<PAGE> 1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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: MARCH 31, 1998
COMMISSION FILE NUMBER 0-15885
NATIONAL DATACOMPUTER, INC.
(Name of Small Business Issuer in its Charter)
DELAWARE 04-2942832
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification #)
900 Middlesex Turnpike, Bldg. 5
Billerica, Ma. 01821
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (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 March 31, 1998.
COMMON STOCK, $0.08 PAR VALUE 1,628,342
(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
March 31, 1998 (unaudited) and December 31,1997...............3
Statement of Operations
for the three months ended
March 31, 1998 and March 30, 1997 (unaudited).................4
Statement of Changes in
Stockholders' Equity for the three
months ended March 31, 1998 (unaudited).......................5
Statement of Cash Flows
for the three months ended
March 31, 1998 and March 30, 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............................................11
ITEM 2. Changes in Securities........................................11
ITEM 3. Defaults upon Senior Securities..............................11
ITEM 4. Submissions of Matters to a Vote of Security Holders.........11
ITEM 5. Other Information............................................11
ITEM 6. Exhibits and Reports on Form 8 - K...........................11
SIGNATURES............................................................12
<PAGE> 3
<TABLE>
<CAPTION>
NATIONAL DATACOMPUTER, INC.
BALANCE SHEET
- ------------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 650,152 $ 208,731
Accounts receivable, net of allowance for doubtful accounts 983,093 1,545,319
Inventories 1,576,734 1,298,979
Other current assets 76,196 59,800
--------------- ---------------
Total current assets 3,286,175 3,112,829
Fixed assets, net 230,799 259,512
--------------- ---------------
$ 3,516,974 $ 3,372,341
=============== ===============
Liabilities and stockholders' equity
Current Liabilities:
Convertible debt to related party $ 175,000 $ 75,000
Current obligations under capital lease 29,749 41,810
Accounts payable 358,836 349,807
Accrued payroll and related taxes 122,269 127,675
Accrued expenses - other 228,760 264,024
Accrued interest on preferred stock 205,500 102,750
Deferred revenues, current portion 609,163 470,125
Deferred compensation 39,205 45,214
--------------- ---------------
Total current liabilities 1,768,482 1,476,405
Convertible debt to related party - 158,730
Obligations under capital lease 70,617 70,617
Deferred revenues 38,143 38,143
--------------- ---------------
1,877,242 1,743,895
--------------- ---------------
Stockholders' equity
Preferred stock, Series A convertible, $0.001 par value; 20 shares
authorized; 0 shares issued and outstanding at March 31, 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 March 31, 1998 and
December 31, 1997, respectively (liquidating preference of $500,000) 273,880 -
Common stock, $0.08 par value; 5,000,000 shares authorized; 1,628,342 and 1,628,332
shares issued and outstanding at March 31, 1998 and December 31, 1997, respectively 130,268 130,267
Capital in excess of par value 10,478,158 10,310,761
Accumulated deficit (13,650,347) (13,165,753)
Unamortized stock compensation (85,173) (93,173)
Notes receivable - employees (351,269) (351,269)
------------- -------------
Total stockholders' equity 1,639,732 1,628,446
--------------- ---------------
$ 3,516,974 $ 3,372,341
=============== ===============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
Page 3
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<TABLE>
<CAPTION>
NATIONAL DATACOMPUTER, INC.
STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------
First Fiscal Quarter Ended
March 31, 1998 March 30, 1997
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues
Net product revenue $ 471,141 $ 1,243,464
Service and other revenue 430,612 291,974
----------------------- -----------------------
901,753 1,535,438
Cost of sales and services 574,262 821,625
----------------------- -----------------------
327,491 713,813
----------------------- -----------------------
Operating expenses:
Research and development 206,021 377,290
Selling, general and administrative 477,622 631,105
----------------------- -----------------------
683,643 1,008,395
----------------------- -----------------------
Loss from operations (356,152) (294,582)
Other income (expense):
Interest and other income 1,735
Interest expense (25,692) (5,481)
----------------------- -----------------------
Net loss $ (381,844) $ (298,328)
======================= =======================
Calculation of net loss per common share and dilutive share equivalent:
Net loss $ (381,844) $ (298,328)
Preferred stock preferences (363,351) (96,500)
----------------------- -----------------------
Net loss attributable to common stockholders $ (745,195) $ (394,828)
======================= =======================
Basic and diluted net loss per share $ (0.46) $ (0.32)
======================= =======================
Weighted average shares 1,628,332 1,251,925
======================= =======================
</TABLE>
The accompanying notes are an integral part
of these financial statements.
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<TABLE>
<CAPTION>
NATIONAL DATACOMPUTER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK SERIES B PREFERRED STOCK SERIES C PREFERRED STOCK SERIES D
---------------------------- ---------------------------- ----------------------------
NET ISSUANCE NET ISSUANCE NET ISSUANCE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <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
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
======= ============ ======= =========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
NATIONAL DATACOMPUTER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK SERIES E COMMON STOCK
---------------------------- -------------------------------------
CAPITAL IN NOTES
NET ISSUANCE PAR EXCESS RECEIVABLE
SHARES PRICE SHARES VALUE OF PAR VALUE EMPLOYEES
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 - 1,628,332 $130,267 $10,310,761 ($351,269)
Net loss
Issuance of preferred stock 500 273,880 214,000
Interest on preferred stock (Note 7)
Amortization of stock compensation
Amortization of discounted
conversion rate on Preferred
Stock (46,602)
Adjustment for fractional shares 10 1 (1)
------- ----------- ----------- ---------- ------------- -----------
Balance at March 31, 1998 500 $273,880 1,628,342 $130,268 $10,478,158 ($351,269)
======= =========== =========== ========== ============= ============
</TABLE>
<TABLE>
<CAPTION>
NATIONAL DATACOMPUTER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
- -----------------------------------------------------------------------------------------
UNAMORTIZED TOTAL
STOCK ACCUMULATED STOCKHOLDERS'
COMPENSATION DEFICIT EQUITY
<S> <C> <C> <C>
Balance at December 31, 1997 ($93,173) ($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 $8,000
Amortization of discounted
conversion rate on Preferred
Stock
Adjustment for fractional shares
----------- -------------- -----------
Balance at March 31, 1998 ($85,173) ($13,650,347 $1,639,732
=========== ============== ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
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<TABLE>
<CAPTION>
NATIONAL DATACOMPUTER, INC.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
- ---------------------------------------------------------------------------------------------------------------------------
March 31, 1998 March 30, 1997
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (381,844) $ (298,328)
Adjustments to reconcile net loss to net
cash provided by (used for) operating activities:
Depreciation and amortization 28,713 25,622
Amortization of stock compensation 8,000 7,799
Amortization of deferred debt issuance costs
and debt discount 18,789 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 562,226 (408,010)
(Increase) decrease in inventories (277,755) 26,319
Increase in other current assets (18,915) (23,492)
Increase in accounts payable 9,029 115,674
Decrease in accrued expenses
and deferred compensation (46,679) (152,201)
Increase in deferred revenues 139,038 47,267
----------------- -----------------
Net cash provided by (used for) operating activities 40,602 (659,350)
----------------- -----------------
Cash flows from investing activities:
Purchases of fixed assets - (10,242)
----------------- -----------------
Net cash used for investing activities - (10,242)
----------------- -----------------
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 (12,061) (10,414)
----------------- -----------------
Net cash provided by financing activities 400,819 1,464,169
----------------- -----------------
Net increase in cash and cash equivalents 441,421 794,577
Cash and cash equivalents at beginning of year 208,731 722,285
----------------- -----------------
Cash and cash equivalents at end of period $ 650,152 $ 1,516,862
================= =================
Supplemental Cash Flow Information:
Cash paid for interest $ 9,422 $ 5,416
Non-cash investing and financing activities:
Accrued Interest on preferred stock charged to
accumulated deficit 102,750 99,000
Purchase of property and equipment under capital lease - 7,720
The accompanying notes are an integral part
of these financial statements.
</TABLE>
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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 three months ended March 31, 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.
LOSS PER SHARE
Loss per share is determined by dividing net loss, after deducting
certain amounts associated with the Company's preferred stock, by the
weighted average number of common shares outstanding during the year.
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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 to determine the amount of net 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 March 31, 1998 or March 30,
1997.
<TABLE>
<CAPTION>
3. INVENTORIES
Inventories consist of the following: MARCH 31, DECEMBER 31,
1998 1997
----------------------- ----------------------
<S> <C> <C>
Raw Material $ 756,934 $ 623,593
Work-in-process 546,510 450,238
Finished goods 273,290 225,148
----------------------- ----------------------
Total $1,576,734 $1,298,979
======================= ======================
Inventories are stated at the lower of cost (first-in, first-out) or market.
</TABLE>
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.
Page 8
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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.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere herein.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH
30, 1997.
Total revenues in the first quarter of fiscal year 1998 were $901,753
compared to $1,535,438 in the prior comparable quarter, a decrease of 41%. The
decrease in revenue was attributable to a decrease in sales of units of the
Company's Datacomputers which decreased approximately 62% to $471,141 during the
three months ended March 31, 1998, from $1,243,464 during the prior comparable
quarter.
Service and other revenues for the current quarter were $430,612
compared to $291,974 for the previous comparable quarter, an increase of 47%.
The Company expects that service and other revenues will continue to rise as a
result of improved maintenance and pricing policies instituted.
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Cost of sales and services, as a percentage of net revenues, increased
to 64% during the three months ended March 31, 1998 from 54% during the prior
comparable period. The increase is primarily attributable to a higher percentage
of peripheral sales in the first three months of 1998 which carry a lower
margin.
Research and development expenses decreased to $206,021 in the first
three months of 1998, from $377,291 for the same period in 1997, a decrease of
approximately 45%. The decrease resulted primarily from a reduction in the
Company's product development staff due to the completion of the new
Datacomputer model DC4 which was introduced in the later part of 1997.
Selling, general and administrative expenses decreased to $477,622 in
the first three months of 1998 from $631,105 for the same period in 1997, a
decrease of approximately 24%. The lower level of costs resulted primarily from
the Company's ongoing programs of streamlining its operations and organizational
structure.
The Company's operating loss was $356,152 during the three months ended
March 31, 1998, compared to a loss from operations of $294,582 during the three
months ended March 30, 1997. The increased loss was primarily attributable to
the decrease in the Company's sales.
Interest expenses was $25,692 in the first three months of 1998,
compared to $5,481 in the first three months of 1997. This increase resulted
primarily from the amortization of approximately $16,000 to interest expense
related to the discount on the convertible debt obtained in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash balance of $650,152 at March 31, 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 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 also refinanced the $250,000 convertible debt by making a
principal payment of $75,000 and issuing a convertible note payable
for $175,000.
At March 31, 1998, the Company had cash of $650,152 and a current ratio
of 1.9:1. 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.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently involved in any material pending
litigation.
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K
(a) Exhibits
(11) Statement Re: Computation of Per Share Earnings.
(27) Financial Data Schedule.
(b) Form 8-K was filed on January 12, 1998 describing the
Company's change in fiscal year from the last Sunday in
December to December 31.
(c) Form 8-K was filed on February 18, 1998 describing sales of
equity securities pursuant to regulation S.
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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.
May 13, 1998 /s/ Malcolm M. Bibby
--------------------------------
Malcolm M. Bibby
President
May 13, 1998 /s/ Gerald S. Eilberg
--------------------------------
Gerald S. Eilberg
Vice President, Finance and
Administration
Chief Financial Officer
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EXHIBIT 11
National Datacomputer, Inc.
Statement recomputation of net income (loss) per common share
<TABLE>
<CAPTION>
--------------------- ---------------------
March 31, March 30,
1998 1997
--------------------- ---------------------
<S> <C> <C>
Net loss, as reported $ (381,844) $ (298,328)
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 (102,750) (96,500)
--------------------- ---------------------
Total preferred stock preference item (363,352) (96,500)
Net loss attributable to common stockholders $ (745,196) $ (394,828)
--------------------- ---------------------
Weighted average shares outstanding 1,628,332 1,251,925
===================== =====================
Net loss per share $ (0.46) $ (0.32)
===================== =====================
</TABLE>
Note: Due to the Company's net loss, no exercises of options or conversions
or preferred stock have been assumed, all such items would be
anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 650,152
<SECURITIES> 0
<RECEIVABLES> 1,091,695
<ALLOWANCES> (108,602)
<INVENTORY> 1,576,734
<CURRENT-ASSETS> 76,196
<PP&E> 1,550,013
<DEPRECIATION> (1,319,214)
<TOTAL-ASSETS> 3,516,974
<CURRENT-LIABILITIES> 1,768,482
<BONDS> 0
0
5,118,095
<COMMON> 130,268
<OTHER-SE> (3,608,631)
<TOTAL-LIABILITY-AND-EQUITY> 3,516,974
<SALES> 471,141
<TOTAL-REVENUES> 901,753
<CGS> 574,262
<TOTAL-COSTS> 574,262
<OTHER-EXPENSES> 683,643
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,692
<INCOME-PRETAX> (381,844)
<INCOME-TAX> 0
<INCOME-CONTINUING> (381,844)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (381,844)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> 0.00
</TABLE>
