UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 2)
[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, 1997.
[ ] 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 specified in its charter)
NEW JERSEY 22-163376
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2145 CALUMET STREET
CLEARWATER, FL 34625
- --------------------------------------- --------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (813) 562-2200
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 [ ]
Indecate 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.
YES [ ] NO [X]
The aggregate market value of Common Stock held by non-affiliates based upon the
average price of such stock as quoted on NASDAQ for June 24, 1997, and reported
by the National Quotations Bureau, Inc. was $19,026,606.
As of June 24, 1997 there were 5,961,169 shares of the Registrant's Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>
EXPLANATORY NOTE
Dataflex Corporation, the undersigned registrant (the "Company"),
hereby amends Part III (Items 10, 11, 12 and 13) and Part IV (Item 14) of its
Annual Report on Form 10-K for the fiscal year ended March 31, 1997 to include
Items 10 through 13 of Part III in the Form 10-K directly rather than
incorporating such items by reference from the Company's Definitive Proxy
Statement and to provide additional information in Note 14 to the Financial
Statements included in Item 14 of Part IV.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to each
person who is currently a director or executive officer of the Company.
<TABLE>
<CAPTION>
YEAR FIRST
BECAME A
NAME POSITION(S) AGE DIRECTOR
- ---- ----------- --- ----------
<S> <C> <C> <C>
Richard C. Rose......... Chief Executive Officer and Director 49 1984
Anthony G. Lembo........ President, Chief Operating Officer, Chief 44 1996
Financial Officer and Director
Philip Doganiero........ Chairman & Director 40 1995
W. Keith Schilit........ Director 43 1997
Barry M. Alpert......... Director 56 1997
</TABLE>
RICHARD C. ROSE has served as Chief Executive Officer of the Company
since April 1990. Mr. Rose has served as a director of the Company since October
1984 and Chairman of the Board of Directors from September 1993 to December
1996. Prior to April 1990, Mr. Rose served as President of the Company (April
1987 - September 1993), Chief Operating Officer of the Company (July 1986 -
April 1990) and as Vice President - Sales and Marketing of the Company (July
1984 - April 1987).
ANTHONY G. LEMBO has served as President, Chief Operating Officer,
Chief Financial Officer and a director of the Company since October 1996. Prior
to October 1996, Mr. Lembo served as Vice President of the Company (1995 -
1996). Mr. Lembo's previous experience includes nine years as Chief Operating
Officer of National Data Products ("NDP"), prior to the Company's acquisition of
NDP (1986 - 1995).
PHILIP DOGANIERO has served as a director of the Company since January
1995 and as Chairman of the Board of Directors since December 1996. Prior to
December 1996, Mr. Doganiero served as President of the Company (April 1996 -
December 1996) and Co-President of the Company (January 1995 - April 1996),
following the Company's acquisition of NDP. Prior to 1995, Mr. Doganiero was a
founder and President of NDP (1972- 1995).
W. KEITH SCHILIT has served as a director of the Company beginning in
April 1997. Dr. Schilit is a professor of management and the director of the
Program in Entrepreneurship at the University of South Florida, Tampa, Florida,
having served on the faculty of the university since 1985. Dr. Schilit, who
holds an MBA and Ph.D. in strategic planning, is also an author, consultant and
lecturer. He has been the principal owner of Catalyst Ventures (and its
predecessors), a business consulting firm, since before 1982. From 1982 until
1985, he was on the faculty of Syracuse University and from 1979 until 1982, he
was on the faculty of University of Maryland. He also is a director of ASM Fund,
Inc.
1
<PAGE>
BARRY M. ALPERT has served as a director of the Company since April
1997. Mr. Alpert has served as Managing Director, Investment Banking for Raymond
James & Associates, Inc. since January 1997, as director of Reptron Electronics,
Inc. since 1995 and as Chairman of Alpert Financial Group, Inc. (a family
investment holding company) since 1989. Prior to January 1997, Mr. Alpert served
as Vice President, and as Senior Vice President - Investment Banking for Robert
W. Baird & Co. Incorporated (1991 - 1997). From 1989 until 1993, Mr. Alpert
served as Vice Chairman of Colony Bank. Mr. Alpert also served as Vice Chairman
and director of Western Reserve Life Assurance Co. of Ohio and as President of
Pioneer Western Corporation from 1989 until 1991. Prior to 1989, Mr. Alpert
served as President and Chief Executive Officer of United Insurance Companies,
Inc. (1988-1989); Chairman of the Board of Directors, President and Chief
Executive Officer of Home Life Financial Assurance Corporation (1982-1988);
Chairman of the Board of Directors, President and Chief Executive Officer of
Orange State Life Insurance Company (1977-1989) and Chairman of the Board of
Directors of Life Savings Bank (1979-1983).
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than ten
percent of the common stock of the Company, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
directors, and ten percent shareholders are required by the SEC regulations to
furnish the Company with copies of all Section 16(a) reports they file.
Based solely on its review of the copies of such reports received by
it, and written representations from certain reporting persons that no SEC Forms
3, 4, or 5 were required to be filed by those persons, the Company believes that
during fiscal year 1997, its officers, directors and ten percent beneficial
owners timely complied with all applicable filing requirements.
2
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
compensation earned during fiscal years 1995, 1996 and 1997 by the Company's
Chief Executive Officer (the "CEO") and each of the other executive officers of
the Company whose total annual salary and bonus for fiscal year 1997 exceeded
$100,000 (collectively, the "Named Executive Officers"). Messrs. Doganiero and
Lembo were not employed by the Company during fiscal year 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ------------------------- -------
OTHER SECURITIES
NAME ANNUAL RESTRICTED UNDER- ALL OTHER
AND COMPEN- STOCK LYING LTIP COMPEN-
PRINCIPAL FISCAL SATION AWARDS(S) OPTIONS/SARs PAYOUTS SATION
POSITION YEAR SALARY($)(1) BONUS($) ($) ($) (#) ($) ($)
- ---------------------------- ------ ------------ --------- ---------- ----------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard C. Rose 1995 $ 329,400 $254,416 ---- ---- ---- ---- $ 1,913 (3)
Chief Executive Officer 1996 $ 329,400 ---- ---- $31,525(2) ---- ---- $153,550 (4)
1997 $ 354,600 ---- ---- $49,563(2) 97,022 ---- $ 380 (3)
Anthony G. Lembo 1996 $ 125,000 ---- ---- ---- ---- ---- $ 1,100 (3)
President, Chief Operating 1997 $ 175,000 ---- ---- ---- 40,000 ---- $ 914 (3)
Officer and Chief Financial
Officer
Philip Doganiero 1996 $ 225,000 ---- ---- ---- ---- ---- $ 2,187 (3)
Chairman of the Board 1997 $ 103,800(5) ---- $15,000(5) ---- 40,000 ---- $ 1,052 (3)
of Directors
<FN>
- -----------
(1) Includes deferred compensation.
(2) Represents the value of the vested portion of the stock grants issued to
Mr. Rose at fiscal year end 1996 and 1997. Mr. Rose was granted 27,022
shares of Common stock in April 1995, pursuant to a restricted stock
agreement (the "Agreement"). Pursuant to the terms of the Agreement, the
shares are subject to certain restrictions which expire on 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 in the Agreement. If at any time prior to
the expiration of the restriction period, employment 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.
(3) All other compensation represents 401(k) matching contributions.
(4) Includes a one-time lump sum distribution to Mr. Rose of $152,000 on April
1, 1995.
(5) Mr. Doganiero voluntarily reduced his base salary to $1.00 effective
October 1, 1996. However, he is entitled to an annual base salary of
$225,000 under the terms of his employment agreement. The Company
continues to pay premiums equal to $60,000 per annum for a split dollar
key-man life insurance policy, for which Mr. Doganiero's estate is the
beneficiary.
</FN>
</TABLE>
3
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1997
The following table contains information concerning the grant of stock
options pursuant to the Company's several stock option plans to the Named
Executive Officers during fiscal year 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE VALUE OR
NUMBER OF ASSUMED ANNUAL RATES OF
SECURITIES PERCENT OF STOCK PRICE APPRECIATION FOR
UNDERLYING TOTAL OPTIONS/ OPTION TERM(3)
OPTION/SARS SARS GRANTED EXERCISE OF -----------------------------
GRANTED TO EMPLOYEES BASE PRICE EXPIRATION
NAME (#)(1) IN FISCAL YEAR ($/SH)(2) DATE 5% ($) 10% ($)
(a) (b) (c) (d) (e) (f) (g)
- -------------------------------------- ----------- -------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard C. Rose....................... 97,022 16.4% $ 2.06 11/15/06 $ 42,971 $ 92,150
Anthony G. Lembo...................... 40,000 6.76% $ 2.06 11/15/06 17,720 38,000
Philip Doganiero...................... 40,000 6.76% $ 2.06 11/15/06 17,720 38,000
<FN>
- ----------
(1) On November 15, 1996, an option to purchase 97,022 shares at $2.06 per
share was granted to Mr. Rose in exchange for cancellation of the options
previously granted on April 1, 1995 and August 11, 1995 (options to
purchase 27,022 shares at $8.125 per share and 70,000 shares at $5.75 per
share, respectively).
(2) All stock options were granted at the fair market value on the date of
grant.
(3) The amounts set forth are based on assumed appreciation of 5% and 10%
rates as prescribed by the Commission rules and are not intended to
forecast future appreciation, if any, of the stock price.
</FN>
</TABLE>
AGGREGATE OPTION TABLE
The following table shows information concerning options exercised
during fiscal year 1997 and options held by the Named Executive Officers at the
end of fiscal year 1997.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT FISCAL FISCAL YEAR-
YEAR-END(#) END($)(2)
SHARES ACQUIRED VALUE EXERCISABLE(E)/ EXERCISABLE(E)/
NAME ON EXERCISE(#) REALIZED($)(1) UNEXERCISABLE(U) UNEXERCISABLE(U)
- --------------- --------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Richard C. Rose -- -- 271,813(E)/ $0(E)/
134,209(U) $66,945(U)
Philip Doganiero -- -- 0(E)/ $0(E)/
40,000(U) $27,600(U)
Anthony G. Lembo -- -- 0(E)/ $0(E)/
40,000(U) $27,600(U)
<FN>
- ---------
(1) Represents the dollar value of the difference between the value (measured
on the date exercised) and the option exercise price.
(2) Represents the dollar value of the difference between the value at the end
of fiscal year 1997 and the option exercise price of unexercised options
at the end of fiscal year 1997.
</FN>
</TABLE>
4
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are paid $12,000
annually. All directors receive reimbursement for reasonable out-of-pocket
expenses incurred in connection with meetings of the Board of Directors. No
director who is an employee of the Company receives separate compensation for
services rendered as a director.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has employment agreements with executive officers Richard
C. Rose and Philip Doganiero. Mr. Rose's agreement, as amended, provides for a
minimum annual base salary of $329,400, a one-time lump sum distribution of
$152,000 on April 1, 1995, discretionary bonuses awarded by the Company's Board
of Directors and awards of restricted stock and stock options that vest over
three years. Mr. Rose's amended employment agreement expires December 31, 1999.
Mr. Doganiero's agreement provides for an annual base salary of $225,000 or such
greater amount as may be approved from time to time by the Company's Board of
Directors and expires January 11, 1998.
Pursuant to their respective employment agreements, Messrs. Rose and
Doganiero each agree 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 employment and for a period of one year after the termination of their
employment. If either Mr. Rose or Mr. Doganiero is terminated without cause, the
Company is required to pay 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 his employment agreement. If either Mr. Rose or Mr.
Doganiero is terminated with cause, the Company is required to pay only his base
salary up to the date of termination. If either Mr. Rose or Mr. Doganiero dies
during the term of his employment, the Company is required: (a) to pay to his
estate the base salary otherwise payable until the later of (i) three years from
the date of death or (ii) the end of the term of his employment agreement; and
(b) to pay his estate an additional $5,000.
Under their respective employment agreements, if there is a "change in
control" of the Company and, subsequent to such change in control, either Mr.
Rose's or Mr. Doganiero's employment agreement (or any subsequent employment
agreement then in effect which expires prior to the time they have attained 65
years of age) is terminated or is not renewed by the Company at the expiration
of its term, or any renewals, extensions or modifications, then he would receive
compensation in an amount equal to 299% of his annual base salary in effect at
the time of his termination (the "Severance Amount"). This Severance Amount
would be payable in one single payment within 60 days after the termination of
his employment. 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 is 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 each of Mr.
Rose's and Mr. Doganiero's employment agreements. A "change in control" is
defined in both 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).
The Company has also entered into an employment agreement with Anthony
G. Lembo, its President, effective January 11, 1995. Mr. Lembo's employment
agreement is for a period of three years and provides for an annual base salary
of $125,000 or such greater amount as may be approved from time to time by the
Company's Board of Directors. Upon Mr. Lembo's election as President of the
Company, the Board of Directors approved an increase of Mr. Lembo's annual base
salary to $175,000 ("Base Salary") and an amount equal to $50,000 per year, or
such greater amount as may be approved from time to time by the Company's Board
of Directors, if the Company's Southeast division meets or exceeds certain
financial targets ("Performance Bonus"). Pursuant to his employment agreement,
Mr. Lembo agrees not to compete, directly or indirectly, with the Company in the
states in which the Company does or may do business, during the term of his
employment and for a period of one year after the termination of his employment.
The employment agreement also provides that Mr. Lembo shall receive
5
<PAGE>
severance benefits if his employment is terminated by the Company "without
cause" (as defined in the employment agreement). In such a case, Mr. Lembo would
receive his Base Salary, as in effect upon his termination, for the remaining
term of his employment agreement and his Performance Bonus for the last full
fiscal year completed prior to the date of his termination. Mr. Lembo's
employment agreement expires January 11, 1998.
STOCK OPTION PLANS
The Company maintains two incentive stock option plans (the "ISO
Plans") and five incentive and nonqualified stock option plans. The 1989, 1990,
1991, 1992 and 1994 incentive and nonqualified stock option plans (the "NQSO
Plans") provide for the grant of both incentive stock options and nonqualified
stock options to employees of the Company.
Shares of Common Stock have been reserved and issued under the above
plans as follows:
STOCK OPTION PLAN SHARES RESERVED SHARES GRANTED
- ----------------------- --------------- --------------
1984 and 1987 ISO Plans 700,000 700,000
1989 NQSO Plan 400,000 400,000
1990 NQSO Plan 160,000 110,250
1991 NQSO Plan 200,000 50,000
1992 NQSO Plan 400,000 372,750
1994 NQSO Plan 800,000 622,722
The ISO Plans and the NQSO Plans, excluding the 1990 NQSO Plan, 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 and 1992 NQSO Plans, which vest 25% per year
beginning one year after grant date, and the 1994 NQSO Plan, which provides the
board of directors with discretion to determine vesting.
6
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of July 21, 1997 by (i) each person
who is known to the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each executive officer named in the Summary
Compensation Table ("Named Executive Officers"), (iii) each director and nominee
for director of the Company, and (iv) all directors and executive officers of
the Company as a group.
AMOUNT AND
NATURE
OF BENEFICIAL
BENEFICIAL OWNER OWNERSHIP(1) PERCENT
- ----------------------------------- -------------- -------
Anthony G. Lembo(2) 7,500 *
Richard C. Rose(2) 298,156(3) 4.7%
Philip Doganiero(2) 18,000 *
U.S. Bankcorp(4) 551,000 9.4%
Pioneering Management Corporation(5) 423,500 7.2%
W. Keith Schilit(2) 12,500(6) *
Barry M. Alpert(2) 12,500(6) *
All directors and executive
officers as a group (5 persons)(7) 373,656 6.4%
- ----------------------
* Less than 1%.
(1) Beneficial ownership of shares, as determined in accordance with
applicable Securities and Exchange Commission rules, includes shares as to
which a person shares voting power and/or investment power. The Company
has been informed that all shares shown are held of record with sole
voting and investment power, except as otherwise indicated.
(2) The business address for Messrs. Doganiero, Lembo, Rose, Schilit and
Alpert is 2145 Calumet Street, Clearwater, Florida 34625.
(3) The number of shares shown in the table above includes 271,813 shares that
are subject to options that are currently exercisable.
(4) The number of shares shown is based on a Schedule 13G filed with the
Securities and Exchange Commission, dated February 13, 1997. The business
address for U.S. Bankcorp is 111 Southwest Fifth Avenue, Portland, Oregon
99204.
(5) The number of shares shown is based on a Schedule 13G filed with the
Securities and Exchange Commission, dated January 14, 1997. The business
address for Pioneering Management Corporation is 60 State Street, Boston,
Massachusetts 02108.
(6) The number of shares shown in the table above includes 12,500 shares that
are subject to options that are currently exercisable.
(7) The number of shares shown in the table above includes 373,656 shares
beneficially owned by Messrs. Lembo, Rose, Doganiero, Schilit and Alpert
of which 321,813 shares are immediately exercisable stock options.
7
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has made loans from time to time during the fiscal years
1987 through 1997 to its employees, including Richard C. Rose, the Company's
CEO, primarily to enable them to exercise stock options to purchase the
Company's Common Stock. During fiscal year 1997, the amount of indebtedness owed
on such loans was evidenced by promissory notes from the appropriate employees.
These loans bear interest at rates ranging from 7.0% per annum to prime plus
1.5% per annum and are payable upon demand. As of March 31, 1996 and 1997, Mr.
Rose's outstanding loan balance was $329,927 and $309,370, respectively.
8
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report:
PAGE
----
1. Financial Statements
Report of Independent Certified Public Accountants............. F-1
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1997
and 1996..................................................... F-2
Consolidated Statements of Operations for the
years ended March 31, 1997, 1996 and 1995.................... F-3
Consolidated Statements of Shareholders' Equity
for the years ended March 31, 1997, 1996 and 1995............ F-4
Consolidated Statements of Cash Flows for the
years ended March 31, 1997, 1996 and 1995.................... F-5
Notes to Consolidated Financial Statements..................... F-6
2. Financial Statement Schedules
Report of Independent Certified Public Accountants on Financial
Statement Schedule............................................ F-16
Financial Statement Schedule.................................. F-17
3. Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 -- The Company's Certificate of Incorporation, as amended (incorporated
by reference to Exhibit Number 3.1 to the Company's Registration
Statement on Form S-1 filed February 23, 1990 and amendments thereto
(File No. 330-33472)).*
3.2 -- Certificate of Amendment to the Certificate of Incorporation
(incorporated by reference to Exhibit Number 3.2 to the Company's
Registration Statement on Form S-1 filed February 23, 1990 and
amendments thereto (File No. 330-33472)).*
3.3 -- The Company's Restated and Amended Bylaws (incorporated by reference
to Exhibit Number 3.3 to the Company's Registration Statement on
Form S-1 filed February 23, 1990 and amendments thereto (File No.
330-33472)).*
4 -- Specimen of stock certificate for shares of Common Stock
(incorporated by reference to Exhibit Number 4 to the Company's
Registration Statement on Form S-1 filed February 23, 1990 and
amendments thereto (File No. 330-33472)).*
10.1 -- Dealer Agreement entered into February 7, 1997, between International
Business Machines Corporation and the Company (incorporated by
reference to Exhibit Number 10.1 to the Company's Registration
Statement on Form S-1 filed April 17,1997 and amendments thereto
(Registration No. 333-25339)).*
10.2 -- Dealer Agreement between Hewlett-Packard Company and the Company
(incorporated by reference to Exhibit Number 10.2 to the Company's
Registration Statement on Form S-1 filed April 17, 1997 and
amendments thereto (Registration No. 333-25339)).*
10.3 -- Dealer Agreement entered into August 26, 1996, between Apple
Computer, Inc., and the Company (incorporated by reference to Exhibit
Number 10.3 to the Company's Registration
9
<PAGE>
Statement on Form S-1 filed April 17, 1997 and amendments thereto
(Registration No. 333-25339)).*
10.4 -- Dealer Agreement dated January 14, 1997 between Apple Computer, Inc.,
and the Company (incorporated by reference to Exhibit Number 10.4 to
the Company's Registration Statement on Form S-1 filed April 17, 1997
and amendments thereto (Registration No. 333-25339)).*
10.5 -- Dealer Agreement dated August 2, 1990 between COMPAQ Computer
Corporation and the Company (incorporated by reference to Exhibit
Number 10.5 to the Company's Registration Statement on Form S-1 filed
April 17, 1997 and amendments thereto (Registration No. 333-25339)).*
10.6 -- 1987 Incentive Stock Option Plan (incorporated by reference to
Exhibit Number 10.6 to the Company's Registration Statement on Form
S-1 filed February 23, 1990 and amendments thereto (File No.
330-33472)).*
10.7 -- 1989 Incentive and Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit Number 10.7 to the Company's Registration
Statement on Form S-1 filed February 23, 1990 and amendments thereto
(File No. 330-33472)).*
10.8 -- Salary Savings Plan and trust of Dataflex Corporation dated December
21, 1989 (incorporated by reference to Exhibit Number 10.8 to the
Company's Registration Statement on Form S-1 filed February 23, 1990
and amendments thereto (File No. 330-33472)).*
10.9 -- 1990 Senior Management Incentive and Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit Number 10.9 to the Company's
Registration Statement on Form S-1 filed February 23, 1990 and
amendments thereto (File No. 330-33472)).*
10.10 -- Form of Stock Option Agreement for 1989 Incentive and Non-Qualified
Stock Option Plan by and between the Company and Richard C. Rose
(incorporated by reference to Exhibit Number 10.10 to the Company's
Registration Statement on Form S-1 filed February 23, 1990 and
amendments thereto (File No. 330-33472)).*
10.11 -- Form of Stock Option Agreement for 1989 Incentive and Non-Qualified
Stock Option Plan by and between the Company and Gordon J. McLenithan
(incorporated by reference to Exhibit Number 10.11 to the Company's
Registration Statement on Form S-1 filed February 23, 1990 and
amendments thereto (File No. 330-33472)).*
10.12 -- Form of Stock Option Agreement for 1990 Senior Management Incentive
and Non-Qualified Stock Option Plan by and between the Company and
Richard C. Rose (incorporated by reference to Exhibit Number 10.12 to
the Company's Registration Statement on Form S-1 filed February 23,
1990 and amendments thereto (File No. 330-33472)).*
10.13 -- Form of Stock Option Agreement for 1990 Senior Management Incentive
and Non-Qualified Stock Option Plan by and between the Company and
Gordon J. McLenithan (incorporated by reference to Exhibit Number
10.13 to the Company's Registration Statement on Form S-1 filed
February 23, 1990 and amendments thereto (File No. 330-33472)).*
10.14 -- Asset Purchase Agreement between the Company and Granite Computer
Products, Inc. dated March 21, 1994 (incorporated by reference to
Exhibit Number 10.14 to the Company's 8-K filed April 23, 1994).*
10
<PAGE>
10.15 -- Asset Purchase Agreement between the Company and Advantage Systems,
Inc. dated May 23, 1994 (incorporated by reference to Exhibit Number
10.15 to the Company's Form 8-K filed June 16, 1994).*
10.16 -- 1991 Incentive and Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit Number 10.16 to the Company's Annual Proxy
Statement filed September 1, 1991).*
10.17 -- Asset Purchase Agreement between Dataflex Corporation and National
Data Products, Inc. dated November 17, 1994 (incorporated by
reference to Exhibit Number 10.17 to the Company's Form 8-K filed
January 24, 1995).*
10.18 -- Stock Purchase Agreement between Dataflex Corporation, the sellers
named therein and Sunland Computer Services, Inc. dated August 19,
1994 (incorporated by reference to Exhibit Number 10.18 to the
Company's Form 8-K filed August 31, 1994).*
10.19 -- 1992 Incentive and Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit Number 10.19 to the Company's Annual Proxy
Statement filed September 1, 1992).*
10.20 -- 1994 Incentive and Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit Number 10.20 to the Company's Annual Proxy
Statement filed September 1, 1994).*
10.21 -- Employment Agreement dated April 1, 1993 by and between the Company
and Richard C. Rose (incorporated by reference to Exhibit Number
10.21 to the Company's Form 10-K filed June 29, 1995).*
10.22 -- Amendment to Employment Agreement dated April 1, 1993 by and
between the Company and Richard C. Rose (incorporated by reference to
Exhibit Number 10.22 to the Company's Form 10-K filed June 29,
1995).*
10.23 -- Asset Purchase Agreement by and among Vanstar Corporation, VST West,
Inc., Dataflex Corporation and Dataflex Southwest Corporation dated
May 24, 1996 (incorporated by reference to Exhibit Number 10.23 to
the Company's Form 8-K filed June 13, 1996).*
10.24 -- Employment Agreement dated January 11, 1995, by and between the
Company and Philip Doganiero (incorporated by reference to Exhibit
Number 10.24 to the Company's Registration Statement on Form S-1
filed April 17, 1997 and amendments thereto (Registration No.
333-25339)).*
10.25 -- Amendment to Employment Agreement dated April 1, 1995, by and
between the Company and Philip Doganiero (incorporated by reference
to Exhibit Number 10.25 to the Company's Registration Statement on
Form S-1 filed April 17, 1997 and amendments thereto (Registration
No. 333-25339)).*
10.26 -- Employment Agreement dated January 11, 1995, by and between the
Company and Anthony G. Lembo (incorporated by reference to Exhibit
Number 10.26 to the Company's Registration Statement on Form S-1
filed April 17, 1997 and amendments thereto (Registration No.
333-25339)).*
10.27 -- Settlement Agreement and Release dated March 1, 1997 (incorporated by
reference to Exhibit Number 10.27 to the Company's Registration
Statement on Form S-1 filed April 17, 1997 and amendments thereto
(Registration No. 333-25339)).*
11
<PAGE>
10.28 -- Loan and Security Agreement by and between the Company and
NationsBank, N.A. (South) (incorporated by reference to Exhibit
Number 10.28 to the Company's Registration Statement on Form S-1
filed April 17, 1997 and amendments thereto (Registration No.
333-25339)).*
10.29 -- Loan and Security Agreement by and between the Company and
Nationscredit Commercial Corporation of America (incorporated by
reference to Exhibit Number 10.29 to the Company's Registration
Statement on Form S-1 filed April 17, 1997 and amendments thereto
(Registration No. 333-25339)).*
21 -- Subsidiaries (incorporated by reference to Exhibit Number 21 to the
Company's Form 8-K filed June 13, 1996).*
23.1 -- Consent of Price Waterhouse LLP.
27.1 -- Financial Data Schedule.*
- -------------------
* Previously Filed.
(b) Reports on Form 8-K.
A report on Form 8-K was filed on April 28, 1997, to report the sale of
certain assets constituting its K-12 Education Division to Computer Plus, Inc.
(c) For Exhibits see Item 14(a), above.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereto duly authorized.
DATAFLEX CORPORATION
By: /s/ ANTHONY G. LEMBO
-------------------------------------
Anthony G. Lembo, President, Chief
Operating Officer, Chief Financial
Officer, Principal Accounting Officer
and Director
Date: July 30, 1997
-----------------------------------
13
<PAGE>
Report of Independent Certified Public 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, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1997, 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
Tampa, Florida
May 21, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
DATAFLEX CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31,
------------------------------
1997 1996
------------- -------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 1,721,922 $ 499,144
Restricted Cash 3,875,202 --
Accounts Receivable, Net of Allowance
of $2,062,763 and $1,187,378 21,719,863 57,333,174
Inventory, Net 5,489,153 25,754,983
Assets Held for Sale 3,800,063 45,229,410
Deferred Tax Asset -- 3,287,647
Income Taxes Receivable 1,908,222 828,823
Other Current Assets 2,979,125 8,428,151
------------- -------------
Total Current Assets 41,493,550 141,361,332
Property and Equipment, Net 2,708,408 9,436,611
Other Assets 853,228 798,919
Deferred Tax Asset 6,183,780 --
Assets Held for Sale - Long-Term 1,150,000 --
Goodwill 8,685,745 18,715,751
------------- -------------
Total Assets $ 61,074,711 $ 170,312,613
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt $ 1,730,362 $ 32,967,368
Short-Term Debt 20,374,713
Accounts Payable 5,938,021 42,477,509
Accrued Expenses and Other Payables 4,735,576 8,385,420
------------- -------------
Total Current Liabilities 32,778,672 83,830,297
Long-Term Debt 3,141,701 54,061,619
Deferred Tax Liability -- 347,640
Other Long-Term Liabilities -- 224,627
------------- -------------
Total Liabilities 35,920,373 138,464,183
------------- -------------
Commitments and Contingencies (Notes 4, 11 and 14)
Shareholders' Equity:
Common Stock-No Par Value; Authorized 20,000,000 Shares;
Issued 5,961,169 and 5,587,661 Shares respectively 24,017,343 23,064,542
Less: Loans Receivable for Exercised Stock Options (194,269) (311,024)
Retained Earnings 1,934,742 9,690,057
Less: Treasury Stock - At Cost; 115,382 and 113,901 Shares
at March 31, 1997 and March 31, 1996, respectively (603,478) (595,145)
------------- -------------
Total Shareholders' Equity 25,154,338 31,848,430
------------- -------------
Total Liabilities and Shareholders' Equity $ 61,074,711 $ 170,312,613
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
DATAFLEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Revenue
Equipment $ 227,660,306 $ 422,532,448 $ 246,531,571
Services 27,414,502 49,569,181 27,319,425
------------- ------------- -------------
Total Revenue 255,074,808 472,101,629 273,850,996
------------- ------------- -------------
Cost of Revenue
Equipment 201,560,580 378,490,201 220,710,681
Services 22,474,096 41,101,381 21,853,257
------------- ------------- -------------
Total Cost of Revenue 224,034,676 419,591,582 242,563,938
------------- ------------- -------------
Gross Profit 31,040,132 52,510,047 31,287,058
Selling, General and Administrative Expenses 25,942,655 42,995,259 24,259,537
Amortization of Goodwill 677,420 1,265,101 593,659
Loss on Impairment of Assets 3,280,225 -- --
Restructuring and Other Charges -- 5,352,809 --
------------- ------------- -------------
Operating Income 1,139,832 2,896,878 6,433,862
Other Expenses
Interest Expense, Net 4,552,427 8,063,508 2,677,308
Loss on Dispositions of Businesses 8,978,970 4,631,820 --
------------- ------------- -------------
(Loss) Income Before Income Taxes (12,391,565) (9,798,450) 3,756,554
(Benefit from) Provision for Income Taxes (4,636,060) (3,463,245) 1,617,195
------------- ------------- -------------
Net (Loss) Income $ (7,755,505) $ (6,335,205) $ 2,139,359
============= ============= =============
(Loss) Earnings Per Common Share $ (1.35) $ (1.22) $ 0.45
============= ============= =============
Weighted Average Common
Shares Outstanding 5,731,368 5,213,711 4,732,571
============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
DATAFLEX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK TREASURY STOCK
----------------------- -----------------------
ISSUED RETAINED
SHARES AMOUNT EARNINGS SHARES COST
--------- --------- ---------- --------- ---------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1994 4,142,024 $ 13,363 $ 13,886 115,752 $ 569
Exercise of Stock Options and Warrants 28,763 153 -- -- --
Sale of Treasury Stock -- 32 -- (11,515) (52)
Issuance of Common Stock 696,397 5,028 -- -- --
Issuance of Notes Receivable for
Warrants -- (102) -- -- --
Capitalized Tax Benefit for Exercise of
Stock Options -- 26 -- -- --
Reductions of Loans Receivable for
Exercised Stock Options -- 131 -- -- --
Net Income -- -- 2,139 -- --
--------- --------- --------- --------- ---------
Balance at March 31, 1995 4,867,184 18,631 16,025 104,237 517
Exercise of Stock Options and Warrants 6,000 30 -- -- --
Purchase of Treasury Stock -- -- -- 9,664 78
Issuance of Restricted Stock 72,225 240 -- -- --
Issuance of Common Stock 642,252 3,750 -- -- --
Reductions of Loans Receivable for
Exercised Stock Options -- 103 -- -- --
Net Loss -- -- (6,335) -- --
--------- --------- --------- --------- ---------
Balance at March 31, 1996 5,587,661 22,754 9,690 113,901 595
Purchase of Treasury Stock -- -- -- 1,481 8
Exercise of Stock Options 104,989 378 -- -- --
Reductions of Loans Receivable (1,481) 117 -- -- --
Issuance of Common Stock 270,000 574 -- -- --
Net Loss -- -- (7,755) -- --
--------- --------- --------- --------- ---------
Balance at March 31, 1997 5,961,169 $ 23,823 $ 1,935 115,382 $ 603
========= ========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
DATAFLEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31,
-----------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating Activities:
Net (Loss) Income $ (7,755,505) $ (6,335,205) $ 2,139,359
Adjustments to Reconcile Net
Income to Net Cash:
Depreciation and Amortization 2,306,433 4,894,724 2,594,442
Amortization of Restricted Stock Grants 62,164 -- 39,815
Loss on Disposition of Businesses 8,978,970 4,631,820 --
Loss on Impairment 3,280,225 -- --
Restructuring Charges -- 5,352,809 --
Changes in Assets and Liabilities:
Restricted Cash (3,875,202) -- --
Accounts Receivable 35,613,310 703,528 (2,775,491)
Income Taxes Receivable (1,079,399) (828,823) --
Inventory 20,265,830 4,255,333 (9,839,062)
Other Current Assets 5,449,026 3,104,851 (7,514,172)
Deferred Taxes (3,243,773) (3,056,596) --
Other Assets (54,309) 89,253 (367,689)
Accounts Payable (36,539,488) (3,486,204) 8,110,671
Accrued Expenses and Other Payables (3,076,094) 506,961 (923,908)
Income Taxes Payable -- (176,077) (8,885)
Accrued Settlement -- -- (712,500)
Other Long-Term Liabilities (224,627) (209,316) 64,943
------------ ------------ ------------
Net Cash - Operating 20,107,561 9,447,058 (9,192,477)
------------ ------------ ------------
Investing Activities:
Capital Expenditures (1,604,775) (4,687,084) (5,270,085)
Proceeds from Sale of Fixed Assets 5,048,914 -- --
Proceeds from Sale of Discontinued Operations 41,116,922 -- --
Assets Held for Sale (2,088,942) (36,622,075) --
Acquisition of Businesses, Net of Cash Acquired -- (1,214,718) (19,603,661)
------------ ------------ ------------
Net Cash - Investing 42,472,119 (42,523,877) (24,873,746)
------------ ------------ ------------
Financing Activities:
Payments (Proceeds) of Notes Payable/Short-Term
Debt (10,862,293) 28,122,801 23,370,563
Payments on Long-Term Borrowings (50,919,918) (87,996) (29,298)
Proceeds from Common Stock and Options 379,051 29,937 153,165
Purchase of Treasury Stock (8,333) (78,520) 84,273
Payments on Officers Loans Receivable
for Exercised Stock Options 54,591 -- 130,512
------------ ------------ ------------
Net Cash - Financing (61,356,902) 27,986,222 23,709,215
------------ ------------ ------------
Net Increase (Decrease) in Cash 1,222,778 (5,090,597) 10,357,008
Cash - Beginning of Year 499,144 5,589,741 15,946,749
------------ ------------ ------------
Cash - End of Year $ 1,721,922 $ 499,144 $ 5,589,741
============ ============ ============
</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
desk support, training, consultation services and equipment repair maintenance.
The Company serves primarily large business organizations with diverse desktop
computing requirements located primarily in the Southeastern 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 upon shipment to
customers. Services contract revenue is generally recognized when services are
performed or ratably over the contract period. The Company allows its customers
to return product for exchange or credit subject to certain limitations.
Provision for estimated losses on such returns are recorded at the time of sale
(see product warranty below). Funds received from vendors for marketing programs
and product rebates are accounted for as a reduction of selling, general and
administrative expenses or product cost according to the nature of the program.
PRODUCT WARRANTY--The Company does not offer warranty coverage. However, to
promote customer goodwill, the Company facilitates vendor warranty policies by
accepting for exchange (with the Company's prior approval) defective products
within 30 days of invoicing. Defective products received by the Company are
subsequently returned to the vendor for credit or replacement.
CONCENTRATION OF CREDIT RISK--The Company sells its products to a large base of
corporate and government agencies located throughout the Southeastern United
States. The Company performs on going credit evaluations of its customers and
generally does not require collateral. The Company makes provisions for
estimated credit losses at the time of sale.
No single customer accounted for greater than 10% of the Company's revenue
during the three years ended March 31, 1997.
Sales of products from one vendor constituted approximately 31%, 31% and 23% of
the Company's revenue during the years ended March 31, 1997, 1996, and 1995,
respectively. Another vendor's products comprised 13%, 13% and 15% of the
Company's revenue during the same three year period.
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, 1997, 1996 and
1995 were 5,731,368, 5,213,711 and 4,732,571 and included common stock
equivalents of 425,797, for the year ended March 31, 1995.
In February 1997, the Financial Accounting Standards Board issued two standards
which will be applicable to the Company in fiscal year 1998: No. 128, EARNING
PER SHARE and No. 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. The
effects of these standards are expected to result in the disclosure of Basic
Earnings Per Share of $(1.35) and $(1.22) for 1997 and 1996 respectively, and
Diluted Earnings Per Share of $(1.35) and $(1.22) for 1997 and 1996,
respectively. In addition, additional disclosure regarding the Company's capital
structure may be required.
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.
RESTRICTED CASH -- Restricted cash represents amounts held in escrow pending
final settlement of sales agreements involving the disposition of certain of the
Company's former operating divisions (Note 3).
F-6
<PAGE>
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.
ASSETS HELD FOR SALE--Assets held for sale represents the estimated fair market
value of the net assets of the Company's Apple, K-12 contract. Non-current
assets held for sale reflects land and buildings in Clearwater, Florida.
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 life 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 $1,661,214
and $1,023,354 at March 31, 1997 and 1996, respectively. The Company evaluates,
on a regular basis, whether events and circumstances have occurred that indicate
the carrying amount of goodwill may warrant revisions or may not be recoverable.
At March 31, 1997, the net unamortized balance of goodwill is not considered to
be impaired. A reduction in goodwill of $10,030,000 was recorded during Fiscal
1997 in connection with the disposition of certain assets and the payment of
certain amounts under previously executed purchase agreements. (Notes 2 and 3).
FAIR VALUE OF FINANCIAL INSTRUMENTS--Financial instruments that are subject to
fair value disclosure requirements (cash equivalents, accounts receivable,
accounts payable and debt) are carried in the consolidated financial statements
at amounts that approximate fair value.
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 could have been converted at any time through the
maturity date of May 31, 1997 into 100,000 shares of the Company's common stock,
which would have been valued at the closing price on the date of conversion. The
note has been assumed by the purchaser of the Midwestern region.
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 the Company over a seven year period. The contingent payout for
fiscal 1997 was $320,000.
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 approximately 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.
F-7
<PAGE>
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 $34,086,000 which is being amortized over
25 years on a straight-line basis.
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.
FOR THE YEAR ENDED MARCH 31, 1995
---------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue $383,984
Gross Profit 46,393
Net Income 3,777
Earnings Per Common Share $ .72
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 $4,632,000, 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 "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. The
purchase price was subject to adjustment based primarily on the expected
realizability of certain assets as defined in the agreement. In January, 1997
the Company received approximately $1.1 million in cash and $400,000 in vendor
receivables in settlement of the $5.0 million escrow held by Vanstar.
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.
F-8
<PAGE>
On October 4, 1996, the Company sold substantially all of the assets and the
transfer of certain liabilities of its Midwestern and Eastern operating regions
to GE Capital for approximately $43.5 million, including $5 million placed in
escrow pending final settlement as provided for in the agreement. The Company
used the $38.5 million received in fiscal 1997 to reduce its accounts payable
and interest bearing debt with IBM Credit Corporation. The Company received
approximately $3.8 million of the escrow in fiscal 1998, which was used to
reduce the Company's short term debt. The Company also received approximately
$1.9 million in accounts receivable of the former Midwestern and Eastern
regions.
In connection with this disposition, the Company recorded a loss of $8,978,970
in Fiscal 1997, representing the aggregate loss on the disposition of these
businesses and the estimated fair value of these businesses. $2,748,995 of this
loss on disposition was recorded in the fourth quarter of fiscal 1997 after the
Company received a final settlement of the assets held for sale.
The unaudited pro forma consolidated condensed results of operations listed
below give effect to certain adjustments, and assume the dispositions occurred
at the beginning of each period presented.
FOR THE YEARS ENDED MARCH 31,
-----------------------------------
1997 1996
----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue $166,615 $141,851
Gross Profit 22,893 17,884
Net Income 1,497 682
Earnings Per Common Share $ .26 $ .13
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 Western, Midwestern and Eastern dispositions been consummated as of the
beginning of the periods above, nor are they necessarily indicative of future
operating periods.
NOTE 4: LOSS ON IMPAIRMENT OF ASSETS
On April 18, 1997, the Company completed the sale of certain assets of its
Kindergarten through 12th Grade Education division to Computer Plus, Inc. for
approximately $4.4 million, including a $150,000 escrow pending the future
settlement of contingencies as described in the agreement. The estimated fair
market value of the net assets of the business to be disposed are included in
"Assets Held for Sale" in the March 31, 1997 Consolidated Balance Sheet. The
proceeds from the sale were used to reduce the Company's short-term debt. The
Company recorded a loss on impairment of $2,941,185 related to this transaction.
The Company also recorded a loss on impairment of $339,040 on the proposed sale
of certain land and buildings. In June 1997, the Company preliminarily accepted
an offer of approximately $1 million to sell its headquarters located in
Clearwater, Florida. The estimated fair market value of the net assets to be
disposed are included in "Assets Held for Sale - Long-Term" at March 31, 1997.
NOTE 5: INVENTORY
Inventory consists of:
MARCH 31,
-----------------------------
1997 1996
------ --------
(IN THOUSANDS)
Finished Goods $ 5,303 $ 21,989
Spare Parts 186 3,766
------- --------
$ 5,489 $ 25,755
======= ========
F-9
<PAGE>
NOTE 6: PROPERTY AND EQUIPMENT, NET
Property and equipment, is as follows:
MARCH 31,
-------------------------
1997 1996
-------- -------
(IN THOUSANDS)
Land $ 209 $ 684
Buildings 811 1,912
Furniture and Equipment 3,658 10,422
Transportation Equipment 53 174
Leasehold Improvements 51 1,244
-------- --------
4,782 14,436
Less: Accumulated Depreciation (2,074) (4,999)
======== ========
$ 2,708 $ 9,437
======== ========
Depreciation and amortization expense amounted to $2,198,546, $3,315,000 and
$1,968,000 for the years ended March 31, 1997, 1996 and 1995, respectively.
NOTE 7: LOANS RECEIVABLE FROM EMPLOYEES
Loans receivable from employees of $386,533 and $533,000 at March 31, 1997 and
1996, respectively, includes various loans made to certain employees during
fiscal years 1987 through 1996 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 $14,790, $41,000 and
$45,000 for the years ended March 31, 1997, 1996 and 1995, respectively.
NOTE 8: SUPPLEMENTARY CASH FLOW INFORMATION
The following is a summary of supplementary cash flow information:
FOR THE YEARS ENDED MARCH 31
-----------------------------
1997 1996 1995
-------- ------- --------
Interest Paid $ 5,145 $ 7,381 $ 2,403
Income Taxes Paid -- 624 1,636
Non-cash Investing and Financing Activities:
Issuance of Notes Receivable for
Common Stock -- -- 102
Issuance of Common Stock in Exchange
for Notes Payable -- -- 208
Capitalized Tax Benefit for Exercise of Options -- -- 26
Business Acquisitions:
Accounts Receivable Acquired -- 1,503 34,346
Inventory Acquired -- 899 9,784
Fixed Assets Acquired -- 858 4,322
Other Assets Acquired -- 40 925
Debt Issued and Liabilities Assumed -- 2,339 51,479
Common Stock Issued -- 3,750 4,719
Common Stock Issued in Legal Settlement(shares) 270,000 -- --
F-10
<PAGE>
NOTE 9: CREDIT FACILITY
In December 1994, the Company executed Inventory and Working Capital Agreements
with IBM Credit Corporation (the "Agreements"). Secured by substantially all of
the assets of the Company. 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 annum renewal fee of $25,000. This credit
facility was replaced during fiscal 1997.
On December 18, 1996 the Company executed a two year $38 million financing
agreement with Nation's Credit and Nations Bank. The new facility reduces
interest rates to LIBOR plus 2.25% for working capital loans. The structure of
the short-term debt includes a revolving line of credit and an inventory
financing agreement. The debt is collaterialized by the Company's accounts
receivable and inventory. Amounts due under the facility totalled $20,374,713
as of March 31, 1997.
The Line of Credit contains certain financial covenants, including covenants
requiring the Company to maintain a minimum tangible net worth, maintain a
minimum interest coverage ratio, maintain various minimum financial ratios and
limit the amount of capital expenditures. In addition, the Line of Credit
prohibits the Company, under certain conditions, from making cash dividends and
distributions and from redeeming shares of its capital stock for cash in excess
of $1,000,000 in any fiscal year.
NOTE 10: LONG-TERM DEBT
Long-Term Debt Consists Of the Following:
MARCH 31,
-----------------
1997 1996
------- -------
(IN THOUSANDS)
Mortgage note payable to a bank, payable in monthly $ 793 $ 851
installments of $5,267 plus interest at the bank's
prime rate plus 1% (9.25% at March 31, 1997) with
the remaining balance due January 10, 2000,
collateralized by land and buildings
Mortgage note payable to a bank, payable in monthly 307 337
installments of $2,066 plus interest at the bank's
prime rate plus 1% (9.25% at March 31, 1997) with
the remaining balance due January 10, 2000,
collateralized by land and buildings
Convertible Promissory Note, payable in full on 0 1,000
June 1, 1997, with interest due quarterly at an
interest rate of 6%.
Promissory Note, payable in full on January 10, 2,000 2,000
2002, with interest due quarterly at an interest
rate of 9%
Promissory Note, payable in full on January 10, 1,500 1,500
1998, with interest due quarterly at an interest
rate of 9%
Payable to IBM Credit Corp. (Note 9) 0 81,236
Miscellaneous Notes Payable 272 105
------- -------
4,872 87,029
Less: Current portion of long-term debt 1,730 32,967
------- -------
$ 3,142 $54,062
======= =======
Aggregate principal payments for the next five years subsequent to March 31,
1997 are as follows:
F-11
<PAGE>
YEAR ENDED MARCH 31,
--------------------------------
(IN THOUSANDS)
1998 $ 1,730
1999 139
2000 966
2001 37
2002 2,000
--------
$ 4,872
========
NOTE 11: LEASES
The Company leases various facilities and equipment under noncancelable lease
arrangements which expire at various dates during the next five 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:
YEAR ENDED MARCH 31, OPERATING LEASES
-------------------- ----------------
(IN THOUSANDS)
1998 $ 279
1999 238
2000 205
2001 174
2002 87
Rental expense amounted to $1,069,017, $1,482,857and $1,147,325 for the years
ended March 31, 1997, 1996 and 1995, respectively.
NOTE 12: INCOME TAXES
THE COMPOSITION OF THE (BENEFIT FROM) PROVISION FOR INCOME TAXES IS AS
FOLLOWS:
FOR THE YEARS ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
Current Taxes: (IN THOUSANDS)
Federal $(1,392) $ (407) $ 1,235
State -- -- 320
------- ------- -------
(1,392) (407) 1,555
Deferred Taxes:
Federal (2,902) (2,682) 46
State (342) (374) 16
------- ------- -------
(Benefit from) Provision for Incomes Taxes $(4,636) $(3,463) $ 1,617
======= ======= =======
A reconciliation of the federal statutory rate with the Company's
effective tax rate is as follows:
FOR THE YEARS ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
Income Taxes at Federal Statutory Rate $(4,213) $(3,331) $ 1,277
State Taxes, Net of Federal Taxes (423) (77) 221
Other -- (55) 119
------- ------- -------
(Benefit from) Provision for Income Taxes $(4,636) $(3,463) $ 1,617
======= ======= =======
F-12
<PAGE>
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:
MARCH 31,
----------------------
1997 1996
------- -------
(IN THOUSANDS)
Net Operating Loss $ 6,124 --
Accounts Receivable Reserves 270 $ 177
Vacation Reserve 112 110
Uniform Inventory Capitalization 117 172
Loss on Dispositions of Businesses 1,190 1,850
Restructuring and Other Charges -- 2,138
Other Deferred Tax Assets 165 140
------- -------
Deferred Tax Assets 7,978 4,587
------- -------
Accelerated Depreciation (404) (543)
Accelerated Amortization of Goodwill (890) (604)
------- -------
Deferred Tax Liabilities (1,294) (1,147)
------- -------
Deferred Tax Assets Valuation (500) (500)
------- -------
Net Deferred Tax Asset (Liability) $ 6,184 $ 2,940
======= =======
A valuation allowance has not been recorded for deferred tax assets, other than
against certain state income tax net operating losses, as management believes
that the Company will generate sufficient future taxable income to utilize the
Federal deferred tax assets.
As of March 31, 1997 the Company has a net operating loss carryforward of
approximately $14.5 million which expires in 2012. If certain substantial
changes in the Company's ownership should occur, there could be an annual
limitation on the amount on the carryforward which can be utilized.
NOTE 13: 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 planned
personnel reductions of approximately 30 individuals in operational,
administrative and executive areas. The Company recorded a provision of
$1,200,000 for the estimated level of employee termination benefits in the
accompanying March 31, 1996 Consolidated Balance Sheet. At March 31, 1997, the
Company has completed its personnel reductions and other planned restructurings.
NOTE 14: COMMITMENTS AND CONTINGENCIES
The Company's employment contracts with three employees provide for base annual
salaries aggregating approximately $729,000 per year. The contracts for the
employees expire between January 1998 and December 1999. In Fiscal 1997, one
employee voluntarily reduced his compensation from $225,000 to $1 plus $60,000
in premiums on a life insurance policy.
In August 1996, the Company and Richard C. Rose were named as defendants in a
suit filed in state court in New Jersey, by Gordon McLenithan, a former
executive officer of the Company. Mr. McLenithan alleges that the Company failed
to pay him an amount allegedly owed to Mr. McLenithan upon a change in control
of the Company. Mr. McLenithan also charges Mr. Rose with defamation and
interference with contractual relations. The lawsuit is in the initial stages of
litigation and the Company has denied Mr. McLenithan's allegations and intends
to vigorously contest the suit. The Company is currently unable to predict the
outcome of this lawsuit.
In November 1996, the Company was named in a suit filed in state court in New
Jersey by a former employee of the Company. The former employee seeks damages
for breach of the duty of good faith and fair dealing, and for sex
discrimination in violation of the New Jersey Law Against Discrimination,
alleging that the Company terminated her from her position as an Account
Executive on or about January 15, 1996 to avoid paying her commissions to which
she was entitled under her Compensation Plan, and because of her gender. The
lawsuit is in the initial stages of litigation. The Company has denied the
former employee's allegations and intends to vigorously contest the suit. The
Company is currently unable to predict the outcome of this lawsuit.
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 15: 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:
F-13
<PAGE>
STOCK OPTION PLAN SHARES
GRANTED RESERVED SHARES GRANTED
- ------------------ -------- --------------
1989 Plan 400,000 0
1990 Plan 160,000 110,250
1991 Plan 200,000 50,000
1992 Plan 400,000 372,750
1994 Plan 800,000 622,722
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.
On September 2, 1994, in connection with the appointment of a 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.
(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. These shares expired
90 days subsequent to the sale of the Western region.
Information concerning options outstanding as of March 31, 1997, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-----------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,070,280 5.76 1,713,019 6.16 1,147,000 4.86
Granted 606,022 2.42 516,325 6.11 639,000 7.24
Exercised 67,432 4.28 6,000 4.81 29,000 5.11
Cancelled 1,452,148 6.00 153,064 7.34 44,000 4.95
--------- ---- --------- ---- --------- ----
Outstanding at end of year 1,156,722 3.79 2,070,280 5.76 1,713,000 5.65
========= ==== ========= ==== ========= ====
Options exercisable at year end 529,488 5.08 1,001,064 5.51 534,000 5.51
Available for grant at year end 803,278 -- 30,926 -- 388,206 --
</TABLE>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------- ---------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICE 3/31/97 LIFE (YEARS) PRICE AT 3/31/97 PRICE
- -------------- -------------- ------------ -------- ----------- --------
$2.00 - $5.00 940,772 9.1 $3.30 386,563 4.82
$5.01 - $9.00 215,950 6.3 5.94 142,925 5.80
--------- --------
1,156,722 8.0 3.79 529,488 5.08
========= ========
Pro forma effect of stock compensation plans
Had the compensation cost for the Company's stock option plans and employee
stock purchase plan been determined based on the fair value at the grant dates
for awards under the plans consistent with the method prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company's net income and income per common share on a pro
forma basis would have been.
YEAR ENDED MARCH 31,
1997 1996
------ ------
(IN THOUSAND, EXCEPT PER SHARE DATA)
Net income (loss)......................... ($7,884) ($6,626)
Net income (loss) per common share........ (1.38) (1.27)
The preceding pro forma results were calculated with the use of the Black
Scholes option-pricing model. The following assumptions were used for the years
ended March 31, 1997 and 1996, respectively:(1) risk free interest rates of
6.08% and 6.96%; (2) dividend yield of 0.0% and 0.0%; (3) expected lives of and
2.5 years, and (4) volatility of 110% and 71%. Results may vary depending on
the assumptions applied within the model.
Options exercised during the years ended March 31, 1997 and March 31, 1996
ranged in exercise prices from $4.50 to $5.85.
NOTE 16: 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 1997, 1996 and 1995 was 20%,
resulting in Company contributions of $ 141,000, $235,000 and $85,000
respectively.
NOTE 17: PREFERRED STOCK
F-14
<PAGE>
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 Sock, without par value. As of March 31, 1997, there are no issued
shares of Preferred Stock.
NOTE 18: QUARTERLY FINANCIAL DATA (Unaudited)
Unaudited quarterly financial data for the fiscal years ended March 31,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1ST QTR 2ND QTR 3RD QTR 4TH QTR
-------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
FY 1997:
Revenue $ 86,031 $ 83,875 $ 40,993 $ 44,176
Gross Profit 10,369 9,531 5,672 5,468
Net Income (Loss) (533) (4,145)(1) 257 (3,335)(2)
Earnings (Loss) Per Share $ (0.10) $ (0.75) $ 0.04 $ (0.54)
FY 1996:
Revenue $ 110,325 $ 107,844 $ 122,635 $ 131,298
Gross Profit 11,900 12,774 13,674 14,162
Net (Loss) Income 309 142 153 (6,939)(3)
Earnings (Loss) Per Share $ 0.06 $ 0.03 $ 0.03 $ (1.34)
<FN>
- ----------
(1) Includes a $6,229,975 loss on disposition on the sale of the Company's
Midwestern and Eastern regions.
(2) Includes a $3,280,225 million write-off of impaired assets related to the
sale of the Company's kindergarden through 12th Grade Education division
and proposed sale of land and buildings and $2,748,905 million related to
the sale of the midwestern and Eastern regions.
(3) Includes $9,985,000 pre-tax charges for restructuring and loss on
disposition.
</FN>
</TABLE>
F-15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Shareholders of Dataflex Corporation
Our audits of the consolidated financial statements referred to in our report
dated May 21, 1997 appearing on page F-1 of this Form 10-K of Dataflex
Corporation also included an audit of the Financial Statement Schedule listed
in Item 14 of the Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PRICE WATERHOUSE LLP
Tampa, Florida
May 21, 1997
F-16
<PAGE>
DATAFLEX CORPORATION
Valuation and Qualifying Accounts
For Years Ended March 31, 1995, March 31, 1996, and March 31, 1997
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
BALANCE AT CHARGED TO ACCOUNTS BALANCE
BEGINNING COSTS AND WRITTEN OFF, AT END
DESCRIPTION OF YEAR EXPENSES NET OF YEAR
----------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended March 31, 1995 $ 231,086 $ 399,918 $ (177,693) $ 453,311
Year Ended March 31, 1996 $ 453,311 $ 213,711 $ (51,595) $ 1,187,378
Year Ended March 31, 1997 $ 1,187,378 $ 2,130,149 $(1,254,764) $ 2,062,763
</TABLE>
F-17
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
23.1 Consent of Price Waterhouse LLP.
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-1 (333-25339) and S-8 (Nos.33-4817,33-16424,33-32996 and
33-51012)of Dataflex Corporation of our report dated May 21, 1997 appearing on
page F-1 of this Form 10-K/A.
PRICE WATERHOUSE LLP
Tampa, Florida
July 30, 1997
