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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 29, 1997
COMMISSION FILE NUMBER 0-15885
NATIONAL DATACOMPUTER, INC.
(Name of Small Business Issuer in its Charter)
DELAWARE 04-2942832
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification #)
900 Middlesex Turnpike, Bldg. 5
Billerica, Ma. 01821
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (508)663-7677
-------------------------------------------
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15 (d) of the Securities and Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
report(s), and (2) has been subject to such filing requirements for the past
ninety (90) days.
Yes___X_____ No_________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 29, 1997.
COMMON STOCK, $0.08 PAR VALUE 1,278,990
(Title of each class) (number of shares)
NATIONAL DATACOMPUTER, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
ITEM 1. FINANCIAL STATEMENTS
Balance Sheet as of
June 29, 1997 and December 29,1996...................................3
Statement of Operations
Three and six months ended
June 29, 1997 and June 30, 1996..............................4
Statement of Changes in
Shareholders' Equity for the six
months ended June 29, 1997.........................................5
Statement of Cash Flows
for the six months ended
June 29, 1997 and June 30, 1996.............................6
Notes to Financial Statements.........................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS..................................9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings....................................................11
ITEM 2. Changes in Securities................................................11
ITEM 3. Defaults upon Senior Securities......................................11
ITEM 4. Submissions of Matters to a Vote of Security Holders.................11
ITEM 5. Other Information....................................................11
ITEM 6. Exhibits and Reports on Form 8 - K...................................11
SIGNATURES....................................................................12
<TABLE>
<CAPTION>
NATIONAL DATACOMPUTER, INC.
BALANCE SHEET
- ------------------------------------------------------------------------------------------------------------------------------------
June 29, December 29,
1997 1996
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 511,100 $ 722,285
Accounts receivable, net of allowance for doubtful accounts 1,173,660 621,037
Inventories 1,724,705 1,479,153
Other current assets 120,415 153,741
------------ ------------
Total current assets 3,529,880 2,976,216
Property and equipment, net 313,567 234,530
------------ ------------
$ 3,843,447 $ 3,210,746
============ ============
Liabilities and stockholders' equity
Current Liabilities:
Current obligations under capital lease $ 3,028 $ 21,424
Accounts payable 382,751 125,454
Accrued payroll and related taxes 210,951 171,104
Accrued professional fees 12,311 48,732
Accrued rent and utilities 21,340 54,429
Accrued expenses - other 178,855 274,423
Accrued interest on preferred stock 205,500 84,000
Deferred revenues, current portion 533,278 678,625
Deferred compensation 45,742 45,742
------------ ------------
Total current liabilities 1,593,756 1,503,933
Convertible debt 250,000 --
Obligation under capital lease 126,243 114,828
Deferred revenues 75,143 75,143
------------ ------------
2,045,142 1,693,904
------------ ------------
Stockholders' equity
Preferred stock, Series B convertible $0.001 par value; 4,200 shares
authorized; 4,200 shares issued and outstanding at June 29, 1997
and December 29, 1996, respectively (liquidating preference of $4,200,000) 3,685,206 3,685,206
Preferred stock, Series C convertible $0.001 par value; 900 shares
authorized; 900 and 0 shares issued and outstanding at June 29, 1997,
and December 29, 1996, respectively (liquidating preference of $900,000) 881,583 --
Preferred stock, Series D convertible $0.001 par value; 350 shares
authorized; 350 and 0 shares issued and outstanding at June 29, 1997,
and December 29, 1996, respectively (liquidating preference of $350,000) 343,000 --
Common stock, $0.08 par value; 5,000,000 shares authorized; 1,278,990 and 1,251,925
shares issued and outstanding at June 29, 1997 and December 29, 1996, 102,304 100,154
respectively
Capital in excess of par value 9,837,807 9,755,957
Accumulated deficit (12,591,153) (11,548,437)
Unamortized stock compensation (109,173) (124,769)
Notes receivable - employees (351,269) (351,269)
------------ ------------
Total stockholders' equity 1,798,305 1,516,842
------------ ------------
$ 3,843,447 $ 3,210,746
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements
3
<TABLE>
<CAPTION>
NATIONAL DATACOMPUTER, INC.
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Second Fiscal Quarter Cumulative Six Months
Ended Ended
-------------------------------------- ---------------------------------------
June 29 June 30 June 29 June 30
1997 1996 1997 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Net product revenue $ 875,070 $ 1,393,645 $ 2,119,034 $ 2,455,177
Service and other revenue 314,723 243,346 606,197 508,965
------------------ ------------------ ------------------ ----------------
1,189,793 1,636,991 2,725,231 2,964,142
Cost of sales and services 720,167 950,868 1,541,792 1,783,853
------------------ ------------------ ------------------ ----------------
469,626 686,123 1,183,439 1,180,289
------------------ ------------------ ------------------ ----------------
Operating expenses:
Research and development 361,397 283,174 738,687 562,731
Selling, general and administrative 647,457 602,694 1,278,562 1,184,546
------------------ ------------------ ------------------ --------------
1,008,854 885,868 2,017,249 1,747,277
------------------ ------------------ ------------------ ----------------
Loss from operations (539,228) (199,745) (833,810) (566,988)
Other income (expense):
Interest income 4,897 5,770 6,633 5,775
Interest expense (4,557) (4,676) (10,039) (18,114)
------------------ ------------------ ------------------ ----------------
Net loss $ (538,888) $ (198,651) $ (837,216) $ (579,327)
================== ================== ================== ================
Net loss per share $ (0.51) $ (0.25) $ (0.83) $ (0.49)
================== ================== ================== ================
Weighted average shares and dilutive
share equivalents outstanding 1,272,607 1,190,345 1,262,266 1,179,890
================== ================== ================== ================
</TABLE>
The accompanying notes are an integral part
of these financial statements
4
<TABLE>
<CAPTION>
NATIONAL DATACOMPUTER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
- -----------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Preferred Stock Preferred Stock Common Stock
Series B Series C Series D
---------------------- ------------------ ------------------ -------------------------------------
Net Net Net Capital in
Issuance Issuance Issuance Par Excess
Shares Price Shares Price Shares Price Shares Value of par value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 29, 1996 4,200 $ 3,685,206 1,251,925 $100,154 $9,755,957
Net loss
Issuance of preferred stock 900 881,583 350 343,000
Interest on preferred stock
Amortization of stock compensation
-------- ----------- ---- --------- ----- ---------- --------------- ------------ ---------------
Balance at March 30, 1997 4,200 $ 3,685,206 900 $881,583 350 $ 343,000 1,251,925 $ 100,154 $ 9,755,957
======== =========== ==== ========= ===== ========== =============== ============ ===============
Net loss
Issuance of common stock
in satisfaction of accrued interest 26,886 2,150 81,850
Interest on preferred stock
Amortization of stock compensation
-------- ----------- ---- --------- ----- ---------- --------------- ------------ ---------------
Balance at June 29, 1997 4,200 $ 3,685,206 900 $881,583 350 $343,000 1,278,811 $ 102,304 $ 9,837,807
======== =========== ==== ========= ===== ========== =============== ============ ===============
</TABLE>
<TABLE>
<CAPTION>
Notes Unamortized Total
receivable Stock Accumulated stockholders'
empolyees Compensation deficit equity (deficit)
<S> <C> <C> <C> <C>
Balance at December 29, 1996 $ (351,269) $ (124,769) $(11,548,437) $1,516,842
Net loss (298,328) ($298,328)
Issuance of preferred stock $1,224,583
Interest on preferred stock (99,000) ($99,000)
Amortization of stock compensation 7,799 $7,799
--------------- --------------- -------------- --------------
Balance at March 30, 1997 $ (351,269) $ (116,970) $(11,945,765) $ 2,351,896
=============== =============== ============== ==============
Net loss (538,888) ($538,888)
Issuance of common stock
in satisfaction of accrued interest $84,000
Interest on preferred stock (106,500) ($106,500)
Amortization of stock compensation 7,797 $7,797
--------------- --------------- -------------- --------------
Balance at June 29, 1997 $ (351,269) $ (109,173) $ (12,591,153) $ 1,798,305
=============== =============== ============== ==============
</TABLE>
The accompanying notes are an integral part
of these financial statements
5
<TABLE>
<CAPTION>
NATIONAL DATACOMPUTER, INC.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
- -----------------------------------------------------------------------------------------------------------------------------------
June 29, 1997 June 30, 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (837,216) $ (579,327)
Adjustments to reconcile net income (loss) to net
cash (used for) provided by operating activities:
Depreciation and amortization 53,097 14,148
Amortization of stock compensation 15,596 -
Gain on sale of property and equipment (1,389)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (552,623) 36,960
(Increase) decrease in inventories (245,552) 26,949
(Increase) decrease in other current assets 33,326 (30,114)
(Decrease) increase in accounts payable 257,297 (74,619)
(Decrease) increase in accrued expenses
and deferred compensation (125,231) (558,555)
(Decrease) increase in deferred revenues (145,347) (32,661)
---------------------- ----------------------
Net cash (used for) provided by operating activities (1,546,653) (1,198,608)
---------------------- ----------------------
Cash flows from investing activities:
Purchases of property and equipment (117,949) (4,843)
Proceeds from sale of property and equipment - 2,149
---------------------- ----------------------
Net cash used for investing activities (117,949) (2,694)
---------------------- ----------------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of issuance costs 1,224,583 3,695,533
Repayment of borrowings - (440,278)
Proceeds from issuance of convertible note 250,000 -
Investment receivable - 50,268
Payments of obligations under capital lease (21,166) -
---------------------- ----------------------
Net cash provided by financing activities 1,453,417 3,305,523
---------------------- ----------------------
Net increase (decrease) in cash and cash equivalents (211,185) 2,104,221
Cash and cash equivalents at beginning of period 722,285 470
---------------------- ----------------------
Cash and cash equivalents at end of period $ 511,100 $ 2,104,691
====================== ======================
Supplemental Cash Flow Information:
Cash paid for interest $ $ -
9,902
Non-cash investing and financing activities:
Accrued Interest on Series B preferred stock charged to
Accumulated deficit -
205,500
Purchase of property and equipment under capital lease -
14,185
Common stock issued in satisfaction of interest on Series B
preferred stock 84,000
</TABLE>
The accompanying notes are an integral part
of these financial statements
6
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
National Datacomputer, Inc. (the "Company") designs, develops,
manufactures, markets, and services a line of hand-held battery powered
microprocessor-based data collection products and computers and associated
peripherals for use in mobile operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited financial statements, which are for interim
periods, do not include all disclosures provided in the annual financial
statements. These unaudited financial statements should be read in
conjunction with the financial statements and the footnotes thereto
contained in the Annual Report on Form 10-KSB for the year ended December
29, 1996 of National Datacomputer, Inc. (the "Company"), as filed with the
Securities and Exchange Commission.
INTERIM PERIODS
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the financial statements. The
results of operations for the three and six months ended June 29, 1997 are
not necessarily indicative of the results to be expected for the full
year.
REVENUE RECOGNITION
The company recognizes revenues for products upon shipment. Estimated
installation, training and warranty costs are accrued at the time of
shipment. Service revenue is recognized ratably over the contractual
periods.
EARNINGS PER SHARE
Per share data was computed by dividing net loss as adjusted by the
preferred dividend by the weighted average number of common shares
outstanding during the period; common equivalent shares are not included
as the effect of such would be considered anti-dilutive.
RESEARCH AND DEVELOPMENT AND COMPUTER SOFTWARE DEVELOPMENT COSTS
Research and Development costs, other than software development costs,
have been charged to operations as incurred. Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed", requires the
capitalization of certain computer software development costs incurred
after technological feasibility is established. No software development
costs have been capitalized at June 29, 1997 or June 30, 1996.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, ("SFAS 128"),
"Earnings per Share", effective for fiscal periods ending after December
15, 1997. Management has determined that there will be no impact of the
adoption of SFAS 128 on the Company's reported results of operations for
the periods presented. The future adoption of SFAS 128 will have no effect
on the Company's financial position or cash flows.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
3. INVENTORIES
Inventories consist of the following: June 29, December 29,
1997 1996
------------ -------------
Raw Material ........................ $ 410,272 $ 351,860
Work-in-process ..................... 691,141 592,741
Finished goods ...................... 623,292 534,552
------------ -------------
Total ...... $ 1,724,705 $1,479,153
============ =============
Inventories are stated at the lower of cost (first-in, first-out) or
market
4. CONVERTIBLE PREFERRED STOCK AND PROMISSORY NOTES
In March 1997, the Company designated and sold 900 and 350 shares of
Series C and Series D Convertible Preferred Stock, respectively, for net
proceeds of $881,583 and $343,000, respectively. The Series C and Series D
Convertible Preferred Stock have voting, dividend preference, liquidating
preference, mandatory conversion and Company redemption terms similar to
those of the Company's existing Series B Convertible Preferred Stock. The
Series C and Series D Convertible Preferred Stock are convertible into
shares of common stock at a price of $3.20 and $2.74 per share,
respectively. Holders of the Series C and Series D Convertible Preferred
Stock are also entitled to receive interest at a rate of 6% per annum on
the stated value of the preferred stock.
At the same time, the Company also issued $250,000 of Convertible
Promissory Notes to the same investors as the Series C and Series D
Convertible Preferred Stockholders. These notes bear interest at the rate
of 6% annum, mature in March 1998 and are convertible into shares of the
Company's common stock at a price of $2.74 per share.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere herein.
RESULTS OF OPERATIONS
SECOND QUARTER ENDED JUNE 29, 1997 COMPARED WITH SECOND QUARTER ENDED
JUNE 30, 1996.
Revenues decreased 27% to $1,189,793 in the Second Quarter 1997 from
$1,636,991 in the Second Quarter 1996. The decrease in revenues was primarily
due to a reduction in sales of units of the Company's Datacomputers which
experienced a decline of approximately 37%. This was caused by the delayed
shipment of a substantial order awaiting for a signed contract.
Service and other revenues for the current quarter were $314,723
compared to $243,346 for the previous comparable quarter, an increase of 29%.
The Company expects that service and other revenues will continue to rise as the
Company's installed base of hand-held computers continues to expand.
Cost of sales and services, as a percentage of net revenues, increased
to 61% during the current quarter from 58% during the prior comparable period.
The increase is primarily due to the expansion of the Quality Control and Repair
Department offset by lower cost of materials, and lower field support cost due
to the Company's quality programs instituted in the last year.
Research and development expenses during the Second Quarter 1997 were
$361,397 an increase of approximately 28% compared to $283,174 during the prior
comparable quarter. The increase is due to the Company's continued effort to
enhance its current products while developing future products.
Selling, general and administrative expenses during the Second Quarter
1997 were $647,458 an increase of approximately 7% compared to $602,694 during
the prior comparable period. The increase is due primarily to increased legal
and professional fees associated with the Company's filing and listing on NASDAQ
stock market
As a result, the Company incurred a net loss of $538,888 during the
Second Quarter 1997, compared to a net loss of $198,651 during the prior
comparable quarter.
SIX MONTHS ENDED JUNE 29, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30,
1996.
Revenues for the first six months of 1997 decreased 8% to $2,725,331
from $2,964,142 for the same period in 1996. The decrease in revenues was
primarily due to a decrease in sales of units of the Company's Datacomputers
which decreased approximately 14% in the first six months of 1997 from the first
six months of 1996. The decrease is due primarily to the delayed shipment of a
substantial order awaiting for signed contract.
Service and other revenues for the first six months were $606,197
compared to $508,965 for the previous comparable period, an increase of
approximately 19%. The Company expects that service and other revenues will
continue to rise as the Company's installed base of hand-held computers
continues to expand.
Cost of sales and services, as a percentage of net revenues, decreased
to 57% during the first six months of 1997, from 60% during the prior comparable
period. The decrease is primarily attributable to lower cost of materials, and
lower field support cost due to the Company's quality programs instituted in the
last year.
Research and development expenses increased to $738,687 in the first
six months of 1997, from $562,731 for the same period in 1996, an increase of
approximately 31%. The increase is due to the Company's continued effort to
enhance its current products while developing future products.
Selling, general and administrative expenses increased to $1,278,562 in
the first six months of 1997 from $1,184,546 in 1996, an increase of
approximately 8%. The increase is primarily due to higher legal and professional
fees associated with the Company's filing and listing on NASDAQ stock market.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalent totaled $511,100 at June 29, 1997 compared to
$722,285 at December 29, 1996. During the first six months of 1997, the Company
generated net proceeds of $1,474,583 (Note 4) from the sale of Convertible
Preferred Stock and the issuance of Convertible Promissory Notes. The proceeds
were used to fund the net loss of $837,216, in addition to an increase in
accounts receivable and inventory. The Company currently has no outstanding
commitments for capital expenditures.
The Company's primary requirements for capital will be the cost of
systems sold, strategic acquisitions, marketing and sales costs associated with
the Company's expansion into new target markets and general and administrative
expenses associated with the Company's plan for expansion.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently involved in any material pending
litigation.
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K
(a) Exhibits
(27) Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL DATACOMPUTER, INC.
August 18, 1997 /s/ Malcolm M. Bibby
---------------------------
Malcolm M. Bibby
President
August 18, 1997 /s/ Gerald S. Eilberg
---------------------------
Gerald S. Eilberg
Vice President, Finance and Administration
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> JUN-29-1997
<CASH> 511,100
<SECURITIES> 0
<RECEIVABLES> 1,271,834
<ALLOWANCES> (98,174)
<INVENTORY> 1,724,705
<CURRENT-ASSETS> 120,415
<PP&E> 1,524,188
<DEPRECIATION> (1,210,621)
<TOTAL-ASSETS> 3,843,447
<CURRENT-LIABILITIES> 1,593,756
<BONDS> 451,386
0
0
<COMMON> 102,304
<OTHER-SE> 1,696,001
<TOTAL-LIABILITY-AND-EQUITY> 3,843,447
<SALES> 2,725,231
<TOTAL-REVENUES> 2,725,231
<CGS> 1,541,792
<TOTAL-COSTS> 2,010,616
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,039
<INCOME-PRETAX> (837,216)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (837,216)
<EPS-PRIMARY> (0.83)
<EPS-DILUTED> (0.83)
</TABLE>
