<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 1997
REGISTRATION STATEMENT NO. 333-19635
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
DUNN COMPUTER CORPORATION
(Name of small business issuer as specified in its charter)
--------------------------
<TABLE>
<S> <C> <C>
DELAWARE 54-1424654 5060
(State of Incorporation) (IRS Employer I.D. No.) (Primary Standard Industrial
Classification Code No.)
</TABLE>
1306 SQUIRE COURT
STERLING, VIRGINIA 20166
(703) 450-0400
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
------------------------------
THOMAS P. DUNNE, PRESIDENT
DUNN COMPUTER CORPORATION
1306 SQUIRE COURT
STERLING, VIRGINIA 20166
(703) 450-0400
(Name, address and telephone number of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JAY M. KAPLOWITZ, ESQ. MICHAEL P. WEINER, ESQ.
ARTHUR S. MARCUS, ESQ. STARK & STARK, P.C.
GERSTEN SAVAGE KAPLOWITZ, 993 Lenox Drive
FREDERICKS & CURTIN, LLP Lawrenceville, New Jersey 08648
101 East 52nd Street (609) 896-9060
New York, New York 10022
(212) 752-9700
</TABLE>
--------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this registration statement.
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/
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES BEING REGISTERED REGISTERED PER SECURITY OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock(2)............................. 1,150,000 $5.00 $5,750,000 $1,742.42
Underwriter's Warrants...................... 1 $.001 $10 $ (4)
Common Stock(3)............................. 100,000 $6.50 $650,000 $196.97
Total Registration Fee...................... $1,939.39
</TABLE>
(1) Pursuant to Rule 457, estimated solely for the purpose of calculating the
registration fee.
(2) Includes shares issuable upon exercise of the Underwriter's over-allotment
option being sold by certain Stockholders of the Company.
(3) Consists of Common Stock issuable upon the exercise of the Underwriter's
Warrants.
(4) Pursuant to Rule 457(g), no fee is paid for the registration of such
securities.
--------------------------
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DUNN COMPUTER CORPORATION
CROSS REFERENCE SHEET SHOWING LOCATION
IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
- ----------------------------------------------------------------- ------------------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover Page of Prospectus............................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors.................. Prospectus Summary; Risk Factors
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... Cover Page; Underwriting
6. Dilution.............................................. Dilution
7. Selling Security Holders.............................. N/A
8. Plan of Distribution.................................. Cover Page; Underwriting
9. Legal Proceedings..................................... Business
10. Directors, Executive Officers, Promoters and Control
Persons............................................. Management
11. Security Ownership of Certain Beneficial
Owners and Management............................... Principal Stockholders
12. Description of Securities............................. Description of Securities
13. Interest of Named Experts and Counsel................. Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities...... Management
15. Organization Within Last 5 Years...................... Prospectus Summary; Business
16. Description of Business............................... Prospectus Summary; Business
17. Management's Discussion and Analysis or
Plan of Operations.................................. Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property............................... Business
19. Certain Relationships and
Related Transactions................................ Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters......................... Description of Securities; Risk Factors
21. Executive Compensation................................ Management
22. Financial Statements.................................. Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure................................ Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 14, 1997
PROSPECTUS
DUNN COMPUTER CORPORATION
1,000,000 SHARES OF COMMON STOCK
Dunn Computer Corporation (the "Company") hereby offers 1,000,000 shares
(the "Shares") of common stock, $.001 par value (the "Common Stock"), at an
initial public offering price of $5.00 per share (the "Offering"). The Offering
price of the Shares was established by negotiation between the Company and
Network 1 Financial Securities Corp. (the "Underwriter"), and does not
necessarily bear any direct relationship to the Company's assets, book value per
share or other generally accepted criteria of value. For a discussion of the
factors considered in determining the initial public Offering price of the
Shares, see "Underwriting.".
Prior to this Offering there has been no public market for the Common Stock,
and there can be no assurance that any such market for the Common Stock will
develop after the closing of the Offering or that, if developed, it will be
sustained. It is anticipated that the Common Stock will be quoted on the
National Association of Securities Dealers Automated Quotation National Market
System ("NMS") under the proposed symbol "DUNN." Upon completion of the
Offering, the Company's officers and directors will own 80% of the Company's
issued and outstanding Common Stock and will be able to control the outcome of
any matters subject to a stockholder vote.
SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF 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 COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................................ $5.00 $.50 $4.50
Total(3)................................................. $5,000,000 $500,000 $4,500,000
</TABLE>
(1) Does not include additional consideration to be received by the Underwriter
in the form of (i) a non-accountable expense allowance equal to 3% of the
gross offering proceeds (of which $35,000 has been paid), (ii) any value
attributable to the Underwriter's Warrants ("Underwriter's Warrants")
entitling the Underwriter to purchase up to 100,000 shares of Common Stock
at a price per share equal to 130% of the initial public offering price,
(iii) a management and financial consulting agreement for a period of
twenty-four months for an aggregate consideration of $60,000 payable in full
on the closing of the Offering, and (iv) a right of first refusal with
respect to certain public or private sales of securities by the Company
during the next three years. In addition, the Company has agreed to
indemnify the Underwriter against certain liabilities under the Securities
Act of 1933, as amended (the "Act"). See "Underwriting."
(2) Before deducting expenses of the Offering (including the non-accountable
expense allowance of $150,000) payable by the Company estimated at $475,000
($497,500 if the over-allotment option granted by the Company's current
stockholders described below is exercised in full).
(3) The Company's current stockholders who are members of management of the
Company (the "Selling Stockholders") have granted the Underwriter an option
exercisable within 45 days of the date of this Prospectus (the
"Over-Allotment Option") to purchase from such Selling Stockholders up to
150,000 additional shares of Common Stock on the same terms set forth above
solely to cover over-allotments, if any. The Company will not receive any of
the proceeds from any such sale of shares of Common Stock by the Selling
Stockholders. If the Underwriter exercises this option in full, the total
price to the public, Underwriting Discounts and Commissions and proceeds to
the Company and the Selling Stockholders will be $5,750,000, $575,000,
$4,500,000 and $675,000, respectively. See "Underwriting."
The Shares are being offered by the Underwriter, subject to prior sale, on a
"firm commitment" basis subject to receipt and acceptance of the Shares by the
Underwriter and subject to approval of certain legal matters by their counsel.
The Underwriter reserves the right to withdraw, cancel or modify the Offering
and to reject any order in whole or in part. It is expected that delivery of
certificates evidencing the Shares will be made against payment therefore at the
offices of the Underwriter on or about , 1997.
NETWORK 1 FINANCIAL SECURITIES, INC.
, 1997
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND MUST BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
REFERENCES HEREIN TO THE "GOVERNMENT" ARE TO THE FEDERAL GOVERNMENT OF THE
UNITED STATES AND ITS DEPARTMENTS, AGENCIES AND OFFICES. UNLESS OTHERWISE
INDICATED, ALL INFORMATION INCLUDED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF
THE OVER-ALLOTMENT OPTION. IN ADDITION, ALL REFERENCES IN THIS PROSPECTUS TO THE
"COMPANY" REFERS TO THE COMPANY AND ITS WHOLLY-OWNED SUBSIDIARY DUNN COMPUTER
CORPORATION, A VIRGINIA CORPORATION.
THE COMPANY
Dunn Computer Corporation ("Dunn" or the "Company") manufactures custom
computer systems for the Government and selected commercial accounts. Dunn
markets its products directly to the Government as a prime contractor or
indirectly as a sub-contractor to other federal contractors. In 1995 and 1996,
the Company's revenues attributable to Government sales directly and indirectly
through Government subcontracts were approximately 89% and 68%, respectively.
The Company supplies systems under its own label or the customer's brand name.
The Company's products include Intel based computer systems, notebook computers,
and high performance local area and Internet servers configured to meet customer
specifications. The Company also provides related services to its customers,
including integration and staging services, configuration control, upgrading
existing systems and world-wide warranty support. The Company does not provide
specialized or proprietary products to the Government. All Government contracts
have standard termination clauses which allow the Government to terminate the
contracts for convenience. The Government has not prematurely terminated any
contracts with the Company during the Company's ten year history.
PRODUCTS
The Company manufactures and assembles a full line of Intel based desktop
personal computers, client servers, and notebook computers. The Company recently
introduced a line of high end fileservers based on the newest Pentium Pro
processors and a high end Pentium notebook computer. The Company believes,
although there can be no assurance, that these two product lines will be two of
the fastest growing areas in the marketplace during the next three years.
DESKTOPS
The Company manufactures a high performance line of Pentium desktop personal
computers that are used as standalone and/or network computers. The systems
incorporate the newest Intel technology and can accommodate all the Intel
Pentium processors including the newest Pentium MMX. The Company's computers
have been tested by several computer publications, including Government Computer
News and Federal Computer Week, and have been awarded (August 1996) by Federal
Computer Week and InfoWorld the prestigious "Best Buy" as the "fastest Pentium
ever tested." The Company strives to keep ahead of the competition by constantly
testing and incorporating the latest technology into its products.
The Company is presently marketing an "All in One" desktop computer that
incorporates a 17" monitor, stereo speakers, microphone, Internet connection,
television tuner, and full Pentium computer. The system is packaged in a single
chassis with all the computer parts in a removable drawer for ease of upgrade
and maintenance. The Company believes that initial reaction to the "All in One"
has been very positive. The Company further believes that the "All in One"
product will have applications in the Government and with commercial customers
outside of the Government. The Company's "All in One" marketing strategy is
designed to appeal to both the Government and the commercial markets.
2
<PAGE>
FILESERVERS
The Company has entered the lucrative high end file server market by
introducing a custom line of fault tolerant fileservers based on Intel Pentium
Pro (P6) Processors. The Company believes the fileservers will have application
to the commercial and Government markets. The Company markets a single, dual and
quad version of the processors. All of such processors are Microsoft Windows NT,
Novell, Banyan, and Token Ring compatible. The file servers offer the latest in
technology which the Company believes will provide it with a significant
price/performance advantage over its competitors, such as Hewlett Packard (HP)
and Compaq. The Company is presently providing servers to Lockheed Martin
Federal Systems, Inc. ("Lockheed") for the multi-billion dollar worldwide
Defense Messaging System (DMS). DMS is intended to be the largest private
messaging network in the world supporting approximately 2,000,000 users. The
Lockheed contract is a year to year contract that can be renewed for up to five
years. The contract, which was recently renewed, is automatically renewed if not
terminated.
NOTEBOOKS
The Company manufactures, on a brand name basis, a state-of-the-art notebook
with a 12.1" active matrix screen, 8 speed CD-ROM, built-in-stereo sound,
infrared communication, and many other advanced features. The system is
assembled and configured in the United States by the Company and meets the
Federal Government's stringent Buy American and Trade Agreements Act
requirements. The Company plans to market the Notebook product in both the
commercial and Government markets.
THE MARKET
GOVERNMENT
The Company markets to a wide array of Government organizations including
the Department of Defense, civilian agencies such as the Health Care and Finance
Administration ("HCFA") and the Judicial branch of the Government. The Office of
Management and Budget ("OMB"), submitted to Congress in January 1997, a
Government information technology ("IT") budget of nearly $26 billion. In
addition, the Electronic Industries Association, a major industry trade
association, estimates that Government agencies that are not required to report
their information technology expenditures, including the intelligence community,
will spend an additional $20 billion during the Government's fiscal 1997 on such
technology. There can be no assurance that the Company will receive any of the
budgeted funds. The Company believes that while Government down sizing has
decreased the number of federal employees, there has been an increase in the
demand for productivity tools, such as computers. In fact, President Clinton's
recently submitted budget provides for a slight increase in IT spending in the
upcoming year.
The Company believes that its historical focus on the Government has
provided it with the following advantages: (i) significant inventory risk is
eliminated because inventory is procured to satisfy firm fixed price contracts;
(ii) Government products are built to order allowing the Company to take
advantage of the latest in technology and market prices; (iii) a significant
reduction in bad debts due to the stability of the Government; (iv) a reduction
in selling and marketing expenses and (v) ability to manufacture products that
meet federal laws concerning Buy American and Trade Agreement Acts. In addition,
historically, prices of computer parts such as memory, processors, and computer
hard disks have decreased over time which allows the Company to increase gross
profits over the term of a contract. Since the Company selects its parts to
satisfy a specific contract, customization can be easily accomplished. The
Company believes that it is well-positioned to meet its objective of providing
responsive and high-quality performance products and services to a growing
market.
The Government, although perceived as difficult to understand and work with,
offers the educated supplier unique opportunities. The Company's management
includes experienced and highly trained federal contractors and computer
specialists. The Company believes that its management's understanding of the
subtleties of this unique market provides it with a significant advantage in the
Government arena.
3
<PAGE>
COMMERCIAL
Although the Company will continue to serve the Government market, the
Company intends to pursue and increase its commercial market penetration. In
1996, commercial customers represented 32% of the Company's revenues. The
Company believes that its products and expertise is directly applicable to the
commercial market and plans to make investments in commercial marketing and
sales. The Company believes that its "All in One" desktop computer and fault
tolerant server products are ideally suited for the commercial market. The
Company also believes that the successful marketing of these new products will
create additional sales for its existing products.
The Company will market its server products through systems software
companies that currently port applications from mainframe computers to
client/server networks. These companies offer Fortune 1000 companies a turnkey
solution to their IT problems. The Company believes that sales of its file
servers will give the Company the opportunity to sell these customers its
Desktop systems which can be utilized in the network. The Company believes that
it will also develop customer relationships that can be utilized to market other
existing products such as notebooks.
The Company also intends to market its "All in One" product to resellers
that concentrate on the legal and educational markets. The system combines a
computer, fax, stereo and television "All in One." The system has been designed
to take advantage of the recently announced Intel Pentium 200MMX processor. The
Pentium 200MMX is a multi-media CPU which is up to 20% faster than the
conventional Pentium 200.
The Company plans to develop a capability to provide commercial enterprises
with turnkey office automation computer solutions. The Company will expand its
hardware expertise to include software application solutions. It is the
Company's goal to be a total solution supplier to its customers providing client
servers, desktop workstations, network access, and application software. In
addition, it will be the Company's goal to offer complete remote help desk
support via its planned remote diagnostic and support system. The Company
believes fast changing computer technology and Internet technologies will
provide opportunities for technology solution providers. The Company intends to
design and install a turnkey system for a fixed price in the time frame required
by its customers. The Company will work closely with the client to design a
system that meets the needs of the client within its budget. All systems will be
implemented with commercial off the shelf hardware and software.
GENERAL
The Company was incorporated on January 3, 1997, in the State of Delaware,
and is the parent company of Dunn Computer Corporation, a Virginia corporation
which was incorporated on July 27, 1987. In January 1997, all of the
stockholders of the Virginia corporation exchanged their capital stock for
shares of Common Stock of the Delaware corporation. See "Certain Transactions."
The Company's principal executive offices are located at 1306 Squire Court,
Sterling, Virginia 20166 and its telephone number is (703) 450-0400. The
Company's web address is WWW.dunncomp.com.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........... 1,000,000 shares of Common Stock. See "Description of
Securities."
Common Stock Outstanding
Prior to Offering(1)....... 4,000,000 shares of Common Stock.
Common Stock to be
Outstanding After the
Offering(1)(2)............. 5,000,000 shares of Common Stock.
Use of Proceeds.............. The net proceeds to the Company from the sale of the Shares
are estimated to be approximately $4,025,000, after
deducting commissions and expenses of the Offering estimated
at $975,000. The Company intends to use the net proceeds of
this Offering for improvements in its manufacturing
capabilities, selling and marketing, and for working capital
and general corporate purposes. See "Use of Proceeds."
Risk Factors................. An investment in the Shares is speculative and involves a
high degree of risk and should not be purchased by anyone
who cannot afford the loss of his or her entire investment.
See "Risk Factors" and "Dilution."
Proposed Nasdaq National
Market Symbol(3)........... Common Stock--DUNN
</TABLE>
- ------------------------
(1) Does not include an aggregate of 600,000 shares of Common Stock reserved for
issuance upon the exercise of options available for future grant under the
Company's stock option plan (the "Plan") 295,000 of which have been granted.
See "Management--Stock Option Plan."
(2) Does not include 100,000 shares of Common Stock issuable upon exercise of
the Underwriter's Warrants. See "Underwriting."
(3) The proposed symbol does not imply that a liquid and active market will
develop or be sustained for the securities upon completion of the Offering.
5
<PAGE>
SUMMARY FINANCIAL DATA
(In thousands, except per share data)
The summary financial information set forth below is qualified by and should
be read in conjunction with the Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER THREE MONTHS ENDED
31, JANUARY 31,
-------------------- --------------------
<S> <C> <C> <C> <C>
1995 1996 1996 1997
--------- --------- --------- ---------
STATEMENT OF INCOME DATA
Revenues.............................................................. $ 7,491 $ 18,099 $ 6,345 $ 5,505
Gross profit.......................................................... 1,445 3,996 1,529 1,306
Income from operations................................................ 479 2,024 889 872
Net income............................................................ 243 1,239 513 546
Earnings per share(1)................................................. $ .06 $ .31 $ .13 $ .13
Weighted average number of shares outstanding(1)...................... 4,050 4,050 4,050 4,100
</TABLE>
<TABLE>
<CAPTION>
AT OCTOBER 31, AT JANUARY 31,
-------------------- --------------------------
<S> <C> <C> <C> <C>
1995 1996 1997 AS ADJUSTED(2)
--------- --------- --------- ---------------
BALANCE SHEET DATA
Working capital....................................................... $ 512 $ 1,872 $ 2,428 $ 6,453
Total assets.......................................................... 3,647 5,275 5,299 9,324
Long-term debt........................................................ -- -- -- --
Total liabilities..................................................... 3,047 3,335 2,814 2,814
Stockholders' equity.................................................. 600 1,939 2,485 6,510
</TABLE>
- ------------------------
(1) Computed on the basis described in Note 2 of Notes to Dunn Computer
Corporation's consolidated financial statements included herein.
(2) Gives effect to the sale of the securities offered hereby.
6
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH INVESTMENTS IN THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. AN INVESTMENT
IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
DEPENDENCE ON THE GOVERNMENT MARKET. Approximately 89% and 68% of the
Company's revenues in fiscal 1995 and 1996 were derived from contracts or
subcontracts with the Government. The Company believes that the success and
development of its business will continue to be largely dependent upon its
ability to participate in Government contract programs. Accordingly, the
Company's financial performance may be directly affected by changes in
Government contracting policies. Among the factors that could materially
adversely affect the Company's Government contracting business are budgetary
constraints, changes in fiscal policies or available funding, changes in
Government programs and requirements, including curtailment of the Government's
use of technology services firms, the adoption of new laws or regulations,
technological developments and general economic conditions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Fiscal
1996 Compared with Fiscal 1995."
The Company derives significant revenues from sales made pursuant to certain
major procurement programs awarded in the ordinary course of business. These
include its General Services Administration Schedule ("GSA Schedule") and
related contracts. The GSA Schedule is an indefinite quantity, indefinite
delivery contract which is negotiated by the General Services Administration
with selected vendors that can be used by any Government agency to procure that
particular vendor's equipment. The Company's current GSA Schedule is a
three-year contract which may be renewed for an additional three years with the
mutual consent of the Company and the General Services Administration. The
Company's inability to renew or replace its GSA Schedule or other contracts
could have a material adverse effect on the Company. Many Government contracts
specify maximum amounts that Government clients can purchase under the contract
("total contract capacity"). Such total contract capacity is not indicative of
revenues which may be realized under the contract.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's results of
operations have varied from quarter to quarter as a result of many factors,
including uneven purchasing patterns under its GSA Schedule and IDIQ contracts,
as well as changes in policy or budgetary measures that adversely affect
government contracts in general, the condition of the microcomputer products
Government market, shifts in demand for microcomputer products and industry
announcements of new products or upgrades. In the Company's fiscal year ended
October 31, 1996, the quarterly revenues were $6.3 million in the first quarter,
$5.1 million in the second quarter, $1.6 million in the third quarter and $5.1
million in the fourth quarter. By comparison, in the Company's fiscal year ended
October 31, 1995, 89% of the revenues were earned in the first and fourth
quarters. In the first quarter of fiscal 1997, the Company's revenues were
$5,505,000. No assurance can be given that these quarterly variations will not
occur in the future. The Company's planned operating expenditures are based on
sales forecasts. If revenues do not meet the Company's expectations in any given
quarter, it could have a material adverse effect on operating results. In
addition, the quarterly fluctuations may cause the market price of the Common
Stock to fluctuate when the Company's quarterly operating results are announced.
RELIANCE ON MANUFACTURERS AND DISTRIBUTORS. The Company acquires products
for resale both directly from manufacturers and indirectly through distributors.
During the fiscal year ended October 31, 1996 and the three months ended January
31, 1997, the Company purchased 13% and 10%, respectively of its components from
Decision Support Systems, Inc. In the event that the Company is unable to
continue to purchase certain components from Decision Support Systems, Inc. in
the future, the Company believes that alternative suppliers are readily
available without material impact to the Company's ability to fulfill its
customers' orders. The Company did not purchase more than 10% of its components
from any other
7
<PAGE>
supplier. The Company does not have supply agreements with the majority of its
suppliers. The discontinuation of a necessary component by a subcontractor or
supplier may be a significant negative development for the Company if an
appropriate alternate source can not be located. Certain of the products offered
by the Company are subject to manufacturer allocation which limits the number of
units of such products available to manufacturers, including the Company.
Certain manufacturers and distributors provide the Company with substantial
incentives in the form of discounts, and rebates. A reduction in or
discontinuance of such incentives could have a material adverse effect on the
Company.
DEPENDENCE ON CO-CONTRACTORS. In recent years, the Government has made use
of fewer, but larger-scale procurements to meet its information technology
requirements. This has led to an increase of teaming agreements among providers
of information technology services and products in order to make use of the
greater resources of such co-contractors to fulfill the requirements of the
larger procurements. The inability of the Company to enter into successful
teaming agreements with other Government contractors could materially adversely
affect the Company's ability to compete successfully for future government
procurements. In addition, approximately 0%, 18%, 0% and 5% of the Company's
total revenues in fiscal 1995 and 1996 and the three month periods ended January
31, 1996 and 1997, respectively, were derived from subcontracts with prime
contractors on Government contracts. Under these subcontracts, the Company may
be adversely affected if the prime contractor fails to perform satisfactorily or
is unable or unwilling to meet its obligations to the Company.
DEPENDENCE ON KEY PERSONNEL. The Company's future success will depend to a
significant extent on the efforts of key management personnel, including Thomas
P. Dunne, Chief Executive Officer, John D. Vazzana, Executive Vice President,
and other key personnel. The Company is in the process of entering into
employment agreements with Mr. Dunne and Mr. Vazzana. The loss of one or more of
these key employees could have a material adverse effect on the Company's
business. The Company is in the process of obtaining key-man life insurance
policies in the amount of $1,000,000 on each of the lives of Mr. Dunne and Mr.
Vazzana. In addition, the Company believes that its future success will depend
in large part upon its continued ability to attract and retain highly qualified
management, technical and sales personnel. There can be no assurance that the
Company will be able to attract and retain the qualified personnel necessary for
its business.
INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS. It is common in the computer
industry for companies to assert patent, copyright and other intellectual
property rights against other companies. Although there are no such claims
pending against the Company, if a claim were made, the Company would evaluate
such claim and, when appropriate, seek a license to use the protected technology
in its products. The Company could be placed at a disadvantage if competitors
were to obtain licenses with lower royalty fee payments or other terms more
favorable than those received by the Company. If the Company or its suppliers
were unable to obtain licenses necessary to use the protected technology in the
Company's products, the Company may be forced to market products without certain
protected technological features. The Company could also incur substantial costs
to redesign its products around other parties' protected technology or to defend
patent or copyright infringement actions against the Company. If any of the
Company's products were found to infringe protected technology, the Company
could be enjoined from further use of that technology in its products and could
be required to pay damages. The Company's inability to obtain such licenses on
competitive terms or a finding of infringement against the Company could have a
material adverse effect on the Company.
PROPRIETARY INFORMATION AND TECHNOLOGICAL CHANGE. The Company believes that
its business is dependent on its technical and organizational knowledge,
practices and procedures, and that the future success of the Company is based,
in part, on its ability to keep up to date with new technological breakthroughs
and incorporate such changes in its products and services. Also, the Company has
a proprietary interest in certain of its work products' methodologies and
know-how. Although the Company seeks to protect its proprietary information by
confidentiality agreements with its employees, there can be no assurance that
these measures will prevent the unauthorized disclosure or use of the Company's
technical knowledge, practices or procedures or that others may not
independently develop similar knowledge, practices or
8
<PAGE>
procedures. In addition, the Government acquires certain proprietary rights to
software programs and other products that result from the Company's services
under Government contracts or subcontracts. The Government may disclose such
information to third parties, including competitors of the Company. In the case
of subcontracts, the prime contractors also may have certain rights to such
programs and products. Any of these factors could reduce the Company's ability
to maximize the competitive value of its proprietary information.
GOVERNMENT CONTRACTING RISKS. Government contracts, by their terms,
generally can be terminated at any time by the Government, without cause, for
the convenience of the Government. If a Government contract is so terminated,
the Company may only be entitled to receive compensation for the services
provided or costs incurred at the time of termination and a negotiated amount of
the profit on the contract to the date of termination. In addition, all
Government contracts require compliance with various contract provisions and
procurement regulations. Certain provisions of the Company's GSA Schedule call
for long-term fixed pricing, mandatory maintenance response times, and
liquidated damages. Although the Company does not believe that such provisions
have had a negative effect on its operations to date, there can be no assurance
that such provisions will not have an adverse effect in the future. The adoption
of new or modified procurement regulations could materially adversely affect the
Company or increase its cost of competing for or performing Government
contracts. Any violation of these regulations could result in the termination of
the contracts, imposition of fines, and/or debarment from award of additional
Government contracts. The termination of any of the Company's significant
contracts or the imposition of fines, damages, or suspension from bidding on
additional contracts would have a material effect on the Company. Further, all
Government contract awards are subject to protest by competitors. See
"Business-- Government Contracts."
Upon the completion of a contract's initial term, the renewal may be
subjected to a competitive rebidding process. There can be no assurance that the
Company will win on any particular bid or prevail in any ensuing legal protest.
Furthermore, with respect to GSA Schedule and Indefinite Delivery, Indefinite
Quantity ("IDIQ") contracts, there can be no assurance that price levels will
not be reduced. The Company's failure to win a significant dollar volume of such
contracts could materially adversely affect the Company.
HIGHLY COMPETITIVE INDUSTRY. The markets for the Company's products and
services are highly competitive. Competitive pressures have intensified as the
rate of growth in the United States general computer market has slowed and
general purpose microcomputer manufacturers have attempted to enter the
Government market. The Company competes with a large number of systems
integrators, manufacturers, and resellers. Most of these competitors have
significantly more financial resources and are larger than the Company. The
Company believes that competitive factors include quality of services, technical
qualifications, past contract performance, geographic presence, price and the
availability of key professional personnel. The inability to procure new
contracts and retain existing contracts would result in a reduction of Company
revenue and could have a material adverse effect on the Company's results of
operations. In addition, because the markets for the Company's products and
services are competitive, the Company may experience downward pressure on gross
and operating profits as a percentage of revenues. The Company believes that it
is likely that these competitive conditions and the commensurate pressure on
margins will continue in the future. There can be no assurance that the Company
will continue to compete successfully against existing or new competitors that
may enter markets in which the Company operates. See "Business--Competition."
INDUSTRY CONSOLIDATION AND PRICE REDUCTIONS. The microcomputer products
Government market is undergoing significant change. Certain systems integrators
are combining operations or acquiring or merging with other integrators to
increase efficiency. This industry consolidation could result in short-term
price-cutting. Decreased prices of microcomputers and related products may
require the Company to sell a greater number of products to achieve the same
level of net revenues and gross profit. Such a trend could make it more
difficult for the Company to continue to increase its net revenues and income.
In addition, if the industry's rate of growth were to decrease further, it could
have a material adverse effect on the
9
<PAGE>
Company's operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RAPID CHANGES IN PRODUCT STANDARDS AND RISK OF INVENTORY OBSOLESCENCE. The
microcomputer products market is characterized by rapid technological change and
the frequent introduction of new products and product enhancements. The Company
has sought to minimize its inventory exposure through a variety of inventory
control procedures and policies, including automated "just-in-time" management
and vendor price protection programs. Historically, the Company has purchased
inventory to fulfill existing orders. However, in order to satisfy customer
demand, to obtain greater purchasing discounts, and to fill commercial orders,
the Company expects to carry increased inventory levels of certain products in
the future. The Company attempts to anticipate and react to new product
introductions and to mitigate its exposure to losses from inventory
obsolescence. There can be no assurance that such efforts will be successful or
that unexpected new product introductions will not have a material adverse
effect on the demand for the Company's inventory. See "Business--Purchasing."
CONTROL BY EXISTING STOCKHOLDERS. Upon the completion of this Offering, the
Company's management will collectively beneficially own 80% (77% if the
Underwriter's over-allotment option is exercised in full) of the Company's
outstanding Common Stock. Because of their beneficial stock ownership, these
stockholders will be in a position to continue to elect the members of the Board
of Directors and decide matters requiring stockholder approval. See "Principal
Stockholders."
NO PRIOR PUBLIC MARKET. Prior to this Offering, there has been no public
market for the Common Stock. Accordingly, there can be no assurance that an
active trading market will develop and be sustained upon the completion of this
Offering. The initial public Offering price of the Common Stock has been
determined by negotiations between the Company and the Underwriter. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public Offering prices. The stock market has, from time to time,
experienced extreme price and volume fluctuations which often have been
unrelated to the operating performance of particular companies. Although it has
no obligation to do so, the Underwriter intends to engage in market-making
activities or solicited brokerage activities with respect to the purchase or
sale of Common Stock in the Nasdaq National Market. However, no assurance can be
given that the Underwriter will continue to participate as a market-maker in the
securities of the Company or that other broker/dealers will make a market in
such securities which may adversely impact the liquidity of the Shares.
Regulatory developments and economic and other external factors, as well as
period-to-period fluctuations in financial results, may also have a significant
impact on the market price of such securities.
IMMEDIATE AND SUBSTANTIAL DILUTION. This Offering involves an immediate and
substantial dilution to investors. Purchasers of shares of Common Stock in the
Offering will incur an immediate dilution of $3.70 per share in the net tangible
book value of their investment from the initial public offering price, which
dilution amounts to approximately 74% of the initial public offering price per
Share. Investors in the Offering will pay $5.00 per Share, as compared with an
average cash price of $.03 per share of Common Stock paid by existing
stockholders. See "Dilution."
BROAD DISCRETION IN APPLICATION OF PROCEEDS; UNSPECIFIED
ACQUISITIONS. Approximately 75% of the net proceeds of this Offering will be
applied to working capital and general corporate purposes. In addition, the
Company may utilize a portion of the net proceeds of this Offering currently
allocated to working capital for potential acquisitions. As of the date of this
Prospectus, the Company has not identified any particular acquisition targets.
Stockholders of the Company may have no opportunity to approve specified
acquisitions or to review the financial condition of any potential target.
Accordingly, management of the Company will have broad discretion over the use
of proceeds. See "Use of Proceeds."
NEED FOR ADDITIONAL FINANCING. The Company believes that the proceeds of
the Offering will, together with revenues from operations, be sufficient to
finance the Company's working capital requirements for a period of at least 12
months following the completion of this Offering. In addition, a part of the
Company's strategy is to acquire companies with related and complementary
businesses, although the
10
<PAGE>
Company has not presently identified any specific acquisitions. The continued
expansion and operation of the Company's business beyond such 12 month period
and its ability to make acquisitions may be dependent upon its ability to obtain
additional financing. There can be no assurance that additional financing will
be available on terms acceptable to the Company, or at all. In the event that
the Company is unable to obtain such additional financing as it becomes
necessary, the Company may not be able to achieve all of its business plans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SHARES ELIGIBLE FOR FUTURE SALE. Of the 5,000,000 shares of Common Stock of
the Company to be outstanding upon completion of this Offering, 4,000,000 shares
shall be "restricted securities," which are owned by "affiliates" of the
Company, as those terms are defined in Rule 144 promulgated under the Act.
Absent registration under the Act, the sale of such shares is subject to Rule
144, as promulgated under the Act. All of the "restricted securities" are
eligible for resale under Rule 144. In general, under Rule 144, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company, who has beneficially owned restricted shares of Common Stock for at
least two years (which time period becomes one year commencing April 29, 1997)
is entitled to sell in a brokerage transaction, within any three-month period, a
number of shares that does not exceed the greater of 1% of the total number of
outstanding shares of the same class, or if the Common Stock is quoted on NASDAQ
or a stock exchange, the average weekly trading volume during the four calendar
weeks preceding the sale. Rule 144 also permits a person who presently is not
and who has not been an affiliate of the Company for at least three months
immediately preceding the sale and who has beneficially owned the shares of
Common Stock for at least three years (which time period becomes two years
commencing April 29, 1997) to sell such shares without regard to any of the
volume limitations as described above. All of the Company's existing
stockholders are affiliates of the Company. In addition, such affiliates have
agreed not to sell or otherwise dispose of any of their shares of Common Stock
now owned or issuable upon the exercise of currently exercisable warrants for a
period of six months from the date of its Prospectus, without the prior written
consent of the Underwriter. No prediction can be made as to the effect, if any,
that sales of shares of Common Stock or the availability of such shares for sale
will have on the market prices of the Company's securities prevailing from time
to time. The possibility that substantial amounts of Common Stock may be sold
under Rule 144 into the public market may adversely affect prevailing market
prices for the Common Stock and could impair the Company's ability to raise
capital in the future through the sale of equity securities. See "Shares
Eligible for Future Sale."
NO DIVIDENDS AND NONE ANTICIPATED. To date, no dividends have been declared
or paid on the Common Stock, and the Company does not anticipate declaring or
paying any dividends in the foreseeable future, but rather intends to reinvest
profits, if any, in its business. Investors should, therefore, be aware that it
is unlikely that any dividends will be paid on the Common Stock in the
foreseeable future. See "Dividends."
NASDAQ ELIGIBILITY AND MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF
COMMON STOCK FROM NASDAQ NATIONAL MARKET SYSTEM; RISKS OF LOW-PRICED
STOCKS. Prior to this Offering, there has been no established public trading
market for the Company's Common Stock and there is no assurance that a public
trading market for the Company's securities will develop after the completion of
this Offering. If a trading market does in fact develop for the securities
offered hereby, there can be no assurance that it will be sustained.
The Company has applied for listing of the Common Stock on the NASDAQ
National Market System upon the Effective Date. The Commission has approved
rules imposing criteria for listing of securities on the NASDAQ National Market
System, including standards for maintenance of such listing. In order to qualify
for initial quotation of securities on the NASDAQ National Market System, an
issuer, among other things, must have at least $4,000,000 in net tangible
assets, $3,000,000 in market value of the public float and a minimum bid price
of $5.00 per share. For continued listing, an issuer, among other things, must
have $1,000,000 in net tangible assets, $1,000,000 in market value of securities
in the public float and a minimum bid price of $1.00 per share. If the Company
is unable to satisfy the NASDAQ National Market
11
<PAGE>
System's maintenance criteria in the future, its Common Stock may be delisted
from the NASDAQ National Market System. In such event, the Company would seek to
list its Common Stock on the NASDAQ Small Capitalization Market; however, if it
was unsuccessful, trading, if any, in the Company's Common Stock, would
thereafter be conducted in the over the counter market in the so-called "pink
sheets" or the NASD's "Electronic Bulletin Board." As a consequence of such
delisting, an investor would likely find it more difficult to dispose of, or to
obtain quotations as to, the price of the Company's Common Stock.
PENNY STOCK REGULATION. In the event that the Company is unable to satisfy
the maintenance requirements for the NASDAQ National Market and its Common Stock
falls below the minimum bid price of $5.00 per share for the initial quotation,
the Company would seek to list its securities on the NASDAQ Small Capitalization
Market. If it was unsuccessful, trading would be conducted on the "pink sheets"
or the NASD's Electronic Bulletin Board. In the absence of the Common Stock
being quoted on NASDAQ, or the Company's having a minimum of $2,000,000 in
stockholders' equity, trading in the Common Stock would be covered by Rule 15g-9
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), for non-NASDAQ and non-exchange listed securities. Under such rule,
broker-dealers who recommend such securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities are exempt from this rule if the market
price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security listed
on NASDAQ, and an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years, or (iii) average
revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
If the Company's Common Stock were to become subject to the regulations
applicable to penny stocks, the market liquidity for the Common Stock would be
severely affected, limiting the ability of broker-dealers to sell the Common
Stock and the ability of purchasers in this Offering to sell their Common Stock
in the secondary market. There is no assurance that trading in the Common Stock
will not be subject to these or other regulations that would adversely affect
the market for such securities.
PREFERRED STOCK. The Company's Certificate of Incorporation authorizes the
issuance of 2,000,000 shares of "blank check" Preferred Stock with such
designations, rights and preferences as may be determined from time to time by
its Board of Directors. Accordingly, the Company's Board of Directors is
empowered, without further approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the Common Stock. The Company has
no current plans to issue any shares of Preferred Stock; however, in the event
of issuance, the Preferred Stock could be used, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control of the
Company. See "Description of Securities."
UNDERWRITER'S WARRANTS AND REGISTRATION RIGHTS. In connection with this
Offering, the Company has agreed to sell to the Underwriter, for $10, the
Underwriter's Warrants which entitles the Underwriter to purchase up to 100,000
shares of Common Stock. The Underwriter's Warrants are exercisable at $6.50
(130% of the Offering Price) per share of Common Stock for a period of four
years commencing one year from the date of this Prospectus. The exercise of the
Underwriter's Warrants may adversely affect the Company's ability to obtain
equity capital, and, if the Common Stock issuable upon the exercise of the
Underwriter's Warrants is sold in the public market, may adversely affect the
market price of the Common Stock. The Underwriter has been granted certain
"piggyback" and demand registration rights for a period of five years from the
date of this Prospectus with respect to the registration under the Act of the
securities directly issuable upon exercise of the Underwriter's Warrants. See
"Underwriting."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby, after deducting underwriting discounts and commissions and other
expenses of this Offering are estimated to be $4,025,000.
The Company currently intends to utilize the net proceeds of the Offering as
follows:
<TABLE>
<S> <C> <C>
Improving manufacturing capabilities(1)................. $ 500,000 12.42%
Expansion of marketing activities(2).................... 500,000 12.42%
Working capital and general corporate purposes.......... 3,025,000 75.16%
--------- ---------
Total................................................... $4,025,000 100.00%
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Includes the purchase of rollers, testers and other production equipment.
The Company intends to apply for ISO 9000 certification after the Offering.
See "Business -- Facilities."
(2) Includes the cost of advertising in selected Government and commercial
publications and increased attendance at trade shows and developing a
marketing campaign aimed at the commercial market.
The foregoing represents the Company's estimate of the allocation of the net
proceeds of the Offering, based upon the current status of its operations and
anticipated business needs. It is possible, however, that the application of
funds will differ considerably from the estimates set forth herein due to
changes in the economic climate and/or the Company's planned business operations
or unanticipated complications, delays and expenses, as well as any potential
acquisitions that the Company may consummate, although no specific acquisition
has been identified. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Any reallocation of the net proceeds will
be at the discretion of the Board of Directors of the Company.
Pending application, the net proceeds will be invested principally in United
States government securities, short-term certificates of deposit, money market
funds or other short-term interest-bearing investments.
The Company estimates that the net proceeds from this Offering will be
sufficient to meet the Company's liquidity and working capital requirements for
a period of 12 months from the completion of this Offering. In the event that
the Company consummates any acquisition, although no specific acquisition has
been identified, such funds will be derived from the funds currently allocated
to working capital or from revenues generated from the Company's operations.
There can be no assurance that the Company will generate sufficient revenues for
such acquisitions.
DIVIDEND POLICY
The Company has never paid or declared dividends on its Common Stock. The
payment of cash dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements, financial condition and other relevant factors. The Company
intends, for the foreseeable future, to retain future earnings for use in the
Company's business.
13
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
January 31, 1997, and as adjusted to give effect to the sale of the 1,000,000
shares of Common Stock offered hereby and to the application of the net proceeds
therefrom, at the assumed initial public Offering price of $5.00 per share. See
"Use of Proceeds."
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1997
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
------------ ------------
Stockholders' equity:
Preferred Stock, $.001 par value; 2,000,000 shares authorized,
no shares issued and outstanding on an actual and as adjusted
basis......................................................... $ -- $ --
Common Stock, $.001 par value; 20,000,000 shares authorized,
4,000,000(1) shares issued and outstanding on an actual basis,
5,000,000(1)(2) shares issued and outstanding on an as
adjusted basis................................................ 4,000 5,000
Additional paid-in capital...................................... 111,857 4,135,857
Retained earnings............................................... 2,369,149 2,369,149
------------ ------------
Total stockholders' equity........................................ $ 2,485,006 $ 6,510,006
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) Does not include 600,000 shares of Common Stock reserved for issuance
pursuant to the Company's Stock Option Plan. See "Management--Incentive
Stock Option Plan."
(2) Does not include 100,000 shares of Common Stock issuable upon exercise of
the Underwriter's Warrants. See "Underwriting."
14
<PAGE>
DILUTION
At January 31, 1997 the net tangible book value of the Company was
$2,485,006 or $.62 per share of Common Stock based on 4,000,000 shares of Common
Stock outstanding. The net tangible book value per share represents the amount
of the Company's total assets less total liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the receipt of the
net proceeds (estimated to be approximately $4,025,000) from the sale of the
shares of Common Stock offered hereby at an assumed initial public Offering
price of $5.00 per share, the proforma net tangible book value of the Company at
January 31, 1997 would be $6,510,006 or $1.30 per share of Common Stock. This
would result in dilution to the public investors (i.e. the difference between
the estimated initial public Offering price per share of Common Stock and the
net tangible book value thereof after giving effect to this Offering) of
approximately $3.70 per share. The following table illustrates the per share
dilution:
<TABLE>
<CAPTION>
PER SHARE OF
COMMON STOCK
--------------------
<S> <C> <C>
Assumed initial public Offering price........................................... $ 5.00
Net tangible book value at January 31, 1997................................... .62
Increase in proforma net tangible book value attributable to new investors.... .68
--
Proforma net tangible book value after this Offering............................ 1.30
---------
Proforma dilution of net tangible book value to the new investors............... $ 3.70
---------
---------
</TABLE>
The following table sets forth as of January 31, 1997, with respect to the
Company's existing stockholders and investors in this Offering, the number of
shares of Common Stock acquired from the Company, the percentage of ownership of
such shares of Common Stock, the total consideration paid, the percentage of
total consideration paid, and the average price per share paid by the existing
stockholders and by the investors in this Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT NUMBER PERCENT PER SHARE
---------- ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 4,000,000 80% $ 115,857 2.3% $ .03
New investors.................... 1,000,000 20% 5,000,000 97.7% 5.00
---------- --- ------------ -----
Total...................... 5,000,000 100% $ 5,115,857 100.0% $ 1.02
---------- --- ------------ ----- -----
---------- --- ------------ ----- -----
</TABLE>
15
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data should be read in conjunction with the
consolidated financial statements and the notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere herein. The statement of income data set forth below with
respect to the fiscal years ended October 31, 1995 and 1996 and the balance
sheet data as of October 31, 1996 is derived from and is referenced to the
audited consolidated financial statements of the Company included elsewhere in
this Prospectus. The statement of income data set forth below with respect to
the fiscal years ended October 31, 1993 and 1994 and the balance sheet data as
of October 31, 1993, 1994 and 1995 is derived from audited consolidated
financial statements of the Company not included in this Prospectus. The
statement of income data set forth below with respect to the fiscal year ended
October 31, 1992 and the balance sheet data as of October 31, 1992 is derived
from unaudited consolidated financial statements of the Company not included in
this Prospectus. In the opinion of management, the unaudited consolidated
financial statements include all adjustments, consisting of normal recurring
adjustments, that the Company considers necessary for the fair presentation of
its financial position and results of its operations for that period. In the
opinion of the Company's management, the interim financial data reflect all
adjustments necessary to present fairly the results of operations for the three
months ended January 31, 1996 and 1997 and the Company's financial position at
January 31, 1997. These adjustments are of a normal, recurring nature. The
results of operations of the interim periods are not necessarily indicative of
results that may be expected for a year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31, JANUARY 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................................... $ 2,544 $ 5,812 $ 4,429 $ 7,491 $ 18,099 $ 6,345 $ 5,505
Costs of revenues........................... 2,088 4,858 3,444 6,046 14,103 4,816 4,199
--------- --------- --------- --------- --------- --------- ---------
Gross profit................................ 456 954 985 1,445 3,996 1,529 1,306
Selling, general and administrative......... 349 761 1,005 966 1,972 640 434
--------- --------- --------- --------- --------- --------- ---------
Income from operations...................... 107 193 (20) 479 2,024 889 872
Other income (expense)...................... (1) (1) (32) 8 (9) (55) 8
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) before income taxes....... 106 192 (52) 487 2,015 834 880
Provision for income taxes.................. 35 65 (11) 244 776 321 334
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)........................... $ 71 $ 127 $ (41) $ 243 $ 1,239 $ 513 $ 546
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) per share(1)................ $ .03 $ .04 $ (.01) $ .06 $ .31 $ .13 $ .13
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average number of shares
outstanding(1)............................ 2,850 2,850 3,209 4,050 4,050 4,050 4,100
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AT JANUARY
AT OCTOBER 31, 31,
----------------------------------------------------- -------------
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $ 187 $ 351 $ 340 $ 512 $ 1,872 $ 2,428
Total assets.......................................... 1,058 1,149 2,503 3,647 5,275 5,299
Long-term debt........................................ 57 75 23 -- -- --
Total liabilities..................................... 797 804 2,046 3,047 3,335 2,814
Stockholders' equity.................................. 261 345 457 600 1,939 2,485
</TABLE>
- ------------------------
(1) Computed on the basis described in Note 2 of Notes to Dunn Computer
Corporation's consolidated financial statements included herein.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has been in operation since July 1987. The Company manufactures
custom computer systems which are marketed primarily to the Government and
selected commercial accounts. The Company secures its contracts by bidding
directly as a prime contractor in response to Government "Request for Proposals"
("RFPs") or as a sub-contractor with other federal contractors. The Government
is budgeted to spend over $26 billion on IT products and services in 1997. The
Company plans to expand its operations by acquiring other companies. Although
specific acquisition candidates have not been identified, the Company expects
that a portion of any acquisition price will be paid with shares of the
Company's Common Stock, and a portion may be paid with the proceeds of this
Offering. The Company believes that it will be better able to do this when its
Common Stock is publicly traded. The Company's strategy is to become a leading
supplier of IT to the Government. Below is a common-size income statement for
the Company for the years ended October 31, 1992, 1993, 1994, 1995 and 1996 and
for the three months ended January 31, 1996 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31, JANUARY 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues..................................... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Costs of revenues............................ 82.06% 83.58% 77.76% 80.71% 77.92% 75.91% 76.28%
--------- --------- --------- --------- --------- --------- ---------
Gross profit................................. 17.94% 16.42% 22.24% 19.29% 22.08% 24.09% 23.72%
Selling, general and administrative.......... 13.71% 13.09% 22.69% 12.90% 10.90% 10.08% 7.88%
--------- --------- --------- --------- --------- --------- ---------
Income from operations....................... 4.23% 3.33% -0.45% 6.39% 11.18% 14.01% 15.84%
Other income (expense)....................... -0.05% -0.02% -0.72% 0.11% -0.05% -0.86% 0.14%
Net income (loss) before income taxes........ 4.18% 3.31% -1.17% 6.50% 11.13% 13.15% 15.98%
Provision for income taxes................... 1.38% 1.12% 0.24% 3.26% 4.28% 5.06% 6.07%
--------- --------- --------- --------- --------- --------- ---------
Net income................................... 2.80% 2.19% -0.93% 3.24% 6.85% 8.09% 9.91%
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1996
Revenues for the quarter ended January 31, 1997 were $5,505,350 as compared
to $6,344,973 for the quarter ended January 31, 1996, a 13.2% decline. In the
first quarter of fiscal 1996, the Company earned an aggregate of approximately
$3.3 million from two new contracts. The Company did not anticipate or receive
any revenue in fiscal 1997 from either of the contracts. The loss of revenues
from these contracts was partially offset by revenues of approximately $2.7
million from increased sales under its GSA and US Courts contracts.
Gross profit for the fiscal 1997 first quarter was 23.72% compared to 24.09%
for the first quarter of 1996.
Selling and marketing expenses increased $101,193 in 1997. As a percentage
of revenues, selling and marketing expenses increased from 1.27% to 3.3%. The
increase reflects the costs of additional personnel and marketing expenses. The
Company expects this modest increase to continue, especially as it expands its
marketing efforts to the commercial market.
General and administrative expenses declined by $307,294 from $559,413 to
$252,119. General and administrative expenses represented 8.82% of revenues in
the first quarter of Fiscal 1996 as compared to 4.58% in the same period of
fiscal 1997. The reduction in such expenses can be attributed to a reduction of
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incentive compensation to the senior management of the Company. Under the
employment contracts which will take effect on the Effective Date, fiscal 1997
incentive compensation will not be as high as it was in fiscal 1996.
Income from operations declined $16,753 in the first quarter of 1997 when
compared to the first quarter of 1996. As a percentage of revenues, income from
operations increased from 14.01% to 15.84%. The dollar decline is attributable
to the decline in revenues. The increased percentage is a result of the changes
in the general and administrative expenses.
Interest expense for the first quarter of 1997 was $0 as compared to $57,227
in 1996. Other income increased $4,828 in 1997. The reduction in interest
expense and the increase in other income are both as a result of the Company's
cash position.
Income tax expense as a percentage of taxable income decreased from 38.50%
for 1996 to 38% for 1997. Tax expense increased by $12,700 because of the
increase in taxable income.
As a result, the Company's net income increased from $513,213 in the first
quarter of fiscal 1996 to $545,815 in the first quarter of 1997. Net income as a
percentage of revenues increased from 8.09% of revenues to 9.91% of revenues.
FISCAL YEAR ENDED OCTOBER 31, 1996 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1995
Revenues for fiscal 1996 were $18,098,638, a 141.6% increase over 1995
revenues of $7,491,452. This increase is due to four significant new contracts.
See "Business--Market." Three of the contracts are with commercial companies
that sell to the US Government. Revenues in fiscal 1996 from these four
contracts were $1,588,000, $2,883,000, $3,074,000, and $2,412,000 respectively.
Revenues in fiscal 1996 also increased from the Company's existing contract with
the US Courts.
Gross profit for fiscal 1996 was 22.1% of revenues compared to 19.3% in
fiscal 1995. The improvement can be attributed to increased volume discounts for
material and a reduction in warranty expense. Warranty expense decreased because
of a reduction in the failure rate and more efficient movement of replacement
parts. Management believes this trend will continue because of the quality of
the components used in the Company's systems. Gross profit increased
approximately $2,551,224 as a result of increased revenues.
Selling and marketing expenses increased $321,361 in fiscal 1996 over 1995.
As a percentage of revenues, selling and marketing expenses increased from 2.1%
to 2.6%. The increase is attributable to increased personnel and advertising.
Future increases in selling and marketing expenses are expected as the Company
implements its marketing strategy.
General and administrative expenses increased $684,933 from fiscal 1995 to
1996. The increase is a result of increased personnel cost necessitated by the
expansion of the Company's business. General and administrative expenses as a
percentage of revenues declined from 10.8% to 8.3% because certain personnel and
associated costs did not increase at the same rate as revenues.
Income from operations increased to $2,023,746 in 1996 compared to $478,816
in 1995, an increase of 322.7%. As a percentage of revenues, income from
operations increased to 11.2% in 1996 from 6.4% in fiscal 1995. The increase in
income from operations primarily resulted from increased sales volume and gross
profit margins and declining general and administrative expenses as a percentage
of revenues.
Interest expense increased $31,679 in fiscal 1996 from $26,246 to $57,925.
Interest expense increased because of the requirement for additional working
capital created by the increase in sales during the first six months of fiscal
1996. As a percentage of revenues in fiscal 1996, interest expense was .3%.
Other income (principally interest income) increased from $34,512 in fiscal 1995
to $49,343 in fiscal 1996.
Income tax expense increased from $244,000 to $776,000 due to the increase
in net income.
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As a result, the Company's net income grew by 409.8% to $1,239,164 in fiscal
1996 when compared to $243,082 in 1995. Net income as a percentage of sales was
6.8% in 1996 and 3.2% in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its cash flows needs through cash generated
by operations and its bank credit arrangement.
The Company has generated positive cash flows in each of the last two fiscal
years and in the quarter ended January 31, 1997. In 1995, the Company had a
positive cash flow of $205,753 from operations. The principal source of cash was
from net income of $243,082, an increase in accounts payable and accrued
expenses of $962,335, and an increase in income taxes payable of $223,582. Net
income increased principally because of increased revenues. Payables and accrued
expenses increased because of the increased volume of business. Income taxes
payable increased because of the timing difference between recognizing the
expense and paying income taxes. The principal use of cash was the increase of
accounts receivable of $734,660 and the increase in inventory of $515,426.
Accounts receivable increased because of the increase in volume of business.
Inventory increased because of the increase in volume and the purchase of
inventory required to fill orders early in fiscal 1996. Cash flow from investing
activities was reduced by $15,617 as a result of the purchase of capital
equipment, approximately $12,000 was spent on production equipment and $3,000
was spent on leasehold improvements. Financing activities reduced cash flow an
additional $162,271, $194,809 was used to reduce bank debt and $32,538 was
generated by the repayment of a loan by an officer and director of the Company,
which loan bore no interest. See "Certain Transactions." Net cash flow generated
after all activities was $27,865.
In 1996, the Company had positive cash flows of $1,081,977 from operations.
The principal sources of cash were net income of $1,239,164, an increase in
payables and accrued expenses of $278,552, a decrease in inventory of $211,763,
and an increase in income taxes payable of $260,947. The reasons for the
increase in net income are discussed in Results of Operations--Fiscal year ended
October 31, 1996 and October 31, 1995. Payables increased because of the
increase in volume. Income taxes payable increased because of the timing
difference between recognizing the expense and paying income taxes. Inventory
declined because the Company's inventory position was unusually high the
previous year. The principal use of cash was the increase in accounts receivable
of $951,553. The increase was caused by the increase in sales volume. In fiscal
1995, the Company turned its receivables 4.1 times as compared to 6.7 times in
fiscal 1996. The Company used $171,040 of its investing cash flow, to purchase
$21,040 of capital equipment, which consisted of $18,000 for a new phone system
and $3,040 for miscellaneous leasehold improvements and production equipment. In
addition, the Company made a stock investment of $150,000 in WIZnet, an Internet
related company. See "Certain Transactions." The Company intends to utilize
approximately $500,000 of the proceeds of this Offering to improve its
manufacturing capabilities, including the purchase of rollers, testers and other
production equipment. The Company also utilized a net of $152,231 in financing
activities. In addition, the Company repaid $252,231 of outstanding bank debt
and received a payment of $100,000 from an officer and director of the Company
for the payment of Common Stock. See "Certain Transactions." When reflecting all
transactions, the Company had a net increase in cash and cash equivalent of
$758,726.
In the first quarter of fiscal 1997, the Company generated $1,385,346 from
operating activities. Cash was provided principally by the reduction of accounts
receivable of $1,782,772 and net income of $545,815. Cash was utilized
principally to increase inventory by $339,822 and decrease accounts payable and
income taxes payable by $344,813 and $136,150, respectively. The Company had no
investing activities during the first quarter of fiscal 1997.
In April 1996, the Company entered into a secured revolving credit
arrangement with Signet Bank in Falls Church, Virginia (the "Bank") for a credit
line of up to $2,000,000 that is due on demand and bears interest at prime plus
3/4%. All borrowings are collateralized by the assets of the Company. In
addition, the Company's principal stockholders have personally guaranteed the
bank line of credit. Under the line of
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<PAGE>
credit, the Company is required to maintain a net worth of $1,250,000. In
December 1996, the Company drew down $200,000 from its line of credit for
working capital. The Company repaid such amount in January 1997 and as of the
date hereof has no outstanding borrowings under this line. The Company intends
to maintain this arrangement with the Bank or a similar agreement with another
Bank.
The Company is guarantor on $1,000,000 of mortgage debt for a partnership
owned and controlled by the President and Vice-President of the Company. The
mortgage debt is for the facilities currently occupied by the Company. See
"Certain Transactions."
The Company has, and continues to have, a dependence upon a few major
customers for a significant portion of its revenues. This dependence for
revenues has not been responsible for any unusual fluctuations in operating
results on an annual basis in the past. Management does not believe this
concentration will generate annual fluctuations in operating results in the
future. Orders from these customers can create significant fluctuations from
quarter to quarter. In fiscal 1995, 85% of the Company's revenue was derived
from two customers. In fiscal 1996, approximately 77% of its revenue was derived
from five customers. In addition, approximately 18% of fiscal 1996 revenues and
5% of the first quarter of fiscal 1997 revenues were derived from sub contracts
with prime contractors on Government contracts. Management intends to continue
its efforts to expand the customer base so that the loss of any one customer
would not have a material effect on the Company's operations.
The Company will receive net proceeds of this Offering in an amount
estimated to be approximately $4,025,000 (or approximately 80% of the estimated
gross proceeds of $5,000,000 to be received before payment of applicable
underwriting discounts and commissions and certain other expenses of the
Offering). The Company believes that the proceeds of the Offering coupled with
income from operations will fulfill the Company's working capital needs for at
least 12 months following the Offering. As the Company continues to grow, bank
borrowings, other debt placements and equity offerings may be considered, in
part or in combination, as the situation warrants.
A vendor of the Company has filed a lawsuit against the Company concerning a
disputed payable in the amount of $124,200. While the ultimate outcome of these
matters is not known, the Company intends to vigorously dispute the claim. The
Company believes it has made an adequate provision for this claim in the
consolidated financial statements as of October 31, 1996 which are included
elsewhere in this Prospectus.
RECENT PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" which is effective for the
Company's 1997 consolidated financial statements. SFAS No. 123 allows companies
to account for stock-based compensation under either the new provisions of SFAS
123 or the provisions of APB No. 25, but requires pro forma disclosure in the
footnotes to the consolidated financial statements as if the measurement
provisions of SFAS No. 123 had been adopted. At this time, the Company intends
to account for its stock based compensation in accordance with the provisions of
APB No. 25. As such, the implementation of SFAS No. 123 will not materially
impact the financial position or results of operations of the Company.
The Company has adopted the provisions of SFAS 121. The adoption of SFAS 121
has had no material effect on the financial statements of the Company.
20
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BUSINESS
GENERAL
Dunn Computer Corporation ("Dunn" or the "Company") manufactures custom
computer systems for the Government and selected commercial accounts. Dunn
markets its products directly to the Government as a prime contractor or
indirectly as a sub-contractor to other federal contractors. The Company
supplies systems under its own label as well as the customer's brand name. The
Company's products include Intel based computer systems configured to meet
customer specifications, private label systems, notebook computers and high
performance network client servers. The Company also provides related services
to its customers, including integration and staging services, configuration
control, upgrading existing systems and world-wide warranty support.
MARKET
GOVERNMENT
The Company markets to a wide array of Government organizations including
the Department of Defense, civilian agencies including the Health Care Finance
Administration ("HCFA") and the Judicial branch of the Government. The
Government alone represents 13% of U.S. spending on IT. The Office of Management
and Budget ("OMB") submitted to Congress in January 1997, a Government
Information Technology ("IT") budget of $26 billion. In addition, the Electronic
Industries Association, a major industry trade association, estimates that
Government agencies that are not required to report their information technology
expenditures, including the intelligence community, will spend an additional $20
billion in the Government's fiscal 1997 on such technology. The Company believes
that while the Government down sizing has decreased the number of federal
employees, there has been a corresponding increase in the demand for
productivity tools, such as computers. In fact, President Clinton's recently
submitted budget provides for a slight increase in IT spending in the upcoming
year.
Driving the growth in spending is the ongoing migration to an "electronic
government" called for in the National Performance Review. This trend has
necessitated closer federal, state, and local IT relationships to deliver
state-of-the art "service to the citizen" in the social services, safety,
transportation, environment and tax areas, while still accomplishing the
Government's goal to adopt computer networking technology to interconnect
personal computers into resource-sharing work groups referred to as "local area
networks." In order to perform these tasks, the Government is moving away from
centralized data processing. Instead, more micros, workstations and networks are
being bought to increase efficiency and improve productivity at every level.
Mid-level managers, such as functional managers and departmental specifiers,
have now been empowered to buy a specific vendor's technology.
Congress recently passed the Information Technology Reform Act (the "ITRA")
which took effect on August 8, 1996. The ITRA will have a profound effect on the
way Government procures computers and related products and services in the
future. The changes were made in an effort to reduce costs and expedite the IT
procurement process. The most sweeping changes were (1) the repeal of the Brooks
Act which had given the General Services Administration ("GSA") sole authority
for purchasing IT and, (2) the change in the GSA schedule from a single year
small purchase contracting program to a multi-year, Indefinite Delivery,
Indefinite Quantity ("IDIQ") contract with no limit on the value of purchases.
Prior to the new legislation, the GSA was responsible for overseeing all IT
purchases as well as assuring fair and open competition. The new legislation has
reduced GSA's role to negotiating and awarding GSA contracts to qualified IT
vendors. GSA is paid a 1% commission on contract revenues for providing this
service. The commission is paid by the vendor.
Although the legislation changes may seem minor or merely a technical
adjustment to those not familiar with IT procurement by the Government, the
Company believes that the new law will have far reaching effects in the
procurement process. The Company was awarded a new GSA contract that is valid
through March 31, 1999. The new GSA schedule will provide the Company a
procurement contract vehicle
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to market its products to the Government. In the past, the Company was forced to
market only through the very competitive "Request for Proposals" ("RFP")
process. IT purchases can now be directed to a particular vendor or the
competition can be limited to selected vendors holding GSA contracts. The
Company believes that its classification as a small business (under 1000
employees) is an added advantage when pursuing Government contracts. The
Government in many cases will give preferential treatment or limit competition
to small businesses. Since being awarded the contract in April 1996, the Company
has received GSA contract orders totaling over $3,300,000. For the previous
three years, ending March 31, 1996, the Company had received less than an
aggregate of $5,000 in GSA schedule orders. The Company believes the GSA
schedules to be an important part of its sales and marketing strategy in the
upcoming years. It should also be noted that many states are in the process of
allowing for the procurement of IT products and services from the Federal GSA
schedule. The Company plans to make investments to expand its marketing and
sales efforts to take advantage of these changes in the federal market as well
as the state market. See "Use of Proceeds."
In addition to the GSA schedule, the Company has contracts with Lockheed,
the U.S. Federal Courts and the Health Care Finance Administration. The Lockheed
contract is to provide computer network servers for the Worldwide Defense
Messaging System. Lockheed is the prime contractor on the DMS contract, which is
a five year contract with an initial value of approximately $1.5 billion. The
Company generated revenues of $3,074,000 in fiscal 1996 from the Lockheed
contract. This was the Company's largest single source of revenue in fiscal
1996, accounting for approximately 17% of the Company's revenues. The contract
is a year to year contract that can be renewed for up to five years. The
contract was recently renewed. The Company anticipates, although there can be no
assurance, that revenues from this contract for fiscal 1997 and beyond will be
significant.
The Company's contract with the U.S. Federal Courts terminates in September
1998. The Company expects to generate significant revenues from the U.S. Court's
contract in fiscal 1997 and 1998. The Company's contract with HCFA terminates in
September 1997. The Company expects to generate significant revenues from the
HCFA contract in fiscal 1997.
Washington, DC, Maryland, and Virginia accounted for 68% of the Government's
IT spending in fiscal year 1995. The Company believes that its location within
this area of concentration provides it with an advantage over its competitors in
securing Government contracts. The Company also believes that it is able to
realize significant cost savings due to its location.
COMMERCIAL MARKET
Although the Company will continue to serve its Government market, the
Company intends to increase its penetration of the commercial market. In 1996,
commercial customers represented 32% of the Company's revenues. The Company
believes that its "All in One" desktop computer and fault tolerant server
products are ideally suited to the commercial market. The Company also believes
that the successful marketing of these new products will create additional sales
for its existing products.
The Company intends to market its new line of server products through
systems software companies that currently port applications from mainframe
computers to client/server networks. These companies offer Fortune 1000
companies a turn key solution to their IT problems. The Company believes that
sales of its file servers will give the Company the opportunity to sell these
customers its Desktop systems which can be utilized in the network. The Company
believes that it will also develop customer relationships that can be utilized
to market other existing products such as its notebook computers.
The Company also intends to market its "All in One" product to resellers
that concentrate in the legal and educational markets. The system combines a
computer, fax, stereo and television "All in One". The system has been designed
to take advantage of the recently announced Intel Pentium 200MMX processor. The
Pentium 200MMX is a multi-media CPU which is up to 20% faster than the
conventional Pentium 200.
22
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PRODUCTS
The Company manufactures and assembles a full line of Intel based desktop
personal computers, client servers, and notebook computers. The Company has
entered into the high end fileserver and notebook markets. The Company recently
introduced a line of high end fileservers based on the newest Pentium Pro
processors and a high end Pentium notebook computer. The Company believes,
although there can be no assurance, that these two product lines will be two of
the fastest growing areas in the marketplace during the next three years.
DESKTOPS
The Company manufacturers a high performance line of Pentium desktop
personal computers that are used as standalone and/or network computers. The
systems incorporate the newest Intel technology and can accommodate all the
Intel Pentium processors. The Company's desktops have been tested against
leading national competitors such as Dell Computer and Digital Equipment by
several computer publications, including InfoWorld, Government Computer News and
Federal Computer Week. In August 1996 the Company received the "BEST BUY" award
by INFOWORLD and Federal Computer Week as the "fastest Pentium ever tested". The
award was based on performance, price, and support. The Company strives to keep
ahead of the competition by constantly testing and incorporating the latest
technology into its products.
The Company is presently marketing an "all in one" desktop computer that
incorporates a 17" monitor, stereo speakers, microphone, Internet connection,
television tuner, and full Pentium computer. The system is packaged in a single
chassis with all the computer parts in a removable drawer for ease of upgrade
and maintenance. The Company believes that initial reaction to the "All in One"
has been very positive. The Company further believes that the "all in one"
product will have applications in the Government and commercial market. The
Company is currently developing its "All in One" marketing strategy to appeal to
both the Government and the private markets.
FILESERVERS
The Company has entered the lucrative high end file server market by
introducing a custom line of fault tolerant fileservers based on Intel Pentium
Pro (P6) Processors. The Company markets a single, dual and quad version of the
processors. All of such processors are Microsoft Windows NT, Novell, Banyan, and
Token Ring compatible. The new servers will offer the latest in technology which
the Company believes will provide it with a significant price/performance
advantage over its competitors, such as Hewlett Packard ("HP") and Compaq. The
Company believes that Compaq and HP are realizing significant margins in the
server market. The Company is presently providing servers as a subcontractor for
Lockheed on the multi-billion dollar worldwide Defense Messaging System ("DMS").
DMS is intended to be the largest private messaging network in the world
supporting approximately 2,000,000 users.
NOTEBOOKS
The Company manufacturers, on a brand name basis, a state-of-the-art
notebook with a 12.1" active matrix screen, 8 speed CD-Rom, built-in stereo
sound, infrared communication, and many other advanced features. The system is
assembled and configured in the United States by Dunn and meets the Federal
Governments stringent Buy American and Trade Agreements Act requirements. The
Company plans to market the Notebook product in both the commercial and
Government markets.
STRATEGY
GOVERNMENT
The Company is an experienced Government contractor with significant
proposal and program management expertise. The Company primarily pursues
Government business by targeting two types of contracts, Indefinite Delivery and
Indefinite Quantity (IDIQ), and GSA Schedule business contracts. The
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Company has determined that the Government market offers unique and significant
opportunities for a custom computer manufacturer. Acting as a prime or
subcontractor allows the Company to utilize its core expertise in Government
contracting and custom assembly manufacturing. The Company believes that it has
the ability to quickly react to the product requirements and the terms and
conditions of the Government contracts. By aggressively targeting the Government
market, primarily concentrating on the Company believes that it has certain
business advantages over mass market manufacturers such as Dell, Compaq,
Gateway, IBM, etc. which generally design and manufacture standard systems
targeted at a broader market while the Company designs and manufactures systems
specifically in response to Government requirements.
The Company anticipates, although there can be no assurance, that the
Government IT market will continue to grow even as the Government down sizes.
The Company's client/server products, although custom configured, are used in
everyday office tasks as productivity tools. The Government is on its third
generation of personal computers and is a well educated user of technology. In
many ways, the Government leads industry in the adaptation and use of modern
technology tools such as personal computers. Based upon its general knowledge of
the computer industry, the Company believes that the Government typically
upgrades its information technology every two to three years.
The Government, although perceived as difficult to understand and work with,
offers the educated supplier unique opportunities. The Company's management
includes experienced and highly trained federal contractors and computer
specialists. The Company believes that its management's understanding of the
subtleties of this unique market provides the Company with a significant
advantage in penetrating and making profits in the Government arena.
By historically focusing primarily on the Government market while offering a
wide variety of horizontal computer applications, management believes the
Company has benefitted from the following advantages:
SIGNIFICANT INVENTORY RISK IS ELIMINATED BECAUSE INVENTORY IS PROCURED
TO SATISFY FIRM FIXED PRICE CONTRACTS. The computer industry's volatile
inventory such as memory and processors are purchased to satisfy specific
contract requirements. Competitors like Compaq and IBM generally purchase or
commit to inventory significantly in advance to meet its forecasted or
historical requirements.
THE COMPANY'S PRODUCTS ARE BUILT TO CONTRACT ORDER ALLOWING THE COMPANY
TO TAKE ADVANTAGE OF THE LATEST IN TECHNOLOGY AND MARKET PRICES. Typically,
the Government requires delivery 30 days after ordering which allows the
Company to purchase the latest technology at the then prevailing prices
while not incurring any extra expenses for ordering the technology on a rush
basis. The Company believes that, by purchasing the latest technology, it is
able to offer the "best of the breed" products.
RECEIVABLE COLLECTIONS AND BAD DEBT ARE SIGNIFICANTLY REDUCED DUE TO THE
STABILITY OF THE GOVERNMENT. The Government is a reliable payer who by law
(Prompt Payment Act) must pay interest to suppliers after 30 days. In the 9
years the Company has been in business, it has not experienced a bad debt
from the Government.
LESS MARKETING EXPENSES DUE TO CONSOLIDATED MARKET. Although the
Company intends to increase its marketing efforts after the Offering, the
Company, as compared with its competitors, can allocate less advertising
dollars to reach its buyers. Print advertising in the two main IT
periodicals will reach nearly 100% of the Government market. Travel is
greatly reduced because the Company's headquarters are located in the
Washington DC area.
CUSTOMIZATION OF PRODUCTS CAN BE ACCOMPLISHED EASILY BECAUSE PRODUCTS
ARE PURCHASED TO SATISFY A SPECIFIC CONTRACT. The Company's parts are
selected specifically with customization, upgrade, and serviceability goals.
The Company's systems which are configured for the Government, unlike most
competitors' systems, are intentionally not designed for the mass market but
rather for ease of modification, upgrade and repair. Further, in the event
that the Company develops an improved
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product or wishes to change the price of one or several of its products, the
GSA Schedule has a built in mechanism which allows the Company to amend the
contract several times per year.
HISTORICAL PRICE DECREASES IN COMPUTER PARTS, SUCH AS MEMORY,
PROCESSORS, AND COMPUTER HARD DISKS ALLOW THE COMPANY TO INCREASE PROFIT
MARGINS OVER THE LIFE OF THE CONTRACT. During the life of a contract, the
Company has the opportunity to modify the contract with the latest
technology offering the Government lower prices and more power while
increasing profit margins. Although the Government uses multi-year fixed
price contracts, it is impossible to predict future technology changes and
pricing. Therefore the Government normally puts a "technology enhancement or
refresh clause" in all computer contracts. The clause encourages suppliers
to keep the contract refreshed with the latest technology.
COMMERCIAL
In 1996, commercial customers represented 32% of the Company's revenues. The
Company intends to initially focus its expansion on sales of its "All in One"
desktop computer and fault tolerant server products which it believes are
ideally suited to the commercial market. The Company believes that it can market
many of its other products to purchasers of its "All in One" and fault tolerant
server products.
The Company's strategy is to provide commercial enterprises with turnkey
office automation computer solutions. The Company believes that by offering
customers a turnkey system for a fixed price in a specific time frame it can
differentiate itself from its competitors and increase its penetration of the
commercial market. The Company intends to devote a portion of its marketing
resources to the commercial market. See "Use of Proceeds."
MARKETING AND SALES
The Company uses an in-house sales force and program managers to market its
products and services. Although Dunn markets nationally, the Company's marketing
efforts are concentrated in the Washington DC metropolitan area. The Washington
metropolitan area (DC, VA, MD) accounts for 68% of all Government computers
procured. The Company's sales to the Government result primarily from:
(1) Prime Contractor - directly submitting a proposal in response to a
government Request for Proposal (RFP).
(2) Sub-contractor - acting as a sub-contractor to a government prime
contractor.
(3) GSA Schedule - direct marketing of products from the Company's GSA
product catalogue.
The Company believes that marketing will become increasingly important in
light of the new procurement legislation and plans to begin a major brand
recognition advertising campaign in two federal publications. The campaign will
emphasize performance, value, and past experience. New products such as servers
and the "All in One" system will be featured. The Company believes that its
ability to offer state-of-the art products, past experience and an established
customer base will prove to be an advantage now that Government customers can
purchase large quantities of products from their GSA contract.
AGGRESSIVE, TARGETED MARKETING. The Company believes targeting vertical
markets such as the federal and state Governments is the most effective approach
to the successful sale of its products. The federal Government is a computer
literate, price conscious customer. The Company believes the Government
represents a very attractive segment of the microcomputer direct marketing
industry because it tends to demand leading edge, high performance technology
products. The Company intends to generate increased sales opportunities in the
Government market through print media advertisements placed regularly in leading
federal computer publications, such as Federal Computer Week and Government
Computer News. The Company intends to expand its commercial business by
targeting specific industries such as the legal market and providing turnkey
solutions. The Company intends to generate sales opportunities through print
media advertisements placed regularly in leading vertical computer publications.
The Company's
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<PAGE>
advertisements feature testimonials, value-pricing, detailed product
descriptions, and full color photographs.
BUILDING CUSTOMER LOYALTY. The Company strives to build a strong
relationship with its customers. The Company believes that a key to building
customer loyalty is a team of knowledgeable and responsive account executives
and technical and support staff. The Company assigns each customer a trained
account executive, to whom subsequent calls to the Company will be directed. The
Company believes that these strong one-on-one relationships improve the
likelihood that the customer may consider the Company for future purchases.
Product support technicians are available 24 hours per day 7 days a week.
BEST OF THE BREED TECHNOLOGY. The Company intends to continue to provide
its customers with the latest technology at the lowest cost. The Company
believes that the discipline learned in providing federal customers with the
best technology at the lowest cost can be applied effectively in the commercial
marketplace.
UTILIZATION OF EMERGING MARKETING TECHNOLOGIES. The Company intends to
exploit emerging electronic commerce technologies and believes that both the
Government and commercial customers will continue to expand and utilize these
technologies. Internet and on-line computer services are being used by the
Government and many companies to advertise opportunities as well as reference
vendor information. The Company maintains a web site on the Internet wherein its
GSA catalogue and products can be referenced. In addition, the Company provides
the capability for customers to download updated software and drivers that
become available. The Company intends to place its catalogs on diskette and
CD-ROM. The Company believes that its targeted customer base will have a greater
acceptance of these interactive services because its customers tend to have a
greater familiarity with technology products and services.
The Company's marketing strategy to penetrate the commercial market includes
developing the capability to provide businesses with turnkey office automation
computer solutions. The Company intends to expand its hardware expertise to
include software application solutions. It is the Company's goal to provide its
customers with a full range of products including client servers, desktop
workstations, network access, and application software. In addition, it will be
the Company's goal to offer complete remote help desk support via its planned
remote diagnostic and support system. The Company believes fast changing
computer technology and Internet technologies will provide opportunities for
technology solution providers. The Company intends to design and install a
turnkey system for a fixed price and a set date of completion. The Company
intends to work closely with the client to design a system that meets the needs
of the client with a set budget. All systems will be implemented with commercial
off the shelf hardware and software.
SERVICE AND SUPPORT
The Company believes that its dedication to prompt, efficient customer
service and technical support are important factors in customer retention and
overall satisfaction.
TOLL-FREE TECHNICAL SUPPORT. The Company provides toll-free technical
support to its customers 365 days a year. Product support technicians assist
customers with questions concerning compatibility, installation, determination
of defects and general questions of product use. The product support technicians
authorize on-site service or Return Material Authorization ("RMA") to the
Company for warranty service. The Company generally provides for a one-year RMA
warranty on its products, although some customers require a three-year on-site
service warranty. The Company makes service calls to its customers in the
Washington, D.C. area and maintains arrangements with national service
organizations to provide repair services outside the area.
SPECIALTY COMMUNICATIONS. Company employees use the Internet network to
enhance customer support and interbusiness correspondence. Customers can utilize
the Internet to contact their sales,
26
<PAGE>
customer service and technical support representatives via text-based messages
which are promptly returned.
COMPETITION
GOVERNMENT MARKET
The Company believes that unique terms and conditions and technical
specifications of Government customers typically preclude national brand
companies (IBM, Compaq, Dell Computer, AST, Apple, etc.) from being successful
in responding to Government RFPs. Certain provisions of Government contracts
(i.e. long-term fixed prices, mandatory maintenance response times, liquidated
damages, etc.) make it difficult for and often not in the best interests of high
volume mass market companies to pursue. Many of these national brand companies,
for a variety of reasons, have not focused on the Government market, however,
there can be no assurance they will not do so in the future.
Although the Company has significant competition from local and remote
companies, it believes that its record and past performance provides it with an
advantage in competing for Government work. There has been a consolidation in
the industry as a result of acquisitions and the failure of many firms. The
competition has settled into a small group of competitors mostly in the
Washington area, some of whom are not manufacturers but rather systems
integrators. The Company believes that the Government's selection criteria for
vendor selection consists of price, quality, familiarity with the vendor, and
size and financial capability of the vendor. In particular, the Company believes
that the Government focuses on the reasonableness of its order quantity with
respect to a specific vendor's capabilities. The Government has recently made
past performance in federal contracting a significant criteria in vendor
selection. Management believes that the Company has never previously performed
in a manner which might be viewed negatively in future selections by the
Government.
The following companies are direct competitors of the Company in the
Government market:
<TABLE>
<CAPTION>
COMPANY TYPE
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
BTG, Inc., Fairfax, VA System Integrator
Winn Laboratories, Inc. Manassas, VA Manufacturer
International Data Products Corp. (IDP) Rockville, Manufacturer
MD
Sysorex Information Systems, Inc., Winchester, VA Systems Integrator
Cordant, Inc., Fairfax, VA Systems Integrator
Zenith Data Systems, Inc., IL Manufacturer
</TABLE>
COMMERCIAL MARKET
The microcomputer products industry is highly competitive. Pricing is very
aggressive in the industry and the Company expects pricing pressures to continue
to intensify. The microcomputer products industry is also characterized by rapid
changes in technology and consumer preferences, short product life cycles and
evolving industry standards.
Microcomputers are marketed through several distribution channels including
direct marketing, traditional microcomputer retailers, computer superstores,
consumer electronic and office supply superstores and other resellers. There are
many manufacturers of microcomputers, substantially all of which have greater
financial, marketing and technological resources than the Company. The Company
competes with manufacturers such as Compaq Computer Corporation, Dell Computer
Corporation, Gateway 2000, IBM and Packard Bell Computer Corporation. There can
be no assurance that the Company will in the
27
<PAGE>
future be able to compete effectively against existing competitors, especially
companies who have historically focused their energies on the commercial market.
The principal elements of competition are product reliability and quality,
customization, price, customer service, technical support and product
availability. In addition, the Company believes by offering commercial customers
turnkey office automation computer solutions it can differentiate itself from
its competitors.
FACILITIES
The Company operates in a 35,000 square foot facility in Loudoun County,
Virginia. The facility is owned and operated by C&T Partnership, an entity
comprised of Thomas Dunne, the Company's President, and his wife Claudia Dunne,
the Company's Vice President. In addition, the mortgage on the facility is
guaranteed by the Company. See "Certain Transactions." The Company presently
utilizes approximately 20,000 square feet of the facility. The remaining 15,000
square feet are occupied by two non-affiliated tenants with concurrent leases
terminating in May of 1998. It is anticipated that the Company will occupy the
vacated space. The existing space in the facility can produce approximately
35,000 systems per year on a single shift basis. The Company's lease rate is
$8.74 per square foot, including facility maintenance. The Company's lease
expires in 1999, but it has an option to renew for an additional five years.
The Company's goal is to increase production capacity to 200,000 units per
year. The Company believes this can be accomplished in the existing facility on
a three shift basis. The Company intends to have its facility certified for the
International Quality Standard ISO 9000, which requires it to meet certain
stringent requirements established in Europe, but adopted throughout the world,
to ensure that facilities' manufacturing processes, equipment and associated
quality control systems will satisfy specific customer requirements. The Company
believes that the ISO 9000 quality standard will become a significant factor in
the Government, market and the commercial market. The Company believes that by
obtaining ISO 9000 certification, it will benefit them in the commercial market.
The Company estimates that it will take approximately 18 months to obtain ISO
9000 certification, but there can be no assurance such certification will be
obtained.
PATENTS, TRADEMARKS AND LICENSES
The Company does not maintain a traditional research and development group,
but works closely with microcomputer product suppliers and other technology
developers to stay abreast of the latest developments in microcomputer
technology. While the Company does not believe that its continued success will
depend upon the rights to a patent portfolio, there can be no assurance that the
Company will continue to have access to existing or new technology for use in
its products.
The Company conducts its business under the trademarks and service marks
"Dunn Computer Corporation". The Company has a copyright on its corporate logo.
The Company believes its trademarks and service marks have significant value and
are an important factor in the marketing of its products.
Because most software used on Dunn Computer Corporation-configured computers
is not owned by the Company, the Company has entered into software licensing
arrangements with several software manufacturers, including Microsoft
Corporation.
USE OF TRADENAMES AND PRODUCT NAMES
The following trademarks or tradenames are used in this Prospectus to
identify the entities claiming the marks or names of their products: "Apple" for
Apple Computer, Inc., "AST" for AST Research Inc., "Compaq" for Compaq Computer
Corporation, " "Dell Computer" for Dell Computer Corporation, "IBM" for
International Business Machines Corporation, "Intel" and "Pentium" for Intel
Corporation, "Microsoft," "MS-DOS" and "Microsoft Windows" for Microsoft
Corporation, " "Novell" for Novell, Inc.
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<PAGE>
EMPLOYEES
As of January 31, 1996, the Company employed 31 persons, of whom three are
employed in executive capacities, seven are engaged in sales and marketing, two
are engaged in administrative capacities, and nineteen (19) are engaged in
operations. None of the Company's employees is covered by a collective
bargaining agreement. The Company considers its relationship with its employees
to be good.
LEGAL PROCEEDINGS
In fiscal 1996, Pulsar Data Sytems, a vendor, commenced an action against
the Company in the Circuit Court for Loudoun County, Virginia. The Plaintiff
seeks refund of approximately $124,200 in connection with a rebate offered by
the manufacturer of certain products purchased from Plaintiff by the Company.
The Company is vigorously contesting the action, both factually and legally, and
has asserted a counter claim contending that the disputed money rightfully
belongs to the Company.
The Company is not aware of any other legal proceedings.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Directors
and Executive Officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Thomas P. Dunne................................. 54 Chairman, Chief Executive Officer, and President
John D. Vazzana................................. 53 Executive Vice President, Chief Financial
Officer, Director
Claudia N. Dunne................................ 37 Vice President, Director
VADM E. A. Burkhalter, Jr., USN................. 68 Director
Daniel Sinnott.................................. 62 Director
</TABLE>
The term of office of each Director is until the next annual meeting of
shareholders and until a successor is elected and qualified or until the
Director's earlier death, resignation or removal from office. Executive officers
hold office until their successors are chosen and qualify, subject to earlier
removal by the Board of Directors. Set forth below is a biographical description
of each director and executive officer of the Company based on information
supplied by each of them.
THOMAS P. DUNNE has been Chairman, Chief Executive Officer and President of
the Company since he founded the Company in 1987. From 1982-1987, Mr. Dunne was
the Director of Sales for Syntrex Corporation, a corporation that supplies
computer hardware and software to the legal profession. Prior thereto, Mr. Dunne
spent 12 years with Perkin Elmer Corporation, a Delaware corporation, where he
held several positions, including Director of North American Sales. Mr. Dunne
also served in the United States Army for two years where he was a Senior
Instructor with the Army Electronics Command. Mr. Dunne is married to Ms.
Claudia Dunne, the Vice President of the Company.
JOHN D. VAZZANA has been the Executive Vice President and Chief Financial
Officer of the Company and a Director since 1994. From 1992-1994, Mr. Vazzana
was the CEO of Hitchler Industry, a manufacturer of plastic lumber made from
recycled plastic. From 1986-1992, Mr. Vazzana was CEO of NRM Steelastic, a
company which he founded which was engaged in the manufacture of capital
equipment for the tire industry. In January 1992, NRM Steelastic filed for
bankruptcy protection primarily as a result of the loss of a significant portion
of its business due to the on-set of the Persian Gulf War. Specifically, NRM had
manufactured significant customized tire equipment for sale to the Iraqi
government, which inventory the Company was unable to sell due to its customized
nature. The corporate bankruptcy has not been discharged to date. Prior thereto,
Mr. Vazzana was Executive Vice President for C3, Inc., a federal computer
systems integrating company which he joined in 1974.
CLAUDIA N. DUNNE, a co-founder of the Company, has been Vice President and a
Director of the Company since its inception. From 1985-1987, Ms. Dunne was
Federal Proposal Manager for Syntrex, Inc. From 1983-1985, Ms. Dunne was
Proposal Manager for Harris & Paulson, a company which, like Syntrex, Inc., sold
minicomputers and proprietary time and accounting software for law firms. Ms.
Dunne is married to Mr. Thomas Dunne, the President of the Company.
VICE ADMIRAL E. A. BURKHALTER, JR., has been a director of the Company since
January 1997. Mr. Burkhalter is currently the President of Burkhalter
Associates, Inc. a consulting firm providing services in the areas of
international and domestic strategy, management policy and technology
applications for both government and industry. Mr. Burkhalter is also currently
a member of the Director of Central Intelligence (DCI) Military Advisory Panel
and serves as an advisor to the Defense Intelligence Agency. He is also an
Officer and Director of the Navy Submarine League. Mr. Burkhalter has served as
an International Director for the Armed Forces Communications and Electronics
Association (AFCEA) and as Director of the Security Affairs Support Association
(SASA). Mr. Burkhalter spent 40 years as a member of the United States Navy,
during which time he held several positions, including Director of
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<PAGE>
Strategic Operations for the Chairman of the Joint Chiefs of Staff, commanding
officer of a nuclear submarine followed by command of a submarine division and
squadron. During the second half of Mr. Burkhalter's Naval career, he served
principally in intelligence assignments, including senior positions in Naval
Intelligence, The Defense Intelligence Agency, and as Director of the
Intelligence Community Staff. Upon retirement, he was senior military officer
assigned to duty in the U.S. Intelligence Community and directed the principal
coordinating body for all U.S. intelligence activities. As the Director of the
Intelligence Community Staff for four years, he had direct responsibilities for
the integration of all aspects of National and Military Intelligence, Space
Programs and working relationships with the Assistant Secretary of Defense for
C3 I Systems, which included the management of the Defense Reconnaissance
Support Program Office. Mr. Burkhalter has chaired a 20-person advisory panel
for the Defense Advanced Research Projects Agency concerning advanced space
technology and light satellite initiatives. He served on a review of
antisubmarine warfare sponsored by the U.S. Congress. He also chaired an
interagency task force for then Vice President George Bush which studied issues
related to the prevention of terrorists and narcotics traffickers from crossing
U.S. borders. He is currently the Chairman of the Attorney General's Policy
Advisory Panel for Law Enforcement Technology. Mr. Burkhalter is a 1951 graduate
of the U.S. Naval Academy.
DANIEL SINNOTT has been a member of the Board since January 1997. Mr.
Sinnott is currently President and Chief Executive Officer of Worldwide Internet
Solutions Network, Inc. ("WIZnet"). WIZnet is a worldwide leader in electronic
commerce and the creator of "The Purchasing ExtraNet" with a multi national
customer base. WIZnet provides electronic catalogs and adaptive recognition
search technology and links buyers and sellers via secure mail. Mr. Sinnott has
been serving as CEO of WIZnet since 1995. In 1992 Mr. Sinnott was a founder of
SINNOTT BRUNO & Company. The company is a management consulting firm providing
advisory services to executive and management organization that are in the
emerging or transition stages of development. The firm offers confidential,
objective evaluation of business opportunities and/ or problems, alternative
solutions and assistance in implementation. Mr. Sinnott was full time with the
firm from 1992 until joining WIZnet. In 1995, the Company purchased shares of
Common Stock of WIZnet for an aggregate of $150,000. See "Certain Transactions."
From 1979 to 1992, Mr. Sinnott was the founder, President and CEO of Syntrex.
Syntrex designed manufactured and marketed small computers designed for the
legal market. Due to the rapid development of the personal computer, the Company
was sold to Phoenix Technologies in 1992 in a chapter 11 restructuring. Prior to
joining Syntrex, Mr. Sinnott founded Interdata Incorporated which developed,
designed and manufactured the first 32-bit mini-computer. Interdata Incorporated
was subsequently acquired by Perkin Elmar. Prior to joining Interdata, Mr.
Sinnott was involved in designing the 8400 analogue computer which was
instrumental in the Apollo program.
The Underwriter has the right, during the three year period following the
effective date of this Offering, to designate one director to serve as a member
of the Company's Board of Directors and the Company will use its best efforts to
elect such individual.
COMMITTEES OF THE BOARD
The Company's Board of Directors has an Audit Committee, comprised of the
two outside Directors, and a Compensation Committee, comprised of the two
outside directors and Thomas P. Dunne.
COMPENSATION OF DIRECTORS
The Company has not paid and does not presently propose to pay compensation
to any director for acting in such capacity, except for nominal sums for
attending Board of Directors meetings and reimbursement for reasonable expenses
in attending those meetings. As an incentive, each outside Director will be
granted a stock option for 20,000 shares of Common Stock at an exercise price
which management believes approximates their fair market value. On January 6,
1997, Mr. Burkhalter, an outside director, was granted a stock option to
purchase 10,000 shares of Common Stock at $4.15 per share. The grant was
increased to 20,000 on January 14, 1997. Also on January 14, 1997, the Company
granted Daniel Sinnott, an outside director of the Company, a stock option to
purchase 20,000 shares of Common Stock at $4.15 per share. The Company believes
the $4.15 price to be the fair market value at the time of the grant.
31
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company during each of the last two fiscal years to the Company's
Chief Executive Officer and to each of the Company's executive officers who
earned in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------------
--------------------------------- NUMBER OF
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS GRANTED
- ---------------------------------------------------------------- --------- ---------- ---------- -------------------
<S> <C> <C> <C> <C>
Thomas P. Dunne................................................. 1995 $ 240,000 275,000
Chairman, Chief Executive Officer 1996 $ 240,000 $ -0-
and President
John D. Vazzana................................................. 1995 $ 240,000 275,000
Executive Vice President, Chief 1996 $ 240,000 $ -0-
Financial Officer, Director
</TABLE>
INCENTIVE STOCK OPTION PLAN
Under the Company's Incentive Stock Option Plan (the "Plan"), options to
purchase a maximum of 600,000 shares of Common Stock of the Company (subject to
adjustments in the event of stock splits, stock dividends, recapitalizations and
other capital adjustments) may be granted to employees, officers and directors
of the Company and other persons who provide services to the Company. As of the
date of this Prospectus, 295,000 of such options have been granted at an
exercise price of $4.15. 232,500 of such options were granted on January 6, 1997
and 62,500 were granted on January 14, 1997. As of the date of this Prospectus,
none of these options have been exercised. The options to be granted under the
Plan are designated as incentive stock options or non-incentive stock options by
the Board of Directors which also has discretion as to the persons to be granted
options, the number of shares subject to the options and the terms of the option
agreements. Only employees, including officers and part time employees of the
Company, may be granted incentive stock options. Officers and directors who
currently own more than 5% of the outstanding stock are not eligible to
participate in the Plan.
The Plan provides that options granted thereunder shall be exercisable
during a period of no more than ten years from the date of grant, depending upon
the specific option agreement, and that, with respect to incentive stock
options, the option exercise price shall be at least equal to 100% of the fair
market value of the Common Stock at the time of the grant.
RETIREMENT PLANS
The Company established a discretionary contribution plan effective November
1, 1994 (the "401(k) Plan") for its employees who have completed three months of
service with the Company. The 401(k) Plan is administered by the Company and
permits pre-tax contributions by participants pursuant to Section 401(k) of the
Code up to the maximum allowable contributions as determined by the Code. The
Company may match participants' contributions on a discretionary basis. In
fiscal year 1995 and 1996, the Company contributed $.25 for each $1.00
contributed by the employees.
During the fiscal year ended October 31, 1995, the Company established a
defined benefit plan covering substantially all salaried employees (the "Pension
Plan"). The Pension Plan benefits are based on years of service and the
employee's compensation. The Company contributes, on an annual basis, amounts
sufficient to meet the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974 ("ERISA"). Contributions are intended to
provide not only for benefits attributed to service to date, but also for those
expected to be earned in the future. The assets of the Pension Plan are invested
in money markets and corporate debt and equity instruments. The Company
contributed an aggregate of approximately $135,000 for the Pension Plan years
ending October 31, 1995 and 1996, which amount met the minimum funding
requirements under ERISA.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of the date hereof,
and as adjusted to give effect to the Offering and the transactions contemplated
thereby, with respect to the beneficial ownership of the Common Stock by each
beneficial owner of more than 5% of the outstanding shares thereof, by each
director, each nominee to become a director and each executive named in the
Summary Compensation Table and by all executive officers, directors and nominees
to become directors of the Company as a group, both before and after giving
effect to the Offering.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
COMMON STOCK
BENEFICIALLY OWNED
NUMBER OF SHARES OF ------------------------------
NAME AND ADDRESS OF COMMON STOCK BEFORE AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING(2) OFFERING(3)
--------------------------------- ------------------- --------------- -------------
<S> <C> <C> <C>
Thomas P. Dunne (1)................................................ 2,800,000(4) 70% 56%
John D. Vazzana (1)................................................ 1,200,000 30% 24%
Claudia N. Dunne (1)............................................... 2,800,000(5) 70% 56%
VADM E.A. Burkhalter (1)........................................... 20,000(6) * *
Daniel Sinnott (1)................................................. 20,000(6) * *
All Executive Officers and Directors as a Group (5) persons........ 4,000,000(7) 100% 80%
</TABLE>
- ------------------------
* less than 1%
(1) The address of each of such individuals is c/o Dunn Computer Corporation,
1306 Squire Court, Sterling, Virginia 21066
(2) Calculated based upon 4,000,000 shares outstanding prior to the Offering and
does not give effect to 600,000 shares of Common Stock which are reserved
for issuance under the Plan.
(3) Assumes 5,000,000 shares outstanding after the Offering without giving
effect to the exercise of the Over-Allotment Option or the Underwriter's
Warrants.
(4) Includes 560,000 shares of Common Stock held by Claudia Dunne, the Company's
Vice President, and Mr. Dunne's wife, of which Mr. Dunne disclaims
beneficial ownership.
(5) Includes 2,240,000 shares of Common Stock held by Thomas Dunne, the
Company's President and CEO, and Ms. Dunne's husband, of which Ms. Dunne
disclaims beneficial ownership.
(6) Represents shares of the Company's Common Stock underlying stock options
granted pursuant to the Plan.
(7) Does not include 40,000 shares of Common Stock underlying options which are
held by the Company's two outside directors.
33
<PAGE>
CERTAIN TRANSACTIONS
The Company leases its facility from C&T Partnership, an entity owned and
controlled by Thomas and Claudia Dunne, both affiliates of the Company. The
lease agreement terminates in October 1999, but provides for a five year renewal
at the Company's option. Rent expense under this lease was $144,000 and $154,000
for the years ended October 31, 1995 and 1996, respectively. In addition, the
$1,000,000 mortgage on the facility, which has a 25 year term, and bears
interest at 2% over prime is guaranteed by the Company. The Company has been
advised that all payments with respect to the mortgage are current. For
additional terms of the lease and a description of the facility, see
"Business--Facilities."
On January 14, 1997, the Company issued options to purchase an aggregate of
62,500 shares of the Company's Common Stock to six affiliates of the Company,
four of whom are employees of the Company but are not officers or directors, and
two of whom are outside directors. The options vest over a period of 4 years and
are exercisable at $4.15 per share. The Company believes that the exercise price
is a fair estimate of the fair market value of the stock as of the date of grant
and as such there is no compensation expense to be recognized. The options
expire on January 13, 2002.
On January 6, 1997 and January 14, 1997, the Company issued options to
purchase an aggregate of 295,000 shares of the Company's common stock to 21
affiliates of the Company, 19 of whom are employees of the Company but are not
officers or directors, and 2 of whom are outside directors. The options vest
over a period of 4 years and are exercisable at $4.15 per share. The Company
believes that the exercise price is a fair estimate of the fair market value of
the stock as of the date of grant and as such there is no compensation expense
to be recognized. The options expire in January 2002.
On January 6, 1997, the Company entered into a share exchange agreement (the
"Share Exchange Agreement") with Dunn Computer Corporation, a Virginia
corporation, whereby such Virginia corporation became a wholly-owned subsidiary
of the Company. Pursuant to the Share Exchange Agreement, the Company exchanged
its stock on a 2,799.160251 for 1 basis with the holders of stock of the
Virginia corporation.
In April 1996, the Company entered into a line of credit agreement with a
bank whereby the Company could borrow up to $2,000,000. Outstanding borrowings
bear interest at prime plus three-fourths of one percent. The line of credit is
secured by the assets of the Company. In addition, the principal stockholders of
the Company have personally guaranteed the line of credit.
In November 1995, the Company loaned Thomas Dunne, the President of the
Company, approximately $30,000, such loan bore no interest. The principal and
accrued interest on the loan was repaid by Mr. Dunne in October 1996.
In July, 1994, John Vazzana, an officer of the Company, acquired an
aggregate of 428.7 shares of the Virginia corporation's Common Stock for an
aggregate consideration of $100,000. The Company believes that the price paid
represented the fair market value, based on the Company's net worth, at the time
of the purchase. These shares were exchanged for 1,200,000 shares of the
Company's Common Stock pursuant to the Share Exchange Agreement.
In 1995, the Company made a stock investment of $150,000 in WIZnet, an
Internet related company. Daniel Sinnott, a director of the Company is the
President and Chief Executive Officer of WIZnet. Mr. Sinnott was not a director
of the Company at the time of the investment. The Company believes that the
transaction was fair and reasonable.
Future transactions with affiliates will be on terms no less favorable than
could be obtained from unaffiliated parties and will be approved by a majority
of the independent and/or disinterested members of the Board of Directors.
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<PAGE>
DESCRIPTION OF SECURITIES
The following is a description of all material terms and features of the
securities of the Company, but does not purport to be complete and is subject in
all respects to applicable Delaware law and to the provisions of the Company's
articles of incorporation ("Articles of Incorporation") and bylaws (the
"Bylaws"), and the Underwriting Agreement between the Company and the
Underwriter, copies of all which have been filed with the Commission as Exhibits
to the Registration Statement of which this Prospectus is a part.
GENERAL
The Company is authorized by its Articles of Incorporation to issue an
aggregate of 20,000,000 shares of Common Stock, $.001 par value per share, and
2,000,000 shares, $.001 par value, of preferred stock (the "Preferred Stock").
Immediately prior to this Offering, an aggregate of 4,000,000 shares of Common
Stock are issued and outstanding. No shares of the authorized Preferred Stock
are issued and outstanding. All outstanding shares of Common Stock are of the
same class, and have equal rights and attributes.
PREFERRED STOCK
The Company is authorized by its Articles of Incorporation to issue a
maximum of 2,000,000 shares of Preferred Stock, in one or more series and
containing such rights, privileges and limitations, including voting rights,
dividend rates, conversion privileges, redemption rights and terms, redemption
prices and liquidation preferences, as the Board of Directors of the Company
may, from time to time, determine. No shares of Preferred Stock have been
issued, and the Company has no present plans to issue any Preferred Stock.
The issuance of shares of Preferred Stock pursuant to the Board's authority
described above could decrease the amount of earnings and assets available for
distribution to holders of Common Stock, and could otherwise adversely affect
the rights and powers, including voting rights, of such holders and may have the
effect of delaying, deferring or preventing a change in control of the Company.
The Board of Directors does not currently intend to seek stockholder approval
prior to any issuance of authorized but unissued Preferred Stock, unless
required by law.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders of the Company. In addition, such
holders are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the payment of preferential dividends with
respect to any shares of Preferred Stock that may be outstanding from time to
time. In the event of the dissolution, liquidation or winding up of the Company,
the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of all liabilities of the Company, subject to the prior
distribution rights of the holders of any Preferred Stock that may be
outstanding at that time. All outstanding shares of Common Stock are, and when
issued, the shares of Common Stock offered hereby will be, fully paid and
nonassessable.
The holders of Common Stock do not have any subscription, redemption or
conversion rights, nor do they have any preemptive or other rights to acquire or
subscribe for additional, unissued or treasury shares. Accordingly, if the
Company were to elect to sell additional shares of Common Stock following this
Offering, persons acquiring Common Stock in this Offering would have no right to
purchase additional shares, and as a result, their percentage equity interest in
the Company would be reduced.
The holders of Common Stock do not have cumulative voting rights.
Accordingly, the holders of more than half of the outstanding shares of Common
Stock can elect all of the Directors to be elected in any election, if they
choose to do so. In such event, the holders of the remaining shares of Common
Stock
35
<PAGE>
would not be able to elect any Directors. The Board is empowered to fill any
vacancies on the Board created by the resignation, death or removal of
Directors.
Upon completion of this Offering (but without giving to the exercise of the
Over-Allotment Option, the Underwriter's Warrants or any outstanding stock
options), the Company's executive officers and directors will beneficially own
approximately 80% of the outstanding shares of Common Stock, and will be in a
position to control the voting results of certain actions required or permitted
to be taken by stockholders of the Company, including the election of directors.
However, as no voting agreement exists among these executive officers and
directors, each is able to vote as he or she may desire on any issue affecting
the Company.
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law") generally prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an interested stockholder for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) the corporation has elected in its
original certificate of incorporation not to be governed by the Delaware
anti-takeover law (the Company has not made such an election), (ii) prior to
such date the Board of Directors of the corporation approved either the business
combination or the transaction in which the person became an interested
stockholder, (iii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the outstanding voting stock of the corporation excluding shares
owned by directors who are also officers of the corporation and by certain
employee stock plans, (iv) on or after such date the business combination is
approved by the Board of Directors of the corporation and by the affirmative
vote of at least 66 3/4% of the outstanding voting stock of the corporation that
is not owned by the interested stockholder, or (v) the majority of the
corporation's stockholders adopt an amendment to the corporation's certificate
of incorporation electing not to be governed by the Delaware anti-takeover law,
such amendment not being effective for 12 months following its adoption and not
applicable to any business combination between the corporation and a stockholder
who became an interested stockholder after its adoption. A "business
combination" generally includes mergers, asset sales and similar transactions
between the corporation and the interested stockholder, and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns 15% or more of
the corporation's voting stock or who is an affiliate or associate of the
corporation and, together with his affiliates and associates, has owned 15% or
more of the corporation's voting stock within three years.
PERSONAL LIABILITY OF DIRECTORS
The Delaware General Corporation Law permits Delaware corporations to
eliminate or limit the personal liability of a director to the corporation for
monetary damages arising from certain breaches of fiduciary duties as a
director. The Company's Certificate of Incorporation includes such a provision
eliminating the personal liability of directors to the Company and its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except (i) any breach of a director's duty of loyalty to the Company
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) for any
transaction from which the director derived an improper personal benefit; or
(iv) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law.
Directors are also not insulated from liability for claims arising under the
federal securities laws. The foregoing provisions of the Company's Certificate
of Incorporation may reduce the likelihood of derivative litigation against
directors for breaches of their fiduciary duties, even though such an action, if
successful, might otherwise have benefitted the Company and its stockholders.
36
<PAGE>
The Company's Certificate of Incorporation also provides that the Company
shall indemnify its directors, officers and agents to the fullest extent
permitted by the Delaware General Corporation Law. The Company does not have
directors' and officers' liability insurance but may secure such insurance in
the future. Furthermore, the Company may enter into indemnity agreements with
its directors and officers for the indemnification of and advancing of expenses
to such persons to the fullest extent permitted by law.
TRANSFER AGENT
The Transfer Agent for the Common Stock of the Company is Continental Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have 5,000,000
shares of Common Stock outstanding. In addition, the Company has reserved for
issuance 600,000 shares upon the exercise of options eligible for grant under
the Company's Stock Option Plan, 295,000 of which have been granted. Of the
shares of Common Stock to be issued and outstanding after this Offering, the
1,000,000 shares of Common Stock offered hereby (plus any additional shares sold
upon exercise of the Over-Allotment Option) will be freely tradeable without
restriction or further registration under the Act, except for any shares
purchased or held by an "affiliate" of the Company (in general, a person who has
a control relationship with the Company) which will be subject to the
limitations of Rule 144 adopted under the Act ("Rule 144"). The remaining
4,000,000 shares of Common Stock are "restricted securities" as that term is
defined under Rule 144, and may not be sold unless registered under the Act or
exempted therefrom. All of the foregoing shares are now eligible to be sold in
accordance with the exemptive provisions and the volume limitations of Rule 144.
In general, under Rule 144, as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an "affiliate" of
the Company, (or persons whose shares are aggregated), who for at least two
years (one year commencing April 29, 1997) has beneficially owned restricted
securities acquired directly or indirectly from the Company or an affiliate of
the Company in a private transaction is entitled to sell in brokerage
transactions within any three-month period, a number of shares that does not
exceed the greater of (i) 1% of the total number of outstanding shares of the
same class, or (ii) if the stock is quoted on the NASDAQ National Market System,
the average weekly trading volume in the stock during the four calendar weeks
preceding the day notice is given to the Securities and Exchange Commission with
respect to such sale. A person (or persons whose shares are aggregated) who is
not an affiliate and has not been an affiliate of the Company for at least three
months immediately preceding the sale and who has beneficially owned restricted
securities for at least three years (two years commencing April 29, 1997) is
entitled to sell such shares pursuant to subparagraph (k) of Rule 144 without
regard to any of the limitations described above.
All of the Company's directors and executive officers, (who hold in the
aggregate 4,000,000 shares), have agreed not to sell, offer to sell or otherwise
dispose of any shares of the Company's Common Stock until 180 days from the date
of this Prospectus, except pursuant to gifts or pledges in which the donee or
pledgee agrees to be bound by such restrictions, without the prior written
consent of the Underwriter. These agreements are enforceable only by the parties
thereto, and are subject to rescission or amendment at any time without approval
of other stockholders.
Sales of the Company's Common Stock by certain of the present stockholders
in the future, under Rule 144, may have a depressive effect on the price of the
Company's Common Stock.
37
<PAGE>
UNDERWRITING
The Company has agreed to sell, and the Underwriter has agreed, subject to
the terms and conditions of the Underwriting Agreement, to purchase from the
Company on a firm commitment basis, 1,000,000 shares of Common Stock.
The Underwriter has advised the Company that it proposes to offer the
1,000,000 shares of Common Stock to the public at the public Offering price set
forth on the cover page of this Prospectus and that it may allow to selected
dealers who are members of the National Association of Securities Dealers, Inc.
("NASD"), concessions of not in excess of $ per share of Common Stock of
which not more than $ per share of Common Stock may be re-allowed to
certain other dealers. After the initial public Offering, the public Offering
price, concessions and reallowances may be changed by the Underwriter.
The Underwriting Agreement provides further that the Underwriter will
receive a non-accountable expense allowance of 3% ($35,000 of which has been
previously paid) of the aggregate public Offering price of the shares of Common
Stock sold hereunder (including any shares of Common Stock sold pursuant to the
Over-Allotment Option) (which allowance amounts to $150,000 or $172,500 if the
Over-Allotment Option is exercised in full).
The Company's existing stockholders have granted to the Underwriter the
Over-Allotment Option, which is exercisable for a period of 45 calendar days
after the closing of the Offering, to purchase up to an aggregate of 150,000
additional shares of Common Stock at the public Offering price, less
underwriting discounts and commissions, solely to cover over-allotments, if any.
The Company has agreed to sell to the Underwriter for $10 the Underwriter's
Warrants to purchase 100,000 shares of Common Stock. The Underwriter's Warrants
will be non-exercisable for one year after the date of this Prospectus.
Thereafter, for a period of four years, the Underwriter's Warrants will be
exercisable at $6.50 per share of Common Stock. The Underwriter's Warrants are
not transferable for a period of one year after the date of this Prospectus,
except to officers and partners of the Underwriter and to members of the selling
group and their officers and partners. The Company has also granted certain
registration rights to the holders of the Underwriter's Warrants.
For the life of the Underwriter's Warrants, the holders thereof are given,
at nominal cost, the opportunity to profit from a rise in the market price of
the Company's Common Stock with a resulting dilution in the interest of other
stockholders. Further, the holders may be expected to exercise the Underwriter's
Warrants at a time when the Company would in all likelihood be able to obtain
equity capital on terms more favorable than those provided in the Underwriter's
Warrants.
The Company has granted the Underwriter, for a period of three years after
the date of this Prospectus, a right of first refusal with respect to the
underwriting or placement of any public or private sale of debt or equity
securities (excluding sales to employees) by the Company or any subsidiary of
the Company.
The Company has agreed to retain the Underwriter as a financial consultant
to the Company for a period of 24 months after the Offering for an aggregate fee
of $60,000 payable in full upon consummation of the Offering. As the Company's
financial consultant, the Underwriter will provide investment banking services
to the Company as well as seek out strategic transactions on behalf of the
Company and furnish advice to the Company in connection with any such
transactions.
The Company has agreed, for a period of one year after the date of this
Prospectus, not to issue any shares of Common Stock or Preferred Stock or any
warrants, options or other rights to purchase Common Stock or Preferred Stock
without the prior written consent of the Underwriter. Notwithstanding the
foregoing, the Company may issue shares upon exercise of any warrants or options
outstanding on the date hereof or to be outstanding upon completion of the
Offering pursuant to the terms thereof, and may issue
38
<PAGE>
shares reserved for issuance under the 1997 Option Plan. The Company has also
agreed to cause the Company's current stockholders owning all of the Common
Stock outstanding as of the date hereof to enter into written agreements with
the Underwriter pursuant to which such stockholders shall agree not to sell any
of their shares for a period of six months after the date of Prospectus without
the prior written consent of the Underwriter.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against liabilities in connection with the
Offering, including liabilities under the Act.
The Company has agreed, if requested by the Underwriter at any time within
three years after the closing of the Offering, to nominate and use its best
efforts to elect a designee of the Underwriter as a director of the Company or,
at the Underwriter's option, as a non-voting advisor to the Company's Board of
Directors. Such designee may be a director, officer, partner, employee or
affiliate of the Underwriter. The person to be designated by the Underwriter has
not been identified to date.
The initial public Offering price of the shares of Common Stock offered has
been determined by negotiation between the Company and the Underwriter. Factors
considered in determining the Offering price of the shares of Common Stock
offered hereby included the business in which the Company is engaged, the
Company's financial condition, an assessment of the Company's management, the
general condition of the securities markets and the demand for similar
securities of comparable companies.
The foregoing is a brief summary of all of the material provisions of the
Underwriting Agreement, the Underwriter's Warrants and other agreements referred
to above and does not purport to be a complete statement of their respective
term and conditions. Copies of such agreements have been filed as exhibits to
the Registration Statement of which this Prospectus is a part. See "Additional
Information."
39
<PAGE>
LEGAL OPINIONS
The legality of the Common Stock offered by this Prospectus will be passed
upon for the Company by Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP,
New York, New York. Certain legal matters will be passed upon by Stark & Stark,
P.C., Lawrenceville, New Jersey, counsel for the Underwriter in connection with
the Offering. Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP has
represented the Underwriter in the past and may do so again in the future.
EXPERTS
The consolidated financial statements of Dunn Computer Corporation at
October 31, 1996, and for each of the two years in the period ended October 31,
1996, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Act with respect to the Common Stock offered hereby. This Prospectus omits
certain information contained in the Registration Statement and the exhibits
thereto, and references is made to the Registration Statement and the exhibits
thereto for further information with respect to the Company and the Common Stock
offered hereby. Statements contained herein concerning the provisions of any
documents are not necessarily complete, and in each instance reference is made
to the copy of such document filed as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such reference. The
Registration Statement, including exhibits and schedules filed therewith, may be
inspected without charge at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials may be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and its public reference facilities in New York, New York and Chicago,
Illinois upon payment of the prescribed fees. Electronic registration statements
filed through the Electronic Data Gathering, Analysis, and Retrieval System are
publicly available through the Commission's Website (http://www.sec.gov). At the
date hereof, the Company was not a reporting company under the Securities
Exchange Act of 1934, as amended.
40
<PAGE>
INDEMNIFICATION FOR ACT LIABILITIES
The Certificate of Incorporation and By-laws of the Company provide that the
Company shall indemnify to the fullest extent permitted by Delaware law any
person whom it may indemnify thereunder, including directors, officers,
employees and agents of the Company. Such indemnification (other than as ordered
by a court) shall be made by the Company only upon a determination that
indemnification is proper in the circumstances because the individual met the
applicable standard of conduct. Advances for such indemnification may be made
pending such determination. Such determination shall be made by a majority vote
of a quorum consisting of disinterested directors, or by independent legal
counsel or by the stockholders. In addition, the Certificate of Incorporation
provides for the elimination, to the extent permitted by Delaware law, of
personal liability of directors to the Company and its stockholders for monetary
damages for breach of fiduciary duty as directors.
The Company proposes to obtain a directors and officers insurance and
company reimbursement policy. The policy, if obtained, would insure directors
and officers against unindemnified losses arising from certain wrongful acts in
their capacities and would reimburse the Company for such loss for which the
Company has lawfully indemnified the directors and officers.
The Company has also agreed to indemnify each director and executive officer
pursuant to an Indemnification Agreement with each such director and executive
officer from and against any and all expenses, losses, claims, damages and
liability incurred by such director or executive officer for or as a result of
action taken while such director or executive officer was acting in his capacity
as a director, officer, employee or agent of the Company.
Insofar as indemnification for liabilities arising under the Act may be
provided to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Act and is therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company 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 Company 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 of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
41
<PAGE>
DUNN COMPUTER CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................................................... F-2
Consolidated Balance Sheets as of October 31, 1996 and January 31, 1997 (unaudited)........................ F-3
Consolidated Statements of Income for the years ended October 31, 1995 and 1996 and for the three months
ended January 31, 1996 and 1997 (unaudited).............................................................. F-4
Consolidated Statements of Stockholders' Equity for the years ended October 31, 1995 and 1996 and for the
three months ended January 31, 1997 (unaudited).......................................................... F-5
Consolidated Statements of Cash Flows for the years ended October 31, 1995 and 1996 and for the three
months ended January 31, 1996 and 1997 (unaudited)....................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
We have audited the accompanying consolidated balance sheet of Dunn Computer
Corporation as of October 31, 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for the two years in the period
ended October 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Dunn Computer Corporation at October 31, 1996, and the consolidated results of
its operations and its cash flows for the two years in the period ended October
31, 1996 in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
Vienna, Virginia /s/ Ernst & Young LLP
December 13, 1996, except Notes 1, 10 and 11,
as to which the date is January 14, 1997
</TABLE>
F-2
<PAGE>
DUNN COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31,
1997
OCTOBER 31, ------------
1996
------------ (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 897,664 $ 2,283,210
Accounts receivable, less allowance for doubtful accounts of $15,000................ 3,174,060 1,391,288
Inventory, less obsolescence reserve of $20,000..................................... 985,603 1,325,425
Investments......................................................................... 150,000 150,000
Prepaid expenses.................................................................... -- 91,579
------------ ------------
Total current assets.................................................................. 5,207,327 5,241,502
Property and equipment, net........................................................... 63,763 57,313
Other assets.......................................................................... 3,540 --
------------ ------------
Total assets.......................................................................... $ 5,274,630 $ 5,298,815
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 2,452,161 $ 2,107,348
Accrued expenses.................................................................... 285,244 321,067
Income taxes payable................................................................ 519,308 383,158
Deferred tax credit................................................................. 11,086 2,236
Unearned revenue.................................................................... 67,640 --
------------ ------------
Total current liabilities............................................................. 3,335,439 2,813,809
Commitments
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, 4,000,000 shares issued
and outstanding................................................................... 4,000 4,000
Additional paid-in capital.......................................................... 111,857 111,857
Retained earnings................................................................... 1,823,334 2,369,149
------------ ------------
Total stockholders' equity............................................................ 1,939,191 2,485,006
------------ ------------
Total liabilities and stockholders' equity............................................ $ 5,274,630 $ 5,298,815
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
DUNN COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, THREE MONTHS ENDED JANUARY
--------------------------- 31,
1995 1996 --------------------------
------------ ------------- 1996 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................ $ 7,491,452 $ 18,098,638 $ 6,344,973 $ 5,505,350
Costs of revenues................... 6,046,480 14,102,442 4,816,346 4,199,577
------------ ------------- ------------ ------------
Gross profit........................ 1,444,972 3,996,196 1,528,627 1,305,773
Selling and marketing............... 154,110 475,471 80,314 181,507
General and administrative.......... 812,046 1,496,979 559,413 252,119
------------ ------------- ------------ ------------
Income from operations.............. 478,816 2,023,746 888,900 872,147
Other income........................ 34,512 49,343 2,840 7,668
Interest expense.................... (26,246) (57,925) (57,227) --
------------ ------------- ------------ ------------
Net income before income taxes...... 487,082 2,015,164 834,513 879,815
Provision for income taxes.......... 244,000 776,000 321,300 334,000
------------ ------------- ------------ ------------
Net income.......................... $ 243,082 $ 1,239,164 $ 513,213 $ 545,815
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Earnings per share.................. $ .06 $ .31 $ .13 $ .13
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Weighted average number of shares
outstanding....................... 4,050,150 4,050,150 4,050,150 4,100,300
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
DUNN COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RECEIVABLE
--------------------- PAID-IN FROM RETAINED
SHARES AMOUNT CAPITAL STOCKHOLDER EARNINGS TOTAL
---------- --------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1994................... 4,000,000 $ 4,000 $ 111,857 $(132,538) $ 341,088 $ 324,407
Cash receipts from stockholder.............. -- -- -- 32,538 -- 32,538
Net income.................................. -- -- -- -- 243,082 243,082
---------- --------- ---------- ----------- ------------ ------------
Balance at October 31, 1995................... 4,000,000 4,000 111,857 (100,000) 584,170 600,027
Cash receipts from stockholder.............. -- -- -- 100,000 -- 100,000
Net income.................................. -- -- -- -- 1,239,164 1,239,164
---------- --------- ---------- ----------- ------------ ------------
Balance at October 31, 1996................... 4,000,000 4,000 111,857 -- 1,823,334 1,939,191
Net income (unaudited)...................... -- -- -- -- 545,815 545,815
---------- --------- ---------- ----------- ------------ ------------
Balance at January 31, 1997 (unaudited)....... 4,000,000 $ 4,000 $ 111,857 $ -- $ 2,369,149 $ 2,485,006
---------- --------- ---------- ----------- ------------ ------------
---------- --------- ---------- ----------- ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
DUNN COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, THREE MONTHS ENDED
------------------------- JANUARY 31,
1995 1996 --------------------------
----------- ------------ 1996 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 243,082 $ 1,239,164 $ 513,213 $ 545,815
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization......................... 25,441 32,300 6,450 6,450
Changes in operating assets and liabilities:
Accounts receivable................................. (734,660) (951,553) (2,887,138) 1,782,772
Inventory........................................... (515,426) 211,763 209,598 (339,822)
Other assets and prepaid expenses................... (8,000) 9,460 12,139 (88,039)
Accounts payable.................................... 652,864 471,636 (344,061) (344,813)
Accrued expenses.................................... 309,471 (193,084) 85,165 35,823
Income taxes payable................................ 223,582 260,947 99,266 (136,150)
Deferred tax credit................................. 9,399 (66,276) -- (8,850)
Unearned revenue.................................... -- 67,640 -- (67,640)
----------- ------------ ------------ ------------
Net cash provided by (used in) operating activities....... 205,753 1,081,997 (2,305,368) 1,385,546
INVESTING ACTIVITIES
Purchases of property and equipment....................... (15,617) (21,040) -- --
Purchase of investments................................... -- (150,000) -- --
----------- ------------ ------------ ------------
Net cash used in investing activities..................... (15,617) (171,040) -- --
FINANCING ACTIVITIES
Proceeds from bank line of credit......................... -- -- 2,122,245 200,000
Net payments on bank line of credit....................... (194,809) (252,231) -- (200,000)
Repayment from stockholder................................ 32,538 100,000 100,000 --
----------- ------------ ------------ ------------
Net cash (used in) provided by financing activities....... (162,271) (152,231) 2,222,245 --
Net increase (decrease) in cash and cash equivalents...... 27,865 758,726 (83,123) 1,385,546
Cash and cash equivalents at beginning of the period...... 111,073 138,938 138,938 897,664
----------- ------------ ------------ ------------
Cash and cash equivalents at end of the period............ $ 138,938 $ 897,664 $ 55,815 $ 2,283,210
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 26,246 $ 57,925 $ 57,227 $ --
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Income taxes paid......................................... $ -- $ 581,000 $ 222,000 $ 479,000
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JANUARY 31, 1997 AND FOR THE THREE MONTHS ENDED
JANUARY 31, 1996 AND 1997 IS UNAUDITED.)
1. ORGANIZATION
Dunn Computer Corporation (the "Corporation") was incorporated on July 27,
1987 under the laws of the Commonwealth of Virginia.
On January 3, 1997, Dunn Computer Corporation (the "Company"), a Delaware
corporation, was formed as a holding company for the stock of Dunn Computer
Corporation, the Virginia corporation. On January 6, 1997, the Board of
Directors and stockholders of the Corporation approved and effected a
2,799.160251 for 1 stock exchange with the Company whereby the holders of the
Corporation's Common Stock would receive 2,799.160251 shares of Common Stock in
the Company for each share of Common Stock in the Corporation. All references in
the accompanying consolidated financial statements as to the number of shares of
Common Stock and per-share amounts have been restated to reflect the stock
exchange. Also, the Company authorized 2,000,000 shares of Preferred Stock with
rights and preferences to be determined by the Board of Directors at a later
date.
The Company is engaged in the business of providing custom computer systems
and related equipment to businesses and government agencies.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents.
INVESTMENTS
At October 31, 1996 and January 31, 1997, investments consisted of shares of
common stock of a privately-held internet company, Worldwide Internet Solutions
Network, Inc. ("WIZnet"), with a cost basis of approximately $150,000. The
Company believes that this carrying amount represents the lower of cost or
market. The Company is accounting for this investment using the cost method
since the Company's investment represents less than 20% of the privately-held
internet company's outstanding stock. The President and Chief Executive Officer
of WIZnet is also on the Company's Board of Directors.
INVENTORY
Inventory is stated at the lower of cost or market as determined by the
first-in first-out (FIFO) method.
INCOME TAXES
The Company provides for income taxes in accordance with the liability
method.
REVENUES
The Company generally recognizes revenues based on shipment of products.
Revenues are earned principally pursuant to various contracts with agencies of
the Federal government and commercial customers. The Company generally does not
require collateral on such contracts. The length of the Company's contracts
generally range from one to three years.
F-7
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 1997 AND FOR THE THREE MONTHS ENDED
JANUARY 31, 1996 AND 1997 IS UNAUDITED.)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The products sold are generally covered by a warranty for periods ranging
from two to three years. The Company accrues a warranty reserve for revenues
recognized during the year to record estimated costs to provide warranty
services.
Unearned revenue relates to cash received from credit card sales as of
October 31, 1996 for which the related inventory was shipped subsequent to
October 31, 1996.
During the year ended October 31, 1995, the Company had revenues from two
agencies of the Federal government which represented 73% and 12% of total
revenues. During the year ended October 31, 1996, the Company had revenues from
two agencies of the Federal government which represented 22% and 14% of total
revenues. In addition, during 1996, the Company had revenues from one Federal
government prime contractor and one commercial customer which represented 17%
and 16% of total revenues, respectively. During the three month period ended
January 31, 1996, the Company had revenues from one agency of the Federal
government which represented 35% of total revenues and revenues from one
commercial customer which represented 43% of total revenues. During the three
month period ended January 31, 1997, the Company had revenues from two agencies
of the Federal government which represented 33% and 32% of total revenues. In
addition, during the three months ended January 31, 1997, the Company had
revenues from one commercial customer which represented 12% of total revenues.
As of October 31, 1995, accounts receivable from agencies of the Federal
government represented 95% of total accounts receivable. As of October 31, 1996,
accounts receivable from agencies of the Federal government represented 92% of
total accounts receivable. As of January 31, 1996, accounts receivable from
agencies of the Federal government represented 26% of the total accounts
receivable. As of January 31, 1997 accounts receivable from agencies of the
Federal government represented 69% of total accounts receivable, respectively.
EARNINGS PER SHARE
The Company's earnings per share calculations are based upon the weighted
average number of shares of Common Stock outstanding. Pursuant to the
requirements of Securities and Exchange Commission Staff Accounting Bulletin No.
83, options to purchase Common Stock issued at prices below the initial public
offering (the "IPO") price during the twelve months immediately preceding the
contemplated initial filing of the registration statement relating to the IPO,
have been included in the computation of the earnings per share as if they were
outstanding for all periods presented (using the treasury stock method assuming
repurchase of Common Stock at the estimated IPO price). In subsequent periods,
stock options and warrants under the treasury stock method will be included to
the extent that they are dilutive.
USE OF ESTIMATES
The preparation of the consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 1997 AND FOR THE THREE MONTHS ENDED
JANUARY 31, 1996 AND 1997 IS UNAUDITED.)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" which is effective for any
complete set of financial statements for any period presented subsequent to
December 15, 1996. SFAS No. 123 allows companies to account for stock-based
compensation under either the new provisions of SFAS No. 123 or the provisions
of APB No. 25, but requires pro forma disclosure in the footnotes to the
consolidated financial statements as if the measurement provisions of SFAS No.
123 had been adopted. The Company intends to continue accounting for its
stock-based compensation in accordance with the provisions of APB No. 25. As
such, the implementation of SFAS No. 123 will not materially impact the
financial position or results of operations of the Company.
3. PROPERTY AND EQUIPMENT
Property and equipment, including leasehold improvements, are stated at
cost. Property and equipment are depreciated and amortized using the
straight-line method over the estimated useful lives of five years. Leasehold
improvements are amortized over the lesser of the related lease term or the
useful life.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
1996
-----------
<S> <C>
Computer and office equipment.................................................... $ 69,626
Furniture and fixtures........................................................... 20,663
Leasehold improvements........................................................... 27,424
Vehicles......................................................................... 78,742
-----------
196,455
Less accumulated depreciation and amortization................................... (132,692)
-----------
$ 63,763
-----------
-----------
</TABLE>
4. BANK LINES OF CREDIT
In April 1996, the Company entered into a line of credit agreement with a
bank whereby the Company could borrow up to $2,000,000. Outstanding borrowings
bear interest at prime plus three-fourths of one percent. In December 1996, the
Company drew $200,000 on the line of credit. In January, the Company repaid the
amount. As of October 31, 1996 and January 31, 1997, there were no outstanding
borrowings under this line of credit facility. The line of credit is secured by
certain assets of the Company. Under the line of credit agreement, the Company
is required to maintain a net worth of $1,250,000 and at October 31, 1996 and
January 31, 1997, the Company is in compliance with this covenant. The Company's
principal stockholders have personally guaranteed the bank line of credit.
In November 1995, the Company repaid the outstanding portion of a $1,000,000
line of credit facility with a separate bank and subsequently canceled the line
of credit.
F-9
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 1997 AND FOR THE THREE MONTHS ENDED
JANUARY 31, 1996 AND 1997 IS UNAUDITED.)
5. RELATED PARTY TRANSACTION
Thomas Dunne, the Company's President, and his wife Claudia Dunne, the
Company's Vice President, acquired a building for the purpose of leasing office
space to the Company. In connection with the acquisition of the building, the
Company guaranteed the building's $1 million mortgage. The term of the mortgage
is 25 years. The Company subsequently executed a noncancelable operating lease
agreement with Mr. and Mrs. Dunne. The Company believes that the lease agreement
is on terms no less favorable to the Company than could be obtained from
unaffiliated third parties (see Note 6).
6. LEASE COMMITMENTS
The Company leases office space under a noncancellable operating lease
agreement with two stockholders (see Note 5). The lease agreement terminates in
October 1999, but provides for a five year renewal at the Company's option. Rent
expense under this lease was $144,000 and $154,000, for the years ended October
31, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases at
October 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 179,799
1998.............................................................. 179,242
1999.............................................................. 176,679
2000.............................................................. 5,090
2001.............................................................. 424
---------
Total............................................................. $ 541,234
---------
---------
</TABLE>
7. RECEIVABLE FROM STOCKHOLDER
During fiscal year 1994, one of the Company's principal stockholders
purchased common stock for $100,000 in exchange for a demand note. This demand
note was repaid during December 1995. Another of the Company's principal
stockholders borrowed $32,538 from the Company during 1994 and repaid the amount
during the year ended October 31, 1995.
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-10
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 1997 AND FOR THE THREE MONTHS ENDED
JANUARY 31, 1996 AND 1997 IS UNAUDITED.)
8. INCOME TAXES (CONTINUED)
Components of the Company's net deferred tax credit balance are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued expenses................................................ $ 50,037 $ 50,037
Asset reserves.................................................. 14,000 14,000
----------- -----------
Total deferred assets............................................... 64,037 64,037
Deferred tax credit:
Change from cash to accrual method for tax purposes............. 75,123 66,273
----------- -----------
Net deferred tax credit........................................... $ 11,086 $ 2,236
----------- -----------
----------- -----------
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER THREE MONTHS ENDED
31, JANUARY 31,
---------------------- ----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current tax expense:
Federal.............................. $ 188,242 $ 709,195 $ 275,059 $ 288,428
State................................ 35,340 133,081 51,579 54,422
---------- ---------- ---------- ----------
223,582 842,276 326,638 342,850
Deferred tax expense:
Federal.............................. 17,355 (55,800) (4,446) (7,522)
State................................ 3,063 (10,476) (892) (1,328)
---------- ---------- ---------- ----------
20,418 (66,276) (5,338) (8,850)
---------- ---------- ---------- ----------
Total provision for income taxes............. $ 244,000 $ 776,000 $ 321,300 $ 334,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The reconciliation of income tax from the statutory rate of 34% is:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER THREE MONTHS ENDED
31, JANUARY 31,
---------------------- ----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Tax at statutory rates....................... $ 165,608 $ 685,156 $ 283,734 $ 299,137
Non-deductible expenses...................... 58,675 9,610 2,044 --
State income tax net of federal benefit...... 19,717 81,234 35,522 34,863
---------- ---------- ---------- ----------
$ 244,000 $ 776,000 $ 321,300 $ 334,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
9. CONTINGENT LIABILITY
Pulsar Data Systems, a vendor, has filed a lawsuit against the Company
concerning a disputed payable in the amount of $124,200. While the ultimate
outcome of these matters is not known, the Company
F-11
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 1997 AND FOR THE THREE MONTHS ENDED
JANUARY 31, 1996 AND 1997 IS UNAUDITED.)
9. CONTINGENT LIABILITY (CONTINUED)
intends to vigorously dispute the claim. The Company believes an adequate
provision for the claim has been made in the accompanying consolidated financial
statements as of October 31, 1996 and January 31, 1997.
10. RETIREMENT PLANS
401(K) PLAN
Effective April 1, 1995, the Company adopted a 401(k) Plan (the "Plan").
Employees are eligible to participate after completing six months of service and
attaining age 18. Employees can defer up to 15 percent of compensation. Employee
contributions are subject to Internal Revenue Service limitations. All employees
who contribute to the Plan are eligible to share in discretionary Company
matching contribution. During the years ended October 31, 1995 and 1996, the
Company contributed $4,469 and $3,300, respectively, to the Plan.
DEFINED BENEFIT PLAN
During the fiscal year ended October 31, 1995, the Company implemented a
defined benefit plan (the "Pension Plan") covering substantially all salaried
employees. The Pension Plan benefits are based on years of service and the
employee's compensation. The Company's funding policy is to annually contribute
amounts sufficient to meet minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974. Contributions are intended to
provide not only for benefits attributed to service to date, but also for those
expected to be earned in the future. The assets of the Pension Plan are invested
in money markets and corporate debt and equity instruments. The Company
contributed, in the aggregage, approximately $135,000 for the Pension Plan years
ending October 31, 1995 and 1996, which met the minimum funding requirements
under ERISA.
On January 6, 1997, the Company amended the Pension Plan to change the
benefits to be paid out after retirement from 100% to 40% of its initial
liability. This will result in a reduction of the projected benefit obligation
by $150,000. The Company believes that the pension expense will be reduced by
approximately $50,000 for fiscal 1997.
F-12
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 1997 AND FOR THE THREE MONTHS ENDED
JANUARY 31, 1996 AND 1997 IS UNAUDITED.)
DEFINED BENEFIT PLAN (CONTINUED)
The following table sets forth the Pension Plan's funded status as reported
on activity, and amounts recognized in the Company's consolidated financial
statements:
<TABLE>
<CAPTION>
OCTOBER 31,
1996
-----------
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of ($238,619).......... $ (320,973)
-----------
-----------
Projected benefit obligation..................................................... (320,973)
Pension Plan assets at fair value................................................ 168,336
-----------
Funded status--projected benefit obligation in excess of fair value of Pension
Plan assets.................................................................... $ (152,637)
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED
OCTOBER 31,
---------------------
1995 1996
--------- ----------
<S> <C> <C>
Net periodic pension cost:
Service cost........................................................... $ 54,945 $ 59,066
Interest cost.......................................................... 12,810 17,892
Actual return on assets................................................ -- (33,982)
Net amortization and deferral.......................................... 6,832 38,127
--------- ----------
Total net periodic pension cost........................................ $ 74,587 $ 81,103
--------- ----------
--------- ----------
</TABLE>
Key assumptions used in the actuarial valuation were:
<TABLE>
<CAPTION>
OCTOBER 31,
1996
---------------
<S> <C>
Weighted average discount note................................................... 7.5%
Rate of return on assets:
Pre-retirement............................................................... 8.0%
Post-retirement.............................................................. 8.0%
</TABLE>
11. STOCK OPTION PLAN
On January 6, 1997, the Company adopted the 1997 Stock Option Plan (the
"Option Plan") which permits the Company to grant up to 600,000 options to
officers, directors and employees who contribute materially to the success of
the Company. During January 1997, the Company's Board of Directors have granted
295,000 options to purchase Common Stock to employees of the Company at $4.15
per share. These options vest over a stated period of time not to exceed four
years. All options were granted at a price which the Board of Directors believed
approximated the fair market value of the Common Stock at the date of grant. The
contractual term of the option is ten years. As of January 31, 1997, there were
305,000 options available for future grant.
F-13
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER, SOLICITATION OR SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS.
------------------------
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 2
Risk Factors................................... 7
Use of Proceeds................................ 13
Dividend Policy................................ 13
Capitalization................................. 14
Dilution....................................... 15
Selected Financial Data........................ 16
Management's Discussion and
Analysis of Financial Condition and
Results of Operations......................... 16
Business....................................... 18
Management..................................... 28
Principal Stockholders......................... 31
Certain Transactions........................... 32
Description of Securities...................... 33
Shares Eligible for Future Sale................ 35
Underwriting................................... 36
Legal Opinions................................. 38
Experts........................................ 38
Additional Information......................... 38
Indemnification for Securities Act
Liabilities................................... 39
Financial Statements........................... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
DUNN COMPUTER
CORPORATION
1,000,000 SHARES OF COMMON STOCK
---------------------
PROSPECTUS
---------------------
NETWORK 1
FINANCIAL SECURITIES, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, among other things, and
subject to certain conditions, authorizes the Company to indemnify its officers
and directors against certain liabilities and expenses incurred by such persons
in connection with claims made by reason of their being such an officer or
director. The restated Certificate of Incorporation and By-laws of the Company
provide for indemnification of its officers and directors to the full extent
authorized by law.
Reference is made to the Underwriting Agreement, the proposed form of which
is filed as Exhibit 1.1, pursuant to which the Underwriter agrees to indemnify
the directors and certain officers of the Registrant and certain other persons
against certain civil liabilities.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of the estimated expenses to be paid by the
Company in connection with the issuance and distribution of the securities being
registered:
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 1,939.39
NASD Filing Fee................................................ 1,140.00
NASDAQ Filing Fee.............................................. 25,000.00
Printing Engraving Expenses.................................... 75,000.00
Legal Fees and Expenses........................................ 125,000.00
Accounting Fees and Expenses................................... 60,000.00
Blue Sky Fees and Expenses..................................... 17,500.00
Transfer Agent and Registrar Fees and Expenses................. 3,500.00
Non-accountable expense allowance.............................. 150,000.00
Miscellaneous.................................................. 15,920.61
----------
Total.................................................... $475,000.00
----------
----------
</TABLE>
- ------------------------
* estimate
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has sold securities to one person,
as described below. There was no underwriters involved in the transaction and
there was no underwriting discounts or commissions paid in connection therewith,
except as disclosed below. The issuances of these securities were considered to
be exempt from registration under Section 4(2) of the Act, as amended, and the
regulations promulgated thereunder. The purchaser of the securities in such
transaction represented his intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the certificates for the
securities issued in such transaction. The purchaser of the securities in such
transaction had adequate access to information about the Registrant.
In July, 1994, John Vazzana, an officer of the Company, acquired an
aggregate of 428.7 shares of the Virginia corporation's Common Stock for an
aggregate consideration of $100,000. These shares were exchanged for 1,200,000
shares of the Company's Common Stock pursuant to the Share Exchange Agreement.
II-1
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
1.2* Form of Selected Dealers Agreement.
3.1* Articles of Incorporation of the Registrant.
3.2* Articles of Incorporation and amendments thereto of Dunn Computer
Corporation, a Virginia Corporation.
3.3* By-laws, as amended, of Dunn Computer Corporation, a Virginia Corporation.
4.1** Form of Financial Advisory and Investment Banking Agreement with
Underwriter.
4.2* Form of Underwriter's Warrants.
4.3** Form of Common Stock Certificate.
5.1 Opinion of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP.
10.1* 1997 Stock Option Plan.
10.2 GSA Schedule.
10.3* Share Exchange Agreement dated January 6, 1997 by and between the
Registrant and Thomas P. Dunne, John Vazzana, and Claudia Dunne.
10.4 Agreement dated November 21, 1995 between GCH Systems, Inc. and the
Company regarding Lockheed.
11.1* Statement Regarding Computation of Earnings Per Share.
21.1 List of Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2* Consent of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP.
(incorporated into Exhibit 5.1)
27.0 Financial Data Schedule.
</TABLE>
- ------------------------
* Previously Filed.
** To be filed by Amendment to this Registration Statement.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to any charter provision, by-law contract arrangements statute,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer 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 small business issuer 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 Act and
will be governed by the final adjudication of such issue.
II-2
<PAGE>
The undersigned small business issuer hereby undertakes:
(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
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;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to suit information in the registration statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment 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.
(4) For determining any liability under the Act, treat the information
omitted from the form of Prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of Prospectus
filed by the small business issuer under Rule 424(b)(1), or (4) or 497(h),
under the Act as part of this registration statement as of the time the
Commission declared it effective.
(5) For determining any liability under the Act, treat each
post-effective amendment that contains a form of Prospectus as a new
registration statement at that time as the initial bona fide Offering of
those securities.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that it
has reasonable grounds to believe that it meets all of the requirement for
filing on Form SB-2 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York on March 13, 1997.
DUNN COMPUTER CORPORATION
<TABLE>
<S> <C> <C> <C> <C>
By: /s/ THOMAS P. DUNNE By: /s/ JOHN D. VAZZANA
-------------------------------------- --------------------------------------
Thomas P. Dunne John D. Vazzana
Chief Financial Officer
</TABLE>
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ THOMAS P. DUNNE Chairman, Chief Executive
- ------------------------------ Officer and President March 13, 1997
Thomas P. Dunne
/s/ JOHN D. VAZZANA Executive Vice President,
- ------------------------------ Chief Financial Officer, March 13, 1997
John D. Vazzana and Director
* Vice President and Director
- ------------------------------ March 13, 1997
Claudia N. Dunne
* Director
- ------------------------------
VADM E. A. Burkhalter, Jr., March 13, 1997
USN
/s/ DANIEL SINNOTT Director
- ------------------------------ March 13, 1997
Daniel Sinnot -------------
<TABLE>
<S> <C> <C>
*By: /s/ THOMAS P. DUNNE
--------------------------------------
Thomas P. Dunne
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE NO.
- ------ -----------
<C> <S> <C>
1.1* Form of Underwriting Agreement............................................
1.2* Form of Selected Dealers Agreement........................................
3.1* Articles of Incorporation of the Registrant...............................
3.2* Articles of Incorporation and amendments thereto of Dunn Computer
Corporation, a Virginia Corporation.....................................
3.3* By-laws, as amended, of Dunn Computer Corporation, a Virginia
Corporation.............................................................
4.1** Form of Financial Advisory and Investment Banking Agreement with
Underwriter.............................................................
4.2* Form of Underwriter's Warrant.............................................
4.3** Form of Common Stock Certificate..........................................
5.1 Opinion of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP...........
10.1* 1997 Stock Option Plan....................................................
10.2 Agreement dated April , 1996 by and between the Company and the General
Services Administration.................................................
10.3* Share Exchange Agreement dated January 6, 1997 by and between the
Registrant and Thomas P. Dunne, John Vazzana, and Claudia Dunne.........
11.1* Statement Regarding Computation of Earnings Per Share.....................
21.1 List of Subsidiaries of Registrant........................................
23.1 Consent of Ernst & Young LLP, independent auditors........................
23.2* Consent of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP...........
27.0 Financial Data Schedule...................................................
</TABLE>
- ------------------------
* Previously Filed.
** To be filed by Amendment to this Registration Statement.
<PAGE>
EXHIBIT 5.1
March 13, 1997
Dunn Computer Corporation
1306 Squire Court
Sterling, Virginia 20166
Gentlemen:
You have requested our opinion, as counsel for Dunn Computer Corporation, a
Delaware corporation (the "Company"), in connection with the Company's
registration statement on Form SB-2 ("Registration Statement"), under the
Securities Act of 1933, as amended (the "Act"), File No. 333-19635 being filed
by the Company with the Securities and Exchange Commission on March 13, 1997.
The Registration Statement relates to an offer by the Company of 1,000,000
shares of the Company's common stock, $.001 par value ("Common Stock").
We have examined such records and documents and made such examinations of
law as we have deemed relevant in connection with this opinion. It is our
opinion that when there has been compliance with the Act, the Common Stock, when
issued, delivered, and paid for, will be fully paid, validly issued and
nonassessable.
No opinion is expressed herein as to any laws other than the laws of the
State of New York, of the United States and the corporate laws of the State of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In doing so, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
/s/ Gersten, Savage, Kaplowitz,
Fredericks & Curtin, LLP
GERSTEN, SAVAGE, KAPLOWITZ,
FREDERICKS & CURTIN, LLP
<PAGE>
EXHIBIT 10.2
DUNN COMPUTER
CORPORATION
GSA SCHEDULE
# GS-35F-4085D
4-1-96 THROUGH 3-31-99
AUTHORIZED ADP SCHEDULE PRICELIST
FSC GROUP 70, PART I, SECTIONS B & C
GENERAL PURPOSE COMMERCIAL AUTOMATIC DATA PROCESSING EQUIPMENT,
END USER COMPUTERS (NORMALLY MICROCOMPUTERS) AND EQUIPMENT
USED PRIMARILY OFF-LINE, AND SOFTWARE
Special Item No. 132-8 Purchase of Hardware
Special Item No. 132-18 Repair Service
Special Item No. 132-19 Repair Parts
Special Item No. 132-33 Purchase of Software
HARDWARE CATEGORY CODE
- -------- -------------
FSC Class 7010-0001 End User Computers G
FSC Class 7010-0002 Optical Disk Systems K
FSC Class 7010-0003 Laptop, Portable and Notebook Computers H
FSC Class 7025-0004 Printers (ADP) A
FSC Class 7025-0006 Local Area Network Equipment and Acces. J
FSC Class 7025-0007 Interactive Display B
FSC Class 7025-0008 Interactive Graphics A
FSC Class 7025-0010 Other ADP Input/Output and Storage Devices C
FSC Class 7025-0011 Modems and Multiplexers D
FSC Class 7025-0012 Optical Disk Readers K
FSC Class 7050-0001 ADP Boards F
FSC Class 5995-0001 Communication Equipment Cable I
FSC Class 6145-0001 Coaxial Cable I
FSC Class 7030-0001 Operating System Software O
DUNN COMPUTER CORPORATION
1306 SQUIRE COURT, STERLING, VA 20166
703-450-0400, FAX 703-450-0406
E-MAIL: [email protected], HTTP://WWW.DUNNCOMP.COM
Contract Number: - GS-35F-4085D, Period Covered by Contract: 4/1/96 through
3/31/99
General Services Administration, Federal Supply Service
AGENCIES CAN BROWSE GSA ADVANTAGE! BY ACCESSING THE GSA'S HOME PAGE VIA INTERNET
AT WWW.GSA.GOV.
<PAGE>
TABLE OF CONTENTS
PC's...........................................................................1
Servers........................................................................2
Monitors.......................................................................2
Accessories....................................................................2
Software.......................................................................2
Memory Products................................................................3
Storage Devices................................................................3
Tape Back-up...................................................................3
Video Products.................................................................4
Sound Products.................................................................4
CD-ROM's.......................................................................4
CPU's..........................................................................4
Floppy Drives..................................................................5
Notebook Computers.............................................................5
Notebook Accessories...........................................................5
PC Cards (PCMCIA)..............................................................5
PC Card Readers (PCMCIA).......................................................6
Modems.........................................................................6
Multi-user Products............................................................7
Controllers....................................................................7
Networking Products............................................................8
Maintenance....................................................................8
<PAGE>
GS-35F-4085D 4/1/96-3/31/99 800-296-DUNN 703-450-0400
<TABLE>
<CAPTION>
GS-35F-4085D 4/1/96 - 3/31/99 800-296-DUNN 703-450-0400
COUNTRY ENERGY
GSA# MFR PART# PRODUCT DESCRIPTION GSA PRICE OF ORIGIN STAR? WARRANTY
PCS
ALL SYSTEMS INCLUDE: PCI BUS, 8MB RAM, 256K CACHE, 2.1GB EIDE HDD, 2MB VIDEO
RAM, 2 SERIAL/1 PARALLEL, 3 1/2" FLOPPY DRIVE, 104 KEYBOARD, POINTING DEVICE,
MS-DOS 6.22/WFW 3.11 OR WIN95. (MUST ADD MONITOR)
<S> <C> <C> <C> <C> <C> <C>
1065 DCC-D2.1GB-075D2 Desktop System with Pentium 133MHz CPU $1,029 US Yes 3 Year
1365 DCC-D2.1GB-166D2 Desktop System with Pentium 166MHz CPU $1,229 US Yes 3 Year
1367 DCC-D2.1G -200D2 Desktop System with Pentium 200MHz CPU $1,349 US Yes 3 Year
1368 DCC-D2.1G -PP150D2 Desktop System with Pentium Pro 150MHz CPU $1,424 US Yes 3 Year
1369 DCC-D2.1GB-PP166D2 Desktop System with Pentium Pro 166MHz CPU $1,559 US Yes 3 Year
1372 CC-D2.1GB-PP2002D2 Desktop System w/ Pentium Pro 200MHz CPU(256) $1,596 US Yes 3 Year
1373 CC-D2.1GB-PP2005D2 Desktop System w/ Pentium Pro 200MHz CPU(512) $2,564 US Yes 3 Year
1460 DCC-M2.1GB-133D2 Mini Tower System with Pentium 133MHz CPU $1,032 US Yes 3 Year
1755 DCC-M2.1GB-166D2 Mini Tower System with Pentium 166MHz CPU $1,232 US Yes 3 Year
1357 DCC-M2.1GB-200D2 Mini Tower System with Pentium 200MHz CPU $1,352 US Yes 3 Year
1358 DCC-M. 2.1GB-PP150D2 Mini Tower System with Pentium Pro 150MHz CPU $1,427 US Yes 3 Year
1359 DCC-M. 2.1GB-PP166D2 Mini Tower System with Pentium Pro 166MHz CPU $1,562 US Yes 3 Year
1362 DCC-M. 2.1GB-PP2002D2 Mini Tower System w/ Pentium Pro 200MHz CPU(256) $1,599 US Yes 3 Year
1363 DCC-M. 2.1GB-PP2005D2 Mini Tower System w/ Pentium Pro 200MHz CPU(512) $2,567 US Yes 3 Year
1864 DCC-T2.1GB-133D2 Tower System with Pentium 133MHz CPU $1,027 US Yes 3 Year
2150 DCC-T2.1GB-166D2 Tower System with Pentium 166MHz CPU $1,247 US Yes 3 Year
1352 DCC-M. 2.1GB-200D2 Mini Tower System with Pentium 200MHz CPU $1,367 US Yes 3 Year
1353 DCC-M. 2.1GB-PP150D2 Mini Tower System with Pentium Pro 150MHz CPU $1,442 US Yes 3 Year
1354 DCC-M. 2.1GB-PP166D2 Mini Tower System with Pentium Pro 166MHz CPU $1,577 US Yes 3 Year
1377 DCC-M. 2.1GB-PP2002D2 Mini Tower System w/ Pentium Pro 200MHz CPU(256) $1,614 US Yes 3 Year
1378 DCC-M. 2.1GB-PP2005D2 Mini Tower System w/ Pentium Pro 200MHz CPU(512) $2,582 US Yes 3 Year
1379 DCC-ALLIN1 All-in-One Computer $1,757 US Yes 3 Year
Includes base unit with 17" monitor, 2MB Video,
16MB RAM, 2GB HDD, mouse, Floppy, WIN 95
Keyboard, Must add CPU (P133 or P166)
Options include: Sound, 8X CD, MPEG,
TV Tuner, PCMCIA
1378 DCC-DualP Upgrade any of the above listed Pentium systems $175 US Yes 3 Year
to a dual Pentium Board (Note:
Does not include second processor)
1379 DCC-DualPP Upgrade any of the above listed Pentium Pro systems $288 US Yes 3 Year
to a dual Pentium Pro Board (Note:
Does not include second processor)
</TABLE>
Dunn Computer Corporation 1306 Squire Court, Sterling, VA 20166
www.dunncomp.com/e-mail: [email protected]
FAX 703-450-0406
Mod #5-1/15/97
Dunn Computer Corporation 1306 Squire Court, Sterling, VA 20166
www.dunncomp.com/e-mail: [email protected] FAX 703-450-0406 Mod#5
1
<PAGE>
GS-35F-4085D 4/1/96-3/31/99 800-296-DUNN 703-450-0400
SERVER PRODUCTS
<TABLE>
<CAPTION>
ALL SERVER'S ARE CUSTOM CONFIGURATIONS BUILT UPON THE ITEMS LISTED BELOW. IN
ADDITION, OTHER PRODUCTS SUCH AS MEMORY AND PROCESSORS WILL BE NEEDED. PLEASE
CALL A SALES CONSULTANT FOR FURTHER INFORMATION.
<S> <C> <C> <C> <C> <C>
2751 DCC-FT Full Tower Chassis, dual power supplies $680 US Yes 3 Year
2752 DCC-FTHW Full Tower Chassis, dual power supplies $1,200 US Yes 3 Year
hot swappable
2753 DCC-MB4 Quad Server motherboard $6,022 US Yes 3 Year
Does not include processors or memory
2754 DCC-MRAID Mega Raid Controller $1,725 US Yes 3 Year
2761 DCC-URAID Ultra Raid Controller $1,725 US Yes 3 Year
2761 DCC-RAIDCACHE 1MB Cache for Raid Controller $480 US Yes 3 Year
2761 DCC-CD 21 Bay CD Server $8,400 US Yes 3 Year
2762 DCC-Juke 150 Disk Capacity Juke Box $18,485 US Yes 3 Year
MONITORS
2750 DCC-CM2099 14", .28 Monitor $234 US Yes 3 Year
2760 DCC-CM1215 15", .28 Monitor $357 US Yes 3 Year
2765 DCC-17 17", .28 Monitor $588 US Yes 3 Year
2766 DCC-1726 17", .26 Monitor $688 US Yes 3 Year
2770 DCC-CM2098MU 20", .28 Monitor $1,463 US Yes 3 Year
2775 DCC-CM110MU 21", .26 Monitor $1,620 US Yes 3 Year
ACCESSORIES
3390 DCC-CRU-IDE Removable disk option - IDE drives $65 US No 3 Year
3395 DCC-CRU-SCSI Removable disk option - SCSI drives $69 US No 3 Year
3460 DCC-TMB-250 PC Card (PCMCIA) Reader/Writer $156 SN No 3 Year
3600 DCC-Mouse PS/2 Mouse $15 US No 3 Year
3601 DCC-MouseMS MS Compatible Mouse $38 US No 3 Year
3575 DCC-101KYBD 101 enhanced AT Keyboard $17 MX No 3 Year
3110 DCC-2834F Internal 28,800 BPS fax and data $124 US No 3 Year
modem. v.42 bis/MNP hardware
3111 DCC-SpeakersH SB32 Wavetable w/0007 speakers $188 US No 3 Year
3112 DCC-SpeakersL Multimedia Speakers $35 US No 3 Year
</TABLE>
Dunn Computer Corporation 1306 Squire Court, Sterling, VA 20166
www.dunncomp.com/e-mail: [email protected] FAX 703-450-0406 Mod#5
2
<PAGE>
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<TABLE>
<CAPTION>
SOFTWARE
<S> <C> <C> <C> <C> <C>
3595 DCC-NT MS Windows NT Upgrade- Latest version. $202 US No 3 Year
Must be ordered with a system.
3596 DCC-MSOP MS Office Pro- Latest version. $221 US No 3 Year
Must be ordered with a system.
3597 DCC-MSNTU MS NT Workstation Upgrade- Latest version. $91 US No 3 Year
Must be ordered with a system.
3599 DCC-MSNTS MS NT Server- Latest version. $888 US No 3 Year
Must be ordered with a system
3606 DCC-LANDESK LANDesk Manager $1,499 US No 3 Year
Must be ordered with a system.
MEMORY PRODUCTS
2680 DCC-SIMM4 4MB SIMM Module $58 US No 3 Year
2685 DCC-SIMM4EDO 4MB SIMM Module - EDO $78 US No 3 Year
2695 DCC-SIMM8 8MB SIMM Module $82 US No 3 Year
2700 DCC-SIMM8EDO 8MB SIMM Module - EDO $83 US No 3 Year
2665 DCC-SIMM16 16MB SIMM Module $139 US No 3 Year
2666 DCC-SIMM32 32MB SIMM Module $325 US No 3 Year
2667 DCC-SIMM64 64MB SIMM Module $645 US No 3 Year
2690 DCC-512Cache 512KB Sync Cache $78 US No 3 Year
2691 DCC-256Cache 256KB Cache Module $41 US No 3 Year
STORAGE DEVICES
3356 DCC-1 1 GB EIDE Hard disk drive for Notebooks $271 US No 3 Year
3357 DCC-1.3 1.3 GB EIDE Hard disk drive for Notebooks $271 US No 3 Year
3355 DCC-1.6 1.6 GB EIDE Hard disk drive $271 US No 3 Year
3375 DCC-2G 2 GB EIDE Hard disk drive $355 US No 3 Year
3385 DCC-4G 4 GB EIDE Hard disk drive $875 US No 3 Year
3365 DCC-1GSCSI 1 GB SCSI Hard disk drive $374 US No 3 Year
3370 DCC-TY0030-02-7 2 GB SCSI Hard disk drive $813 SN No 3 Year
3380 DCC-YS0030-05-7 4 GB SCSI Hard disk drive $1,127 SN No 3 Year
3405 DCC-ZZ0030-01-0 9 GB SCSI Hard disk drive $2,037 SN No 3 Year
3376 DCC-2U 2 GB EIDE Hard disk drive Upgrade $63 US No 3 Year
</TABLE>
Dunn Computer Corporation 1306 Squire Court, Sterling, VA 20166
www.dunncomp.com/e-mail: [email protected] FAX 703-450-0406 Mod#5
3
<PAGE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
3377 DCC-2.5U 2.5 GB EIDE Hard disk drive Upgrade $111 US No 3 Year
3378 DCC-2SCSIU 2 GB SCSI Hard disk drive Upgrade $264 US No 3 Year
3379 DCC-4SCSIU 4 GB SCSI Hard disk drive Upgrade $946 US No 3 Year
3386 DCC-9SCSIU 9 GB SCSI Hard disk drive Upgrade $2125 US No 3 Year
TAPE BACK-UP
3550 DCC-Tape250 250MB Internal Tape Back -up $152 US No 3 Year
3565 DCC-Tape2 Extra tape for 250MB internal $18 US No 3 Year
tape back-up
3555 DCC-2GB 2GB Internal Tape Back-up $1,046 US No 3 Year
3556 DCC-4GB 4GB Internal Tape Back-up $1,359 US No 3 Year
3557 DCC-8GB 8GB Internal Tape Back-up $1,524 US No 3 Year
3570 DCC-TapePort Portable external 250MB tape $262 US No 3 Year
back-up
3560 DCC-TapePort-Tape Extra tape for Portable external $25 US No 3 Year
250MB tape back-up
3561 DCC-1.GBJAZZ Storage, 1.0GB $622 US No 3 Year
VIDEO PRODUCTS
2855 DCC-100-28100-00 4MB PCI DRAM Video Card $399 US No 3 Year
2820 DCC-Video-1MVR- 1MB PCI VRAM Video card $159 US No 3 Year
2840 DCC-100-25501-00-V 2MB PCI VRAM Video Card $270 US No 3 Year
2860 DCC-100-25500-00-V 4MB PCI VRAM Video Card $446 US No 3 Year
2861 DCC-2MBMPEG PCI 2MB MPEG $218 US No 3 Year
2862 DCC-TV Tune TV Tuner for the All-in-One $402 US No 3 Year
2863 DCC-4MBWRAM 4MB WRAM PCI Video Card $455 US No 3 Year
SOUND PRODUCTS
2856 DCC-16-Sound 16 bit sound card with speakers $46 US No 3 Year
2857 DCC-32-Sound 32 bit sound card with speakers $78 US No 3 Year
CD-ROMS
3540 DCC-CHI535010 8X External CD-ROM $291 US No 3 Year
3525 DCC-MCS-164550 8X External CD-ROM, parallel port version $306 US No 3 Year
3541 DCC-2X4XCD Reader/Writer CD $1,039 US No 3 Year
3535 DCC-8XCD 8X Internal CD ROM $105 US No 3 Year
3543 DCC-8XSCSI 8X CD-ROM SCSI $240 US No 3 Year
</TABLE>
Dunn Computer Corporation 1306 Squire Court, Sterling, VA 20166
www.dunncomp.com/e-mail: [email protected] FAX 703-450-0406 Mod#5
4
<PAGE>
GS-35F-4085D 4/1/96-3/31/99 800-296-DUNN 703-450-0400
<TABLE>
<CAPTION>
CPU'S
<S> <C> <C> <C> <C> <C>
2710 DCC-486DX-2/66 486 DX/2-66 CPU $92 US No 3 Year
2715 DCC-486DX-4/100 486 DX/4-100 CPU $128 US No 3 Year
2730 DCC-586-133 Pentium 133MHz CPU $554 US No 3 Year
2731 DCC-586-166 Pentium 166MHz CPU $581 US No 3 Year
2733 DCC-586-200 Pentium 200MHz CPU $735 US No 3 Year
2734 DCC-586-PP150 Pentium Pro 150 MHz CPU $345 US No 3 Year
2717 DCC-586-PP2002 Pentium Pro 200 MHz CPU with 256 $982 US No 3 Year
2718 DCC-586-PP2005 Pentium Pro 200 MHz CPU with 512 $1,950 US No 3 Year
2719 DCC-586-PMMXU Pentium MMX Upgrade $100 US No 3 Year
FLOPPY DRIVES
3440 DCC-Floppy3 3 1/2" 1.44MB Floppy Drive $20 JA No 3 Year
3445 DCC-Floppy5 5 1/4" 1.44MB Floppy Drive $37 JA No 3 Year
NOTEBOOK PC'S
ALL SYSTEMS INCLUDE: PCI BUS, 8MB RAM, 128K CACHE, 1GB EIDE HDD, 2MB VIDEO RAM,
2 SERIAL/1 PARALLEL, 3 1/2" FLOPPY DRIVE, 104 KEYBOARD, POINTING DEVICE, MS-DOS
6.22/WFW 3.11 OR WIN95.
2320 DCC-586/100-1GB-A Active Screen with Pentium 100MHz CPU $2,338 US Yes 3 Year
2330 DCC-586CD-100-1GB-A Active Screen with Pentium 100MHz CPU $2,459 US Yes 3 Year
and 8X CD ROM
2325 DCC-586/100-1GB-DS Dual Scan Screen with Pentium 100MHz CPU $2,122 US Yes 3 Year
2335 DCC-586CD-100-1GB-D Dual Scan Screen with Pentium 100MHz CPU $2,300 US Yes 3 Year
and 8X CD ROM
2336 DCC-586-BB - 12.1DS Bare Bones Dual Scan Screen 12.1 $2,088 US Yes 3 Year
8X CD ROM, must add processor, memory, hdd
2337 DCC-586-BB - 10.4A Bare Bones Active Screen $2,245 US Yes 3 Year
8X CD ROM, must add processor, memory, hdd
2338 DCC-586-BB - 12.1A Bare Bones Active Screen 12.1 $2,891 US Yes 3 Year
8X CD ROM, must add processor, memory, hdd
NOTEBOOK ACCESSORIES
2545 DCC-4MB RAM 4MB RAM Card $139 US No 3 Year
2550 DCC-8MB RAM 8MB RAM Card $280 US No 3 Year
2530 DCC-12MB RAM 12MB RAM Card $420 US No 3 Year
2535 DCC-16MB RAM 16MB RAM Card $561 US No 3 Year
2540 DCC-32MB RAM 32MB RAM Card $1,122 US No 3 Year
2541 DCC-40MB RAM 40MB RAM Card $1,406 US No 3 Year
2575 DCC-Dock Docking Station for the Dunn Notebook $139 US No 3 Year
</TABLE>
Dunn Computer Corporation 1306 Squire Court, Sterling, VA 20166
www.dunncomp.com/e-mail: [email protected] FAX 703-450-0406 Mod#5
5
<PAGE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2660 DCC-Battery Battery, secondary, for the Dunn Notebook $121 US No 3 Year
2555 DCC-Car Car Adapter for the Dunn Notebook $32 US No 3 Year
2556 DCC-Car Battery Charger for the Dunn Notebook $93 US No 3 Year
2557 DCC-MPEG MPEG Module for the Dunn Notebook $46 US No 3 Year
2558 DCC-PortR Port Replicator for the Dunn Notebook $109 US No 3 Year
PC CARDS (PCMCIA)
2585 DCC-EFX-1440PV PC Card - Communications - Fax Modem, 14.4 $110 US No 3 Year
2590 DCC-EFX-2880P PC Card - Communications - Fax Modem,, 28.8 $219 US No 3 Year
2595 DCC-EPX-ET10BT PC Card - Networking -Ethernet 10BT $85 US No 3 Year
2600 DCC-EPX-ET10T2 PC Card - Networking -Ethernet Combo $110 US No 3 Year
2605 DCC-EMS-0170 PC Card - Storage - 170MB HDD $337 US No 3 Year
2610 DCC-EMS-0260 PC Card - Storage - 260MB HDD $421 US No 3 Year
2615 DCC-EMS-0340 PC Card - Storage - 340MB HDD $500 US No 3 Year
2630 DCC-EPM-4000F PC Card - Storage - Flash - 4MB $189 US No 3 Year
2635 DCC-EPM-8000F PC Card - Storage - Flash - 8MB $334 US No 3 Year
2620 DCC-EPM-16000F PC Card - Storage - Flash - 16MB $616 US No 3 Year
2640 DCC-EPM-1000S PC Card - Storage - SRAM - 1MB $140 US No 3 Year
2645 DCC-EPM-2000S PC Card - Storage - SRAM - 2MB $241 US No 3 Year
2650 DCC-EPX-2000 PC Card -I/O - 2 slot ISA adapter $105 US No 3 Year
2655 DCC-EPX-SS1000 PC Card -I/O - SCSI Card $139 US No 3 Year
PC CARD READERS (PCMCIA)
3455 DCC-TMB-650 External PC Card $174 SN No 3 Year
Reader/Writer, Parallel Port
3465 DCC-TMB-260 Internal PC Card $139 SN No 3 Year
Reader/Writer, Dual Socket, Rear Loading
3470 DCC-TMB-250 PC Card Reader. Desktop $171 US No 3 Year
adapter, internal dual socket
3485 DCC-TMD-650 PC Card Reader. External $185 US No 3 Year
parallel port, single socket
3486 DCC-PCREADR PC Card Reader. Rear Load $139 US No 3 Year
MODEMS, FAX/DATA
3112 DCC-14.4I Internal 14.4 BPS fax and data $64 US No 3 Year
modem. v.42 bis/MNP hardware.
</TABLE>
Dunn Computer Corporation 1306 Squire Court, Sterling, VA 20166
www.dunncomp.com/e-mail: [email protected] FAX 703-450-0406 Mod#5
6
<PAGE>
GS-35F-4085D 4/1/96-3/31/99 800-296-DUNN 703-450-0400
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
3110 DCC-2834F Internal 28,800 BPS fax and data $124 US No 3 Year
modem. v.42 bis/MNP hardware.
3085 DCC-2834FLX External 28,800 BPS fax and data $155 US No 3 Year
modem. v.42 bis/MNP hardware.
3111 DCC-33.6I Internal 33.6 BPS fax and data $140 US No 3 Year
modem. v.42 bis/MNP hardware.
3086 DCC-2834E External 28,800 BPS fax and data $200 US No 3 Year
modem. v.42 bis/MNP hardware.
MODEMS, FAX/DATA/VOICE
3045 DCC-2834VF Internal28,800 BPS fax and data $134 US No 3 Year
modem with voice capability.
3030 DCC-2834VLX External 28,800 BPS fax and data $165 US No 3 Year
modem with voice capability.
MODEMS, MULTIMEDIA
3000 DCC-SE34SRS SoundExpression 28.8SRS. Plug $259 US No 3 Year
and Play/Windows 95-ready
28.8Kbps data and 14.4Kbps fax
modem featuring Voice View,
voicemail and full duplex speakerphone
3005 DCC-SE34SVD SoundExpression 28.8SVD. Plug $315 US No 3 Year
and Play/Windows 95-ready
28.8Kbps data and 14.4Kbps fax
modem featuring Digital
Simultaneous Voice and Data
(DSVD), voicemail and full
duplex speakerphone
MULTI-USER PRODUCTS
3335 DCC-BB2016 16-port serial expansion $181 US No 3 Year
BOCABOARD for ISA. Drivers for
SCO Unix/Xenix and PC-DOS.
External concentrator supports
up to 16 RJ-45 ports
3340 DCC-BB1004 4-port serial expansion $57 US No 3 Year
BOCABOARD for ISA. Drivers for
SCO Unix/Xenix and PC-DOS.
Includes 4 six-foot RJ-11 to
DB-25 cables
3345 DCC-BB1008 8-port serial expansion $89 US No 3 Year
BOCABOARD for ISA. Drivers for
SCO Unix/Xenix and PC-DOS.
Includes 8 six-foot RJ-11 to
DB-25 cables
</TABLE>
Dunn Computer Corporation 1306 Squire Court, Sterling, VA 20166
www.dunncomp.com/e-mail: [email protected] FAX 703-450-0406 Mod#5
7
<PAGE>
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<TABLE>
<CAPTION>
CONTROLLERS
<S> <C> <C> <C> <C> <C>
3425 DCC-IDE002 IDE Controller $19 US No 3 Year
3415 DCC-IDEG22 High-Performance IDE Plus Controller $47 US No 3 Year
2935 DCC-IOAT55 I/O ports for ISA/EISA. One $39 US No 3 Year
parallel/two serial ports with a
16C550 buffered UARTon board
2955 DCC-IOAT66 I/O ports for ISA/EISA. Six $72 US No 3 Year
high-speed RS-232 serial ports
with 10-pin RJ-45 connectors and
16C550 buffered UARTs.
Excellent product for bulletin
board and fax server applications
2960 DCC-IO2BY4 I/O ports for ISA/EISA. Two $72 US No 3 Year
parallel/four serial ports with
16C550 buffered UARTs with cables
3426 DCC-ISA 22 SCSI Controller - 1522 $85 US No 3 Year
3427 DCC-ISA 42 SCSI Controller - 1542 $99 US No 3 Year
3428 DCC-SCSIUltra SCSI Controller - Ultra $229 US No 3 Year
3429 DCC-SCSIUltraW SCSI Controller - Ultra Wide $266 US No 3 Year
NETWORKING PRODUCTS
3266 DCC-NICISA ISA 10Base T Network Card $89 US No 3 Year
3267 DCC-NICPCI PCI 10Base T Network Card $118 US No 3 Year
3268 DCC-NICISAC ISA 10Base T Network Card Combo $105 US No 3 Year
3269 DCC-NICPCI PCI 10Base T Network Card Combo $140 US No 3 Year
3265 DCC-BEN1PI BOCALANcard PCI. PCI bus $61 US No 3 Year
Ethernet adapter with RJ-45 and
BNC connectors and two LEDs.
BNC-T connector included.
3270 DCC-BEN110 BOCALANcard TP. 16-bit ISA bus $48 US No 3 Year
Ethernet adapter with RJ-45
connector and two LEDs.
Featuring Plug and Play/Windows
95 and jumperless design.
3271 DCC-TR164 Token Ring NIC ISA $207 US No 3 Year
3271 DCC-TR164PCI Token Ring NIC PCI $345 US No 3 Year
MAINTENANCE
3615 DCC-RS-MIN-Shop Minimum charge for repair $75 US No 3 Year
service at Dunn Computer Corp's
facility. 1st Hour
3620 DCC-MIN-GOV Minimum charge for repair $150 US No 3 Year
service at Government Location
within established service areas
</TABLE>
Dunn Computer Corporation 1306 Squire Court, Sterling, VA 20166
www.dunncomp.com/e-mail: [email protected] FAX 703-450-0406 Mod#5
8
<PAGE>
GS-35F-4085D 4/1/96-3/31/99 800-296-DUNN 703-450-0400
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
3625 DCC-AHR-GOV Per hour charge for repair $95 US No 3 Year
service after hours at
Government location within
established service areas
(2 hours minimum charge). Travel
$35.00 per hour. (1 minimum hour)
3630 DCC-RHR-Shop Per hour charge for repair $45 US No 3 Year
service during regular hours at
Dunn Computer Corp's facility
(to be used at the end of a job
to prorate to the nearest quarter hour)
3635 DCC-RHR-GOV Per hour charge for repair $75 US No 3 Year
service during regular hours at
Government location within
established service areas
(2 hours minimum charge)
3640 DCC-SHHR-GOV Per hour charge for repair $113 US No 3 Year
service on Sundays or Holidays
at Government location within
established service areas
(4 hours minimum charge)
</TABLE>
Dunn Computer Corporation 1306 Squire Court, Sterling, VA 20166
www.dunncomp.com/e-mail: [email protected] FAX 703-450-0406 Mod#5
<PAGE>
AUTHORIZED ADP SCHEDULE PRICELIST
FSC GROUP 70, PART I, SECTIONS B & C
GENERAL PURPOSE COMMERCIAL AUTOMATIC DATA PROCESSING EQUIPMENT,
END USER COMPUTERS (NORMALLY MICROCOMPUTERS) AND EQUIPMENT
USED PRIMARILY OFF-LINE, AND SOFTWARE
Special Item No. 132-8 Purchase of Hardware
Special Item No. 132-18 Repair Service
Special Item No. 132-19 Repair Parts
Special Item No. 132-33 Purchase of Software
HARDWARE CATEGORY CODE
FSC Class 7010-0001 End User Computers G
FSC Class 7010-0002 Optical Disk Systems K
FSC Class 7010-0003 Laptop, Portable and Notebook Computers H
FSC Class 7025-0004 Printers (ADP) A
FSC Class 7025-0006 Local Area Network Equipment and Accessories J
FSC Class 7025-0007 Interactive Display B
FSC Class 7025-0008 Interactive Graphics N
FSC Class 7025-0010 Other ADP Input/Output and Storage Devices C
FSC Class 7025-0011 Modems and Multiplexers D
FSC Class 7025-0012 Optical Disk Readers K
FSC Class 7035-0001 ADP Support Equipment E
FSC Class 7050-0001 ADP Boards F
FSC Class 5995-0001 Communication Equipment Cable I
SOFTWARE
FSC Class 7030-0001 Operating System Software O
Category Code M: Special Physical, Visual, Speech and Hearing Aid Equipment and
Software may overlap the above FSC Classes.
Dunn Computer Corporation
1306 Squire Court, Sterling, VA 20166
703-450-0400, FAX 703-450-0400, e-mail:[email protected]
HTTP://www.dunncomp.com
Contract Number: GS-35F-4085D
Period Covered by Contract 4/1/95 - 3/31/99
General Services Administration
i
<PAGE>
Federal Supply Service
Products and ordering information in this Authorized ADP Schedule Pricelist is
also available on the GSA Advantage! system. Agencies can browse GSA Advantage!
by accessing GSA's Home Page via Internet at www.gsa.gov.
TABLE OF CONTENTS
INFORMATION FOR ORDERING OFFICES PAGE III
GENERAL TERMS AND CONDITIONS APPLICABLE
TO PURCHASE (132-08), MAINTENANCE (132-12),
REPAIR SERVICE (132-18), REPAIR PARTS (132-19),
PURCHASE OF SOFTWARE (132-33), MAINTENANCE
OF SOFTWARE (132-34), AND
CLASSROOM TRAINING (132-50) PAGE IX
TERMS AND CONDITIONS APPLICABLE TO PURCHASE
OF GENERAL PURPOSE COMMERCIAL AUTOMATIC
DATA PROCESSING EQUIPMENT (SPECIAL ITEM 132-08) PAGE XI
TERMS AND CONDITIONS APPLICABLE TO REPAIR SERVICE
(SPECIAL ITEM 132-18) AND REPAIR PARTS (SPECIAL
ITEM 132-19) FOR GENERAL PURPOSE COMMERCIAL
AUTOMATIC DATA PROCESSING EQUIPMENT, WHEN
REQUIRED SERVICE IS NOT COVERED BY
GUARANTEE PROVISIONS PAGE XIII
TERMS AND CONDITIONS APPLICABLE TO PURCHASE
(SPECIAL ITEM 132-33) AND MAINTENANCE
(SPECIAL ITEM 132-34) OF GENERAL PURPOSE
COMMERCIAL ADP SOFTWARE LICENSES
(NON-EXCLUSIVE PERPETUAL USE) PAGE XVII
ii
<PAGE>
GSA PRICE LIST PAGE 1
INFORMATION FOR ORDERING OFFICES
1. Geographic Scope of Contract:
The Geographic scope of this contract is the 48 contiguous states, the District
of Columbia, Alaska, Hawaii, the Comonwealth of Puerto Rico, and overseas U.S.
Government installations.
2. Contractor's Ordering Address and Payment Information:
Dunn Computer Corporation
1306 Squire Court, Sterling, VA 20166
703-450-0400, FAX 703-450-0400, e-mail:[email protected]
Government Commercial Credit Cards will be acceptable for payment. In addition,
bank account information for wire transfer payments will be shown on the
invoice.
Below are the telephone number(s) that can be used by ordering agencies to
obtain technical and/or ordering assistance.
703-450-0400, FAX 703-450-0400, e-mail - [email protected]
3. Reserved
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<PAGE>
4. Statistical Data for Government Ordering Office Completion of Standard Form
279:
Block 9: G. Order/Modification Under Federal Schedule
Block 16: Contractor Establishment Code (DUNS): 17-704-2603
Block 30: Type of Contractor - B.
A. Small Disadvantaged Business
B. Other Small Business
C. Large Business
G. Other Nonprofit Organization
L. Foreign Contractor
Block 31: Woman-Owned Small Business - No
Block 34: Reserved
Block 36: Contractor's Taxpayer Identification
Number (TIN) - 54-1424654
4a. CAGE Code: OJLPO4S
5. FOB Destination
6. COMMERCIAL DELIVERY SCHEDULE (MULTIPLE AWARD SCHEDULES)
(a) TIME OF DELIVERY. The contractor shall deliver to destination within the
number of calendar days after receipt of order (ARO), as set forth below.
Offerors shall insert in the "time of Delivery (days ARO)" column in the
Schedule of Items a definite number of calendar days within which delivery will
be made. In no case shall the offered delivery time exceed the contractor's
normal commercial practice.
ITEMS OR GROUPS
OF ITEMS (SIN OR DELIVERY TIME
NOMENCLATURE) (DAYS ARO)
132-8 30
132-33 30
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<PAGE>
(b) EXPEDITED DELIVERY TIMES. For those items that can be delivered quicker
than the delivery times in paragraph (a), above, the offeror is requested to
insert below, a time (hours/days ARO) that delivery can be made when EXPEDITED
DELIVERY is requested.
ITEMS OR GROUPS OF ITEMS EXPEDITED DELIVERY TIME
(SIN OR NOMENCLATURE) (HOURS/DAYS ARO)
None None
- -------------------------- --------------------------
__________________________ __________________________
__________________________ __________________________
__________________________ __________________________
(c) OVERNIGHT AND 2-DAY DELIVERY TIMES. Schedule customers may require
overnight or 2-day delivery. The offeror is requested to annotate in its
pricelist or by separate attachment the items that can be delivered overnight or
within 2 days. Contractors offering such delivery service will be required to
state in the FSS pricelist details concerning this service.
(d) URGENT REQUIREMENTS
When the Federal Supply Schedule contract delivery period does not meet the bona
fide urgent delivery requirements of an ordering agency, agencies are
encouraged, if time permits, to contact the contractor for the purpose of
obtaining accelerated delivery. The contractor shall replay to the inquiry
within 3 workdays after receipt. (Telephonic replies shall be confirmed by the
contractor in writing.) If the contractor offers an accelerated delivery time
acceptable to the ordering agency, any order(s) placed pursuant to the agreed
upon accelerated delivery time frame shall be delivered within this shorter
delivery time and in accordance with all other terms and conditions of the
contract.
7. Discounts:
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<PAGE>
a. Prompt Payment: 1/4% - 10 days from receipt of invoice or date
of acceptance, whichever is later.
b. Quantity - Yes
c. Dollar Volume - None
d. Government Educational Institutions - None
e. Discount for use of Government Commercial Credit Card- None
f. Other - None
8. Production Points and Statement Concerning Foreign Produced Items:
Dunn Computer Corporation, Sterling, VA, USA
9. Statement Concerning Availability of Export Packing:
10. Small Requirements: The minimum dollar value of orders to be issued
is $50.
11a. Maximum Order: (All dollar amounts are exclusive of any discount for
prompt payment.)
a. Special Item 132-2 - Leasing
The maximum dollar value per purchase order/price for all leased
products will be $500,000.
b. Special Item 132-8 - Purchase of Hardware
The maximum dollar value per order will be $500,000 for all
hardware products.
c. Special Item 132-19 - Purchase of Software
The maximum dollar value per order will be $50,000 or $500,000
for all software products
e. Special Item 132-50 - Classroom Training
The maximum dollar value per order will be $25,000 for all
training products
f. Special Item 132-51 ADP Services
The maximum dollar value per order will be $500,000 for all ADP
Services.
Note: Maximum Order do not apply to Special Item Numbers 132-12 Maintenance of
Equipment, 132-18 Repair Service, or 132-34 Maintenance of Software.
vi
<PAGE>
11b. Orders That Exceed the Maximum Order
(a) In accordance with FAR 8.404 there may be circumstances where an ordering
activity finds it advantageous to request a price reduction such as where a
quantity of an individual order clearly indicates the potential for obtaining a
reduced price.
To assist the customer agencies to determine when they should seek a price
decrease a level called a maximum order has been established under the contract.
When an agency order exceeds this amount it is recommended that the ordering
activity contact the contractor for a reduced price.
(b) Contractor may:
(1) offer a new lower price for this requirement (the Price Reduction
clause is not applicable to orders placed over the Maximum Order in FAR 52.216-
19.)
(2) offer the lowest price available under the contract; or
(3) decline the order, orders must be returned in accordance with FAR
52.216-19.
(c) A delivery order for quantities that exceed the maximum order may be placed
with the contractor selected in accordance with FIRMR 201-39.803-3. The order
will be placed under the current contract.
(d) Sales for orders that exceeds the Maximum Order shall be reported in
accordance with GSAR 552.238-72.
12. FEDERAL ADP/TELECOMMUNICATION STANDARDS REQUIREMENTS: Federal departments
and agencies acquiring products from this Schedule must comply with the
provisions of Federal Standards Program, as appropriate(reference: NIST Federal
Standards Index). Inquiries to determine whether or not specific products listed
herein comply with Federal Information Processing Standards (FIPS) or Federal
Telecommunication Standards (FED-STDS), which
vii
<PAGE>
are cited by ordering offices, shall be responded to promptly by the Contractor.
12.1 FEDERAL INFORMATION PROCESSING STANDARDS PUBLICATIONS (FIPS PUBS): ADP
products under this Schedule that do not conform to Federal Information
Processing Standards (FIPS) should not be acquired unless a waiver has been
granted in accordance with the applicable "FIPS Publication." Federal
Information Processing Standards Publications (FIPS PUBS) are issued by the U.S
Department of Commerce, National Institute of Standards and Technology (NIST)
pursuant to the National Security Act. Information concerning their
availability and applicability should be obtained from the National Technical
Information Service (NTIS), 5285 Port Royal Road, Springfield, Virginia 22161.
FIPS PUBS include voluntary standards when these are adopted for Federal use.
Individual orders for FIPS PUBS should be referred to the NTIS Sales Office, and
orders for subscription service should be referred to the NTIS Subscription
Officer, both at the above address, or telephone number (703) 487-4650.
12.2 FEDERAL TELECOMMUNICATION STANDARDS (FED-STDS): Telecommunication products
under this Schedule that do not conform to Federal Telecommunication Standards
(FED-STDS) should not be acquired unless a waiver has been granted in accordance
with the applicable "FED-STD." Federal Telecommunication Standards are issued
by the General Services Administration, pursuant to the Federal Property and
Administrative Services Act of 1949, amended (40 U.S.C. 487). Ordering
information and information concerning the availability of FED-STDS should be
obtained from the GSA Specification Sales Office, Room 6654, 7th & D Streets,
SW, Washington, DC 20407, telephone number (202) 708-9205. Please include a
self-addressed mailing label when requesting information by mail. Information
concerning their applicability can be obtained by writing or calling GSA
Standards Branch, KMPS, 18th & F Streets, NW, Washington, DC 20405, telephone
number (202) 501-1180.
13. SECURITY REQUIREMENTS. In the event security requirements are necessary,
the ordering activities may incorporate, in their delivery order(s), a security
clause in accordance with current laws, regulations, and individual agency
policy; however, the burden of administering the security requirements shall be
with the ordering agency. If any costs are incurred as a result of
viii
<PAGE>
the inclusion of security requirements, such costs will be negotiated with the
Schedule Contractor on an open market basis, outside the scope of the contract.
14. CONTRACT ADMINISTRATION FOR ORDERING OFFICES: Any ordering office, with
respect to any one or more delivery orders placed by it under this contract, may
exercise the same rights of termination as might the GSA Contracting Officer
under provisions of FAR 52.249-1, 52.249-2, and 52.249-8.
15. GSA Advantage! (replaces the OSS ITS On-Line Schedule System)
The GSA Advantage! is an on-line, interactive electronic information and
ordering system that provides on-line access to vendors' schedule pricelists
with ordering information, terms and conditions, and up-to-date pricing that
will aid Schedule users in acquisitions. The GSA Advantage! will allow the user
to:
a. Search by Vendor's Name or Contract Number to view or download the
vendor's complete GSA-approved pricelist with terms, conditions, and up-to-date
pricing.
b. Perform various searches across all contracts including, but not
limited to:
(1) Manufacturer;
(2) Manufacturer's Part Number; and
(3) Product category(ies).
Agencies can browse GSA Advantage! by accessing the Internet World Wide Web
utilizing a browser (ex.: NetScape). The Internet address is
http://www.gsa.gov.
16. USE OF GROUP 70 SCHEDULES CONTRACTS. In accordance with FIRMR
201-39.803-3:
a. PRIOR TO SELECTING A GSA NONMANDATORY FIP Schedule contract and placing an
order, the agency shall justify any restrictive requirement (e.g., an "all or
none" requirement or a requirement for "only new" equipment).
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<PAGE>
b. Ordering activities can place orders of $2,500 or less with any GSA
nonmandatory FIP schedule contractor. GSA has already determined the prices of
items under these contracts to be fair and reasonable.
c. To reasonably ensure that a selection represents the best value and meets
the agency's needs at the lowest overall cost alternative, before placing a MAS
order of more than $2500, an ordering activity should--
(1) Consider reasonably available information about products offered under
Multiple Award Schedule contracts; this standard is met if the ordering activity
does the following:
(i) Considers products and prices contained in any GSA MAS automated
information system (e.g., Information Technology Service On-line Schedules
System); or
(ii) If automated information is not available, reviews at least three
(3) pricelists.
(2) In selecting the best value item at the lowest overall cost (the price
of the item plus administrative costs), the ordering activity may consider such
factors as--
(i) Special features of one item not provided by comparable items
which are required in effective program performance;
(ii) Trade-in considerations;
(iii) Probable life of the item selected as compared with that of a
comparable item;
(iv) Warranty conditions; and
(v) Maintenance availability.
(3) Give preference to the items of small business concerns when two or
more items at the same delivered price will meet an ordering activity's needs.
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<PAGE>
d. MAS contractors will not be required to pass on to all schedule users a
price reduction extended only to an individual agency for a specific order.
There may be circumstances where an ordering activity finds it advantageous to
request a price reduction, such as where the ordering activity finds that a
schedule product is available elsewhere at a lower price, or where the quantity
of an individual order clearly indicates the potential for obtaining a reduced
price.
e. Ordering activities should document orders of $2,500 or less by identifying
the contractor the item was purchased from, the item purchased, and the amount
paid. For orders over $2,500, MAS ordering files should be documented in
accordance with internal agency practices. Agencies are encouraged to keep
documentation to a minimum.
f. Requirements or orders shall not be fragmenented in order to circumvent the
applicable MOL.
GENERAL TERMS AND CONDITIONS APPLICABLE TO PURCHASE (132-8),
MAINTENANCE (132-12), REPAIR SERVICE (132-18),
REPAIR PARTS (132-19), PURCHASE OF SOFTWARE (132-33),
MAINTENANCE OF SOFTWARE (132-34), AND CLASSROOM TRAINING (132-50)
GENERAL PURPOSE COMMERCIAL AUTOMATIC DATA PROCESSING EQUIPMENT AND SOFTWARE
The following terms and conditions are applicable to all Special Item Numbers:
1. GEOGRAPHIC SCOPE OF CONTRACT
The geographic scope of this contract is the 48 contiguous states, the District
of Columbia, Alaska, Hawaii, the Commonwealth of Puerto Rico, and such other
overseas locations as listed herein.
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<PAGE>
2. CONTRACTOR COMMITMENTS, WARRANTIES AND REPRESENTATIONS
a. For the purpose of this contract, commitments, warranties and
representations include, in addition to those agreed to for the entire schedule
contract:
(1) Time of delivery/installation quotations for individual orders;
(2) Technical representations and/or warranties of products
concerning performance, total system performance and/or configuration, physical,
design and/or functional characteristics and capabilities of a
product/equipment/ service/software package submitted in response to
requirements which result in orders under this schedule contract.
(3) Any representations and/or warranties concerning the products
made in any literature, description, drawings and/or specifications furnished by
the contractor.
b. The above is not intended to enlarge the scope of this schedule
contract for individual orders. Prices, options, terms and conditions of any
orders are limited strictly to those specified in the schedule contract and
pricelist and agreed to by GSA.
3. OVERSEAS ACTIVITIES
The terms and conditions of this contract shall apply to all orders for
installation, maintenance and repair of equipment in areas listed in the
pricelist outside the 48 contiguous states and the District of Columbia, except
for the following modifications:
a. In place of an installation date for equipment, a shipping date shall
be specified on the order.
b. The contractor agrees to promptly install all equipment, ready for
use.
c. Upon request of the contractor, the Government may provide the
contractor with logistics support, as available, in accordance with all
applicable Government regulations. Such
xii
<PAGE>
Government support will be provided on a reimbursable basis, and will only be
provided to the contractor's technical personnel whose services are exclusively
required for the fulfillment of the terms and conditions of this contract
(Purchase, Maintenance, and Repair Service).
d. The contractor agrees to accept orders for repair of equipment.
TERMS AND CONDITIONS APPLICABLE TO PURCHASE OF
GENERAL PURPOSE COMMERCIAL AUTOMATIC DATA PROCESSING EQUIPMENT
(SPECIAL ITEM 132-8)
1. MATERIAL AND WORKMANSHIP
All equipment furnished hereunder must be new and satisfactorily perform the
function for which it is intended.
2. ORDER
A written order, EDI (GSA Advantage! and FACNET), and credit card orders shall
be the basis for purchase in accordance with the provisions of this contract.
If time of delivery extends beyond the expiration date of the contract, the
contractor will be obligated to meet the delivery and installation date
specified in the original order. Written orders, EDI orders, credit card orders
or, in the case of BPA's or BOA's, telephone orders are permissible.
3. TRANSPORTATION OF EQUIPMENT
FOB DESTINATION. Prices cover equipment delivery to destination, for any
location within the geographic scope of this contract.
4. INSTALLATION AND TECHNICAL SERVICES
a. INSTALLATION. When the equipment provided under this contract is not
normally self-installable, the contractor's technical personnel shall be
available to the Government, at the Government's location, to install the
equipment and to train Government personnel in the use and maintenance of the
equipment.
xiii
<PAGE>
The charges for such services are listed below, or in the price schedule:
Government Location (within established service areas) $96 per hour, minimum
charge $192.
b. OPERATING AND MAINTENANCE MANUALS. The contractor shall furnish the
Government with one (1) copy of all operating and maintenance manuals relating
to the equipment being installed/purchased.
5. ACCEPTANCE
Equipment must operate in accordance with manufacturer's published
specifications. The user agency should give the contractor a notice of
acceptance or rejection within 30 days from receipt of the equipment. The
Government is relieved of all risk of loss or damage prior to acceptance.
6. GUARANTEE
a. The contractor will furnish all maintenance, machine adjustments,
repairs, and parts at the Contractor's location for a period three years -
return to factory.
b. All parts replaced during the guarantee period shall become the
property of the contractor.
c. Prior to the expiration of the guarantee period, whenever equipment is
shipped for repair or mechanical replacement purposes, the contractor shall bear
all costs, including, but not limited to, costs of packing, transportation,
rigging, drayage, and insurance. This guarantee shall apply to the replacement
machine from the date of its acceptance.
d. When equipment is returned to the contractor's establishment for
repairs, the contractor shall be responsible for any damage or loss, from the
time the equipment is removed from the Government's installation, until the
equipment is returned to such installation.
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<PAGE>
e. This guarantee does not apply if damage to the equipment is occasioned
by fault or negligence of the Government.
f. Inspection and repair of defective equipment under this guarantee will
ONLY be performed at the contractor's plant at the following address:
1306 Squire Court, Sterling, VA, USA 20166
and defective equipment will be repaired or replaced within 48 hours after
receipt.
7. PURCHASE PRICE FOR ORDERED EQUIPMENT
The purchase price that the Government will be charged will be the Government
purchase price in effect at the time of order placement, or the Government
purchase price in effect on the installation date (or delivery date when
installation is not applicable), whichever is less.
8. TRADE-IN OF FIP EQUIPMENT
When an agency determines that FIP equipment will be replaced, the agency shall
follow the contracting policies and procedures in Federal Information Resources
Management Regulations (FIRMR) 201-23, the Federal Acquisition Regulation (FAR),
and the policies and procedures on exchange/sale contained in 41 CFR part
101-46.
TERMS AND CONDITIONS APPLICABLE TO REPAIR SERVICE
(SPECIAL ITEM 132-18) AND REPAIR PARTS (SPECIAL ITEM 132-19)
FOR GENERAL PURPOSE COMMERCIAL AUTOMATIC DATA PROCESSING
EQUIPMENT, WHEN REQUIRED SERVICE IS NOT COVERED BY
GUARANTEE PROVISIONS
1. SERVICE AREAS
a. The repair service rates listed herein are applicable to any
Government location within a 25 mile radius of the contractor's service points.
If any additional charge is to apply because of the greater distance from the
contractor's
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<PAGE>
service locations, the mileage rate or other distance factor shall be stated in
paragraph 5.c.(3) of this Special Item 132-18.
b. When repair services cannot be performed at the Government
installation site, the repair services will be performed at the contractor's
plant(s) listed below:
1306 Squire Court, Sterling, VA 20166, USA
2. ORDER
Agencies may use blanket purchase orders, individual purchase orders, or
small order procedures for ordering repair service under this contract. Blanket
purchase orders shall not extend beyond the end of the contract period. Written
orders, EDI orders, credit card orders or, in the case of BPA's or BOA's,
telephone orders are permissible.
3. LOSS OR DAMAGE
When the contractor removes equipment to his establishment for repairs, the
contractor shall be responsible for any damage or loss, from the time the
equipment is removed from the Government installation, until the equipment is
returned to such installation.
4. RESPONSIBILITIES OF THE CONTRACTOR
a. The contractor shall always be responsive to the Government's repair
service needs. The contractor shall perform all repair services which are
ordered by the Government during the contract term.
b. The contractor's repair service personnel shall complete repairs as
soon as possible after notification by the Government that service is required.
The contractor will furnish all maintenance, machine adjustments, repairs, and
parts at the Contractor's location for a period three years - return to factory.
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<PAGE>
c. Only new, standard parts shall be used in effecting repairs. Parts
which have been replaced shall remain the property of the Government, except
when the Government concludes than an appropriate allowance is obtained for such
defective parts.
d. GUARANTEE. All repair work will be unconditionally guaranteed for a
period of three (3) years - return to factory.
5. REPAIR RATE PROVISIONS
a. CHARGES. Charges for repair service will include the labor charge,
computed at the rates set forth below, for the time during which repairmen are
actually engaged in work, and, when applicable, the charge for travel or
transportation.
b. MULTIPLE MACHINES. When repairs are ordered by a Government agency on
two or more machines located in one or more buildings within walking distance of
each other, the charges will be computed from the time the repairman commences
work on the first machine, until the work is completed on the last machine. The
time required to go from one machine to another, or from one building to
another, will be considered actual work performance, and chargeable to the
Government, provided the time consumed in going between machines (or buildings)
is reasonable.
c. TRAVEL OR TRANSPORTATION
(1) AT THE CONTRACTOR'S SHOP
(a) When equipment is returned to the contractor's shop for
adjustments or repairs which are not covered by the guarantee provision, the
cost of transportation, packing, etc., from the Government location to the
contractor's plant, and return to the Government location, shall be borne by the
Government.
(b) The Government should not return defective equipment to the
contractor for adjustments and repairs or replacement without his prior
consultation and instruction.
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<PAGE>
(2) AT THE GOVERNMENT LOCATION (Within Established Service Areas)
When equipment is repaired at the Government location, and repair service rates
are established for service areas or zones, the listed rates are applicable to
any Government location within such service areas or zones. No extra charge,
time, or expense will be allowed for travel or transportation of repairmen or
machines to or from the Government office; such overhead is included in the
repair service rates listed.
(3) AT THE GOVERNMENT LOCATION (Outside Established Service Areas)
(a) The repair service rates listed for subparagraph (2) above
apply, except that a travel charge of 30 cents per mile for repairmen will apply
to the round-trip distance between the geographic limits of the applicable
service area and the Government location. Such charge will apply as an
additional charge, but it will be limited to one round trip for each request
that is made by the ordering activity for repair service, regardless of whether
repairs are performed at the Government location or at the contractor's shop.
(b) When the overall travel charge computed at the above mileage
rate is unreasonable (considering the time required for travel, actual and
necessary transportation costs, and the allowable Government per diem rate for
each night the repairman is required to remain overnight at the Government
location), the Government shall have the option of reimbursing the contractor
for actual costs, provided that the actual costs are reasonable and allowable.
The contractor shall furnish the Government with a report of travel performed
and related expenses incurred. The report shall include departure and arrival
dates, times, and the applicable mode of travel.
d. LABOR RATES
(1) REGULAR HOURS
The Regular Hours repair service rates listed herein shall entitle the
Government to repair service during the period 8:00 a.m. to 5:00 p.m., Monday
through Friday, exclusive of
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holidays observed at the Government location. There shall be no additional
charge for repair service which was requested during Regular Hours, but
performed outside the Regular Hours defined above, at the convenience of the
contractor.
(2) AFTER HOURS
When the Government requires that repair service be performed outside the
Regular Hours defined above, except Sundays and Holidays observed at the
Government location, the After Hours repair service rates listed herein shall
apply. The Regular Hours rates defined above shall apply when repair service is
requested during Regular Hours, but performed After Hours at the convenience
of the contractor.
(3) SUNDAYS AND HOLIDAYS
When the Government requires that repair service be performed on Sundays and
Holidays observed at the Government location, the Sundays and Holidays repair
service rates listed herein shall apply. When repair service is requested to be
performed during Regular Hours and/or After Hours, but is performed at the
convenience of the contractor on Sundays or Holidays observed at the Government
location, the Regular Hours and/or After Hours repair service rates, as
applicable, shall apply.
REPAIR SERVICE RATES
REGULAR AFTER SUNDAYS AND
MINIMUM HOURS HOURS HOLIDAYS
LOCATION CHARGE* PER HOUR** PER HOUR** PER HOUR
- -------- ------ -------- -------- --------
CONTRACTOR'S SHOP $120 $60 N/A N/A
GOVERNMENT LOCATION
(WITHIN ESTABLISHED
SERVICE AREAS) $192 $96 $144 $192
GOVERNMENT LOCATION
(OUTSIDE ESTABLISHED
SERVICE AREAS) N/A N/A N/A N/A
xix
<PAGE>
*MINIMUM CHARGES INCLUDES 2 FULL HOURS ON THE JOB.
**FRACTIONAL HOURS, AT THE END OF THE JOB, WILL BE PRORATED TO THE NEAREST
QUARTER HOUR.
6. INVOICES AND PAYMENT
Invoices for repair service shall be submitted by the contractor as soon as
possible after completion of the work. Payment under blanket purchase orders
will be made quarterly or monthly, except where cash payment procedures are
used. Invoices shall be submitted separately to each Government office ordering
services under the contract. The cost of repair parts shall be shown as a
separate item on the invoice, and shall be priced in accordance with Special
Item 132-19. PROMPT PAYMENT DISCOUNT, IF APPLICABLE, SHALL BE SHOWN ON THE
INVOICE.
REPAIR PARTS: SPECIAL ITEM 132-19
1. PRICES
All parts, furnished as spares or as repair parts in connection with the repair
of equipment shall be new, standard parts manufactured by the equipment
manufacturer. All parts shall be furnished at prices indicated in the
contractor's commercial pricelist dated 9/1/95, at a discount of 32% from such
listed
prices.
2. GUARANTEE
All parts, furnished either as spares or repair parts in connection with the
repair of equipment, will be unconditionally guaranteed for a period of three
years - with a return to factory warranty.
TERMS AND CONDITIONS APPLICABLE TO PURCHASE (SPECIAL ITEM 132-33)
AND MAINTENANCE (SPECIAL ITEM 132-34) OF GENERAL PURPOSE
COMMERCIAL ADP SOFTWARE LICENSES
(NON-EXCLUSIVE PERPETUAL USE)
xx
<PAGE>
1. PURCHASE TERMS
a. ACCEPTANCE. The Government shall accept or reject software in writing
within thirty (30) calendar days after date of delivery.
b. GUARANTEE. All software furnished pursuant to the terms of this
contract will be unconditionally guaranteed for defects in the software or the
disk for a period of three (3) years - with a return to factory warranty,
beginning on the first day of acceptance.
2. UTILIZATION LIMITATIONS
The Government agrees to refrain from changing or removing any insignia or
lettering from the software or documentation that is provided, or producing
copies of manuals or disks, except one copy for backup purposes, as allowed by
the manufacturer. The Government also agrees to comply with the following:
a. Title to and ownership of the software and documentation, and any
reproductions thereof, shall remain with the contractor.
b. Use of the software and documentation shall be limited to the facility
for which the software is acquired.
c. FAR clauses 52.227-14 RIGHTS IN DATA--GENERAL (JUN 1987) and
52.227-19 COMMERCIAL COMPUTER SOFTWARE--RESTRICTED RIGHTS (JUN 1987) are
incorporated by reference as part of this pricelist.
3. TECHNICAL SERVICES
The contractor, without additional charge to the Government, shall provide a hot
line technical support number 703-450-0400 for the purpose of providing user
assistance and guidance in the implementation of the software. The technical
support number is available from 8:30 a.m. to 5:30 p.m. EST
xxi
<PAGE>
Exhibit 10.4
AGREEMENT
THIS AGREEMENT made this 21st day of November, 1995, by and between GCH
Sysyems, Inc. (GCH), a corporation incorporated under the laws of the State
of California, having its principal office in Mountain View, California, and
Dunn Computer Corporation (Dunn), a corporation incorporated under the laws
of the State of Virginia, having its principal office in Sterling, Virginia,
as follows.
A. Dunn will assume all of the program management and contractual
responsibilities associated with the Loral/DMS Program. Dunn will be
responsible for the following.
1. Negotiate the sub-contract with Loral.
2. Manufacture and deliver all of the sysytems under the GCH
Easydata brand name.
3. Invoice customer for all products and services.
4. Negotiate and maintain all contract modifications and
substations.
5. Provide all marketing services to maximize contract revenues
and profits.
6. Provide all financing of equipment and services associated with
DMS sub-contract.
7. On-site warranty if required.
B. Dunn will pay GCH a 4% commission on gross revenues less on-site
warrany revenues resulting from the DMS Program and MPO orders. The
commission rate is subject to a 12 month review but may not be adjusted
without mutual consent and in no event to be less than 4% ot more than 5% of
gross revenues. Commission payment will be made within 15 days of payment
from the customer.
Dunn will pay GCH a total of $50,000 by July 1, 1996, which is not
refundable and based on the following: $15,000 to be paid on January 1,
1996, $15,000 to be paid on April 1, 1995, and $20,000 to be paid on July 1,
1996. These payments will be applied to any future payments of commissions
due GCH.
C. GCH will be entitled to receive payments on all products sold by Dunn
under the prime contract including follow-on products not currently on the
contract.
D. Dunn will hire Karol Barry for the position of Program Manager. Ms.
Barry will stay on GCH's payroll for the month of December 1995 and Dunn will
reimburse GCH for her costs during that month. Effective January 1, 1996,
Ms. Barry will become a full employee of Dunn and on Dunn's payroll. As a
regular employee of Dunn, all company policies of Dunn will apply to Ms.
Barry and her employment can be terminated by Dunn if Dunn determines she is
not performing satisfactory. GCH's shall not have any further obligiations
to Ms. Barry after signing this agreement.
E. Dunn will be GCH's supplier of choice for Loral/DMS Program.
F. Dunn hereby accepts all of the rights and obligations of GCH under
GCH's subcontract with Loral for the DMS project and indemnify and protect
GCH against any and all potential and actual legal actions against GCH
related to DMS.
G. GCH hereby tranfers to Dunn all its rights and title to two systems
previously provided to Loral.
This agreement shall be construed according to the laws of the State of
California. The parties agree that any dispute or questions arising
hereunder including the construction or application of this Agreement shall
be settled by arbitration in accordance with the rules of the American
Arbitration Association then in force, and that the arbitration hearings
shall be held in the city of the principal office of GCH. The decision of
the arbitrator shall be final and binding upon the parties both as to law and
to fact.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written in multiple counterparts, each of which shall be
considered an original.
GCH SYSTEMS, INC. DUNN COMPUTER CORPORATION
By: /s/ George C. Huang By: /s/ Thomas P. Dunn
------------------------- ------------------------
George C. Huang, Chairman Thomas P. Dunn, Chairman
<PAGE>
PURCHASE ORDER NO. 1BW000
Loral Federal Systems Company
9500 Godwin Drive, Manassas, VA 22110
Date: 28 November 1995
GCH Systems, Inc. Payment Terms: Net 45 Days
777 E. Middlefield Road
Mountain View, CA 94043
Attn: Ms. Karol Berry
1. PARTIES/TYPE OF CONTRACT
This Firm Fixed Price, Indefinite Delivery Indefinite Quantity Blanket
Purchase Order between Loral Federal Systems Manassas, (hereafter referred to
a "Buyer") located at 9500 Godwin Drive, Manassas, Virginia, and GCH Systems,
Inc. (hereinafter referred to as "Seller") located at 777 E. Middlefield
Road, Mountain View, California is placed on the basis set forth herein.
The Buyer's procurement representative is the only person authorized to approve
changes to the terms and conditions or the requirements of the Purchase Order.
If the Seller complies with any order, direction, interpretation, approval, or
disapproval, conditional approval, or determination (written or oral), from
someone other than the Buyer's procurement representative, it shall be at
Seller's own risk and Buyer shall not be liable for any increased cost or delay
in performance in accordance with the requirements set forth herein. The Seller
shall ensure that all Seller's personnel are aware of this provision.
Buyer is a signatory to the Defense Industry Initiatives on Business Conduct and
Ethics (DII).
The Seller agrees to indemnify Buyer for any amounts required to be paid to the
United States Government by virtue of the Seller's violation of Public Law 100-
679 (see FAR 52.203-10(c)). This applies to Purchase Orders over $25,000 or
Purchase Order modifications over $25,000.
2. PRODUCT/SERVICES
Seller will provide articles, services and/or data as set forth in Schedule A
attached hereto.
3. REQUIREMENTS/DATA
This is a rated order certified for national defense use, and Seller shall
follow all requirements of the Defense Priorities and Allocations System
Regulation (15 CFR Part 350). Seller accepts said rating unless rejected in
writing within 10 days if "DO" rating, or 5 days if "DX" rating from the date of
order receipt.
Government Contract Number F01620-95-D-0001.
DPAS Rating: None
1
<PAGE>
PURCHASE ORDER NO. 1BW000
4. PERIOD OF PERFORMANCE AND/OR DELIVERY SCHEDULE
Work under this Purchase Order shall commence on November 20, 1995 and continue
through 04/30/97. The Buyer reserves the right to extend this purchase order
for up to six (6) consecutive one (1) year periods or any portion thereof.
All articles, services and/or data shall be delivered to the following Buyer
location unless otherwise directed within a release order.
Loral Federal Systems Company
9500 Godwin Drive
Manassas, VA 22110
A. Transportation Routing Guidelines:
Seller shall ship according to its best commercial practice. Freight charges
are included in the price of the products and title will pass at the receiving
area of the "Ship to Address" identified on Buyer's blanket release order. If
Buyer directs Seller to ship to an address other than the above stated address,
the Seller is required to provide Buyer with a copy of the shippers "Bill of
Lading", signed by the receiving location, and the corresponding packing slip.
B. Packing Slip
Seller shall submit a packing slip with each shipment of supplies against this
Purchase Order/Release. At a minimum, the packing slip shall contain the
following information:
1) The Governments Delivery Order Number
2) Loral's Purchase Order Number/Release Number
3) Itemized list of supplies within the shipment
4) List of back-order items remaining to be delivered
5) Date of shipment
5. CONSIDERATION AND PAYMENT
SELLER'S OBLIGATION
During the period of performance, Seller agrees to provide such services, data
or articles as Buyer may, from time to time, order during the life of this
Purchase Order at such prices or rates as identified in Schedule "A."
RELEASES
Releases against this Order shall be made on LFSC's standard order release form,
issued in numerical sequence, referencing this Purchase Order number. Buyer
shall be obligated only to the extent of such Releases as are actually issued
against this Order.
2
<PAGE>
PURCHASE ORDER NO. 1BW000
PRICE REDUCTION NOTIFICATION AND PASS THROUGH
For all articles identified in Schedule "A", Seller agrees to notify promptly
and pass through to Buyer all announced reduction sin price. The agreed upon
revised price shall be incorporated into this purchase order with a revised
Schedule "A".
6. INVOICING
All invoice originals and one copy shall be submitted to the following:
Loral Federal Systems Company (LFSC)
P.O. Box 190
Owego, NY 13827-0190
Attn: Accounts Payable
INVOICES
Each invoice submitted for payment shall indicate complete Purchase Order number
and be set up in accordance with the line items specified in this Purchase
Order.
One copy of all invoices and any other correspondence related to this Purchase
Order shall be submitted to:
Jim Green
Loral Federal Systems - Manassas
9500 Godwin Drive
Mail Stop 120/025
Manassas, VA 22110
7. TERMS AND CONDITIONS
This Purchase Order is subject to the following terms and conditions:
LFS Terms and Conditions, Loral Document No. 95-DMS-GCH, dated 20 NOV 1995
8. SPECIAL PROVISIONS
8.1 WARRANTY
This warranty period for items purchased hereunder shall be 15 Months from date
of delivery, either at Buyer facility or other locations as directed via release
order. Seller warrants that all supplies furnished under this contract,
including packaging and markings, shall be free from defects in material and
workmanship and shall conform with specifications and all other requirements of
this contract.
3
<PAGE>
PURCHASE ORDER NO. 1BW000
If Seller's normal commercial warranties with respect to any product (or portion
or feature thereof) ordered hereunder exceed in any respect the warranties set
forth in this clause, such additional warranties shall be deemed automatically
incorporated into this Purchase Order. In addition, Seller agrees to pass
through to Buyer and The Buyer's Maintenance Subcontractor, any manufacturer's
warranty it may have received on the Products or any part related thereto.
Defective product returned to Seller for warranty repair, shall be repaired or
replaced at Seller's option, and returned to the Buyer no greater than 30 days
from receipt of malfunctioning product at Seller's facility.
8.2 BUYER MAY INSPECT
Buyer may inspect, accept or reject supplies within a reasonable time after
delivery, but failure to inspect, accept or reject supplies shall neither
relieve the Seller from liability for supplies not in accordance with the
Purchase Order requirements nor impose liability on the Buyer.
8.3 MAINTENANCE SUBCONTRACTOR
Seller shall provide all necessary systems, and/or component parts required by
the DMS Maintenance Subcontractor to perform maintenance and/or repairs to
installed equipment provided originally by Seller. Any items covered by
warranty shall be serviced by Seller per the terms of the warranty provisions
of this purchase order.
Prices for all items ordered by the Maintenance Subcontractor directly from
Seller shall be the same as the prices offered within this purchase order and
identified within Schedule A.
8.4 COMMERCIALLY AVAILABLE NEW HARDWARE MODELS AND VERSIONS OF COMMERCIAL
SOFTWARE
For each new commercially released hardware and software component currently
included in the approved product baseline, the Seller shall notify the Buyer in
writing within 45 days of the new release for possible incorporation into the
product baseline.
8.5 COMMERCIAL NON-AVAILABILITY OF HARDWARE AND SOFTWARE COMPONENTS
For any occurrence of commercial non-availability of a commercial component
currently included in Seller's products identified on Schedule A, the Seller
shall propose in writing within 15 calendar days, a substitute commercial
component(s) (if available) for incorporation into the product baseline. If
there is no substitute commercial component available, the Seller shall propose
a solution that maintains the approved functional baseline and results in
minimal impact to the remaining commercial components currently included in the
approved product baseline.
4
<PAGE>
PURCHASE ORDER NO. 1BW000
8.6 CONFIGURATION CONTROL
Seller shall not make changes to the configuration of any items contained within
Schedule A which may affect product form, fit or function, without the prior
written approval of the Buyer. Any proposed changes shall require that Seller
advise Buyer in writing including a detailed description of the change with
anticipated performance impact.
8.7 REPLACEMENT OF PRODUCTS
The Buyer reserves the right to require the Seller to replace any product(s)
which has been submitted for repair service three times in any six month period,
excluding repairs due to Buyer or Government fault or negligence. The buyer
shall bear no additional cost for such replacements. All replacement products
shall have a new serial number and include a product warranty.
8.8 END-OF-LINE NOTIFICATION
Seller shall notify Buyer ninety (90) days in advance of Seller's decision to
terminate the production or availability of any products provided under this
purchase order. All new products for consideration by Buyer shall be forwarded
as a notification package which shall include a product overview and technical
specifications and where appropriate, sample product for acceptance testing.
Seller's notification shall include: Manufacturer's part number, new part
number, last date to order, last date of delivery, reason the product is being
obsoleted.
8.9 FAR52.245-2 GOVERNMENT PROPERTY (FIXED PRICE CONTRACTS)
Government Property clause FAR 52-245-2 is incorporated herein by this
reference. Seller is not authorized to acquire and/or fabricate any Special
Tooling or Special Test Equipment during the performance of this contract.
8.10 VIRGINIA EXEMPTION-RESALE
This purchase order is exempt from sales tax due to resale: Loral Federal
Systems Company Virginia account number 001617306-1.
9. ORDER OF PRECEDENCE
In the event of an inconsistency in this Purchase Order, unless otherwise
provided herein, the inconsistency shall be resolved by giving precedence in the
following order.
a) Purchase Order Including Special Provisions
b) LFS Terms and Conditions
c) All other documents
5
<PAGE>
PURCHASE ORDER NO. 1BW000
10. ACCEPTANCE
This Purchase Order is the entire agreement between Buyer and Seller. It
supersedes all prior agreements, oral or written and all other communications
relating to the subject matter of this Purchase Order.
Any terms contained in Seller invoices, acknowledgments, shipping instructions
or other forms that are inconsistent with or different from this Purchase Order
shall be void and of no effect.
This Purchase Order is executed in duplicate originals as of the date specified
on page one.
Please sign and return this Purchase Order to Buyer within ten (10) working days
after receipt.
LFS - Manassas GCH Systems, Inc.
9500 Godwin Drive 777 E. Middlefield Road
Manassas, VA 22110 Mountain View, CA 94043
/s/ James E. Green /s/ George C. Huang
- ------------------------ ------------------------
Name: James E. Green Name: George C. Huang
Senior Contracts Administrator Chairman
- ------------------------------- -------------------------------
Title Title
11/28/95 11/28/1995
- ------------------------ ------------------------
Date Date
6
<PAGE>
DMS PROGRAM
SCHEDULE A
<TABLE>
<CAPTION>
OEM
CLIN DESCRIPTION MANUFACTURER PART NUMBER PART NUMBER PRICE LEAD TIME (1)
<S> <C> <C> <C> <C> <C> <C>
H00001a Pentium 100 System Dunn Computer DCC-P100 GCH P100 $2,772.00 30 days
100MHz CPU Intel Pentium 100 30 days
Full Tower Chassis, 250 Watt PS Suncheer TCP050 30 days
CRU frame kit Universal UHDFRAM 30 days
Triton 3 motherboard Tyan S1428 30 days
1MB video adapter Focus FIS-E-9440PCI 30 days
2 16MB memory module Crown 4x332-70NS 30 days
101 key enhanced keyboard Maxiswatch 2192004-00-017 30 days
FDD 3.5" floppy YE Data YD-702D 30 days
Serial mouse (3 button) Logitech 442322 30 days
1GB SCSI HDD Fujitsu FUJ-M11606A 30 days
7 conector cable for SCSI controller KRISTA 282-B118-0 30 days
PCI FSCSI-2 controller Adaptec AHA2940 30 days
14" color monitor Magnavox CM2099 30 days
16-bit Ethernet network card 3COM 3C590-TP 30 days
Award BIOS Award 30 days
Documentation & manual Dunn Computer DCCP100 Doc 30 days
Installation of Windows NT Dunn Computer inst-nt 30 days
Windows NT on CD-ROM Microsoft 586.00 30 days
(1) Lead Times are as follows:
1 system 5 days
2 to 10 systems 10 days
11 to 50 systems 20 days
over 50 systems 30 days
</TABLE>
<PAGE>
DMS PROGRAM
SCHEDULE A
<TABLE>
<CAPTION>
OEM
CLIN DESCRIPTION MANUFACTURER PART NUMBER PART NUMBER PRICE LEAD TIME (1)
<S> <C> <C> <C> <C> <C> <C>
H00001a 486DX2/66 System Dunn Computer Dunn 486DX2/66-T 466-VL $ 1,934.00 30 days
DX2/66 CPU Intel DX2/66 30 days
Desktop chasis, 200 watt PS Suncheer MSP320 30 days
CRU frame kit Universal UHDFRAM 30 days
486 VLB/ISA motherboard Aquaris MB-4DUVC4 30 days
1MB video adapter Focus FISE9440VLI 30 days
2 16MB memory module Crown 4X32-70NS 30 days
101 key enhanced keyboard Maxiswatch 2192004-00-017 30 days
FDD 3.5" floppy YE Data YD-702D 30 days
Serial mouse (3 button) Logitech 442322 30 days
540MB SCSI HDD Fujitsu FUJ-M1603SA 30 days
ISA FSCSI-2 controller Adaptec ADP-AHA-1522A 30 days
14" color monitor Magnavox CM2099 30 days
16-bit Ethernet network card 3COM 3C509-TP 30 days
Award BIOS 30 days
Documentation & manuals Dunn Computer DCC 486/66Doc 30 days
Installation of Windows NT Dunn Computer inst-nt 5.00 30 days
Windows NT on CD-ROM Microsoft 586.00 30 days
(1) Lead Times are as follows:
1 system 5 days
2 to 10 systems 10 days
11 to 50 systems 20 days
over 50 systems 30 days
</TABLE>
<PAGE>
DMS PROGRAM
SCHEDULE A
<TABLE>
<CAPTION>
OEM
CLIN DESCRIPTION MANUFACTURER PART NUMBER PART NUMBER PRICE LEAD TIME (1)
<S> <C> <C> <C> <C> <C> <C>
H00016 8MB system RAM Crown 2X32-70NS 543-B101-0 $ 227.00 30 days
H00016a 16MB system RAM Crown 4X332-70NS 543-B102-0 468.00 30 days
H00016b 32MB system RAM Crown 8X32-70NS 543-B103-0 966.00 30 days
H00016c 64MB system RAM Crown 16X32-70NS 543-B104-0 1,820.00 30 days
H00017 3.5" 1.44MB floppy Y/E Data YD-702D 543-B102-0 23.00 30 days
H00018 5.25" 1.2MB floppy Mitsumi D509V5 543-B103-0 35.00 30 days
H00019 14" SVGA monitor Magnavox CM2099 CM2099 222.00 30 days
H00020 Keyboard Maxiswitch 2192000400017 277-B105-0 15.00 30 days
H00021 serial mouse (3 button) Logitech 442322 277-B106-0 14.00 30 days
H00022 540MB SCSI-2HDD Fujitsu FUJ-M1603SA FUJ-M1603SA 199.00 30 days
H00022a 1GB SCSI-2HDD Fujitsu FUJ-M11606A FUJ-M111606A 300.00 30 days
H00023 2GB SCSI-2HDD Seagate ST32430N ST32430N 646.00 30 days
H00023a 4GB SCSI-2HDD Seagate ST15230N 104-B109-0 968.00 30 days
H00024 Pentium upgrade for a 486 system board Intel Pentium-83-ODP P-133 295.00 30 days
H00024a Pentium 133 MHz Processor chip Intel Pentium 133 AHA-1522A 550.00 30 days
H00025 SCSI Hard drive interface card (486 ISA) Adaptic ADP-AHA-1522A AHA-2940 126.00 30 days
H00025a SCSI Hard drive interface card (Pentium) Adaptic AHA2940 FIS-E-9440VLI 210.00 30 days
H00026 VLB Video Card Focus FISE9440VLI FIS-E-9440PCI 74.00 30 days
H00026a PCI Video Card Focus FISE9440PCI 249-B112-0 70.00 30 days
H00027 16 bit Ethernet Network card 3COM 3C509-TP 249-B113-0 39.00 30 days
H00027a 16 bit Ethernet Network card 3COM 3C590-TP 281-B113-0 72.00 30 days
H00028 200 watt power supply Suncheer RPS7200 281-B114-0 35.00 30 days
H00028a 250 watt power supply Suncheer RPA7250 508-B130-0 55.00 30 days
H00029 ROM AWARD 508-B130-0 282-B114-0 15.00 30 days
H00030 Monitor video cable (extension) Krista 282-B114-0 282-B115-0 5.00 30 days
H00031 CPU AC cable Krista 282-B115-0 282-B116-0 4.00 30 days
H00032 Monitor AC cable Krista 282-B116-0 282-B117-0 4.00 30 days
H00033 Internal floppy cable Krista 282-B117-0 282-B118-0 4.00 30 days
H00034 Hard disc drive cable Krista 282-B118-0 282-B119-0 13.00 30 days
H00035 Power cord Germany Krista 282-B119-0 282-B120-0 5.00 30 days
H00036 Power cord Italy Krista 282-B120-0 282-B121-0 5.00 30 days
H00037 Power cord England Krista 282-B121-0 282-B121-0 5.00 30 days
</TABLE>
<PAGE>
DMS PROGRAM
SCHEDULE A
<TABLE>
<CAPTION>
OEM
CLIN DESCRIPTION MANUFACTURER PART NUMBER PART NUMBER PRICE LEAD TIME (1)
<S> <C> <C> <C> <C> <C> <C>
H00038 1MB DRAM for video adapter TI 282-B122-0 282-B122-0 45.00 30 days
H00039 Video ROM n/a n/a 30 days
H00041 Serial/parallel/I/O card (486) DTC DTC 2280 238-B131-0 12.00 30 days
H00041a Serial/parallel/I/O card (Pentium) integrated n/a n/a 30 days
on the
motherboard
H00042 SCSI Attach 1GB tape drive & software Exabyte 2501-I 2501-I 460.00 30 days
H00043 Removable Storage device Seagate SE-3660ARM 251-B125-0 235.00 30 days
</TABLE>
LEAD TIMES FOR SMALL QUANTITIES WILL BE SHORTER
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF REGISTRANT
Dunn Computer Corporation, a Virginia Corporation.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 13, 1996 (except Notes 1, 10 and 11, as to
which the date is January 14, 1997), in Amendment No. 1 to the Registration
Statement (Form SB-2 No. 333-19635) and related Prospectus of Dunn Computer
Corporation for the registration of 1,000,000 shares of its common stock.
/S/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Vienna, Virginia
March 12, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM (A) DUNN COMPUTER
CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL
STATEMENTS AS OF AND FOR (i) THE YEAR ENDED OCTOBER 31, 1996 (ii) THE THREE
MONTHS ENDED JANUARY 31, 1997
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> OCT-31-1996 OCT-31-1997
<PERIOD-START> NOV-01-1995 NOV-01-1996
<PERIOD-END> OCT-31-1996 JAN-31-1997
<CASH> 897,664 2,283,210
<SECURITIES> 150,000 150,000
<RECEIVABLES> 3,189,060 1,406,288
<ALLOWANCES> 15,000 15,000
<INVENTORY> 985,603 1,325,425
<CURRENT-ASSETS> 5,207,327 5,241,502
<PP&E> 196,455 196,455
<DEPRECIATION> 132,692 139,142
<TOTAL-ASSETS> 5,274,630 5,298,815
<CURRENT-LIABILITIES> 3,335,439 2,813,809
<BONDS> 0 0
0 0
0 0
<COMMON> 4,000 4,000
<OTHER-SE> 1,935,191 2,481,006
<TOTAL-LIABILITY-AND-EQUITY> 5,274,630 5,298,815
<SALES> 18,098,638 5,505,350
<TOTAL-REVENUES> 18,098,638 5,505,350
<CGS> 14,102,442 4,199,577
<TOTAL-COSTS> 14,102,442 4,199,577
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 57,925 0
<INCOME-PRETAX> 2,015,164 879,815
<INCOME-TAX> 776,000 334,000
<INCOME-CONTINUING> 1,239,164 545,815
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,239,164 545,815
<EPS-PRIMARY> .31 .13
<EPS-DILUTED> 0 0
</TABLE>
