<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KA
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the
Fiscal year ended March 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the
transition period from
to
Commission File No. 0-15551
DATAFLEX CORPORATION
(Exact name of Registrant as specified in its charter)
New Jersey 22-163376
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3920 Park Avenue
Edison, New Jersey 08820
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908)321-1100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
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 twelve (12)
months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of Common Stock held by non-affiliates
based upon the average price of such stock as quoted on NASDAQ
for July 2, 1996, and reported by the National Quotations Bureau,
Inc. was $33,192,913.
As of July 2, 1996 there were 5,483,061 shares of the
Registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information required by
Part III (Items 10, 11, 12 and 13) is incorporated by reference
to the Registrant's Proxy Statement to be filed pursuant to
Regulation 14A.
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
Part I
1. Business 1
2. Properties 5
3. Legal Proceedings 6
4. Submission of Matters to a Vote of Security Holders 6
Part II
5. Market for the Registrant's Common Stock and Related
Stockholder Matters 6
6. Selected Financial Data 7
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
8. Consolidated Financial Statements and Supplementary
Data 13
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
Part III
10. Directors and Executive Officers of the Registrant 13
11. Executive Compensation 16
12. Security Ownership of Certain Beneficial Owners and
Management 22
13. Certain Relationships and Related Transactions 24
Part IV
14. Exhibits, Consolidated Financial Statement Schedules
and Reports on Form 8-K 25
<PAGE>
Part I
Item 1 - Business
General
Dataflex Corporation, ("Dataflex" or the "Company"),
established in 1976, is a nationally recognized direct marketer
of desktop computer equipment and related products supplied
primarily by major manufacturers, including IBM, Compaq,
Hewlett-Packard and Apple. The Company provides its clients with
single-source, value-added desktop computing solutions and
services, including product sales, system integration, network
installation, help desk support, training, consultation services
and equipment repair maintenance. The Company is also a
certified Lotus and Microsoft Education Center, capable of
providing on or off-site manufacturer authorized education.
Subsequent to its fiscal 1996 year-end, the Company sold
certain assets and transferred certain liabilities of its Western
Region (comprising the Company's former offices in Alameda,
Anaheim and San Diego, California and Tempe and Tucson, Arizona)
and its Valtron Division, located in Valencia, California. The
cash received from these divestitures, which is expected to be
approximately $45.0 million based on the terms of the agreements,
will be used to reduce the Company's debt. The Company recorded
a pre-tax loss of approximately $4.6 million in fiscal 1996 on
the disposition of these businesses.
The services business continues to be the fastest growing
segment of the Company's operations and includes dedicated
on-site remedial and nonremedial maintenance support to its customers
through the Company's Mainsite program, field service repairs and
maintenance, system configuration, asset management, authorized training
centers, LAN/WAN consulting and system integration, help desk support through
its toll-free support line for all computer and computer related problems, and
FlexStaff, which provides dedicated high-end technical support on a contract
basis to customers for short and long-term requirements. In
addition, the Company has developed a national network of service
partners to enhance its ability to deliver nationwide, on-site
services to our customers.
The Company's customers are business organizations with
diverse desktop computing requirements located throughout the
United States. Dataflex focuses its efforts on customer service.
In connection therewith, the Company conducts ongoing training
for its associates, continuously monitors response and repair
time regarding customer requests and concerns, measures delivery
time for services and conducts customer surveys to determine the
level of customer satisfaction.
Dataflex Corporation, headquartered in Edison, New Jersey,
has offices in Bensenville, Illinois; Milwaukee, Wisconsin;
Tallahassee, Orlando, Lake Wales, Hollywood and Clearwater,
Florida; Memphis, Tennessee; Atlanta, Georgia and New York City.
Industry
Since 1988, the computer industry's rate of revenue growth
has been affected by the introduction of many lines of low priced
clones, significant price reductions by major manufacturers and
the introduction of networking technology. The Company believes
the computer industry does not function along the traditional
supply and demand principle, as in many cases product shortages
result in lower pricing to customers. Due to increasing supply
shortages and decreasing profit margins, the industry has been
consolidating since the early 1990's, as larger resellers acquire
smaller, strategically-located resellers to increase their market
share.
The industry continues to experience growth rates of 20-25%,
however, prices and profit margins continue to decrease.
Industry studies have shown that 80% of the five-year cost of
businesses owning personal computers is in the maintenance,
training and support, not the hardware and software acquisition
costs. Consequently, the industry believes future growth will
come from a continuing demand for higher technology, such as
wireless LAN's and multimedia, as well as for integration
services and training.
Marketing and Sales
Dataflex's marketing focus is primarily on Fortune 2000
companies. The Company believes that these customers are
increasingly dependent on their suppliers to provide, in addition
to competitive pricing, a consultative approach to their desktop
computer equipment needs. This approach addresses purchasing,
compatibility, maintenance, support, networking, training and
obsolescence. Dataflex utilizes this approach, seeking to help
customers analyze costs, improve user satisfaction and maintain
administrative control over their desktop computer equipment.
The Company markets solutions to both existing and potential
customers with the objective of becoming the customers'
"preferred provider" of comprehensive information technology
services and product acquisition. The Company believes that the
range of services and solutions offered provides it with
significant competitive advantages in the information technology
marketplace.
Dataflex is positioned to benefit from client needs,
particularly in the areas of internetworking, client/server
applications, and network management through targeted
telemarketing, strategic alliances with major personal computer
and network vendors, client referrals, and promotional programs
that offer hardware and service tie-ins. The need to outsource
for technical expertise in these areas is expected to provide
continued growth for Dataflex and offer cost savings, improved
flexibility and high-end user satisfaction for our customers.
The Company believes that its ability to provide accurate
and timely information to customers is integral to the success of
its marketing efforts. Accordingly, the Company is continuing to
develop its internal information systems. These internal
information systems will provide members of the Company's
marketing and sales staff, as well as customers, with current
information regarding the products offered for sale, including
information on availability, pricing, order status and purchasing
requests.
To market its products, Dataflex utilizes telemarketing,
strategic alliances with major vendors, customer referrals and
various promotional activities. Dataflex also makes joint sales
presentations with certain of its major vendors to existing and
prospective customers.
The Company maintains a product support group which provides
technical training and support, new product information, and
marketing advice to sales representatives with respect to
technical matters concerning the products offered by the Company
or otherwise available from manufacturers. The product support
group also evaluates new products.
Products and Principal Suppliers
The Company offers over 25,000 PC/Networking hardware and
software SKU's from over 500 vendors, including IBM, Compaq,
Hewlett Packard, Apple, Microsoft and Lotus. Products include
desktop and laptop PC's, servers, monitors, peripherals,
operating system and application software and individual
components. Due to the Company's purchasing power with its major
vendors, the Company enjoys the greatest available discounts. In
addition, the Company purchases direct from IBM to obtain its "C"
level pricing, as well as from Compaq for its US level "1"
pricing; both represent the highest discount level offered for
their respective products. The Company continually evaluates new
products from existing vendors, and seeks out new products and/or
new vendors as technology develops and needs arise.
The Company's southeast region is an exclusive Apple sales
agent to Kindergarten through 12th grade education accounts in
Florida, Tennessee, Alabama, Louisiana, Arkansas, Mississippi,
Georgia, North Carolina and South Carolina. Under this program,
Apple is responsible for product distribution, inventories and
carrying the customers' receivables. Apple is the primary
product used by educational institutions in the United States and
has authorized only 15 dealers nationwide.
Sales of IBM products constituted approximately 31%, 23% and
58% of the Company's revenue during the years ended March 31,
1996, 1995 and 1994, respectively. Sales of Compaq products
constituted approximately 13%, 13% and 15% of the Company's
revenue during the years ended March 31, 1996, 1995 and 1994,
respectively. No other manufacturer's products accounted for
more than 10% of the Company's revenues. No one customer
accounted for more than 10% of the Company's revenues during the
years ended March 31, 1996, 1995 and 1994.
The Company receives discretionary subsidies from certain
manufacturers to promote sales and support activities relating to
their products. Some of these subsidies have been used to expand
the array of the Company's sales and support services and to
reimburse the Company for, and to accelerate, its expansion into
additional areas relating to those manufacturers' products and
services.
The Company's authorized dealership agreements may be
terminated by the manufacturer or the Company without cause upon
notice with periods ranging from 30 to 90 days, and immediately,
under certain circumstances. In addition, while each agreement
is generally subject to renewal on an annual basis, there can be
no assurance that such agreements will be renewed. The
termination or non-renewal of the IBM and Hewlett-Packard
dealership agreement would have a material adverse effect on the
Company's business. The Company believes that its relationships
with its major suppliers are excellent.
Services
The Company provides a vast array of services to support
product sales. Services are offered on a per PC or complete
project basis. Total services revenue for fiscal 1996, 1995 and
1994 were $49,569,000, $27,319,000 and $14,157,000, respectively.
Product Maintenance: The Company offers contracts to
customers for both on-site ("MainSite ") and off-site product
maintenance. These maintenance contracts generally require the
Company to maintain desktop computer equipment at the customer's
location during regular business hours. Most maintenance
contracts are renewable annually. In addition, the Company
provides authorized warranty service and repair for equipment
sold by it and by others.
FlexStaff: Dataflex offers to its customers its resources
for on-site technical consulting assignments. These contracts
are generally for less than one year and provide customers with
resources to meet their internal technical needs such as project
management, application development, hardware maintenance, help
desk, network design and implementation and systems integration.
HelpDesk: The Company provides unlimited help desk support
to registered end users via a dedicated toll-free number.
Support is provided for industry standard applications, utilities
and operating system software.
Training: Dataflex offers authorized training for
Microsoft and Lotus Notes at both customer sites and its regional
training locations. All trainers must be certified instructors
prior to teaching any course. To be certified, instructors must
receive a minimum of 100 hours of training and satisfactory
completion of multiple exams. Instructors also develop
applications with the products they are authorized to teach.
LAN Support Plus: The Company provides consulting services
to help customers define, design, implement and support local and
wide-area networks. Dataflex professionals and the customer
develop a needs analysis and agree upon an implementation plan
for the LAN/WAN systems. Dataflex and customer professionals
then work together in implementing and supporting the LAN/WAN.
Personnel
On March 31, 1996, excluding personnel assigned to the
Western Region and the Valtron Division, the Company employed 811
full-time personnel of which 186 are responsible for marketing
and sales, 374 for services, 99 for operations, 57 for finance,
16 for MIS and 79 for administrative functions. None of the
Company's personnel is represented by a union, and the Company
believes its relationships with its personnel to be satisfactory.
Competition
The market for desktop computer equipment and related
products is highly competitive. The large business organizations
that are the focus of the Company's marketing and sales efforts
are highly visible to both the Company and its competitors.
The Company competes with other resellers, many of which may
sell their products at lower prices than the Company, but may not
offer the same full range of services after product delivery that
the Company offers.
Backlog
The Company generally fulfills customers' orders within five
business days after the receipt of product. At times, backlog of
unfilled customers' orders has increased due to delivery
constraints by major vendors.
Item 2 - Properties
The Company's corporate headquarters and eastern regional
office are located in Edison, New Jersey. The Company leases
approximately 50,000 square feet of which 30,000 square feet is
office space. The lease term expires March 31, 2000 and provides
for rent increases on April 1, 1996 and April 1, 1999 based on
increases in the Consumer Price Index. In addition, the Company
has additional leases for each primary regional office, excluding
leases related to the Western Region and Valtron Division, which
were terminated in connection with the sale of these businesses
described in Item 1, as follows:
<TABLE>
<CAPTION>
Regional Office Square Footage Principal Use Expiration Date
Dataflex East:
<S> <C> <C> <C>
Edison, NJ 44,000 Warehouse December 31, 1996
New York City, NY 5,463 Sales/Training March 30, 2003
New York City, NY 1,571 Service May 31, 1997
Dataflex Midwest:
Bensenville, IL 38,965 Sales/Service April 30, 2001
Milwaukee, WI 1,633 Sales January 31, 1997
Dataflex Southeast:
Tallahassee, FL 4,500 Sales/Service September 30, 1999
Lake Wales, FL 5,700 Sales/Service January 1, 1997
Hollywood, FL 4,500 Sales/Service May 31, 1998
Orlando, FL 4,929 Sales/Service November 1, 1996
Memphis, TN 4,963 Sales/Service May 11, 1998
Atlanta, GA 6,425 Sales/Service January 31, 2001
</TABLE>
Generally, the Company is also responsible for all real
estate taxes, insurance, utilities and maintenance expenses
payable with respect to these premises.
The Company owns land and property in Clearwater, Florida.
The buildings owned are comprised of 44,400 square feet and are
used for office and warehouse space. Mortgages on the property
are due on January 10, 2000, bearing interest at the rate of
prime plus 1% per annum.
Item 3 - Legal Proceedings
The Company is party to various claims, suits and complaints
arising in the ordinary course of the Company's business. In the
opinion of Company management, all such pending matters are
without merit or are of such kind, or involve such amounts, as
would not have a material adverse effect on the financial
position of the Company.
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of
fiscal 1996 to a vote of security holders.
Part II
Item 5 - Market For the Registrant's Common Stock and Related
Stockholder Matters
The Company's Common Stock is traded under the symbol "DFLX"
on the NASDAQ National Market System.
The following table sets forth, for the fiscal quarters
indicated, the high and low sale prices for the Company's common
stock on the NASDAQ National Market System. NASDAQ National
Market System quotations are based on actual transactions and not
bid prices.
<TABLE>
<CAPTION>
Prices
High Low
<S> <C> <C>
Year Ended March 31, 1996
First Quarter 10.125 7.25
Second Quarter 8.25 5.5
Third Quarter 6.75 3
Fourth Quarter 5.125 3.125
Year Ended March 31, 1995
First Quarter 9.25 6.563
Second Quarter 8 6.75
Third Quarter 10.75 7.625
Fourth Quarter 10.125 7.25
</TABLE>
On July 2, 1996, the closing price of the Common Stock as
reported on the NASDAQ National Market System was $7.125 per
share. On July 2, 1996, there were 506 holders of record of the
Company's Common Stock.
The Company has never paid any cash dividends on its Common
Stock. The Company intends to retain all of its future earnings
to finance its operations and does not anticipate paying cash
dividends in the foreseeable future. Any decision made by the
Company's Board of Directors to declare dividends in the future
will depend upon the Company's future earnings, capital
requirements, financial condition and other factors deemed
relevant by the Board of Directors.
Item 6 - Selected Financial Data
Selected financial data is set forth below as of and for
each of the five fiscal years ended March 31, 1996. The
financial data for periods prior to fiscal 1996 have been
restated to include the results of operations and financial
position of Sunland Computer Services, Inc, which was acquired in
August 1994 and accounted for under the pooling of interests
method. This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the audited consolidated financial
statements and related notes thereto included elsewhere in this
report.
<TABLE>
<CAPTION>
For the Years Ended March 31,
(In thousands, except per share data)
1996 1995 1994 1993 1992
<S>
Income Statement Data:
<C> <C> <C> <C> <C>
Revenue $472,102 $273,851 $122,348 $ 77,306 $ 99,031
Cost of Revenue 419,592 242,564 108,818 65,555 80,733
Gross Profit 52,510 31,287 13,530 11,751 18,298
Selling, General
and Administrative
Expenses 42,995 24,259 10,675 10,272 11,116
Amortization of
Goodwill 1,265 594 0 0 0
Restructuring and
Other Charges 5,353 0 0 0 0
Operating Income 2,897 6,434 2,855 1,479 7,182
Interest (Expense)
Income (8,063) (2,677) 4 (13) (123)
Loss on Dispositions
of Businesses (4,632) 0 0 0 0
Litigation Settlement
and Related Costs 0 0 (847) 0 0
(Loss) Income Before
Income Taxes (9,798) 3,757 2 ,012 1,466 7,059
(Benefit from) Provision
for Income Taxes (3,463) 1,617 884 653 2,931
Net (Loss) Income $ (6,335) $ 2,140 $1,128 $ 813 $4,128
(Loss) Earnings per
Common Share $ (1.22) $ .45 $ .28 $ .20 $ .95
Weighted Average Common
Shares 5,214 4,733 4,085 4,080 4,335
Balance Sheet Data: (as of March 31)
1996 1995 1994 1993 1992
Working Capital $ 59,031 $ 46,971 $22,629 $20,973 $20,722
Total Assets 170,313 146,581 56,337 37,943 42,179
Long-Term Debt 54,062 52,510 228 -0- 213
Total Shareholders'
Equity 31,848 34,140 26,680 25,338 24,970
</TABLE>
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Background
During fiscal years 1995 and 1996, the Company acquired the
assets of the following companies:
April 1994 - Granite Computer Products, Inc. ("Granite")
June 1994 - Advantage Systems, Inc. ("Advantage")
August 1994 - Sunland Computer Services, Inc. ("Sunland")
November 1994 - Hagen Computer Systems, Inc. ("Hagen")
January 1995 - National Data Products, Inc. ("NDP")
July 1995 - Valtron Technologies, Inc. ("Valtron")
The financial results of these acquisitions are included in
the Company's results of operations from their respective dates
of acquisition except for Sunland, which was accounted for under the
pooling of interests method resulting in a restatement of all
periods presented.
Subsequent to its March 31, 1996 year end, the Company sold
substantially all the assets and transferred substantially all the
liabilities of its Western Region (comprising the Granite, Hagen
and Sunland acquisitions) and its Valtron Division. The
divestitures are consistent with the Company's objective to improve
its financial position, reduce interest expense and consolidate
operations. The sale of the Western Region changed the strategic
direction of the Company, thereby diminishing the need for its
Valtron Division.
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated,
the percentage relationship to total revenues of the items listed in
the Company's Consolidated Statements of Operations:
<TABLE>
<CAPTION>
Percentage of Revenue
Years ended March 31,
1996 1995 1994
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Cost of Revenue 88.9 88.6 88.9
Gross Profit 11.1 11.4 11.1
Selling, General &
Administrative Expenses 9.1 8.8 8.7
Amortization of Goodwill 0.3 0.2 0.0
Restructuring and Other Charges 1.1 0.0 0.0
Operating Income .6 2.3 2.3
Interest (Expense), Net (1.7) (0.9) 0.0
Loss on Dispositions of
Businesses (1.0) 0.0 0.0
Litigation Settlement and Related
Costs 0.0 0.0 (0.7)
(Loss) Income Before
Income Taxes (2.1) 1.4 1.6
(Benefit from) Provision for
Income Taxes 0.7 0.6 0.8
Net (Loss) Income (1.3%) 0.8% 0.8%
</TABLE>
Fiscal Year Ended March 31, 1996 Compared to March 31, 1995
Revenues increased by 72.4%, or $198,251,000, from
$273,851,000 for the fiscal year ended March 31, 1995 ("fiscal
1995") to $472,102,000 for the fiscal year ended March 31, 1996
("fiscal 1996"). The increase primarily relates to a full year of
revenues contributed by the companies acquired during fiscal 1995
of $190,000,000. Product revenues, which include desktop
computers, printers, displays, LAN products, software and other
peripherals, accounted for approximately 89.5% of total revenues
and increased by $176,001,000, or 71.4%. Service revenues, which
include consulting, training, on-site maintenance and project
management, accounted for approximately 10.5% of total revenues
and increased by $22,250,000, or 81.4%.
Gross profit increased by 67.8%, or $21,223,000, from
$31,287,000 in fiscal 1995 to $52,510,000 in fiscal 1996. This
increase during fiscal 1996 primarily relates to the gross profit
contribution provided by the acquired companies. As a percentage
of revenues, gross profit decreased to 11.1% in fiscal 1996 as
compared to 11.4% in fiscal 1995. This decrease reflects lower
margins in the services business due to incremental costs
associated with the continued investment in the development of
the services business. Hardware margins are consistent with those
for fiscal 1995.
Selling, general and administrative expenses increased by
77.2%, or $18,736,000, from $24,259,000 in fiscal 1995 to
$42,995,000 in fiscal 1996, primarily due to the recent
acquisitions and increases in corporate infrastructure to support
the growth of the Company. As a percentage of revenues, selling,
general and administrative expenses increased from 8.9% in fiscal
1995 to 9.1% in fiscal 1996. This increase is primarily due to
the acquisition of Valtron, which has higher selling, general and
administrative expenses as a percentage of revenues.
Amortization of goodwill of $1,265,000 in fiscal 1996, as
compared to $594,000 in fiscal 1995, reflects a full year of
amortization in fiscal 1996, whereas fiscal 1995 includes a
partial year of amortization due to the timing of recent acquisitions.
Restructuring and other charges represent the estimated
costs to enhance the Company's operational and administrative
efficiencies through consolidations of operations and information
systems. The charges relate primarily to dispositions and
write-downs of inventory and spare parts of $2,700,000, employee
termination benefits of $1,200,000, write-offs of computer
systems of $1,000,000 and other charges of $400,000. Inventory
write-offs relate primarily to a reduction in the net realizable value of
inventory product line in which the Company no longer intends to
conduct business. Employee termination benefits relate largely
to one-time payments to former Company executives resulting from the
termination of their contracts and other benefits to be provided
to line employees terminated due to consolidation and elimination of
certain positions. Systems write-offs relate primarily to the
replacement of older computer systems with new, upgraded systems.
Loss on dispositions of businesses represents the aggregate
difference between the carrying value of the net assets of the
businesses to be sold and the estimated net realizable value of
these net assets. As described previously, the Company sold
substantially all the assets and transferred substantially all
the liabilities of its Western Region and its Valtron Division
subsequent to its fiscal 1996 year-end. The Company recorded a
loss of approximately $4.6 million in fiscal 1996 on the
dispositions of these businesses.
Interest expense, net of interest income was $8,064,000 in
fiscal 1996 as compared to $2,677,000 in fiscal 1995. The
increase primarily relates to increased borrowings in connection with the
acquisitions in fiscal 1995 and fiscal 1996 and higher average
interest rates during fiscal 1996 relative to fiscal 1995.
Fiscal Year Ended March 31, 1995 Compared to March 31, 1994
Revenues increased by 123.8%, or $151,502,000, from
$122,349,000 for the fiscal year ended March 31, 1994 ("fiscal
1994") to $273,851,000 for the fiscal year ended March 31, 1995
("fiscal 1995"). The increase primarily relates to revenues
contributed by the acquired companies during fiscal 1995 of
$148,005,000. Product revenues, which include desktop computers,
printers, displays, LAN products, software and other peripherals,
accounted for over 90% of total revenues and increased by
$138,353,000, or 127.9%. Service revenues, which include
consulting, training, on-site maintenance and project management,
accounted for approximately 10% of total revenues and increased
by $13,163,000, or 93.0%.
Gross profit increased by 131.2%, or $17,757,000, from
$13,530,000 in fiscal 1994 to $31,287,000 in fiscal 1995. This
increase primarily relates to the gross profit contribution
provided by the acquired companies during fiscal 1995. As a
percentage of revenues, gross profit increased to 11.4% in fiscal
1995 as compared to 11.1% in fiscal 1994. This increase reflects
slight improvement in hardware margins, partially offsetting
lower margins in the services business due to incremental costs
associated with the continued investment in the development of a
nationwide services business.
Selling, general and administrative expenses increased by
127.2%, or $13,584,000, from $10,675,000 in fiscal 1994 to
$24,259,000 in fiscal 1995, primarily due to the recent
acquisitions and increases in corporate infrastructure to support
the growth of the Company. As a percentage of revenues, selling,
general and administrative expenses increased from 8.7% in fiscal
1994 to 8.8% in fiscal 1995.
Amortization of goodwill of $594,000 in fiscal 1995 reflects
amortization of the excess of purchase price over net assets
acquired for the related acquisitions. There was no amortization
of goodwill in fiscal 1994.
Interest (expense) income, net was ($2,677,000) in fiscal
1995 as compared to $4,800 in fiscal 1994. The net increase in expense
as compared to income in the prior fiscal year primarily relates
to the use of funds available for investment and increased
borrowings in connection with the acquisitions in fiscal 1995.
Litigation settlement and related costs in fiscal 1994
represents expenses associated with the settlement of a class
action lawsuit. See Note 15 to the Consolidated Financial
Statements.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $5,091,000 during
fiscal 1996. This decrease primarily results from the use of
available cash and cash equivalents to fund continuing
operations.
Net cash used in investing activities of $5,902,000 reflects
$1,215,000 in cash used for certain acquisitions and $4,687,000
for capital expenditures. The Company has no material commitments
for capital expenditures for the fiscal year ending March 31, 1997.
Net cash provided by financing activities increased in
fiscal 1996 primarily due to the net increase in notes payable of
$28,122,801 under inventory and working capital agreements
executed between the Company, Dataflex Southwest Corporation, a
wholly-owned subsidiary of the Company ("Dataflex Southwest") and
IBM Credit Corporation ("IBMCC").
On December 28, 1994, the Company and Dataflex Southwest
executed inventory and working capital agreements with IBMCC (the
"Agreements") for the purpose of providing sufficient funds
available to the Company to finance a portion of the acquisition
of NDP and to support its working capital needs. The Agreements had
been subsequently amended to expand the available line from
$110.0 million, secured by substantially all of the assets of the
Company and Dataflex Southwest, to $120.0 million including a $5.0
million unsecured promissory note. The Agreements include several
covenants requiring, among other things, minimum levels of
tangible net worth, earnings as a percentage of revenue, current ratio and
leverage ratio requirements. At March 31, 1996, the Company was
not in compliance with certain of these covenants. Waiver of
default of certain financial covenants was also received from
IBMCC and the agreements have been subsequently amended to revise
certain financial covenants to reflect the Company's current and future
business environment. As of July 1, 1996, the credit line
has been reduced to $85 million as a result of the sale of the
Western Region.
As described previously, subsequent to its fiscal 1996
year-end, the Company sold its Western Region and its Valtron
Division. The Company expects to receive approximately $45.0
million from these divestitures. These proceeds will be used to
reduce the Company's debt and trade accounts payable with IBMCC.
Impact of Inflation
The Company does not believe that inflation has had a
material impact on its operating results.
Item 8 - Consolidated Financial Statements and Supplementary
Data
The consolidated financial statements and supplementary
financial information required by this item are attached.
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
The Registrant did not have any disagreements on accounting
and financial disclosures with its independent accountants.
Part III
Item 10- Directors and Executive Officers
The following table sets forth certain information with
respect to the directors and executive officers of the Company.
The Board of Directors is divided into five classes. The term of
the Directors in Class I expires at the 1996 Annual Meeting of
Shareholders; the term of the Directors in Class II expires at
the 1997 Annual Meeting of Shareholders; the term of the Directors in
Class III expires at the 1998 Annual Meeting of Shareholders; the
term of the Directors in Class IV expires at the 1999 Annual
Meeting of Shareholders; and the term of the Directors in Class V
expires at the 2000 Annual Meeting of Shareholders; and in all
cases at the time their respective successors have been duly
elected and qualified.
<TABLE>
<CAPTION>
Director or
Name Age Position Officer Since
<S> <C> <C> <C>
Richard C. Rose 48 Chairman, Chief 1984
Executive Officer,
Director, Class V
Gordon J. McLenithan 55 Director, Class IV 1990
Philip Doganiero 39 President, 1995
Director, Class III
Raymond DioGuardi 41 Senior Vice President, 1995
Chief Financial
Officer
John G. Raos 47 Director, Class III 1993
Charles C. Kelly 57 Director, Class II 1994
</TABLE>
Richard C. Rose has served as Chief Executive Officer of the
Company since April 1990 and Chairman of the Board of Directors
since September 1993. He served as President of the Company from
April 1987 to September 1993. He has served as a Director of the
Company since October 1984, and has served as Chief Operating
Officer from July 1986 through April 1990 and as Vice President -
Sales and Marketing of the Company from July 1984 through April
1987. From 1979 through June 1984, he served as Vice President
and Director of Sales of David Jamison Carlyle, a computer peripheral
distributor. Prior to 1979, he was employed in two sales
management positions. Mr. Rose is a graduate of the University
of Miami with a Bachelor's Degree in Mathematics.
Gordon J. McLenithan served as President of Dataflex East
from January 1995 to September 1995 and remained with the Company
through May 1996. He served as Vice Chairman from April 1994 to
January 1995, and as President of the Company from September 1993
until April 1994. He served as Chief Operating Officer of the
Company from April 1990 until April 1994 and as its Chief
Financial Officer from January 1986 to March 1995. He has served as a
Director of the Company since April 1990. Mr. McLenithan also
served as the Company's Executive Vice President from April 1990
to October 1993, Vice President from May 1985 until April 1990, its
General Manager from January 1986 until April 1990 and as
Controller from May 1984 until January 1986. From 1982 to 1984,
he was employed as Vice President - Finance of Eutectic Corporation,
a manufacturer of consumable welding materials. Prior to 1982,
he was employed in a number of financial management positions,
including 10 years with Price Waterhouse. Mr. McLenithan, a
certified public accountant, is a graduate of Bentley College
with a Bachelor's Degree in Accounting.
Philip Doganiero has served as President of the Company since May 1996
and a Director since January 1995. He served as Co-President of the Company
commencing January 1995, following the Company's acquisition
of substantially all of the assets and assumption of certain
liabilities of National Data Products, Inc. ("NDP"). From May
1982 to January 1995, he was founder and President of NDP, a reseller
of personal computers and related services. Prior to May 1982, he
was a sales representative for Better Business Forms and NCR
Corporation. Mr. Doganiero graduated from Florida State
University with a Bachelor's Degree in Marketing.
Raymond DioGuardi has served as Senior Vice President of
Finance since November 1994 and as Chief Financial Officer since
March 1995. From the period of December 1989 to October 1994, he
held the position of Vice President of Finance, CFO and Secretary
of Nathan's Famous, Inc. Prior to this time, he spent twelve
years at various levels of increasing responsibility with Price
Waterhouse. He is a Certified Public Accountant, member of the
AICPA, New Jersey Society of Certified Public Accountants and
Institute of Management Accountants. Mr. DioGuardi graduated
from Rutgers State University with a Bachelor's Degree in Business
Administration.
John G. Raos has served as a Director of the Company since
October 1993. Mr. Raos is President and Chief Operating Officer
of U.S. Industries, Inc. Prior to June 1995, he was President and
Chief Operating Officer of Hanson Industries, Inc., a $15 billion
British-American industrial management corporation. He joined
Hanson Industries as Corporate Controller in 1976. From
1970-1976, Mr. Raos was employed by Price Waterhouse in New York as an
auditor. Mr. Raos, a certified public accountant, is a graduate
of Queens College with a Bachelor's Degree in Accounting.
Charles C. Kelly has served as a Director of the Company
since May 1994. Mr. Kelly was employed by First Fidelity
Bancorporation ("FFB") from October 1990 to December 1995 when he retired,
serving as Executive Vice President and Division Head of FFB's Investment
Bank (the "Investment Bank"), which was responsible for FFB's
private placements, mergers and acquisitions business. In
addition, Mr. Kelly was head of loan pricing and syndications for
FFB's wholesale bank. Prior to this position, Mr. Kelly was
Group Head of FFB's wholesale bank - northern region. Prior to joining
FFB, Mr. Kelly served for over 20 years, from April 1970 to
October 1990, with Citibank, N.A., where he was Vice President and Senior
Credit Officer. He has worked for two years in the Investment
Bank, heading corporate finance for the middle market, media and
health care sectors. Prior to working at the Investment Bank,
Mr. Kelly was the Regional Executive of Citibank's Northeast U.S.
Corporate Bank. Mr. Kelly holds a J.D. degree, and is admitted
to the New York Bar.
Board Meetings
During the fiscal year ended March 31, 1996, the Board of
Directors held nine meetings. Each Director attended at least
75% of the aggregate of the total number of meetings of the Board of
Directors plus the total number of meetings of all committees of
the Board on which he served.
Committees of the Board
The Board of Directors has an Audit Committee, a
Compensation Committee, and a Nominating Committee, each comprised of the
Company's two non-employee Directors, Messrs. Raos and Kelly.
The Audit Committee is responsible for reviewing the Company's
audited financial statements, meeting with the Company's independent
accountants to review the Company's internal controls and
financial management practices and examining all agreements or other
transactions between the Company and its Directors and officers
(other than those compensation functions assigned to the
Compensation Committee) to determine whether such agreements or
transactions are fair to the Company's shareholders. During
fiscal 1996, the Audit Committee held one meeting.
The Compensation Committee is responsible for reviewing the
compensation and benefits of the Company's executive officers,
making recommendations to the Board of Directors concerning
compensation and benefits for such executive officers and
administering the Company's stock option plans. During fiscal
1996, the Compensation Committee held one meeting.
The Nominating Committee is responsible for nominating new
directors of the Company.
Directors who are not employees of the Company (other than
Mr. Raos) received $6,000 during fiscal 1996 for serving as
Directors. Mr. Raos has waived all fees to which he is entitled for serving
as Director. Directors who are employees of the Company do not
receive any additional compensation for such services.
Item 11 - Executive Compensation
The following table sets forth, for each of the last three
fiscal years, cash and certain other compensation paid or accrued
by the Company for the Chief Executive Officer and for each of
the other named executive officers (the "Named Officers") of the
Company in all capacities in which they served:<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
Other All
Name Annual Restricted Securities Other
and Compen- Stock Underlying LTIP Compen-
Principal Salary Bonus sation Award(s) Options Pay- sation
Position Year ($) ($) ($) ($),<FN1> (#) outs ($)<FN2>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard
C.
Rose 1996 $329,400 $0 $0 31,525 97,022 NA $153,551<FN3>
Chairman,
CEO 1995 329,400 254,416 0 NA 0 NA 1,913
1994 329,400 83,133 0 NA 158,750 NA 899
Peter
H.
Jackson 1996 250,000 0 0 38,465 71,980 NA 125,039 (3)
Co-
President 1995 297,500 115,812 0 NA 215,000 NA 2,851
1994 0 0 0 NA 0 NA 0
Philip
Doganiero 1996 225,000 0 0 NA 0 NA 2,187
Co-
President
Raymond
DioGuardi 1996 140,000 0 0 NA 30,000 NA 258
Chief
Financial
Officer
<FN>
<FN1> Represents the value of the vested portion of the stock
grants issued to Messrs. Rose and Jackson on April 1, 1995, as of the
closing price of the Common Stock on March 31, 1996.
<FN2> All Other Compensation represents 401(k) Matching Contributions.
<FN3> Includes lump sum distributions for Mr. Rose of $152,000 and
Mr. Jackson of $123,640 as part of their amended employment contracts dated
April 1, 1995.
</FN>
</TABLE>
<PAGE>
Stock Options
The following table contains information concerning the
grant of stock options pursuant to the Company's several stock option
plans to the Named Officers during the year ended March 31, 1996:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term <FN3>
<S> <C> <C> <C> <C> <C> <C>
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Granted in Fiscal Price Expiration
Name (#)<FN1> Year ($/Sh)<FN2> Date 5%($) 10%($)
Richard
C. 27,022 5.2% $8.125 04/01/05 $138,076 $349,912
Rose 70,000 13.6% $5.75 08/11/05 253,130 641,481
Peter
H. 21,980 4.3% $8.125 04/01/05 180,807 458,201
Jackson 50,000 9.7% $5.75 08/11/05 112,313 284,622
Raymond
DioGuardi 30,000 5.8% $5.75 08/11/05 108,484 274,921
<FN>
<FN1> On April 1, 1995, 72,225 options were granted under a separate issuance.
Mr. Rose's options are subject to a three-year vesting schedule beginning
on the particular grant date with 33.3% vested per year. Mr. Jackson's
options are subject to a two-year vesting schedule beginning on the
particular grant date. Mr. Jackson's options were fully vested on May
24, 1996, the date of his resignation resulting from the sale of the
Company's offices in California and Arizona.
<FN2> All stock options were granted at the fair market value on the date of
grant.
<FN3> The amounts set forth are based on assumed appreciation of 5% and 10%
rates as prescribed by the Securities and Exchange Commission rules and
are not intended to forecast future appreciation, if any, of the stock
price. The Company did not use an alternate formula for a grant date
valuation as it is not aware of any formula which will determine with
reasonable accuracy a present value based on future unknown or volatile
factors. Actual gains, if any, on stock option exercises and common
stock holdings are dependent on the future performance of the Company's
common stock. There can be no assurance that the amounts reflected in
this table will be achieved.
</FN>
</TABLE>
<PAGE>
Option Exercises and Fiscal Year-End Values
The following table sets forth information with respect to
the Named Officers concerning the exercise of options during the 1996
fiscal year and unexercised options held as of the end of such
fiscal year.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Number of
Securities
Underlying Value of
Shares Unexercised in-the-Money
Acquired Options Options
on Value at FY-End<FN1> at FY-End<FN2>
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Richard
C. Rose 0 0 253,631/152,391 ($428,719)/($288,632)
Peter H.
Jackson 0 0 88,230/198,750 ($317,908)/($648,750)
Raymond
DioGuardi 0 0 13,750/41,250 ($48,125)/($144,375)
<FN>
<FN1> This represents the total number of stock options held by
the named executives. These options were granted on various dates
during the years 1991-1995.
<FN2> These amounts represent the difference between the exercise
price of the stock options and the closing price of the Common Stock on
March 31, 1996.
</FN>
</TABLE>
Restricted Stock Grants
In April, 1995, the Company issued 27,022 shares and 21,980
shares of common stock to Mr. Rose and Mr. Jackson, respectively.
Mr. Jackson's shares fully vested upon resignation. Pursuant to the terms
of the agreement, the shares issued to Mr. Rose are subject to certain
restrictions which expire by March 31, 1998. The restrictions
lapse equally each year for the term of the grant and with
respect to all shares in the event of termination of employment for any
reason other than "cause", voluntary termination for "good
reason" and death or disability, as defined. If at any time prior to the
expiration of the restriction period, employment of either
officer is terminated "for cause" or any other reason not provided for
under the agreement, any such shares still subject to
restrictions, as previously described, shall be transferred to the Company,
without monetary consideration.
Employment Agreements
The Company has employment agreements with executive
officers Rose and Doganiero. Mr. Rose's agreement, as amended,
provided for a minimum annual base salary of $329,400, a lump sum
distribution of $152,000, discretionary bonuses awarded by the
Company's Board of Directors, and awards of restricted stock and
stock options which vest over three years. There were no bonuses
awarded for fiscal year 1996. The amended agreement expires
December 31, 1999.
Mr. Doganiero's agreement provided for a minimum annual base salary of
$225,000. Bonuses are subject to approval by the Company's Chief Executive
Officer or Board of Directors. The amended agreement expires on January 10,
1998.
Pursuant to the terms of their respective employment
agreements, Mr. Rose and Mr. Doganiero each agreed not to
compete, directly or indirectly, with the Company in the states in which
the Company does or may do business during the terms of their
respective agreements and for a period of one year after the
termination of their respective employments, either with or
without cause. If the Company were to terminate the employment of Mr.
Rose or Mr. Doganiero without cause, the Company would be required to
pay such terminated employee his remaining base salary and any
additional compensation earned in excess of his base salary until
the date of termination, plus an amount equal to his then annual
base salary for the period through and including the expiration
of such employee's employment agreement. If the employment of Mr.
Rose or Mr. Doganiero were terminated with cause, the Company
would be required to pay the terminated employee only their base salary
up to the date of termination. If Mr. Rose or Mr. Doganiero were
to die during their term of employment, the Company would be
required to pay to their respective estate, the base salary
otherwise payable until the end of the term of their respective
agreement and to pay their spouse and surviving children, in
equal shares, an additional $5,000.
In addition, the Company had an employment agreement with
Mr. Jackson prior to his resignation from the Company. Mr. Jackson's
agreement provided for a minimum annual base salary of $225,000, a
lump sum distribution for fiscal year 1996 of $123,640 and awards of
restricted stock and stock options which vest over two years and
discretionary bonuses awarded by the Company's Board of Directors. During
fiscal 1996, Mr. Jackson's salary was increased to $300,000. Mr. Jackson's
agreement terminated in May 1996 as a result of the sale of the
Company's California and Arizona offices resulting in a final
payment of $300,000 and 100% vesting of the restricted stock.
Under their respective employment agreements, if there were
a "change in control" of the Company (as defined therein) and,
subsequent to such change in control, any of their employment
agreements (or any subsequent employment agreement then in effect
which expires prior to the time that they have attained 65 years
of age) were to be terminated or were not to be renewed by the
Company at the expiration of the term of such agreement, or any renewals,
extensions or modifications, then such employee would be entitled
to receive compensation in an amount equal to 299% of such
employee's annual base salary in effect at the time of the
termination (the "Severance Amount"). This Severance Amount
would be payable in one single payment within 60 days after the
termination of the employment of such employee. The Severance
Amount, however, may not exceed three times the "base amount" as
determined under Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"). In the event the Severance Amount
payable to such employees were to be reduced for the reason set forth in
the preceding sentence, the Severance Amount would be reduced
prior to the reduction of any other payments due under their respective
employment agreements. A "change in control" is defined in each
of the existing employment agreements as a transfer of more than 50%
of the Company's common stock in a single transaction or series
of transactions in concert with each other (excluding transfers made
by persons who were officers or were related to officers of the
Company immediately prior to the change in control).
Item 12 - Security Ownership of Certain Beneficial Owners and
Management
The following table presents certain information regarding
the beneficial ownership of the Common Stock as of July 2, 1996 by
(i) all Directors; (ii) all the named executive officers in the
Summary Compensation table appearing below as a group, and (iii) each
other person known by the Company to own more than 5% of any class of
equity securities of the Company.
<TABLE>
<CAPTION>
Number of Shares Percent
Owned <FN1> of Class
<S> <C> <C>
Richard C. Rose 298,156<FN2> 5.4%
Gordon J. McLenithan 301,158<FN3> 5.5%
John G. Raos 173,500<FN4> 3.2%
Charles C. Kelly 6,000<FN5> *
Raymond T. DioGuardi 21,250<FN6> *
Qualivest Capital
Management 451,300<FN7> 8.2%
c/o U.S. Bankcorp
111 Southwest Fifth Avenue
Portland, Oregon 97204
Pioneer Management Corp. 471,000<FN8> 8.6%
60 State Street
Boston, MA 02108
All Directors and officers
as a group (6 persons) 800,064<FN9> 14.6%
____________________
* Less than 1%.
<FN>
<FN1> Unless otherwise indicated, each shareholder has sole voting
and investment power.
<FN2> Includes 271,131 shares which Mr. Rose has the right to
acquire through the exercise of stock options granted to him
under the Company's various stock option plans. Does not
include 134,891 shares subject to options granted to Mr. Rose
under the Company's various stock option plans or 18,015
shares of restricted stock which have not vested.
<FN3> Includes 283,860 shares which Mr. McLenithan has the right to
acquire through the exercise of stock options granted to him
under the Company's various stock option plans. These options
expire 90 days after May 8, 1996.
<FN4> Includes 150,000 shares which Mr. Raos has the right to
acquire through the exercise of stock options granted to him
under a separate issuance of stock options. Does not include
150,000 shares subject to options granted to Mr. Raos that
which have not vested.
<FN5> Includes 5,000 shares which Mr. Kelly has the right to acquire
through the exercise of stock options granted to him under a
separate issuance of stock options. Does not include 5,000
shares subject to options granted to Mr. Kelly which have not
vested.
<FN6> Includes 21,250 shares which Mr. DioGuardi has the right to
acquire through the exercise of stock options granted to him
under the Company's various stock option plans. Does not
include 33,750 shares subject to options granted to Mr.
DioGuardi under the Company's various stock option plans
which have not vested.
<FN7> Based on a Schedule 13G filed with the Securities and
Exchange Commission, dated February 20, 1996.
<FN8> Based on a Schedule 13G filed with the Securities and
Exchange Commission, dated January 26, 1996.
<FN9> Includes 68,823 shares beneficially owned by Messrs. Rose,
McLenithan, Raos and Kelly, after elimination of shares as to which
beneficial ownership is shared by more than one member of this group
(see Notes 2 through 6), and 731,241 shares subject to immediately
exercisable stock options granted under the Company's stock option
plans.
<PAGE>
Item 13 - Certain Relationships and Related Transactions
The Company has made loans from time to time during fiscal
years 1987 through 1995 to its employees primarily to enable them
to exercise stock options to purchase the Company's Common Stock.
During the 1996 fiscal year, the amount of indebtedness owed on
such loans was evidenced by a promissory note from the
appropriate employee. These loans bear interest at rates ranging from 6% per
annum to prime plus 1.5% per annum and are payable upon demand.
<PAGE>
Part IV
Item 14 - Exhibits, Consolidated Financial Statement Schedules
and Reports on Form 8-K.
(a) (1) Consolidated Financial Statements. The
following consolidated financial statements are included in Part
II, Item 8:
Page
Report of Independent Accountants F-1
Consolidated Financial Statements
Consolidated Balance Sheets as of
March 31, 1996 and 1995 F-2
Consolidated Statements of Operations
for years ended March 31, 1996, 1995 and 1994 F-3
Consolidated Statements of Shareholders' Equity
for years ended March 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows for years ended
March 31, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6
(a) (2) Incorporated Exhibits.
Exhibit Number Description of Document
(1) Filed as an exhibit to the Company's
Registration Statement on Form S-1 filed
February 23, 1990, and amendments thereto,
Registration No. 33033472.
3.1 The registrant's Certificate of Incorporation,
as amended.
3.2 The registrant's restated and amended by-laws.
4 Specimen of stock certificate for shares of Common
Stock.
10.8 Lease dated December 5, 1989 between 3920 Park
Avenue Associates and the registrant.
10.9 Amendment to Lease dated January 29, 1990 between
3920 Park Avenue Associates and the registrant.
10.10 Dealer Agreement dated August 11, 1989 between
International Business Machines Corporation and
the registrant.
10.11 Dealer Agreement dated February 21, 1989 between
Hewlett-Packard Company and the registrant.
10.12 Dealer Agreement dated April 1, 1989 between Apple
Computer, Inc. and the registrant.
10.13 Dealer Agreement dated October 1, 1988 and
extended to June 30, 1990 between Epson America,
Inc. and the registrant.
10.14 Dealer Agreement dated April 7, 1989 between
COMPAQ Computer Corporation and the registrant.
10.16 1987 Incentive Stock Option Plan.
10.17 1989 Incentive and Non-Qualified Stock Option
Plan.
10.18 Salary Savings Plan and Trust of Dataflex
Corporation dated December 21, 1989.
10.24 1990 Senior Management Incentive and Non-Qualified
Stock Option Plan.
10.25 Form of Stock Option Agreement for 1989 Incentive
and Non-Qualified Stock Option Plan by and between
the registrant and Richard C. Rose.
10.26 Form of Stock Option Agreement for 1989 Incentive
and Non-Qualified Stock Option Plan by and between
the registrant and Gordon J. McLenithan.
10.27 Form of Stock Option Agreement for 1990 Senior
Management Incentive and Non-Qualified Stock
Option Plan by and between the registrant and
Richard C. Rose.
10.28 Form of Stock Option Agreement for 1990 Senior
Management Incentive and Non-Qualified Stock
Option Plan by and between the registrant and
Gordon J. McLenithan.
(2) Filed as an Exhibit to the Company's Form 8-K filed April
23, 1994.
10.29 Asset Purchase Agreement between the Company and
Granite Computer Products, Inc. dated March 21,
1994.
(3) Filed as an Exhibit to the Company's Form 8-K filed June 16,
1994.
10.30 Asset Purchase Agreement between the Company and
Advantage Systems, Inc. dated May 23, 1994.
(4) Filed as an Exhibit to the Company's Annual Proxy Statement
filed September 1, 1991.
10.33 1991 Incentive and Non-Qualified Stock Option
Plan.
(5) Filed as an Exhibit to the Company's December 31, 1994 Form
10-Q filed February 13, 1995.
10.34 Inventory and Working Capital Financing Agreement
between Dataflex Corporation and IBM Credit
Corporation dated December 28, 1994.
10.35 Inventory and Working Capital Financing Agreement
between Dataflex Southwest Corporation and IBM
Credit Corporation dated December 28, 1994.
(6) Filed as an Exhibit to the Company's Form 8-K filed January
24, 1995.
10.36 Asset Purchase Agreement between Dataflex
Corporation and National Data Products, Inc.
dated November 17, 1994.
(7) Filed as an Exhibit to the Company's Form 8-K filed August
31, 1994.
10.37 Stock Purchase Agreement between Dataflex
Corporation, the sellers named therein and
Sunland Computer Services, Inc. dated August 19, 1994.
(8) Filed as an Exhibit to the Company's Annual Proxy Statement
filed September 1, 1992.
10.38 1992 Incentive and Non-Qualified Stock Option
Plan.
(9) Filed as an Exhibit to the Company's Annual Proxy Statement
filed September 1, 1994.
10.39 1994 Incentive and Non-Qualified Stock Option
Plan.
(10) Filed as Exhibits to the Company Form 10-K filed June 29,
1995.
10.40 Employment Agreement dated April 1, 1993 by and
between the Company and Richard C. Rose.
10.41 Amendment to Employment Agreement dated April 1,
1993 by and between the Company and Richard C.
Rose.
10.42 Employment Agreement dated January 30, 1995 by
and between the Company and Gordon J. McLenithan.
10.43 Amendment to Employment Agreement dated January
30, 1995 by and between the Company and Gordon
J. McLenithan.
10.44 Amendment to Employment Agreement by and between
the Company and Peter H. Jackson filed on April
23, 1994 as part of the Asset Purchase Agreement
between the Company and Granite Products, Inc.
(11) Filed as an Exhibit to the Company's Form 8-K filed June 13,
1996.
10.45 Asset Purchase Agreement by and among Vanstar
Corporation, VST West, Inc., Dataflex
Corporation and Dataflex Southwest Corporation dated May 24,
1996.
(a) (3) Exhibits Filed Herewith
22 Subsidiaries.
23 Consent of Price Waterhouse concerning S-8
Registration Statements.
(b) Reports on Form 8-K.
(1) Report on Form 8-K reporting Item 5 dated
January 25, 1996, filed January 31, 1996.
(2) Report on Form 8-K reporting Item 5 dated
March 15, 1996, filed March 25, 1996.
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Dataflex Corporation
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of
shareholders' equity and of cash flows present fairly, in all material
respects, the financial position of Dataflex Corporation and its subsidiary
at March 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended
March 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Morristown, New Jersey
July 2, 1996
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
DATAFLEX CORPORATION
Consolidated Balance Sheets
March 31,
1996 1995
<S> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents $ 499,144 $ 5,589,741
Accounts Receivable, Net 57,333,174 56,833,576
Inventory Net 25,754,983 32,029,137
Net Assets Held for Sale 45,229,410 -
Deferred Tax Asset 3,287,647 311,660
Income Taxes Receivable 828,823 -
Other Current Assets 8,428,151 11,493,326
Total Current Assets 142,861,332 106,257,440
Property and Equipment, Net 9,436,611 11,617,460
Other Assets 798,919 962,646
Goodwill 18,715,751 27,743,444
Total Assets $170,312,613 $146,580,990
Liabilities and Shareholders' Equity
Current Liabilities:
Current Portion of Long-Term
Debt $ 32,967,368 $ 7,249,222
Accounts Payable 42,477,509 45,197,903
Accrued Expenses and Other
Payable 8,385,420 6,663,361
Income Taxes Payable - 176,077
Total Current Liabilities 3,830,297 59,286,563
Long-Term Debt 54,061,619 52,510,305
Deferred Tax Liability 347,640 428,249
Other Long-Term Liabilities 224,627 215,917
Total Liabilities 138,464,183 112,441,034
Commitments and Contingencies (Note 11 and 15)
Shareholders' Equity:
Common Stock - No Par Value;
Authorized 20,000,000 Shares;
Issued 5,587,661 and 4,867,184
shares at March 31, 1996 and
1995, respectively 23,064,542 19,044,531
Less: Loans Receivable for
Exercise Stock Options (311,024) (413,212)
Retained Earnings 9,690,057 16,025,262
32,443,575 34,656,581
Less: Treasury Stock -
At Cost; 113,901 and 104,237
shares at March 31, 1996 and
1995, respectively (595,145) (516,625)
Total Shareholders' Equity 31,848,430 34,139,956
Total Liabilities and
Shareholders' $170,312,613 $146,580,990
See Notes to Consolidated Financial Statements
F-2
</TABLE>
<TABLE>
<CAPTION>
DATAFLEX CORPORATION
Consolidated Statements of Operations
For the Years Ended March 31,
1996 1995 1994
<S> <C> <C> <C>
Revenue
Equipment $422,532,448 $ 246,531,571 $ 108,191,859
Services 49,569,181 27,319,425 14,156,712
Total Revenue 472,101,629 273,850,996 122,348,571
Cost of Revenue
Equipment 378,490,201 220,710,681 98,008,293
Services 41,101,381 21,853,257 10,809,957
Total Cost of Revenue 419,591,582 242,563,938 108,818,250
Gross Profit 52,510 31,287,058 13,530,321
Selling, General and
Administrative Expenses 42,995,259 24,259,537 10,675,497
Amortization of Goodwill 1,265,101 593,659 -
Restructuring and Other Charges 5,352,809 - -
Operating Income 2,896,878 6,433,862 2,854,824
Other Income (Expenses):
Interest (Expense) Income, Net (8,063,508) (2,677,308) 4,756
Loss on Dispositions of
Businesses (4,631,820) - -
Litigation Settlement and
Related Costs - - (847,500)
(Loss) Income Before Income Taxes (9,798,450) 3,756,554 2,012,080
(Benefit from) Provision for Income
Taxes (3,463,245) 1,617,195 884,160
Net (Loss) Income $ (6,335,205) $ 2,139,359 $ 1,127,920
(Loss) Earnings Per Common Share $ (1.22) $ 0.45 $ 0.28
Weighted Average Common
Shares Outstanding 5,213,711 4,732,571 4,085,049
See Notes to Consolidated Financial Statements
F-3
<PAGE>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DATAFLEX CORPORATION
Consolidated Statements of Shareholders'
Equity
Common Stock Retained Earning Treasury Stock
Issued Shares Amount Amount Shares Cost
<S> <C> <C> <C> <C> <C>
Balance-March
31, 1993 4,126,187 $13,196,867 $12,757,983 125,759 $617,027
Exercise of
Stock Options 15,837 85,727
Sale of
Treasury Stock (10,007) (48,504)
Issuance of
Officers Loans (50,000)
Reductions of
Loans Receivable
for Exercised
Stock Opti 130,512
Net Income 1,127,920
Balance-
March 31, 1994 4,142,024 13,363,106 13,885,903 115,752 568,523
Exercise of
Stock Options
and Warrants 28,763 153,165
Sale of
Treasury Stock 32,375 (11,515) (51,898)
Issuance of
Common Stock 696,397 5,028,438
Issuance of
Notes Receivable
for Warrants (102,188)
Capitalized Tax
Benefit for
Exercise of
Stock Options 25,911
Reductions of
Loans Receivable
for Exercised
Stock Options 130,512
Net Income 2,139,359
Balance-March
31, 1995 4,867,184 18,631,319 16,025,262 104,237 516,625
Exercise of
Stock Options
and Warrants 6,000 29,938
Purchase of
Treasury Stock 9,664 78,520
Issuance of
Restricted Stock 72,225 240,073
Issuance of
Common Stock 642,252 3,750,000
Reductions of
Loans Receivable
for Exercised
Stock Options 102,188
Net Loss (6,335,205)
Balance-March
31, 1996 5,587,661 $22,753,518 $ 9,690,057 113,901 $595,145
See Notes to Consolidated Financial Statements
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DATAFLEX CORPORATION
Consolidated Statements of Cash Flows
For the Years Ended March 31,
1996 1995 1994
<S> <C> <C> <C>
Operating Activities:
Net (Loss) Income $(6,335,205) $2,139,359 $1,127,920
Adjustments to Reconcile Net
(Loss) Income to Net Cash:
Depreciation and Amortization 4,894,724 2,594,442 1,223,682
Deferred Taxes (3,056,596) 39,815 56,074
Loss on Dispositions of Businesses 4,631,820 - -
Restructuring and Other Charges 5,352,809 - -
Changes in Assets and Liabilities:
Accounts Receivable 703,528 (2,775,491) (7,208,298)
Income Taxes Receivable (828,823) - 359,929
Inventory 4,255,333 (9,839,062) (1,933,338)
Net Assets Held for Sale (36,622,075) - -
Other Current Assets 3,104,851 (7,514,172) (1,067,937)
Other Assets 89,253 (367,689) (118,066)
Accounts Payable (3,486,204) 8,110 14,849,685
Accrued Expenses and Other Payables 506,961 (923,908) 761,508
Income Taxes Payable (176,077) (8,885) 210,873
Accrued Settlement - (712,500) 712,500
Other Long-Term Liabilities (209,316) 64,943 -
Net Cash - Operating (27,175,017) (9,192,477) 8,974,532
Investing Activities:
Capital Expenditure (4,687,084) (5,270,085) (1,351,879)
Acquisition of Businesses,
Net of Cash Acquired (1,214,718) (19,603,661) -
Net Cash - Investing (5,901,802) (24,873,746) (1,351,879)
Financing Activities:
Proceeds from Issuance
of Notes Payable 267,825,003 72,831,195 2,368,450
Payments of Notes Payable (239,702,202) (49,460,632) (2,120,000)
Payments on Long-Term Borrowings (87,996) (29,298) -
Proceeds from Common Stock and Options 29,937 153,165 30,246
Sale of Treasury Stock - 84,273 53,985
Purchase of Treasury Stock (78,520) - -
Payments on Officers Loans
Receivable for Exercised
Stock Options - 130,512 201,167
Net Cash - Financing 27,986,222 23,709,215 533,848
Net (Decrease) Increase in Cash (5,090,597) (10,357,008) 8,156,501
Cash - Beginning of Year 5,589,741 15,946,749 7,790,248
Cash - End of Year $ 499,144 $ 5,589,741 $15,946,749
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF THE BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES
Dataflex Corporation ("Dataflex" or "the Company") was
incorporated in the State of New Jersey in April 1976. Dataflex
provides desktop computing solutions and services including
product sales, system integration, network installation, help desks support,
training, consultation services and equipment repair maintenance.
The Company serves primarily large business organizations with
diverse desktop computing requirements located throughout the
United States.
Principles of Consolidation--The consolidated financial
statements include the accounts of the Company and its
wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
Revenue Recognition--Sales of computer equipment are
recorded when the customer accepts title. Services contract revenue is
recognized ratably over the terms of the contracts. The operating
history of the Company is such that the allowance for doubtful
accounts represents an insignificant percentage of total
receivables.
Income Taxes--The Company accounts for income taxes using an
asset and liability approach that requires the recognition of
deferred tax consequences of events that have been recognized in
the Company's financial statements or tax returns.
Earnings (Loss) Per Share--Earnings (loss) per share are
calculated by dividing net income (loss) by the weighted average common shares
and, when their effect is dilutive, common share equivalents outstanding
during the year. Weighted average common shares outstanding for
the years ended March 31, 1996, 1995 and 1994 were 5,213,711,
4,732,571 and 4,085,049, and included common stock equivalents of 0,
485,797 and 72,077, respectively.
Cash and Cash Equivalents--For purposes of the statement of
cash flows, the Company considers all highly liquid debt
instruments purchased with an original maturity of three months
or less to be cash equivalents.
Inventory--Inventory is stated at the lower of cost or
market.
Cost is determined on a specific cost basis for equipment and
average cost for spare parts. Discretionary subsidies received
from manufacturers are recorded as reductions in the inventory
value or, if the product to which the subsidy relates has been
sold, as reductions in the cost of revenue. The Company
amortizes its spare parts over their estimated useful lives ranging from
three to eight years on a straight-line basis.
Net Assets Held for Sale--Net assets held for sale represents
the estimated fair market value of the net assets of the Western
Region and its Valtron Division. Management decided to exit
these businesses in March 1996 (Note 3).
Property and Equipment, Net--Property and equipment are
stated at cost. Depreciation and amortization are computed by
use of the straight-line method. Depreciation is based on the
estimated useful lives of the various assets which range from
three to forty years. Leasehold improvements are amortized over the
shorter of the life of the lease or their estimated useful life.
Goodwill-Goodwill represents the excess of purchase price
over the fair value of net assets acquired and liabilities assumed and
is being amortized over 25 years using the straight-line method.
Accumulated amortization was $1,023,354 and $589,629 at March 31,
1996 and 1995, respectively.
New Accounting Pronouncement--The Financial Accounting
Standards Board recently issued two standards which will be
applicable to the Company but which the Company has not yet
adopted: No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of and No. 123,
Accounting for Stock-Based Compensation. The impairment standard
is not expected to have a significant impact on the Company. The
Company has not yet determined which of the acceptable approaches
it will use under the stock compensation standard. Adoption of
certain approaches under the stock compensation standard could
result in noncash charges, which if made are not expected to be
material. At a minimum, the standard will require disclosures
about the fair value of the employee stock options.
Fair Value of Financial Instruments--The following methods
and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate
that value:
Cash equivalents--The carrying amount approximates fair
value because of the short maturity of those instruments.
Long-term debt--The carrying amount approximates fair value
because of the variable interest rate charged on substantially
all of this debt and the relatively short maturity of the
debt instruments.
Use of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE 2: ACQUISITIONS
Effective April 1, 1994, the Company acquired substantially
all of the assets and assumed substantially all of the
liabilities of Granite Computer Products, Inc. ("Granite"), a reseller of
computer products located in Alameda, California, for $9,514,200
in cash.
Effective June 1, 1994, the Company acquired substantially
all of the assets and assumed substantially all of the liabilities of
Advantage Systems, Inc. ("Advantage"), an Entre Computer
franchise of Intelligent Electronics, in exchange for $2,250,000 in cash, a
$1,000,000 convertible redeemable note, 71,397 shares of the
Company's common stock with an aggregate market value of $500,000
and a contingent payment based upon the future earnings of
Advantage for a three-year period. The $1,000,000 convertible
redeemable note bears interest at 6% per annum and may be
converted at any time through the maturity date of May 31, 1997 into
100,000 shares of the Company's common stock, which would be valued at
the closing price on the date of conversion.
Effective November 1, 1994, the Company (through its
wholly-owned subsidiary Dataflex Southwest Corporation) acquired
substantially all of the assets and assumed substantially all of
the liabilities of Hagen Computer Systems, Inc. ("Hagen"), an
Entre Computer franchise of Intelligent Electronics, located in Tucson,
Arizona, for $416,000 in cash.
Effective January 1, 1995, the Company acquired
substantially all of the assets and assumed substantially all of the
liabilities of National Data Products Inc. ("NDP"), a reseller of computer
products based in Clearwater, Florida, for $6,200,000 in cash,
$3,500,000 in subordinated notes with an interest rate of 9%,
625,000 shares of the Company's common stock with an aggregate
market value of approximately $4,200,000, and a contingent payout
based on the future earnings of NDP over a seven year period.
Effective July 1, 1995, the Company acquired substantially
all of the assets and assumed substantially all of the liabilities of
Valtron Technologies, Inc., a disk drive repair and reseller
located in Valencia, California, for 642,252 shares of the
Company's common stock with an approximate aggregate market value
of $3,400,000 and two subordinated notes aggregating $1,000,000.
The notes bear interest at 9% per annum.
These acquisitions have been accounted for under the
purchase method and, accordingly, the operating results of Granite,
Advantage, Hagen, NDP and Valtron have been included in the
consolidated operating results since the dates of their
respective acquisitions.
The cost of the acquisitions has been allocated on the basis
of the fair market value of the assets acquired and the
liabilities assumed. The allocation resulted in goodwill of approximately
$34,085,654 which is being amortized over 25 years on a
straight-line basis. Net goodwill associated with the assets
sold was $13,110,285 (Note 3).
The unaudited pro forma consolidated condensed results of
operations listed below give effect to certain adjustments, and
assume the acquisitions occurred at the beginning of each period
presented.
<TABLE>
<CAPTION>
For the Years Ended March 31,
1995 1994
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Revenue $383,984 $271,258
Gross Profit 46,393 34,359
Net Income 3,777 2,466
Earnings Per Common Share $ .72 $ .52
</TABLE>
The pro forma information is presented for informational
purposes only and is not necessarily indicative of the operating
results that would have occurred had the Granite, Advantage,
Hagen and NDP acquisitions been consummated as of the beginning of the
periods above, nor are they necessarily indicative of future
operating results.
On August 19, 1994, the Company acquired all of the issued
and outstanding common stock of Sunland Computer Services, Inc.
("Sunland"), a reseller and service provider of computer products
based in Tempe, Arizona, in exchange for 640,013 shares of the
Company's common stock with an aggregate market value of
$4,800,000. The acquisition was accounted for as a pooling of
interests and, accordingly, the accompanying consolidated
financial statements have been restated to include the accounts and
operations of Sunland for all periods presented.
NOTE 3: DISPOSITIONS OF BUSINESSES
In March 1996, the Company decided to exit its operations in
its Western Region, which consists primarily of the Granite,
Hagen and Sunland acquisitions completed during fiscal 1995, and its
Valtron division, an acquisition completed in fiscal 1996 (Note
2). The Western Region had combined revenues of $155,343,000,
$98,816,000 and $19,968,000 for fiscal years 1996, 1995 and 1994,
respectively.
In connection with these planned dispositions, the Company
recorded a loss on disposal of $4,631,820, representing the
aggregate difference between the carrying value of the net assets
of these businesses and the estimated fair value of these
businesses. The estimated fair market value of the net assets of
the businesses to be disposed of are included in "Net Assets Held
for Sale" in the March 31, 1996 Consolidated Balance Sheet.
On May 24, 1996, the Company completed the sale of
substantially all the assets and the transfer of substantially
all the liabilities of the Western Region, excluding Valtron, to
Vanstar Corporation for approximately $42 million in cash,
including $5 million placed in escrow pending future adjustments
as described in the agreement. The cash received was used to reduce
the Company's accounts payable and interest-bearing obligations
on its credit facility with IBM Credit Corporation in the amount of $9.3
million and $27.7 million, respectively (Note 10). The purchase
price is subject to adjustment based primarily on the expected
realizability of certain assets as defined in the agreement. The
Company has included its best estimate of these adjustments in
its determination of the estimated fair market value of the net
assets held for sale and of the loss on disposition of businesses. The
Company does not expect these adjustments to be material relative
to the total purchase price.
On June 5, 1996, the Company announced an agreement to sell
substantially all the assets and the transfer of substantially
all the liabilities of its Valtron division to Valtron's President
and a group of investors. The agreement, finalized in July, is for
$2,900,000 in cash, $750,000 in forgiveness of a Note payable to
Valtron and receipt of a note of $850,000, bearing interest at
9%. The note is payable in two installments in July 1998 and July
1999. The estimated loss on this sale, based on the purchase price
outlined in the agreement, is included in the Consolidated
Statement of Operations for the fiscal year ended March 31, 1996
described above.
NOTE 4: INVENTORY
<TABLE>
Inventory consists of:
<CAPTION>
March 31,
<S> <C> <C>
1996 1995
Finished Goods $21,989,311 $25,744,443
Spare Parts, Net 3,765,672 6,284,694
$25,754,983 $32,029,137
</TABLE>
Accumulated amortization of spare parts inventory is
$801,428 and $1,554,217 at March 31, 1996 and 1995, respectively.
Amortization expense amounted to $2,064,747, $1,004,572 and
$492,959 for the years ended March 31, 1996, 1995 and 1994,
respectively.
NOTE 5: OTHER CURRENT ASSETS
The balance in other current assets at March 31, 1996 and
1995 includes receivables from major vendors for returned goods,
marketing and other programs of $7,309,277 and $9,895,946,
respectively.
<PAGE>
NOTE 6: PROPERTY AND EQUIPMENT, NET
Property and equipment, net is as follows:
<TABLE>
<CAPTION>
March 31,
1996 1995
<S> <C> <C>
Land $ 683,756 $ 683,756
Buildings 1,912,095 1,692,458
Rental Equipment 0 87,690
Furniture and Equipment 10,422,064 11,398,416
Transportation Equipment 173,463 171,302
Leasehold Improvements 1,244,203 1,215,126
Construction in Progress 0 495,083
14,435,581 15,743,831
Less: Accumulated
Depreciation and
Amortization (4,998,970) (4,126,371)
Property and Equipment,
Net $ 9,436,611 $11,617,460
</TABLE>
Depreciation and amortization expense amounted to
$3,315,076, $1,967,637 and $1,217,652 for the years ended March 31, 1996,
1995 and 1994, respectively.
NOTE 7: LOANS RECEIVABLE FROM EMPLOYEES
Loans receivable from employees of $533,478 and $697,364 at
March 31, 1996 and 1995, respectively, includes various loans
made to certain employees during fiscal years 1987 through 1996, of
which $311,424 at March 31, 1996 and 1995 are related to the
exercise of stock options. These loans bear interest at rates
ranging from 6% to prime plus 1.5% per annum and are payable upon
demand.
Total interest income from employees' loans amounted to
$41,400, $45,300 and $40,300 for the years ended March 31, 1996,
1995 and 1994, respectively.
NOTE 8: SUPPLEMENTARY CASH FLOW INFORMATION
The following is a summary of supplementary cash flow
information:
<TABLE>
<CAPTION>
For the Years Ended March 31,
1996 1995 1994
<S> <C> <C> <C>
Interest Paid $7,381,333 $ 2,402,661 $230,980
Income Taxes Paid 623,504 1,636,331 365,366
Noncash Investing
and Financing
Activities:
Issuance of Notes
Receivable for
Common Stock - 102,188 -
Issuance of Common
Stock in Exchange
for Notes Payable - 207,500 -
Capitalized Tax
Benefit for Exercise
of Options - 25,911 -
Business Acquisitions:
Accounts Receivable
Acquired 1,503,127 34,346,458 -
Inventory Acquired 899,121 9,783,697 -
Fixed Assets
Acquired 858,406 4,322,139 -
Other Assets
Acquired 39,676 925,293 -
Debt Issued and
Liabilities
Assumed 2,338,910 51,479,483 -
Common Stock Issued 3,750,000 4,718,750 -
</TABLE>
NOTE 9: CREDIT FACILITY
On December 28, 1994, the Company and its former
wholly-owned subsidiary, Dataflex Southwest Corporation ("Dataflex
Southwest"), executed Inventory and Working Capital Agreements with IBM Credit
Corporation (the "Agreements"). The Agreements have been
subsequently amended to expand the available line from a maximum
of $110.0 million secured by substantially all of the assets of the
Company and Dataflex Southwest to $120.0 million including a $5.0
million unsecured promissory note. Interest charged under the
Agreements ranges from LIBOR plus 4.25% to LIBOR plus 4.875% on
outstanding borrowings. Other charges include monthly fees of
$3,750 and an annual renewal fee of $25,000. The Agreements
expire on December 28, 1997 and can be renewed by the parties for an
additional year on each anniversary date. Effective July 1,
1996, as a result of the sale of the Western Region, IBM Credit
Corporation has reduced the line of credit to $85 million.
The Agreements include several covenants requiring, among
other things, minimum levels of tangible net worth, earnings as a
percentage of revenue, current ratio and leverage ratio
requirements. At March 31, 1996, the Company was not in
compliance with certain of these covenants. Waiver on default of certain
financial covenants was received from IBM Credit Corporation and
the agreements were subsequently amended to revise certain
financial covenants to reflect the Company's current and future
business environment.
NOTE 10: LONG-TERM DEBT
<TABLE>
<CAPTION>
March 31,
Long-term debt consists of the following: 1996 1995
<S> <C> <C>
Mortgage note payable to a bank, payable
in monthly installments of $5,267 plus
interest at the bank's prime rate plus 1%
(9.25% at March 31, 1996) with the
remaining balance due January 10, 2000,
collateralized by land and buildings. $ 850,996 $920,200
Mortgage note payable to a bank, payable
in monthly installments of $2,066 plus
interest at the bank's prime rate plus 1%
(9.25% at March 31, 1996) with the
remaining balance due January 10, 2000,
collateralized by land and buildings. 336,916 361,703
Convertible Promissory Note, payable
in full on June 1, 1997, with interest
due quarterly at an interest rate of 6%.
This note is convertible to 100,000
shares of Dataflex common stock through
the date of the note. 1,000,000 1,000,000
Promissory Note, payable in full on
January 10, 2002, with interest due
quarterly at an interest rate of 9% 2,000,000 2,000,000
Promissory Note, payable in full on
January 10, 1998, with interest due
quarterly at an interest rate of 9% 1,500,000 1,500,000
Promissory Note, payable to IBM
Credit Corp. (Note 9) 5,000,000 7,000,000
The IBM Agreements (Note 9) 76,235,590 46,816,002
Miscellaneous Notes Payable 105,485 161,622
87,028,987 59,759,527
Less: Current portion of long-term
debt 32,967,368 7,249,222
$54,061,619 $52,510,305
</TABLE>
Aggregate principal payments for the next five years subsequent
to March 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year ended March 31,
<S> <C>
1997 $ 32,967,368
1998 51,049,699
1999 87,996
2000 87,996
2001 835,928
Thereafter 2,000,000
$87,028,987
</TABLE>
NOTE 11: LEASES
The Company leases various facilities and equipment under
noncancelable lease arrangements which expire at various dates
during the next eight years, excluding renewal options. In
addition, the Company is generally responsible for real estate
taxes, utilities, insurance and maintenance expenses which relate
to its facilities.
Future minimum lease payments applicable to noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
Year ended Operating
March 31, Leases
<S> <C>
1997 $1,663,233
1998 1,187,547
1999 1,130,910
2000 1,084,940
2001 584,023
Thereafter 351,435
</TABLE>
Rental expense amounted to $1,482,857, $1,147,325 and
$811,143 for the years ended March 31, 1996, 1995 and 1994, respectively.
NOTE 12: INCOME TAXES
The composition of the (benefit from) provision for income
taxes is as follows:
<TABLE>
<CAPTION>
For the Years Ended March 31,
1996 1995 1994
<S> <C> <C> <C>
Current Taxes:
Federal $( 406,649) $1,235,277 $622,821
State 0 319,836 249,690
( 406,649) 1,555,113 872,511
Deferred Taxes:
Federal (2,682,439) 45,929 8,780
State ( 374,157) 16,153 2,869
(3,056,596) 62,082 11,649
(Benefit from) Provision For
Income Taxes $(3,463,245) $1,617,195 $884,160
</TABLE>
A reconciliation of the federal statutory rate with the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
For the Years Ended March 31,
1996 1995 1994
<S> <C> <C> <C>
Income Taxes at Federal
Statutory Rate $(3,331,473) $1,277,228 $684,107
State Taxes, Net of
Federal Tax
(Provision) Benefit ( 76,944) 220,660 165,996
Other ( 54,828) 119,307 34,057
(Benefit from) Provision
for Income Taxes $(3,463,245) $1,617,195 $884,160
</TABLE>
Deferred tax assets (liabilities) arise due to the recognition
of income and expense items for tax purposes in periods which differ
from those used for financial statement purposes. The tax
effects of significant temporary differences which comprise the net
deferred tax liability at March 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
March 31,
1996 1995
<S> <C> <C>
Accounts Receivable Reserves $ 190,569 $ 123,305
Vacation Reserve 118,855 43,115
Uniform Inventory Capitalization 184,832 145,240
Loss on Dispositions of Businesses 1,991,683 -
Restructuring and Other Charges 2,301,708 -
Other Deferred Tax Assets 139,764 -
Deferred Tax Assets 4,586,709 311,660
Accelerated Depreciation (542,436) (267,574)
Accelerated Amortization of Goodwill (604,266) (160,675)
Deferred Tax Liabilities (1,146,702) (428,249)
Deferred Tax Assets
Valuation (500,000) -
Net Deferred Tax Asset (Liability)$ 2,940,007 $ (116,589)
</TABLE>
NOTE 13: SIGNIFICANT CUSTOMERS AND VENDORS
No single customer accounted for greater than 10% of the
Company's revenue during the years ended March 31, 1996, 1995 and
1994.
Sales of products from one vendor constituted approximately
31%, 23% and 58% of the Company's revenue during the years ended March
31, 1996, 1995, and 1994, respectively. Another vendor's
products comprised 13%, 13% and 15% of the Company's revenue during the
same three year period.
NOTE 14: RESTRUCTURING AND OTHER CHARGES
During the fourth quarter of fiscal 1996, the Company recorded
restructuring and other charges of $5,352,809, primarily related
to write-downs of inventory and spare parts, employee termination
benefits and write-offs of the value of computer systems to be
replaced. The restructuring program was driven by the need to
refocus operations along more profitable business lines,
consolidate operations and implement upgraded computer systems.
The Company plans personnel reductions of approximately 30
individuals in operational, administrative and executive areas.
The Company has recorded a provision of $1,200,000 for the
estimated level of employee termination benefits in the
accompanying March 31, 1996 Consolidated Balance Sheet. Due to
the proximity of the announcement to the balance sheet date, no
employees have been terminated and no termination benefits have
been paid as of March 31, 1996.
NOTE 15: COMMITMENTS AND CONTINGENCIES
The Company's employment contracts with three employees provide
for base annual salaries aggregating approximately $750,000 per
year. The contracts for the employees expire between January 1998
and December 1999.
Subsequent to March 31, 1996, in connection with the sale of
the Western Region (Note 3), the Company terminated its employment
contract with the President of this business unit. This
termination resulted in a one-time payment of approximately
$300,000 which is included in the loss on dispositions of this
business.
Certain contracts referred to above include provisions for
payment of severance and in the event of a change of control.
The maximum amount that could be required to be paid under these
contracts, if such events occur, approximates $2,500,000.
A class action complaint was filed in March 1992 by
shareholders of the Company alleging that the Company and certain of its
officers and directors violated federal securities laws. The
Company included a charge of $847,500 against earnings for the
year ended March 31, 1994, which included $110,000 in legal fees.
Although management believed it had meritorious defenses,
expenses to defend and the time and disruption of Company resources led
the Company to agree to a full settlement of all claims for $900,000.
This amount, of which $162,500 was reimbursed from the Company's
insurance carrier in fiscal 1995, was paid by the Company in the
first quarter of fiscal 1995.
Other claims, suits and complaints arise in the ordinary course
of the Company's business. In the opinion of Company management,
such pending matters are without merit or are of such kind, or
involve such amounts, as would not have a material adverse effect
on the financial position or results of operations of the
Company.
NOTE 16: STOCK OPTIONS
The Company maintains two incentive stock option plans (the
"ISO Plans"), and five incentive and nonqualified stock option plans
(the "NQSO Plans"). The 1989, 1990, 1991, 1992 and 1994 Plans
provide for the grant of both incentive stock options and
nonqualified stock options to employees of the Company. The
grant prices of the various stock option plans range from $2.03 to
$8.75.
Shares of Common Stock have been reserved and issued under the
above plans as follows:
<TABLE>
<CAPTION>
Stock Option Plan Shares Reserved Shares
Granted
<S> <C> <C>
1984 and 1987 ISO 700,000 700,000
1989 Plan 400,000 400,000
1990 Plan 160,000 160,000
1991 Plan 200,000 200,000
1992 Plan 400,000 400,000
1994 Plan 800,000 769,074
</TABLE>
The ISO Plans and the 1989, 1991, 1992 and 1994 Plans provide
for the discretionary grant of options to purchase Common Stock at a
price determined by the Compensation Committee of the Board of
Directors but, in the case of incentive stock options, at a price
not less than the fair market value thereof on the date of grant.
The options, by their terms, must be exercised within ten years
from the date on which they are granted or within 90 days of
employment termination.
All options fully vest at date of grant except for stock
options granted under the 1989, 1991, 1992 Plans, which vest 25% per year
beginning one year after grant date, and the 1994 Plan, which
vests 25% on the grant date and 25% each year beginning one year after
grant date. Under certain circumstances, options can vest
immediately at the discretion of the Company's Board of
Directors.
The Company has occasionally granted to officers, directors and
certain key employees, stock options in addition to the ISO and
NQSO stock option plans.
On November 15, 1993, in connection with the appointment of a
member to the Company's Board of Directors, the Company granted
options for 300,000 shares of common stock to the board member at
its then fair market value of $5.00 per share.
On September 2, 1994, in connection with the appointment of
another member to the Company's Board of Directors, the Company
granted options for 10,000 shares of common stock to the board
member at its then fair market value of $7.125 per share.
These options vest 25% per year beginning one year after date
of grant. The options, by their terms, must be exercised within ten
years from the grant date or within 90 days of termination from
the Board of Directors.
On April 6, 1994, in connection with the acquisition of Granite
Products, Inc. (see Note 2), the Company granted a total of
300,000 shares to four Granite associates. The options were granted at
their then fair market value of $7.00 per share. These options
vest 25% per year beginning one year after date of grant. The
options, by their terms, must be exercised within ten years from
the date of grant or within 90 days of employment termination.
Information concerning options outstanding as of March 31,
1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
For the Years Ended March 31,
SHARES 1996 1995 1994
<S> <C> <C> <C>
Outstanding at Beginning 1,713,019 1,146,783 533,370
Granted 516,325 639,499 794,500
Exercised (6,000) (28,763) (15,837)
Cancelled (153,064) (44,500) (165,250)
Outstanding at End 2,070,280 1,713,019 1,146,783
Exercisable 1,001,064 533,520 280,283
</TABLE>
Options exercised during the years ended March 31, 1996 and
March 31, 1995 ranged in exercise prices from $4.50 to $5.85.
NOTE 17: EMPLOYEE BENEFITS
The Company has a 401(k) Plan which covers all employees who
have completed ninety days of service and are at least twenty-one
years of age. Employees may contribute from 1 to 15% of their annual
compensation subject to the limitation imposed by law. Employee
contributions of up to 6% of each covered employees' compensation
are matched at a percentage determined each year by the Company.
The maximum matching percent during fiscal years 1996, 1995 and
1994 was 20%, resulting in Company contributions of $234,855,
$85,222 and $39,779, respectively.
NOTE 18: SHAREHOLDERS' EQUITY
In September 1995, the Company's shareholders approved the
resolution proposed by the Board of Directors to amend Article
Fourth of the Company's Certificate of Incorporation to authorize
the Company to issue 10,000,000 shares of Preferred Stock,
without par value, and to increase the number of authorized shares of
common stock, no par value, from 10,000,000 shares to 20,000,000
shares.
As of March 31, 1996, there are no issued shares of Preferred
Stock.
NOTE 19: QUARTERLY FINANCIAL DATA
Unaudited quarterly financial data for the fiscal years ended
March 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
<S> <C> <C> <C> <C>
FY 1996:
Revenue $110,325,000 $107,844,000 $122,635,000 $131,298,000
Gross Profit 11,900,000 12,774,000 13,674,000 14,162,000
Net Income
(Loss) 309,000 142,000 153,000 (6,939,000)
Earnings
(Loss)Per
Share $ 0.06 $ 0.03 $ 0.03 $ (1.34)
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
<S> <C> <C> <C> <C>
FY 1995:
Revenue $53,774,000 $ 57,880,000 $64,135,000 $98,062,000
Gross Profit 5,800,000 6,880,000 7,556,000 11,051,000
Net Income 521,000 661,000 685,000 272,000
Earnings Per
Share $ 0.11 $ 0.15 $ 0.15 $ 0.05
</TABLE>
<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized:
DATAFLEXT CORPORATION DATE: July 26, 1996
By:/s/Richard C. Rose By: /s/Raymond DioGuardi
____________________ ________________________
Richard C. Rose Raymond DioGuardi
Chairman and Senior Vice President, Finance
Chief Executive Office and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/Richard C. Rose Chairman, Chief Executive July 26, 1996
_____________________ Officer and Director
Richard C. Rose
/s/Raymond DioGuardi Senior Vice President, July 26, 1996
______________________ Finance and Chief
Raymond DioGuardi Financial Officer
/s/Philip Doganiero President, Director July 26, 1996
______________________
Philip Doganiero
/s/Gordon J. McLenithan Director July 26, 1996
_______________________
Gordon J. McLenithan
/s/John G. Raos Director July 26, 1996
________________________
John G. Raos
/s/Charles C. Kelly Director July 26, 1996
___________________
Charles C. Kelly
<PAGE>
Exhibit 22
DATAFLEX CORPORATION
SUBSIDIARIES
Dataflex Southwest Corporation, an Arizona corporation.
<PAGE>
Exhibit 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statements on Forms S-8 (Nos. 33-4817, 33-16424,
33-32996 and 33-51012) of Dataflex Corporation of our report
dated June 28, 1996, appearing on page F-1 of this Form 10-K.
PRICE WATERHOUSE LLP
Morristown, New Jersey
June 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 499,144
<SECURITIES> 0
<RECEIVABLES> 57,333,174
<ALLOWANCES> 0
<INVENTORY> 25,754,983
<CURRENT-ASSETS> 141,361,332
<PP&E> 14,435,581
<DEPRECIATION> 4,998,970
<TOTAL-ASSETS> 170,312,613
<CURRENT-LIABILITIES> 83,830,297
<BONDS> 0
<COMMON> 22,158,373
0
0
<OTHER-SE> 9,690,507
<TOTAL-LIABILITY-AND-EQUITY> 170,312,613
<SALES> 472,101,629
<TOTAL-REVENUES> 472,101,629
<CGS> 419,591,582
<TOTAL-COSTS> 419,591,582
<OTHER-EXPENSES> 54,244,989
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,063,508
<INCOME-PRETAX> (9,798,450)
<INCOME-TAX> (3,463,245)
<INCOME-CONTINUING> (3,463,245)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,335,205)
<EPS-PRIMARY> (1.22)
<EPS-DILUTED> (1.22)
</TABLE>
