<PAGE> 1
As filed with the Securities and Exchange Commission on October 28, 1997
Registration Statement No. 333-25339
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
POST EFFECTIVE AMENDMENT NO. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DATAFLEX CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
FLORIDA 5081 22-2163376
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2145 CALUMET STREET
CLEARWATER, FLORIDA 34625
(813) 562-2200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ANTHONY G. LEMBO
PRESIDENT
DATAFLEX CORPORATION
2145 CALUMET STREET
CLEARWATER, FLORIDA 34625
(813) 562-2200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
Copies of communications to:
ROBERT J. GRAMMIG, ESQ.
HOLLAND & KNIGHT LLP
400 NORTH ASHLEY DRIVE, SUITE 2300
TAMPA, FLORIDA 33602
(813) 227-8500
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [x]
--------------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statements for the same offering. [ ]
----------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
PROSPECTUS
270,000 SHARES
DATAFLEX CORPORATION
COMMON STOCK
The 270,000 shares of common stock, no par value per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by certain shareholders
of the Company (the "Selling Shareholders"). As of the date of this prospectus,
a total of 15,000 shares of Common Stock have been sold by the Selling
Shareholders. The Common Stock may be sold from time to time by the Selling
Shareholders or by their transferees. No underwriting arrangements have been
entered into by the Selling Shareholders. The distribution of the securities by
the Selling Shareholders may be effected in one or more transactions that may
take place on The Nasdaq Stock Market's National Market (the "Nasdaq National
Market") or otherwise, including ordinary brokers' transactions, privately
negotiated transactions or through sales to one or more dealers for resale of
such shares as principals at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. Usual
and customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Shareholders in connection with sales of such Common Stock.
The Selling Shareholders and intermediaries through whom such securities
may be sold may be deemed "underwriters" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the securities
offered and any profits realized or commissions received may be deemed
underwriting compensation. See "Plan of Distribution." The Company will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Shareholders. See "Use of Proceeds."
The Common Stock of the Company is included in the Nasdaq National Market
under the symbol "DFLX." On October 27, 1997, the last reported sales price of
the Common Stock on the Nasdaq National Market was $3.0938 per share. See "Price
Range of Common Stock."
SEE "RISK FACTORS" ON PAGES 5 TO 8 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is October 28, 1997.
<PAGE> 3
PROSPECTUS SUMMARY
The following is a summary of the more detailed information and financial
statements appearing elsewhere in this Prospectus. Unless otherwise indicated,
references to the "Company" or "Dataflex" are to Dataflex Corporation.
THE COMPANY
Dataflex Corporation is a direct marketer of microcomputer equipment,
related products and computer services, supplied primarily by major
manufacturers, including Compaq, Hewlett-Packard, IBM and Toshiba. The Company's
customers are business organizations with diverse desktop computing requirements
located throughout the United States, with a primary concentration in the
Southeast. The Company provides its customers with single-source, value-added
desktop computing solutions and services, including product sales, system
integration, network installations, help desk support, training, consultation
services and equipment repair maintenance. The Company is also a certified
Novell Education Center and a certified Microsoft Authorized Technical Education
Center capable of providing on-site or off-site manufacturer authorized
education.
The computer 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 the Company's customers through the Company's
Technology Management Service ("Mainsite(TM)") program, field service repairs
and maintenance, system configuration, asset management, authorized training
centers, local and wide-area network ("LAN/WAN") systems, 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, in order to enhance its ability to deliver
nationwide, on-site services to its customers, the Company is a member of a
national network of service partners .
The Company focuses its efforts on customer service. The Company conducts
ongoing training for its associates, 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.
Since May 1996, the Company has divested its Eastern (New Jersey-based),
Midwestern (Chicago-based), and Western (California- and Arizona-based) regions
in a series of transactions. The Company also sold its Kindergarten through 12th
Grade Education division (the "Education Division") to Computer Plus, Inc.
("Computer Plus") in April 1997. These divestitures are a reversal of the
Company's expansion strategy implemented in 1994 and 1995 and resulted from the
Company's inability to successfully integrate these acquisitions promptly and
effectively. Additionally, management determined that the Company lacked
adequate capital (or access to adequate capital) to support its expanded
infrastructure, to make necessary additional capital expenditures and to service
the significant indebtedness incurred in connection with the acquisitions.
Management concluded that it was necessary to reduce the burden of this
indebtedness. The divestitures have reduced the Company's indebtedness and
allowed it to focus on its core competencies. In particular, management believed
that the Company's best opportunities were in the Southeastern United States and
therefore concentrated the Company's efforts in this region.
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<PAGE> 4
The Company was incorporated under the laws of New Jersey in 1976 and
reincorporated under the laws of Florida in October 1997. The Company has
offices in Tallahassee, Maitland (Orlando), Hollywood (Miami-Ft. Lauderdale) and
Clearwater (Tampa Bay), Florida, as well as in Smyrna (Atlanta), Georgia. The
Company's headquarters are located at 2145 Calumet Street, Clearwater, Florida
34625, and its telephone number is (813) 562-2200.
Recent Developments
On October 22, 1997, Dataflex Corporation, a New Jersey corporation
("Dataflex New Jersey"), completed the change in its state of incorporation from
New Jersey to Florida (the "Reincorporation") through a merger (the "Merger") of
Dataflex New Jersey with and into the Company, a Florida corporation and
Dataflex New Jersey's wholly-owned-subsidiary. Appropriate consents and
approvals were obtained for the Reincorporation, including the approval of the
shareholders of Dataflex New Jersey on September 18, 1997, at the annual meeting
of the shareholders (the "Annual Meeting"). As the surviving corporation in the
Merger, the Company succeeded to all the business, properties, assets and
liabilities of Dataflex New Jersey. As a result of the Merger, each outstanding
share of Dataflex New Jersey's common stock, no par value ("Dataflex New Jersey
Common Stock"), was automatically converted into one share of Common Stock. Each
stock certificate representing issued and outstanding shares of Dataflex New
Jersey Common Stock will continue to represent the same number of shares of
Common Stock. The Common Stock will continue to be traded on the Nasdaq National
Market without interruption under the symbol "DFLX."
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Selling Shareholders............. 270,000 shares
Common Stock Outstanding(1).................................. 5,961,169 shares
Nasdaq National Market Symbol................................ DFLX
</TABLE>
- -----------------
(1) Based upon the number of shares outstanding as of September 30, 1997.
Excludes (i) 1,237,722 shares of Common Stock issuable upon the exercise
of options outstanding which had a weighted average exercise price of
$3.62 per share and of which 567,988 shares were exercisable at a weighted
average exercise price of $4.78 per share and (ii) 722,278 shares of
Common Stock reserved for future issuance under the Company's Stock Option
Plans. See "Description of Capital Stock."
3
<PAGE> 5
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30, Years Ended March 31,
------------------------ --------------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
------------ -------- ---------- ----------- ---------- ----------- ------------
(Unaudited)
(In thousands, except per share data)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue ........................ $ 34,578 $86,031 $255,075 $ 472,102 $ 273,851 $ 122,348 $ 77,306
Cost of Revenue ............... 30,627 75,662 224,035 419,592 242,564 108,818 65,555
--------- ------- -------- --------- --------- --------- ---------
Gross Profit .............. 3,951 10,369 31,040 52,510 31,287 13,530 11,751
Selling, General and
Administrative Expenses ....... 3,126 9,430 25,943 42,995 24,259 10,675 10,272
Amortization of Goodwill ...... 105 191 677 1,265 594 -- --
LOSS ON IMPAIRMENT OF ASSETS ... -- -- 3,280 -- -- -- --
Restructuring and Other Charges -- -- -- 5,353 -- -- --
--------- ------- -------- --------- --------- --------- ---------
Operating Income .......... 720 748 1,140 2,897 6,434 2,855 1,479
Interest (Expense) Income, NET (94) (1,684) (4,552) (8,063) (2,677) 4 (13)
Loss on Dispositions of
Businesses ................... -- -- (8,980) (4,632) -- -- --
Litigation Settlement and
Related Costs ................ -- -- -- -- -- (847) --
--------- ------- -------- --------- --------- --------- ---------
INCOME (Loss) Before Income
Taxes ........................ 626 (936) (12,392) (9,798) 3,757 2,012 1,466
PROVISION FOR (Benefit from)
Income Taxes ................. 248 (402) (4,636) (3,463) 1,617 884 653
--------- ------- -------- --------- --------- --------- ---------
Net (Loss) Income ......... 378 (534) (7,756) (6,335) 2,140 1,128 813
========= ======= ======== ========= ========= ========= =========
Earnings (LOSS) per
Common Share ................. 0.06 (0.10) (1.35) (1.22) .45 .28 .20
========= ======= ======== ========= ========= ========= =========
Weighted Average Common
Shares Outstanding ........... 6,149 5,482 5,731 5,214 4,085 4,080
========= ======= ======== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, March 31,
-------- -----------------------------------------------
1997 1997 1996 1995 1994 1993
-------- ------- -------- ------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working Capital......................... $ 8,732 $ 8,715 $ 57,531 $ 46,971 $ 22,629 $ 20,973
Total Assets............................ 49,079 61,075 170,313 146,581 56,337 37,943
Long-Term Debt.......................... 2,993 3,141 54,062 52,510 228 --
Total Shareholders' Equity.............. 25,526 25,155 31,849 34,140 26,680 25,338
</TABLE>
4
<PAGE> 6
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, in addition to the other information contained in this Prospectus,
in connection with an investment in the Common Stock offered hereby. This
Prospectus contains statements that constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities and Exchange Act of 1934 (the "Exchange Act"). The words "expect,"
"estimate," "anticipate," "predict," "believe" and similar expressions and
variations thereof are intended to identify forward-looking statements. Such
statements appear in a number of places in this Prospectus and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers with respect to, among other things: (i) trends
affecting the Company's financial condition or results of operations; (ii) the
Company's financing plans; (iii) the Company's business strategies; and (iv) the
declaration and payment of dividends. Prospective investors are cautioned that
any such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those projected in the forward-looking statements as a result of various
factors. The accompanying information contained in this Prospectus, including,
without limitation the information set forth below, as well as under the
headings "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as information contained in the
Company's Exchange Act filings with the Securities and Exchange Commission (the
"Commission"), identify important factors that could cause such differences.
DEPENDENCE UPON PRINCIPAL SUPPLIERS. Compaq, Hewlett-Packard and IBM
supplied approximately 18%, 16% and 5%, respectively, of the Company's
Southeastern region purchases for the year ended March 31, 1997 ("Fiscal 1997")
and 22%, 16% and 4%, respectively, for the quarter ended June 30, 1997. No other
supplier accounted for more than 5% of the Company's Southeastern region
purchases during this period. The Company's authorized dealership agreements
with Compaq, Hewlett-Packard and IBM are renewable annually and are subject to
termination by Compaq, Hewlett-Packard, IBM or the Company with or without cause
upon three months prior written notice, or immediately, under certain
circumstances. The non-renewal or termination by Compaq, Hewlett-Packard or IBM
of the Company's authorized dealer status would have a material adverse effect
on the Company's business. Additionally, any significant reduction in
promotional sales concessions by such suppliers could have a material adverse
effect on the Company's business and its ability to compete.
See "Business--Products and Principal Suppliers."
COMPETITION. The sale of microcomputer equipment, related products and
computer services is highly competitive. The Company competes with local,
regional, national and international resellers and distributors and mail order
providers of microcomputer equipment, related products and computer services,
including network integrators and retail stores. Many of the Company's
competitors are substantially larger, have more personnel, have substantially
greater financial and marketing resources, and operate within a larger
geographic area than the Company. The microcomputer distribution and support
industry continues to experience a significant amount of consolidation. In the
future, the Company may experience further competition from new market entrants
and possible alliances between existing competitors. Additionally, the Company's
recent reduction in size and geographic reach may make it a less desirable
supplier for some of its customers. As a result of competition among
microcomputer resellers, higher discounts given to large corporate customers and
other factors, the Company's gross margins have continued to decline over the
past several years, and there can be no assurance that such decreases will not
continue.
The Company is also increasingly competing with microcomputer
manufacturers which market through direct sales forces and distributors. More
aggressive competition by manufacturers of microcomputer products, such as
offering a full range of services in addition to products, could have a material
adverse effect on the Company's business. There can be no assurance that the
Company will be able to compete successfully with its competitors in the future.
See "Business--Competition."
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<PAGE> 7
COMPETITIVE MARKET FOR TECHNICAL PERSONNEL. The Company's future success
also depends largely on its ability to attract, hire, train and retain highly
qualified technical personnel to provide the Company's services. Competition for
such personnel is intense. There can be no assurance that the Company will be
successful in attracting and retaining the technical personnel it requires to
conduct and expand its operations successfully and to differentiate itself from
its competition. The Company's results of operations and growth prospects could
be materially adversely affected if the Company were unable to attract, hire,
train and retain such qualified technical personnel. See "Business--Personnel."
MANAGEMENT OF GROWTH AND REDEPLOYMENT OF THE COMPANY'S RESOURCES. The
Company's future performance will depend in part on its availability to redeploy
its resources to its remaining core business and to finance and manage any
expansion of these operations. Additionally, the Company must adapt its
management information system to changes in its business, including those
related to the changing scope of its operations and the redirection of its
efforts to its core business. The failure of the Company to effectively redeploy
its resources, to manage growth effectively, or to successfully adapt its
management information systems, could have a material adverse effect upon its
business, financial condition and results of operations.
LIQUIDITY AND CAPITAL RESOURCES. The Company has historically relied upon
credit lines and trade credit from its vendors to satisfy its capital needs. The
inability to obtain and retain such sources of capital could have an adverse
effect on the Company's business, financial condition and results of operations.
INVENTORY MANAGEMENT. The microcomputer distribution and support industry
is characterized by rapid product improvement and technological change resulting
in relatively short product life cycles and rapid product obsolescence. While
most of the inventory stocked by the Company is for specific customer orders,
inventory devaluation or obsolescence could have a material adverse effect on
the Company's operations and financial results. Current industry practice among
manufacturers is to provide price protection intended to reduce the risk of
inventory devaluation, although such policies are subject to change at any time
and there can by no assurance that such price protection will be available to
the Company in the future. Also, the Company currently has the option of
returning inventory to certain manufacturers and distributors, subject to
certain limitations. The amount of inventory that can be returned to
manufacturers without a restocking fee varies under the Company's agreements and
such return policies may provide only limited protection against excess
inventory. There can be no assurance that new product developments will not have
a material adverse effect on the value of the Company's inventory or that the
Company will successfully manage its existing and future inventory. In addition,
the Company stocks parts inventory for its service business. Parts inventory is
more likely to experience a decrease in valuation as a result of technological
change and obsolescence, and there are no price protection practices offered by
manufacturers with respect to parts. See "Business--Products and Principal
Suppliers."
PRODUCT SUPPLY. The computer distribution industry is dependent upon the
supply of products available from its vendors. The industry is characterized by
periods of severe product shortages due to vendors' difficulty in projecting
demand for certain products distributed by the Company. When such product
shortages occur, the Company typically receives an allocation of products from
the vendor. There can be no assurance that vendors will be able to maintain an
adequate supply of products to fulfill all of the Company's customer orders on a
timely basis. Failure to obtain adequate product supplies, if available to
competitors, could have an adverse effect on the Company's business, financial
condition and results of operations.
VENDOR REBATES AND VOLUME DISCOUNTS. The Company's profitability has been
favorably affected by its ability to obtain rebates and volume discounts from
manufacturers and through aggregators and distributors. Because of the divesture
of the Company's Eastern, Midwestern and Western regions, the Company has
experienced a reduction in its volume discounts. Any additional reduction or
elimination of rebates, volume discount schedules or other marketing programs
offered by manufacturers and currently received by the Company could have a
material adverse effect on the Company's financial condition and results of
operations. In particular, a reduction or
6
<PAGE> 8
elimination of rebates relating to government customers could adversely affect
the Company's ability to serve government agencies in a highly competitive
marketplace. See "Business--Products and Principal Suppliers".
MANUFACTURER MARKET DEVELOPMENT FUNDS. Several manufacturers offer market
development funds, cooperative advertising and other promotional programs to
computer resellers. These funds are accounted for as reductions in selling,
general and administrative expenses, thereby increasing net income. While such
programs have been available to the Company in the past, there is no assurance
that these programs will be continued. Any discontinuation or material reduction
of these programs could have an adverse effect on the Company's operations and
financial results. See "Business--Products and Principal Suppliers."
RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL CHANGE. The market for the
Company's products and services is characterized by rapidly changing technology
and frequent new product and service introductions. The development and
commercialization of new technologies and the introduction of new products can
render existing products and services obsolete or unmarketable. The Company's
business depends on its ability to attract and retain highly capable technical
personnel, to enhance existing services and to package newly developed and
introduced service offerings of its own with products and services from vendors,
on a timely and cost-effective basis, that keep pace with technological
developments and address increasingly sophisticated client requirements. There
can be no assurance that the Company will be successful in identifying and
marketing service enhancements or supporting new products and services
introduced by vendors that respond to technological change. In addition, the
Company may experience contractual or technical difficulties that could delay or
prevent it from successfully deploying new product and service offerings. See
"Business--Industry Overview."
DEPENDENCE ON INDUSTRY ALLIANCES AND RELATIONSHIPS. The Company depends in
part upon its alliances and relationships with leading hardware and software
vendors, telecommunications carriers and Internet access service providers,
particularly Compaq, Hewlett-Packard and IBM. Any adverse change in these
relationships could have a material adverse effect on the Company's results of
operations and financial condition while it seeks to establish alternative
relationships. Also, the Company will likely need to establish additional
alliances and relationships in order to keep pace with evolutions in technology
and enhance its service offerings, and there can be no assurance that such
additional alliances will be established. See "Business--Products and Principal
Suppliers."
DEPENDENCE ON TELESALES CENTER. The Company's product sales network is
dependent upon the Company's ability to protect its computer and
telecommunications equipment and the information stored in its Clearwater,
FloridaTelesales Center against damage from fire, hurricanes, power loss,
telecommunications failures, unauthorized intrusion, computer viruses and
disabling devices and other similar events. There can be no assurance that an
unforeseen event will not result in a prolonged disruption of the Company's
product sales or that the Company can recover the full amount of its lost
revenues from its insurance policies for business interruption. See
"Business--Services."
SUBSTANTIAL RELIANCE ON KEY CLIENTS. The Company estimates that its
current top 25 clients accounted for approximately 29% of revenues for the
quarters ended March 31, 1997 and June 30, 1997. No one customer accounted for
more than 10% of the Company's business during these periods. The loss of any of
its top 25 clients or any other large client or a significant reduction in
purchases by any of the top 25 clients could have a material adverse effect on
the Company's results of operations. The Company's contracts providing
professional services to its clients generally do not obligate the client to
purchase any minimum level of services and are terminable upon relatively short
notice, often 30 days. There can be no assurance that the Company's largest
clients will continue to enter into new contracts with the Company at current
levels of business, if at all, or that existing contracts will not be
terminated.
VOLATILITY OF STOCK PRICE. The market price of the Common Stock could be
subject to significant fluctuations in response to the Company's operating
results and other factors, and there can be no assurance that the market price
of the Common Stock will not decline below the current market price.
Developments in the high technology
7
<PAGE> 9
industries or changes in general economic conditions could adversely affect the
market price of the Common Stock. In addition, the stock market has from time to
time experienced extreme price and volume volatility. These fluctuations may be
unrelated to the operating performance of particular companies whose shares are
traded and may adversely affect the market price of the Common Stock. See "Price
Range of Common Stock."
DEPENDENCE ON SENIOR MANAGEMENT. The Company is largely dependent upon its
senior management team. The loss of the services of any member of its senior
management for any reason could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management."
DEPENDENCE ON THE ECONOMY OF THE SOUTHEASTERN UNITED STATES. Although the
Company still operates on a nationwide basis, the vast majority of its sales are
concentrated in the Southeastern United States (Florida, Alabama, Mississippi,
Louisiana, South Carolina, North Carolina, Tennessee, Georgia and Arkansas.)
Accordingly, the Company could be adversely affected by economic downturns and
other conditions that may occur from time to time in the Southeastern region,
which may not significantly affect its more geographically diversified
competitors.
CUSTOMER CREDIT EXPOSURE. The Company sells its products to an active
customer base. The Company's business could be adversely affected in the event
of the deterioration of the financial condition of its customers, resulting in
the customers' inability to repay the Company.
8
<PAGE> 10
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholders.
PRICE RANGE OF COMMON STOCK
The Common Stock is included in the Nasdaq National Market under the
symbol "DFLX." The following table sets forth, for the periods indicated, the
high and low sales prices of the Common Stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- --------
<S> <C> <C>
1995
First Quarter (Beginning January 1, 1995)........................... $ 10.125 $ 7.250
Second Quarter...................................................... 10.125 7.250
Third Quarter....................................................... 8.250 5.500
Fourth Quarter...................................................... 6.750 3.000
1996
First Quarter....................................................... $ 5.125 $ 3.125
Second Quarter...................................................... 7.625 2.688
Third Quarter....................................................... 7.375 2.625
Fourth Quarter...................................................... 3.875 2.063
1997
First Quarter....................................................... $ 4.125 $ 2.313
Second Quarter...................................................... 3.875 2.625
Third Quarter....................................................... 3.875 2.875
Fourth Quarter (through October 27, 1997)........................... 3.625 3.094
</TABLE>
On October 27, 1997, the last reported sales price of the Common Stock on
the Nasdaq National Market was $3.0938 per share. As of September 30, 1997,
there were approximately 535 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
After the consummation of the Offering, the Company does not intend in the
foreseeable future to declare or pay any cash dividends and intends to retain
earnings, if any, for the future operation and expansion of the Company's
business.
Any determination to declare or pay dividends in the future will be at the
discretion of the Company's Board of Directors and will depend upon the
Company's results of operations, financial condition, any contractual
restrictions, considerations imposed by applicable law and other factors deemed
relevant by the Board of Directors. The Company's current line of credit
prohibits the Company, under certain conditions, from making cash dividends in
excess of $1.0 million in any fiscal year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
9
<PAGE> 11
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1997. This table should be read in conjunction with the Consolidated
Financial Statements and related Notes thereto included elsewhere in this
Prospectus, and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
June 30,
1997
--------------
(In thousands)
<S> <C>
Current liabilities.............................................$ 20,560
--------------
Long-term debt, less current installments....................... 2,993
--------------
Shareholders' equity:
Preferred Stock, no par value; 10,000,000 shares
authorized, no shares issued................................ --
Common Stock, no par value; 20,000,000 shares
authorized, 5,961,169 shares issued and
outstanding................................................. 24,017
Less: Loans Receivable for Exercise of Stock Options........... (201)
Retained earnings............................................. 2,313
Less: Treasury Stock at Cost; 115,382.......................... (603)
--------------
Total shareholders' equity................................ 25,526
--------------
Total capitalization............................................$ 49,079
==============
</TABLE>
10
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains certain selected consolidated financial data
that is qualified by, and should be read in conjunction with, the Consolidated
Financial Statements and related Notes thereto, and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere in this Prospectus. The balance sheet data as of March 31,
1993, 1994, 1995, 1996 and 1997, and the income statement data for each of the
years ended March 31, 1993, 1994, 1995, 1996 and 1997, are derived from the
audited Consolidated Financial Statements of the Company. The balance sheet data
as of June 30, 1997 and the income statement data for the three months ended
June 30, 1996 and 1997, have been derived from the unaudited Consolidated
Financial Statements of the Company, which have been prepared on the same basis
as the audited Consolidated Financial Statements, and, in the opinion of
management, include all adjustments that are necessary for a fair statement of
the results for such periods. The financial data for periods prior to fiscal
year ended March 31, 1996 ("Fiscal 1996") have been restated to include the
results of operations and financial position of Sunland Computer Services, Inc.
("Sunland"), which was acquired in August 1994 and accounted for under the
pooling of interests method.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30, Years Ended March 31,
--------------------- --------------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
---------------------- ----------- ---------- ----------- ---------- ---------
(Unaudited)
(In thousands, except per share data)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue ......................... $ 34,578 $ 86,031 $ 255,075 $ 273,851 $ 472,102 $ 122,348 $ 77,306
Cost of Revenue ................. 30,627 75,662 224,035 419,592 242,564 108,818 65,555
--------- --------- --------- --------- --------- --------- ---------
Gross Profit ............... 3,951 10,369 31,040 52,510 31,287 13,530 11,751
Selling, General and
Administrative Expenses ....... 3,126 9,430 25,943 42,995 24,259 10,675 10,272
Amortization of Goodwill ........ 105 191 677 1,265 594 0 0
Loss on Impairment of Assets .... -- -- 3,280 -- -- -- --
Restructuring and Other Charges.. -- -- -- 5,353 0 0 0
--------- --------- --------- --------- --------- --------- ---------
Operating Income ........... 720 748 1,140 2,897 6,434 2,855 1,479
Interest (Expense) Income ....... (94) (1,684) (4,552) (8,063) (2,677) 4 (13)
Loss on Dispositions of
Businesses .................... -- -- (8,980) (4,632) -- -- --
Litigation Settlement and
Related Costs ................. -- -- -- -- -- (847) --
--------- --------- --------- --------- --------- --------- ---------
Income (Loss) Before Income
Taxes ......................... 626 (936) (12,392) (9,798) 3,757 2,012 1,466
Provision for (Benefit from)
Income Taxes .................. 248 (402) (4,636) (3,463) 1,617 884 653
--------- --------- --------- --------- --------- --------- ---------
Net (Loss) Income ........... 378 (534) (7,756) (6,335) 2,140 1,128 813
========= ========= ========= ========= ========= ========= =========
Earnings (Loss) per Common
Share ......................... 0.06 (0.10) (1.35) (1.22) .45 .28 .20
========= ========= ========= ========= ========= ========= =========
Weighted Average Common
Shares outstanding ............ 6,149 5,482 5,731 5,214 4,733 4,085 4,080
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, March 31,
--------- --------------------------------------------------
1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital.............................. $ 8,732 $ 8,715 $ 57,531 $ 46,971 $22,629 $20,973
Total Assets................................. 49,079 61,075 170,313 146,581 56,337 37,943
Long-Term Debt............................... 2,993 3,141 54,062 52,510 228 --
Total Shareholders' Equity................... 25,526 25,155 31,849 34,140 26,680 25,338
</TABLE>
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated
Financial Statements, and related Notes thereto, included elsewhere in this
Prospectus.
GENERAL
During the Fiscal 1997, the Company substantially changed the focus of its
operations. During the period 1994 to 1995, the Company acquired substantially
all of the assets of the following entities: Granite Computer Products, Inc.
("Granite"), Advantage Systems, Inc. ("Advantage"), Sunland, Hagen Computer
Systems, Inc. ("Hagen"), National Data Products, Inc. ("NDP") and Valtron
Technologies, Inc. ("Valtron"). During Fiscal 1997, the Company divested its
Eastern, Midwesternand Western regions in a series of transactions.
Additionally, in April 1997, the Company sold its Education Division to Computer
Plus. Accordingly, all of the acquired operations (except NDP), as well as the
Company's original operations in the Northeastern United States, have been
divested. These divestures are a reversal of the Company's expansion strategy
and resulted from the Company's inability to successfully integrate these
acquisitions in a prompt and effective manner. Additionally, management
determined that the Company lacked adequate capital (or access to adequate
capital) to support its expanded infrastructure, to make necessary additional
capital expenditures and to service the significant indebtedness incurred in
connection with the acquisitions. Management concluded that it was necessary to
sell these operations to reduce the Company's indebtedness to an appropriate
level. The divestures have reduced the Company's indebtedness and allowed it to
focus on its core competencies. In particular, management believed that the
Company's best opportunities were in the Southeastern United States and
therefore concentrated the Company's efforts in this region (originally the NDP
operating area).
The historical financial information contains financial information for
Granite, Advantage, Hagenand Valtron from the date of their respective
acquisitions until their disposition. Financial information for NDP is included
from the date of acquisition. The Sunland acquisition, which was accounted for
as a pooling of interests, resulted in a restatement for the periods prior to
Fiscal 1996.
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 Earnings:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30, Years ended March 31,
-------------------- --------------------------------------
1997 1996 1997 1996 1995
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenue.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Revenue............................. 88.6 87.9 87.8 88.9 88.6
Gross Profit................................ 11.4 12.1 12.2 11.1 11.4
Selling General and Administrative
Expenses.................................... 9.0 11.0 10.2 9.1 8.9
Amortization of Goodwill.................... 0.3 0.2 0.3 0.3 0.2
LOSS ON IMPAIRMENT OF ASSETS................ -- -- 1.3 -- --
Restructuring and Other Charges............. -- -- -- 1.1 0.0
----- ----- ----- ----- -----
Operating (Loss) Income..................... 2.1 0.9 0.4 .6 2.3
Interest (Expense) Income, Net.............. (0.3) (2.0) (1.8) (1.7) (0.9)
Loss on Dispositions of Business............ -- -- (3.5) (1.0) 0.0
(Loss) Income Before Income Taxes........... 1.8 (1.1) (4.9) (2.1) 1.4
(Benefit from) Provision for Income Taxes... 0.7 (0.5) (1.8) (0.7) 0.6
----- ----- ----- ----- -----
Net (Loss) Income........................... 1.1% (0.6)% (3.1)% (1.4)% 0.8%
===== ===== ===== ===== =====
</TABLE>
12
<PAGE> 14
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Revenues. Revenues decreased by $51.5 million, or 59.8%, to $34.6 million
for the three months ended June 30, 1997, as compared to $86.0 million for the
three months ended June 30, 1996. The decrease in revenues is due primarily to
the sale of the Midwestern and Eastern region's operations in October 1996 and
the sale of the Education Division. On a comparable basis, excluding revenues
for the Midwestern and Eastern regions and the Education Division, revenues
decreased by $3.2 million, or 9.3% for the three months ended June 30, 1997, as
compared to the same period in 1996. This decrease is primarily due to the
Company's decision to concentrate on business opportunities that offer a higher
gross margin percentage.
Gross Profit. Gross profit decreased by $6.4 million, or 61.9%, to $4.0
million for the three months ended June 30, 1997, as compared to $10.4 million
for the three months ended June 30, 1996. The decrease in gross profit relates
primarily to the exclusion of gross profit contribution of the Midwestern and
Eastern regions and the Education Division for the three month period. On a
comparable basis, excluding the Midwestern and Eastern regions and the Education
Division, gross profit decreased by $146,810, or 3.6% for the three months ended
June 30, 1997, as compared to the same period in 1996. As stated above, this
decrease is primarily due to the Company's decision to concentrate on business
opportunities that offer a higher gross margin percentage, as evidenced by the
increase in gross margin percentage.
As a percentage of revenues, gross profit was 11.4% for the three months
ended June 30, 1997, as compared to 12.1% for the three months ended June 30,
1996. The decrease in gross profit as a percentage of revenues primarily
reflects the disposition of the Midwestern and Eastern regions, whose revenues
included a higher percentage of service sales, which yield a higher gross margin
percentage. On a comparable basis, excluding the Midwestern and Eastern regions,
gross profit as a percentage of revenues was 11.4% for the three months ended
June 30, 1997 and 10.8% for the three months ended June 30 , 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $6.3 million, or 66.9%, to $3.1 million for
the three months ended June 30, 1997, as compared to $9.4 million for the three
months ended June 30, 1996. This decrease primarily relates to the sale of the
Midwestern and Eastern regions in October 1996 and the sale of the Education
Division in April 1997. As a percentage of revenues, selling, general and
administrative expenses were 9.0% and 11.0% for the three months ended June 30,
1997 and June 30, 1996, respectively. The decrease in selling, general and
administrative expenses as a percentage of revenues for the three months ended
June 30, 1997, as compared to the prior year, reflects lower corporate overhead
due to the sale of the Midwestern and Eastern regions and the Education
Division.
Amortization of Goodwill. Amortization of goodwill decreased by $85,856,
or 45.0%, to $104,854 for the three months ended June 30, 1997, as compared to
$190,710 for the three months ended June 30, 1996, primarily due to the
disposition of the Midwestern operating region and the Education Division.
Interest Expense. Interest expense, net of interest income, decreased by
$1.6 million, or 94.4%, to $94,157 for the three months ended June 30, 1997, as
compared to $1.7 million for the three months ended June 30, 1996. The decrease
in interest expense primarily relates to reduced average borrowings resulting
from the reduction of debt from the use of the proceeds from the sale of the
Western, Midwestern and Eastern regions and the Education Division and a
reduction in interest rates.
1997 Compared to 1996
Revenues. Revenues decreased by 46.0%, or $217.0 million, from $472.1
million for the Fiscal 1996 to $255.1 million for Fiscal 1997. The decrease in
revenues relates to the sale of the Western region operations
13
<PAGE> 15
on April 1, 1996 and the sale of the Midwestern and Eastern region operations on
October 4, 1996. On a comparable basis, excluding the Western, Midwestern and
Eastern operations, revenues increased by $24.8 million, or 17.5%. Product
revenues, which include desktop computers, printers, displays, software and
other peripherals, accounted for 89.2% of total revenues and decreased by $194.9
million, or 46.1%. Service revenues, which include Technology Management
Services, training and consulting accounted for 10.8% of total revenues and
decreased by $22.2 million, or 44.7%. The decreases in product and service
revenues relate to the sales of the Western, Midwestern and Eastern regions. On
a comparable basis, excluding the disposed operating regions, product revenues
accounted for 91.6% of revenue and increased by $20.4 million, or 15.4%. Service
revenues accounted for 8.4% of total revenues and increased by $4.4 million, or
45.9%.
Gross Profit. Gross profit decreased by 40.9%, or $21.5 million, from
$52.5 million in Fiscal 1996 to $31.0 million in Fiscal 1997. This decrease
relates to the exclusion of the gross profit for the entire year for the Western
region and the exclusion of the Midwestern and Eastern regions for six months.
As a percentage of revenue, gross profit increased 9.9%, from 11.1% in Fiscal
1996 to 12.2% in Fiscal 1997. There were gross profit percentage increases in
both products and services primarily due to the disposition of less profitable
product and service businesses in the Western, Midwestern and Eastern regions,
whose customer base consisted of primarily large businesses. On a comparable
basis, excluding the Western, Midwestern and Eastern operating regions, gross
profit increased $5.0 million, or 28.0%, to $22.9 million in Fiscal 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by 39.7%, or $17.1 million, from $43.0 million
in Fiscal 1996 to $25.9 million in Fiscal 1997. The decrease relates to the sale
of the Western region on April 1, 1996 and the sale of the Midwestern and
Eastern regions on October 4, 1996. As a percentage of revenues, selling,
general and administrative expenses increased from 9.1% in Fiscal 1996 to 10.2%
in Fiscal 1997. The increase reflects additional administrative expenses
associated with the sale of the Western, Midwestern and Eastern regions. The
increase also reflects a difference in customer base and product mix in the
Southeast. The Southeast region has a much larger customer base and completes
significantly more transactions than the other operating regions, although the
individual transactions tend to be smaller.
Loss on Impairment of Assets. The loss on impairment of assets represents
two separate transactions. The first is the sale of the Education Division,
which was completed on April 18, 1997. The Company sold certain fixed assets and
inventory for approximately $4.2 million and reduced goodwill by $5.8 million to
record a loss on impairment of assets of $2.9 million. The second transaction
recorded was the proposed sale of the Company's headquarters building. The
Company has received an offer to sell the property for approximately $1 million
which will result in a loss on impairment of assets of $339,040.
Amortization of Goodwill. Amortization of goodwill decreased by 46.5%, or
$587,681, from $1.3 million in Fiscal 1996 to $677,420 in Fiscal 1997 due to the
disposition of the Western region on April 1, 1996 and the disposition of the
Midwestern and Eastern regions on October 4, 1996.
Interest Expense. Interest expense, net of interest income, decreased by
43.5%, or $3.5 million, from $8.1 million in Fiscal 1996 to $4.6 million in
Fiscal 1997. The decrease primarily relates to reduced average borrowings
resulting from the pay down of debt from the proceeds of the sales of the
Western, Midwestern and Eastern regions. The Company also realized a 25.0%
reduction in interest rates starting in December 1996, with the negotiation of a
new line of credit.
Loss on Disposition of Business. Loss on disposition of business
represents the aggregate difference between the carrying value of net assets of
the sale of the Midwestern and Eastern regional operations and the net
realizable value of these net assets. The Company recorded a loss of $9.0
million on these dispositions.
14
<PAGE> 16
1996 COMPARED TO 1995
Revenues. Revenues increased by 72.4%, or $198.2 million, from $273.9
million for the fiscal year ended March 31, 1995 ("Fiscal 1995") to $472.1
million for Fiscal 1996. The increase primarily related to a full year of
revenues contributed by the companies acquired during Fiscal 1995 of $190.0
million. Product revenues, which included desktop computers, printers, displays,
LAN products, software and other peripherals, accounted for approximately 89.5%
of total revenues and increased by $176.0 million, 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 $22.3
million, or 81.4%.
Gross Profit. Gross profit increased by 67.8%, or $21.2 million, from
$31.3 million in Fiscal 1995 to $52.5 million in Fiscal 1996. This increase
during Fiscal 1996 primarily related 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 computer services business due to incremental
costs associated with the continued investment in the development of the
computer services business. Hardware margins were consistent with those for
Fiscal 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 77.2%, or $18.7 million, from $24.3 million
in Fiscal 1995 to $43.0 million 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 was primarily due to the acquisition of Valtron (part of the Western
region's operations), which had higher selling, general and administrative
expenses as a percentage of revenues.
Amortization of Goodwill. Amortization of goodwill of $1.3 million 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. Restructuring and other charges
represented the estimated costs to enhance the Company's operational and
administrative efficiencies through consolidations of operations and information
systems. The charges related primarily to dispositions and write-downs of
inventory and spare parts of $2.7 million, employee termination benefits of $1.2
million, write-offs of computer systems of $1.0 million and other charges of
$400,000. Inventory write-offs related primarily to a reduction in the net
realizable value of inventory product lines in which the Company no longer
intends to conduct business. Employee termination benefits related 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
related primarily to the replacement of older computer systems with new,
upgraded systems.
Loss on Dispositions of Businesses. Loss on dispositions of businesses
represented 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 (including its Valtron operation) 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. Interest expense, net of interest income, was $8.1
million in Fiscal 1996 as compared to $2.7 million in Fiscal 1995. The increase
primarily related to increased borrowings in connection with the acquisitions in
Fiscal 1995 and Fiscal 1996 and higher average interest rates during Fiscal 1996
compared to Fiscal 1995.
15
<PAGE> 17
1995 COMPARED TO 1994
Revenues. Revenues increased by 123.8%, or $151.5 million, from $122.3
million for the fiscal year ended March 31, 1994 ("Fiscal 1994") to $273.9
million for Fiscal 1995. The increase primarily related to revenues contributed
by the acquired companies during Fiscal 1995 of $148.0 million. Product
revenues, which included desktop computers, printers, displays, LAN products,
software and other peripherals, accounted for over 90.0% of total revenues and
increased by $138.4 million, or 127.9%. Service revenues, which included
consulting, training, on-site maintenance and project management, accounted for
approximately 10.0% of total revenues and increased by $13.2 million, or 93.0%.
Gross Profit. Gross profit increased by 131.2%, or $17.8 million, from
$13.5 million in Fiscal 1994 to $31.3 million in Fiscal 1995. This increase
primarily related 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 reflected slight improvement in hardware margins, partially offsetting
lower margins in the computer services business due to incremental costs
associated with the continued investment in the development of a nationwide
computer services business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 127.2%, or $13.6 million, from $10.7
million in Fiscal 1994 to $24.3 million in Fiscal 1995, primarily due to the
recent acquisitions and increases in corporate infrastructure to support the
Company's growth. 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. 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, Net of Interest Income. Interest expense, net of
interest income, was $2.7 million 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 related to the use of funds available for investment and increased
borrowings in connection with the acquisitions in Fiscal 1995.
Litigation Settlement and Related Costs. Litigation settlement and related
costs in Fiscal 1994 represented expenses associated with the settlement of the
class action lawsuit. See Note 14 to the Consolidated Financial Statements.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The following table presents unaudited quarterly operating results for the
Company for each of the Company's last nine fiscal quarters beginning June 30,
1995. In the opinion of management, this information has been prepared on the
same basis as the audited Consolidated Financial Statements included in this
Prospectus and includes all adjustments (consisting of only normal recurring
accruals) that management considers necessary for a fair presentation of the
results for such periods. This information should be read in conjunction with
the Consolidated Financial Statements, and Notes thereto, included elsewhere in
this Prospectus. Such quarterly results are not necessarily indicative of the
results of operations for any future period. The Company does not generally
experience any material quarterly seasonality.
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------ -------------------------------------- --------------------
June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
-------- --------- --------- --------- -------- --------- -------- --------- ---------
(UNAUDITED)
(In thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue..................... $110,325 $107,844 $122,635 $131,298 $86,031 $83,875 $40,993 $44,176 $34,578
Gross profit................ 11,900 12,774 13,674 14,162 10,369 9,531 5,672 5,468 3,951
Net income.................. 309 142 153 (6,939) (533) (4,145) 257 (3,335) 378
Net earnings per share...... $ .06 $ .03 $ .03 $ (1.34) $ (.10) $ (.75) $ .04 $ (.54) $ .06
</TABLE>
16
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements increased significantly as a result of the
Company's acquisitions during the period 1994 to 1996. A significant debt burden
was placed upon the Company in connection with these acquisitions, and
management determined that the Company lacked adequate capital (or access to
adequate capital) to support its expanded infrastructure, to make necessary
capital expenditures and to service its debt. Accordingly, management concluded
that it was necessary to divest the Company's Eastern, Midwestern and Western
regions. As a result of the sale of its Eastern, Midwesternand Western regions,
the bulk of the Company's cash flow in 1996 resulted from the proceeds of these
sales.
Historically, IBM Credit Corporation was the Company's primary lender.
During 1996, the Company replaced IBM Credit Corporation with NationsBank, N.A.
(South) and NationsCredit Commercial Corporation of America (the "Line of
Credit"). Currently, the Line of Credit provides that the Company may borrow up
to $38.0 million, at the London InterBank Offering interest rate ("LIBOR") plus
2 1/2% per annum. This Line of Credit has an initial term through December 17,
1998. Borrowings under this Line of Credit are collateralized by all of the
Company's inventory and accounts receivables. As of September 30, 1997,
approximately $16.2 million was outstanding under the Line of Credit.
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 $1.0 million in any fiscal year.
The sale of the Company's Education Division to Computer Plus provided
approximately $4.5 million in cash, which was received on April 18, 1997, and
was used to further reduce the balance due under the Line of Credit. The Company
has retained and collected approximately $2.8 million in accounts receivable.
Additionally, in May 1997, the Company received approximately $3.8 million of
the $5.0 million escrowed funds relating to the sale of the Company's Midwestern
and Eastern regions, which were used to decrease amounts outstanding under the
Line of Credit. The Company also received approximately $1.9 million in accounts
receivable generated by the Midwestern and Eastern regions.
During Fiscal 1996 and Fiscal 1997, the Company's Southeast region
invested approximately $4.7 million and $1.6 million, respectively, for capital
equipment expenditures. The majority of the capital expenditures were for
computer equipment and software. For the year ending March 31, 1998, the Company
expects its capital expenditures to be approximately $1.5 million.
In August 1997, the Company completed the sale of its headquarters
building in Clearwater, Florida. The Company received $1.0 million in cash and a
$150,000 credit for future rent expense. The cash from the sale was used to
retire the existing mortgage on the property. The Company believes that the cash
flow from operations, the Line of Credit and trade credit from its vendors will
be sufficient to satisfy its working capital and capital expenditure
requirements through the expiration of the term of the Line of Credit in
December 1998.
17
<PAGE> 19
IMPACT OF INFLATION
The Company has not been adversely affected by inflation as technological
advances and competition within the microcomputer industry have generally caused
prices of the products sold by the Company to decline. Management believes that
any price increases could be passed onto its customers as prices charged by the
Company are not set by long-term contracts.
NEW-ACCOUNTING PRONOUNCEMENTS
In Fiscal 1997, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 121, Accounting For the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of. The adoption of this standard had no
effect on the Company's financial statements.
In Fiscal 1997, the Company elected to continue to apply the prior
accounting rules by adopting SFAS No. 123, Accounting for Stock-Based
Compensation. Additional disclosures relating to the pro forma net income and
earnings per share were provided in the Company's annual financial statements
for Fiscal 1997.
The effect, if any, of recently issued SFAS No. 128, Earnings Per Share
and SFAS No. 129, Disclosure of Information About Capital Structure, is not
presently known.
18
<PAGE> 20
BUSINESS
GENERAL
The Company, established in 1976, is a direct marketer of microcomputer
equipment, related products and computer services, supplied primarily by major
manufacturers, including Compaq, Hewlett-Packard and IBM. The Company's
customers are business organizations with diverse desktop computing
requirements located throughout the United States, with a primary concentration
in the Southeast. The Company provides its customers with single-source,
value-added desktop computing solutions and services, including product sales,
system integration, network installations, help desk support, training,
consultation services and equipment repair maintenance. The Company is also a
certified Novell Education Center and a Microsoft Authorized Technical
Education Center capable of providing on-site or off-site manufacturer
authorized education.
The computer 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 the Company's customers through the Company's
Mainsite(TM) 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, in order to enhance its ability to
deliver nationwide, on-site services to its customers, the Company is a member
of a national network of service partners.
The Company focuses its efforts on customer service. The Company conducts
ongoing training for its associates, 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.
Since 1996, the Company has divested its Eastern (New Jersey-based),
Midwestern (Chicago-based), and Western (California- and Arizona-based) regions
in a series of transactions. The Company also sold its Education Division to
Computer Plus in April 1997. These divestitures are a reversal of the Company's
expansion strategy implemented in 1994 and 1995 and resulted from the Company's
inability to successfully integrate these acquisitions promptly and effectively.
Additionally, management determined that the Company lacked adequate capital (or
access to adequate capital) to support its expanded infrastructure, to make
necessary additional capital expenditures and to service the significant
indebtedness incurred in connection with the acquisitions. Management concluded
that it was necessary to reduce the burden of this indebtedness. The
divestitures have reduced the Company's indebtedness and allowed it to focus on
its core competencies. In particular, management believed that the Company's
best opportunities were in the Southeastern United States and have therefore
concentrated the Company's efforts in this region.
The Company has offices in Tallahassee, Maitland (Orlando), Hollywood
(Miami-Ft. Lauderdale) and Clearwater (Tampa Bay), Florida, as well as in Smyrna
(Atlanta), Georgia. The Company's headquarters are located at 2145 Calumet
Street, Clearwater, Florida 34625, and its telephone number is (813) 562-2200.
Recent Developments
On October 22, 1997, Dataflex New Jersey completed the change in its state
of incorporation from New Jersey to Florida through the merger of Dataflex New
Jersey with and into the Company, its wholly-owned-subsidiary. Appropriate
consents and approvals were obtained for the Reincorporation, including the
approval of the shareholders of Dataflex New Jersey on September 18, 1997, at
the Annual Meeting. As the surviving corporation in the Merger, the Company
succeeded to all the business, properties, assets and liabilities of Dataflex
New Jersey. As a result of the Merger, each outstanding share of Dataflex New
Jersey Common Stock was automatically converted into one share of Common Stock.
Each stock certificate representing issued and outstanding shares of Dataflex
New Jersey Common Stock will continue to represent
19
<PAGE> 21
the same number of shares of Common Stock. The Common Stock will continue to be
traded on the Nasdaq National Market without interruption under the symbol
"DFLX."
INDUSTRY OVERVIEW
Since 1988, the microcomputer distribution and support industry's rate of
revenue growth has been affected by the introduction of many lines of low priced
clones, significant price reductions by major competitors, increasing support
costs and complexity, and the introduction of networking technology. The Company
believes the microcomputer distribution and support industry does not function
along the traditional supply and demand principle, as in many cases product
shortages result in lower pricing to customers. The industry has been
consolidating since the early 1990's, as larger resellers acquire smaller,
strategically-located resellers to increase their market share.
Dataquest, Inc. ("Dataquest"), a market research firm, reports that the
demand for microcomputer products and related services is expected to grow
approximately 10-13% from 1996 to the year 2000. Dataquest estimates that
approximately 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 Company believes future growth will come
not only from a continuing demand for computer hardware, but also from an
increasing demand for related computer services, such as internet and intranet
applications, as well as for integration services and training.
MARKETING AND SALES STRATEGY
The Company's objective is to continue as a direct marketer of
microcomputer equipment, related products and computer services, with a primary
focus on the Southeastern United States. The key elements of the Company's
marketing and sales strategy in seeking to achieve this objective include:
Focus on Medium-to-Large Organizations and Government Agencies. The
Company's marketing focus is primarily on medium-to-large organizations
and government agencies. The Company believes that these customers are
dependent on their suppliers to provide, in addition to competitive
pricing, a consultative approach to their microcomputer equipment needs.
This approach addresses purchasing, software selection, compatibility,
maintenance, support, networking, training and obsolescence. The Company
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 desktop microcomputer services and product
acquisition.
Target Client Needs. The Company may benefit from its clients' needs,
particularly in the areas of internet- working, 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 may
provide growth for the Company and offer cost savings, improved
flexibility and high-end user satisfaction for its customers.
Develop Internal Information Systems. 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 are intended to 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. See
"Business--Management Information Systems."
Utilize Various Marketing Strategies. To market its products and
services, the Company utilizes telemarketing, strategic alliances with
major vendors, customer referrals and various promotional activities.
20
<PAGE> 22
The Company also makes joint sales presentations with certain of its major
vendors to existing and prospective customers.
PRODUCTS AND PRINCIPAL SUPPLIERS
The Company offers over 50,000 PC/Networking hardware and software SKU's
from over 500 vendors, including Compaq, Hewlett-Packard, IBM, Toshiba,
Microsoft and Novell. Products include desktop and laptop PCs, servers,
monitors, peripherals, operating system and application software and individual
components. The Company continually evaluates new products from existing vendors
and seeks out new products and new vendors, as technology develops and needs
arise.
Sales of Compaq, Hewlett-Packard and IBM products constituted
approximately 18%, 16% and 5% of the Company's Southeastern region's revenue
during Fiscal 1997. No other manufacturer's products accounted for more than 5%
of the Company's revenues. No one customer accounted for more than 10% of the
Company's revenues during Fiscal 1997.
The Company receives discretionary subsidies, including rebates and volume
discounts, from certain manufacturers and through aggregators and distributors
to promote sales and support activities relating to their products. Some of
these subsidies have been used to expand the array of 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
loss of a significant amount of rebates, volume discounts or other marketing
programs offered by manufacturers that result in the reduction or elimination of
subsidies currently received by the Company could have a material adverse effect
on the Company's operations and financial results. In particular, a reduction or
elimination of rebates relating to government customers could adversely affect
the Company's ability to serve government agencies in a highly competitive
marketplace. See "Risk Factors--Vendor Rebates and Volume Discounts" and
"--Manufacturer Market Development Funds."
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 Compaq, Hewlett-Packard or IBM dealership agreements would
have a material adverse effect on the Company's business. The Company believes
that its relationships with its major suppliers are good. See "Risk
Factors--Dependence Upon Principal Suppliers."
The microcomputer distribution and support industry is characterized by
rapid product improvement and technological change resulting in relatively short
product life cycles and rapid product obsolescence. While most of the inventory
stocked by the Company is for specific customer orders, inventory devaluation
(whether as a result of vendor price reductions or otherwise) or obsolescence is
a potential problem for the Company. Current industry practice among
manufacturers is to provide price protection intended to reduce the risk of
devaluation, although such policies are subject to change at any time and there
can be no assurance that such price protection will be available to the Company
in the future. The Company currently has in place stock rotation arrangements
with many of its vendors, enabling it to return all or a part of inventory items
purchased within a designated period. The Company also stocks parts inventory
for its service business, which is not subject to price protection and stock
rotation protection. This inventory may be especially susceptible to
technological changes and obsolescence. See "Risk Factors--Inventory
Management."
SALES ACTIVITIES AND ORDER FULFILLMENT
The Company is dependent, in large part, on the account executives that
locate and service customers via telephone communications. These account
executives develop a customer base through a combination of outbound calling and
direct mail. The Company's account executives are well-trained, product
knowledgeable and motivated to maximize sales and customer service. These
account executives are organized in teams to provide a customer
21
<PAGE> 23
with several knowledgeable representatives. The account representatives strive
to have an individual answer telephone calls and to avoid automated telephone
responses.
The teams are geographically segmented and are responsible for developing
sales for their territory. The account executives utilize on-line computers to
retrieve information regarding product characteristics, cost and availability
and to enter customer orders. At the time of order entry, the account executive
has access to information from four major suppliers and the Company's own
warehouse. Processing of the order is performed immediately following a credit
check and either a "pick ticket" is generated for products in the Company's
warehouse or electronic purchase orders are created for distribution orders. The
Company ships product via UPS, Federal Express, common carrier or any other
acceptable manner requested by the customer. The customer is billed either at
the time the order ships from the Company's warehouse or at the time an
electronic invoice is received from its distributor for orders drop shipped
directly to its customer.
The Company's account executives are compensated based upon the amount of
gross profit generated. The account executives have the authority to negotiate
and adjust prices for products, provided that the account executives sell at a
price that meets established guidelines. The account executives can achieve
relatively high compensation levels. There can be no assurance that the Company
can continue to attract and retain qualified account executives to assist in
expanding the business.
SERVICES
The Company provides services to support product sales. Services are
offered on a per PC or complete project basis. Some of the services offered by
the Company are:
Technology Management Services. The Company offers contracts to
customers for both MainSite and off-site product maintenance. These
maintenance contracts generally require the Company to maintain
microcomputer 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. The Company offers 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.
Training. The Company offers authorized training for Microsoft and
Novell at both customer sites and its regional training locations. All
trainers must be certified instructors prior to teaching any course.
Instructors also develop applications with the products they are
authorized to teach.
Professional Services. The Company provides professional consulting
services to help customers define, design, implement and support LAN/WAN
systems. The Company's professionals and the customer develop a needs
analysis and agree upon an implementation plan for the LAN/WAN systems and
then work together in implementing and supporting the LAN/WAN systems.
COMPETITION
The microcomputer distribution and support industry is highly competitive.
Distribution has evolved from manufacturers selling through direct sales forces
to sales by manufacturers to wholesalers, resellers and value-added resellers.
Competition, especially the pressure on pricing, has resulted in industry
consolidation. In response to continuing competitive pressures, including
specific price pressure from the direct telemarketing and mail order
distribution channels, the microcomputer distribution channel is currently
undergoing segmentation into value-added resellers that emphasize advanced
systems together with service and support for business networks, as compared to
computer "superstores" who offer retail purchasers a relatively low cost, low
service alternative and limited
22
<PAGE> 24
service. Certain "superstores" have expanded their marketing efforts to target
segments of the Company's customer base, which could have a material adverse
effect on the Company's business.
The Company believes that competition in its industry is based upon a
combination of price and quality of service. The Company's recent reduction in
geographic reach may make the Company a less attractive supplier to certain
customers. Among the Company's most significant competitors are Entex, Vanstar,
Compucom, Comp USAand Pomeroy.
The Company competes for sales with local, national and international
distributors and resellers. Many of these resellers may sell products at lower
prices than the Company. Many of the Company's competitors are substantially
larger, have more personnel, materially greater financial and marketing
resources, and operate within a larger geographic area than the Company.
The Company believes that the growth rate of the market for microcomputer
equipment, related products and computer services has decreased in recent years.
The Company believes that this will create further competitive pressures within
the industry. There can be no assurance that the Company will continue to
successfully compete. See "Risk Factors--Competition."
CUSTOMERS
The Company's target customers are middle to large sized entities and
governments located primarily in the Southeastern United States. The Company's
customers typically have between 200 and 1,000 workstations and can benefit from
the full range of the Company's services. The Company has over 4,000 customers
in diverse industries, including healthcare, utilities and manufacturing.
MANAGEMENT INFORMATION SYSTEMS
The Company uses proprietary, real-time management information systems,
which centralize key functions of management and provide real-time access to
inventory levels of its key suppliers. The Company's just-in-time inventory
process allows it to minimize its investment in inventory, reduce inventory
discrepancies and the risk of obsolescence, while meeting customer needs. The
Company introduced an Internet order entry system in July 1997, which allows
customers access to order and inventory information over the World Wide Web.
The Company relies upon the accuracy and proper utilization of its
management information systems to provide timely distribution services, manage
its inventory and track its financial information. To manage its growth, the
Company is continually implementing changes and modifications to its existing
systems. The Company expects that it will need to regularly make capital
expenditures to upgrade and modify its management information systems, including
software and hardware, as the Company grows and the needs of its business
change. There can be no assurance that the Company will predict all of the
demands which its expanding operations will place on its management information
systems. The occurrence of a significant system failure or the Company's failure
to expand or successfully implement its systems could have a material adverse
effect on the Company's financial results and business. See "Risk
Factors--Management of Growth and Redeployment of the Company's Resources."
PERSONNEL
As of September 30, 1997, the Company employed 296 full-time personnel of
which 93 are responsible for marketing and sales, 131 for services, 26 for
operations, 18 for finance, 10 for management information systems and 18 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.
The Company needs to locate, hire, train and retain a number of highly
qualified technical personnel. Competition for the services of such individuals
is intense. Although the Company has been successful in locating,
23
<PAGE> 25
hiring, trainingand retaining such personnel to date, there can be no assurance
that it will continue to successfully do so in the future. See "Risk
Factors--Competitive Market For Technical Personnel."
PROPERTIES
The Company's corporate headquarters are located in Clearwater, Florida.
In August 1997, the Company completed the sale of its headquarters for
approximately $1.0 million in cash and $150,000 in deferred rent expense. The
$1.0 million in cash was used to retire the Company's mortgage on the property.
The Company also owns a building in Clearwater, Florida which has a total of
14,000 square feet and is used for office space. The mortgage on the property is
due on January 10, 2000, bearing interest at the rate of prime plus 1% per
annum. The outstanding balance of such mortgage as of September 30, 1997 was
$299,736. The following office locations are currently leased by the Company:
<TABLE>
<CAPTION>
Regional Office Square Footage Principal Use Expiration Date
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tallahassee, FL 3,173 Sales/Service September 30, 1999
Hollywood, FL 4,500 Sales/Service May 31, 1998
Maitland, FL 7,103 Sales/Service December 14, 2001
Smyrna, GA 6,426 Sales/Service January 31, 2001
Clearwater, FL 30,000 Sales/Service/Warehouse August 7, 1998
Clearwater, FL 15,000 Sales September 30, 1998
Pinellas Park, FL 10,000 Sales/Warehouse July 1, 2000
*Edison, NJ 50,000 Vacant March 31, 2000
</TABLE>
* This office was part of the Company's Eastern region. The purchaser of the
Eastern region did not assume this lease but it is required to reimburse the
Company for lease payments.
LEGAL PROCEEDINGS
In August 1996, the Company and Richard C. Rose were named as defendants
in a suit filed in state court in New Jerseyby 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. The Company has denied Mr. McLenithan's allegations and intends to
diligently contest the suit.
* 2 moved from here; text not shown
In December 1996, the Company filed suit in state court in Florida against a
former vendor of the Company alleging breach of contract. The vender
counterclaimed against the Company alleging that the Company failed to pay an
invoice for products delivered. The vendor also filed suit in state court in
Massachusetts for the same claim. The suit in Massachusetts has been stayed
pending the outcome of the suit in Florida. If the Florida suit is resolved, the
Massachusetts suit will be dismissed. The Company intends to diligently pursue
its suit against the vendor and contest the counterclaim against the Company.
In May, 1997 the Company was named as a defendant in a suit filed in
state court in New Jersey alleging breach of contract. The plaintiff claims
that the Company owes him additional amounts of money pursuant to the contract.
The Company has denied the allegation and intends to diligently contest the
suit.
In June 1997, the Company was named as a defendant in a suit filed in
state court in New Jersey by a former employee. The employee alleges that his
employment was wrongfully terminated. The lawsuit is in the initial stages of
discovery. The Company denies the allegation and intends to contest the suit.
24
<PAGE> 26
MANAGEMENT
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, Class 49 1984
II
Anthony G. Lembo.................... President, Chief Operating Officer, Chief 44 1996
Financial Officer and Director, Class I
Philip Doganiero.................... Chairman and Director, Class III 40 1995
W. Keith Schilit.................... Director, Class II 43 1997
Barry M. Alpert..................... Director, Class III 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 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 since 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 approximately 1982. From 1982 until 1985, he was
on the faculty of Syracuse University and from 1979 until 1982, he was on the
faculty of the University of Maryland. He also is a director of ASM Fund, Inc.
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
25
<PAGE> 27
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).
COMPOSITION OF THE BOARD OF DIRECTORS
Pursuant to the terms of the Company's Articles of Incorporation and
Bylaws, the Board of Directors has the power to set the number of directors (but
not to more than 12 members) by resolution adopted by the directors of the
Company. The directors are divided into three classes, as nearly equal in number
as possible. Each director in a particular class is elected to serve a
three-year term or until his or her successor is duly elected and qualified. The
classes are staggered so that their terms expire in successive years.
Accordingly, only one class of directors is elected each year and currently the
number of directors is set at five. The Company intends to maintain at all times
at least two independent directors on its Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Company's Board of Directors has established an Audit
Committee composed of two independent directors, Messrs. Schilit and Alpert. The
Audit Committee makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the plan and
results of the audit engagement, approves professional services provided by the
accountants, reviews the independence of the accountants, considers the range of
audit and non-audit fees, and reviews the adequacy of the Company's internal
accounting controls.
Compensation Committee. The Company's Board of Directors has established a
Compensation Committee composed of Messrs. Schilit and Alpert. The Compensation
Committee determines the compensation of the Company's executive officers and
sets financial targets to be used in determining executive bonuses.
Nominating Committee. The Company does not have a Nominating Committee.
This function is performed by the Board of Directors.
Other Committees. The Board of Directors may establish other committees as
deemed necessary or appropriate from time to time.
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.
26
<PAGE> 28
Director and Executive Officer Compensation
The following table sets forth certain information concerning the
compensation earned during Fiscal 1995, Fiscal 1996 and Fiscal 1997 by the Chief
Executive Officer (the "CEO") and each of the other named executive officers of
the Company whose total annual salary and bonuses for Fiscal 1997 exceeded
$100,000 (collectively, the "Named Executive Officers"). Messrs. Doganiero and
Lembo were not employed by the Company during Fiscal 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------
Annual Compensation Awards Payouts
--------------------------------------------------------------------
Other Restricted Securities All Other
Annual Stock Underlying LTIP Compen-
Fiscal Salary($) Compensation Awards(s) Options/SAR Payouts sation
Name and Principal Position Year (1) Bonus($) ($) ($) (#) ($) ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard C. Rose 1995 $ 329,400 $254,416 ---- ---- ---- ---- $ 1,913 (3)
1996 $ 481,400(4) ---- ---- $31,525(2) ---- ---- $ 1,550 (3)
Chief Executive Officer 1997 $ 354,600 ---- ---- $49,563(2) 97,022 ---- $ 380 (3)
- -------------------------------------------------------------------------------------------------------------------
Anthony G. Lembo 1996 $ 125,000 ---- ---- ---- ---- ---- $ 1,100 (3)
President, Chief 1997 $ 175,000 ---- ---- ---- 40,000 ---- $ 914 (30
Operating Officer
and Chief
Financial Officer
- -------------------------------------------------------------------------------------------------------------------
Philip Doganiero 1996 $ 225,000 ---- ---- ---- ---- ---- $ 2,187 (3)
Chairman of the Board 1997 $ 103,800(5) ---- ---- ---- 40,000 ---- $16,052 (6)
of Directors
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------
(1) Includes deferred compensation.
(2) Mr. Rose was granted 27,022 shares of Common Stock in Fiscal 1996,
pursuant to a restricted stock agreement (the "Agreement"). Pursuant to
the terms of the Agreement, the shares are subject to certain restrictions
that 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. Dividends are not payable on the
restricted stock. The number of shares of Common Stock comprising Mr.
Rose's aggregated restricted stock holdings at fiscal year end 1997 was
9,007 and the value of such shares was $24,780. The value of the vested
portion of the restricted stock grants issued to Mr. Rose at fiscal year
end 1997 was $49,563.
(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. Neither the Company
nor Mr. Doganiero currently have a plan or proposal for payment of the
foregone salary amounts.
(6) Includes $1,052 of 401(k) matching contributions and $15,000 in premiums,
payable quarterly by the Company, for a split dollar key-man life
insurance policyfor which Mr. Doganiero's estate is the beneficiary.
27
<PAGE> 29
OPTION GRANTS TABLE
The following table contains information concerning the grant of
stock options pursuant to the Company's several stock option plans to the Named
Executive Officers during Fiscal 1997.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Individual Grants
- ---------------------------------------------------------------------------------------
Percent of
Number of Total Potential Realizable Value
Securities Options/ at Assumed Annual Rates of
underlying SARs Granted Stock Price Appreciation
option/SARs to Personnel Exercise of For Option Term(3)
Granted in Fiscal Base Price Expiration ---------------------------
Name (#)(1) Year ($/Sh)(2) Date 5% ($) 10% ($)
- -------------------------------------------------------------------------------------------------------------------
<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
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 $5.75 per
share, respectively).
(2) All stock options were granted at the fair market value on the date of
grant.
(3) The amounts set forth are based on assumed appreciation of 5% and 10%
rates as prescribed by the Commission rules and are not intended to
forecast future appreciation, if any, of the stock price.
AGGREGATED OPTION TABLE
THE following table shows information concerning options exercised during
Fiscal 1997 and options held by the Named Executive Officers at the end of
Fiscal 1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Value of
Number of Unexercised
Securities In-the-Money
Underlying Unexercised Options at
Options at Fiscal Fiscal Year-
Year-End(#) End($)(1)
Shares Acquired Exercisable(E)/ Exercisable(E)/
Name on Exercise(#) Value Realized($) 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) $27,600(U)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------
(1) Represents the dollar value of the difference between the value at the end
of Fiscal 1997 and the option exercise price of unexercised options at the
end of Fiscal 1997.
28
<PAGE> 30
TEN-YEAR OPTION REPRICINGS
The following table sets forth certain information concerning repricing of
stock options to purchase shares of Common Stock held by the Named Executive
Officers.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Number Of Length Of
Securities Market Price Original
Underlying Of Stock At Exercise Price Option Term
Options/SARs Time Of At Time Of New Remaining At
Repriced Or Repricing Or Repricing Or Exercise Date If
Amended Amendment Amendment Price Repricing Or
Name Date (#) ($) ($) ($) Amendment
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard C. Rose 12/20/96 70,000 $2.06 $5.75 $2.06 9 years
Chief Financial Officer 12/20/96 27,022 $2.06 $8.125 $2.06 9 years
- -------------------------------------------------------------------------------------------------------------------
Anthony G. Lembo N/A N/A N/A N/A N/A N/A
President, Chief Operating
Officer and Chief
Financial Officer
- -------------------------------------------------------------------------------------------------------------------
Philip Doganiero N/A N/A N/A N/A N/A N/A
Chairman of the Board of
Directors
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
EMPLOYMENT AGREEMENTS
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 of his employment
agreement, 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
29
<PAGE> 31
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, Chief Operating Officer and Chief Financial Officer,
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 region meets or exceeds certain financial targets, to be
determined by the Company's Board of Directors ("Performance Bonus"). The
financial targets for the current fiscal year have not yet been established, but
the Board expects to do so in the near future. In Fiscal 1997, because of the
Company's performance, it was determined that no bonuses for executive officers
would be paid. 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 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 ("NQSO Plans"). The 1989,
1990, 1991, 1992 and 1994 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:
<TABLE>
<CAPTION>
Stock Option Plan Shares Reserved Shares Granted
----------------- --------------- --------------
<S> <C> <C>
1989 NQSO Plan 400,000 0
1990 NQSO Plan 160,000 110,250
1991 NQSO Plan 200,000 50,000
1992 NQSO Plan 400,000 372,750
1994 NQSO Plan 800,000 704,722
</TABLE>
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 the 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 the grant date, and the 1994 NQSO Plan, which provides
the Board of Directors with discretion to determine vesting.
30
<PAGE> 32
CERTAIN TRANSACTIONS
The Company has made loans from time to time during 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 1997, the amount of indebtedness owed on such loans
was evidenced by promissory notes from the appropriate employees. The loans to
the employees of the Company bear interest at rates ranging from 7.0% per annum
to prime plus 1.5% per annum and are payable upon demand. On May 6, 1986, June
30, 1991, March 31, 1992 and September 30, 1993, the Company made loans to Mr.
Rose for $20,000, $75,425, $73,616 and $50,000, respectively, to enable Mr. Rose
to exercise stock options. The loans to Mr. Rose bear interest at rates of 7.0%,
0%, 7.0% and 6.0%, respectively, with interest only due and payable until
January 1, 2000, and thereafter, Mr. Rose is obligated to pay the remaining
balance in five equal principal installments due and payable on January 1, 2001,
2002, 2003, 2004 and 2005. As of March 31, 1996 and 1997, Mr. Rose's outstanding
loan balance was $228,594 and $238,147, respectively.
The Company acquired substantially all the assets of NDP, a reseller of
computer products based in Clearwater, Florida in 1995. Philip Doganiero and
Anthony G. Lembo held a 60% and 15% ownership interest in NDP, respectively. The
Company acquired NDP 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 at the time of the acquisition of approximately
$4,200,000, and a contingent payment based on the future earnings of the
Company's Southeastern region over a seven-year period. These contingent
payments totalled $0 in Fiscal 1996 and approximately $350,000 in Fiscal 1997.
As of September 18, 1997, the Company negotiated the termination of such
contingent payments in exchange for a lump sum cash payment of $1,612,613 by the
Company.
31
<PAGE> 33
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of September 30 , 1997 and as
adjusted to reflect consummation of the Offering 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 of the Named Executive Officers, (iii) each of the
directors of the Company, (iv) the Selling Shareholders and (v) all directors
and executive officers of the Company as a group. Except as set forth below, the
shareholders named below have sole voting and investment power with respect to
all shares of Common Stock shown as being beneficially owned by them. As of the
date of this Prospectus, a total of 15,000 shares of Common Stock have been sold
by the Selling Shareholders. See "Plan of Distribution."
<TABLE>
<CAPTION>
Shares Shares Beneficially
Beneficially Owned After
Owned Before Shares to Offering, Assuming
Name Offering(1) be Offered All Shares Are Sold
- ---- ---------------------- ---------- -------------------
Number Percent Number Percent
---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS, AND
PRINCIPAL SHAREHOLDERS
Anthony G. Lembo(2).......................... 7,500 * -- 7,500 *
Richard C. Rose(2)........................... 298,156(3) 5.0% -- 298,156 5.0%
Philip Doganiero(2).......................... 18,000 * -- 18,000 *
U.S. Bankcorp(4)............................. 551,000 9.2% -- 551,000 9.2%
Pioneering Management Corporation(5)......... 423,500 7.1% -- 423,500 7.1%
W. Keith Schilit(2).......................... 12,500(6) * -- 12,500 *
Barry M. Alpert(2)........................... 12,500(6) * -- 12,500 *
All Directors and Executive Officers as a
Group (5 persons)(7)......................... 348,656 5.8% -- 348,656 5.8%
SELLING SHAREHOLDERS
Arlen Westling, as Trustee for
the Westling Family Trust,
dated February 1, 1995..................... 22,065 * 9,200 12,865 *
Roger F. Powell(8)........................... 48,470 * 31,470 17,000 *
Jeff Abreu................................... 11,737 * 11,737 -- *
David Riley, as Trustee
for the David and Tamara Riley Family
Trust, dated December 4, 1992.............. 152,992 2.6% 67,500 85,490 1.5%
Leonard and Leslie Sickman, as Trustees
for the Sickman Family Trust, dated
December 22, 1992.......................... 82,800 1.4% 82,800 -- *
Robert G. Kreisheimer, as Trustee
for the Kreisheimer Family Trust,
dated December 11, 1992.................... 62,293 1.1% 67,293 -- *
</TABLE>
- ----------------------
* Less than 1%.
(1) Beneficial ownership of shares, as determined in accordance with applicable
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
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
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 current exercisable.
32
<PAGE> 34
(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 296,813 shares are subject to options that are immediately
exercisable.
(8) The number of shares shown to be offered includes 15,000 shares already
sold in the Offering.
33
<PAGE> 35
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 20,000,000 shares of Common Stock and
10,000,000 shares of Preferred Stock, no par value ("Preferred Stock"). As of
September 30, 1997, 5,961,169 shares of Common Stock were outstanding, and such
shares were held by approximately 535 holders of record and no shares of
Preferred Stock were outstanding.
The following descriptions of the Common Stock and the Preferred Stock are
based on the Company's Certificate of Incorporation, Bylaws and applicable
Florida law.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share owned
of record on all matters presented to the shareholders. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share equally and ratably in the assets of the Company, if
any, remaining after the payment of all debts and liabilities of the Company.
The Common Stock has no preemptive rights, no cumulative voting rights and no
redemption, sinking fund or conversion provisions.
Holders of Common Stock are entitled to receive dividends if, as and when
declared by the Board of Directors out of funds legally available therefor,
subject to the dividend and liquidation rights of any Preferred Stock that may
be issued and outstanding and subject to any dividend restrictions in the
Company's credit facilities. No dividends or other distributions (including
redemptions or repurchases of shares of capital stock) may be made if after
giving effect to any such dividends or distributions, the Company would not be
able to pay its debts as they become due in the usual course of business or the
Company's total assets would be less than the sum of its total liabilities plus
the amount that would be needed at the time of a liquidation to satisfy the
preferential rights of any holders of Preferred Stock. See "Dividend Policy."
All of the shares of Common Stock offered hereby are validly issued, fully
paid and nonassessable.
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
shareholder action, to designate and issue from time to time one or more series
of Preferred Stock. The Board of Directors may fix and determine the
designations, preferences and relative rights and qualifications, limitations or
restrictions of any series of Preferred Stock so established, including voting
powers, dividend rights, liquidation preferences, redemption rights and
conversion privileges. Because the Board of Directors has the power to establish
the preferences and rights of each series of Preferred Stock, it may afford the
holders of any series of Preferred Stock preferences and rights, voting or
otherwise, senior to the rights of holders of Common Stock. As of the date of
this Prospectus, the Board of Directors has not authorized any series of
Preferred Stock and has no plans to issue any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
The Bylaws provide that special meetings of shareholders may be called
only by: (i) the President; (ii) the Board of Directors; or (iii) the Chairman
of the Board of Directors. Any action required or permitted to be taken at a
meeting of Shareholders may be taken without a meeting if all Shareholders
entitled to vote consent to such action in writing.
The Articles of Incorporation provide for a classified Board of Directors
and permit removal of directors only for cause by the shareholders of the
Company at a meeting by the affirmative vote of at least 60% of the outstanding
shares of Common Stock. See "Management--Executive Officers and Directors." The
Articles of
34
<PAGE> 36
Incorporation establish an advance notice procedure for the nomination of
candidates for election as directors, as well as for other shareholder proposals
to be considered at shareholders' meetings. Nominations may be made at
shareholders' meetings by or at the direction of the Board of Directors, by any
nominating committee or person appointed by the Board or by any shareholder
entitled to vote for the election of directors. Notice of shareholder proposals
and nominations of directors by shareholders must be timely given in writing to
the Secretary of the Company before the meeting at which such matters are to be
acted upon or directors are to be elected. Such notice, to be timely, must be
received at the principal executive offices of the Company with respect to
shareholder proposals and elections to be held at the annual meeting, not less
than 60 days before the date of the meeting at which the director(s) are to be
elected; however, if less than 70 days notice or prior public disclosure of the
date of the scheduled meeting is given or made, notice by the shareholder, to be
timely, must be so delivered or received not later than the close of business on
the tenth day following the earlier of the day on which notice of the date of
such meeting is mailed to shareholders or public disclosure of the date of such
meeting is made.
Notice to the Company from a shareholder who intends to present a proposal
or to nominate a person for election as a director at a meeting must contain
certain information about the shareholder giving such notice and, in the case of
director nominations, all information that would be required to be included in a
proxy statement soliciting proxies for the election of the proposed nominee
(including such person's written consent to serve as a director if so elected).
If the presiding officer of the meeting determines that a shareholder's proposal
or nomination is not made in accordance with the procedures set forth in the
Certificate of Incorporation, such proposal or nomination, at the direction of
such presiding officer, may be disregarded. The notice requirement for
shareholder proposals contained in the Certificate of Incorporation does not
restrict a shareholder's right to include proposals in the Company's annual
proxy materials pursuant to rules promulgated under the Exchange Act.
The preceding provisions of the Articles of Incorporation may be changed
only upon the affirmative vote of holders of 60% of the outstanding Common
Stock.
The provisions of the Articles of Incorporation summarized in the
preceding four paragraphs and the provisions of the Florida Business Corporation
Act described under "Certain Provisions of Florida Law" may have certain
anti-takeover effects. Such provisions, individually or in combination, may
discourage other persons, or make it more difficult, without the approval of the
Board of Directors, for other persons to make a tender offer or acquisitions of
substantial amounts of the Common Stock or from launching other takeover
attempts that a shareholder might consider in such shareholder's best interest,
including attempts that might result in the payment of a premium over the market
price for the Common Stock held by such shareholder.
CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to several anti-takeover provisions under Florida
law that apply to a public corporation organized under Florida law, unless the
corporation has elected to opt out of those provisions in its articles of
incorporation or bylaws. The Company has not elected to opt out of those
provisions. The Florida Business Corporation Act, as amended (the "FBCA"),
prohibits the voting of shares in a publicly-held Florida corporation that are
acquired in a "control share acquisition" unless the holders of a majority of
the corporation's voting shares (exclusive of shares held by officers of the
corporation, inside directors or the acquiring party) approve the granting of
voting rights as to the shares acquired in the control share acquisition. A
"control share acquisition" is defined as an acquisition that immediately
thereafter entitles the acquiring party to vote in the election of directors
within each of the following ranges of voting power: (i) one-fifth or more but
less than one-third of such voting power; (ii) one-third or more but less than a
majority of such voting power; and (iii) more than a majority of such voting
power.
The FBCA also contains an "affiliated transaction" provision that
prohibits a publicly-held Florida corporation from engaging in a broad range of
business combinations or other extraordinary corporate transactions with an
"interested shareholder" unless: (i) the transaction is approved by a majority
of disinterested directors before the person becomes an interested shareholder;
(ii) the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years; or (iii) the
35
<PAGE> 37
transaction is approved by the holders of two-thirds of the corporation's voting
shares other than those owned by the interested shareholder. An interested
shareholder is defined as a person who together with affiliates and associates
beneficially owns more than 10% of the corporation's outstanding voting shares.
36
<PAGE> 38
PLAN OF DISTRIBUTION
The sale of the shares of Common Stock offered hereby is not being
underwritten. Sales may be made by the Selling Shareholders in the Nasdaq
National Market, or otherwise, at prices and on terms then prevailing or at
prices related to the then current market price of the Common Stock, or in
negotiated transactions. In this regard, the shares of Common Stock may be sold
in one or more of the following types of transactions: (i) a block trade, in
which the broker or dealer so engaged will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to facilitate
the transaction; (ii) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (iii)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; and (iv) directly in private transactions at negotiated prices. At
the time a particular offer of Common Stock is made, to the extent required, a
supplemental Prospectus will be distributed which will set forth the number of
shares being offered and the terms of the offering including the name or names
of any underwriters, dealers or agents, the purchase price paid by any
underwriter for the Common Stock purchased from the Selling Shareholders, any
discounts, commissions and other items constituting compensation from the
Selling Shareholders and any discounts, concessions or commissions allowed or
reallowed or paid to dealers.
In connection with any transaction involving the Common Stock,
broker-dealers or others may receive from the Selling Shareholders, and may in
turn pay to other broker-dealers or others, compensation in the form of
commissions, discounts or concessions in amounts to be negotiated at that time
(which compensation may be in excess of customary commissions). Broker-dealers
and any other persons participating in a distribution of the Common Stock may be
deemed to be "underwriters" within the meaning of the Securities Act in
connection with such distribution, and any such commissions, discounts or
concessions may be deemed to be underwriting discounts or commissions under the
Securities Act.
The Company has advised the Selling Shareholders that during such time as
they may be engaged in a distribution of the Common Stock included herein they
may be required to comply with Regulation M promulgated under the Exchange Act.
In general, Regulation M precludes any Selling Shareholder, any affiliated
purchasers and any broker-dealer or other person who participates in such
distribution from bidding for or purchasing, or attempting to induce any person
to bid or purchase any security which is the subject of the distribution until
the entire distribution is complete. Regulation M also prohibits any bids or
purchases made in order to stabilize the price of a security in connection with
the distribution of that security.
Any or all of the sales or other transactions involving the Common Stock
described above, whether effected by the Selling Shareholders, any broker-dealer
or others, may be made pursuant to this Prospectus. In addition, any Common
Stock that qualifies for sale pursuant to Rule 144 under the Securities Act may
be sold under Rule 144 rather than pursuant to this Prospectus.
In order to comply with the securities laws of certain states, if
applicable, the Common Stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
Common Stock may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and complied with.
The Company has agreed to pay all expenses of registration of the Common
Stock. The Company and the Selling Shareholders may agree to indemnify certain
persons, including broker-dealers or others, against certain liabilities in
connection with any offering of the Shares, including liabilities under the
Securities Act.
37
<PAGE> 39
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Holland & Knight LLP, Tampa, Florida.
EXPERTS
The Consolidated Financial Statements of the Company as of March 31, 1997
and 1996 and for each of the three years in the period ending March 31, 1997,
included in this Prospectus and the Consolidated Financial Statements included
in the Registration Statement have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files periodic reports and other information
with the Commission. Reports, proxy and information statements and other
information filed by the Company may be inspected and copies may be obtained (at
prescribed rates) at the Commission's Public Reference Section, 450 5th Street,
N.W., Washington, D.C. 20549, as well as the following Regional Offices of the
Commission: Seven World Trade Center, 13th Floor, New York, New York 10048 and
at Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can also be obtained by mail from
the Public Reference Section, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington D.C. 20549, upon payment of prescribed rates. In
addition, electronically filed documents, including reports, proxy and
information statements and other information regarding the Company, can be
obtained from the Commission's Web site at: http://www.sec.gov. The Company's
Common Stock is quoted on the Nasdaq National Market, and reports, proxy
statements and other information concerning the Company can also be inspected at
the offices of the National Association of Securities Dealers, Inc. at 1735 K
Street, Washington, D.C. 20006.
The Company has filed a Registration Statement on Form S-1 (together with
all amendments and exhibits thereto referred to herein as the "Registration
Statement") under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and such Common Stock offered hereby, reference is made
to the Registration Statement. Statements contained in the Prospectus with
respect to the contents of any contract or other document filed as an exhibit to
the Registration Statement are not necessarily complete, and in each such
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement. Each such statement is qualified in
all respects by such reference to such exhibit. Copies of all or any part of the
Registration Statement, including the documents incorporated by reference
therein or exhibits thereto, may be obtained upon payment of the prescribed
rates at the offices of the Commission set forth above.
38
<PAGE> 40
DATAFLEX CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1997 and
March 31, 1997, 1996, and 1995 F-3
Consolidated Statements of Earnings for the three months ended
June 30, 1997 and 1996 and for the years
ended March 31, 1997, 1996 and 1995 F-4
Consolidated Statement of Shareholders' Equity for the three months ended
June 30, 1997 and for the years ended March 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the three months ended June 30,
1997 and 1996 and for the years
ended March 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
REPORT OF INDEPENDENT ACCOUNTANTS
ON SCHEDULE II II-7
Schedule II -- Valuation and Qualifying Accounts for
the years ended March 31, 1995, 1996 and 1997 II-8
</TABLE>
F-1
<PAGE> 41
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-2
<PAGE> 42
DATAFLEX CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, March 31,
----------- --------------------------------------
1997 1997 1996 1995
----------- ----------- --------- ---------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents.................................... $ 301 $ 1,722 $ 499 $ 5,590
Restricted Cash.............................................. -- 3,875
Accounts Receivable, Net..................................... 20,309 21,721 57,333 56,834
Inventory, Net............................................... 5,263 5,489 25,755 32,029
Net Assets Held for Sale..................................... -- 3,800 45,229 --
Deferred Tax Asset........................................... -- -- 3,288 312
Income Taxes Receivable...................................... 1,343 1,908 829 --
Other Current Assets......................................... 2,076 2,979 8,428 11,493
---------- --------- --------- ---------
Total Current Assets......................................... 29,292 41,494 141,361 106,258
Property and Equipment, Net.................................. 3,024 2,708 9,437 11,617
Other Assets................................................. 848 853 799 963
Deferred Tax Asset........................................... 6,184 6,184 -- --
ASSETS HELD FOR SALE - LONG TERM............................. 1,150 1,150
Goodwill..................................................... 8,581 8,686 18,716 27,743
---------- --------- --------- ---------
Total Assets......................................... $ 49,079 $ 61,075 $ 170,313 $ 146,581
========== ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt............................ $ 1,730 $ 1,730 $ 32,967 $ 7,249
Short-Term Debt.............................................. 13,054 20,375 -- --
Accounts Payable............................................. 2,938 5,938 42,478 45,199
Accrued Expenses and Other Payables.......................... 2,838 4,736 8,385 6,663
Income Taxes Payable......................................... -- -- -- 176
Total Current Liabilities.................................... 20,560 32,779 83,830 59,287
Long-Term Debt................................................. 2,993 3,141 54,062 52,510
Deferred Tax Liability......................................... -- -- 348 428
Other Long-Term Liabilities.................................... -- -- 224 216
---------- --------- --------- ---------
Total Liabilities.................................... 23,553 35,920 138,464 112,441
---------- --------- --------- ---------
Commitments and Contingencies (Notes 4, 11 and 14)
Shareholders' Equity:
Common Stock-No Par Value; Authorized 20,000,000
Shares; Issued 5,961,169, 5,961,169, 5,587,661 and
4,867,184 shares at June 30, 1997, March 31, 1997,
1996 and 1995, respectively.................................. 24,017 24,017 23,065 19,045
Less: Loans Receivable for Exercised Stock Options.......... (201) (194) (311) (413)
Retained Earnings............................................ 2,313 1,935 9,690 16,025
Less: Treasury Stock - At Cost; 115,382, 115,382,
113,901 and 104,237 shares at June 27, 1997,
March 31, 1997, 1996 and 1995, respectively.................. (603) (603) (595) (517)
--------- --------- --------- ----------
Total Shareholders' Equity................................... 25,526 25,155 31,849 34,140
--------- --------- --------- ----------
Total Liabilities and Shareholders' Equity..................... $ 49,079 $ 61,075 $ 170,313 $ 146,581
========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 43
DATAFLEX CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months
Ended June 30, Years Ended March 31,
------------------------ ---------------------------------------
1997 1996 1997 1996 1995
---------- ------------- ------------ ----------- -----------
(Unaudited)
Revenue (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Equipment......................................... $ 31,337 $ 75,952 $ 227,660 $ 422,533 $ 246,532
Services.......................................... 3,241 10,079 27,415 49,569 27,319
------------- ---------- ------------ ----------- ------------
Total Revenue....................................... 34,578 86,031 255,075 472,102 273,851
------------- ---------- ------------ ----------- ------------
Cost of Revenue
Equipment......................................... 27,758 67,377 201,561 378,490 220,711
Services.......................................... 2,869 8,285 22,474 41,102 21,853
-------------- ---------- ------------ ----------- ------------
Total Cost of Revenue............................... 30,627 75,662 224,035 419,592 242,564
------------- ---------- ------------ ----------- -------------
Gross Profit...................................... 3,951 10,369 31,040 52,510 31,287
Selling, General and Administrative Expenses........ 3,126 9,430 25,943 42,995 24,259
Amortization of Goodwill............................ 105 191 677 1,265 594
LOSS ON IMPAIRMENT OF ASSETS....................... -- -- 3,280 -- --
Restructuring and Other Charges..................... -- -- -- 5,353 --
------------- ---------- ------------ ----------- ------------
Operating Income.................................. 720 748 1,140 2,897 6,434
Other Income (Expenses):
Interest (Expense) Income, Net.................... (94) (1,684) (4,552) (8,063) (2,677)
Loss on Dispositions of Businesses................ -- -- (8,980) (4,632) --
Income (LOSS) Before Income Taxes................... 626 (936) (12,392) (9,798) 3,757
Provision for (Benefit from) Income Taxes........... 248 (402) (4,636) (3,463) 1,617
------------- ---------- ------------ ----------- ------------
Net (Loss) Income................................. $ 378 $ (534) $ (7,756) $ (6,335) $ 2,140
============= ========== ============ =========== ============
Earnings (Loss) Per Common Share.................... $ 0.06 $ (0.10) $ (1.35) $ (1.22) $ 0.45
============= ========== ============ =========== ============
Weighted Average Common Shares Outstanding.......... 6,149 5,482 5,731 5,214 4,733
============= ========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 44
DATAFLEX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Common Stock Earnings Treasury Stock
--------------------- ------------- -----------------------
Issued
Shares Amount Amount Shares Cost
---------- --------- ------------- --------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
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
============ ========= ========== ======== =========
INCREASE IN LOANS RECEIVABLES............. -- (7) -- -- --
NET INCOME................................ -- -- 378 -- --
BALANCE AT JUNE 30, 1997 (UNAUDITED)...... 5,961,169 23,816 2,313 115,382 603
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 45
DATAFLEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30, Years Ended March 31,
-------------------- --------------------------------------
1997 1996 1997 1996 1995
--------- --------- --------- ---------- -----------
(Unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net (Loss) Income................................. $ 378 $ (534) $ (7,756) $ (6,335) $ 2,139
Adjustments to Reconcile Net (Loss) Income to Net
Cash and Cash Equivalents:
Depreciation and Amortization................... 255 808 2,306 4,895 $ 2,594
Amortization of Restricted Stock Grants......... -- 78 62 -- 40
Loss on Dispositions of Businesses................ -- -- 8,979 4,632 --
LOSS ON IMPAIRMENT................................ -- -- 3,280 -- --
Restructuring and Other Charges................... -- -- -- 5,353 --
Changes in Assets and Liabilities:
RESTRICTED CASH................................. 3,875 -- (3,875) -- --
Accounts Receivable............................. 1,410 12,992 35,613 704 (2,775)
Income Taxes Receivable......................... 566 1,377) (1,079) (829) --
Inventory....................................... 226 3,816) 20,266 4,255 (9,839)
Other Current Assets............................ 904 3,138) 5,449 3,105 (7,514)
DEFERRED TAXES.................................. -- 939 (3,244) (3,057) --
Other Assets.................................... -- 132 (54) 89 (368)
Accounts Payable................................ (3,000) 2,458) (36,539) (3,487) 8,111
Accrued Expenses and Other Payables............. (1,898) (673) (3,075) 507 (924)
Income Taxes Payable............................ -- -- -- (176) (9)
Accrued Settlement.............................. -- -- -- -- (712)
Other Long-Term Liabilities..................... -- (15) (225) (209) 65
------- ------ --------- ---------- ----------
Net Cash and Cash Equivalents - Operating......... 2,716 7,062) 20,108 9,447 (9,192)
------- ------ --------- ---------- ----------
Investing Activities:
Capital Expenditures............................ (461) (919) (1,605) (4,687) (5,270)
Proceeds From Sale Of Fixed Assets.............. 3,800 40,730 5,049 -- --
Proceeds From Sale Of Discontinued
OPERATIONS........................................ -- -- 41,117 -- --
Net Assets Held for Sale........................ -- -- (2,089) (36,622) --
Acquisition of Businesses, Net of Cash and
Cash
Equivalents Acquired.......................... -- -- -- (1,215) (19,604)
------- ------ --------- ---------- ----------
Net Cash and Cash Equivalents - Investing......... 3,339 9,811 42,472 (42,524) (24,874)
------- ------ --------- ---------- ----------
Financing Activities:
Proceeds from Issuance of Notes Payable......... -- 40,855 -- -- --
---
Payments of Notes PAYABLE/SHORT-TERM DEBT....... (7,321) 2,307) (10,862) 28,123 23,371
PAYMENTS ON Long-Term Borrowings................ (148) (22) (50,921) (88) (29)
Proceeds from Common Stock and Options.......... -- 55 379 30 153
Purchase of Treasury Stock...................... -- -- (8) (79) 85
RECEIPTS ON OFFICER'S LOANS RECEIVABLE.......... -- 235 -- -- --
Payments on Officers Loans Receivable for 131
Exercised Stock Options....................... (7) -- 55 --
------- ------ --------- ---------- ----------
Net Cash and Cash Equivalents - Financing......... (7,476) 1,184) (61,357) 27,986 23,709
------- ------ --------- ---------- ----------
Net (Decrease) Increase in Cash and Cash
Equivalents....................................... (1,421) 1,565) 1,223 (5,091) (10,357)
Cash and Cash Equivalents - Beginning of Year..... 1,722 499 499 5,590 15,947
------- ------ --------- ---------- ----------
Cash and Cash Equivalents - End of Year........... $ 301 $2,064 $ 1,722 $ 499 $ 5,590
======= ====== ========= = ======== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 46
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 ratably over the contract period. The Company allows its
customers to return products 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 ongoing 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.
** 1 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
F-7
<PAGE> 47
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).
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
F-8
<PAGE> 48
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. ("Valtron"), 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 $34,086,000 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.
<TABLE>
<CAPTION>
For the Year
Ended March 31,
1995
----------------------
(In thousands,
except per share data)
<S> <C>
Revenue $383,984
Gross Profit 46,393
Net Income 3,777
Earnings Per Common Share $ .72
</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
F-9
<PAGE> 49
$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 "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
of 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
Earnings for Fiscal 1996 described above.
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.
F-10
<PAGE> 50
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.
<TABLE>
<CAPTION>
For the Years Ended March 31,
-----------------------------------
1997 1996
------------ ----------
(In thousands, except per share data)
<S> <C> <C>
Revenue $166,615 $141,851
Gross Profit 22,893 17,884
Net Income 1,497 682
Earnings Per Common Share $ .26 $ .13
</TABLE>
The pro forma information is presented for information 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
Education Division to Computer Plus 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 "Net 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 assets
of $2,941,185 related to this transaction.
The Company also recorded a loss on impairment of assets of $339,040 on
the proposed sale of certain land and buildings. In June 1997, the Company
preliminarily accepted an offer of approximately $1.0 million to sell its
headquarters located in Clearwater, Florida. The estimated fair market value of
the net assets to be disposed of are included in "Assets Held for
Sale--Long-Term" at March 31, 1997.
NOTE 5: INVENTORY
Inventory consists of:
<TABLE>
<CAPTION>
March 31,
----------------------
1997 1996
------ --------
(In thousands)
<S> <C> <C>
Finished Goods $5,303 $ 21,989
Spare Parts 186 3,766
------ --------
$5,489 $ 25,755
====== ========
</TABLE>
F-11
<PAGE> 51
NOTE 6: PROPERTY AND EQUIPMENT, NET
Property and equipment, is as follows:
<TABLE>
<CAPTION>
March 31,
-------------------------
1997 1996
------- --------
(In thousands)
<S> <C> <C>
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
======== ========
</TABLE>
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 PERSONNEL
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 1996related 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.
F-12
<PAGE> 52
NOTE 8: SUPPLEMENTARY CASH FLOW INFORMATION
The following is a summary of supplementary cash flow information:
<TABLE>
<CAPTION>
For the Years Ended March 31
----------------------------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Interest Paid $ 5,145 $7,381 $ 2,403
Income Taxes Paid -- 624 1,636
Noncash Investing and Financing Activities: --
Issuance of Notes Receivable for -- -- 102
Common Stock
Issuance of Common Stock in Exchange -- -- 208
for Notes Payable
Capitalized Tax Benefit for Exercise -- -- 26
of Options
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 270,000 -- --
Settlement (shares)
</TABLE>
NOTE 9: CREDIT FACILITY
On December 28, 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 $38.0 million
financing agreement with NationsCredit and NationsBank. 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 collateralized 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.
F-13
<PAGE> 53
NOTE 10: LONG-TERM DEBT
Long-Term Debt Consists of the following:
<TABLE>
<CAPTION>
March 31,
------------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Mortgage note payable to a bank, payable in $ 793 $ 851
monthly 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 307 337
monthly 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
======== ========
</TABLE>
Aggregate principal payments for the next five years subsequent to March 31,
1997 are as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
(In thousands)
--------------------------------------
<S> <C>
1998 1,730
1999 139
2000 966
2001 37
2002 2,000
-----------
$ 4,872
</TABLE>
F-14
<PAGE> 54
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:
<TABLE>
<CAPTION>
Operating
Year Ended March 31, Leases
------------------------------- --------------
(In thousands)
<S> <C>
1998 $ 279
1999 238
2000 205
2001 174
2002 87
</TABLE>
Rental expense amounted to $1,069,017, $1,482,857 and $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:
<TABLE>
<CAPTION>
For the Years Ended March 31,
-----------------------------------
1997 1996 1995
-------- -------- -------
Current Taxes: (In thousands)
<S> <C> <C> <C>
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
======= ======= ======
</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,
-----------------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
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
======= ======= ======
</TABLE>
F-15
<PAGE> 55
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, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
March 31,
------------------
1997 1996
------- -------
(In thousands)
<S> <C> <C>
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
======= =======
</TABLE>
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.
F-16
<PAGE> 56
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 owned 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:
<TABLE>
<CAPTION>
Stock Option Plan
Granted Shares Reserved Shares Granted
----------------- --------------- --------------
<S> <C> <C>
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
</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 the date of grant except for stock options
granted under the 1989, 1991, 1992 NQSO Plans, which vest 25% per year beginning
one year after the grant date, and the 1994 NQSO 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.
F-17
<PAGE> 57
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(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 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 1,156,722 3.79 2,070,280 5.76 1,713,000 5.65
--------- --------- ---------
Exercisable 529,488 5.08 1,001,064 5.51 534,000 5.51
Available for Grant at End 803,278 -- 30,926 -- 388,206 --
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICE AT 3/31/97 LIFE (YEARS PRICE AT 3/31/97 PRICE
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$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
========= =======
</TABLE>
F-18
<PAGE> 58
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
State 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:
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------------
1997 1996
-------- --------
(In thousands, except per share data)
<S> <C> <C>
Net income (loss) $(7,884) $(6,626)
Net income (loss) per common share (1.38) (1.27)
</TABLE>
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.
Personnel 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
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. As of March 31, 1997, there are no issued
shares of Preferred Stock.
F-19
<PAGE> 59
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
-------- -------- -------- -------
FY 1997: (In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue $ 86,031 $ 83,875 $ 40,993 $ 4,176
Gross Profit 10,369 9,531 5,672 5,468
Net Income (Loss) (533) (4,145) 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 (1)
Gross Profit 11,900 12,774 13,674 14,162
Net (Loss) Income 309 142 153 (6,939)
Earnings (Loss) Per Share $ 0.06 $ 0.03 $ 0.03 $ (1.34)
</TABLE>
(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 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.
F-20
<PAGE> 60
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Selling Shareholders. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the shares of Common Stock offered by this Prospectus, nor does it
constitute an offer to sell or a solicitation of an offer to buy the shares of
Common Stock by anyone in any jurisdiction in which such an offer or
solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information contained herein is correct as of any time subsequent to
the date hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary............................. 2
Risk Factors................................... 5
Use of Proceeds................................ 9
Price Range of Common Stock.................... 9
Dividend Policy................................ 9
Capitalization................................. 10
Selected Consolidated Financial Data........... 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 12
Business....................................... 19
Management..................................... 25
Certain Transactions........................... 31
Principal and Selling Shareholders............. 32
Description of Capital Stock................... 34
Plan of Distribution........................... 37
Legal Matters.................................. 38
Experts........................................ 38
Available Information.......................... 38
Index to Financial Statements
and Schedule................................. F-1
</TABLE>
================================================================================
================================================================================
270,000 SHARES
DATAFLEX CORPORATION
Common Stock
--------------
PROSPECTUS
--------------
OCTOBER 28, 1997
================================================================================
<PAGE> 61
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. -- Other Expenses of Issuance and Distribution.
The following table sets forth the fees and expenses in connection with
the issuance and distribution of the securities being registered hereunder.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................... $ 280
Copying and engraving expenses....................................... 5,000*
Accounting fees and expenses.......................................... 35,000*
Legal fees and expenses............................................... 25,000*
Blue Sky fees and expenses............................................ 1,135*
Miscellaneous......................................................... 5,585*
-------
Total........................................................ 72,000*
=======
</TABLE>
- --------------
* Estimated.
ITEM 14. -- Indemnification of Directors and Officers.
The Company is a Florida corporation. The Florida Business Corporation
Act ("FBCA") provides that, in general, a business corporation may indemnify any
person who is or was a party to any proceeding (other than an action by, or in
the right of, the corporation) by reason of the fact that he is or was a
director or officer of the corporation, against liability incurred in connection
with such proceeding, including any appeal thereof, provided certain standards
are met, including that such officer or director acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation, and provided further that, with respect to any criminal action
or proceeding, the officer or director had no reasonable cause to believe his
conduct was unlawful. In the case of proceedings by or in the right of the
corporation, the FBCA provides that, in general, a corporation may indemnify any
person who was or is a party to any such proceeding by reason of the fact that
he is or was a director or officer of the corporation against expenses and
amounts paid in settlement actually and reasonably incurred in connection with
the defense or settlement of such proceeding including any appeal thereof,
provided that such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made in respect of any claim as to which
such person is adjudged liable to the corporation unless a court of competent
jurisdiction determines upon application that such person is fairly and
reasonably entitled to indemnity. To the extent that any officers or directors
are successful on the merits or otherwise in the defense of any of the
proceedings described above, the FBCA provides that the corporation is required
to indemnify such officers or directors against expenses actually and reasonably
incurred in connection therewith. However, the FBCA further provides that, in
general, indemnification or advancement of expenses shall not be made to or on
behalf of any officer or director if a judgment or other final adjudication
establishes that his actions, or omissions to act, were material to the cause of
action so adjudicated and constitute: (i) a violation of the criminal law,
unless the director or officer had reasonable cause to believe his conduct was
lawful or had no reasonable cause to believe it was unlawful; (ii) a transaction
from which the director or officer derived an improper personal benefit; (iii)
in the case of a director, a circumstance under which the director has voted for
or assented to a distribution made in violation of the FBCA or the corporation's
articles of incorporation; or (iv) willful misconduct or a conscious disregard
for the best interests of the corporation in a proceeding by or in the right of
the corporation to procure a judgment in its favor or in a proceeding by or in
the right of a shareholder. The Company's Bylaws provide
II-1
<PAGE> 62
that the Company shall indemnify any director, officer, employee or agentor any
former director, officer, employee or agent to the full extent permitted by
Florida law.
The Company has purchased insurance with respect to, among other
things, any liabilities that may arise under the statutory provisions referred
to above.
ITEM 15. -- Recent Sales of Unregistered Securities.
In March 1997, 270,000 shares were issued to six former shareholders of
Sunland in settlement of certain litigation, in reliance upon the exemption
provided by Section 4(2) of the Securities Act of 1933, as amended.
ITEM 16. -- Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3.1 The Company's Amended and Restated Articles of
Incorporation.************
3.2 The Company's Bylaws.************
4 Specimen of stock certificate for shares of Common Stock.*
5.1 Opinion of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel.+
5.2 Opinion of Holland & Knight LLP.
10.1 Dealer Agreement entered into February 7, 1997, between
International Business Machines Corporation and the Company.+
10.2 Dealer Agreement between Hewlett-Packard Company and the
Company.+
10.3 Dealer Agreement entered into August 26, 1996, between Apple
Computer, Inc. and the Company.+
10.4 Dealer Agreement dated January 14, 1997 between Apple
Computer, Inc. and the Company.+
10.5 Dealer Agreement dated August 2, 1990 between COMPAQ Computer
Corporation and the Company.+
10.6 1987 Incentive Stock Option Plan.*
10.7 1989 Incentive and Non-Qualified Stock Option Plan.*
10.8 Salary Savings Plan and Trust of Dataflex Corporation dated
December 21, 1989.*
10.9 1990 Senior Management Incentive and Non-Qualified Stock
Option Plan.*
10.10 Stock Option Agreement for 1989 Incentive and Non-Qualified
Stock Option Plan by and between the Company and Richard C.
Rose.*
</TABLE>
II-2
<PAGE> 63
<TABLE>
<S> <C>
10.11 Stock Option Agreement for 1989 Incentive and Non-Qualified
Stock Option Plan by and between the Company and Gordon J.
McLenithan.*
10.12 Stock Option Agreement for 1990 Senior Management Incentive
and Non-Qualified Stock Option Plan by and between the Company
and Richard C. Rose.*
10.13 Stock Option Agreement for 1990 Senior Management Incentive
and Non-Qualified Stock Option Plan by and between the Company
and Gordon J. McLenithan. *
10.14 Asset Purchase Agreement between the Company and Granite
Computer Products, Inc. dated March 21, 1994.**
10.15 Asset Purchase Agreement between the Company and Advantage
Systems, Inc. dated May 23, 1994.***
10.16 1991 Incentive and Non-Qualified Stock Option Plan.
10.17 Asset Purchase Agreement between Dataflex Corporation and
National Data Products, Inc. dated November 17, 1994.****
10.18 Stock Purchase Agreement between Dataflex Corporation, the
sellers named therein and Sunland Computer Services, Inc.
dated August 19, 1994.*****
10.19 1992 Incentive and Non-Qualified Stock Option Plan.******
10.20 1994 Incentive and Non-Qualified Stock Option Plan.*******
10.21 Employment Agreement dated April 1, 1993 by and between the
Company and Richard C. Rose.********
10.22 Amendment to Employment Agreement dated April 1, 1993 by and
between the Company and Richard C. Rose.********
10.23 Asset Purchase Agreement by and among Vanstar Corporation, VST
West, Inc., Dataflex Corporation and Dataflex Southwest
Corporation dated May 24, 1996.*********
10.24 Asset Purchase Agreement between the Company and Ameridata of
New Jersey, Inc. dated August 30, 1996.**********
10.25 Employment Agreement, dated January 11, 1995, by and between
the Company and Philip Doganiero.+
10.26 Amendment to Employment Agreement, dated April 1, 1995, by and
between the Company and Philip Doganiero.+
10.27 Employment Agreement, dated January 11, 1995 by and between
the Company and Anthony G. Lembo.+
10.28 Settlement Agreement and Release dated March 1, 1997.+
10.29 Loan and Security Agreement by and between the Company and
NationsBank, N.A. (South).+
</TABLE>
II-3
<PAGE> 64
<TABLE>
<S> <C>
10.30 Loan and Security Agreement by and between the Company and
Nationscredit Commercial Corporation of America.+
10.31 Asset Purchase Agreement between the Company and Computer
Plus, Inc. dated March 31, 1997***********
21 Subsidiaries.**********
23 Consent of Price Waterhouse LLP.
* Filed as an exhibit to the Company's Registration Statement on
Form S-1 filed February 23, 1990, and amendments thereto,
Registration No. 33033472.
** Filed as an Exhibit to the Company's Form 8-K filed April 20,
1994.
*** Filed as an Exhibit to the Company's Form 8-K filed June 16,
1994.
**** Filed as an Exhibit to the Company's Form 8-K filed January
24, 1995.
***** Filed as an Exhibit to the Company's Form 8-K filed August 31,
1994.
****** Filed as an Exhibit to the Company's Annual Proxy Statement
filed September 1, 1992.
******* Filed as an Exhibit to the Company's Annual Proxy Statement
filed August 10, 1994.
******** Filed as an Exhibit to the Company's Form 10-K filed June 29,
1995.
********* Filed as an Exhibit to the Company's Form 8-K filed June 14,
1996.
********** Filed as an Exhibit to the Company's Form 8-K filed October
11, 1996.
*********** Filed as an Exhibit to the Company's Form 10-Q filed August
14, 1997.
************ Filed as an Exhibit to the Company's Report on Form 8-K filed
October 23, 1997.
+ Previously filed.
</TABLE>
(b) Financial Schedule: the financial statement schedule filed as part
of this report are listed separately in the Index to Financial Statements and
Schedule beginning on page F-1 of this report.
ITEM 17. -- Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the indemnification provisions
described herein, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission (the "Commission") such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act; (ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if
II-4
<PAGE> 65
the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and (iii) to include any material information with respect
to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information in
this Registration Statement.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the Offering of such
securities at that time shall be deemed to be the initial bona fide
Offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
II-5
<PAGE> 66
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post Effective Amendment No. 1 to the Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereto duly authorized,
in the City of Clearwater, State of Florida, on October 28, 1997.
DATAFLEX CORPORATION
By:/s/ Richard C. Rose
-----------------------------------------
Richard C. Rose, Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned officers and directors of Dataflex Corporation (the
"Company"), a Florida corporation, for himself and not for one another, does
hereby constitute and appoint Anthony G. Lembo and Philip Doganiero, and each of
them and his substitutes, a true and lawful attorney in his name, place and
stead, in any and all capacities, to sign his name to any and all amendments to
this registration statement, including post-effective amendments, and any
registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) of the
Securities Act, and to cause the same to be filed with the Commission, granting
unto said attorneys and each of them full power of substitution and full power
and authority to do and perform any act and thing necessary and proper to be
done in the premises, as fully to all intents and purposes as the undersigned
could do if personally present, and each of the undersigned for himself hereby
ratifies and confirms all that said attorneys or any of them shall lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Post Effective
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Anthony G. Lembo President, Chief Operating Officer, October 28, 1997
- -------------------------------------- Chief Financial Officer, Principal
Anthony G. Lembo Accounting Officer and Director
/s/ Richard C. Rose Chief Executive Officer and Director October 28, 1997
- --------------------------------------
Richard C. Rose
/s/ Philip Doganiero Chairman of the Board and Director October 28, 1997
- --------------------------------------
Philip Doganiero
/s/ W. Keith Schilit Director October 28, 1997
- --------------------------------------
W. Keith Schilit
/s/ Barry M. Alpert Director October 28, 1997
- --------------------------------------
Barry M. Alpert
</TABLE>
II-6
<PAGE> 67
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Shareholders of
Dataflex Corporation
In connection with our audit of the consolidated financial statements of
Dataflex Corporation, referred to in our report dated May 21, 1997, which is
included in this Registration Statement, we have also audited Schedule II for
each of the three years in the period then ended. In our opinion, this schedule
presents fairly, in all material respects, the information required to be set
forth therein.
/s/ Price Waterhouse LLP
- -------------------------
PRICE WATERHOUSE, LLP
Tampa, Florida
May 21, 1997
<PAGE> 68
SCHEDULE II
DATAFLEX CORPORATION
Valuation and Qualifying Accounts
For the 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 $ 231,066 $ 399,918 $ (177,693) $ 453,291
Year Ended March 31, 1996 $ 453,291 $ 785,682 $ (51,595) $1,187,378
Year Ended March 31, 1997 $1,187,378 $2,130,149 $(1,254,764) $2,062,763
</TABLE>
<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3.1 The Company's Amended and Restated Articles of
Incorporation.************
3.2 The Company's Bylaws.************
4 Specimen of stock certificate for shares of Common Stock.*
5.1 Opinion of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel.+
5.2 Opinion of Holland & Knight LLP.
10.1 Dealer Agreement entered into February 7, 1997, between
International Business Machines Corporation and the Company.+
10.2 Dealer Agreement between Hewlett-Packard Company and the
Company.+
10.3 Dealer Agreement entered into August 26, 1996, between Apple
Computer, Inc. and the Company.+
10.4 Dealer Agreement dated January 14, 1997 between Apple
Computer, Inc. and the Company.+
10.5 Dealer Agreement dated August 2, 1990 between COMPAQ Computer
Corporation and the Company.+
10.6 1987 Incentive Stock Option Plan.*
10.7 1989 Incentive and Non-Qualified Stock Option Plan.*
10.8 Salary Savings Plan and Trust of Dataflex Corporation dated
December 21, 1989.*
10.9 1990 Senior Management Incentive and Non-Qualified Stock
Option Plan.*
10.10 Stock Option Agreement for 1989 Incentive and Non-Qualified
Stock Option Plan by and between the Company and Richard C.
Rose.*
</TABLE>
<PAGE> 70
<TABLE>
<S> <C>
10.11 Stock Option Agreement for 1989 Incentive and Non-Qualified
Stock Option Plan by and between the Company and Gordon J.
McLenithan.*
10.12 Stock Option Agreement for 1990 Senior Management Incentive
and Non-Qualified Stock Option Plan by and between the Company
and Richard C. Rose.*
10.13 Stock Option Agreement for 1990 Senior Management Incentive
and Non-Qualified Stock Option Plan by and between the Company
and Gordon J. McLenithan. *
10.14 Asset Purchase Agreement between the Company and Granite
Computer Products, Inc. dated March 21, 1994.**
10.15 Asset Purchase Agreement between the Company and Advantage
Systems, Inc. dated May 23, 1994.***
10.16 1991 Incentive and Non-Qualified Stock Option Plan.
10.17 Asset Purchase Agreement between Dataflex Corporation and
National Data Products, Inc. dated November 17, 1994.****
10.18 Stock Purchase Agreement between Dataflex Corporation, the
sellers named therein and Sunland Computer Services, Inc.
dated August 19, 1994.*****
10.19 1992 Incentive and Non-Qualified Stock Option Plan.******
10.20 1994 Incentive and Non-Qualified Stock Option Plan.*******
10.21 Employment Agreement dated April 1, 1993 by and between the
Company and Richard C. Rose.********
10.22 Amendment to Employment Agreement dated April 1, 1993 by and
between the Company and Richard C. Rose.********
10.23 Asset Purchase Agreement by and among Vanstar Corporation, VST
West, Inc., Dataflex Corporation and Dataflex Southwest
Corporation dated May 24, 1996.*********
10.24 Asset Purchase Agreement between the Company and Ameridata of
New Jersey, Inc. dated August 30, 1996.**********
10.25 Employment Agreement, dated January 11, 1995, by and between
the Company and Philip Doganiero.+
10.26 Amendment to Employment Agreement, dated April 1, 1995, by and
between the Company and Philip Doganiero.+
10.27 Employment Agreement, dated January 11, 1995 by and between
the Company and Anthony G. Lembo.+
10.28 Settlement Agreement and Release dated March 1, 1997.+
10.29 Loan and Security Agreement by and between the Company and
NationsBank, N.A. (South).+
</TABLE>
<PAGE> 71
<TABLE>
<S> <C>
10.30 Loan and Security Agreement by and between the Company and
Nationscredit Commercial Corporation of America.+
10.31 Asset Purchase Agreement between the Company and Computer
Plus, Inc. dated March 31, 1997***********
21 Subsidiaries.**********
23 Consent of Price Waterhouse LLP.
* Filed as an exhibit to the Company's Registration Statement on
Form S-1 filed February 23, 1990, and amendments thereto,
Registration No. 33033472.
** Filed as an Exhibit to the Company's Form 8-K filed April 20,
1994.
*** Filed as an Exhibit to the Company's Form 8-K filed June 16,
1994.
**** Filed as an Exhibit to the Company's Form 8-K filed January
24, 1995.
***** Filed as an Exhibit to the Company's Form 8-K filed August 31,
1994.
****** Filed as an Exhibit to the Company's Annual Proxy Statement
filed September 1, 1992.
******* Filed as an Exhibit to the Company's Annual Proxy Statement
filed August 10, 1994.
******** Filed as an Exhibit to the Company's Form 10-K filed June 29,
1995.
********* Filed as an Exhibit to the Company's Form 8-K filed June 14,
1996.
********** Filed as an Exhibit to the Company's Form 8-K filed October
11, 1996.
*********** Filed as an Exhibit to the Company's Form 10-Q filed August
14, 1997.
************ Filed as an Exhibit to the Company's Report on Form 8-K filed
October 23, 1997.
+ Previously filed.
</TABLE>
<PAGE> 1
EXHIBIT 5.2
(HOLLAND & KNIGHT LLP LETTERHEAD)
October 28, 1997
Dataflex Corporation
2145 Calumet Street
Clearwater, Florida 34625
Re: Registration Statement on Form S-1
(File No. 333-25339)
Gentlemen:
We refer to the Registration Statement (the "Registration Statement")
on Form S-1 (File No. 333-25339), filed by Dataflex Corporation
(the "Company") with the Securities and Exchange Commission for the purpose
of registering under the Securities Act of 1933 (the "Securities Act")
an amount up to 270,000 shares (the "Shares") of the authorized common
stock, no par value per share, of the Company being offered to the public
by certain selling shareholders of the Company.
In connection with the registration, we have acted as counsel for the
Company, and have examined originals, or copies certified to our satisfaction,
of all such corporate records of the Company, certificates of public officials
and representatives of the Company, and other documents as we deemed it
necessary to require as a basis for the opinion expressed below.
Based upon the foregoing, and having regard for legal considerations that
we deem relevant, it is our opinion that the Shares are duly authorized,
legally issued and fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement, and to the reference to this firm under the caption
"Legal Matters" contained in the prospectus filed as part of the
Registration Statement. In giving such consent, we do not thereby admit
that we are in the category of persons whose consent is required under
Section 7 of the Securities Act.
Very truly yours,
HOLLAND & KNIGHT
By: /s/ Robert J. Grammig
------------------------------
Robert J. Grammig
<PAGE> 1
EXHIBIT 10.16
DATAFLEX CORPORATION
1991 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
1. PURPOSES OF PLAN. The purposes of the Dataflex Corporation
1991 Incentive and Non-Qualified Stock Option Plan (hereinafter referred to as
the "Plan") are to provide to employees of Dataflex Corporation (hereinafter
referred to as the "Corporation"), as well as employees of subsidiary or
parent corporations which may be formed or acquired in the future, an
opportunity for investment in the Corporation's common stock (hereinafter
referred to as the "Shares"), as an inducement for such individuals to remain
with the Corporation, and to encourage them to increase their efforts to make
the Corporation's business more successful.
2. EFFECTIVE DATE AND TERMINATION OF PLAN. The effective date
of the Plan is September 3, 1991, the date on which the Plan was adopted by the
Board of Directors of the Corporation. The Plan shall terminate on, and no
option shall be granted hereunder, after September 2, 2001; provided, however,
that the Board of Directors may at any time prior to that date terminate the
Plan; and provided further that any option granted hereunder prior to the
termination of the Plan shall remain exercisable in accordance with its terms as
then in effect.
3. ADMINISTRATION OF PLAN. The Plan shall be administered by
the Board of Directors of the Corporation. The board of Directors may, however,
to the extent permissible under the Corporation's Articles of Organization,
By-laws and applicable law, delegate any of its functions under this Plan to a
committee of the Board of Directors or any other committee. Wherever in this
Plan the term "Board of Directors" is used it shall be construed to mean such
committee to the extent that the Board of Directors may have delegated any of
its functions to said committee and only to the extent of any such delegation.
The act of a majority of the members present at any meeting of the Board of
Directors at which a quorum is present, or acts approved in writing by a
majority of the entire Board, shall be the acts of the Board of Directors for
purposes of the Plan.
4. ELIGIBILITY AND GRANT OF OPTIONS. Subject to the provisions
of the Plan, the Board of Directors shall (i) authorize the granting of
incentive stock options, non-qualified stock options or a combination of
incentive stock options and non-qualified stock options (hereinafter
collectively referred to as "options" unless otherwise stated); (ii) determine
and designate from time to time those employees (from the group consisting of
all employees) to whom options are to be granted and the number of Shares to be
optioned to each employee; (iii) determine the number of Shares subject to each
option; and (iv) determine the time or times when and the manner in which each
option shall be exercisable and the duration of the exercise period. In
determining the eligibility of an individual to receive an option, as well as
in
<PAGE> 2
determining the number of shares to be optioned to any individual, the Board of
Directors shall consider the position and responsibilities of the employee, the
nature and value to the Corporation, parent or subsidiary of his services and
accomplishments, his present and potential contribution to the success of the
Corporation, parent or subsidiary, and such other factors as the board may deem
relevant. To be eligible to receive an incentive stock option or non-qualified
stock option an individual must be an employee of the Corporation, parent or
subsidiary. A Director shall abstain from voting on the grant of any options
to himself, his spouse, his children, grandchildren and parents. The grant of
each option shall be confirmed by a Stock Option Agreement (in the form
prescribed by the Board of Directors) which shall be executed by the
Corporation and the optionee as promptly as practicable after such grant. More
than one option may be granted to an individual.
Incentive stock options shall be those options which satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended and
which the Board of Directors has specifically identified as incentive stock
options in the Stock Option Agreement executed by the Corporation and the
optionee. In the case of incentive stock options, the aggregate fair market
value, determined at the time incentive stock options are granted, of the stock
with respect to which the incentive stock options are exercisable for the first
time by such individual during any calendar year (under all such plans the
Corporation may adopt) shall not exceed one hundred thousand dollars
($100,000.00). In the event that an incentive stock option granted pursuant to
the terms of this Plan is granted to an employee who, prior to the grant, holds
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Corporation, its parent or a subsidiary ("10% Shareholder") the
option price under such grant shall be at least one hundred ten percent (110%)
of the fair market value, and such option, by its terms, shall not be
exercisable more than five (5) years from the date of grant.
Nothing in the Plan or in any option granted pursuant to the Plan shall
confer on any individual any right to continue in the employ of the Corporation
or any parent or subsidiary or interfere in any way with the right of the
Corporation to terminate his employment at any time.
5. NUMBER OF SHARES SUBJECT TO OPTIONS. The Board of
Directors, prior to the time options under the Plan become exercisable, shall
reserve for the purposes of the Plan a total of Two Hundred Thousand (200,000)
Shares, which Shares may be either authorized and unissued Shares, or previously
issued Shares held in the treasury of the Corporation, or both. Shares as to
which an option granted under the Plan shall remain unexercised at the
expiration or termination thereof, and Shares subject to options
-2-
<PAGE> 3
which are cancelled, may be the subject of the grant of further options.
Shares reserved pursuant to this paragraph may be adjusted to reflect changes
in the Corporation's capital structure as discussed in paragraph 19 hereof.
6. Option Price. The option price per Share shall be determined in each
case by the Board of Directors but in the case of incentive stock options shall
not be less than one hundred percent (100%) (one hundred ten percent (110%) in
the case of a 10% Shareholder) of the fair market value thereof as determined
by the Board by any reasonable method using market quotations on the date the
option is granted.
7. Period of Option and When Exercisable. No option may be granted
under this Plan whose exercise date is later than ten (10) years after the date
of the grant or five (5) years in the case of a 10% Shareholder. Generally, an
option may be exercised only by the optionee and subject to the rules set forth
below only if, at all times during the period beginning on the date of the
granting of such option and ending with the date of exercise of such option,
the optionee is an employee of the Corporation, its parent or a subsidiary.
(i) In the case of an employee who terminates employment, options
which are vested but unexercised as of the date of termination of employment
must be exercised within three (3) months of termination.
(ii) In the case of an employee who dies during the three (3) month
period discussed in (i) above, options which are vested but unexercised as of
the date of termination of employment must be exercised within twelve (12)
months of death.
(iii)Options which are vested but unexercised as of the date of
termination of employment due to death, must be exercised within twelve (12)
months after the death of an optionee.
(iv) In the event that the employee becomes disabled as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, options
which are vested but unexercised as of the date of termination of employment
due to disability must be exercised within twelve (12) months following the
date of termination of the optionee's said employment.
(v) In the event an optionee's employment is terminated for any
reason (including but not limited to, voluntary or involuntary termination or
termination resulting from the death or disability of the optionee), all
invested options shall be immediately forfeited.
-3-
<PAGE> 4
Notwithstanding the foregoing, options may not be exercised after the
original five (5) or ten (10) year term. Options may be exercised on behalf of
the estate of a former employee by the person or persons entitled to do so
under the optionee's will or, if the optionee shall have failed to make
testamentary disposition of such option or shall have died intestate, by the
optionee's legal representative or representatives. Such person, persons,
representative, or representatives are hereinafter referred to as the
"Successors of an Optionee."
8. Vesting. Options granted to a participant shall be exercisable
in accordance with the following schedule:
<TABLE>
<CAPTION>
Cumulative Percentage
of Aggregate Number of
Shares of Stock Covered
by an Option Which May
Exercise Period be Exercised
---------------- ------------------------
<S> <C>
Beginning on the one year anniversary
date from date of grant 25%*
Beginning on the second anniversary
date from date of grant 50%*
Beginning on the third anniversary
date from date of grant 75%*
Beginning on the fourth anniversary
date from date of grant 100%*
</TABLE>
*less, in the case of each exercise period, the number of Shares, if any
previously purchased under the option. Non-vested options shall be forfeited
upon the termination of employment for any reason.
9. Exercise of Options. Subject to Plan restrictions and vesting,
an option may be exercised, and payment in full of the option price made, by an
optionee only by written notice (in the form prescribed by the Board of
Directors) to the Corporation specifying the number of Shares to be so
purchased. Such notice shall state that the option price will be paid in full
in cash (which in the discretion of the Board of Directors may be obtained
through a loan from the Corporation or from a third party and guaranteed by the
Corporation) or other property, in the discretion of the Corporation. If the
Corporation accepts a request to pay in stock of the Corporation in
satisfaction of the exercise price, the fair market value of said stock shall
at least equal the option price, and, in the case of incentive stock options,
prior to such
-4-
<PAGE> 5
acceptance the Corporation must be furnished with evidence that the acquisition
of said stock and its transfer in payment of the option price satisfies the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
and other applicable law. As soon as practicable after receipt by the
Corporation of such notice and of payment in full of the option price of all
the Shares with respect to which an option has been exercised, a certificate
or certificates representing such Shares shall be registered (subject to the
provisions of paragraph 16 hereof) in the name of the optionee or the
Successors of an Optionee as defined under this plan and delivered to the
optionee or to the Successors of an Optionee.
10. Sale or Pubic Offering of the Corporation. In the case of a Sale
or Public Offering of the Corporation as herein defined, in the discretion of
the Board of Directors options granted but unexercised shall become fully
vested (100%) and exercisable for a period of thirty (30) days from the date
notice of such Sale or Public Offering is given to the optionees. Upon the
expiration of the thirty (30) day period, the Board of Directors in its
discretion may permanently cancel the right of any optionee to exercise such
options. If the options are not permanently cancelled, the options will then
be exercisable according to the original vesting schedule as in effect prior to
the Sale or Public Offering. For purposes of this paragraph, a Sale or Public
Offering shall be deemed to occur upon the happening of any one of the
following:
(i) A sale of all or substantially all of the Corporation's
assets outside the ordinary course of business;
(ii) An offer to purchase at least a majority of the
Corporation's issued and outstanding common stock or an offer to the
Corporation's shareholders to tender for sale at least a majority of the
Corporation's issued and outstanding common stock, which offer is accepted or
tender made with respect to at least a majority of the Corporation's issued and
outstanding shares of common stock;
(iii) The merger or consolidation of the Corporation with another
corporation or entity;
(iv) A public or private offering of the Corporation's common
stock, whether of newly or previously issued shares; or
(v) A dissolution or liquidation of the Corporation.
11. Employer Withholding. In the case of non-qualified
-5-
<PAGE> 6
stock options, the Corporation shall be required to withhold additional income
taxes attributable to that amount which is considered compensation includible
in the optionee's gross income by reason of the exercise of such options. The
Corporation in its discretion shall determine the method and amount of
withholding.
12. Exercise by Successors and Payment in Full. An option may be
exercised, and payment in full of the option price made, by the Successors of
an Optionee only by written notice (in the form prescribed by the Board of
Directors) to the Corporation specifying the number of Shares to be purchased.
Such notice shall state that the option price will be paid in full in cash
(which in the discretion of the Board of Directors may be obtained through a
loan from the Corporation or from a third party and guaranteed by the
Corporation), property or stock of the Corporation in conformance with
paragraph 9 hereof. As soon as practicable after receipt by the Corporation of
such notice and of payment in full of the option price of all the Shares with
respect to which an option has been exercised, a certificate or certificates
representing such Shares shall be registered (subject to the provisions of
paragraph 16 hereof) in the name or names of such Successors of an Optionee and
shall be delivered to him.
13. Non-Transferability of Option. Each option granted under the
Plan shall by its terms be nontransferable by the optionee except by will or
the laws of descent and distribution of the state wherein the optionee is
domiciled at the time of his death.
14. Other Terms of Options. Options grant pursuant to the Plan shall
contain such terms, provisions, and conditions not inconsistent herewith as
shall be determined by the Board of Directors.
15. Registration of Certificates. Certificates representing Shares
may be registered either in the name of the Optionee or in the name or names of
the Successors of an Optionee. Designation of the appropriate form of
registration of certificates shall be made in the written notice given to the
Corporation upon exercise of an option.
16. Listing and Registration of Shares. If at any time the Board of
Directors of the Corporation shall determine, in its discretion, that the
listing, registration, or qualification of any of the Shares subject to options
under the Plan upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body is necessary or
desirable as a condition of or in connection with the granting of options or
the purchase or issue of Shares thereunder, no further options may be granted
and outstanding options may not
-6-
<PAGE> 7
be exercised in whole or in part unless and until such listing, registration,
qualification, consent, or approval shall have been effected or obtained free of
any conditions not acceptable to the Board of Directors. The Board of Directors
shall have the authority to cause the Corporation at its expense to take any
action related to the Plan which may be required in connection with such
listing, registration, qualification, consent, or approval. The Board of
Directors may require that any person exercising an option hereunder shall make
such representations and agreements and furnish such information as it deems
appropriate to assure compliance with the foregoing or any other applicable
legal requirement.
17. Interpretation and Amendments. The Board of Directors may make such
rules and regulations and establish such procedures for the administration of
the Plan as it deems appropriate. In the event of any dispute or disagreements
as to the interpretation of this Plan or of any rule, regulation, or procedure,
or as to any question, right or obligation arising from or related to the Plan,
the decision of the Board of Directors shall be final and binding upon all
persons. The Board of Directors may amend this Plan as it shall deem
advisable. However, in no event shall any such amendment adversely affect the
rights of an optionee under any existing stock option agreement without the
consent of such optionee.
18. Indemnification and Exculpation.
(a) Each person who is or shall have been a member of the Board of
Directors shall be indemnified and held harmless by the Corporation against and
from any and all loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him in connection with or resulting from any claim,
action, suit, or proceeding to which he may be or become a party or in which he
may be or become involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof (with the Corporation's written approval) or paid by him in
satisfaction of a judgment in any such action, suit, or proceeding, except a
judgment in favor of the Corporation based upon a finding of his lack of good
faith; subject, however, to the condition that upon the institution of any
claim, action, suit, or proceeding against him, he shall in writing give the
Corporation an opportunity, at its own expense, to handle and defend the same
before he undertakes to handle and defend it on his own behalf. The foregoing
right of indemnification shall not be exclusive of any other right to which
such person may be entitled as a matter of law or otherwise, or any power that
the Corporation may have to indemnify him or hold him harmless.
-7-
<PAGE> 8
(b) Each member of the Board of Directors, and each officer and
employee of the Corporation shall be fully justified in relying or acting in
good faith upon any information furnished in connection with the administration
of the Plan by any appropriate person or persons other than himself. In no
event shall any person who is or shall have been a member of the Board of
Directors, or any officer or employee of the Corporation be held liable for any
determination made or other action taken or any omission to act in reliance upon
any such information, or for any action (including the furnishing of
information) taken or any failure to act, if in good faith.
19. Changes in Capital Structures. In the event that a dividend shall be
declared upon the Shares payable in Shares, the number of Shares then subject to
any option outstanding under the Plan and the number of Shares reserved for the
grant of options pursuant to the Plan but not yet subject to option shall be
adjusted by adding to each such Share the number of Shares which would be
distributable in respect thereof in such Shares had been outstanding on the date
fixed for determining the shareholders of the Corporation entitled to receive
such Shares dividend. In the event that the outstanding Shares shall be changed
into or exchanged for a different number of Shares or other securities of the
Corporation or of another corporation, whether through reorganization,
recapitalization, split-up, combination of shares, merger, or consolidation,
then there shall be substituted for each Share subject to any such option and
for each Share reserved for the grant of options pursuant to the Plan but not
yet subject to option the number and kind of Shares or other securities into
which each outstanding Share shall have been so changed or for which each such
Shares shall have been exchanged. In the event there shall be any change, other
than as specified above in this paragraph, in the number or kind of outstanding
Shares or of any shares or other securities into which such Shares shall have
been changed or for which they shall have been exchanged, then if the Board of
Directors shall in its sole discretion determine that such change equitably
requires an adjustment in the number or kind of Shares theretofore reserved for
the grant of options pursuant to the Plan but not yet subject to option and of
the Shares then subject to an option or options, such adjustments shall be made
by the Board of Directors and shall be effective and binding for all purposes of
the Plan and of each option outstanding thereunder. In the case of any such
substitution or adjustment as provided for in this paragraph, the aggregate
option exercise price set forth for all outstanding options for all Shares
covered thereby prior to such substitution or adjustment will be the option
exercise price for all shares or other securities which shall have been adjusted
pursuant to this paragraph. No adjustment or substitution provided for in this
paragraph shall require the Corporation to sell a fractional Share, and the
total substitution or adjustment with
-8-
<PAGE> 9
respect to each outstanding option shall be limited accordingly. Upon any
adjustment made pursuant to this paragraph, the Corporation will, upon request,
deliver to the optionee or to his successors a certificate setting forth the
option price thereafter in effect and the number and kind of brace or other
securities thereafter purchasable on the exercise of the option.
20. Notice. All notices under the Plan shall be in writing, and if to
the Corporation, shall be delivered to the Treasurer of the Corporation or
mailed to its principal office, addressed to the attention of the Treasurer;
and if to the optionee, shall be delivered personally or mailed to the optionee
at the address appearing in the payroll records of the Corporation. Such
addresses may be changed at any time by written notice to the other party.
-9-
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
DATAFLEX CORPORATION
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Amendment No. 1 to Form S-1 of our report dated May
21, 1997, relating to the financial statements of Dataflex Corporation, which
appears in such Prospectus. We also consent to the use of our report dated May
21, 1997, relating to the Financial Statement Schedule for the last three years
ended March 31, 1997 listed under Schedule II. We also consent to the
references to us under the headings "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE, LLP
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PRICE WATERHOUSE LLP
Tampa, Florida
October 22, 1997
