<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to ________
Commission File No. 0-22263
DUNN COMPUTER CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
54-1424654
(I.R.S. Employer Identification No.)
1306 Squire Court, Sterling, VA. 20166
(Address of principal executive offices) (zip code)
(Registrant's telephone number, including area code)
(703) 450-0400
NO CHANGE
--------
Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X
No______.
As of June 15, 1997 there were 5,000,000 shares of the registrant's
common stock outstanding.
This quarterly report on Form 10-Q contains 9 pages, of which this is page 1.
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DUNN COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
April 30, April 30,
------------------ ----------------------
1996 1997 1996 1997
-------- --------- ---------- ---------
Revenue $5,073,052 $3,989,079 $11,418,025 $9,492,429
Costs of revenue 3,864,283 3,470,633 8,680,629 7,670,210
--------- ---------- ---------- ----------
Gross profit 1,208,769 516,446 2,737,396 1,822,219
Interest expense 57,227
Selling and marketing 99,649 112,259 179,963 293,766
General and administrative 462,903 216,361 1,022,316 468,480
--------- ---------- ---------- ----------
Income from operations 646,217 187,826 1,535,117 1,059,973
Other income 8,246 25,894 11,086 33,562
--------- ---------- ---------- ----------
Net income before income taxes 654,463 213,720 1,488,976 1,093,535
Provision for income taxes 251,750 84,300 573,050 418,300
--------- ---------- ---------- ----------
Net income $402,713 $129,420 $915,926 $675,235
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Earnings per share $0.10 $0.03 $0.23 $0.16
-------- ---------- ---------- ----------
-------- ---------- ---------- ----------
Weighted average number of
shares outstanding 4,050,150 4,264,413 4,050,150 4,210,166
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE>
DUNN COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
April 30,
1997
-----------
ASSETS
Current assets
Cash and cash equivalents $5,722,833
Accounts receivable, less allowance for
doubtful accounts of $15,000 3,943,840
Inventory, less obsolescence reserve of $20,000 317,719
Investments 150,000
Prepaid expenses and other current assets 48,237
----------
Total current assets 10,182,629
Property and equipment, net 72,809
Other assets
----------
Total assets $10,255,438
----------
----------
Liabilities and stockholders' equity
Current liabilities
Accounts payable 3,085,580
Accrued expenses 510,621
Income taxes payable 58,994
Deferred tax credit 8,700
Unearned revenue 22,896
----------
Total current liabilities 3,686,791
Stockholders' equity
Preferred Stock $.001 par value; 2,000,000 shares
authorized, no shares issued and outstanding
Common stock, $.001 par value:
20,000,000 shares authorized.
Issued and outstanding:
5,000,000 shares in 1997 5,000
Additional paid-in capital 4,065,078
Retained earnings 2,498,569
----------
Total stockholders' equity 6,568,647
----------
Total liabilities and stockholders' equity $10,255,438
----------
----------
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
DUNN COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
April 30,
----------------------
1996 1997
--------- ---------
OPERATING ACTIVITIES:
Net income $ 915,926 $ 675,235
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 12,900 8,053
Changes in operating assets and liabilities
Accounts receivable (1,245,476) (769,780)
Inventory 963,368 667,884
Other assets and prepaid expenses 128 (44,697)
Accounts payable (704,547) 633,417
Accrued expenses 23,780 225,377
Deferred tax credit (112,141) (2,386)
Unearned revenue - (44,744)
--------- ---------
Net cash provided by (used in)
operating activities 262,095 888,047
--------- ---------
INVESTING ACTIVITIES:
Purchase of property and equipment (6,000) (17,099)
Purchase of investment (150,000)
--------- ---------
Net cash used in investing activities (156,000) (17,099)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from bank line of credit 2,122,245 -
Payments on bank line of credit (2,384,282) -
Proceeds from issuance of Common Stock - 3,954,221
Repayment from stockholder 100,000 -
--------- ---------
Net cash provided by (used in) financing
activities (162,037) 3,954,221
Net increase (decrease) in cash and cash equivalents (55,942) 4,825,169
Cash and cash equivalents at
beginning of period 138,938 897,664
--------- ---------
Cash and cash equivalents at end of
period $ 82,996 $5,722,833
--------- ---------
--------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 57,227 -
--------- ---------
--------- ---------
Income taxes paid $ 277,000 $ 881,000
--------- ---------
--------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements for the three month and six month periods
ended April 30, 1996 and 1997 are unaudited and include all adjustments which,
in the opinion of management, are necessary to present fairly the results of
operations for the periods then ended. All such adjustments are of a normal and
recurring nature. These consolidated financial statements should be read in
conjunction with the Registration Statement on Form SB-2 of Dunn Computer
Corporation (the "Company") which includes consolidated financial statements and
notes thereto for the years ended October 31, 1995 and 1996 and for the three
months ended January 31, 1996 and 1997.
2. Recent pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement No.
128,EARNINGS PER SHARE, which is required to be adopted in the Company's fiscal
1998 financial statements. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of primary and fully diluted earnings per share for the
three and six month periods ended April 30, 1996 and 1997 is not expected to be
material.
3. Initial Public Offering
On April 21, 1997, the Company issued 1,000,000 shares of Common Stock in an
initial public offering, which generated Net proceeds of approximately
$3,950,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS RESULTS OF OPERATIONS
REVENUES:
Revenues for the quarter ended April 30, 1997 were $3,987,079 as compared to
$5,073,052 for the quarter ended April 30, 1996, a decline of 21.4%. In the
quarter ended April 30, 1996, the Company delivered $2.5 million to Lockheed
Martin for the for the DMS program vs $155,000 for the quarter ended April 30,
1997. The decline in Lockeed Martin revenues is due to a delay in the final
testing of the DMS software. The implementation of the DMS program has been
delayed until August 1997. Part of the
5
<PAGE>
short fall in the Lockheed revenue was offset by an increase in GSA revenue from
approximately $575,000 to $1.7 million.
Revenues for the six months ended April 30, 1997 were $9,492,429 as compared to
$11,418,025 for the six months ended April 30, 1996. The 16.9% decline was
caused by the decline in revenue from the Lockheed contract and two other
contracts that affected the first quarter of fiscal 1996. Increased revenue from
the GSA and the US Courts contracts offset $4.1 million of the decline.
GROSS MARGIN:
Gross margin declined from 23.8% for the quarter ended April 30, 1996 to 13.0%
for the quarter ended April 30, 1997. The decline can be attributed to an
abnormally high gross margin in fiscal 1996, the decline in revenue, the
increase in operating expenses, and the start up of new contracts. Gross margin
can fluctuate from quarter to quarter. The target gross margin is 22.0%.
For the six months ended April 30, gross margin decline from 24.0% in fiscal
1996 to 19.2% in fiscal 1997. The decline was caused by the reasons metioned
above.
SELLING AND MARKETING:
For the quarter ended April 30, selling and marketing expenses increased from
$99,649 in fiscal 1996 to $112,259 in fiscal 1997. The increase is attributable
to the increase in the Company's personel. For the six months ended April 30,
selling and marketing increased from $179,963 in fiscal 1996 to $293,766 in
fiscal 1997 for the same expenses. As a percentage of revenue, selling and
marketing expense increased from 1.6% for the six months ended April 30, 1996 to
3.1% for the six months ended April 30, 1997. The increase was caused by the
decline in revenue and the increase in expenditures.
GENERAL AND ADMINISTRATIVE:
General and administrative expense declined from $462,903 for the quarter ended
April 30, 1996 to $216,361 for the quarter ended April 30, 1997. As a percentage
of revenue, general and administrative expense declined from 9.1% to 5.4%.
Substantially all of the decline can be attributed to the decline in executive
compensation. For the six months ended April 30, general and administrative
expense declined from 9.0% in fiscal 1996 to 4.9% in fiscal 1997 because of the
decline in executive compensation.
OTHER INCOME:
Other income derived primarily from interest income increased from $8,246 in the
quarter ended April 30, 1996 to $25,894 for the quarter ended April 30, 1997.
For the six months ended April 30, other income increased from $11,086 in 1996
to $33,562 in 1997. The income was primarily from interest income.
PROVISION FOR INCOME TAXES:
For the quarter ended April 30, 1997 the effective tax rate was 38.5% of taxable
income as compared to 38.4% for the quarter ended April 30,1996. For the six
months ended April 30, 1996 the effective tax rate was 38.5% of taxable income
compared to 38.3%
6
<PAGE>
for the six months ended April 30, 1997. The reduction was due to a minor
decrease in non deductible expenses.
NET INCOME AND QUARTERLY RESULTS
Net income declined to $129,420 from $402,713 in the second quarter of 1997
compared to the second quarter of 1996. Net income for the first six months
declined from $915,926 to $675,235 as a result of the above factors.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11.1: Statement of computation of earnings per share.
Exhibit 27: Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended April 30, 1997.
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.
Dunn Computer Corporation
(Registrant)
Date June 16, 1997 By: /s/ John D. Vazzana
--------------------- --------------------------------
John D. Vazzana,
Executive Vice-President,
Chief Financial Officer
(Principal Accounting Officer and
Duly Authorized Officer)
7
<PAGE>
COMPUTATION OF EARNINGS PER SHARE
Three Months ended Six Months Ended
April 30, April 30,
------------------ ------------------
1996 1997 1996 1997
-------- ------ ------- ------
Earnings per share
Weighted avaerage number
of shares outstanding 4,000,000 4,264,413 4,000,000 4,210,166
Common equivalent shares from
options issued during the
twelve month period to the
filing of the SB-2 (using
the treasury stock method) 50,150 44,515 50,150 47,379
Weighted average number of
common stock equivalent
shares from options and
warrants (using the
treasury stock method) - 107,539 - 107,539
-------- --------- --------- ---------
Total 4,050,150 4,264,413 4,050,150 4,210,166
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income $402,713 $129,420 $915,926 $675,235
--------- --------- --------- ---------
Earnings per share $0.10 $0.03 $0.23 $0.16
--------- --------- --------- ---------
--------- --------- --------- ---------
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS AND
CONSOLIDATED STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE
PERIOD ENDING APRIL 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<CASH> 5,722,833
<SECURITIES> 150,000
<RECEIVABLES> 3,958,840
<ALLOWANCES> 45,000
<INVENTORY> 317,719
<CURRENT-ASSETS> 10,182,629
<PP&E> 213,554
<DEPRECIATION> 140,745
<TOTAL-ASSETS> 10,255,438
<CURRENT-LIABILITIES> 3,686,791
<BONDS> 0
0
0
<COMMON> 5,000
<OTHER-SE> 6,563,647
<TOTAL-LIABILITY-AND-EQUITY> 10,255,438
<SALES> 9,492,429
<TOTAL-REVENUES> 9,492,429
<CGS> 7,670,210
<TOTAL-COSTS> 7,670,210
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,093,535
<INCOME-TAX> 418,320
<INCOME-CONTINUING> 675,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 675,235
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
