<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ________
Commission File No. 0-24015
DUNN COMPUTER CORPORATION
(Exact name of Registrant as specified in its charter)
VIRGINIA
(State or other jurisdiction of incorporation or organization)
54-1890464
(I.R.S. Employer Identification No.)
1306 Squire Court, Sterling, VA. 20166
(Address of principal executive offices) (zip code)
(703) 450-0400
(Registrant's telephone number, including area code)
NO CHANGE
(Former name or former address, if changed since last report) Indicate by
check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No______.
As of June 1, 2000 there were 9,649,409 shares of the registrant's
common stock outstanding.
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Dunn Computer Corporation
Form 10-Q Index
For the Quarterly period ended April 30, 2000
<TABLE>
<CAPTION>
Description Page
<S> <C>
Part I. Financial Information............................................................... 3
Item 1. Financial Statements................................................................ 3
Consolidated Statements of Operations for the three month and six month periods
ended April 30, 2000 and 1999 ................................................ 3
Consolidated Balance Sheets as of April 30, 2000 and October 31, 1999............... 4
Consolidated Statements of Cash Flows for the six month periods ended April 30,
2000 and 1999....................................................................... 5
Notes to the Consolidated Financial Statements...................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 8
Part II. Other Information................................................................... 10
Item 1. Legal Proceedings................................................................... 10
Item 2. Changes in Securities and Use of Proceeds........................................... 11
Item 6. Exhibits and Reports on Form 8-K.................................................... 11
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DUNN COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1999 2000 1999 2000
---------------- ----------------- ---------------- -----------------
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net revenues $9,440,804 $10,602,548 $21,152,424 $17,730,611
Cost of revenue 6,791,033 8,595,201 16,476,026 14,241,946
---------------- ----------------- ---------------- -----------------
Gross profit 2,649,771 2,007,347 4,676,398 3,488,665
Selling and marketing 617,630 291,972 1,368,517 591,782
General and administrative 1,786,668 1,098,505 3,433,582 2,617,770
Amortization of goodwill 172,218 87,466 362,547 174,932
---------------- ----------------- ---------------- -----------------
Income (loss) from operations 73,255 529,404 (488,248) 104,181
Interest (expense)income, net (158,343) (137,009) (369,513) (297,928)
Other income (expense) 39,502 (151,651) 39,502 (154,807)
---------------- ----------------- ---------------- -----------------
Net (loss) income before extraordinary item and
income taxes
(45,586) 240,744 (818,259) (348,554)
Extraordinary gain - early extinguishment of debt
- - - 750,000
---------------- ----------------- ---------------- -----------------
Net (loss) income (45,586) 240,744 (818,259) 401,446
---------------- ----------------- ---------------- -----------------
Provision for income taxes - - 225,000 -
---------------- ----------------- ---------------- -----------------
Net (loss) income $ (45,586) $240,744 $ (593,259) $401,446
Preferred stock accretion - (529,411) - (529,411)
---------------- ----------------- ---------------- -----------------
---------------- ----------------- ---------------- -----------------
Net loss available to common stockholders $ (45,586) (288,667) $ (593,259) (127,965)
================ ================= ================ =================
Basic and diluted loss per share $ (.01) $ (.03) $ (.07) $ (.01)
================ ================= ================ =================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
DUNN COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1999 2000
------------------ --------------------
------------------ --------------------
ASSETS (UNAUDITED)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 655,450 $ 572,761
Accounts receivable, net 5,063,041 7,956,993
Inventory, net 5,497,634 7,485,633
Deferred tax asset 1,282,695 1,330,262
Income tax receivable 585,769 585,769
Prepaid expenses and other current assets 118,594 160,429
------------------ --------------------
Total current assets 13,203,183 18,091,847
Property and equipment, net 1,323,696 1,027,774
Equipment on lease, net 3,906,011 2,942,720
Goodwill and other intangible assets, net 3,559,005 3,384,073
Investments 150,000 150,000
Other assets 145,121 174,098
------------------ --------------------
Total assets $ 22,287,016 $ 25,770,512
================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $4,822,979 $ 3,528,813
Accrued expenses 2,515,653 9,167,020
Accrued litigation costs 2,000,000 -
Line of credit 3,790,705 1,757,900
Notes payable, current 324,933 418,920
Unearned revenue 1,170,417 2,027,495
------------------ --------------------
Total Current Liabilities 14,624,687 16,900,148
Notes payable, long-term portion 545,250 295,756
Line of Credit - long-term 2,300,000
Stockholders' equity
Preferred Stock $.001 par value; 2,000,000 shares -
authorized, 3,000 shares issued and outstanding 3
Common Stock, $.001 par value: 20,000,000 shares authorized, 9,419,509
and 9,649,409 shares issued and outstanding at October 31, 1999
and April 30,1999 respectively 9,420 9,650
Additional paid in capital 37,721,749 41,077,599
Treasury Stock, 400,000 shares; (3,432,500) (3,432,500)
Retained Earnings (29,481,590) (29,080,144)
------------------ --------------------
Total Stockholders' equity 4,817,079 8,574,608
38,372,692
14,901,916
------------------ --------------------
Total liabilities and stockholders' equity $22,287,016 $25,770,512
$62,964,600 $28,237,385 ================== ====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
DUNN COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
1999 2000
---------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(593,259) $ 401,446
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Gain on sale of leases - (21,436)
Depreciation and amortization of property and
equipment 1,304,003 1,450,552
Amortization of goodwill and other intangibles 362,547 174,932
Changes in operating assets and liabilities:
Accounts receivable 6,393,212 (2,893,952)
Investment in sales-type leases 2,949,490 -
Inventory 3,121,643 (1,987,999)
Prepaid expenses and other assets 90,915 (70,812)
Accounts payable (9,468,084) (1,294,166)
Accrued expenses (1,979,970) 4,651,367
Deferred tax asset (credit) - (47,567)
Unearned revenue and other liabilities (1,852,748) 857,078
---------------------------------------
Net cash provided by operating activities 327,749 1,219,443
INVESTING ACTIVITIES
Purchases of property and equipment (650,363) (169,903)
---------------------------------------
Net cash used in investing activities (650,363) (169,903)
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock - 2,743,355
Proceeds from issuance of common stock - 612,728
Payments on notes payable (922,052) (155,507)
Purchase of treasury stock (2,125) -
Proceeds from (repayments on) lines of credit, net 2,190,613 (4,332,805)
---------------------------------------
Net cash provided by financing activities 1,266,436 (1,132,229)
Net increase (decrease) in cash and cash equivalents 943,822 (82,689)
Cash and cash equivalents at beginning of year - 655,450
---------------------------------------
Cash and cash equivalents at end of year $ 943,822 $ 572,761
=======================================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 188,683 $ 137,009
=======================================
Income taxes paid $ - $ -
=======================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements for the three and six month periods ended
April 30, 2000 and 1999 are unaudited and include all adjustments which, in the
opinion of management, are necessary to present fairly the results of operations
for the periods then ended. All such adjustments are of a normal and recurring
nature. These consolidated financial statements should be read in conjunction
with the Annual Report on Form 10-K of Dunn Computer Corporation (the "Company")
which includes consolidated financial statements and notes thereto for the years
ended October 31, 1999 and 1998.
2. EARLY EXTINGUISHMENT OF DEBT
In conjunction with the purchase of IDP, the Company assumed a credit facility
of $25,000,000 secured by inventory and accounts receivable of IDP. The
outstanding balance on this line of credit at October 31, 1999 was approximately
$4,622,000. The interest rate applicable to this line of credit at that date was
8.05%.
On November 8, 1999, the Company executed an agreement with the financial
institution to terminate this facility. Under the terms of the agreement, the
Company repaid approximately $3.0 million of the outstanding principal balance
prior to December 31, 1999. In conjunction with the agreement, approximately
$750,000 ($.08 per share) was forgiven by the financial institution and the
remaining principal balance of approximately $832,000 was converted into a two
year note maturing in January 2002 bearing interest at the prime rate. The
Company has properly reflected the $750,000 as an extraordinary gain for the
quarter ended January 31, 2000 which resulted in income of approximately $.08
per share.
3. LEASE TRANSACTION
In December 1999, the Company assigned payments from one of its operating leases
to a financing company in exchange for the present value of the minimum lease
payments. The Company has recorded this amount as unearned revenue and will
recognize the revenue over the lease term. The lease term expires on September
30, 2000.
4. RESTRUCTURE OF LOAN
On February 11, 2000, the Company amended its primary line of credit facility
whereby the maximum availability was reduced from $15 million to $5 million and
the interest rate was increased to the prime rate plus 1%. The amended line of
credit expires Novmeber 30, 2000.
5. PRIVATE PLACEMENT
On March 13, 2000, the Company sold 3,000 shares of it Series A Convertible
Preferred Stock in a private placement which is exempt from registration
provided by Regulation D Rule 506 promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended. The Company received
net proceeds of approximately $2.7 million which will be used to fund current
and future operations. The Series A Convertible Preferred Stock is convertible
into common stock at the price equal to the lesser of 85% of the average of the
three lowest closing bid prices of the common stock for the 25 days prior to the
conversion date or $3.64. The
<PAGE>
Company recorded a deemed dividend of $529,411 for
the six month period ended April 30, 2000 for the beneficial conversion feature.
6. EARNINGS PER SHARE
Basic and diluted earnings per common share is calculated by dividing the net
earnings (loss) available to common shareholders by the weighted average number
of common shares outstanding. Due to their antidilutive effects, outstanding
shares of preferred stock, stock options and warrants to purchase shares of
common stock were excluded from the computation of diluted earnings per share
for all periods presented.
7. CONTINGENCIES
EMPLOYEE TERMINATION
In November 1998, a former employee of the Company filed a demand for
arbitration with the American Arbitration Association, alleging a breach of his
employment agreement with the Company and seeking in excess of $2,350,000 in
damages from the Company. The Company filed an answer denying the claimant's
allegations and stating a counterclaim against the former officer for breach of
the employment agreement and for conversion of certain of the Company's
property. In a Final Arbitration Award dated August 27, 1999, the arbitrator
found in favor of the former employee on certain of the issues presented at the
arbitration and awarded the former employee in excess of $1.6 million in damages
and attorneys' fees. On December 10, 1999, the Fairfax County Circuit Court
denied the Company's motion to vacate the award and confirmed the award. On
March 2, 2000, the Company executed a settlement agreement with the former
employee. In accordance with the agreement, the Company paid the former employee
$1 million and issued 225,000 shares of the Company's Common Stock.
MICROSOFT LICENSING AGREEMENT
IDP entered into a Government Integrator Agreement, as amended, with Microsoft
Corporation (Microsoft) in 1998 for the licensing of certain Microsoft software.
During 1999, Microsoft asserted that IDP owed approximately $800,000 under this
agreement due primarily to amended billings by Microsoft concerning sales by
IDP. The Company has accrued for amounts due Microsoft based on the original
billing terms. The Company believes that it has meritorious defenses to
Microsoft's allegations and intends to vigorously defend itself if a suit is
filed. The Company cannot estimate at this time the amount of the liability to
be incurred, if any, but does not believe that this matter will have a material
adverse effect upon the Company's financial position or results of operations
and as such, the Company has not recorded any amount relating to this matter,
beyond amounts accrued as noted above, in the accompanying financial statements.
<PAGE>
MONARCH TECHNOLOGY, INC.
In July 1999, Monarch Technology, Inc. ("Monarch") named the Company as a
cross-claim defendant in a legal action pending in Orange County, California in
which Worldnet Computers, Inc. had filed suit against Monarch. Monarch's cross
claims are that the Company is liable for actions of a former employee who
allegedly engaged in a scheme that resulted in Monarch paying $130,000 to the
employee and not receiving products which the employee allegedly stated that the
Company would sell to Monarch or its agent. Monarch claims that the Company is
liable for the $130,000 plus interest, attorneys fees and other consequential
damages totaling approximately $60,000. The Company cannot estimate at this time
the amount of the liability to be incurred, if any, but does not believe that
this matter will have a material adverse effect upon the Company's financial
position or results of operations and as such, the Company has not recorded any
amount relating to this matter in the accompanying financial statements.
TEAMING PARTNERSHIP AGREEMENT
In May 1999, a former contract teaming partner filed a demand for arbitration
with the American Arbitration Association, alleging breach of certain contract
agreement with the Company. The issue relates to disputed commissions due to the
former teaming partner. The former teaming partner is seeking damages of
approximately $186,000. The matter is currently in arbitration. Although the
Company is aggressively defending this claim, it has accrued for this potential
liability in the fiscal 1999 results.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained in this section are forward-looking statements (as
such term is defined in the Private Securities Litigation Reform Act of 1995).
Because such statements include risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to, risks associated with the integration following
an acquisition, comptetitors with broader product lines and greater resources,
the termination of any of the Company's significant contracts or the Company's
inability to attract and retain highly qualified management, technical and sales
personnel.
OVERVIEW
Dunn Computer Corporation (together with its wholly-owned subsidiaries, the
"Company" or "Dunn") manufactures custom computer systems and provides related
services to departments, agencies and offices of the federal government (the
"Government") and selected businesses. The Company provides its customers with
single-source solutions by manufacturing its own brand of desktop and portable
computers and high performance network client servers and offering services,
which include network consulting, project implementation, and technical support.
The Company currently derives revenues from hardware sales to the Government and
to medium and large businesses. The Company sells its products and services to
more than 300 customers, including entities within the Department of Defense,
Lockheed Martin Corporation, Blue Cross and Blue Shield Association, the
District of Columbia Government and the Puerto Rican Government.
For the six month period ended April 30, 2000, the Company dervied a portion of
its revenues from Government contracts. Government contracts, by their terms,
generally can be terminated at anytime, without cause for the convenience of the
Government. If a Government contract is so terminated, the contractor generally
is entitled to receive compensation for the services provided or certain costs
incurred at the time of termination and a reasonable profit on the contract work
performed prior to the date of termination. In addition, all Government
contracts require compliance with various contract provisions and procurement
regulations and in certain cases, accounting and audit requirements. If not
cured, certain violations of these regulations could result in the termination
of the contract, imposition of fines, and suspension or debarment from competing
for or receiving awards of additional Government contracts. Exclusion of the
Company from federal procurements, the termination of any of the Company's
significant Government contracts or the imposition of such penalties could have
a material adverse effect on the Company.
RESULTS OF OPERATIONS
Net revenues for the quarter ended April 30, 2000 were $10,602,548 as compared
to $9,440,804 for the quarter ended April 30, 1999, an increase of approximately
12%. Net revenues for the second quarter of fiscal 2000 increased by
approximately 49% of the first quarter fiscal 2000 revenues. The increase is
primarily attributable to the commencement of a significant contract with the
Puerto Rican Government in April 2000.
Net revenues for the six month period ended April 30, 2000 were $17,730,611
compared to $21,152,424 for the six month period ended April 30, 1999. The
decrease is attributable to the loss of a signficant government contract that
was terminated in May 1999.
<PAGE>
Gross margin, as a percentage of sales, decrease to 19% for the quarter ended
April 30, 2000 from 28% for the quarter ended April 30, 1999. Gross margins
commonly fluctuate from quarter to quarter as a result of current market
conditions and the Company's product mix. For the six months ended April 30,
gross margin was approximately 20% in fiscal 2000 compared to 22% in fiscal
1999.
For the quarters ended April 30, selling and marketing expenses decreased to
$291,972 in fiscal 2000 from $617,630 in fiscal 1999. For the six month period
ended April 30, selling and marketing expenses decreased to $591,782 in fiscal
2000 from $1,368,517 in fiscal 1999. The decrease is attributable to the
elimation of expensive marketing programs as well as the utilization of
co-operative marketing arrangements with certain vendors which reduced the
overall marketing costs.
General and administrative expenses decreased to $1,098,505 for the quarter
ended April 30, 2000 from $1,786,668 for the quarter ended April 30, 1999. For
the six month period ended April 30, general and administrative expenses
decreased to $2,617,770 in fiscal 2000 from $3,433,582 in fiscal 1999, a
decrease of approximately 24%. The decrease resulted primarily from the
Company's efforts to manage general and administrative expenses relative to its
net revenue and gross margin.
Interest expense, net of interest income, decreased to $137,009 for the quarter
ended April 30, 2000 from $158,343 for the quarter ended April 30, 1999. For the
six month period ended April 30, interest expense, net of interest income,
decreased to $297,928 in fiscal 2000 from $369,513 in fiscal 1999. This decrease
is a direct result of the Company's reduction of its outstanding debt in the
first quarter of fiscal 2000.
The Company reported net income of $240,744 for the quarter ended April 30,
2000 as compared to a net loss of $45,586 for the same period in the prior
year. Net Income for the six month period ended April 30, was $401,446 for
Fiscal 2000 as compared to a net loss of $593,259 for fiscal 1999. This is
the result of the Company's management of costs relative to net revenue as
well as additional contracts awarded in the second quarter of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended April 30, 2000, the Company produced positive cash flow
of $1,219,443 from its operating activities. The Company generated $857,078 of
cash receipts for unearned products and services. The purchase of inventory of
$1,987,999 and manufacturing and billing of $2,893,952 of goods and services
were the principal use of funds.
Funds used for investing activities consisted of the purchase of property and
equipment of $169,903. Net cash used for financing activities consisted of net
repayments on the line of credit of $4,332,805 and payments on notes payable of
$155,507. In February 2000, the Company restructured its existing line of credit
from $15 million to $5 million with an expiration date of November 30, 2000
bearing interest at the prime rate plus 1%. As of April 30, 2000, the Company's
outstanding balance on the line of credit is $1,757,900.
As of April 30, 2000, the Company had working capital of approximately
$1,191,699. The Company believes the bank facility, together with cash on hand,
cash generated from operations, sales of certain lease agreements and income tax
refunds due will provide sufficient financial resources to finance the current
operations of the Company through fiscal 2000. In addition,
<PAGE>
the Company sold 3,000 shares of its Series A Convertible Preferred Stock on
March 13, 2000 which generated approximately $2.7 million in net proceeds which
will be used to fund current and future operations.
From time to time, the Company may pursue strategic acquisitions or mergers
which may require significant additional capital, and additional capital may be
required to satisfy unusual or infrequent expenses. In such event, the Company
may seek additional financing of debt and/or equity.
YEAR 2000 DISCLOSURE
To date, the Company has experienced no failures or disruptions in its internal
operating systems, its products or in its third party vendors or suppliers
caused by any computer applications used by the Company being unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999 (the "Year 2000 Problem"). The
Company believes that there will be no compliance issues related to the Year
2000 Problem that could have a material effect on its financial condition or
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
By letter dated April 15, 1998, DDI, a competitor of IDP, asserted that IDP is
bound by a settlement agreement entered into in connection with certain
litigation, calling for payments to the competitor of 1.8% of the first $250
million of IDP's gross sales under the Desktop V contract. IDP and the Company
dispute this claim. On June 1, 1998, the Company filed a Complaint for
Declaratory Judgment in the U.S. District Court of the Eastern District of
Virginia seeking a declaration that DDI is not entitled to receive payments
under the settlement agreement. The defendant counter-claimed against the
Company claiming it did not breach the settlement agreement and is entitled to
the payments. These matters were litigated and on February 26, 1999, DDI was
awarded $1,500 in satisfaction of its claim. DDI subsequently filed an appeal of
the judgment. On May 9, 2000, the appeals court upheld the verdict awarded to
DDI in the amount of $1,500. This matter is now closed.
On July 31, 1998, the Company received notice from the SBA that it was denying
the request of the U.S. Air Force to waive the requirement to terminate IDP's
Desktop V contract for the convenience of the Government upon the change in
control of IDP to the Company. The Company appealed the denial of the SBA to the
SBA's Office of Hearings and Appeals. On August 31, 1999, the SBA denied the
appeal and ruled that the U.S. Air Force must terminate-for-convenience the
Desktop V contract. Under a termination-for-convenience, the government is
required generally to reimburse a contractor for all costs incurred in the
performance of the contract. The Company is in the process of attempting to
recover from the government a portion or all of unreimbursed costs associated
with the Desktop V Contract. Prior to this ruling by the SBA, the U.S. Air Force
determined not to exercise any of the remaining option years under the Desktop V
contract on May 1, 1999.
<PAGE>
In November 1998, a former employee of the Company filed a demand for
arbitration with the American Arbitration Association, alleging a breach of his
employment agreement with the Company and seeking in excess of $2,350,000 in
damages from the Company. The Company filed an answer denying the claimant's
allegations and stating a counterclaim against the former officer for breach of
the employment agreement and for conversion of certain of the Company's
property. In a Final Arbitration Award dated August 27, 1999, the arbitrator
found in favor of the former employee on certain of the issues presented at the
arbitration and awarded the former employee in excess of $1.6 million in damages
and attorneys' fees. On December 10, 1999, the Fairfax County Circuit Court
denied the Company's motion to vacate the award and confirmed the award. On
March 2, 2000 the Company executed a settlement agreement with the former
employee in which the Company paid $1 million and issued 225,000 shares of the
Company's Common Stock to the former employee.
There are routine legal claims pending against the Company, but in the opinion
of management, liabilities, if any, arising from such claims will not have a
material adverse effect on the financial condition and results of operation of
the Company.
Other than the above, we are not a party in any other material legal
proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 13, 2000 the Company sold 3,000 shares of its Series A Convertible
Preferred Stock for net proceeds of approximately $2.7 million. The sale was
executed in reliance upon the exemptions from registration provided by
Regulation D Rule 506 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended. No underwriters were utilized
for this sale. In accordance with the terms of the agreement, the security
holders may convert their shares at the lesser of eighty five percent (85%)
of the market price of the common shares immediately preceeding the
conversion date or $3.64. The sale was executed in order to obtain captial to
fund current and future operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11.1: Statement of computation of earnings per share. Exhibit 27:
Financial Data Schedule.
(b) Reports on Form 8-K
A report on Form 8-K dated March 31, 2000 was filed with the commission on May
15, 2000. The report contains information under Item 5 reflecting the issuance
of 3,000 shares of Series A Convertible Preferred Stock.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dunn Computer Corporation
(Registrant)
Date: June 14, 2000 By: /s/ Thomas P. Dunne
--------------------------------------------------------------
Thomas P. Dunne
Chief Executive Officer and President
Date: June 14, 2000 By: /s/ Kevin M. Murphy
--------------------------------------------------------------
Kevin M. Murphy
Vice President, Finance
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