<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
ANNUAL REPORT PURUSANT TO
SECTION 13 OR 15(D) OF
SECURITIES AND EXCHANGE ACT OF 1934
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-24015
---------------------
DUNN COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
VIRGINIA 54-1890464
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification
Number)
1306 SQUIRE COURT 20166
STERLING, VIRGINIA (Zip Code)
(Address of principal executive
office)
</TABLE>
------------------------
703-450-0400
Registrant's telephone number, including area code:
------------------------------
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
NONE
---------------------
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
----------------------------------------
(Title of class)
Indicate by check mark whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes /X/ No / /
Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation K contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. / /
The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed at $5.25 per share, the closing price of the Common
Stock on January 22, 1999, was $28,624,275.
The number of shares of the issuer's Common Stock, outstanding as of January
29, 1999 was 8,991,493.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information regarding the directors (including
the Nominees) and executive officers of Dunn Computer Corporation, a Virginia
Corporation ("Dunn" or the "Company"):
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Thomas P. Dunne...................................... 56 Chairman of the Board, Chief Executive Officer, and
President
John D. Vazzana...................................... 55 Executive Vice President, Chief Financial Officer,
Director
Claudia N. Dunne..................................... 39 Vice President, Director
VADM E. A. Burkhalter, Jr. USN....................... 69 Director
Daniel Sinnott....................................... 64 Director
</TABLE>
George D. Fuster served as President of International Data Products Corp., a
wholly-owned subsidiary of Dunn ("IDP") and Director of Dunn, and D. Oscar
Fuster served as Vice President of IDP and Director of Dunn until November 23,
1998 when they entered into an employment agreement termination agreement with
the Company.
The current term of John D. Vazzana and Claudia N. Dunne is until the 1999
annual meeting, where they will both be up for re-election. The current term of
VADM E. A. Burkhalter, Jr., USN (Ret.) and Daniel Sinnott is until the first
annual meeting after fiscal year 1999, and the current term of Thomas P. Dunne
is until the first annual meeting after fiscal year 2000. All Directors are
elected to three-year terms. Each Director holds office until a successor is
elected and qualified unless the Director dies, resigns, or is removed from
office. Executive officers hold office until their successors are chosen and
qualified, subject to earlier removal by the Board of Directors. There are
currently five Directors on the Company's Board of Directors. Set forth below is
a biographical description of each executive officer and Director of the
Company:
THOMAS P. DUNNE has been Chairman, Chief Executive Officer and President of
Dunn since he founded the Company in 1987. From 1982 to 1987, Mr. Dunne was the
Director of Sales of Syntrex, Inc., a corporation that supplies computer
hardware and software to the legal profession. Prior thereto, Mr. Dunne spent 12
years with the computer division of Perkin Elmer 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 Claudia N. Dunne, the
Vice President of the Company.
JOHN D. VAZZANA has been the Executive Vice President, Chief Financial
Officer, and a Director of Dunn since 1994. From 1992 to 1994, Mr. Vazzana was
the Chief Executive Officer of Hitchler Industry, a manufacturer of plastic
lumber made from recycled plastic. From 1986 to 1992, Mr. Vazzana was founder
and Chief Executive Officer of NRM Steelastic, a company engaged in the
manufacture of capital equipment for the tire industry. 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 Dunn, has been Vice President and a
Director of Dunn since its inception. From 1985 to 1987, Ms. Dunne was a Federal
Proposal Manger for Syntrex, Inc. From 1983 to 1985, Ms. Dunne was Proposal
Manager for Harris and Paulson, which also sold minicomputers and proprietary
time and accounting software for law firms. Ms. Dunne is married to Thomas P.
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 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 spent 40 years as a member of the United
States Navy, during which time he held several positions, including Director of
Strategic Operations for the Chairman of the
2
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Joint Chiefs of Staff. Upon retirement, he was senior military officer assigned
to duty in the U.S. Intelligence Community Staff for four years, he had direct
responsibility 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 management of the Defense
Reconnaissance Support Program Office. Mr. Burkhalter is currently Chaiman of
the Attorney General's Policy Advisory Panel for Law Enforcement Technology, 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.
DANIEL SINNOTT has been a Director of Dunn since January, 1997. Mr. Sinnott
is currently a consultant and Director of Worldwide Internet Solutions, Inc.
("WIZnet"). WIZnet provides electronic catalogs and adaptive recognition search
technology and facilitates electronic commerce linking buyers and sellers via
secure mail. From 1995 until March 1998, Mr. Sinnott was Chief Executive Officer
of WIZnet. In 1991 Mr. Sinnott was a founder of Sinnott Bruno & Company
("SB&C"). SB&C is a management consulting firm providing advisory services to
executive and management organizations that are in the emerging transition
stages of development. Mr. Sinnott worked full time with SB&C from 1991 until
joining WIZnet in 1995.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's officers and directors, and persons who
own more than 10% of the Company's Common Stock to file reports of ownership and
changes in ownership of the Company's Common Stock with the Securities and
Exchange Commission and Nasdaq. Based solely on a review of the copies of such
reports and written representations from the reporting persons that no other
reports were required, the Company believes that during the fiscal year ended
October 31, 1998, its executive officers, directors and greater than ten percent
stockholders filed on a timely basis all reports due under Section 16(a) of the
Exchange Act, with the following exception: George D. Fuster who served as
President of IDP and a Director of Dunn until November 23, 1998 and D. Oscar
Fuster who served as Executive Vice President of IDP and a Director of Dunn
until November 23, 1998 should both have filed Forms 4 and 5 and are presently
delinquent in doing so.
ITEM 11. 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 $100,000.
3
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------------
---------------------- NUMBER OF OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) GRANTED
- -------------------------------------------------------------- --------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Thomas P. Dunne............................................... 1996 $ 240,000 $ 275,000 -0-
Chairman, Chief Executive 1997 $ 240,000 -0- -0-
Officer and President 1998 $ 240,000 -0- -0-
John D. Vazzana............................................... 1996 $ 240,000 $ 275,000 -0-
Executive Vice President, Chief 1997 $ 240,000 -0- -0-
Financial Officer, and Director 1998 $ 240,000 -0- -0-
George D. Fuster.............................................. 1996 -0- -0- -0-
President of IDP and Director 1997 -0- -0- -0-
1998 $ 100,000 300,000
D. Oscar Fuster............................................... 1996 -0- -0- -0-
Executive Vice President of 1997 -0- -0- -0-
IDP and Director 1998 $ 100,000 -0- 300,000
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
- -----------------------------------------------------------------------------------------------------
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF APPRECIATION FOR
UNDERLYING TOTAL OPTIONS/ EXERCISE
OPTIONS/ SAR'S GRANTED TO OR BASE OPTION TERM
SAR'S GRANTED EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
(A) (B) (C) (D) (E) (F) (G)
- ---------------------------------------- -------------- ----------------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
D. Oscar Fuster......................... 300,000 34.7% 8.75 5/1/2008 14.25 22.70
George D. Fuster........................ 300,000 34.7% 8.75 5/1/2008 14.25 22.70
<CAPTION>
ALTERNATIVE
TO (F) AND
- ---------------------------------------- (G): GRANT
DATE VALUE
-----------
GRANT DATE
PRESENT
VALUE
NAME $
(A) (H)
- ---------------------------------------- -----------
<S> <C>
D. Oscar Fuster.........................
George D. Fuster........................
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Thomas P. Dunne and John D.
Vazzana. The agreements for Mr. Vazzana and Mr. Dunne run for a term of three
years effective April 1997 and automatically renew for additional one year terms
unless terminated by either Dunn or the employee. Both agreements provide for a
$240,000 salary and a bonus at the discretion of Dunn's Board of Directors. The
bonus may not exceed the lesser of 5% of the Company's pre-tax income for the
preceding fiscal year or $250,000.
The Company entered into employment agreements with George D. Fuster and D.
Oscar Fuster when it acquired IDP. These agreements had three year terms and
provided for a $200,000 annual salary, an annual bonus, and a stock option (the
"Option") to purchase up to 300,000 shares, under certain conditions, of the
Common Stock, at a price per share to be determined based upon the NASDAQ price
as of the closing of the acquisition of IDP, to be exercisable as to 50% of the
shares subject to the Option six months from the effective date of the
employment contract, and as to the remaining 50% of the shares,
4
<PAGE>
within one year of such date. These agreements were terminated by an employment
agreement termination agreement between the Company and the Fusters (the
"Termination Agreement") on November 23, 1998.
INCENTIVE STOCK OPTION PLAN
Under Dunn's 1997 Stock Option Plan, options to purchase a maximum of
2,200,000 shares of common stock of Dunn (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 Dunn and other persons
who provide services to Dunn.
The options to be granted under the Company's Stock Option Plan may be
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 options under the Stock Incentive Plan.
EMPLOYEE STOCK PURCHASE PLAN
In August, 1998, the Company adopted an employee stock purchase plan whereby
employees may purchase Company stock through a payroll deduction plan. The
purchase price of the stock is 85% of the market price.
RETIREMENT PLANS
Dunn established a discretionary contribution plan effective November 1,
1995 (the "401(k) Plan") for its employees who have completed one month of
service with Dunn. The 401(k) Plan is administered by Benefit Plan Services,
Inc. and permits pre-tax contributions by participants pursuant to Section
401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), up to the
maximum allowable contributions as determined by the Code. Dunn may match
participants' contributions on a discretionary basis. In fiscal 1995 and 1996,
to the extent permitted by law, Dunn contributed $0.25 for each $1.00
contributed by employees. As a participant in the Company's 401(k) plan, the
Company contributed $1,800 for both Mr. Dunne, and Mr. Vazzana in 1998.
Effective November 1, 1995, Dunn established a defined benefit plan covering
substantially all salaried employees who have completed twelve months of service
with Dunn (the "Pension Plan"). The Pension Plan benefits are based on the years
of service and the employee's compensation. Dunn 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 investment-grade corporate debt and
equity instruments. Dunn contributed an aggregate of approximately $250,000 for
the Pension Plan years ending October 31, 1995, 1996, 1997, 1998, which amount
met the minimum funding requirements under ERISA. Dunn has accrued, but not yet
paid, $64,400, which amount represents its minimum funding requirements under
ERISA for fiscal 1998.
A participant's benefit under the Pension Plan is calculated as the lesser
of (i) the average of such participant's last three years' salary multiplied by
40 percent, or (ii) $60,000. The estimated annual benefits under the Pension
Plan payable upon retirement at normal retirement age for each of Mr. Vazzana
and Mr. Dunne is $60,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors has a Compensation Committee, comprised of
the two outside Directors, VADM Burkhalter and Mr. Sinnott, and Thomas P. Dunne,
the President, Chief Executive Officer and Chairman of the Board of the Company.
5
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BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's officer compensation policy is to offer a package that
includes a competitive salary, an incentive bonus based upon achievement of the
Company's financial objectives and of individual performance goals, and
competitive benefits. The Company also encourages broad-based employee ownership
of Company stock through a stock option program in which key employees, who own
less than 5% of the outstanding stock, are eligible to participate. The
Company's compensation policy for officers is similar to that for other
employees, and is designed to promote continued performance and attainment of
corporate and personal goals. None of the executive officers are eligible for
employee stock options.
The Compensation Committee of the Board of Directors (comprised of two
non-employee directors and the CEO) reviews and approves individual officer
salaries, bonus plan financial performance goals and bonus plan allocations. The
Committee also reviews guidelines for compensation, bonus, and stock option
grants for all employees. Officers of the Company are paid salaries in line with
their responsibilities and experience. These salaries are structured to be
within the range of salaries paid by competitors in the computer and other
relevant industries.
Executive officers also participate in a cash bonus plan. Each executive
officer is eligible for financial performance bonuses of up to 5% of pre-tax
income of the Company, not to exceed $250,000, or 104% of base salary.
The Compensation Committee annually reviews and approves the compensation of
Thomas Dunne, the Chief Executive Officer. Mr. Dunne participates in the bonus
plan, with his bonus tied to pre-tax income goals. His maximum possible bonus
for fiscal 1998 was 104% of his base salary. Based on the Company's performance
for fiscal 1998, Mr. Dunne was awarded no cash bonus for fiscal 1998.
COMPENSATION COMMITTEE
Thomas P. Dunne
Daniel E. Sinnott
VADM E.A. Burkhalter, Jr., USN (Ret.)
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Company's
Common Stock since its public offering with the Russell 2000 Index and the
Nasdaq Computer and Data Index during the same period. The graph shows the
value, at the end of each fiscal quarter, of $100 invested in the Company's
Common Stock or the Indices on April 28, 1997 and assumes reinvestment of all
dividends. The graph depicts the change in the value of the Company's Common
Stock relative to the noted indices as of the end of each fiscal quarter and not
for any interim period. Historical stock price performance is not necessarily
indicative of future stock performance.
6
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DNCC RUSSEL 3000 INDEX NASDAQ INDEX
<S> <C> <C> <C>
May-97 100.00 100.00 594.750
Aug-97 80.88 107.24 687.550
Nov-97 97.06 113.26 664.950
Feb-98 97.80 123.99 761.300
May-98 94.86 127.71 742.880
Aug-98 41.18 109.35 713.800
Oct-98 33.82 125.37 857.760
</TABLE>
DUNN COMPUTER CORPORATION STOCK PERFORMANCE CHART
<TABLE>
<CAPTION>
MEASUREMENT PERIOD DUNN CLOSING PRICE* NASDAQ INDEX
- ---------------------------------------------------------- ------------------- -------------
<S> <C> <C>
May-97................................................. 8.50 100.00
Aug-97................................................ 6.88 115.60
Nov-97................................................ 8.25 111.80
Feb-98................................................ 8.31 128.00
May-98................................................ 8.06 124.91
Aug-98................................................ 3.50 120.02
Oct-98................................................ 2.88 144.22
Amount invested........................................... 100.00
IPO Price............................................... 8.50
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of the date hereof,
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
7
<PAGE>
Compensation Table and by all executive officers, directors and nominees to
become directors of the Company.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
COMMON STOCK COMMON STOCK
NAME AND ADDRESS OF BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER OWNED OWNED
- ------------------------------------------------------------------------------ ----------------- -----------------
<S> <C> <C>
Thomas P. Dunne (1)........................................................... 2,474,375(2) 27.5%
John D. Vazzana (1)........................................................... 1,064,875 11.8%
Claudia N. Dunne (1).......................................................... 2,474,375(3) 27.5%
VADM E.A. Burkhalter (1)...................................................... 20,000(4) *
Daniel Sinnott (1)............................................................ 20,000(4) *
D. Oscar Fuster............................................................... 525,000(6) 5.8%
George D. Fuster.............................................................. 175,000(6) 1.9%
All Executive Officers and Directors as a Group............................... 4,239,250(5) 47.0%
</TABLE>
- ------------------------
* persons less than 1%
(1) The address of each of such individuals is c/o Dunn Computer Corporation,
1306 Squire Court, Sterling Virginia 21066.
(2) 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.
(3) Includes 1,914,375 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.
(4) Represents shares of the Company's Common Stock underlying stock options
granted pursuant to the 1997 Stock Option Plan.
(5) Does not include 40,000 shares of Common Stock underlying options which are
held by the Company's two outside directors. Does include 150,000 shares of
common stock underlying options which are held by each of D. Oscar Fuster
and George D. Fuster exercisable within 60 days.
(6) Includes 150,000 shares of Common Stock underlying options which are held by
each of D. Oscar Fuster and George D. Fuster which are exercisable within 60
days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its 35,000 square foot facility from C&T Partnerships, an
entity owned and controlled by Thomas and Claudia Dunne, both affiliates of the
Company. The lease agreement terminates in October 1999. Rent expense under this
lease was $154,000 for each of the years ended October 31, 1997 and 1998. In
addition, the mortgage on the facility of approximately $1,000,000, which has a
25 year term and bears interest at 2% over prime, was guaranteed by the Company
in fiscal 1997.
8
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DUNN COMPUTER CORPORATION
By: /s/ THOMAS P. DUNNE
-----------------------------------------
Thomas P. Dunne
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: March 1, 1999
Pursuant to and in accordance with the requirements of the Securities
Exchange Act of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ THOMAS P. DUNNE President, Chief Executive
- ------------------------------ Officer and Director March 1, 1999
Thomas P. Dunne
Executive Vice President,
/s/ JOHN D. VAZZANA Chief Financial Officer
- ------------------------------ (and principal March 1, 1999
John D. Vazzana accounting officer) and
Director
/s/ CLAUDIA N. DUNNE Vice President and
- ------------------------------ Director March 1, 1999
Claudia N. Dunne
/s/ VADM E.A. BURKHALTER, Director
JR.
- ------------------------------ March 1, 1999
VADM E.A. Burkhalter, Jr.
/s/ DANIEL SINNOTT Director
- ------------------------------ March 1, 1999
Daniel Sinnott
</TABLE>
9
