SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[ X ]   QUARTERLY REPORT PURSUANT  SECTION 13 OR 15(d) OF THE SECURITIES  
        EXCHANGE ACT OF 1934 

For the period ended September 30, 1997

[ ]     TRANSACTION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
        EXCHANGE ACT OF 1934 For the period from _____ to _________.

                           Commission File No. 0-23221

                                  TEKGRAF, INC.

Delaware                                 58-2033795
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)  

2979 Pacific Drive, Suite B              30071  
Norcross, Georgia                        (Zip Code)  
(Address of principal executive
 offices)   

Registrar's telephone number, including area code (770) 441-1107

(Former  name,  former  address and former  fiscal year,  if changed  since last
report):
Not Applicable

Indicate by check whether the registrant  (1) has filed all reports  required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the  preceding 12 months (or for such shorter  periods that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                  Yes ____              No _X_

Indicate  the  number of shares  outstanding  of each of the  issuer's  class of
common stock, as of the latest practical date.

            Class                              Outstanding at December 15, 1997
            -----                              --------------------------------
Common Stock, $.001 par value                          5,433,333 shares

<PAGE>

                                  TEKGRAF, INC.
                               INDEX TO FORM 10-Q

PART I. FINANCIAL INFORMATION                                               PAGE

     Item 1.  Consolidated Financial Statements

     Consolidated Balance Sheets as of
          December 31, 1996 and September 30, 1997 .......................   1-2

     Consolidated Statements of Operations for the three and
          nine months ended September 30, 1996 and 1997 ..................     3

     Consolidated Statements of Cash Flows for the nine months
          ended September 30, 1996 and 1997 ..............................     4

     Notes to Consolidated Financial Statements ..........................   5-9

     Item 2.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations .......... 10-14

PART II. OTHER INFORMATION

     Item 2.  Changes in Securities and Use of Proceeds ..................    15
     
     Item 5.  Other Information ..........................................    16
     
     Item 6.  Exhibit and Reports on Form 8-K ............................    17

SIGNATURES ...............................................................    18

<PAGE>

                         Part I - Financial Information

Item 1.  Financial Statements

                                  Tekgraf, Inc.
                           Consolidated Balance Sheets

                                                     December 31,  September 30,
                                                        1996           1997
                                                                    (Unaudited)
                       ASSETS

Current assets:

  Cash and cash equivalents                        $   633,027    $  1,108,103
  Accounts receivable, less allowance for                
    doubtful accounts of $35,000 and $86,000 at                           
    December 31, 1996 and September 30, 1997,                    
    respectively                                     1,621,180      11,065,716
  Inventories, net                                     636,019       3,413,294
  Due from related entities                                            189,609
  Prepaid expenses and other assets                                     93,206
  Deferred offering costs                                              536,692 
  Deferred income taxes                                  1,500          39,000
                                                   -----------    ------------
      Total current assets                           2,891,726      16,445,620
                                                   -----------    ------------
Property and equipment:                                          
  Furniture and fixtures                                83,294         188,658
  Computer equipment                                    36,225         343,790
                                                   -----------    ------------
                                                       119,519         532,448
  Less accumulated depreciation                        (62,765)       (137,665)
                                                   -----------    ------------
                                                        56,754         394,783
                                                                        
Goodwill, net                                                        6,357,819
Other assets                                            58,629         112,649
                                                   -----------    ------------
      Total assets                                 $ 3,007,109    $ 23,310,871
                                                   ===========    ============


                                       1
<PAGE>

                                  Tekgraf, Inc.
                     Consolidated Balance Sheets, Continued

                                                    December 31,   September 30,
                                                       1996            1997
                                                                    (Unaudited)

              LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Current debt                                                      $3,087,182
  Due to acquisition stockholders (see Note 4)                       1,057,737
  Note payable, stockholders                                            40,000
  Due to stockholders, net                            $2,211,164
  Due to related entities, net                                       2,119,632
  Accounts payable                                       711,125     6,445,157
  Accrued expenses                                        69,408       198,036
  Income taxes payable                                     4,100       429,020
                                                      ----------   -----------
        Total current liabilities                      2,995,797    13,376,764
                                                      ----------   -----------
Debt, less current maturities                                          232,097
Note payable, stockholder                                               50,000
Deferred income taxes                                      1,200

Commitments and contingencies

Stockholders' equity:
  Class A Common Stock, $.001 par value,
     31,666,667 shares authorized; no shares
     issued and outstanding at December 31, 1996
     and September 30, 1997; holders of Class A
     Common Stock are entitled to one vote per
     share (see Note 8)
  Class B Common Stock, $.001 par value, 3,333,333
     shares authorized; 1,141,333 shares issued and
     outstanding at December 31, 1996 and 3,333,333
     shares issued and outstanding at September 30,
     1997;  holders of Class B Common Stock are 
     entitled to five votes per share (see Note 8)         1,141         3,333
  Preferred Stock, $.001 par value, 5,000,000 shares
     authorized; no shares issued and outstanding at
     December 31, 1996 and September 30, 1997
Due from acquisition stockholders (see Note 4)                        (433,882)
Due from pre-acquisition stockholders (see Note 4)                    (870,000)
Additional paid-in capital                                          10,613,766
Retained earnings                                          8,971       338,793
                                                      ----------   -----------
        Total stockholders' equity                        10,112     9,652,010
                                                      ----------   -----------
        Total liabilities and stockholders' equity    $3,007,109   $23,310,871
                                                      ==========   ===========

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       2
<PAGE>

                                  Tekgraf, Inc.
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                    Three Months                  Nine Months
                                                 Ended September 30,            Ended September 30,                              
                                             -------------------------     ----------------------------                         
                                                 1996         1997            1996             1997
                                                    (Unaudited)                    (Unaudited)

<S>                                          <C>           <C>             <C>              <C>        
Net sales                                    $3,282,468    $18,536,085     $10,132,798      $30,987,966
Cost of goods sold                            2,624,390     15,526,519       8,322,766       26,132,832
                                             ----------    -----------     -----------      -----------
      Gross profit                              658,078      3,009,566       1,810,032        4,855,134

Operating expenses:

  Selling, general and        
     administrative                             644,332      2,384,393       1,560,479        3,799,626
  Depreciation                                    1,441         40,451          16,787           74,900
  Amortization                                                 110,605                          144,000
                                             ----------    -----------     -----------      -----------
      Income from operations                     12,305        474,117         232,766          836,608

Other income (expense), net                     (21,839)        43,245          18,182           64,093
Interest expense                                 37,000        138,489          97,000          246,759
                                             ----------    -----------     -----------      -----------
      Income (loss) before provision for
         income taxes and minority interest     (46,534)       378,873         153,948          653,942

Provision for income taxes                                     191,416          13,000          314,000
                                             ----------    -----------     -----------      -----------
      Income (loss) before minority interest    (46,534)       187,457         140,948          339,942

Minority interest                                14,268          4,509         (10,312)         (10,120)
                                             ----------    -----------     -----------      -----------
      Net income (loss)                      $  (32,266)   $   191,966     $   130,636      $   329,822
                                             ==========    ===========     ===========      ===========
Primary and fully diluted weighted
  average shares outstanding                  1,084,266      3,166,666       1,084,266        2,009,777
                                             ==========    ===========     ===========      ===========
Primary and fully diluted net income
  (loss) per share                           $     (.03)   $       .06     $       .12      $       .16
                                             ==========    ===========     ===========      ===========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       3
<PAGE>

                                  Tekgraf, Inc.
                      Consolidated Statements of Cash Flows

                                                          Nine Months Ended
                                                             September 30,
                                                     ---------------------------
                                                           1996        1997
                                                             (Unaudited)

Cash flows from operating activities:
   Net income                                        $    130,636  $    329,822
   Adjustments to reconcile net income to net cash
     provided (used) by operating activities:
         Depreciation                                      16,787        74,900
         Minority interest                                  7,807
         Amortization                                                   144,000
         Provision for doubtful
            accounts receivable                            10,000        50,834
         Deferred income taxes                              8,900       (38,700)
         Changes  in net assets
            and liabilities, net of the
            effects of the acquisitions:
             Accounts receivable                           32,941    (3,044,714)
             Inventories                                 (171,724)    1,023,294
             Other assets and prepaid expenses               (251)      155,142
             Accounts payable and accrued expenses         66,265       402,292
             Income taxes payable                           4,100       352,700
             Due from related entities                                  177,575
                                                     ------------  ------------
                 Net cash provided (used) by
                   operating activities                   105,461      (372,855)
                                                     ------------  ------------
Cash flows from investing activities:
   Cash acquired from acquisitions, net of
      acquisition costs of $88,677                                      349,482
   Payments for purchase of property and equipment        (47,691)      (59,609)
                                                     ------------  ------------
                 Net cash provided (used) by
                     investing activities                 (47,691)      289,873
                                                     ------------  ------------
Cash flows from financing activities:
         Advance to related entities                     (130,564)
         Advance from stockholders                        472,432
         Repayment of advance from stockholders
            and related entities                                       (200,593)
         Proceeds from debt                                           1,048,343
         Payments for offering costs                                   (289,692)
                                                     ------------  ------------
                 Net cash provided by financing
                     activities                           341,868       558,058
                                                     ------------  ------------
Increase in cash and cash equivalents                     399,638       475,076
Cash and cash equivalents, beginning of period            305,821       633,027
                                                     ------------  ------------
Cash and cash equivalents, end of period             $    705,459  $  1,108,103
                                                     ============  ============
Supplemental non-cash investing and financing
   activities:
June 2, 1997 acquisitions:
   Fair value of stock issued                                      $  9,485,537
   Other acquisition costs                                               88,677
   Fair value of liabilities assumed                                  8,982,850
   Fair value of assets acquired                                    (12,055,245)
                                                                   ------------ 
   Goodwill                                                        $  6,501,819
                                                                   ============

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       4
<PAGE>

Tekgraf, Inc. 
Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation:

     The accompanying  unaudited interim consolidated financial statements as of
     September  30, 1997 and for the three and nine months ended  September  30,
     1996 and 1997 have not been audited by  independent  accountants.  However,
     they have been prepared in conformity with the accounting principles stated
     in the audited  financial  statements  for the year ended December 31, 1996
     and include all  adjustments,  which were of a normal and recurring  nature
     which,  in the opinion of management  are  necessary to present  fairly the
     financial  position of the Company and the results of  operations  and cash
     flows for each of the  periods  presented.  The  operating  results for the
     interim  periods  are not  necessarily  indicative  of results for the full
     year. In addition,  certain information and footnote  disclosures  normally
     included in financial  statements  prepared in  accordance  with  generally
     accepted  accounting  principles  have been  condensed  or  omitted.  It is
     suggested that these financial  statements be read in conjunction  with the
     financial  statements and notes thereto  included in the Company's Form S-1
     filed with the Securities and Exchange Commission.

2. Inventories:

     Inventories are stated at the lower of cost (determined  principally by the
     first-in, first-out method) or market. At September 30, 1997, net inventory
     consists of the following:


         Component materials                                $  861,070
         Finished goods                                      2,552,224
                                                           ----------
                                                            $3,413,294
                                                            ==========
 
     The Company  maintains a reserve for its  estimate of excess,  obsolete and
     damaged goods. In most instances,  the Company  receives  warranties on its
     products  from  its  vendors  which  are at  least  equivalent  to those it
     provides to its customers.


                                       5
<PAGE>

Notes to Consolidated Financial Statements (Unaudited), Continued

3. Goodwill:

     Goodwill is amortized over its estimated  economic life or period of future
     benefit. The Company is currently amortizing goodwill,  associated with the
     acquisitions  described  in Note 4, on a  straight-line  basis of 15 years.
     This  estimated  life is a composite of many  factors  which are subject to
     change  because  of  the  nature  of  the  Company's  operations.  This  is
     particularly true because goodwill reflects value attributable to the going
     concern nature of acquired  businesses,  the stability of their operations,
     market presence and reputation.  Accordingly, at each reporting period, the
     Company   evaluates  the  continued   appropriateness   of  this  life  and
     recoverability of the carrying value of the goodwill based upon current and
     future  levels of income  and cash  flows as well as the  latest  available
     economic  factors  and  circumstances.  Impairment  of  value,  if any,  is
     recognized  in the period in which it is  determined.  The Company does not
     believe that there are any facts or circumstances  indicating impairment of
     goodwill at September 30, 1997.

4. Acquisitions:

     Effective  June 2, 1997, the Company  completed the  acquisition of 100% of
     the  outstanding  common stock of G&R Marketing,  Inc.,  Microsouth,  Inc.,
     Tekgraf, inc., Computer Graphics Distributing Company, Intelligent Products
     Marketing,   Inc.,   and   IG   Distribution,   Inc.   (collectively,   the
     "Subsidiaries")  in exchange for the issuance of 2,192,000 shares of common
     stock of the Company (the  "Acquisitions").  The  Subsidiaries are regional
     distributors  and  marketers of computer  graphics  hardware and  software.
     Customers  consist primarily of value added resellers and vertical solution
     providers.  

     Pursuant to the terms of the stock purchase  agreements (the "Agreements"),
     the  Subsidiaries  are required to deliver a defined  guaranteed  net asset
     value ("NAV"). The Subsidiaries' preliminary excess net book value over the
     NAV of $1,058,000  will be distributed in cash to the  stockholders  of the
     Subsidiaries.  It is  anticipated  that the excess NAV will be  distributed
     during December 1997 and the first quarter of 1998 from cash balances.  The
     Subsidiaries'  preliminary  deficit NAV over the net book value of $434,000
     will be collected from the former  stockholders of the Subsidiaries.  It is
     anticipated  that these amounts will be collected  during the first quarter
     of 1998.  

     Pursuant to the terms of the Agreements,  the pre-acquisition  stockholders
     of the Company agreed to contribute approximately $870,000 to capital. This
     contribution  occurred during November 1997. 

     The Acquisitions were recorded under the purchase method of accounting; and
     accordingly,  the results of operations of the  Acquisitions for the period
     June 3, 1997 through  September  30, 1997 are included in the  accompanying
     unaudited  consolidated  financial  statements of the Company. The purchase
     prices have been allocated to assets acquired and liabilities assumed based
     on the estimated  fair value of the  Company's  common stock on the date of
     Acquisitions.


                                       6
<PAGE>

Notes to Consolidated Financial Statements (Unaudited), Continued

4. Acquisitions, continued:

     The following unaudited pro forma summary combines the consolidated results
     of the Company and the  Subsidiaries as if the Acquisitions had occurred at
     the  beginning of the earliest  period  presented,  after giving  effect to
     certain adjustments,  including elimination of revenue and expenses related
     to affiliated  entities of the Subsidiaries  which were not acquired by the
     Company,  adjustments in compensation  levels that have been  contractually
     agreed  to,  elimination  of  amortization  related to  negative  goodwill,
     elimination  of  pro  rata  interest  expense  incurred  on  capital  to be
     contributed by the  pre-combination  stockholders  of the Company,  related
     income tax effects,  elimination of transactions  between the Subsidiaries,
     and amortization of intangible assets. In addition,  the earnings per share
     amounts give effect to the  combination  and  subsequent  recapitalization,
     that the Company  completed  during November 1997 and the weighted  average
     shares  outstanding  exclude  166,667 escrow shares.  The pro forma summary
     does not purport to  represent  what the  Company's  results of  operations
     would  actually have been if the  Acquisitions  in fact had occurred at the
     beginning of the  earliest  period  presented  or to project the  Company's
     results of operations for any future period.

                                                            For the nine
                                                            months ended
                                                            September 30,
                                                    ----------------------------
                                                       1996              1997
                                                                   
         Net sales                                  $50,364,326      $52,858,711
         Gross profit                                 8,097,479        8,829,498
         Income from operations                       1,937,919        2,306,925
         Income before taxes                          1,748,082        2,146,839
         Net income                                     898,690        1,106,236
         Primary and fully diluted income                          
            per share                                       .28              .35
         Weighted average shares outstanding          3,166,666        3,166,666
                                                                 
5. Income Taxes:

     The  Company's  effective tax rate was 0% and 8.4% for the three months and
     nine months ended September 30, 1996, respectively.  The difference between
     the Company's  effective and statutory tax rates for both periods  resulted
     primarily  from  losses or  actual  annual  income  levels.  The  Company's
     effective tax rate was 50.5% and 48.0% for the three months and nine months
     ended  September  30,  1997,  respectively.   The  difference  between  the
     Company's  effective  and  statutory  tax rates for both  periods  resulted
     primarily from state taxes net of the federal benefit and the  amortization
     of non-deductible  goodwill  associated with the Acquisitions  discussed in
     Note 4.


                                       7
<PAGE>

Notes to Consolidated Financial Statements (Unaudited), Continued

6. Net Income (Loss) Per Common Share:

     Primary and fully  diluted net income  (loss) per common share are computed
     by dividing  net income  (loss) by the  weighted  average  number of common
     shares and common share equivalents  outstanding  during the period.  There
     were no common stock equivalents during each of the periods  presented.  At
     September 30, 1997, the primary and fully diluted  weighted  average shares
     exclude the escrow shares (Note 8) and was determined as follows:

         Shares outstanding from beginning of period                  1,141,333
         Weighted average shares issued on June 2, 1997 in
                  connection with the acquisitions                      974,222
         Weighted average escrow shares                                (105,778)
                                                                      ---------
                                                                      2,009,777
                                                                      =========
 
7. Future Adoption of Recently Issued Accounting Standards:

     The Financial  Accounting Standards Board has issued Statement of Financial
     Accounting  Standards No. 131,  Disclosures About Segments of an Enterprise
     and Related Information ("SFAS No. 131"), No. 130, Reporting  Comprehensive
     Income ("SFAS No. 130"), No. 129,  Disclosure of Information  About Capital
     Structure  ("SFAS No.  129"),  and No. 128,  Earnings  Per Share ("SFAS No.
     128").  SFAS No.  131  specifies  revised  guidelines  for  determining  an
     entity's operating segments and the type and level of financial information
     to be  disclosed.  SFAS No. 130  establishes  standards  for  reporting and
     display of  comprehensive  income and its components  (revenues,  expenses,
     gains and losses) in a full set of  general-purpose  financial  statements.
     SFAS No. 129  consolidates  the existing  requirements to disclose  certain
     information about an entity's capital structure, and SFAS No. 128 specifies
     the computation, presentation, and disclosure requirements for earnings per
     share. These Standards are effective for years beginning after December 15,
     1997.

     The Company believes that the impact of these Standards, when adopted, will
     not  have  a  material  impact  on  the  Company's  consolidated  financial
     statements.


                                       8
<PAGE>

Notes to Consolidated Financial Statements (Unaudited), Continued

8. Subsequent Events:

     Stock Splits and Recapitalization

     Class  A  Common  Stock  -  On  June  2,  1997,   in   connection   with  a
     reincorporation in Delaware,  the Company  authorized  31,000,000 shares of
     Class A Common Stock, $.001 par value.

     Class  B  Common  Stock  - On  May  1,  1997,  the  Company  increased  the
     outstanding shares from 100 to 3,424 by declaring a 34.24-for-1 stock split
     of the  Company's  common stock (par value of $1.00).  On June 2, 1997,  in
     connection  with a  reincorporation  in  Delaware,  the Company  declared a
     400-for-1  stock split of the Company's  common stock pursuant to which all
     of the  Company's  outstanding  common stock were  exchanged  for 4,000,000
     shares of Class B Common  Stock with a par value of $.001.  During  October
     1997, the Company effected a .8333325-for-1 reverse stock split pursuant to
     which the  outstanding  shares of Class B Common Stock were  exchanged  for
     3,333,333  shares  of Class B  Common  Stock.  At such  time,  the  Company
     authorized  31,666,667  shares of Class A Common Stock and 3,333,333 shares
     of Class B Common Stock.

     Preferred Stock - On June 2, 1997, in connection with a reincorporation  in
     Delaware,  the Company authorized  5,000,000 shares of preferred stock. The
     Board of Directors will have the authority to issue the preferred  stock in
     one or more series and to fix the number of shares and the relative rights,
     conversion  rights,  voting rights and terms of redemption and  liquidation
     preferences, without further vote or action by the stockholders.

     The consolidated  financial statements have been retroactively adjusted for
     these events. As part of the reincorporation,  the Company changed its name
     to Tekgraf, Inc.

     Initial Public Offering

     On November 10, 1997, the Company  completed the initial public offering of
     its securities.

     In  connection  with the  Company's  registration  of its  securities,  the
     Company offered  2,100,000 units  consisting of one share of Class A Common
     Stock and one redeemable warrant.  Each warrant would entitle the holder to
     purchase one share of Class A Common  Stock at an exercise  price of $8.40,
     which is subject to adjustment. 

     Letters of Intent

     The Company has entered into letters of intent for the  acquisition of four
     computer graphic wholesale  distribution  companies.  The letters of intent
     provide for the issuance by the Company of an aggregate of 1,350,000 shares
     of its Class A Common Stock in exchange for the  acquisition  of all of the
     assets and the  assumption of certain of the  liabilities of the companies.
     Completion of the proposed acquisitions is dependent upon completion of due
     diligence and the negotiation of definitive  asset purchase  agreements and
     there can be no  assurance  that all or any of such  proposed  acquisitions
     will be  consummated.  The Company will account for these  acquisitions  as
     purchases.


                                       9
<PAGE>

Item 2.

Management's Discussion and Analysis of Financial Condition and
Results of Operations

Except for the  descriptions of historical  facts contained  herein,  statements
concerning  future  results,  performance or  expectations  are  forward-looking
statements that involve risks and uncertainties.  Actual results, performance or
developments  could differ materially for those implied by such  forward-looking
statements as a result of known and unknown  risks and other  factors  including
those  described from time to time in the Company's  filings with the Securities
and Exchange  Commission  under the heading "Risk Factors" and elsewhere,  which
should be read in conjunction  with this document.  Among such factors are risks
relating to  acquisitions,  competition  and pricing  pressures,  dependence  on
acquiring  and  maintaining   distribution   arrangements  with   manufacturers,
dependence on certain suppliers and economic conditions.

Results of Operations

Effective June 2, 1997, the Company acquired the outstanding common stock of the
Subsidiaries.  Accordingly, the results of operations for the three months ended
September 30, 1997 (the "1997 quarter")  represents the first full quarter which
includes  the  consolidated  results  of  operations  of  the  Company  and  the
Subsidiaries.

The Company has included  herein,  in tabular form,  results of  operations  and
period-to-period  comparisons based on the consolidated results of operations of
the  Company  and  the   Subsidiaries,   giving  effect  to  certain  pro  forma
adjustments.  However,  the  pro  forma  operating  results  do not  purport  to
represent what the Company's  actual  results of operations  would have been had
the   Acquisitions   occurred  at  the  beginning  of  each  period   presented.
Accordingly,   the  Company  believes  that  explanations  of  period-to  period
comparisons  may not be  meaningful.  

The following  table sets forth,  for the periods  indicated,  the unaudited pro
forma consolidated  results of operations of the Company and the Subsidiaries as
if the  Acquisitions  had  occurred  at the  beginning  of the  earliest  period
presented, after giving effect to certain adjustments,  including elimination of
revenue and expenses related to affiliated  entities of the  Subsidiaries  which
were not acquired by the Company,  adjustments in compensation  levels that have
been contractually  agreed to,  elimination of amortization  related to negative
goodwill, elimination of the pro rata interest expense incurred on capital to be
contributed by the pre-combination  stockholders of the Company,  related income
tax  effects,   elimination  of  transactions  between  the  Subsidiaries,   and
amortization  of  intangible  assets.  The three and  nine-month  periods  ended
September  30, 1997 include a pro forma  adjustment  to eliminate  the effect of
certain  inventory  purchase  accounting  adjustments.  The  earnings  per share
amounts give effect to the combination and subsequent recapitalization,  and the
weighted average shares outstanding exclude 166,667 escrow shares.

The  changes  in  operations  on a  historical  basis,  for both the  three  and
nine-month  periods  ended  September  30, 1997  compared to the same periods in
1996, are due to the acquisitions which were effective June 2, 1997.


                                       10
<PAGE>

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations, (Continued)

<TABLE>
<CAPTION>
                                                                                                          Period-to-Period Change
                                                                                                           Three           Nine
                                                                                                           Months          Months
                                                                                                           Ended           Ended
                                                                                                              September 30,
                                            Three Months Ended               Nine Months Ended           ------------------------
                                                September 30,                   September 30,               1996          1996   
                                       ----------------------------      ---------------------------         vs            vs    
                                           1996             1997            1996            1997            1997          1997
<S>                                    <C>              <C>              <C>             <C>             <C>           <C>       
Net sales                              $16,892,184      $18,536,085      $50,364,326     $52,858,711     $1,643,901    $2,494,385
Cost of goods sold                      14,046,301       15,321,832       42,266,847      44,029,213      1,275,531     1,762,366
                                       -----------      -----------      -----------     -----------     ----------    ----------
    Gross profit                         2,845,883        3,214,253        8,097,479       8,829,498        368,370       732,019

SGA                                      2,073,395        2,384,393        5,707,975       6,062,678        310,998       354,703
Depreciation                                29,766           40,451          127,585         135,895         10,685         8,310
Amortization                               108,000          108,000          324,000         324,000           --            --
                                       -----------      -----------      -----------     -----------     ----------    ----------
    Income from operations                 634,722          681,409        1,937,919       2,306,925         46,687       369,006

Other income                                11,526           54,546          109,627         111,280         43,020         1,653
Interest expense                           106,061          100,671          299,464         271,366         (5,390)      (28,098)
                                       -----------      -----------      -----------     -----------     ----------    ----------
    Income before taxes                    540,187          635,284        1,748,082       2,146,839         95,097       398,757

Income taxes                               259,290          304,936          839,080       1,030,483         45,646       191,403
                                       -----------      -----------      -----------     -----------     ----------    ----------
    Income before minority interest        280,897          330,348          909,002       1,116,356         49,451       207,354

Minority interest                           14,268            4,509          (10,312)        (10,120)        (9,759)          192
                                       -----------      -----------      -----------     -----------     ----------    ----------
    Net income                         $   295,165      $   334,857      $   898,690     $ 1,106,236     $   39,692    $  207,546
                                       ===========      ===========      ===========     ===========     ==========    ==========
Primary and fully-diluted
    earnings per share                 $       .09      $       .11      $       .28     $       .35
                                       ===========      ===========      ===========     ===========     
Weighted average shares
    outstanding                          3,166,666        3,166,666        3,166,666       3,166,666
                                       ===========      ===========      ===========     ===========     
</TABLE>


                                       11
<PAGE>

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations, (Continued)

The following table sets forth, for the periods  indicated,  selected  unaudited
pro forma financial  information  expressed as a percentage of net sales and the
period-to-period change in such information.

<TABLE>
<CAPTION>
                                                                                               Period-to-Period Change
                                                                                                  Three       Nine
                                                                                                  Months      Months
                                                                                                  Ended       Ended
                                                                                                     September 30,
                                           Three Months Ended           Nine Months Ended      -----------------------           
                                              September 30,                September 30,           1996          1996   
                                          -------------------           ------------------          vs            vs    
                                           1996         1997             1996       1997           1997          1997

<S>                                       <C>          <C>              <C>        <C>              <C>           <C>  
Net sales                                 100.00%      100.00%          100.00%    100.00%          9.73%         4.95%
Cost of goods sold                         83.15        82.66            83.92      83.30           9.08          4.17
                                          ------       ------           ------     ------           ----        ------ 
    Gross profit                           16.85        17.34            16.08      16.70          12.94          9.04

SGA                                        12.27        12.86            11.33      11.47          15.00          6.21
Depreciation                                0.18         0.22             0.25       0.26          35.90          6.51
Amortization                                0.64         0.58             0.64       0.61           --            --
                                          ------       ------           ------     ------           ----        ------ 
    Income from operations                  3.76         3.68             3.85       4.36           7.36         19.04

Other income                                0.07         0.29             0.22       0.21         373.26          1.51
Interest expense                            0.63         0.54             0.59       0.51          (5.08)        (9.38)
                                          ------       ------           ------     ------           ----        ------ 
    Income before taxes                     3.20         3.43             3.47       4.06          17.60         22.81

Income taxes                                1.53         1.65             1.67       1.95          17.60         22.81
                                          ------       ------           ------     ------           ----        ------ 
    Income before minority interest         1.66         1.78             1.80       2.11          17.60         22.81

Minority interest                           0.08         0.02            (0.02)     (0.02)        (68.40)        (1.86)
                                          ------       ------           ------     ------           ----        ------ 
Net income                                  1.75%        1.81%            1.78%      2.09%         13.45%        23.09%
                                          ======       ======           ======     ======           ====        ====== 
</TABLE>


                                       12
<PAGE>

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations, (Continued)

The  Company  had net sales of $18.54  million  and $52.86  million for the 1997
quarter and the nine months ended  September 30, 1997 (the "1997 nine  months"),
respectively,  reflecting  increases of approximately  9.7% or $1.64 million and
5.0% or $2.5 million,  respectively,  from the  comparable  periods of 1996. Net
sales of the Graphics Division  increased 3.0% to $14.38 million during the 1997
quarter and by 2.8% to $41.87 million during the 1997 nine months as a result of
the expansion of certain product lines from existing  vendors.  Net sales of the
Technology  Division increased 26.6% to $4.16 million and 8.4% to $10.99 million
during the quarter and nine months ended September 30, 1997, respectively,  as a
result of  expanded  sales in the  high-end  server  market and an  increase  in
product demand.

Gross profit for the 1997 quarter was $3.2 million or 17.3% of net sales.

The Company  experienced strong sales during October 1997;  however,  sales were
lower than  anticipated  during  November 1997.  The Company  believes that such
trend has  continued  into  December,  and the  fourth  quarter  of 1997 will be
adversely impacted.

Selling,  general and  administrative  expenses as a percentage of net sales was
12.9% in the 1997 quarter.

Liquidity and Capital Resources

The  following  table sets  forth the as  adjusted  stockholders'  equity of the
Company as of September 30, 1997 giving effect to (i) the offering  completed in
November   1997,   (ii)  the   contribution   to  capital  of  $870,000  by  the
pre-acquisition   stockholders  of  the  Company;  and  (iii)  the  payment  and
collection of amounts due from the  acquisition  stockholders  of  approximately
$1,058,000 and $434,000, respectively.

         Class A common stock                              $     2,100
         Class B common stock                                    3,333
         Additional paid-in capital                         20,990,766
         Retained earnings                                     338,793
                                                           -----------
                                                           $21,334,992
                                                           ===========

Historically,  the Company has financed its operations  through a combination of
cash flow from  operations,  bank  borrowings and stockholder  contributions  to
capital.  The Company's capital requirements have arisen primarily in connection
with purchases of fixed assets, including acquisitions.


                                       13
<PAGE>

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations, (Continued)

In  connection  with the  Company's  initial  public stock  offering  ("IPO") in
November 1997, the Company issued 2,100,000 units,  each consisting of one share
of Class A Common Stock and one redeemable warrant, for $6.00 per unit for gross
proceeds  of  $12,600,000.  After the  payment  of  underwriting  discounts  and
commissions and other expenses of the offering,  the net proceeds to the Company
were $10,377,000.

Proceeds from the IPO were also used to repay (i) bank debt of $1,391,000,  (ii)
debt to an affiliated  entity of $2,039,000  and (iii) debt to a stockholder  of
the Company of $125,000.  Concurrently with these payments, certain stockholders
of the  Company  made  an  aggregate  capital  contribution  to the  Company  of
$870,000. In conjunction with repayment of the bank debt, the Company terminated
its line of credit facilities with the related banks.

The Company will make purchase price  adjustments  during  December 1997 and the
first  quarter of 1998 for excess net book value over net asset value ("NAV") to
former stockholders of the Subsidiaries of $1,058,000. In addition,  deficit NAV
over net book value of $434,000 will be collected  from former  shareholders  of
the Subsidiaries during the first quarter of 1998.

In November  1997, a company  owned by  affiliates of the Company sold an office
building and repaid related bank  borrowings,  which had been  guaranteed by the
Company.  Subsequent to the sale and  repayment of the debt,  the Company has no
further guarantees or obligations relating to the Company.

The Company  believes that its cash balances and cash flows from operations will
be  sufficient  to meet its working  capital and  capital  requirements  for the
coming year.

A key  element  of the  Company's  strategy  is to  continue  to expand  through
acquisitions  of  companies  engaged in the  distribution  and/or  marketing  of
computers  and/or  computer  hardware,  software  and  peripherals.  The Company
believes that it will be successful in acquiring such companies  through the use
of common stock, cash or a combination of the two. The Company will also seek to
establish  a  secured  or  unsecured  line  of  credit  to be  used  for  future
acquisitions if required.

Other Information

The Company is aware of recent published reports to the effect that the District
Attorney's office in New York County is conducting an investigation into various
activities of D.H.  Blair & Co., Inc. a member of the selling group with respect
to the Company's IPO. The Company believes this negative  publicity may have had
a material  adverse  impact on the  market  price of the  Company's  securities,
reputation  and  acquisition  strategy  and is  consulting  with its advisers to
redress  these  issues.  

The Company  has  entered  into  letters of intent for the  acquisition  of four
computer graphics companies. See "Part II - Item 5. Other Information."


                                       14
<PAGE>

                           Part II- Other Information

Item 2.  Changes in Securities and Use of Proceeds

In November 1997, the Company  completed an initial public stock offering of its
securities  ("IPO") in which it issued 2,100,000 units,  each unit consisting of
one  share of Class A Common  Stock and one  redeemable  common  stock  purchase
warrant, for gross proceeds of $12,600,000. The Company paid the underwriters of
the IPO $945,000 in  underwriting  discounts  and  commissions  and $378,000 for
non-accountable  expenses.  The Company incurred  additional expenses related to
the IPO of $900,000.  These included  $442,000 for accounting fees and expenses,
$267,000  for legal fees and  expenses,  $147,000  for  printing  and  engraving
expenses, $40,000 for filing and registration fees and $4,000 in other expenses.

Proceeds from the IPO were also used to repay (i) bank debt of $1,291,000,  (ii)
debt to an affiliated  entity of $2,039,000  and (iii) debt to a stockholder  of
the Company of $125,000.  Concurrently with these payments, certain stockholders
of the  Company  made  an  aggregate  capital  contribution  to the  Company  of
$870,000.


                                       15
<PAGE>

Item 5.  Other Information

The Company  has  entered  into  letters of intent for the  acquisition  of four
computer  graphics  wholesale  distribution  companies.  The  letters  of intent
provide for the issuance by the Company of an  aggregate of 1,350,000  shares of
its Class A Common  Stock in exchange for the  acquisition  of all of the assets
and the assumption of certain of the liabilities of the companies. The number of
shares to be issued is subject to  adjustment  in the event  warranted  earnings
levels  are  either  not  met  or  are  exceeded.  Completion  of  the  proposed
acquisitions  is dependent upon  completion of due diligence and the negotiation
of definitive  asset purchase  agreements and there can be no assurance that all
or any of such  proposed  acquisitions  will be  consummated.  The Company  will
account for these acquisitions as purchases.


                                       16
<PAGE>

Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits
          27 - Financial Data Schedule

(b) Reports on Form 8-K 
          None


                                       17
<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                          TEKGRAF, INC.

Date:  December 22, 1997                      By:  /s/ Phillip C. Aginsky
                                                   -----------------------------
                                                   Phillip C. Aginsky, Chairman
                                                   and Chief Executive Officer
                                                   (Principal Executive Officer)

Date:  December 22, 1997                      By:  /s/ Peter C. Armstrong
                                                   -----------------------------
                                                   Peter C. Armstrong,
                                                   Chief Financial Officer
                                                   (Principal Financial and
                                                   Accounting Officer)


                                       18