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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1998
COMMISSION FILE NUMBER 0-15885
NATIONAL DATACOMPUTER, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C>
Delaware 04-2942832
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification #)
900 Middlesex Turnpike, Bldg. 5
Billerica, Ma. 01821
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number including area code (978)663-7677
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15 (d) of the Securities and Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
report(s), and (2) has been subject to such filing requirements for the past
ninety (90) days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of September 30, 1998.
COMMON STOCK, $0.08 PAR VALUE 2,070,167
(Title of each class) (number of shares)
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NATIONAL DATACOMPUTER, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements:
Balance Sheet as of
September 30, 1998 (unaudited) and December 31,1997.............3
Statement of Operations
Three and nine months ended
September 30, 1998 and September 28, 1997 (unaudited)...........4
Statement of Changes in
Stockholders' Equity for the nine
months ended September 30, 1998 (unaudited)....................5
Statement of Cash Flows
for the nine months ended
September 30, 1998 and September 28, 1997 (unaudited)...........6
Notes to Financial Statements....................................7
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations...........................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................13
Item 2. Changes in Securities...........................................13
Item 3. Defaults upon Senior Securities.................................13
Item 4. Submissions of Matters to a Vote of Security Holders............13
Item 5. Other Information...............................................13
Item 6. Exhibits and Reports on Form 8 - K..............................13
Signatures..................................................................14
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NATIONAL DATACOMPUTER, INC.
BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 457,254 $ 208,731
Accounts receivable, net of allowance for doubtful accounts 1,268,012 1,545,319
Inventories 1,439,658 1,298,979
Other current assets 134,618 59,800
------------ ------------
Total current assets 3,299,542 3,112,829
Fixed assets, net 205,018 259,512
------------ ------------
$ 3,504,560 $ 3,372,341
============ ============
Liabilities and stockholders' equity
Current Liabilities:
Convertible debt to related party $ -- $ 75,000
Current obligations under capital lease 11,525 41,810
Accounts payable 246,171 349,807
Accrued payroll and related taxes 108,534 127,675
Accrued expenses - other 231,608 264,024
Accrued interest on preferred stock 6,125 102,750
Deferred revenues, current portion 580,757 470,125
Deferred compensation 27,623 45,214
------------ ------------
Total current liabilities 1,212,343 1,476,405
Convertible debt to related party -- 158,730
Obligations under capital lease 70,617 70,617
Deferred revenues 38,143 38,143
------------ ------------
1,321,103 1,743,895
------------ ------------
Stockholders' equity
Preferred stock, Series A convertible, $0.001 par value; 20 shares
authorized; 0 shares issued and outstanding at September 30, 1998 and December 31, 1997 -- --
Preferred stock, Series B convertible $0.001 par value; 4,200 shares
authorized, issued and outstanding (liquidating preference of $4,200,000) 3,685,206 3,685,206
Preferred stock, Series C convertible $0.001 par value; 900 shares
authorized, issued and outstanding (liquidating preference of $900,000) 834,370 808,412
Preferred stock, Series D convertible $0.001 par value; 350 shares
authorized, issued and outstanding (liquidating preference $350,000) 324,639 303,995
Preferred stock, Series E convertible $0.001 par value; 500 shares
authorized; 500 and 0 shares issued and outstanding at September 30, 1998
and December 31, 1997, respectively (liquidating preference of $500,000) 273,880 --
Preferred stock, Series F convertible $0.001 par value; 175 shares
authorized; 175 and 0 shares issued and outstanding at September 30, 1998
and December 31, 1997, respectively (liquidating preference of $175,000) 175,000
Common stock, $0.08 par value; 5,000,000 shares authorized; 2,070,167 and
1,628,332 shares issued and outstanding at September 30, 1998 and
December 31, 1997, respectively 165,613 130,267
Capital in excess of par value 10,853,813 10,310,761
Accumulated deficit (13,708,622) (13,165,753)
Unamortized stock compensation (69,173) (93,173)
Notes receivable - employees (351,269) (351,269)
------------ ------------
Total stockholders' equity 2,183,457 1,628,446
------------ ------------
$ 3,504,560 $ 3,372,341
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
3
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NATIONAL DATACOMPUTER, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Third Fiscal Quarter Nine Months
Ended Ended
---------------------------- ----------------------------
September 30, September 28, September 30, September 28,
1998 1997 1998 1997
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Net product revenue $ 1,269,903 $ 1,249,933 $ 2,656,580 $ 3,368,967
Service and other revenue 402,416 273,931 1,250,994 880,128
----------- ----------- ----------- -----------
1,672,319 1,523,864 3,907,574 4,249,095
Cost of sales and services 749,642 885,708 2,006,832 2,427,500
----------- ----------- ----------- -----------
922,677 638,156 1,900,742 1,821,595
----------- ----------- ----------- -----------
Operating expenses:
Research and development 271,918 307,949 690,404 1,046,636
Selling, general and administrative 441,783 523,106 1,409,121 1,801,668
----------- ----------- ----------- -----------
713,701 831,055 2,099,525 2,848,304
----------- ----------- ----------- -----------
Income (loss) from operations 208,976 (192,899) (198,783) (1,026,709)
Other income (expense):
Interest income -- 6,619 1,056 13,252
Interest expense (5,221) (2,661) (36,892) (12,700)
----------- ----------- ----------- -----------
Net income (loss) $ 203,755 $ (188,941) $ (234,619) $(1,026,157)
=========== =========== =========== ===========
Calculation of net income (loss) per common
share and dilutive share equivalent:
Net income (loss) $ 203,755 $ (188,941) $ (234,619) $(1,026,157)
Preferred stock preferences (102,750) (102,750) (568,852) (302,000)
----------- ----------- ----------- -----------
Net income (loss) attributable to common
shareholders $ 101,005 $ (291,691) $ (803,471) $(1,328,157)
=========== =========== =========== ===========
Weighted average number of shares
outstanding
Basic 1,846,129 1,309,246 1,801,876 1,277,926
Diluted 2,700,378 1,309,246 1,801,876 1,277,926
Net income (loss) per share
Basic $ 0.05 $ (0.22) $ (0.45) $ (1.04)
=========== =========== =========== ===========
Diluted $ 0.04 $ (0.22) $ (0.45) $ (1.04)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements
4
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NATIONAL DATACOMPUTER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
SERIES B SERIES C SERIES D SERIES E
--------------------- --------------------- --------------------- ---------------------
NET ISSUANCE NET ISSUANCE NET ISSUANCE NET ISSUANCE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------ ------------ ------ ------------ ------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1997 4,200 $3,685,206 900 $808,412 350 $303,995 --
Net loss
Issuance of preferred
stock 500 273,880
Interest on preferred
stock (Note 7)
Amortization of stock
compensation
Amortization of discounted
conversion rate on
Preferred Stock 25,958 20,644
Adjustment for fractional
shares
----- ---------- --- -------- --- -------- --- --------
Balance at March 31, 1998 4,200 $3,685,206 900 $834,370 350 $324,639 500 $273,880
===== ========== === ======== === ======== === ========
Net loss
Issuance of preferred
stock
Interest on preferred
stock (Note 7)
Amortization of stock
compensation
Issuance of common stock
in satisfaction of accrued
interest
Adjustment for fractional
shares
----- ---------- --- -------- --- -------- --- --------
Balance at June 30, 1998 4,200 $3,685,206 900 $834,370 350 $324,639 500 $273,880
===== ========== === ======== === ======== === ========
Net income
Issuance of preferred stock
Interest on preferred stock
(Note 7)
Amortization of stock
compensation
Issuance of common stock
in satisfaction of accrued
interest
Adjustment for fractional
shares
----- ---------- --- -------- --- -------- --- --------
Balance at September
30, 1998 4,200 $3,685,206 900 $834,370 350 $324,639 500 $273,880
===== ========== === ======== === ======== === ========
</TABLE>
<TABLE>
<CAPTION>
PREFERRED STOCK
SERIES F COMMON STOCK
---------------------- ---------------------------------------
CAPITAL IN NOTES UNAMORTIZED
NET ISSUANCE PAR EXCESS RECEIVABLE STOCK
SHARES PRICE SHARES VALUE OF PAR VALUE EMPOLYEES COMPENSATION
------ ------------ ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1997 1,628,332 $130,267 $10,310,761 $(351,269) $(93,173)
Net loss
Issuance of preferred
stock 214,000
Interest on preferred
stock (Note 7)
Amortization of stock
compensation 8,000
Amortization of discounted
conversion rate on
Preferred Stock (46,602)
Adjustment for fractional
shares 10 1 (1)
--- -------- --------- -------- ----------- --------- --------
Balance at March 31, 1998 1,628,342 $130,268 $10,478,158 $(351,269) $(85,173)
=== ======== ========= ======== =========== ========= ========
Net loss
Issuance of preferred
stock
Interest on preferred
stock (Note 7)
Amortization of stock
compensation 8,000
Issuance of common stock
in satisfaction of accrued
interest 268,649 21,492 286,758
Adjustment for fractional
shares 3
--- -------- --------- -------- ----------- --------- --------
Balance at June 30, 1998 1,896,994 $151,760 $10,764,916 $(351,269) $(77,173)
=== ======== ========= ======== =========== ========= ========
Net income
Issuance of preferred stock 175 175,000
Interest on preferred stock
(Note 7)
Amortization of stock
compensation 8,000
Issuance of common stock
in satisfaction of accrued
interest 173,172 13,853 88,897
Adjustment for fractional
shares 1
--- -------- --------- -------- ----------- --------- --------
Balance at September
30, 1998 175 $175,000 2,070,167 $165,613 $10,853,813 $(351,269) $(69,173)
=== ======== ========= ======== =========== ========= ========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Balance at December
31, 1997 $(13,165,753) $1,628,446
Net loss (381,844) $ (381,844)
Issuance of preferred
stock $ 487,880
Interest on preferred
stock (Note 7) (102,750) $ (102,750)
Amortization of stock
compensation $ 8,000
Amortization of discounted
conversion rate on
Preferred Stock
Adjustment for fractional
shares
------------ ----------
Balance at March 31, 1998 $(13,650,347) $1,639,732
============ ==========
Net loss (56,530) $ (56,530)
Issuance of preferred
stock
Interest on preferred
stock (Note 7) (102,750) $ (102,750)
Amortization of stock
compensation $ 8,000
Issuance of common stock
in satisfaction of accrued
interest $ 308,250
Adjustment for fractional
shares
------------ ----------
Balance at June 30, 1998 $(13,809,627) $1,796,702
============ ==========
Net income 203,755 $ 203,755
Issuance of preferred stock $ 175,000
Interest on preferred stock
(Note 7) (102,750) $ (102,750)
Amortization of stock
compensation $ 8,000
Issuance of common stock
in satisfaction of accrued
interest $ 102,750
Adjustment for fractional
shares
------------ ----------
Balance at September
30, 1998 $(13,708,622) $2,183,457
============ ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements
5
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NATIONAL DATACOMPUTER, INC.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the nine months ended
September 30, 1998 September 28, 1997
(Unaudited) (Unaudited)
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (234,619) $(1,026,157)
Adjustments to reconcile net loss to net
cash provided by (used for) operating activities:
Depreciation and amortization 88,277 90,540
Amortization of stock compensation 24,000 23,596
Amortization of deferred debt issuance costs
and debt discount 18,789 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 277,307 (827,281)
Increase in inventories (140,679) (51,208)
(Increase) decrease in other current assets (77,337) 78,152
(Decrease) increase in accounts payable (103,636) 195,037
Decrease in accrued expenses
and deferred compensation (63,023) (172,667)
Increase (decrease) in deferred revenues 110,632 (248,330)
----------- -----------
Net cash used for operating activities (100,289) (1,938,318)
----------- -----------
Cash flows from investing activities:
Purchases of fixed assets (33,783) (139,359)
----------- -----------
Net cash used for investing activities (33,783) (139,359)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock and warrants,
net of issuance costs 487,880 1,224,583
Proceeds from issuance of convertible note to related party -- 250,000
Principal payment on convertible debt (75,000) --
Principal payments on obligations under capital lease (30,285) (29,568)
----------- -----------
Net cash provided by financing activities 382,595 1,445,015
----------- -----------
Net increase (decrease) in cash and cash equivalents 248,523 (632,662)
Cash and cash equivalents at beginning of year 208,731 722,285
----------- -----------
Cash and cash equivalents at end of period $ 457,254 $ 89,623
=========== ===========
Supplemental Cash Flow Information:
Cash paid for interest $ 18,102 $ 12,700
Non-cash investing and financing activities:
Conversion of promissory note into Series F Preferred Stock 175,000 --
Accrued Interest on preferred stock charged to
accumulated deficit 308,250 312,000
Purchase of property and equipment under capital lease -- 14,185
Common stock issued in satisfaction of interest on
preferred stock 411,000 289,500
</TABLE>
The accompanying notes are an integral part
of these financial statements.
6
<PAGE> 7
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Organization
National Datacomputer, Inc. (the "Company") designs, develops,
manufactures, markets and services a line of hand-held battery powered
microprocessor-based data collection products and computers and associated
peripherals for use in mobile operations.
2. Summary of Significant Accounting Policies
Basis of presentation
The accompanying unaudited financial statements, which are for interim
periods, do not include all disclosures provided in the annual financial
statements. These unaudited financial statements should be read in
conjunction with the financial statements and the footnotes thereto
contained in the Annual Report on Form 10-KSB for the year ended December
31, 1997 of National Datacomputer, Inc., as filed with the Securities and
Exchange Commission.
Interim Periods
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (which are of a normal and recurring
nature) necessary for a fair presentation of the financial statements. The
results of operations for the nine months ended September 30, 1998 are not
necessarily indicative of the results to be expected for the full year.
Revenue Recognition
The Company recognizes revenues for products upon shipment. Revenue
from installation and training is recognized upon completion of the
project. Service revenue is recognized ratably over the contractual
periods.
Earnings per share
Income per share is determined by dividing net income, after deducting
certain amounts associated with the Company's preferred stock, by the
weighted average number of common shares outstanding during the year.
7
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Interest payable to preferred stockholders, the fair value of
inducements to convert preferred stock into common stock, and any discount
implicit in the conversion terms upon issuance of preferred stock are
added to the net loss or deducted from the net income to determine the
amount of net income (loss) attributable to common stockholders.
Research and Development and Computer Software Development Costs
Research and development costs, other than software development costs,
have been charged to operations as incurred. SFAS 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 September 30, 1998 or December
31, 1997.
3. Inventories
<TABLE>
<CAPTION>
Inventories consist of the SEPTEMBER 30, DECEMBER 31,
following: 1998 1997
------------- ------------
<S> <C> <C>
Raw material $ 691,128 $ 623,593
Work-in-process 498,998 450,238
Finished goods 249,532 225,148
---------- ----------
Total $1,439,658 $1,298,979
========== ==========
</TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or
market.
4. Convertible Preferred Stock and Promissory Note
In March 1998, the Company designated and sold 500 shares of Series E
Convertible Preferred Stock with a warrant to purchase up to 700,000 shares of
common stock at an exercise price of $.75 per share, for net proceeds of
$487,880. The warrant expires in March 2000. The Series E Convertible Preferred
Stock was sold to the same stockholder of the previously issued Series B, Series
C and Series D Convertible Preferred Stock. The proceeds of this financing were
allocated to the preferred shares and warrant based on an estimate of their fair
values. This resulted in $214,000 being ascribed to the warrant which was
recorded as additional paid-in-capital and $273,880 being recorded as preferred
stock. Series E Convertible Preferred Stock has voting rights, dividend
preference, liquidation preference, mandatory conversion and Company redemption
terms similar to the Company's existing Series B, Series C and Series D
Convertible Preferred Stock. The Subscription Agreement for Series E Convertible
Preferred Stock offers anti-dilution protection to its shareholders. Series E
Convertible Preferred Stock is convertible into shares of common stock at a
conversion price of $.75.
8
<PAGE> 9
The Company, in conjunction with the issuance of the Series E Convertible
Preferred Stock, canceled its previously issued warrants to purchase 700,000
shares of common stock for $4.00 per share. Additionally, the Company changed
the conversion price on the Series B and Series C Convertible Preferred Stock to
$2.74 and offered anti-dilution protection to these shareholders. In addition,
the shareholder of the Series E Convertible Preferred Stock agreed to place into
escrow 2,100 shares of the Series B Convertible Preferred Stock that is also
owned by this shareholder. The Company may at its option and at any time through
January 31, 2000 redeem the escrowed shares of Series B Convertible Preferred
Stock, which has a face value of $1,000 per share, at a price of $1,250 per
share.
Also in March 1998, the Company refinanced the $250,000 convertible debt
by making a principal payment of $75,000 and issuing a convertible note payable
for $175,000. The note bears interest at a rate of 6% per annum, matures in
March 1999, and is convertible into shares of the Company's common stock at a
conversion price equal to the average closing bid price for the Company's common
stock for the five days ending March 6, 1998. The note can be converted at the
option of the holder after January 1, 1999.
In September 28, 1998, the Company paid off the $175,000 promissory note
by issuing 175 shares of Series F Convertible Preferred Stock. The Series F
Convertible Preferred Stock will have a liquidation preference of $1,000 per
share plus all accrued dividends, and was issued to the same stockholder of the
previously issued Series B, Series C, Series D and Series E Convertible
Preferred Stock.
The Series F Preferred Convertible Stock can be converted (a) at any time
after one year from date of issuance at $1.00 per share, or (b) at any time
after 18 months from the date of issuance at the lesser of $1.00 per share or,
if the Company's stock is selling for less than $1.00 per share for ten
consecutive trading days, at 70% of the average closing bid price for the
Company's Common Stock for the ten consecutive trading days preceding the date
of notice of conversion (but in any event not to exceed 20% of the Company's
issued and outstanding common stock on the date of issuance of the Series F
Preferred). Holders of the Series F Convertible Preferred Stock are entitled to
receive interest at a rate of 6% per annum on the stated value of the preferred
stock.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere herein.
9
<PAGE> 10
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 28, 1997.
Total revenue during the three months ended September 30, 1998 was
$1,672,319, an increase of 10%, compared to total revenue of $1,523,864 during
the prior comparable quarter. Revenue from product sales increased by 2% to
$1,269,903 during the three months ended September 30, 1998, compared to
$1,249,933 during the prior comparable quarter. The current quarter included a
sale of approximately $840,000 from one major customer compared to a sale of
approximately $916,000 from two major customers during the prior comparable
quarter.
Service and other revenue increased by 47% to $402,416 during the three
months ended September 30, 1998, compared to $273,931 during the prior
comparable quarter. The Company expects that service and other revenues will
continue to rise as a result of improved maintenance and pricing policies
instituted.
Cost of sales and services, as a percentage of net revenues, decreased to
45% during the three months ended September 30, 1998 from 58% during the prior
comparable period. This decrease is primarily attributable to the increase in
service revenue, which carry a higher margin, and to the institution of the
Company's quality control programs, which led to fewer field support demands
and, thereby, lower field support costs.
Research and development expenses decreased to $271,918 in the third
quarter of 1998, from $307,949 for the same period in 1997, a decrease of
approximately 12%. The decrease resulted primarily from a reduction in the
Company's product development staff due in part to the completion of the
Datacomputer model DC4 which was introduced in the later part of 1997.
Selling, general and administrative expenses decreased to $441,783 in the
third quarter of 1998, from $523,106 for the same period in 1997, a decrease of
approximately 16%. The lower level of costs resulted primarily from the
Company's ongoing programs of streamlining its operations and organizational
structure.
As a result, the Company showed income of $203,755 during the three months
ended September 30, 1998, compared to a net loss of $188,941 during the three
months ended September 28, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 28, 1997.
The Company's total revenue for the nine months ended September 30, 1998
were $3,907,574 which represents an 8% decrease from total revenue of $4,249,095
for the same period of the prior fiscal year. The decrease in revenue was
attributable to a decrease
10
<PAGE> 11
in sales of units of the Company's Datacomputers which decreased 21% to
$2,656,580 during the nine months ended September 30, 1998 from $3,368,967
during the same period in the prior fiscal year.
Service and other revenue for the nine months ended September 30, 1998
were $1,250,994 compared to $880,128 for the same period of the prior fiscal
year, an increase of 42%. The Company expects that service and other revenues
will continue to rise as a result of improved maintenance and pricing policies
instituted.
Cost of sales and services as a percentage of revenues for the nine months
ended September 30, 1998 was 51% as compared to 57% for the same period of the
prior fiscal year. The improved gross margin resulted from the institution of
the Company's quality control programs, which improved the quality of the
Company's products and led to fewer field support demands and, thereby, lower
field support costs.
Research and development expenses for the nine months ended September 30,
1998 decreased to $690,404 as compared to $1,046,636 for the same period in
1997, a decrease of approximately 34%. The decrease resulted primarily from a
reduction in the Company's product development staff due to the completion of
the Datacomputer model DC4 which was introduced in the later part of 1997.
Selling, general and administrative expenses for the nine months ended
September 30, 1998 decreased to $1,409,121 as compared to $1,801,668 for the
same period in 1997, a decrease of approximately 22%. The lower level of costs
resulted primarily from the Company's ongoing programs of streamlining its
operations and organizational structure, combined with, higher legal and
professional fees in the six months of 1997 associated with the Company's filing
and listing on NASDAQ stock market.
Interest expenses was $36,892 in the first nine months of 1998, compared
to $12,700 for the same period of the prior fiscal year. This increase resulted
primarily from the amortization of approximately $23,000 to interest expense
related to the discount on the convertible debt obtained in 1997.
As a result, the Company's net loss for the nine months ended September
30, 1998 was $234,619 as compared to a net loss of $1,026,157 for the same
period of the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash balance of $457,254 at September 30, 1998 compared
to $208,731 at December 31, 1997. The increase in cash was due primarily to cash
generated from the sale of 500 shares of Series E Convertible Preferred Stock
with a warrant to
11
<PAGE> 12
purchase up to 700,000 shares of common stock at an exercise price of $.75 per
share, for net proceeds of $487,880.
The Company settled the $250,000 convertible debt by making a principal
payment of $75,000 and converting the remaining $175,000 into preferred stock by
issuing 175 shares of Series F Convertible Preferred Stock.
At September 30, 1998, the Company had a current ratio of 2.7:1. The
Company anticipates that available cash, together with cash flow from
anticipated operations, will be sufficient to meet its working capital needs for
the remainder of 1998. However, unanticipated adverse results of operations
could impact anticipated cash flows and, as a result, there can be no assurance
that the Company will not be required to raise additional capital or that the
Company will be able to raise additional capital on favorable terms, if at all.
The Letter of Intent "LOI" to merge signed by Infos International and
National Datacomputer, Inc. on February 17, 1998 and announced on February 20,
1998 has expired. Although there can be no guarantee, both companies intend to
resign an agreement and are currently in the process of negotiating the new LOI.
YEAR 2000 DISCLOSURE
The Company is currently using Solomon software for its financial
reporting and Micro-MRP for its manufacturing operation. Each software is being
represented as Year 2000 compliant by its producer. Other software used by the
Company is generally certified as being Year 2000 compliant by the vendor or is
not considered critical to the operation of the Company.
The Company is in the process of contacting its major suppliers in an
effort to determine the extent to which the Company may be vulnerable to those
parties' failure to timely correct their own Year 2000 problems. Based on the
results of this evaluation, the Company will seek new vendors when necessary.
The Company has conducted a systematic review of its products in operation
at customer locations. The Company is planning to make all the necessary
modifications in selected software versions that will be available to customers
for a yet to be determined fee. The Company funded its Fiscal 1998 expenditures
through its working capital and the Company expects that future operating cash
flows will fund future expenditures.
To date, the Company is unaware of any situations of noncompliance that
would materially adversely affect its operations or financial condition. There
can be no assurance, however, that instances of noncompliance which could have a
material adverse effect on the Company's operations or financial condition will
not be identified; that the systems of other companies with which the Company
transacts business will be corrected on a timely basis; or that a failure by
such entities to correct a Year 2000 problem or a correction which is
incompatible with the Company's information systems would not have a material
adverse effect on the Company's operations or financial condition.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K
(a) Exhibits
(11) Statement Re: Computation of Per Share Earnings.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter for which this Report is filed, the Company
filed (i) a Form 8-K dated August 28, 1998 to report the issuance of shares of
Common Stock pursuant to Regulation S, and (ii) a Form 8-K dated September 18,
1998 to report the issuance of shares of Common Stock pursuant to Regulation S.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL DATACOMPUTER, INC.
November 13, 1998 /s/ Malcolm M. Bibby
------------------------------------------
Malcolm M. Bibby
President
November 13, 1998 /s/ Gerald S. Eilberg
------------------------------------------
Gerald S. Eilberg
Vice President, Finance and Administration
Chief Financial Officer
14
<PAGE> 1
Exhibit
No. Title
------- -----
11 COMPUTATION OF PER SHARE EARNINGS
National Datacomputer, Inc.
Statement Re: Computation of net income (loss) per common share
<TABLE>
<CAPTION>
September 30, September 28,
1998 1997
------------- -------------
<S> <C> <C>
Net loss, as reported $ (234,619) $(1,026,157)
Preferred stock preference items:
Discount inherent in conversion
terms of Series C and D convertible
preferred stock upon issuance (46,602) --
Warrant (214,000) --
Interest on Series B, C and D
convertible preferred stock (308,250) (302,000)
----------- -----------
Total preferred stock preference item (568,852) (302,000)
Net loss attributable to common
stockholders $ (803,471) $(1,328,157)
----------- -----------
Weighted average shares outstanding 1,801,876 1,277,157
=========== ===========
Net loss per share $ (0.45) $ (1.04)
=========== ===========
</TABLE>
Note: Due to the Company's net loss, no exercises of options or conversions of
preferred stock have been assumed, because all such items would be
anti-dilutive.
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 457,254
<SECURITIES> 0
<RECEIVABLES> 1,369,626
<ALLOWANCES> (101,614)
<INVENTORY> 1,439,658
<CURRENT-ASSETS> 134,618
<PP&E> 1,583,796
<DEPRECIATION> (1,378,778)
<TOTAL-ASSETS> 3,504,560
<CURRENT-LIABILITIES> 1,212,343
<BONDS> 108,760
0
5,293,095
<COMMON> 165,613
<OTHER-SE> (3,275,251)
<TOTAL-LIABILITY-AND-EQUITY> 3,504,560
<SALES> 1,269,903
<TOTAL-REVENUES> 1,672,319
<CGS> 749,642
<TOTAL-COSTS> 749,642
<OTHER-EXPENSES> 713,701
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,221
<INCOME-PRETAX> 203,755
<INCOME-TAX> 0
<INCOME-CONTINUING> 203,755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203,755
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.04
</TABLE>
