U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 29, 1996 Commission file number 0-15885
NATIONAL DATACOMPUTER, INC.
(Name of Small Business Issuer in its charter)
DELAWARE 04-2942832
(State or other jurisdiction (IRS employer
of incorporation or organization) identification No.)
900 MIDDLESEX TURNPIKE, BLDG. 5, BILLERICA, MASSACHUSETTS 01821
(Address of principal executive offices) (Zip Code)
(508) 663-7677
(Issuer'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:
Title of each class
-------------------
COMMON STOCK, $.08 PAR VALUE PER SHARE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
The registrant had revenues of approximately $5,032,000 in the fiscal
year ended December 29, 1996. The aggregate market value of the voting stock
held by non-affiliates of the registrant on March 21, 1997 was approximately
$6,416,600. As of March 21, 1997, 1,252,028 shares of Common Stock, $.08 par
value per share, of the registrant were outstanding. Unless otherwise indicated,
all per share data and information in this Form 10-KSB relating to the number of
shares of Common Stock reflect a 1:100 reverse stock split that was effected on
October 14, 1994, and a 1:4 reverse stock split that was effected on December
19, 1996.
PART I
THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS
AS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FOR THIS
PURPOSE, ANY STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL
FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE
FOREGOING, THE WORDS "BELIEVES", "ANTICIPATES", "PLANS", "EXPECTS", AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE IMPORTANT
FACTORS DISCUSSED IN ITEM 6 "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AMONG OTHERS, COULD CAUSE ACTUAL FUTURE
RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY FORWARD-LOOKING STATEMENTS
MADE HEREIN AND PRESENTED ELSEWHERE BY MANAGEMENT FROM TIME TO TIME.
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The mission of National Datacomputer, Inc. (the "Company") is to
provide solutions to workplace problems through the use of mobile information
systems. The Company designs, manufactures, sells and services computerized
systems used to automate the collection, processing and communication of
information related to product sales, distribution, and inventory control. The
Company's products and services include data communication networks,
application-specific software, hand-held computers and related peripherals, and
associated training and support services. The Company's products facilitate
rapid and accurate data collection, data processing and two-way communication of
information with a customer's host information system.
The Company invests in technologies that support its systems solution
approach, such as application software and network communication systems. The
Company believes that its future success depends on superior marketing, service
and solutions. The Company's goal is to be the leading supplier in selected
market sectors. The key elements of the Company's strategy include: (i)
performing effective market research to assess and identify market sectors that
represent viable business opportunities; (ii) providing system communications to
a customer's host information system in addition to data collection software and
hardware; (iii) updating hardware and software solutions to remain current with
customers' needs as well as existing technology; and (iv) maintaining superior
software to run the Company's hardware and network communications in selected
market segments.
INDUSTRY BACKGROUND
In the 1970s, the application of microprocessor-powered equipment began
to find applications where portable, battery-powered units were required. These
units found their largest applications in the retail industry for entering
re-order information into the distribution systems to supply retail stores. A
number of other data collection applications also began to appear in the
inventory service industry.
The state of the art in microprocessors at the time was units with
small memories and programs written in proprietary or machine languages
contained in firmware. The applications were, by necessity, simple compared to
other applications of computers in business and industry. As the need for more
flexible and sophisticated programs grew, the use of units requiring firmware
became less and less desirable. This situation existed until the mid-1980s when
personal
computers blossomed and the computer industry shifted to low-powered CMOS
electronics (generally categorized as semiconductors requiring small power
drain). At that point, the opportunity to create software systems with the level
of flexibility and sophistication available in other parts of the software
industry presented itself and the hand-held personal computer was introduced.
Management believes that the future of hand-held computers is governed
by the software or solutions industry, and the opportunity to design computers
for "people who don't work at a desk" has opened up large new markets. The
application of this software technology to industries involving distribution of
products on routes is a good example of this opportunity as the distribution
process can be highly automated capturing every transaction as well as supplying
additional information for management controls not previously possible.
PRODUCTS
The Company designs, manufactures, markets and services rugged,
hand-held computers, data collection devices and associated peripherals. The
Company believes that its customers require products that allow flexible
tailored software solutions in a cost-effective and timely manner.
In March 1993, the Company was selected by Anheuser-Busch, Inc. as one
of its two qualified suppliers of hand-held computers for its network of
approximately 1,150 beer and snack wholesalers. Since then, the Company has
derived net sales of approximately $3 million from distributors of
Anheuser-Busch. Management anticipates that the numbers of Anheuser-Busch
distributors purchasing its hand-held computers will continue to increase in the
near future.
HARDWARE
The Company's hand-held computers ("Datacomputers") include a
microprocessor, keyboard, LCD displays and full alphabetic and numeric character
sets. Application programs for the Datacomputer can be written on conventional
desk-top computers with commonly-used programming languages and then executed on
the Datacomputer. Application programs and data in Datacomputers are stored in
random access memory ("RAM") and can be readily changed by communicating
revisions or new programs to the Datacomputer through its industry standard
serial port. Datacomputers can receive data through bar-code readers, cables
from other computers (including other Datacomputers) and over telephone lines
through a modem. The Company's Datacomputer product line includes two models of
the Datacomputer, bar-code readers, printers, communication devices, carrying
cases, cables and add-on memory boards.
DATACOMPUTER MODEL 3X
The Datacomputer Model 3X (the "DC 3X") is a hand-held "Intel(TM)
based" computer designed for use by people whose jobs involve entry and access
to a computer as they stand or move about. The DC 3X contains an industry
standard bar-code port that allows quick and convenient scanning of bar-codes
for accurate inventory management and supports fixed beam pencil wands, CCD and
laser light beam readers for a multitude of scanning applications. The Company
estimates that approximately 44% of its 1996 total revenue was attributable to
the sale of the DC 3X. The DC 3X serves as the platform for the majority of the
Company's future business development strategy.
The DC 3X is designed to be highly reliable, tolerant to human error
and easy to use. The DC 3X is shock resistant, water tight and operates over a
wide temperature range. In addition, the DC 3X's full-sized, numeric key pad is
designed for fast and accurate data entry, even while a
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user is wearing gloves. The Company also offers optional accessories, such as an
internal modem that allows communications over telephone lines.
The Company offers the DC 3X in two different sales packages. The
Pre-Sales System (the "PSS") includes a DC 3X, software and various peripherals
for sale to customers who sell their products on routes and who book the sales
orders through a dedicated sales force. The Driver-Sales System (the "DSS") is a
packaged system that includes a DC 3X, one of several portable or truck-mounted
printers, peripherals and software. The DSS is used by customers who sell their
products through delivery drivers. The Company believes that the application
software included in the PSS and DSS packages described above permits a high
degree of customization for a variety of customer applications.
The PSS is typically purchased by distributors who sell products prior
to actual shipment. Due to the fact that the salesman is not required to create
and print out a delivery slip for any customer, there is no need for a printer.
The PSS allows the salesman to access all of the distributor's information on
the customer's account as well as to input the customer's next delivery order.
The DSS, on the other hand, is typically purchased by distributors who do not
sell products prior to actual shipment. Accordingly, a salesperson arriving at a
stop performs an inventory check, determines how much inventory should be
delivered and prints out the delivery slip for the customer.
INDUSTRIAL APPLICATIONS
The DC 3X has many industrial applications, where portability, access
speed, ruggedness and small size are essential. Examples of two applications for
the DC 3X are set forth below:
DELIVERY ROUTES. At the end of each day, a driver parks his truck
and goes into the office where he connects his DC 3X to a host computer. The
host computer extracts and processes the information entered into the DC 3X by
the driver during his route. After processing the data, the host computer
downloads the delivery schedule and inventory for the driver's next day,
including account information about each customer. During the day, at each route
stop, the driver takes the customer's inventory, calculates what new stock needs
to be added and prints out a delivery slip for each customer. At the end of the
day, a complete report of the driver's deliveries can be printed. According to
many of the Company's customers, the implementation of the DC 3X has
significantly improved driver efficiency.
INSPECTION SYSTEMS. Using a DC 3X, a railroad inspector checks the
condition of railroad cars in the railroad yard. The DC 3X prompts the inspector
by requesting that he respond to a number of pre-determined questions. By
selecting specific answers to each question, the inspector reports a detailed
condition of each railroad car. After completing his inspection, the DC 3X is
connected to the railroad's repair center where the list of repairs and parts is
reviewed and processed by repairmen. The implementation of the DC 3X has
improved the effectiveness and efficiency of railroad car inspection and repair
by reducing human error and accelerating data collection and analysis. DC 3Xs
are presently in use at the Burlington Northern, Union Pacific, Illinois
Central, and Atchison, Topeka and Santa Fe Railroads.
DATACOMPUTER MODEL 2X
The Datacomputer Model 2X (the "DC 2X") is an advanced version of the
DC Model 2.5 described below. It has not been introduced to the Inventory
Services marketplace, except to two companies. The Company believes that broader
distribution of the DC 2X will begin by the end of 1997, although no assurance
of broader distribution can be given. The DC 2X provides all the features of the
DC 2.5, but, is also faster, has more memory and provides for a PC Card slot
option.
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The third largest inventory service company in the United States is one
of the Company's customers of the DC 2X, and formerly a customer of the DC 2.5.
The Company estimates that approximately 9% of its 1996 total revenue was
attributable to the sale of the DC 2X.
DATACOMPUTER MODEL 2.5
The Datacomputer Model 2.5 (the "DC 2.5") is a hand-held computer
designed primarily for use by inventory auditors who enter voluminous numeric
data, mostly by touch keying. The Company offers utility software that includes
a modem, printer, bar code wand and scanner interfaces, screen and keyboard
routines, calculator functions and database functions. Due to the wide range of
optional features, the user is able to control the creation, updating and cost
of the DC 2.5's software.
The DC 2.5 is marketed primarily to inventory services companies. An
inventory service company is an organization that contracts with businesses who
maintain large inventories, such as department or retail stores. The Company
estimates that approximately 19% of its 1996 total revenue was attributable to
the sale of the DC 2.5.
ICAL MODEL 100R
The ICAL Model 100R (the "ICAL 100R") is designed and used for
inventory taking for financial and control purposes. The ICAL 100R allows a user
to divide a store's inventory into a maximum of 128 separate departments and
keep a running total in each department. The ICAL 100R is a recent version of a
hand-held product sold by the Company to the inventory audit market for the last
16 years. The Company estimates that approximately 7% of its 1996 total revenue
was attributable to the sale of the ICAL 100R.
The primary customers for the ICAL 100R are inventory service
companies, which perform inventory taking for retailers and other institutions
on a contract basis, and retailers, primarily convenience store chains or others
selling large quantities of relatively low priced items.
Revenues generated by the ICAL 100R are almost exclusively from current
customers of the Company who wish to continue to use their installed base of
ICAL devices. The Company intends to continue to support the ICAL product line
to protect its customers' investments, but believes the current trends of
increasing processing power in and decreasing cost of small computers
competitive with the Datacomputer will make the ICAL line less attractive to
users in the future. As a consequence, the Company expects that ICAL sales will
diminish in the future, although no assurance can be given.
MARKETS
The Company currently focuses on the route accounting system market for
hand-held computers and believes it is well positioned in this industry to
become a leading provider. Route accounting involves concurrent order taking,
product delivery and inventory tracking. Salespeople enter customer orders in
hand-held computers and use the Company's portable printers to generate invoices
that are left with the customers' orders at their locations. At the end of a
route delivery day, information stored in hand-held computers is transferred to
the host information system and instructional and control information for the
next day's delivery routes is transferred back to the hand-held computer.
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MARKETING AND DISTRIBUTION
The Company has separate marketing efforts for its Datacomputer
products and its ICAL 100. Management believes that the Datacomputer products
have a wide variety of applications that have not yet been fully exploited by
the Company or potential users of the Datacomputer.
Recognizing the need to focus the Company's limited resources, the
Company has applied its business strategy for Datacomputers to a limited number
of selected markets. The Company is currently focused in market sectors where
businesses distribute their products on routes. The Company believes that the
route sales and service market is attractive because (i) customer acceptance of
hand-held computers has been established in several sectors; (ii) customers have
realized a substantial return on their investment in hand-held computers; and
(iii) the Company enjoys a competitive advantage in this market due to its
software and related services. To date, the Company believes it has gained one
of the leading positions in the office coffee service market sector, and has
penetrated the beer distribution, bakery, snacks and dairy market sectors.
The ICAL 100 is sold principally to repeat customers who already have a
sizable investment in their use of and applications for ICAL products. The
Company devotes relatively few resources to generate additional sales of ICAL
units above those demanded by past customers.
The Company primarily sells and distributes its systems and products
through a direct sales force that concentrates on systems sales.
DIRECT SALES FORCE
The Company believes that the most optimum method for the marketing and
sale of its products is gained through direct sales. Therefore, direct selling
is the Company's primary strategy in the route sales and service market. The
Company believes that the key elements to successful direct selling include: (i)
maintaining a well-qualified direct sales staff that is experienced in marketing
and selling solutions to medium and large accounts; (ii) performing
well-executed software solutions; (iii) offering excellent service; and (iv)
maintaining good customer references.
SERVICE AND SUPPORT
The Company believes that superior service is a vital part of its
competitive strategy and therefore emphasizes the quality of both hardware and
software service. The importance of customer service has continued to be
emphasized through the addition of new management personnel. The Customer
Service department manages all installations, preparations, and follow-up
support with each customer.
The Company typically offers industry-standard 90 day warranties and
offers several flexible service arrangements and maintenance contracts to meet
customer needs. In addition to technical support of installed systems, the
Company provides pre-installation site surveys, installation services, user
training, technical training, application software support and host information
system interface assistance.
SOURCES OF SUPPLY
The Company believes there is more than one supplier for all of its raw
materials and maintains inventories and close working relationships with its
suppliers to ensure timely and reliable delivery. Although the Company has not
experienced major interruptions in production due to a shortage of raw
materials, prolonged supply shortages would materially and adversely affect the
Company's manufacturing operations, business and financial performance.
5
COMPETITION
The market for the Company's products is highly competitive and rapidly
changing. The Company's competitors include Norand, Symbol Technologies and
Telxon, all of which have greater financial, marketing and technical resources
than the Company. In addition, larger corporations could enter into the route
sales and service segment of the hand-held computer market. The Company competes
on the basis of product features, software, quality, service and price.
EMPLOYEES
As of December 29, 1996, the Company had 65 full-time employees. Of
these employees, 11 were engaged in sales and marketing, 15 in service and
customer support, 18 in hardware and software development, 13 in manufacturing
and 8 in administration and finance. The Company's employees are not represented
by a labor union. Management believes that the Company's relationship with its
employees is good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains its principal offices and manufacturing
operations in a leased 19,000 square foot facility in Billerica, Massachusetts.
The Company's lease expires on September 30, 1997. The annual base rent for the
Company's leased facilities is approximately $123,300. The lease further
provides that the Company will pay to its landlord as additional rent its pro
rata share of certain operational and maintenance costs at the facility during
the term of the lease. The Company believes that its facilities are adequate for
its current needs and that additional space, if required, would be available at
competitive rates.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not presently involved in any material pending
litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Company submitted five matters to a vote of stockholders on October
4, 1996, in a Special Meeting of Stockholders. The Special Meeting was called
for a vote on the following matters:
(1) To elect three (3) members of the Board of Directors.
(2) To authorize the Board of Directors to execute, at their
discretion, an amendment to the Company's Certificate of Incorporation to effect
a reverse stock split.
(3) To approve an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock.
(4) To approve the Company's 1995 Stock Option Plan, under which
125,000 shares of Common Stock have been reserved for issuance.
(5) To ratify the selection of Price Waterhouse LLP as independent
auditors of the Company for the fiscal ending December 29, 1996.
For the purpose of counting votes at the Special Meeting, holders of
shares of Common Stock and holders of shares of Series B Convertible Preferred
Stock (the "Preferred Stock") were treated as one class. Each holder of
Preferred Stock was entitled to a number of votes per share equal to 166.67
shares of Common Stock.
6
(1) The resolution to elect Dr. Malcolm M. Bibby was adopted by a vote
of 1,379,707 shares in favor and 3,503 shares withheld; the resolution to elect
William R. Smart was adopted by a vote of 1,379,498 shares voting in favor and
3,712 shares withheld; and the resolution to elect John P. Ward was adopted by a
vote of 1,379,689 shares voting in favor and 3,521 shares withheld.
(2) The amendment to the Company's Certificate of Incorporation to
effect a reverse stock split was approved by a vote of 1,219,726 shares voting
in favor, 162,525 shares voting against, and 959 shares abstaining.
(3) The amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of stock from 2,500,000 shares of
Common Stock to 5,000,000 shares of Common Stock and 50,000 shares of Preferred
Stock, of which 20 shares have been designated as Series A Convertible Preferred
Stock, and 4,200 shares were designated as Series B Convertible Preferred Stock,
was approved by a vote of 1,349,770 shares voting in favor, 31,818 shares voting
against and 1,622 shares abstaining.
(4) The Company's 1995 Stock Option Plan was approved by a vote of
939,871 shares voting in favor, 153,722 shares voting against,1,813 shares
abstaining and 287,804 broker non-votes.
(5) The ratification of the selection of Price Waterhouse LLP as the
Company's independent accountants for the current fiscal year ending December
29, 1996 was adopted by a vote of 1,380,420 shares voting in favor, 1,899 shares
voting against and 891 shares abstaining.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
During the year ended December 29, 1996, the Company's Common Stock was
traded on the NASD Electronic Bulletin Board under the symbol "NDCP." On
December 29, 1996, the last sale price for the Common Stock as reported by
National Quotations Bureau, Incorporated ("NQBI") was $4.00 per share.
On March 7, 1997, the Company's Common Stock commenced trading on the
NASDAQ SmallCap Market Quotation System ("NASDAQ") under the symbol "IDCP".
For the periods indicated below, the table sets forth the range of high
and low sale prices for the Common Stock as reported by NQBI.
HIGH LOW
---- ---
1995
First Fiscal Quarter $20.00 $18.00
Second Fiscal Quarter 21.24 6.00
Third Fiscal Quarter 12.00 9.00
Fourth Fiscal Quarter 10.48 3.25
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1996
First Fiscal Quarter $11.00 $4.00
Second Fiscal Quarter 20.00 10.00
Third Fiscal Quarter 13.75 11.00
Fourth Fiscal Quarter 11.25 4.00
1997
First Fiscal Quarter (through March 21, 1997)(1) $6.13 $3.00
(1) Based on information provided by NQBI for the period from December
29, 1996 through March 6, 1997 and information provided by NASDAQ for the period
March 7, 1997 through March 21, 1997.
As of December 29, 1996, there were 2,456 stockholders of record of the
Company's Common Stock.
DIVIDENDS
Since inception, the Company has not paid any dividends on its Common
Stock and management does not anticipate the payment of any dividends to its
stockholders in the foreseeable future. The Company currently intends to
reinvest earnings, if any, in the development and expansion of its business. The
declaration of dividends in the future will be at the election of the Board of
Directors and will depend upon the earnings, capital requirements and financial
position of the Company, general economic conditions and other pertinent
factors. The Company's outstanding Preferred Stock also requires that holders of
Preferred Stock be entitled to receive dividends prior to the payment of
dividends on the Company's Common Stock.
ITEM 6. 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
Year Ended December 29, 1996 Compared with Year Ended December 31, 1995
Revenues decreased approximately 17% to approximately $5,032,000 in
1996 from approximately $6,065,000 in 1995. The decrease in revenues was
primarily due to a decrease in sales of units of the Company's Datacomputers,
which decreased approximately 38% in 1996 from 1995. The decrease is due
primarily to the Company's management changes, and to the expansion and training
of a new sales team located throughout the United States.
Sales of the Company's ICAL 100 showed a decrease of approximately 15%
in 1996 from 1995. Revenues generated by the ICAL 100 are almost exclusively
from current customers who wish to continue to use their installed base of ICAL
devices. The Company intends to support the ICAL product line, but believes that
current trends of increasing processing power in and decreasing costs of small
portable computers such as the Company's Datacomputers will make the ICAL line
less attractive to users in the future. As a result, the Company expects sales
of the ICAL 100 to decrease in the future although no assurance can be given.
8
Service and other revenues increased to approximately $1,029,000 in
1996 from approximately $876,000 in 1995, an increase of approximately 17%. The
Company expects that service and other revenues will continue to rise over the
next several years as the Company's installed base of hand-held computers
continues to expand, although no assurance of such a result can be given.
Cost of sales and services decreased approximately 11% to $2,446,000 in
1996 from approximately $2,736,000 in 1995. As a percentage of sales, however,
cost of sales and services increased approximately to 49% in 1996 from
approximately 45% in 1995. This increase is primarily due to the expansion of
the Quality Control and Repair Department. The direct material variable costs of
the product line decreased by 2%.
Research and development expenses increased to approximately $1,303,000
in 1996 from approximately $1,245,000 in 1995, an increase of approximately 5%,
primarily due to continued investments in product development. As a percentage
of sales, research and development expenses increased approximately to 26% in
1996 from approximately 21% in 1995. Although no assurance can be given, the
Company expects to maintain research and development spending necessary to
enhance current products and to develop future products.
Selling, general and administrative expenses increased to approximately
$3,334,000 in 1996 from approximately $3,252,000 in 1995, an increase of
approximately 3%. As a percentage of sales, selling, general and administrative
expenses increased to approximately 66% in 1996 from approximately 54% in 1995.
The increase is primarily due to increased expenses associated with the creation
of new positions in the Company's sales and marketing staff to focus on market
research and lead generation, as well a decrease in sales. The Company has also
invested in sales literature and direct mailing to increase its exposure in its
target markets. During 1996 the Company also incurred expenses to relocate two
of its executive officers.
The Company's operating loss was approximately $2,051,000 in 1996 as
compared to a loss from operations of approximately $1,168,000 in 1995. The
increased loss was primarily attributable to the decrease in the Company's sales
and the increase in the expenses discussed above.
The Company had interest income in 1996 of approximately $34,000
compared to approximately $1,000 in 1995. The increase was primarily a result of
investment of the net proceeds from the private placements.
Interest expense was approximately $26,000 in 1996 as compared to
approximately $72,000 in 1995. This decrease resulted from the repayment of the
Company's working capital line of credit.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company successfully completed the private placement,
under Regulation S, for 3,000 and 1,200 shares of Series B Convertible Preferred
Stock. The Company received net proceeds of approximately $3,685,200 from the
private placements.
The cash balance at the end of 1996 was approximately $722,300, an
increase of approximately $721,800 over the cash balance of $470 at December 30,
1995. Cash flow from operating activities in 1996 was approximately a negative
$2,592,500 primarily due to operating losses and payment of liabilities.
Approximately $440,000 of cash was used in financing activities in 1996 to
retire the Company's borrowing under the working capital line of credit.
9
In March 1997, the Company completed an equity financing (see Note 11
of the Notes to the Financial Statements). The Company does not anticipate any
additional equity financing in 1997.
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 years ending after December 15, 1997. Management
has not yet determined the impact of adoption of SFAS 128 on the Company's
reported results of operations. The future adoption of SFAS 128 will have no
effect on the Company's financial position or cash flows.
ITEM 7. FINANCIAL STATEMENTS
See Item 13 below and the Index therein for a listing of the financial
statements and supplementary data filed as part of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT.
Each Director of the Company is elected for a period of one year and
holds office until his successor is elected and qualified. Vacancies may be
filled by a majority vote of Directors then remaining in office. Officers are
elected by and serve at the discretion of the Board of Directors. The following
table sets forth the year each Director was elected a Director and the age,
positions and offices currently held by each Director. For information about
ownership of the Company's voting securities by each Director, see "Security
Ownership of Certain Beneficial Owners and Management."
YEAR DIRECTOR
FIRST BECAME
NAME AGE DIRECTOR POSITION
- ---- --- -------- --------
Dr. Malcolm M. Bibby 56 1996 Chairman of the Board and
President
William R. Smart 76 1989 Director
John P. Ward 69 1967 Director
Section 16(a) ("Section 16(a)") of the Securities Exchange Act of 1934,
as amended, requires executive officers, Directors, and persons who beneficially
own more than ten percent (10%) of the Company's Common Stock to file initial
reports of ownership on Form 3 and reports of changes in ownership on Form 4
with the Securities and Exchange Commission (the "SEC") and any national
securities exchange on which the Company's securities are registered. Executive
officers, Directors and greater than ten percent (10%) beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on a review of copies of such forms furnished to the
Company and written representations from executive officers and Directors, the
Company believes that all Section 16(a) filings applicable to its executive
officers, Directors and ten percent (10%) beneficial owners were complied with
during the fiscal year ended December 29, 1996.
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BUSINESS EXPERIENCE AND BACKGROUNDS OF THE DIRECTORS
The background of each of the Company's current Directors is as
follows:
DR. MALCOLM M. BIBBY has served as a Director of the Corporation since
January 1996 and was elected Chairman of the Board in July 1996. He was
President of LXE Inc. ("LXEI"), a diversified wireless data communications
products company, from 1983 to December 1994. During this period LXE's annual
revenues grew from approximately $600,000 to approximately $63,000,000. Prior to
LXE , Dr. Bibby was an Executive Assistant to the President at Ciba Vision Care,
a Vice President of Product Development at Wesley-Jessen, Inc. and a Project
Manager/Group Leader for hardware and software development at Monsanto Co. Dr.
Bibby holds a Bachelor of Science degree and a Ph.D. both in Electrical
Engineering from the University of Liverpool and an Master of Business
Administration from the University of Chicago.
WILLIAM R. SMART has served as a Director of the Company since December
1989. He spent 32 years with the General Electric Company where his
responsibilities included distribution and marketing management and general
management as a Division Vice President. He spent nine years with Honeywell,
Inc. where he served as Vice President in charge of European operations and
Senior Vice President of Honeywell Information Systems, responsible for
international operations as well as for the corporate staff. Mr. Smart currently
serves as a Senior Vice President of the Cambridge Strategic Management Group, a
privately-held management consultant company. Mr. Smart holds a Bachelor of
Science degree in Electrical Engineering from Princeton University. Mr. Smart is
also the non-executive Chairman of 1st Carolina Corporation (the "Corporation").
The Corporation filed a Chapter 7 bankruptcy petition in the United States
Bankruptcy Court for the District of South Carolina on August 16, 1994 (Case
Number 94-73884).
JOHN P. WARD has served as a Director of the Company since its founding
in 1967. Since February 1996, Mr. Ward has served as the Chief Executive Officer
of Midas Vision Systems, Inc., a privately held company specializing in machine
vision systems for automatic optical inspections. From 1990 to 1996 Mr. Ward was
the Chief Executive Officer and Director of Vanzetti Vision Systems, Inc., a
privately-held company specializing in infrared systems. Mr. Ward was Vice
President of Engineering, co-founder and Clerk of the Company from its founding
until December 1986. From 1953 to 1968 Mr. Ward was a Design Section Manager at
the Raytheon Company. Mr. Ward holds a Bachelor of Science degree in Electrical
Engineering from the Massachusetts Institute of Technology and a Master of
Science degree in Electrical Engineering from Northeastern University.
EXECUTIVE OFFICERS
The executive officers of the Company, their ages and positions held in
the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Dr. Malcolm M. Bibby 56 President, Chairman of the Board and CEO
Richard C. Calcaterra 57 Vice President of Sales
Gerald S. Eilberg 63 Vice President of Finance and
Administration, Chief Financial Officer
Arthur Laramee 58 Vice President of Marketing
Joseph C. Pinto 50 Vice President of Manufacturing
Larry F. Yeager 47 Vice President of Research and
Development
11
BUSINESS EXPERIENCE AND BACKGROUNDS OF THE EXECUTIVE OFFICERS
The following is a brief summary of the background of each executive
officer of the Company other than Dr. Malcolm M. Bibby, whose background is
summarized above.
RICHARD C. CALCATERRA joined the Company in September 1996 as Vice
President of Sales. Mr. Calcaterra has over twenty six years of sales/marketing
and management experience. During the past six years, he was President and CEO
of IMG, a company that developed and marketed software utilizing RF and wireless
technologies. Prior to IMG, Mr. Calcaterra was Vice President of Marketing for
Telxon Corporation, responsible for worldwide marketing, Channel and Vertical
industry sales and marketing, and product planning and development. Before
joining Telxon Corp., he was Vice President of Sales for Norand Corporation,
responsible for the Retail division covering North America. Mr. Calcaterra was
Director of Sales for Route Accounting in the Central USA when he first joined
Norand. Mr. Calcaterra also spent thirteen years at Honeywell Inc., with
increasing levels of responsibility including Branch Management. Mr. Calcaterra
holds a Bachelor of Science degree in Business Administration from Chaffey
College.
GERALD S. EILBERG joined the Company in September 1988 as Vice
President of Finance and Administration and Chief Financial Officer. From
October 1986 to August 1988, Mr. Eilberg served as a financial consultant to
small private and public companies. From September 1982 to September 1986, he
was President of Direct Marketing Inc. Previous positions included Division and
Corporate Controller positions with large public companies. Mr. Eilberg is a
graduate of the Boston University School of Management and the Columbia
University Graduate School of Business.
ARTHUR LARAMEE joined the Company in July 1987 as a Program Manager.
Since that time he has held various positions in the Company, including Vice
President of Customer Services and Director of Business Development. Mr. Laramee
was appointed Vice President of Marketing in September of 1996. Mr. Laramee has
over 30 years of experience in marketing, sales, software development, customer
service and executive management in the computer industry. Prior to joining the
Company, Mr. Laramee served as a Corporate Program Manager at Digital Equipment
Corporation, including Office Automation Manager for Bell Systems Business. From
1985 to June 1987, Mr. Laramee served as Vice President of Sales and Marketing
at Voicemail International and Converse Technology. Mr. Laramee holds a Bachelor
of Science degree in physics from Boston College and a Masters degree in
Business Administration from the University of New Hampshire.
JOSEPH C. PINTO joined the Company in March 1984 as Materials Manager,
advanced into the position of Manufacturing Manager in September 1986 and was
appointed Vice President of Manufacturing in January 1988. Prior to joining the
Company, Mr. Pinto had been Production Control Manager at BLH Electronics, a
manufacturer of process control systems, since January, 1979. Mr. Pinto holds a
Bachelor of Science degree in Industrial Technology from Northeastern University
and a Master of Science degree in Systems Management from Western New England
College.
LARRY F. YEAGER has served as Vice President of Research and
Development since joining the Company in December 1985. Prior to that, Mr.
Yeager was Vice President of Software Development at the Saddlebrook
Corporation, a turnkey systems company. During eight years at Saddlebrook
Corporation, Mr. Yeager developed various software products, including Pro-Forma
Modeling, System M, Client Controllable software products and numerous financial
applications programs. Prior to joining Saddlebrook, Mr. Yeager worked at the
State Street Bank and Trust Company of Boston, Massachusetts where he held the
positions of Manager of Capital Planning and Manager of Management Sciences. Mr.
Yeager holds a Bachelor of Science degree from
12
Massachusetts Institute of Technology's Sloan School of Management as well as a
Masters degree in Business Administration from Northeastern University.
None of the Company's executive officers or Directors are related to
any other executive officer or Director.
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE OFFICERS' COMPENSATION
The following table sets forth the compensation paid to Dr. Malcolm M. Bibby,
the Company's President and Mr. Norman Mackinnon, the Company's former
President, during the fiscal years ended December 29, 1996, December 31, 1995,
and December 31,1994 ("Fiscal 1996, 1995 and 1994", respectively) along with the
other current executive officers of the Company, who earned total compensation
in excess of $100,000 during Fiscal 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
(E)
---
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- AWARDS
(A) (B) (C) (D) -------------------------
--- --- --- --- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS (#)(1)(2)(3)
--------------------------- ---- ------ ----- -------------------------
<S> <C> <C> <C> <C>
Dr. Malcolm M. Bibby (3)(7) 1996 $ 72,051 $0 118,750
President, CEO and Chairman 1995 0 $0 0
of the Board 1994 0 $0 0
Norman Mackinnon (1)(2)(4)(5)(6) 1996 $133,715 $0 0
Former Chairman of the Board, 1995 160,185 $0 0
President and CEO 1994 128,829 $0 8,429
Gerald S. Eilberg (1)(2)(3)(4) 1996 $102,106 $0 5,000
Vice President of Finance and 1995 102,106 $0 0
Administration and CFO 1994 85,612 $0 557
Larry F. Yeager (1)(2)(3)(4) 1996 $100,522 $0 5,000
Vice President of Research 1995 100,522 $0 0
and Development 1994 97,112 $0 3,022
</TABLE>
(1) On March 1, 1994, the Board of Directors approved the issuance of stock
options to purchase shares of Common Stock at an exercise price of
$4.00 per share to all employees of the Company who had vacation pay
accrued as of December 31, 1993 ("Vacation Options"). The Vacation
Options, effective as of December 31, 1993, were issued to employees of
the Company at the rate of one share per $4.00 of accrued vacation pay.
Under this arrangement, Messrs. Mackinnon, Eilberg and Yeager were
issued options to purchase 8,429, 557 and 3,022 shares of Common Stock,
respectively. In March 1994, 8,429, 557 and 3,022 shares of Common
Stock were issued to Messrs. Mackinnon, Eilberg and Yeager,
respectively, in exchange for promissory notes tendered in accordance
with the Company's 1994 cashless stock option exercise program.
(2) The options that were granted on March 30, 1994, are exercisable at a
share price of $4.00 and vest completely 10 years from the date of
their grant. Vesting of these options accelerates prior to December
13
31, 1999, as follows: (i) 50% vested if net income before taxes exceeds
$1,000,000 or 100% if net income before taxes exceeds $2,000,000.
(3) In November 1996, non-qualified stock options to purchase 118,750,
5,000, and 5,000 shares of Common Stock at an exercise price of $5.00
were granted to Messrs. Bibby, Eilberg and Yeager respectively. The
options granted to Messers. Eilberg and Yeager vest 40% in 1996 and 60%
in 1997. The options granted to Dr. Bibby have the following vesting
periods: (i) 6,000 options were fully vested upon grant (ii) 16,250
vested fully in 1996, another 23,750 vest in 1997 (iii) The remaining
72,750 vest fully in ten years, but contain the following acceleration
clauses: (a) 2,750 will vest 50% if net income before taxes for the
five year period ended December 31, 1999 exceeds $1,000,000 and 100% if
net income for the five year period exceeds $2,000,000; (b) 25,000 will
vest if net income before taxes exceeds $750,000 and sales exceed
$8,500,000 in any 4 consecutive quarters prior to December 31, 1997;
(c) up to 45,000 options will vest if sales during any four consecutive
quarters exceed $8,500,000 and the following amounts net income before
taxes are exceeded:
Net income before taxes Options that vest
1,000,000 5,000
1,250,000 10,000
1,500,000 15,000
1,750,000 20,000
2,000,000 27,500
2,250,000 35,000
2,500,000 45,000
(4) During 1996, the Company paid-off the outstanding working capital line
of credit. As a result, the bank returned the certificates of deposit
to Mr. Mackinnon.
(5) Mr. Mackinnon received an annual car allowance from the Company of
approximately $1,675 during Fiscal 1994.
(6) On April 26, 1996, Mr. Mackinnon resigned as President and CEO. On July
25, 1996, Mr. Mackinnon resigned as Chairman of the Board and as a
Director.
(7) Dr. Bibby commenced employment with the Company in April 1996.
OPTION/SAR GRANTS IN FISCAL YEAR 1996
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS/
SECURITIES SAR'S
UNDERLYING GRANTED TO
OPTIONS/ EMPLOYEES EXERCISE OR
SAR'S IN FISCAL BASE PRICE EXPIRATION
NAME GRANTED YEAR ($/SH) DATE
(a) (b) (c) (d) (e)
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Malcolm M. Bibby 5,250 2% $4.00 Feb. 2006
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
Malcolm M. Bibby 6,000 2% $5.00 Mar 2006
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
Malcolm M. Bibby 42,000 14% $5.00 April 2006
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
Malcolm M. Bibby 65,500 22% $5.00 Nov. 2006
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
Gerald S. Eilberg 5,000 2% $5.00 July 2006
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
Larry Yeager 5,000 2% $5.00 July 2006
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
14
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
- --------------------------------------- -------------------- -------------------- -------------------- --------------------
NUMBER OF
UNEXERCISED
SECURITIES
UNDERLYING VALUE OF
OPTIONS/ UNEXERCISED
SARS IN-THE-MONEY
AT FY-END OPTIONS
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) ($)(1)
(a) (b) (c)
- --------------------------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Malcolm M. Bibby 0 $0 22,250/96,500 $0
President, CEO
- --------------------------------------- -------------------- -------------------- -------------------- --------------------
Norman Mackinnon 0 $0 15/0 $0
Former President
- --------------------------------------- -------------------- -------------------- -------------------- --------------------
Gerald S. Eilberg 0 $0 15/18,059 $0
Vice President Finance & Admin.
and CFO
- --------------------------------------- -------------------- -------------------- -------------------- --------------------
Larry F. Yeager 0 $0 15/16,848 $0
Vice President of Research &
Development
- --------------------------------------- -------------------- -------------------- -------------------- --------------------
</TABLE>
15
(1) In-the-Money options, are those options for which the fair market value
of the underlying shares of Common Stock is greater than the exercise
price of the option. As of December 29, 1996, Messrs. Bibby, Mackinnon,
Eilberg and Yeager had exercisable options to purchase 22,250, 15, 15,
and 15 shares of Common Stock, respectively, at share exercise prices
of $4.00 to $5.00. See "Security Ownership of Certain Beneficial Owners
and Management". The fair market value of the Company's Common Stock
underlying the options as of December 29, 1996 was $4.00 (National
Quotation Bureau closing bid price on December 29, 1996).
COMPENSATION OF DIRECTORS
During Fiscal 1996, the Company's Directors received an aggregate cash
compensation of $13,500 for their services as Directors. Messrs. Ward and Smart
received $5,500 respectively. Dr.. Bibby received $2,500 as a Director before
becoming President on April 26, 1996. As President, Dr. Bibby receives no
compensation for being a Director.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of December 29, 1996, certain
information concerning stock ownership of the Company by (i) each person who is
known by the Company to own beneficially 5% or more of the Company's voting
securities, (ii) each of the Company's Directors, and (iii) all Directors and
officers as a group. Except as otherwise indicated, the stockholders listed in
the table have sole voting and investment powers with respect to the shares
indicated. For purposes of this table, the Common Stock and the Series B
Convertible Preferred Stock (the "Preferred Stock") are treated as one class. As
of December 29, 1996, the Company had 1,251,925 shares of Common Stock
outstanding and 2,456 stockholders of record. In addition, the Company had 4,200
shares of Preferred Stock outstanding. Each share of Preferred Stock, which has
a face value of $1,000, is convertible into Common Stock at a variable rate
based upon
15
the stock price of the Company's Common Stock, not to exceed $6.00 per share nor
be lower than $4.00 per share. Based upon the closing bid price of the Company's
Common Stock on December 29, 1996, each share of Preferred Stock would be
convertible into 250 shares of Common Stock. Each holder of Preferred Stock is
entitled to the number of votes equal to the number of shares of Common Stock
into which such Preferred Stock is convertible. The Company has no other voting
securities.
<TABLE>
<CAPTION>
Number of Shares Percentage of Class(2)
Name and Address of Beneficial Owner(1) Beneficially Owned ----------------------
- --------------------------------------- ------------------
<S> <C> <C>
Dr. Malcolm M. Bibby(3).......................... 49,800 2.1%
William R. Smart................................. 2,500 *
John P. Ward(4).................................. 28,868 1.3%
Gerald S. Eilberg(5)............................. 8,031 *
Larry F. Yeager(6).............................. 13.429 *
RBB Bank AG(7).................................. 1,053,558 45.8%
Burgring 16
8010 Graz, Austria
Firstmark Corp................................. 118,692 5.2%
One Financial Place
222 Kennedy Memorial Drive
Waterville, Maine 04901
All Directors and Officers as a Group
(8 persons) (3)(4)(5)(6)(8).................. 113,575 4.9%
</TABLE>
* Less than 1%.
(1) The address for all of the named entities other than Firstmark Corp., and
RBB Bank is c/o National Datacomputer, Inc., 900 Middlesex Turnpike,
Bldg. 5, Billerica, Massachusetts 01821.
(2) Pursuant to the rules of the Securities and Exchange Commission, shares
of Common Stock that an individual or group has a right to acquire within
60 days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person shown in the
table. This table reflects the ownership of all shares of Common Stock
and the Series B Convertible Preferred Stock voting as a single class.
(3) Includes an aggregate of 22,250 shares of Common Stock underlying vested
options to purchase Common Stock.
(4) Includes 10,137 shares held by Mr. Ward's wife for which Mr. Ward
disclaims beneficial ownership.
(5) Includes 15 shares of Common Stock underlying vested options to purchase
Common Stock.
(6) Includes 15 shares of Common Stock underlying vested options to purchase
Common Stock.
(7) Includes an aggregate of 1,050,000 shares of Common Stock issuable upon
conversion of 4,200 shares of Series B Convertible Preferred Stock.
(8) Includes an aggregate of 22,280 shares of Common Stock underlying vested
options to purchase Common Stock held by three of the Corporation's
officers.
16
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In 1996, the Company retired the outstanding working capital line of
credit with Fleet bank. As a result, Fleet bank returned to Mr. Norman
Mackinnon, the Company former President, CEO and Chairman, certain certificates
of deposit that were held as collateral for the line of credit.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(A)(1) FINANCIAL STATEMENTS.
The financial statements required to be filed by Item 7 herewith are as
follows:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants F-1
Balance Sheets as of December 29, 1996 and
December 30, 1995 F-2
Statements of Operations for the years ended
December 29, 1996, December 30, 1995,
and December 31,1994 F-3
Statements of Stockholders' Equity (Deficit) for the years
ended December 29, 1996, December 30, 1995
and December 31, 1994 F-4
Statements of Cash Flows for the years ended
December 29, 1996, December 30, 1995
and December 31, 1994 F-5
Notes to Financial Statements F-6
</TABLE>
(A)(2) EXHIBITS.
(1) The following exhibits are filed herewith:
Exhibit
No. Title
--- -----
3a Certificate of Amendment of Certificate of Incorporation filed
by the Company with the Secretary of State of Delaware on
December 18, 1996 to increase the total number of authorized
shares of Common Stock of the Company from to 10,000,000 to
20,000,000 shares.
3b Certificate of Amendment of Certificate of Incorporation filed
by the Company with the Secretary of State of Delaware on
December 18, 1996 to effect a 1:4 reverse stock split in the
issued and outstanding shares of Common Stock of the Company.
11 Statement Re: Computation of Per Share Earnings.
27 Financial Data Schedule.
(2) The following exhibits to the Company's Current Report on
Form 8-K/A were filed with the Securities and Exchange Commission on September
18, 1996 and are incorporated by reference herein:
Exhibit
No. Title
--- -----
4c Form of Regulation S Offshore Subscription Agreement.
(3) The following exhibits to the Company's Current Report on
Form 8-K were filed with the Securities and Exchange Commission on September 16,
1996 and are incorporated by reference herein:
Exhibit
No. Title
--- -----
4a Statement of Designation of Series B Convertible Preferred
Stock filed by the Company with the Secretary of State of
Delaware on April 25, 1996.
4b Statement of Designation of Increase of Shares Designated as
Series B Convertible Preferred Stock filed by the Company with
Secretary of State of Delaware on June 27, 1996.
(4) The following exhibits to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1995 were filed with the
Securities and Exchange Commission on April 12, 1996 and are incorporated by
reference herein:
Exhibit
No. Title
--- -----
10 1995 Stock Option Plan.
(5) The following exhibits were filed with the Securities and
Exchange Commission on August 30, 1994 in connection with the Company's Special
Meeting of Stockholders and are incorporated by reference herein:
Exhibit
No. Title
--- -----
10 1994 Stock Option Plan.
(6) The following exhibits to the Company's Registration
Statement on Form S-1 (No. 33-13557) as filed with the Securities and Exchange
Commission on April 17, 1987 and declared effective on June 3, 1987 and are
incorporated by reference herein:
3.02 By-laws of the Company.
(B) REPORTS ON FORM 8-K.
During the last quarter of the period covered by this report, the
Company filed two reports on Form 8-K.
(1) The Company filed an Item 5 report of Other Events on Form
8-K on September 16, 1996 in connection with two completed private placements of
the Company. No financial statements were filed therewith.
(2) The Company amended its September 16, 1996 report on Form
8-K by filing a Form 8-K/A on September 18, 1996 to include an additional
exhibit. No financial statements were filed therewith.
(a)(2) EXHIBITS.
(i) The following exhibits are filed herewith:
Exhibit
No. Title
- ------- -----
3a Certificate of Amendment of Certificate of Incorporation filed
by the Company with the Secretary of State of Delaware on
December 18, 1996 to increase the total number of authorized
shares of Common Stock of the Company from 10,000,000 to
20,000,000 shares.
3b Certificate of Amendment of Certificate of Incorporation filed
by the Company with the Secretary of State of Delaware on
December 18, 1996 to effect a 1:4 reverse stock split in the
issued and outstanding shares of Common Stock of the Company.
3c Certificate of Incorporation of the Company, as amended.
4 Specimen Certificate of Common Stock, $.08 par value per
share, of the Company.
11 Statement Re: Computation of Per Share Earnings.
27 Financial Data Schedule
17
.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NATIONAL DATACOMPUTER, INC.
Date: March 28, 1997 By:/s/Malcolm M. Bibby
-------------------
Malcolm M. Bibby
President
In accordance with the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Capacity Date
- ---- -------- ----
<S> <C> <C>
/s/Malcolm M. Bibby Chairman of the Board, President and March 28, 1997
- ------------------- Principal Executive Officer
Malcolm M. Bibby
/s/ William R. Smart Director March 28, 1997
- --------------------
William R. Smart
/s/ John P. Ward Director March 28, 1997
- ----------------
John P. Ward
/s/Gerald S. Eilberg Chief Financial Officer March 28, 1997
- -------------------- (Principal financial and
Gerald S. Eilberg accounting officer)
</TABLE>
18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of National Datacomputer, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of National Datacomputer, Inc.
at December 29, 1996 and December 30, 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 29,
1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 14, 1997
F-1
NATIONAL DATACOMPUTER, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Unaudited
Pro Forma
December 29, December 30, December 29,
1996 1995 1996
(Note 11)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 722,285 $ 470 $ 2,196,868
Accounts receivable, net of allowance for doubtful accounts
of $98,174 and $89,445 at December 29, 1996 and December
30, 1995, respectively 621,037 1,198,894 621,037
Inventories 1,479,153 1,292,336 1,479,153
Other current assets 153,741 17,132 153,741
--------------- -------------- --------------
Total current assets 2,976,216 2,508,832 4,450,799
Property and equipment, net 234,530 145,853 234,530
--------------- -------------- --------------
$ 3,210,746 $ 2,654,685 $ 4,685,329
=============== ============== ==============
Liabilities and stockholders' equity (deficit)
Current Liabilities:
Current obligations under capital lease $ 21,424 $ 6,572 $ 21,424
Accounts payable 125,454 333,991 125,454
Accrued payroll and related taxes 171,104 287,736 171,104
Accrued professional fees 48,732 275,013 48,732
Accrued rent and utilities 54,429 125,984 54,429
Accrued expenses - other 274,423 418,100 274,423
Accrued interest on preferred stock (Note 7) 84,000 - 84,000
Deferred revenues, current portion 678,625 608,571 678,625
Deferred compensation 45,742 55,059 45,742
--------------- -------------- --------------
Total current liabilities 1,503,933 2,111,026 1,503,933
Long-term debt - 440,000 -
Convertible debt - - 250,000
Obligation under capital lease 114,828 2,970 114,828
Deferred revenues 75,143 267,540 75,143
--------------- -------------- --------------
1,693,904 2,821,536 1,943,904
--------------- -------------- --------------
Commitments (Note 8)
Stockholders' equity (deficit)
Preferred stock, Series A convertible, $0.001 par value; 20
shares authorized; 0 shares issued and outstanding at
December 29, 1996 and December 30, 1995 - - -
Preferred stock, Series B convertible $0.001 par value;
4,200 shares authorized; 4,200 and 0 shares issued and
outstanding at December 29, 1996 and December 30, 1995,
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; 0 shares issued and outstanding at
December 29, 1996 and December 30, 1995, and 900 issued
and outstanding (pro forma) (liquidating preference of
$900,000) - - 881,583
Preferred stock, Series D convertible $0.001 par value; 350
shares authorized; 0 shares issued and outstanding at
December 29, 1996 and December 30, 1995, and 350 issued
and outstanding (pro forma) (liquidating preference of
$350,000) - - 343,000
Common stock, $0.08 par value; 5,000,000 shares authorized;
1,251,925 and 1,169,436 shares issued and outstanding at
December 29, 1996 and December 30, 1995, respectively 100,154 93,555 100,154
Capital in excess of par value 9,755,957 9,438,978 9,755,957
Accumulated deficit (11,548,437) (9,297,847) (11,548,437)
Unamortized stock compensation (124,769) - (124,769)
Notes receivable - employees (351,269) (351,269) (351,269)
Preferred stock subscription receivable - (50,268) -
--------------- -------------- --------------
Total stockholders' equity (deficit) 1,516,842 (166,851) 2,741,425
--------------- -------------- --------------
$ 3,210,746 $ 2,654,685 $ 4,685,329
=============== ============== ==============
</TABLE>
The accompanying notes are an integral part
of these financial statements
F2
NATIONAL DATACOMPUTER, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended
December 29, December 30, December 31,
1996 1995 1994
<S> <C> <C> <C>
Revenues
Net product revenue $ 4,003,376 $ 5,189,426 $ 5,805,600
Service and other revenue 1,028,638 875,631 723,376
-------------------- ------------------- -------------------
5,032,014 6,065,057 6,528,976
Cost of sales and services 2,445,911 2,736,010 2,724,769
-------------------- ------------------- -------------------
2,586,103 3,329,047 3,804,207
-------------------- ------------------- -------------------
Operating expenses:
Research and development 1,302,678 1,245,310 957,878
Selling, general and administrative 3,333,966 3,251,970 2,362,253
-------------------- ------------------- -------------------
4,636,644 4,497,280 3,320,131
-------------------- ------------------- -------------------
Income (loss) from operations (2,050,541) (1,168,233) 484,076
Other income (expense):
Interest and other income 33,865 827 704
Interest expense (25,914) (72,343) (60,105)
-------------------- ------------------- -------------------
Net income (loss) $ (2,042,590) $ (1,239,749) $ 424,675
==================== =================== ===================
Calculation of net income (loss) per common
share and dilutive share equivalent:
Net income (loss) $ (2,042,590) $ (1,239,749) $ 424,675
Preferred stock preferences (Notes 2 and 7) (5,408,000) - -
-------------------- ------------------- -------------------
Net income (loss) attributable to
common stockholders $ (7,450,590) $ (1,239,749) $ 424,675
Net income (loss) common per share
and dilutive share equivalent $ (6.17) $ (1.43) $ 0.59
==================== =================== ===================
Weighted average shares and dilutive
share equivalents outstanding 1,207,442 869,835 725,870
==================== =================== ===================
</TABLE>
The accompanying notes are an integral part
of these financial statements
F3
NATIONAL DATACOMPUTER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Preferred Stock Series A Preferred Stock Series B Common Stock
----------------------------------------------------------------------------------------
Capital in
Net Issuance Net Issuance Par Excess
Shares Price Shares Price Shares Value of par value)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 - $ - - $ - 410,509 $ 32,841 $ 6,850,412
Net income
Exercise of common stock options 87,817 7,025 344,244
Issuance of preferred stock 15 759,591
--------- ------------- --------- ------------- ----------- ---------- -----------
Balance at December 31, 1994 15 759,591 - - 498,326 39,866 7,194,656
Net loss
Conversion of preferred stock (15) (759,591) 206,250 16,500 743,091
Issuance of common stock 464,860 37,189 1,501,231
--------- ------------- --------- ------------- ----------- ---------- -----------
Balance at December 30, 1995 - - - - 1,169,436 93,555 9,438,978
Net loss
Issuance of preferred stock 4,200 3,685,206
Interest on preferred stock (Note 7)
Issuance of common stock 33,969 2,717 40,900
Issuance of common stock under
consulting agreement 31,192 2,495 153,466
Amortization of stock compensation
Issuance of common stock
in satisfaction of accrued interest 17,328 1,387 122,613
Stock subscription receivable paid
--------- ------------- --------- ------------- ----------- ---------- -----------
Balance at December 29, 1996 - $ - 4,200 $ 3,685,206 1,251,925 $ 100,154 $9,755,957
========= ============= ========= ============= =========== ========== ===========
</TABLE>
NATIONAL DATACOMPUTER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)(CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Preferred
Notes Unamortized Stock Total
receivable Stock subscription Accumulated stockholders'
employees Compensation receivable deficit equity (deficit)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ - $ - $ - $(8,482,773) $(1,599,520)
Net income 424,675 424,675
Exercise of common stock
options (351,269) -
Issuance of preferred stock (50,268) 709,323
----------- ------------ ---------- ------------- -----------
Balance at December 31, 1994 (351,269) - (50,268) (8,058,098) (465,522)
Net loss (1,239,749) (1,239,749)
Conversion of preferred stock -
Issuance of common stock 1,538,420
----------- ------------ ---------- ------------- -----------
Balance at December 30, 1995 (351,269) - (50,268) (9,297,847) (166,851)
Net loss (2,042,590) (2,042,590)
Issuance of preferred stock 3,685,206
Interest on preferred stock (Note 7) (208,000) (208,000)
Issuance of common stock 43,617
Issuance of common stock under
consulting agreement (155,961) -
Amortization of stock compensation 31,192 31,192
Issuance of common stock
in satisfaction of accrued interest 124,000
Stock subscription receivable paid 50,268 50,268
- ------------------------------ ----------- ------------ ---------- ------------- -----------
Balance at December 29, 1996 $ (351,269) $ (124,769) $ - $(11,548,437) $1,516,842
=========== ============ ========== ============= ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements
F4
NATIONAL DATACOMPUTER, INC.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended
December 29, December 30, December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,042,590) $ (1,239,749) $ 424,675
Adjustments to reconcile net income (loss) to net
cash used for operating activities:
Depreciation and amortization 83,973 83,324 73,162
Amortization of stock compensation 31,192 - -
Gain on sale of property and equipment (1,780) - -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 577,857 (40,834) (949,412)
Increase in inventories (206,229) (197,168) (424,248)
(Increase) decrease in other current assets (136,609) (15,117) 545
Decrease in accounts payable (208,537) (321,268) (20,351)
(Decrease) increase in accrued expenses
and deferred compensation (567,462) (129,774) 263,548
(Decrease) increase in deferred revenues (122,343) 219,800 94,159
-------------- ------------- -------------
Net cash used for operating activities (2,592,528) (1,640,786) (537,922)
-------------- ------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (14,295) (35,476) (80,842)
Proceeds from sale of property and equipment 5,650 - -
-------------- ------------- -------------
Net cash used for investing activities (8,645) (35,476) (80,842)
-------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of issuance costs 3,685,206 - 709,323
Proceeds from preferred stock subscription receivable 50,268 -
Repayment of borrowings (440,000) - -
Payments of obligations under capital lease (16,103) (9,984) (24,712)
Proceeds from issuance of common stock,
net of issuance costs 43,617 1,538,420 -
-------------- ------------- -------------
Net cash provided by financing activities 3,322,988 1,528,436 684,611
-------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 721,815 (147,826) 65,847
Cash and cash equivalents at beginning of year 470 148,296 82,449
-------------- ------------- -------------
Cash and cash equivalents at end of year $ 722,285 $ 470 $ 148,296
============== ============= =============
Supplemental Cash Flow Information:
Cash paid for interest $ 33,613 $ 68,041 $ 54,054
Non-cash investing and financing activities:
Stock subscription receivable in connection with
Series A preferred offering - - 50,268
Notes receivable on exercise of common stock options - - 351,269
Accrued Interest on Series B preferred stock charged to
Accumulated deficit 84,000 - -
Purchase of property and equipment under capital lease 142,813 - 14,850
Demo equipment previously included in inventory
reclassified to fixed assets 19,412 17,779 52,586
Conversion of preferred stock into the Company's
common stock - 759,591 -
Common stock issued in satisfaction of interest on Series B
preferred stock 124,000 - -
</TABLE>
The accompanying notes are an integral part
of these financial statements
F5
- --------------------------------------------------------------------------------
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
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
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity date of three months or less to be cash equivalents. The
Company invests its excess cash in US Treasury securities, and
accordingly, these instruments are subject to minimal credit and market
risk. The investments are classified as held to maturity, and all mature
within ninety days of December 29, 1996. These investments have been
recorded at amortized cost, which approximates their fair market value. No
realized or unrealized gains or losses have been recognized.
REVENUE RECOGNITION
The Company recognizes revenue 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.
CONCENTRATION OF CREDIT RISK
The Company sells its products to customers in diverse industries
nationwide, particularly delivery based services such as bakeries and beer
distributors. The Company performs on-going credit evaluations of its
customers, provides credit on an unsecured basis, and maintains reserves
for potential credit losses. Such losses, in the aggregate, have not
exceeded management's expectations. Management does not believe that the
Company is subject to any unusual credit risk beyond the normal credit
risk attendant to operating its business.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over the
estimated useful lives of the assets principally using accelerated
methods. Leasehold improvements are amortized over the shorter of the
useful lives or the remaining terms of the related leases. Maintenance and
repair costs are expensed as incurred. Upon retirement or sale, the cost
of the asset disposed of and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in
income.
F-6
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
INCOME TAXES
The Company utilizes the asset and liability method as required by
Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes". This standard requires the recognition of
deferred taxes for the difference between the financial statement and tax
bases of assets and liabilities, utilizing current tax rates. Deferred tax
assets, net of valuation allowances, are recognized for deductible
temporary differences and operating loss and credit carryforwards.
Deferred tax expense (benefit) represents the change in the net deferred
tax asset or liability balance.
EARNINGS PER SHARE
Earnings (loss) per share is determined by dividing net income (loss),
after deducting certain amounts associated with the Company's preferred
stock, by the weighted average number of common shares and dilutive common
share equivalents outstanding during the year.
Interest payable to preferred stockholders, the fair value of inducements
to convert preferred stock into common stock, and any discounts implicit
in the conversion terms upon issuance of preferred stock (Note 7) are
deducted from (added to) net income (loss) to determine the amount of net
income (loss) available for common stockholders.
Common share equivalents consist of common stock which may be issuable
upon exercise of outstanding stock options and warrants and the conversion
of preferred stock (Notes 7 and 9). In 1996 and 1995, the assumed exercise
of stock options and warrants and the assumed conversion of preferred
stock is anti-dilutive, and accordingly, has not been reflected.
STOCK COMPENSATION
The Company's employee stock option plans are accounted for in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", ("APB 25"). In January 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, ("SFAS 123"),
"Accounting for Stock Based Compensation" for disclosure purpose only
(Note 7).
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 December 29, 1996 or December 31, 1995,
based upon management's estimates of realizability.
F-7
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingencies at December 29, 1996 and December 30, 1995,
and the reported results of operations during the three years in the
period ended December 29, 1996. Actual results could differ from those
estimates.
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 years ending after December 15,
1997. Management has not yet determined the impact of adoption of SFAS 128
on the Company's reported results of operations. 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:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 30,
1996 1995
--------------------- --------------------
<S> <C> <C>
Raw materials $ 351,860 $ 279,885
Work-in-process 592,741 535,316
Finished goods 534,552 477,135
--------------------- --------------------
Total $1,479,153 $1,292,336
===================== ====================
</TABLE>
F-8
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 29, DECEMBER 31,
(IN YEARS) 1996 1995
------------------ ------------------
<S> <C> <C> <C>
Production and engineering equipment 3-5 $ 746,921 $ 680,437
Furniture, fixtures and office equipment 5 622,112 514,196
Vehicles 5 - 11,994
Leasehold improvements Life of 23,021 23,021
lease
------------------ ------------------
1,392,054 1,229,648
Less - accumulated depreciation and amortization 1,157,524 1,083,795
------------------ ------------------
Total $ 234,530 $ 145,853
================== ==================
</TABLE>
Depreciation and amortization expense relating to property and equipment
was $83,973, $83,324 and $73,162 for the years ended December 29, 1996,
December 30, 1995 and December 31, 1994, respectively.
At December 29, 1996, office and engineering equipment under capital lease
totaled $142,813. Related accumulated amortization of equipment under
capital lease totaled $28,563 at December 29, 1996. There was no equipment
under capital lease at December 30, 1995.
5. LONG-TERM DEBT
On May 2, 1990, the Company entered into an agreement with a bank for a
150-day secured time note authorizing advances of up to $250,000 and
bearing interest at the prime rate plus 1% (9.5% at December 31, 1995).
The note was 100% collateralized by certificates of deposit provided by an
officer/stockholder (Note 9) and all the assets of the Company.
Prior to 1992 and during 1994, the note was amended to extend the maturity
date to June 1, 1994 and to June 30, 1995, respectively. During 1995, the
Company entered into an agreement which extended the maturity date of this
facility until June 30, 1997. On February 6, 1992 and March 4, 1994, the
authorized borrowing amount was increased to $450,000 and $500,000,
respectively. All increases in the borrowed amounts were fully
collateralized by certificates of deposit provided by the
officer/stockholder. At December 30, 1995, $440,000 was outstanding under
this line of credit. In April 1996, the Company repaid the line of
F-9
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
credit. As a result of this payment, the bank returned the certificates of
deposit, and terminated the officer/stockholder's obligation to personally
guarantee the line of credit.
6. INCOME TAXES
Deferred tax assets are comprised of the following at December 29, 1996
and December 30, 1995:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 30,
1996 1995
<S> <C> <C>
Net operating loss carryforwards $3,746,000 $2,823,000
Business tax credit carryforwards 286,000 286,000
Bad debt reserve 39,000 36,000
Inventory obsolescence and uniform capitalization 27,000 9,000
Depreciation 5,000 -
Accrued expenses 30,000 118,000
----------- -----------
Gross deferred tax asset 4,133,000 3,272,000
Deferred tax asset valuation allowance (4,133,000) (3,272,000)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
The Company's effective tax rate differs from the statutory U.S. federal
tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 29, DECEMBER 30, DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Statutory federal rate (34.0%) (34.0%) 34.0%
State taxes ( 6.0%) ( 6.0%) 6.0%
Non-deductible expenses 0.1% 3.2% 7.7%
Other (2.3%) - -
Valuation allowance on deferred tax assets 42.2% 36.8% (47.7%)
----------------- ---------------- -----------------
0.0% 0.0% 0.0%
================= ================ =================
</TABLE>
The Company has generated taxable losses from operations in each of the
past two years and has no taxable income available to offset the carryback
of net operating losses. In addition, although management's operating
plans anticipate taxable income in future periods, such plans make
significant assumptions which cannot be reasonably assured, including
continued development and market acceptance of new products and expansion
of the Company's customer base. Based upon the weight of all available
evidence, the Company has provided a full valuation allowance for deferred
tax assets since the realization of these future benefits is not
sufficiently assured (defined as a likelihood of slightly more than 50%)
as of December
F-10
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
29, 1996. As the Company achieves profitability, these deferred tax assets
would be available to offset future income tax liabilities and expense.
For the year ended December 31, 1994, $408,000 of net operating loss
carryforwards were utilized to offset taxes otherwise payable.
At December 29, 1996, the Company has net operating loss and tax credit
carryforwards for federal tax purposes of $10,417,000 and $286,000,
respectively, which expire in various years through 2011 and 2004,
respectively. The Company has state net operating loss carryforwards for
tax purposes of $3,410,000, which expire in various years through 2001.
Any significant change in ownership, as defined in the Internal Revenue
Code, may result in an annual limitation on the amount of the net
operating loss and credit carryforwards which could be utilized.
7. STOCKHOLDERS' EQUITY
STOCK OPTIONS
On December 31, 1986 and January 18, 1989, the Board of Directors approved
the 1986 Stock Option Plan ("the 1986 Plan") and the 1989 Stock Option
Plan ("the 1989 Plan"), respectively. The plans provide for the granting
of incentive stock options and non-qualified stock options to employees,
officers, directors and consultants. The exercise price for incentive
stock options granted may not be less than 100% of the fair market value
per share of the common stock on the date granted (110% for options
granted to holders of more than 10% of the voting stock of the Company).
The exercise price per share for non-qualified options may not be less
than the lesser of 50% of the fair market value per share of the common
stock on the date of grant or the book value per share of common stock as
of the end of the fiscal year immediately preceding the date of grant. The
term of options granted under the Plans cannot exceed ten years (five
years for options granted to holders of more than 10% of the voting stock
of the Company). On January 3, 1991, the Board of Directors approved an
increase in the aggregate number of shares which may be issued pursuant to
the 1989 Plan from 25,000 to 62,000.
On October 14, 1994, the shareholders of the Company approved the 1994
Stock Option Plan which provides for the issuance of incentive stock
options to employees. The exercise price for incentive stock options
granted may not be less than 100% of the fair market value per share of
the common stock on the date granted (110% for options granted to holders
of more than 10% of the voting stock of the Company). A maximum of 87,500
shares of common stock of the Company is reserved for issuance in
accordance with the term of the 1994 Plan.
On October 10, 1995, the Board of Directors authorized the 1995 Stock
Option Plan which provides for the issuance of incentive stock options to
employees. The term of the Plan are substantially similar to those of the
1994 Stock Option Plan. A maximum of 125,000 shares of common stock of the
Company is reserved for issuance in accordance with the term of the 1995
Plan.
F-11
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
As of December 29, 1996, an aggregate of 71,324 shares of common stock of
the Company are reserved for issuance in accordance with the term of the
Plans. Outstanding options are written generally with five to ten year
vesting periods, some with acceleration if certain profitability levels
are reached, and are fully exercisable by 2006.
Activity under the 1986, 1989, 1994 and 1995 Stock Option Plans during the
years ended December 29, 1996, December 30, 1995 and December 31, 1994 are
summarized as follows:
<TABLE>
<CAPTION>
December 29, 1996 December 30, 1995 December 31, 1994
Weighted Weighted Weighted
Average Average
Number of Average Exercise Number of Exercise
Options Exercise Number of Price Options Price
Price Options
--------- -------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 123,521 $ 4.19 107,375 $ 4.42 112,100 $ 5.51
Granted 292,650 4.94 33,110 4.00 91,400 4.02
Exercised - - - - (87,825) 5.02
Canceled (127,199) 4.49 (16,964) 5.26 (8,300) 8.52
-------------- ------- ------------- ------- ------------- -------
Outstanding at end of year 288,972 $ 4.82 123,521 $ 4.19 107,375 $ 4.42
============== ======= ============= ======= ============= =======
Exercisable at end of year 54,248 $ 4.64 24,370 $ 4.75 10,192 $ 7.29
============== ======= ============= ======= ============= =======
Weighted average fair value of
options granted during the period $ 4.94 $ 4.00
======= =======
</TABLE>
The following table summarizes information about stock options outstanding
at December 29, 1996:
<TABLE>
<CAPTION>
Weighted
Weighted average Weighted average exercise
remaining average Number of price of
Number contractual life, exercise options options
Range of exercise price Outstanding in years price exercisable exercisable
- ------------------------------- --------------- ---------------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
$ 4.00 62,422 7.44 $ 4.00 27,642 $ 4.00
$ 5.00 - $5.24 222,260 9.85 5.00 23,500 5.00
$ 6.00 - $6.40 3,652 5.60 6.38 2,531 6.39
$ 8.00 380 4.62 8.00 317 8.00
$20.00 258 3.32 20.00 258 20.00
--------- ---- ------- ------ -------
Total 288,972 9.26 $ 4.82 54,248 $ 4.64
========= ==== ======= ====== =======
</TABLE>
F-12
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
The Company did not recognize any compensation expense under APB No. 25
during the years ending December 29, 1996, December 30, 1995 and December
31, 1994.
Fair Value Disclosures
As discussed in Note 2, the Company has elected to adopt SFAS 123 through
disclosure only. Had compensation cost for the Company's option plans been
determined based on the fair value of the options at the grant dates, as
prescribed in SFAS 123, for options granted in 1996 and 1995, the
Company's net loss and net loss per share would have been as follows:
Year ended Year ended
December 29, December 30,
1996 1995
Net Loss:
As reported $2,042,590 $1,239,749
Pro forma $2,262,187 $1,260,038
Net Loss per share:
As reported $6.17 $1.43
Pro forma $6.35 $1.45
The fair value of each option grant under SFAS 123 was estimated on the
date of grant using the Black-Scholes option pricing model with the
following assumptions used for grants in 1996 and 1995, respectively:
I. Dividend yield of 0% for both periods.
II. Expected volatility of 250% and 395%.
III. Risk free interest rates of 6.93% for options granted during
the year ended December 29, 1996 and 5.81% - 6.87% for the year
ended December 30, 1995; and
IV. Weighted average expected option term of 10 years for both
periods.
The above pro forma disclosures reflect options granted during 1995 and
1996 only. Because additional options grants are expected to be made each
year, the above pro forma disclosures are not necessarily representative
of the pro forma effects on reported net income (loss) for future years.
F-13
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
COMMON STOCK
During 1996 and 1995, the Company issued a total of 8,333 and 464,860
shares of common stock, $.08 par value, respectively, in private
offerings. The proceeds from the offerings were $43,617 and $1,538,420,
respectively, net of expenses associated with the offerings.
In January 1996, the Company entered into an agreement with a consulting
firm, whereby the Company would compensate the firm for their services
through the issuance of 31,192 shares of the Company's common stock, $.08
par value. The value of these shares at the time of issuance was estimated
by management to be approximately $156,000, which is being amortized to
expense over the five year term of the agreement. Unamortized amounts are
presented as a reduction of stockholders' equity in the accompanying
balance sheet.
On October 4, 1996, the Board of Directors approved an increase in the
number of authorized shares of Common Stock to 5,000,000 shares.
SERIES A CONVERTIBLE PREFERRED STOCK
On March 1, 1994, the Board of Directors approved the designation of 20
shares of its unissued preferred stock, $.001 par value to be known as
Series A Convertible Preferred Stock. During 1994, 15 shares were sold for
net proceeds of $759,591. Each share of Series A Convertible Preferred
Stock was convertible at any time by the holder into 13,750 shares of
common stock. Each share of Series A Convertible Preferred Stock had the
same number of common stock votes as its conversion rights provided. The
Series A Convertible Preferred Stock had preference over the Common Stock
with respect to the payment of dividends and in the distribution of assets
in the event of liquidation. The amount of the dividends for each share of
Series A Convertible Preferred Stock was equal to the amount of the per
share dividend of common stock declared multiplied by the number of common
stock shares into which the Series A Convertible Preferred Stock was
convertible.
Upon liquidation of the Company, the holders of Series A Preferred Stock
had preference over common stockholders in liquidating distributions which
equaled the stated value of such shares of Series A Convertible Preferred
Stock, plus all dividends which had been accrued and were unpaid.
In addition to the dividend preference, the holders of Series A
Convertible Preferred Stock were entitled to receive dividends equal to
7.5% per annum of the original price paid by the stockholders from the
date of the original purchase through January 31, 1995. All such dividends
were waived by the preferred shareholders in consideration of having the
Company register their shares of common stock upon conversion of their
preferred shares. Subsequently, when the shares were not registered, the
Company also issued warrants to purchase Common Stock to these
shareholders (see "Issuance of Warrants" section of this Note).
F-14
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
During 1995, all 15 outstanding shares of the Company's Series A
Convertible Preferred Stock were converted into 206,250 shares of the
Company's common stock.
SERIES B CONVERTIBLE PREFERRED STOCK
On April 19, 1996, the Board of Directors approved the designation of
3,000 shares of the Company's unissued preferred stock, $.001 par value,
as Series B Convertible Preferred Stock. On June 23, 1996, the Board of
Directors approved the designation of an additional 1,200 shares of
preferred Stock as Series B Convertible Preferred Stock. During 1996,
4,200 shares were sold for net proceeds of approximately $3,685,200. Each
share of the Series B Convertible Preferred Stock has the same number of
common stock votes as its conversion rights provide.
Each share of the Series B Convertible Preferred Stock is convertible at
any time (subject to certain lock-up restrictions that expire over various
periods through November 1997) at the option of the holders into shares of
common stock pursuant to a ratio based upon the quoted market price of the
Company's common stock. The Series B Convertible Preferred Stock will
convert into a number of shares of common stock computed by dividing the
stated value of preferred stock to be converted by the average bid price
for the Company's common stock for the five days prior to the conversion,
discounting the average bid price by forty percent. However, in no event
will the conversion price exceed $6.00 or be lower than $4.00 per share.
If shares of Series B Convertible Preferred Stock are converted prior to
March 31, 1997, and the conversion price would have been below $4.00, the
Company will issue warrants to the Series B shareholders. The number of
additional warrants will be based upon the Company's operating results for
the one year period ended March 31, 1997, up to a maximum of 500,000
warrants. The warrants will have an exercise price of $4.00 per share,
will be immediately exercisable and will expire in March 2000.
The minimum conversion price of $4.00 will be eliminated if, at any time
prior to March 31, 1999, the Company's stockholders' equity, as reported
in any annual report filed on Form 10-KSB, or quarterly report on Form
10-QSB, is below $1,000,000. The Company can require conversion on the
above terms at any time after March 31, 1999. The Company has reserved
1,050,000 shares of common stock for issuance upon conversion of the
Series B Convertible Preferred Stock.
The estimated discount of $5,200,000 implicit in the conversion terms at
the dates of issuance of the Series B Convertible Preferred Stock, based
upon the quoted bid price for the Company's common stock on those dates,
has been included in the computation of net income (loss) per share (Note
2).
In addition, the Series B Convertible Preferred Stock has preference over
the common stock with respect to the payment of dividends and in the
distribution of assets in the event of liquidation. The amount of the
dividend for each share of Series B Convertible Preferred Stock, when and
if declared by the Company's Board of Directors, is equal to the amount of
F-15
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
the per share dividend of common stock declared multiplied by the number
of shares of common stock into which the Series B Convertible Preferred
Stock is then convertible.
In addition to the dividend preference, the holders of Series B
Convertible Preferred Stock shall receive interest equal to 8% per annum
of the stated value of such Series B Convertible Preferred Stock. Such
interest will accrue from the Original Issuance Date, and shall be payable
in cash or common stock, at the Company's option, on a quarterly basis,
commencing with the fiscal quarter ended June 30, 1996. Payment of
interest due with respect to those shares of Series B Convertible
Preferred Stock that remain issued and outstanding at the end of each of
the Company's fiscal quarter shall be made within 15 days after the filing
with the Securities and Exchange Commission of the applicable report.
During the year ended December 29, 1996, the Company incurred interest in
the amount of $208,000, which has been recorded as a charge to accumulated
deficit. Of this amount, $84,000 remains unpaid, and is included in
accrued interest at December 29, 1996.
Upon liquidation of the Company, the holders of Series B Preferred Stock
have preference over common stockholders to receive liquidating
distributions which equal the stated value of such shares of Series B
Convertible Preferred Stock, plus all dividends which have been accrued
and are unpaid.
In the event that the price of the Company's common stock, as reported by
the NASDAQ SmallCap Market or the National Association of Securities
Dealers Electronic Bulletin Board, equals or exceeds $20.00 per share for
a period of twenty consecutive trading days, after the lock-up
restrictions expire, the Company may redeem the Series B Convertible
Preferred Stock at a price of $1,000 per share.
REVERSE STOCK SPLIT
On October 4, 1996, the stockholders approved a 1:4 reverse stock split of
the Company's common stock ("the Reverse Split"). Accordingly, all shares,
per share amounts, conversion ratios, stock option and warrant data have
been restated to retroactively reflect the reverse split.
ISSUANCE OF WARRANTS
On January 17, 1996, the Company issued warrants to purchase 90,000 shares
of the Company's common stock at $5.24 per share to all of the former
holders of the Company's Series A Convertible Preferred Stock. These
warrants are exercisable immediately and expire after three years. These
warrants were issued in consideration of the conversion of the Series A
Convertible Preferred Stock. The fair value of these warrants was
estimated by management and determined to be materially consistent with
the amount of dividends waived by the holders of Series A Convertible
Preferred Stock.
In July 1996, the Company also issued warrants to purchase a total of
7,500 shares of the Company's common stock at $6.00 per share to two
unrelated parties. These warrants are exercisable immediately and expire
after three years. The value of these warrants at the time
F-16
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
of issuance has been estimated by management and determined not to be
material to the Company's financial position and results of operations.
CASHLESS OPTION EXERCISE PROGRAM
On March 1, 1994, the Board of Directors approved the 1994 cashless option
exercise program for all employees. The program allows employees to
purchase shares of common stock, payable with both recourse and
non-recourse long term promissory notes receivable. Under the above
program, employees purchased a total of 87,817 shares of common stock at a
price of $4.00 per share. The notes receivable, plus accrued interest, are
due in March 2004, and are presented as a reduction of stockholders'
equity in the accompanying balance sheets.
NON-PLAN OPTIONS
On March 1, 1994, the Company granted an option to purchase 12,500 shares
of the Company's common stock at $4.00 per share to a non-employee which
was not pursuant to any of the Company's stock option plans. The option
was excercisable after March 1, 1995.
8. COMMITMENTS
The Company leases its office facilities under an operating lease expiring
September 30, 1997. The lease contains an option for renewal and requires
the payment of taxes and other operating costs. At December 29, 1996,
future minimum rental payments under the operating lease amount to
$129,969, all payable during 1997. Rent expense totaled $167,080, $157,840
and $119,395 during the years ended December 29, 1996, December 30, 1995
and December 31, 1994, respectively.
The Company also leases certain equipment under capital leases expiring at
various dates through the year 2000. Future minimum lease payments under
non-cancelable capital leases, with initial remaining terms of one year or
more, consist of the following at December 29, 1996:
Year ending:
1997 $ 54,822
1998 50,866
1999 43,804
2000 25,049
-------------
Total minimum lease payments 174,541
Less: amount representing interest 38,289
=============
Present value $136,252
=============
9. RELATED PARTY TRANSACTIONS AND STOCK WARRANTS
The Company entered into an agreement with a bank for a time note (Note
5), which was fully secured by certificates of deposit owned by an
officer/stockholder. At December 30,
F-17
NATIONAL DACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
1995, the total collateral provided by the officer/stockholder was
$440,000. In consideration of this guarantee of indebtedness, the Company
issued 110,000 stock purchase warrants to the officer/stockholder. Each
warrant represents the right to purchase one share of the Company's common
stock at $4.00 per share. The warrants became excercisable after December
31, 1993.
In April 1996, the Company paid-off the note to the bank. As a result, the
bank returned the certificates of deposit to the officer/stockholder.
10. FINANCIAL INSTRUMENTS
The Company enters into various types of financial instruments in the
normal course of business. Fair values are estimated based on assumptions
concerning the amount and timing of estimated future cash flows and
assumed discount rates reflecting varying degrees of perceived risk.
Accordingly, the fair values may not represent actual values of the
financial instruments that could have been realized as of year end or that
will be realized in the future.
Fair values for cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses approximate their carrying values at December
29, 1996 and December 30, 1995.
11. SUBSEQUENT EVENTS
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 (Note
7). 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 $2.74 per share.
The unaudited pro forma balance sheet reflects the financial position of
the Company at December 29, 1996 as if the above transactions had taken
place on that date.
F-18
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
NATIONAL DATACOMPUTER, INC.
NATIONAL DATACOMPUTER, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting on July 25, 1996, all of the directors and at
a meeting on October 4, 1996, a majority of the stockholders of
NATIONAL DATACOMPUTER, INC. adopted the following resolution amending
of the Certificate of Incorporation of said Corporation.
RESOLVED: That the first paragraph of Article FOURTH of the
Company's Certificate of Incorporation be, and hereby
is, deleted in its entirety and the following be, and
hereby is, inserted in place thereof:
"FOURTH: The total number of shares of all
classes of stock which the Corporation shall have
authority to issue is twenty million fifty thousand
(20,050,000), of which twenty million (20,000,000)
shares are to be Common Stock, of the par value of
two cents ($.02) each, and fifty thousand (50,000)
shares are to be Preferred Stock, of the par value of
one tenth of one cent ($.001) each, of which twenty
(20) shares have been designated as Series A
Convertible Preferred Stock, of the par value of one
tenth of one cent ($.001) each, and four thousand two
hundred (4,200) shares have been designated as Series
B Convertible Preferred Stock, of the par value of
one tenth of one cent ($.001) each, amounting in the
aggregate to Four Hundred Thousand Fifty and 00/100
Dollars ($400,050.00)."
SECOND: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, the said NATIONAL DATACOMPUTER, INC. has caused its
corporate seal to be hereunto affixed and this Certificate of Amendment to be
signed by its President and Secretary this 13th day of December, 1996.
NATIONAL DATACOMPUTER, INC.
---------------------------------
Malcolm M. Bibby, Ph.D., President
- ----------------------------------
Malcolm M. Bibby, Ph.D., Secretary
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
NATIONAL DATACOMPUTER, INC.
NATIONAL DATACOMPUTER, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That at the Special Meeting in Lieu of Annual Meeting of
Stockholders held on October 4, 1996, a majority of the stockholders of
NATIONAL DATACOMPUTER, INC. adopted the following resolution to
authorize the amendment of the Certificate of Incorporation of said
Corporation.
RESOLVED: That the Board of Directors be, and hereby is,
authorized to execute, at its discretion, an
amendment to the Company's Certificate of
Incorporation to effect a reverse stock split in the
issued and outstanding shares of the Company's Common
Stock.
SECOND: That by unanimous written consent dated December 12, 1996, all
of the directors of NATIONAL DATACOMPUTER, INC. adopted the following
resolution to amend the Certificate of Incorporation of said
Corporation.
RESOLVED: That the first paragraph of Article FOURTH of the
Company's Certificate of Incorporation be, and hereby
is, deleted in its entirety and the following be, and
hereby is, inserted in place thereof:
"FOURTH: The total number of shares of all
classes of stock which the Corporation shall have
authority to issue is five million fifty thousand
(5,050,000), of which five million (5,000,000) shares
are to be Common Stock, of the par value of eight
cents ($.08) each, and fifty thousand (50,000) shares
are to be Preferred Stock, of the par value of one
tenth of one cent ($.001) each, of which twenty (20)
shares have been designated as Series A Convertible
Preferred Stock, of the par value of one tenth of one
cent ($.001) each, and four thousand two hundred
(4,200) shares have been designated as Series B
Convertible Preferred Stock, of the par
value of one tenth of one cent ($.001) each,
amounting in the aggregate to Four Hundred Thousand
Fifty and 00/100 Dollars ($400,050.00)."
FURTHER
RESOLVED: That at the effective time of this amendment, every
four (4) shares of Common Stock of the Corporation,
$.02 par value per share, outstanding immediately
prior to the effective time of this amendment shall
be converted into one (1) share of Common Stock of
the Corporation, $.08 par value per share. No
fractional shares of Common Stock or script
certificates shall be issued by reason of such
reverse stock split, but upon surrender of
certificates for such Common Stock by the holders
entitled to such fractional share interests, the
Corporation shall issue to such holders that number
of Shares of Common Stock, $.08 par value per share,
to which such holders are entitled, rounded to the
next highest whole number of shares to avoid
fractional shares. This amendment and the reverse
stock split effected hereby shall be effective on the
date that such amendment is filed with the Secretary
of State of the State of Delaware.
[THIS SPACE LEFT INTENTIONALLY BLANK]
EXHIBIT 11
National Datacomputer, Inc.
Statement re computation of net income (loss) per common share
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------
December 29, 1996 December 30, 1995 December 31, 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Income (loss), as reported $ (2,042,590) $ (1,239,719) $ 424,675
Preferred stock preference items:
Discount inherent in conversion terms of Series B convertible
preferred stock upon issuance (5,200,000) - -
Interest on Series B convertible preferred stock (208,000) - -
----------------- ----------------- -----------------
Total preferred stock preference items (5,408,000) - -
----------------- ----------------- -----------------
Net income (loss) attributable to common stockholders $ (7,450,590) $ (1,239,719) $ 424,675
================= ================= =================
Weighted average shares outstanding:
A. Shares attributable to common stock outstanding 1,207,442 3,253,957 1,908,413
B. Shares attributable to convertible preferred stock outstanding - 225,384 489,142
C. Shares attributable to common stock options and
warrants pursuant to APB 15, paragraph 38(a) - - 505,924
----------------- ----------------- -----------------
Weighted average shares outstanding 1,207,442 3,479,341 2,903,479
================= ================= =================
Net income (loss) per share $ (6.17) $ (0.36) $ 0.15
================= ================= =================
</TABLE>
Fully diluted weighted average shares outstanding are not materially different
from primary weighted average shares outstanding and has no effect on net income
(loss) for the periods presented. For the periods ended December 29, 1996 and
and December 30, 1995, shares attributable to common stock options and warrants
pursuant to APB 15, paragraph 38(a) have not been included in weighted average
shares outstanding, as their effect would be anti-dilutive. In addition, the
assumed conversion of the Series B Convertible Preferred Stock has also been
excluded from weighted average shares outstanding, as its effect would also be
anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
29, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-29-1996
<CASH> 722,285
<SECURITIES> 0
<RECEIVABLES> 719,211
<ALLOWANCES> 98,174
<INVENTORY> 1,479,153
<CURRENT-ASSETS> 2,976,216
<PP&E> 1,392,054
<DEPRECIATION> 1,157,524
<TOTAL-ASSETS> 3,210,746
<CURRENT-LIABILITIES> 1,503,933
<BONDS> 114,828
0
3,685,206
<COMMON> 100,154
<OTHER-SE> (2,268,518)
<TOTAL-LIABILITY-AND-EQUITY> 3,210,746
<SALES> 4,003,376
<TOTAL-REVENUES> 5,032,014
<CGS> 2,445,911
<TOTAL-COSTS> 2,445,911
<OTHER-EXPENSES> 4,636,644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,914
<INCOME-PRETAX> (2,042,590)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,042,590)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,042,590)
<EPS-PRIMARY> (6.17)
<EPS-DILUTED> 0
</TABLE>
