the Company has an additional services business unit. These business
units are revenue producing components of the Company about which separate
financial information is produced internally and operating decisions are
made. For the Graphics Division net sales, one customer accounted for 13%
and 23% of sales for the three months ended March 31, 2000 and 1999,
respectively. No customers accounted for more than 10% of net sales for both
the Technology and Services Division for the three months ended March 31,
2000 and 1999. International sales for all three divisions were
insignificant for the three months ended March 31, 2000 and March 31, 1999.
The following segment information is for the three months ended March 31,
2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------------
2000 1999
------------------------------------
($ IN THOUSANDS) ($ IN THOUSANDS)
<S> <C> <C>
Net sales:
Graphics $19,525 $21,685
Technology Systems 1,805 2,651
Services 2,373 0
------- -------
Total net sales $23,703 $24,336
======= =======
Operating income (loss):
Graphics $ (605) $ (203)
Technology Systems 16 28
Services 443 0
------- -------
Total operating loss $ (146) $ (175)
======= =======
Identifiable assets:
Graphics $26,906 $33,764
Technology Systems 1,165 3,576
Services 3,552 0
------- -------
Total identifiable assets $31,623 $37,384
======= =======
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
OVERVIEW
The Company is a value-added solutions provider for advanced computer graphics
technologies with sales and technical support throughout North America. The
Graphics Division specializes in the wholesale distribution of computer graphics
technologies. In addition, the Graphics Division offers turnkey systems to
retail and manufacturing customers who wish to produce high-resolution, full
color posters, banners and other custom signage. The system includes a wide
format inkjet printer, sign-making software, consumables, technical and field
maintenance support. The Tekgraf Technology Systems Division is engaged in the
manufacture, sale, distribution and support of the Tekgraf Systems line of
special purpose Intel-based NT workstations and servers. CalGraph Technology
Services, Inc., a wholly owned subsidiary of Tekgraf, Inc., provides maintenance
and technical support services in the U.S. and Canada and supplies parts for the
Calcomp printer products and other third party manufacturers on a worldwide
basis.
Effective April 1, 1999, the Company completed the acquisition of certain assets
of Calcomp Technology, Inc. (the "Services Acquisition"). The acquired assets
consist of those assets used in Calcomp's U.S. and Canadian service businesses
and its worldwide parts business. The Company paid $400,000 in cash and assumed
certain liabilities of Calcomp as consideration for the acquired assets. The U.S
and Canadian service businesses primarily involve the field maintenance and
repair of Calcomp printers and plotter products in the U.S. and Canada. The
worldwide parts business involves the supply of Calcomp printer parts and
components to successors of Calcomp's service divisions outside the U.S. and
Canada.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999.
NET SALES. Total net sales decreased $0.6 million, or 2.6%, to $23.7 million for
the three months ended March 31, 2000, compared to $24.3 million for the three
months ending March 31, 1999. The Graphics Division net sales decreased $2.2
million, or 10.0%, to $19.5 million for the three months ended March 31, 2000
compared to $21.7 million for the three months ended March 31, 1999. The
decrease was due to the timing of the roll-out of the reseller Digital
Point-of-Purchase (POP) program. The Tekgraf Technology Systems sales decreased
$0.8 million, or 31.9%, to $1.8 million for the three months ended March 31,
2000, compared to $2.6 million for the three months ended March 31, 1999. The
decrease was due to the sale of the Prisym business effective February 1999.
Excluding the Prisym divestiture, net sales for the Tekgraf Technology Systems
business increased 7.8% for the three months ended March 31, 2000 as compared to
the three months ended March 31, 1999. The CalGraph Services Division had net
sales of $2.4 million for the three months ended March 31, 2000. The CalGraph
Services Division was acquired in April 1999.
GROSS PROFIT. Despite lower net sales of $0.6 million, the gross profit for the
three months ended March 31, 2000 increased $0.4 million, or 11.5%, to $4.3
million as compared to $3.8 million for the three months ended March 31, 1999.
Gross profit as a percentage to sales increased 2.3% to 18.3% for the three
months ended March 31, 2000, as compared to 16.0% for the three months ended
March 31, 1999. The increase is primarily due to higher profit margin for the
Calgraph service business acquired in April 1999, as well as the Graphics
channels business and Tekgraf Technology Systems business.
10
<PAGE>
SG&A EXPENSES. SG&A expenses increased $0.4 million to $4.3 million for the
three months ended March 31, 2000 compared to $3.8 million for the three months
ended March 31, 1999. SG&A expenses as a percentage of sales were 18.0% and
15.7% for the three months ended March 31, 2000 and 1999, respectively. Of the
increase, $0.8 million was attributable to the Services Acquisition, offset by a
decrease of $0.1 million for the sale of the Prisym business during the first
quarter of 1999. SG&A expenses for the Graphics Division decreased $0.2 million,
or 6.6%, to $3.2 million for the three months ended March 31, 2000, as compared
to $3.5 million for the three months ended March 31, 1999. The decrease in
expense is due to the consolidation of distribution facilities in the second
quarter of 1999.
DEPRECIATION EXPENSE. Depreciation expense increased $0.075 million, or 141%, to
$0.128 million for the three months ended March 31, 2000, as compared to $0.053
million for the three months ended March 31, 1999. The increase is due to the
CalGraph business acquired in April 1999.
AMORTIZATION EXPENSE. Amortization expense decreased $0.115 million, or 71.0%,
to $0.047 million for the three months ended March 31, 2000, compared to $0.162
million for the three months ended March 31, 1999. During 1999, the management
of the Company reviewed and completed an analysis that $6,193,318 of the
unamortized goodwill relating to the acquisitions from 1997 and 1998 is impaired
and therefore not recoverable, which resulted in a third quarter 1999 writedown
in the statement of operations.
BENEFIT FOR INCOME TAXES. The Company's effective tax rate was a benefit of 27%
for the three months ended March 31, 2000 compared to a benefit of 5% for the
three months ended March 31, 1999.
NET LOSS. The Company had a net loss of $0.146 million for the three months
ended March 31, 2000, as compared to a net loss of $0.175 million for the three
months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 2000, the Company had $1.5 million in cash with a working capital
surplus of $9.3 million, compared to $1.7 million in cash and a working capital
of $9.3 million for the three months ended March 31, 1999.
The Company used $0.1 million of cash from operations for the three months ended
March 31, 2000 compared to $1.2 million of cash generated from operations for
the three months ended March 31, 1999. For the three months ended March 31,
2000, accounts receivable generated $3.2 million of cash due to timing of sales
for the Point of Purchase (POP) business. Also during the three months ended
March 31, 2000, inventory decreased by $2.0 million, which was offset by a
decrease in accounts payable of $5.1 million. The decrease in accounts payable
was due to lower inventory purchases during the quarter as well as payments made
for inventory purchased in December 1999 to take advantage of year-end purchase
discounts.
For the three months ended March 31, 2000 and March 31, 1999, the Company used
cash in investing activities of $0.2 million due to the purchase of property and
equipment, mainly computer equipment and software for development of the
Company's new web based order fulfillment software. For the three months ended
March 31, 1999, the Company received proceeds of $979,000 related to the sale of
the Prisym business.
For the three months ended March 31, 2000, cash generated for financing
activities was insignificant as borrowings of $2.0 million from the Company's
credit facility were offset by the repayment of the $2.0 million of the loan.
11
<PAGE>
In July 1998, the Company entered into a Loan and Security Agreement ("the
Agreement") with a bank that provides for an outstanding line of credit in the
amount of $7.5 million. Outstanding advances under the Agreement bear interest
at the LIBOR Index Rate plus a rate, varying from 2.00% to 2.75%, that
corresponds to a range of the Company's debt to net worth ratio from 1:1 to 2:1.
Pursuant to the terms of the Agreement, the Company has pledged accounts
receivable, inventory and equipment as collateral. During the three months ended
March 31, 2000, the Company borrowed and repaid $2.0 million under this credit
facility. The outstanding loan balance as of March 31, 2000 was $4.3 million. In
accordance with the Agreement, the Company is required to maintain certain
financial covenants, which specifically include a modified current ratio, a debt
to equity ratio and a fixed charge coverage ratio. The Company was below the
fixed charge coverage ratio and has obtained a waiver from the bank for the
three months ended March 31, 2000.
The Company has secured a commitment from the bank to increase its credit line
to $12.5 million, subject to certain contingencies. Management believes that
the funds from its expanded credit facility will be adequate to fund the
repurchase of the dissenter's shares. See Note 7 of Notes to Consolidated
Financial Statements.
Based upon its current operating plan, the Company believes its existing capital
resources, including the proceeds from the Loan, should enable it to maintain
its current and planned operations.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These statements appear in a number of places
in this report and include all statements that are not historical facts. Some of
the forward-looking statements relate to the intent, belief or expectations of
the Company and its management regarding the Company's strategies and plans for
operations and growth. Other forward-looking statements relate to trends
affecting the Company's financial condition and results of operations, and the
Company's anticipated capital needs and expenditures.
Investors are cautioned that such forward-looking statements are not guarantees
of future performance and involve risks and uncertainties, and that actual
results may differ materially from those that are anticipated in the
forward-looking statements as a result of the impact of competition and
competitive pricing, business conditions and growth in the industry, general and
economic conditions, and other risks. Investors should review the more detailed
description of these and other possible risks contained in the Company's
securities filings and in the "Risk Factors" section of the prospectus included
in the Registration Statement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
Credit risks with respect to trade receivables are limited due to the diversity
of customers comprising the Company's customer base. The Company purchases
credit insurance for all significant open accounts and the Company performs
ongoing credit evaluations and charges uncollectible amounts to operations when
they are determined to be uncollectible.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 7 of Notes to Consolidated Financial Statements
Item 2. Changes in Securities and Use of Proceeds
Effective January 21, 2000, all outstanding shares of Class B Common
Stock were converted to shares of Class A Common Stock. See Item 4 and Note 6 to
Notes to Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held a Special Meeting of Shareholders on January 21, 2000.
Shareholders were asked to vote on a proposal to reclassify all issued and
outstanding Class B Common Stock into Class A Common Stock on a one-for-one
basis, and to amend Tekgraf's Articles of Incorporation to eliminate the
authority in the Articles of Incorporation to issue Class B Common Stock in the
future and to make certain related technical amendments. The votes for the
proposal are as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
-------------------------------------------------
<S> <C> <C> <C>
Class A Shareholders 2,602,015 14,715 585,302
Class B Shareholders 8,612,745 0 7,018,750
Class A & Class B
Shareholders 11,214,760 14,715 7,604,052
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are filed as part of this Report.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- --------------------------------------------
<S> <C>
3.1 By-laws as amended on March 26, 2000
11.1 Statement of Computation of Earnings Per Share.
27.1 Financial Data Schedule.(For SEC use only)
</TABLE>
(b) Reports Filed on Form 8-K
None
13
<PAGE>
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 THIS 12th DAY OF MAY, 2000.
SIGNATURE Title
--------- -----
/s/ William M. Rychel Chief Executive Officer,
- ------------------------ President and Director (principal
William M. Rychel executive officer)
/s/ Thomas M. Mason Chief Financial Officer
- ------------------------ (principal financial and accounting
Thomas M. Mason officer)
14
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- --------------------------------------------
<S> <C>
3.1 By-laws as amended on March 26, 2000
11.1 Statement of Computation of Earnings Per Share.
27.1 Financial Data Schedule (For SEC use only)
</TABLE>
15
<PAGE>
EXHIBIT 3.1
AMENDMENT TO BY-LAWS
OF
TEKGRAF, INC.
(A Georgia Corporation)
Effective March 26, 2000
1. The By-laws are hereby amended to add a new Section 12 of Article I to
be and read as follows:
Section 12. Shareholder Proposals. No proposal for a Shareholder vote
(other than director nominations, to which Section 15 of Article II
applies) (a "Shareholder Proposal") shall be submitted by a Shareholder,
either pursuant to Securities and Exchange Commission Rule 14a-8, 14a-4 or
otherwise, to the Corporation's Shareholders unless the Shareholder
submitting such proposal (the "Proponent") shall have filed a written
notice setting forth with particularity (i) the names and business
addresses of the Proponent and all natural persons, corporations,
partnerships, trusts or any other type of legal entity or recognized
ownership vehicle (collectively, a "Person") acting in concert with the
Proponent; (ii) the name and address of the Proponent and the Persons
identified in clause (i), as they appear on the Corporation's books (if
they so appear); (iii) the class and number of shares of the Corporation
beneficially owned by the Proponent and the Persons identified in clause
(i); (iv) a description of the Shareholder Proposal containing all
material information relating thereto; and (v) such other information as
the Board of Directors reasonably determines is necessary or appropriate
to enable the Board of Directors and Shareholders of the Corporation to
consider the Shareholder Proposal. Shareholder Proposals shall be
delivered to the Secretary of the Corporation at the principal executive
office of the Corporation within the time period specified in Securities
and Exchange Commission Rule 14a-8(e)(2), or any successor rule. The
presiding officer at any Shareholders' meeting may determine that any
Shareholder Proposal was not made in accordance with the procedures
prescribed in these By-laws or is otherwise not in accordance with law,
and if it is so determined, such officer shall so declare at the meeting
and the Shareholder Proposal shall be disregarded.
* * * *
2. The By-laws are hereby amended to add a new Section 15 of Article II to
be and read as follows:
Section 15. Nominations for Election of Directors. (i) Subject to the
rights of holders of any class or series of stock of the Corporation then
outstanding, nominations for the election of directors may be made by the
affirmative vote of a majority of the entire Board of Directors or by any
Shareholder of record entitled to vote generally in the election of
directors. However, any Shareholder of record entitled to vote generally
in the election of directors may nominate one or more persons for election
as directors at a meeting only if written notice of such Shareholder's
intent to make such nomination or nominations has been given, either by
personal delivery or by first class United States mail, postage prepaid,
to the Secretary of the Corporation not less than 60 days nor more
<PAGE>
than 75 days prior to the meeting; provided, that in the event that less
than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to Shareholders, notice by the Shareholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of meeting was mailed
or such public disclosure was made, whichever first occurs.
(ii) Each notice to the Secretary under subsection 15(i) above shall
set forth: (a) the name and address of record of the Shareholder who
intends to make the nomination; (b) a representation that the
Shareholder is a holder of record of shares of the Corporation's
stock entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) the class and number of shares of stock
held of record, owned beneficially, and represented by proxy, by the
Shareholder, and each proposed nominee, as of the date of the
notice; (d)the name, age, business and residence addresses, and
principal occupation or employment of each proposed nominee; (e) a
description of all arrangements or understandings between the
Shareholder and each proposed nominee and any other person or
persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the Shareholder; (f)
such other information regarding each proposed nominee as would be
required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission; and (g) the
written consent of each proposed nominee to serve as a director of
the Corporation if so elected. The Corporation may require any
proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such
proposed nominee to serve as a director of the Corporation.
(iii) The chairman of the meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not made
in accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
2
<PAGE>
BY-LAWS
OF
TEKGRAF, INC.
(A Georgia Corporation)
ARTICLE I.
Meetings of Shareholders
Section 1. ANNUAL MEETING. The annual meeting of the Shareholders of
TEKGRAF, INC., hereinafter called the "Corporation", for the election of
directors and for the transaction of such other business as may come before the
meeting shall be held in the 5th month following the close of the Corporation's
fiscal year, at such date and time as shall be designated by the Board or
Chairman of the Board or the President, or at such other date and time as the
Board shall designate.
Section 2. SPECIAL MEETING. Special Meetings of the Shareholders, unless
otherwise prescribed by statute, may be called at any time by the Board or the
Chairman of the Board or the President. The Board of Directors shall call a
special meeting of the Shareholders when requested in writing by Shareholders
holding not less than 20% of the outstanding stock of the corporation; such
written request shall state the object of the meeting proposed to be held.
Section 3. NOTICE OF MEETINGS. Notice of the place, date and time of the
holding of each annual and special meeting of the Shareholders and, in the case
of a special meeting, the purpose or purposes thereof shall be given personally
or by mail in a postage prepaid envelope to each Shareholder entitled to vote at
such meeting, not less than ten (10) nor more than sixty (60) days before the
date of such meeting, and, if mailed, it shall be directed to such Shareholder
at his address as it appears on the records of the Corporation, unless he shall
have filed with the Secretary of the Corporation a written request that notices
to him be mailed to some other address, in which case it shall be directed to
him at some other address. If mailed, such notice shall be deemed to be
delivered when deposited in United States mail so addressed with postage thereon
prepaid. Notice of any meeting of Shareholders shall not be required to be given
to any Shareholder who shall attend such meeting in person or by proxy and shall
not, at the beginning of such meeting, object to the transaction of any business
because the meeting is not lawfully called or convened, or who shall, either
before or after the meeting, submit a signed waiver of notice, in person or by
proxy. Unless the Board shall fix after the adjournment a new record date for an
adjourned meeting, notice of such adjourned meeting need not be given if the
time and place to which the meeting shall be adjourned were announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each Shareholder of record entitled
to vote at the meeting.
3
<PAGE>
Section 4. PLACE OF MEETINGS. Meetings of the Shareholders may be held at
such place, within or without the State of Georgia, as the Board or other
officer calling the same shall specify in the notice of such meeting, or in a
duly executed waiver of notice thereof.
Section 5. QUORUM. At all meetings of the Shareholders, the holders of a
majority of the votes of the shares of stock of the Corporation issued and
outstanding and entitled to vote shall be present in person or by proxy to
constitute a quorum for the transaction of any business, except when
Shareholders are required to vote by class, in which event a majority of the
issued and outstanding shares of the appropriate class shall be present in
person or by proxy, or except as otherwise provided by statute or in the
Articles of Incorporation. In the absence of a quorum, the holders of a majority
of the votes of the shares of stock present in person or by proxy and entitled
to vote, or if no Shareholder entitled to vote is present, then any officer of
the Corporation may adjourn the meeting from time to time. At any such adjourned
meeting at which a quorum may be present any business may be transacted which
might have been transacted at the meeting as originally called.
Section 6. ORGANIZATION. At each meeting of the Shareholders the Chairman
of the Board, or in his absence or inability to act, the President, or in the
absence or inability to act of the Chairman of the Board and the President, a
Vice President, or in the absence of all the foregoing, any person chosen by a
majority of those Shareholders present, shall act as chairman of the meeting.
The Secretary, or, in his absence or inability to act, the Assistant Secretary
or any person appointed by the chairman of the meeting, shall act as secretary
of the meeting and keep the minutes thereof.
Section 7. ORDER OF BUSINESS. The order of business at all meetings of the
Shareholders shall be as determined by the chairman of the meeting.
Section 8. VOTING. Except as otherwise provided by statute, the Articles
of Incorporation, or any certificate duly filed in the office of the Secretary
of State of Georgia, each holder of record of shares of stock of the Corporation
having voting power shall be entitled at each meeting of the Shareholders to one
vote for every share of such stock standing in his name on the record of
Shareholders of the Corporation on the date fixed by the Board as the record
date for the determination of the Shareholders who shall be entitled to notice
of and to vote at such meeting; or if such record date shall not have been so
fixed, then at the close of business on the day next preceding the day on which
the meeting is held; or each Shareholder entitled to vote at any meeting of
Shareholders may authorize another person or persons to act for him by a proxy
signed by such Shareholder or his attorney-in-fact. Any such proxy shall be
delivered to the secretary of such meeting at or prior to the time designated in
the order of business for so delivering such proxies.
No proxy shall be valid after the expiration of three years from the date
thereof, unless otherwise provided in the proxy. Every proxy shall be revocable
at the pleasure of the Shareholder executing it, except in those cases where an
irrevocable proxy is permitted by law. Except as otherwise provided by statute,
these By-Laws, or the Articles of Incorporation, any corporate action to be
taken by vote of the Shareholders shall be authorized by a majority of the total
votes, or when Shareholders are required to vote by class by a majority of the
votes of the appropriate class, cast at a meeting of Shareholders by the holders
of shares present in person or
4
<PAGE>
represented by proxy and entitled to vote on such action. Unless required by
statute, or determined by the chairman of the meeting to be advisable, the vote
on any question need not be by written ballot. On a vote by written ballot, each
ballot shall be signed by the Shareholder voting, or by his proxy, if there be
such proxy, and shall state the number of shares voted.
Section 9. LIST OF SHAREHOLDERS. The officer who has charge of the stock
ledger of the Corporation, or the transfer agent of the Corporation's stock, if
there be one then acting, shall prepare and make, at least ten days before every
meeting of Shareholders, a complete list of the Shareholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
Shareholder and the number of shares registered in the name of each Shareholder.
Such list shall be open to the examination of any Shareholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, at the place where the meeting is to be held, or at the
office of the transfer agent. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any Shareholder who is present.
Section 10. INSPECTORS. The Board may, in advance of any meeting of
Shareholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any Shareholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all Shareholders. On request of the chairman of the meeting or any
Shareholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as inspector of an election of directors. Inspectors need
not be Shareholders.
Section 11. CONSENT OF SHAREHOLDERS IN LIEU OF MEETING. Unless otherwise
provided in the Articles of Incorporation, any action required by Section
14-2-704 of the Georgia Business Corporation Code, to be taken at any annual or
special meeting of such Shareholders, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted and shall be delivered to the corporation by
delivery to its registered office in this State, its principal place of
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of Shareholders are recorded. Delivery made to
a corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
5
<PAGE>
ARTICLE II.
Board of Directors
Section 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by the Board. The Board may exercise all such authority and
powers of the Corporation and do all such lawful acts and things as are not by
statute or the Articles of Incorporation or by these By-Laws directed or
required to be exercised or done by the Shareholders.
Section 2. NUMBER, QUALIFICATIONS, ELECTION AND TERM OF OFFICE. The number
of directors of the Corporation shall be fixed from time to time by the vote of
a majority of the entire Board then in office and the number thereof may
thereafter by like vote be increased or decreased to such greater or lesser
number (not less than three) as may be so provided, subject to the provisions of
Section 11 of this Article II. All of the directors shall be of full age and
need not be Shareholders. Except as otherwise provided by statute or these
By-Laws, the directors shall be elected at the annual meeting of the
Shareholders for the election of directors at which a quorum is present, and the
persons receiving a plurality of the votes cast at such meeting shall be
elected. Each director shall hold office until the next annual meeting of the
Shareholders and until his successor shall have been duly elected and qualified,
or until his death, or until he shall have resigned, or have been removed, as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Articles of Incorporation.
Section 3. PLACE OF MEETINGS. Meetings of the Board may be held at such
place, within or without the State of Georgia, as the Board may from time to
time determine or as shall be specified in the notice or waiver of notice of
such meeting.
Section 4. ANNUAL MEETING. The Board shall meet for the purpose of
organization, the election of officers and the transaction of other business, as
soon as practicable after each annual meeting of the Shareholders, on the same
day and at the same place where such annual meeting shall be held. Notice of
such meeting need not be given. Such meeting may be held at any other time or
place (within or without the State of Georgia) which shall be specified in a
notice thereof given as hereinafter provided in Section 7 of this Article II.
Section 5. REGULAR MEETINGS. Regular meetings of the Board shall be held
at such time and place as the Board may from time to time determine. If any day
fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at the same hour on the next succeeding business day. Notice
of regular meetings of the Board need not be given except as otherwise required
by statute or these By-Laws.
Section 6. SPECIAL MEETINGS. Special meetings of the Board may be called
by two or more directors of the Corporation or by the Chairman of the Board or
the President.
Section 7. NOTICE OF MEETINGS. Notice of each special meeting of the Board
(and of each regular meeting for which notice shall be required) shall be given
by the Secretary as hereinafter provided in this Section 7, in which notice
shall be stated the time and place (within or without the State of Georgia) of
the meeting. Notice of each such meeting shall be delivered
6
<PAGE>
to each director either personally or by telephone, telegraph, cable or
wireless, at least twenty-four hours before the time at which such meeting is to
be held or by first-class mail, postage prepaid, addressed to him at his
residence, or usual place of business, at least three days before the day on
which such meeting is to be held. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail. Notice of any such meeting
need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of notice or who shall attend such meeting protesting,
prior to or at its commencement, the lack of notice to him. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
regular or special meeting need not state the purposes of such meeting.
Section 8. QUORUM AND MANNER OF ACTING. A majority of the entire Board
shall be present in person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and, except as otherwise
expressly required by statute or the Articles of Incorporation, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board. Any one or more members of the Board or any
committee thereof may participate in a meeting of the Board or such committee by
means of a conference telephone or similar communications equipment allowing all
participants in the meeting to hear each other at the same time and
participation by such means shall constitute presence in person at a meeting. In
the absence of a quorum at any meeting of the Board, a majority of the directors
present thereat, or if no director be present, the Secretary, may adjourn such
meeting to another time and place, or such meeting, unless it be the annual
meeting of the Board, need not be held. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. Except as provided in Article
III of these By-Laws, the directors shall act only as a Board and the individual
directors shall have no power as such.
Section 9. ORGANIZATION. At each meeting of the Board, the Chairman of the
Board (or, in his absence or inability to act, the President, or, in his absence
or inability to act, another director chosen by a majority of the directors
present) shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the chairman)
shall act as secretary of the meeting and keep the minutes thereof.
Section 10. RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice of his resignation to the Board or Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 11. VACANCIES. Vacancies, including newly created directorships,
may be filled by a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section for the filling of other vacancies.
Section 12. REMOVAL OF DIRECTORS. Except as otherwise provided in the
Articles of Incorporation or in these By-Laws, any director may be removed,
either with or without cause, at
7
<PAGE>
any time, by the affirmative vote of a majority of the votes of the issued and
outstanding shares of stock entitled to vote for the election of the
Shareholders called and held for that purpose, or by a majority vote of the
Board of Directors at a meeting called for such purpose, and the vacancy in the
Board caused by any such removal may be filled by such Shareholders or
directors, as the case may be, at such meeting, and if the Shareholders shall
fail to fill such vacancy, such vacancy shall be filled in the manner as
provided by these By-Laws.
Section 13. COMPENSATION. The Board shall have authority to fix the
compensation, including fees and reimbursement of expenses, of directors for
services to the Corporation in any capacity, provided no such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 14. ACTION BY THE BOARD. To the extent permitted under the laws of
the State of Georgia, any action required or permitted to be taken at any
meeting of the Board or of any committee thereof may be taken without a meeting
if all members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
ARTICLE III.
Executive and Other Committees
Section 1. EXECUTIVE AND OTHER COMMITTEES. The Board may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
Committee. Any such committee, to the extent provided in the resolution, shall
have and may exercise the powers of the Board in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; provided, however, that in the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of any such
absent or disqualified member. Each committee shall keep minutes of its
proceedings and shall report such minutes to the Board when required. All such
proceedings shall be subject to revision or alteration by the Board, provided,
however, the third parties shall not be prejudiced by such revision or
alteration.
Section 2. GENERAL. A majority of any committee may determine its action
and fix the time and place of its meetings, unless the Board shall otherwise
provide. Notice of such meetings shall be given to each member of the committee
in the manner provided for in Article II, Section 7. The Board shall have the
power at any time to fill vacancies in, to change the membership of, or to
dissolve any such committee. Nothing herein shall be deemed to prevent the Board
from appointing one or more committees consisting in whole or in part of persons
who are directors of the Corporation; provided, however, that no such committee
shall have or may exercise any authority of the Board.
8
<PAGE>
ARTICLE IV.
Officers
Section 1. NUMBER AND QUALIFICATIONS. The officers of the Corporation
shall include the Chairman of the Board, the President, one or more Vice
Presidents (one or more of whom may be designated Executive Vice President or
Senior Vice President), the Treasurer, and the Secretary. Any two or more
offices may be held by the same person. Such officers shall be elected from time
to time by the Board, each to hold office until the meeting of the Board
following the next annual meeting of the Shareholders, or until his successor
shall have been duly elected and shall have qualified, or until his death, or
until he shall have resigned, or have been removed, as hereinafter provided in
these By-Laws. The Board may from time to time elect a Vice Chairman of the
Board, and the Board may from time to time elect, or the Chairman of the Board,
or the President may appoint, such other officers (including one or more
Assistant Vice Presidents, Assistant Secretaries, and Assistant Treasurers), as
may be necessary or desirable for the business of the Corporation. Such other
officers and agents shall have such duties and shall hold their offices for such
terms as may be prescribed by the Board or by the Board or by the appointing
authority.
Section 2. RESIGNATION. Any officer of the Corporation may resign at any
time by giving written notice of his resignation to the Board, the Chairman of
the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3. REMOVAL. Any officer or agent of the Corporation may be
removed, either with or without cause, at any time, by the vote of the majority
of the entire Board at any meeting of the Board or, except in the case of an
officer or agent elected or appointed by the Board, by the Chairman of the Board
or the President. Such removal shall be without prejudice to the contractual
rights, if any, of the person so removed.
Section 4. VACANCIES. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office which shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment to such office.
Section 5. a. THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
be elected, shall, if present, preside at each meeting of the Shareholders and
of the Board and shall be an ex officio member of all committees of the Board.
He shall perform all duties incident to the office of Chairman of the Board and
such other duties as may from time to time be assigned to him by the Board.
b. THE VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the
Board, if one be elected, shall have such powers and perform all such duties as
from time to time may be assigned to him by the Board or the Chairman of the
Board and, unless otherwise provided by the Board, shall in the case of the
absence or inability to act of the Chairman of the
9
<PAGE>
Board, perform the duties of the Chairman of the Board and when so acting shall
have all the powers of, and be subject to all the restrictions upon, the
Chairman of the Board.
Section 6. THE PRESIDENT. The President shall be the chief operating and
executive officer of the Corporation and shall have general and active
supervision and direction over the business and affairs of the Corporation and
over its several officers, subject, however, to the direction of the Chairman of
the Board and the control of the Board. If no Chairman of the Board is elected,
or at the request of the Chairman of the Board, or in the case of his absence or
inability to act, unless there be a Vice Chairman of the Board so designated to
act, the President shall perform the duties of the Chairman of the Board and
when so acting shall have all the powers of, and be subject to all the
restrictions upon, the Chairman of the Board. He shall perform all duties
incident to the office of the President and such other duties as from time to
time may be assigned to him by the Board or the Chairman of the Board.
Section 7. VICE PRESIDENTS. Each Executive Vice President, each Senior
Vice President and each Vice President shall have such powers and perform all
such duties as from time to time may be assigned to him by the Board, the
Chairman of the Board, or the President. They shall, in the order of their
seniority, have the power and may perform the duties of the Chairman of the
Board and the President.
Section 8. THE TREASURER. The Treasurer shall be the chief financial
officer of the Corporation and shall exercise general supervision over the
receipt, custody and disbursement of Corporate funds. He shall have such further
powers and duties as may be conferred upon him from time to time by the
President or the Board of Directors. He shall perform the duties of controller
if no one is elected to that office.
Section 9. THE SECRETARY. The Secretary shall: (a) keep or cause to be
kept in one or more books provided for the purpose, the minutes of all meetings
of the Board, the committees of the Board and the Shareholders; (b) see that all
notices are duly given in accordance with the provisions of these By-Laws and as
required by law; (c) be custodian of the records and the seal of the Corporation
and affix and attest the seal to all stock certificates of the Corporation
(unless the seal be a facsimile, as hereinafter provided) and affix and attest
the seal to all other documents to be executed on behalf of the Corporation
under its seal; (d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are properly
kept and filed, and (e) in general, perform all the duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him by the Board, the Chairman of the Board, or the President.
Section 10. OFFICER'S BONDS OR OTHER SECURITY. If required by the Board,
any officer of the Corporation shall give a bond or other security for the
faithful performance of his duties, in such amount and with such surety or
sureties as the Board may require.
Section 11. COMPENSATION. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board, provided, however, that the Board may delegate to the Chairman of
the Board or the President the power to fix the compensation of officers and
agents appointed by the Chairman of the Board or the President, as the case may
be. An officer of the Corporation shall not be prevented from receiving
10
<PAGE>
compensation by reason of the fact that he is also a director of the
Corporation, but any such officer who shall also be a director shall not have
any vote in the determination of the amount of compensation paid to him.
ARTICLE V.
Indemnification
The Corporation shall, to the fullest extent permitted by the laws of the
state of incorporation, indemnify any and all persons whom it shall have power
to indemnify against any and all costs, expenses, liabilities or other matters
incurred by them by reason of having been officers or directors of the
Corporation, any subsidiary of the Corporation or of any other corporation for
which he acted as officer or director at the request of the Corporation.
ARTICLE VI.
Contracts, Checks, Drafts, Bank Account, etc.
Section 1. EXECUTION OF CONTRACTS. Except as otherwise required by
statute, the Articles of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on behalf of the
Corporation by such officer or officers (including any assistant officer) of the
Corporation as the Board may from time to time direct.
Such authority may be general or confined to specific instances as the
Board may determine. Unless authorized by the Board or expressly permitted by
these By-Laws, an officer or agent or employee shall not have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it pecuniarily liable for any purpose or to any amount.
Section 2. LOANS. Unless the Board shall otherwise determine, either (a)
the Chairman of the Board, the Vice Chairman of the Board or the President,
singly, or (b) a Vice President, together with the Treasurer, may effect loans
and advances at any time for the Corporation or guarantee any loans and advances
to any subsidiary of the Corporation, from any bank, trust company or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
certificates or evidences of indebtedness of the Corporation, or guarantee of
indebtedness of subsidiaries of the Corporation, but no officer or officers
shall mortgage, pledge, hypothecate or transfer any securities or other property
of the Corporation, except when authorized by the Board.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts, bills of exchange or
other orders for the payment of money out of the funds of the Corporation, and
all notes or other evidences of indebtedness of the Corporation, shall be signed
in the name and on behalf of the Corporation by such persons and in such manner
as shall from time to time be authorized by the Board.
Section 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board may from time to time
designate or as may be designated by any
11
<PAGE>
officer or officers of the Corporation to whom such power of designation may
from time to time be delegated by the Board. For the purpose of deposit and for
the purpose of collection for the account of the Corporation, checks, drafts and
other orders for the payment of money which are payable to the order of the
Corporation may be endorsed, assigned and delivered by any officer or agent of
the Corporation, or in such manner as the Board may determine by resolution.
Section 5. GENERAL AND SPECIAL BANK ACCOUNTS. The Board may from time to
time authorize the opening and keeping of general and special bank accounts with
such banks, trust companies or other depositories as the Board may designate or
as may be designated by any officer or officers of the Corporation to whom such
power of designation may from time to time be delegated by the Board. The Board
may make such special rules and regulations with respect to such bank accounts,
not inconsistent with the provisions of these By-Laws, as it may deem expedient.
Section 6. PROXIES IN RESPECT OF SECURITIES OF OTHER CORPORATIONS. Unless
otherwise provided by resolution adopted by the Board of Directors, the Chairman
of the Board, the President, or a Vice President may from time to time appoint
an attorney or attorneys or agent or agents, of the Corporation, in the name and
on behalf of the Corporation to cast the votes which the Corporation may be
entitled to cast as the holder of stock or other securities in any other
corporation, any of whose stock or other securities may be held by the
Corporation, at meetings of the holders of the stock or other securities of such
other corporation, or to consent in writing, in the name of the Corporation as
such holder, to any action by such other corporation, and may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent, and may execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal, or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.
ARTICLE VII.
Shares, Etc.
Section 1. STOCK CERTIFICATES. Each holder of shares of stock of the
Corporation shall be entitled to have a certificate, in such form as shall be
approved by the Board, certifying the number of shares of the Corporation owned
by him. The certificates representing shares of stock shall be signed in the
name of the Corporation by the Chairman of the Board or the President or a Vice
President and by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer and sealed with the seal of the Corporation (which seal may
be a facsimile, engraved or printed); provided, however, that where any such
certificate is countersigned by a transfer agent other than the Corporation or
its employee, or is registered by a registrar other than the Corporation or one
of its employees, the signature of the officers of the Corporation upon such
certificates may be facsimiles, engraved or printed. In case any officer who
shall have signed or whose facsimile signature has been placed upon such
certificates shall have ceased to be such officer before such certificates shall
be issued, they may nevertheless be issued by the Corporation with the same
effect as if such officer were still in office at the date of their issue.
Section 2. BOOKS OF ACCOUNT AND RECORD OF SHAREHOLDERS. The books and
records of the Corporation may be kept at such places within or without the
state of incorporation as the
12
<PAGE>
Board of Directors may from time to time determine. The stock record books and
the blank stock certificate books shall be kept by the Secretary or by any other
officer or agent designated by the Board of Directors.
Section 3. TRANSFER OF SHARES. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only upon
authorization by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary or
with a transfer agent or transfer clerk, and on surrender of the certificate or
certificates for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
Shareholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation may hold any such Shareholder of
record liable for calls and assessments and the Corporation shall not be bound
to recognize any equitable or legal claim to or interest in any such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof.
Whenever any transfers of shares shall be made for collateral security and
not absolutely, and both the transferor and transferee request the Corporation
to do so, such fact shall be stated in the entry of the transfer.
Section 4. REGULATIONS. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 5. LOST, DESTROYED OR MUTILATED CERTIFICATES. The holder of any
certificate representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost, stolen, or destroyed or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his legal
representative to give the Corporation a bond in such sum, limited or unlimited,
and in such form band with such surety or sureties as the Board in its absolute
discretion shall determine, to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss, theft, or destruction of
any such certificate, or the issuance of a new certificate. Anything herein to
the contrary notwithstanding, the Board, in its absolute discretion, may refuse
to issue any such new certificate, except pursuant to legal proceedings under
the laws of the State of Georgia.
Section 6. FIXING OF THE RECORD DATE. In order that the Corporation may
determine the Shareholders entitled to notice of, or to vote at, any meeting of
Shareholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution of allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for
13
<PAGE>
the purpose of any other lawful action, the Board may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action. A
determination of Shareholders of record entitled to notice of, or to vote at, a
meeting of Shareholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
ARTICLE VIII.
Offices
Section 1. PRINCIPAL OR REGISTERED OFFICE. The principal registered office
of the Corporation shall be at such place as may be specified in the Articles of
Incorporation of the Corporation or other certificate filed pursuant to law, or
if none be so specified, at such place as may from time to time be fixed by the
Board.
Section 2. OTHER OFFICES. The Corporation also may have an office or
offices other than said principal or registered office, at such place or places
either within or without the State of Georgia.
ARTICLE IX.
Fiscal Year
The fiscal year of the Corporation shall be determined by the Board.
ARTICLE X.
Seal
The Board shall provide a corporate seal which shall contain the name of
Corporation, the words "Corporate Seal" and the year and State of Georgia.
ARTICLE XI.
Amendments
Section 1. SHAREHOLDERS. These By-Laws may be amended or repealed, or new
By-Laws may be adopted, at any annual or special meeting of the Shareholders, by
a majority of the total votes of the Shareholders or when Shareholders are
required to vote by class by a majority of the appropriate class, in person or
represented by proxy and entitled to vote on such action; provided, however,
that the notice of such meeting shall have been given as provided in these
By-Laws, which notice shall mention that amendment or repeal of these By-Laws,
or the adoption of new By-Laws, is one of the purposes of such meeting.
Section 2. BOARD OF DIRECTORS. These By-Laws may also be amended or
repealed or new By-Laws may be adopted, by the Board at any meeting thereof;
provided, however, that
14
<PAGE>
notice of such meeting shall have been given as provided in these By-Laws, which
notice shall mention that amendment or repeal of the By-Laws, or the adoption of
new By-Laws, is one of the purposes of such meetings, By-Laws adopted by the
Board may be amended or repealed by the Shareholders as provided in Section 1 of
this Article XI.
ARTICLE XII.
Miscellaneous
Section 1. INTERESTED DIRECTORS. No contract or other transaction between
the Corporation and any other corporation shall be affected and invalidated by
the fact that any one or more of the Directors of the Corporation is or are
interested in or is a Director or officer or are Directors or officers of such
other corporation, and any Director or Directors, individually or jointly, may
be a party or parties to or may be interested in any contract or transaction of
the Corporation or in which the Corporation is interested; and no contract, act
or transaction of the Corporation with any person or persons, firm or
corporation shall be affected or invalidated by the fact that any Director or
Directors of the Corporation is a party or are parties to or interested in such
contract, act or transaction, or in any way connected with such person or
persons, firms or associations, and each and every person who may become a
Director of the Corporation is hereby relieved from any liability that might
otherwise exist from contracting with the Corporation for the benefit of
himself, any firm, association or corporation in which he may be in any way
interested.
Section 2. RATIFICATION. Any transaction questioned in any Shareholders'
derivative suit on the grounds of lack of authority, defective or irregular
execution, adverse interest of director, officer or Shareholder, nondisclosure,
miscomputation, or the application of improper principles or practices of
accounting, may be ratified before or after judgment, by the Board of Directors
or by the Shareholders in case less than a quorum of Directors are qualified,
and, if so ratified, shall have the same force and effect as if the questioned
transaction had been originally duly authorized, and said ratification shall be
binding upon the Corporation and its Shareholders, and shall constitute a bar to
any claim or execution of any judgment in respect of such questioned
transaction.
15
<PAGE>
EXHIBIT 11.1
TEKGRAF, INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
2000 1999
--------- ----------
<S> <C> <C>
Net loss $ (146) $ (175)
Basic and diluted weighted average number of
common shares 6,161,664 6,161,664
Basic and diluted net loss per share $ (0.02) $ (0.03)
========= =========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,458,000
<SECURITIES> 0
<RECEIVABLES> 14,695,900
<ALLOWANCES> 796,900
<INVENTORY> 10,804,000
<CURRENT-ASSETS> 27,267,000
<PP&E> 2,819,000
<DEPRECIATION> 823,000
<TOTAL-ASSETS> 31,623,000
<CURRENT-LIABILITIES> 18,094,000
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 13,230,000
<TOTAL-LIABILITY-AND-EQUITY> 31,623,000
<SALES> 23,703,000
<TOTAL-REVENUES> 23,703,000
<CGS> 19,372,000
<TOTAL-COSTS> 4,447,000
<OTHER-EXPENSES> (2,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85,000
<INCOME-PRETAX> (199,000)
<INCOME-TAX> (53,000)
<INCOME-CONTINUING> (146,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (146,000)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
