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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2000
COMMISSION FILE NUMBER 0-15885
NATIONAL DATACOMPUTER, INC.
---------------------------
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 04-2942832
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION #)
INCORPORATION OR ORGANIZATION)
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 No X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 8, 2000.
COMMON STOCK, $0.08 PAR VALUE 4,945,383
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(Title of each class) (number of shares)
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<PAGE>
NATIONAL DATACOMPUTER, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
ITEM 1. FINANCIAL STATEMENTS:
Balance Sheets as of September 30, 2000 (unaudited)
and December 31, 1999........................................ 3
Unaudited Statements of Operations for the three and
nine months ended September 30, 2000 and September 30, 1999.. 4
Unaudited Statement of Stockholders' Equity
for the nine months ended September 30, 2000................. 5
Unaudited Statements of Cash Flows
for the nine months ended September 30, 2000 and
September 30, 1999........................................... 6
Unaudited 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
2
<PAGE>
<TABLE><CAPTION>
NATIONAL DATACOMPUTER, INC.
BALANCE SHEETS
-----------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,084,258 $ 664,917
Accounts receivable, net of allowance for doubtful accounts 528,575 1,116,509
Inventories 1,260,426 1,322,153
Other current assets 72,624 8,328
------------ ------------
Total current assets 2,945,883 3,111,907
Fixed assets, net 202,085 148,658
------------ ------------
$ 3,147,968 $ 3,260,565
============ ============
Liabilities and stockholders' equity
Current Liabilities:
Current obligations under capital lease $ 17,706 $ 28,134
Accounts payable 121,300 273,364
Accrued payroll and related taxes 109,886 89,134
Accrued expenses - other 123,759 156,968
Deferred revenues, current portion 487,602 503,356
------------ ------------
Total current liabilities 860,253 1,050,956
Obligations under capital lease 67,974 --
Deferred revenues -- 41,307
------------ ------------
928,227 1,092,263
------------ ------------
Stockholders' equity
Preferred stock, Series A convertible, $0.001 par value; 20 shares
authorized; 0 shares issued and outstanding at September 30, 2000 and December 31, 1999 -- --
Preferred stock, Series B convertible $0.001 par value; 4,200 shares
authorized; 2,400 and 4,200 issued and outstanding at September 30, 2000 and
December 31, 1999 respectively (liquidating preference of $2,400,000 and
$4,200,000 respectively) 2,105,832 3,685,206
Preferred stock, Series C convertible $0.001 par value; 900 shares
authorized, issued and outstanding (liquidating preference of $900,000) 834,370 834,370
Preferred stock, Series D convertible $0.001 par value; 350 shares
authorized, issued and outstanding (liquidating preference $350,000) 324,639 324,639
Preferred stock, Series E convertible $0.001 par value; 500 shares
authorized, issued and outstanding (liquidating preference $500,000) 273,880 273,880
Preferred stock, Series F convertible $0.001 par value; 175 shares
authorized, issued and outstanding (liquidating preference $175,000) 175,000 175,000
Common stock, $0.08 par value; 30,000,000 shares authorized; 4,945,382 and 3,540,477
shares issued and outstanding at September 30, 2000 and December 31, 1999, respectively 395,629 283,237
Capital in excess of par value 12,993,425 11,291,814
Accumulated deficit (14,526,592) (14,319,402)
Unamortized stock compensation (5,173) (29,173)
Notes receivable - employees (351,269) (351,269)
------------ ------------
Total stockholders' equity 2,219,741 2,168,302
------------ ------------
$ 3,147,968 $ 3,260,565
============ ============
</TABLE>
The accompanying notes are an integral part
of these unaudited intertim financial statements.
3
<PAGE>
<TABLE><CAPTION>
NATIONAL DATACOMPUTER, INC.
STATEMENTS OF OPERATIONS(UNAUDITED)
---------------------------------------------------------------------------------------------------------------
Third Fiscal Quarter Nine Months
Ended Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues
Net product revenue $ 665,870 $ 820,941 $ 2,347,156 $ 2,295,587
Service and other revenue 361,210 467,237 1,112,992 1,285,256
----------- ----------- ----------- -----------
1,027,080 1,288,178 3,460,148 3,580,843
Cost of sales and services 534,964 552,936 1,671,594 1,726,386
----------- ----------- ----------- -----------
492,116 735,242 1,788,554 1,854,457
----------- ----------- ----------- -----------
Operating expenses:
Research and development 159,180 196,808 491,620 680,099
Selling, general and administrative 456,253 426,717 1,273,881 1,215,946
----------- ----------- ----------- -----------
615,433 623,525 1,765,501 1,896,045
----------- ----------- ----------- -----------
Income (loss) from operations (123,317) 111,717 23,053 (41,588)
Other income (expense):
Interest income 2,605 -- 10,499 --
Other income -- 1,124 1,124
Interest expense (2,718) (1,597) (6,112) (6,580)
----------- ----------- ----------- -----------
Net income (loss) $ (123,430) $ 111,244 $ 27,440 $ (47,044)
=========== =========== =========== ===========
Calculation of net loss per
common share and dilutive share equivalents:
Net income (loss) $ (123,430) $ 111,244 $ 27,440 $ (47,044)
Preferred stock preferences (69,375) (124,125) (234,630) (371,500)
----------- ----------- ----------- -----------
Net loss attributable to common
shareholders $ (192,805) $ (12,881) $ (207,190) $ (418,544)
=========== =========== =========== ===========
Basic and diluted net loss per share $ (0.04) $ (0.00) $ (0.05) $ (0.16)
=========== =========== =========== ===========
Weighted average shares 4,794,069 2,985,842 4,480,563 2,600,596
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these unaudited interim financial statements
4
<PAGE>
<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, 1999 4,200 $ 3,685,206 900 $834,370 350 $324,639
Net income -- -- -- -- -- --
Conversion of preferred stock (1,800) (1,579,374) -- -- -- --
Interest on preferred stock -- -- -- -- -- --
Issuance of common stock
in satisfaction of accrued
interest -- -- -- -- -- --
Amortization of stock compensation -- -- -- -- -- --
------- ----------- ------ -------- ------ --------
Balance at March 31, 2000 2,400 $ 2,105,832 900 $834,370 350 $324,639
======= =========== ====== ======== ====== ========
Net income -- -- -- -- -- --
Interest on preferred stock -- -- -- -- -- --
Issuance of common stock
in satisfaction of accrued
interest -- -- -- -- -- --
Amortization of stock compensation -- -- -- -- -- --
------- ----------- ------ -------- ------ --------
Balance at June 30, 2000 2,400 $ 2,105,832 900 $834,370 350 $324,639
======= =========== ====== ======== ====== ========
Net income -- -- -- -- -- --
Interest on preferred stock -- -- -- -- -- --
Issuance of common stock
in satisfaction of accrued
interest -- -- -- -- -- --
Amortization of stock compensation -- -- -- -- -- --
------- ----------- ------ -------- ------ --------
Balance at September 30, 2000 2,400 $ 2,105,832 900 $834,370 350 $324,639
======= =========== ====== ======== ====== ========
</TABLE>
<PAGE>
<TABLE><CAPTION>
NATIONAL DATACOMPUTER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY(continued)
------------------------------------------------------------------------------------------
Preferred Stock Series E Preferred Stock Series F
------------------------ ------------------------
Net issuance Net issuance
Shares price Shares price
------ -------- ------ --------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 500 $273,880 175 $175,000
Net income -- -- -- --
Conversion of preferred stock -- -- -- --
Interest on preferred stock -- -- -- --
Issuance of common stock
in satisfaction of accrued
interest -- -- -- --
Amortization of stock compensation -- -- -- --
------ -------- ------ --------
Balance at March 31, 2000 500 $273,880 175 $175,000
====== ======== ====== ========
Net income -- -- -- --
Interest on preferred stock -- -- -- --
Issuance of common stock
in satisfaction of accrued
interest -- -- -- --
Amortization of stock compensation -- -- -- --
------ -------- ------ --------
Balance at June 30, 2000 500 $273,880 175 $175,000
====== ======== ====== ========
Net income -- -- -- --
Interest on preferred stock -- -- -- --
Issuance of common stock
in satisfaction of accrued
interest -- -- -- --
Amortization of stock compensation -- -- -- --
------ -------- ------ --------
Balance at September 30, 2000 500 $273,880 175 $175,000
====== ======== ====== ========
</TABLE>
<PAGE>
<TABLE><CAPTION>
NATIONAL DATACOMPUTER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY(continued)
----------------------------------------------------------------------------
Common Stock
--------------------------------------
Capital in
Par excess
Shares value of par value
--------- -------- -----------
<S> <C> <C> <C>
Balance at December 31, 1999 3,540,477 $283,237 $11,291,814
Net income -- -- --
Conversion of preferred stock 656,934 52,555 1,526,819
Interest on preferred stock -- -- --
Issuance of common stock
in satisfaction of accrued
interest 182,055 14,564 81,316
Amortization of stock compensation -- -- --
--------- -------- -----------
Balance at March 31, 2000 4,379,466 $350,356 $12,899,949
========= ======== ===========
Net income -- -- --
Interest on preferred stock -- -- --
Issuance of common stock
in satisfaction of accrued
interest 295,923 23,674 45,701
Amortization of stock compensation -- -- --
--------- -------- -----------
Balance at June 30, 2000 4,675,389 $374,030 $12,945,650
========= ======== ===========
Net income -- -- --
Interest on preferred stock -- -- --
Issuance of common stock
in satisfaction of accrued
interest 269,993 21,599 47,776
Amortization of stock compensation -- -- --
--------- -------- -----------
Balance at September 30, 2000 4,945,382 $395,629 $12,993,425
========= ======== ===========
</TABLE>
<PAGE>
<TABLE><CAPTION>
NATIONAL DATACOMPUTER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY(continued)
-------------------------------------------------------------------------------------------------
Notes Unamortized Total
receivable stock Accumulated stockholders'
empolyees compensation deficit equity
--------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 ($351,269) ($29,173) ($14,319,402) $ 2,168,302
Net income -- -- 104,287 $ 104,287
Conversion of preferred stock -- -- -- --
Interest on preferred stock -- -- (95,880) ($ 95,880)
Issuance of common stock
in satisfaction of accrued
interest -- -- -- $ 95,880
Amortization of stock compensation -- 8,000 -- $ 8,000
--------- -------- ------------ -----------
Balance at March 31, 2000 ($351,269) ($21,173) ($14,310,995) $ 2,280,589
========= ======== ============ ===========
Net income -- -- 46,583 $ 46,583
Interest on preferred stock -- -- (69,375) ($ 69,375)
Issuance of common stock
in satisfaction of accrued
interest -- -- -- $ 69,375
Amortization of stock compensation -- 8,000 -- $ 8,000
--------- -------- ------------ -----------
Balance at June 30, 2000 ($351,269) ($13,173) ($14,333,787) $ 2,335,172
========= ======== ============ ===========
Net income -- -- (123,430) ($ 123,430)
Interest on preferred stock -- -- (69,375) ($ 69,375)
Issuance of common stock
in satisfaction of accrued
interest -- -- -- $ 69,375
Amortization of stock compensation -- 8,000 -- $ 8,000
--------- -------- ------------ -----------
Balance at September 30, 2000 ($351,269) ($ 5,173) ($14,526,592) $ 2,219,741
========= ======== ============ ===========
</TABLE>
The accompanying notes are an integral part
of these unaudited interim financial statements
5
<PAGE>
<TABLE><CAPTION>
NATIONAL DATACOMPUTER, INC.
STATEMENTS OF CASH FLOWS(UNAUDITED)
----------------------------------------------------------------------------------------------------------------
Nine Months Ended
-----------------
September 30, 2000 September 30, 1999
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 27,440 $ (47,044)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 56,409 61,377
Gain on sale of fixed asset -- (1,124)
Amortization of stock compensation 24,000 24,000
Changes in assets and liabilities:
Decrease in accounts receivable 587,934 154,856
Decrease in inventories 61,727 100,167
Increase in other current assets (64,296) (5,200)
Decrease in accounts payable (152,064) (91,348)
Decrease in accrued expenses
and deferred compensation (12,457) (42,413)
(Decrease) increase in deferred revenues (57,061) 33,958
----------- -----------
Net cash provided by operating activities 471,632 187,229
----------- -----------
Cash flows from investing activities:
Purchases of fixed assets (30,430) (16,381)
Proceeds from sale of fixed asset -- 1,900
----------- -----------
Net cash used for investing activities (30,430) (14,481)
----------- -----------
Cash flows from financing activities:
Principal payment on obligations under capital lease (21,861) (32,951)
----------- -----------
Net cash used for financing activities (21,861) (32,951)
----------- -----------
Net increase in cash and cash equivalents 419,341 139,797
Cash and cash equivalents at beginning of year 664,917 491,174
----------- -----------
Cash and cash equivalents at end of period $ 1,084,258 $ 630,971
=========== ===========
Supplemental Cash Flow Information:
Cash paid for interest $ 6,112 $ 16,464
Non cash investing and financing activities:
Accrued interest on preferred stock charged to
accumulated deficit 234,630 315,250
Common stock issued in satisfaction of interest on
preferred stock 234,630 310,875
Purchase of property and equipment under capital lease 79,407 --
Issuance of common stock upon conversion of preferred stock 1,579,374 --
</TABLE>
The accompanying notes are an integral part
of these unaudited interim financial statements.
6
<PAGE>
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
National Datacomputer, Inc. (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 product and services
include data communications networks, application-specific software,
hand-held computers and related peripherals, associated training and
support services.
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, 1999 of National Datacomputer, Inc., as filed with the Securities and
Exchange Commission.
The balance sheet as of December 31, 1999, is derived from the audited
financial statements presented in the Company's Annual Report on Form
10-KSB for the year then ended.
INTERIM PERIODS
In the opinion of the Company, the accompanying unaudited interim
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, 2000 are not necessarily indicative of the results to be expected for
the full year.
REVENUE RECOGNITION
The Company recognizes revenues for products upon shipment at the time
of delivery to the customer, provided that the Company has no remaining
significant service obligations that are essential to the functionality of
the product delivered, collectibility is considered probable, and the fees
are fixed and determinable.
Revenue from installation and training is recognized upon completion of
the project. Service revenue is recognized ratably over the contractual
periods.
7
<PAGE>
RECLASSIFICATION
Certain amounts in 1999 have been reclassified to conform to the 2000
presentation.
LOSS PER SHARE
Net loss per share is computed under SFAS No. 128, "Earnings Per
Share." Basic net loss per share is computed by dividing net loss, after
deducting certain amounts associated with the Company's preferred stock,
by the weighted average number of common shares outstanding for the
period. Diluted net loss per share is computed using the weighted average
number of common shares outstanding and gives effect to all dilutive
common share equivalents outstanding during the period.
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 are subtracted from the net loss to determine the amount of net loss
attributable to common stockholders.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles accepted in the United States requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingencies at the
date of the financial statements, and the reported results of operations
during the reporting period. Actual results could differ from these
estimates.
3. INVENTORIES
Inventories consist of the following: SEPTEMBER 30, DECEMBER 31,
2000 1999
---------- ----------
Raw material $ 624,441 $ 701,198
Work-in-process 391,226 163,930
Finished goods 244,759 457,025
---------- ----------
Total $1,260,426 $1,322,153
========== ==========
Inventories are stated at the lower of cost (first-in, first-out) or
market.
8
<PAGE>
4. NEW ACCOUNTING PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" subsequently updated by SAB 101A and SAB 101B ("SAB 101"). SAB
101 summarizes certain of the SEC's view in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company is required to adopt SAB 101 no later than the fourth quarter of
fiscal 2000. The Company has conducted a preliminary evaluation of the
impact of SAB 101 on its results of operations and financial position. The
company believes the adoption of SAB 101 will have no significant impact
on its results of operations and financial position.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation--an interpretation of APB Opinion No. 25" ("FIN 44").
FIN 44 clarifies the application of APB Opinion No. 25 and among other
issues clarifies the following: the definition of an employee for purposes
of applying APB Opinion No. 25, the criteria for determining whether a
plan qualifies as a noncompensatory plan, the accounting consequence of
various modifications to the terms of previously fixed stock options or
awards, and the accounting for an exchange of stock compensation awards in
a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occurred after either
December 15, 1998 or January 12, 2000.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS 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 SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999.
Total revenues in the third quarter of fiscal year 2000 were $1,027,080
compared to $1,288,178 in the prior comparable quarter, a decrease of 20%. The
decrease in revenue was primarily attributable to software sales which provided
Y2K compliance for the Company's customers in the third quarter of fiscal 1999.
Cost of sales and services, as a percentage of net revenues, increased
in the third quarter of fiscal 2000 to 52% from 43% in the third quarter of the
prior fiscal year. The increased cost was primarily attributable to increased
software sales in the third quarter of 1999 which carry a lower cost.
9
<PAGE>
Research and development expenses as a percentage of net revenue
remained at 15% for the third quarter of fiscal 2000 and the third quarter of
the prior fiscal year. Actual research and development spending decreased by 19%
in absolute dollars to $159,180 in the third quarter of fiscal 2000, from
$196,808 for the same period in 1999. As previously stated in the Company's
10-KSB for the year ended December 31, 1999, the decrease in expenditures
reflects the Company's plan to concentrate on allocating a higher percentage of
its product development effort to enhance and refine existing hardware and
software products.
Selling, general and administrative expenses as a percentage of net
revenues for the third quarter of fiscal 2000 increased to 44% from 33% in the
third quarter of the prior fiscal year. Actual selling, general and
administrative spending increased by 7% in absolute dollars to $456,253 in the
third quarter of fiscal 2000, from $426,717 for the same period in 1999. The
higher level of costs resulted primarily from an increase in travel expenses,
combined with an increase of product-specific marketing programs.
The Company's operating loss was $123,317 for the third quarter of
fiscal 2000, compared to an operating income of $111,717 in the third quarter of
the prior fiscal year. The loss was primarily attributable to the decrease in
sales.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999.
The Company's total revenues for the nine months ended September 30,
2000 were $3,460,148 which represents a 3% decrease from total revenue of
$3,580,843 for the same period of the prior fiscal year. The decrease in revenue
was attributable to decrease in sales of units of the Company's ICAL Model 100R,
which experienced a decrease of 53%, offset by an increase in sales of units of
the Company's Datacomputers, which showed an increase of 14%.
The Company has been selling the ICAL to the inventory audit market for
the past 20 years, and as stated in the Company's 10-KSB for the year ended
December 31, 1999, the Company expects the sales of ICAL units to diminish due
to the current trends of increasing processing power, which has prompted some
ICAL's customers to migrate to more advanced products supplied by the Company.
The ICAL is sold principally to repeat 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'
investment, however the Company devotes relatively few resources to generate
additional sales of ICAL units above those demanded by past customers.
Cost of sales and services, as a percentage of net revenues was 48% for
the nine months ended September 30, 2000 and for the same period of the prior
fiscal year.
10
<PAGE>
Research and development expenses as a percentage of net revenues for
the nine months ended September 30, 2000 decreased to 14% from 19% for the same
period in the prior fiscal year. Actual research and development spending
decreased by 28% in absolute dollars to $491,620 in the nine months ended
September 30, 2000 from $680,099 for the same period in the prior fiscal year.
As previously stated in the Company's 10-KSB for the year ended December 31,
1999, the decrease in expenditures reflects the Company's plan to concentrate on
allocating a higher percentage of its product development effort to enhance and
refine existing hardware and software products.
Selling, general and administrative expenses as a percentage of net
revenue for the nine months ended September 30, 2000 increased to 37% from 34%
for the same period in the prior fiscal year. Actual selling, general and
administrative spending increased by 5% in absolute dollars to $1,273,881 in the
nine months ended September 30, 2000 from $1,215,946 for the same period in the
prior fiscal year. The higher level of costs resulted primarily from an increase
in travel expenses, professional fees, combined with an increase of
product-specific marketing programs.
The Company's operating income was $23,053 for the nine months ended
September 30, 2000, compared to an operating loss of $41,588 for the same period
in the prior fiscal year. The increased income was primarily attributable to the
decrease in research and development expenses as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 2000 and fiscal 1999, the
Company's net cash provided by operating activities was $471,631 and $187,229,
respectively. During the first nine months of fiscal 2000 and fiscal 1999, net
cash used for investing activities was $30,429 and $14,481, respectively. In the
first nine months of fiscal 2000 and fiscal 1999, net cash used by financing
activities was $21,861 and 32,951, respectively.
In the first nine months of fiscal 2000, the Company incurred interest
of $234,630 on its Series B, C, D and F Convertible Preferred Stock as compared
to $312,250 with respect to the Series B, C and D Convertible Preferred Stock in
the first nine months of fiscal 1999. In the first nine months of fiscal 2000,
the Company also issued Common Stock valued at $234,630 in satisfaction of
interest due on Series B, C, D and F Convertible Preferred Stock, as compared to
$312,250 with respect to the Series B, C and D in the first nine months of
fiscal 1999.
At September 30, 2000, the Company had cash of $1,084,258 and a current
ratio of 3.4:1. The cash balance at December 31, 1999 was $664,917. 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 fiscal 2000. 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
11
<PAGE>
additional capital or that the Company will be able to raise additional capital
on favorable terms, if at all.
NEW ACCOUNTING PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
subsequently updated by SAB 101A and SAB 101B ("SAB 101"). SAB 101 summarizes
certain of the SEC's view in applying generally accepted accounting principles
to revenue recognition in financial statements. The Company is required to adopt
SAB 101 no later than the fourth quarter of fiscal 2000. The Company has
conducted a preliminary evaluation of the impact of SAB 101 on its results of
operations and financial position. The company believes the adoption of SAB 101
will have no significant impact on its results of operations and financial
position.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of previously fixed stock options or awards, and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As reported in the Company's 10-QSB for the fiscal quarter ended March
31, 2000, the Company filed a complaint in Middlesex Superior Court for the
Commonwealth of Massachusetts against Infos International, Inc. and Infos Group,
Inc. (the "Defendants"). The Defendants have filed counterclaims. The action is
currently in discovery.
ITEM 2. CHANGES IN SECURITIES
On August 21, 2000, the Company issued an aggregate of 269,990 shares
of its Common Stock, par value $.08 per share (the "Shares"), to RBB Bank AG
("RBB Bank") in satisfaction of an aggregate interest payment due to RBB Bank of
$69,375, which interest was due pursuant to the terms of the Company's Series B,
C, D and F Convertible Preferred Stock that are currently issued, outstanding
and held by RBB Bank. No underwriters were involved in the transaction, and
there were no underwriting discounts or commissions. The Company relied upon
Section 4(2) of the Securities Act of 1933, as amended, because the transaction
did not involve any public offering by the Company.
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 (Loss).
(27) Financial Data Schedule.
(b) Reports on Form 8-K
No reports on form 8-K were filed during the period covered by this
report.
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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.
November 13, 2000 /s/ Malcolm M. Bibby
------------------------------------------
Malcolm M. Bibby
President
November 13, 2000 /s/ Gerald S. Eilberg
------------------------------------------
Gerald S. Eilberg
Vice President, Finance and Administration
Chief Financial Officer
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