National Datacomputer (NDCP) 10-Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from ____________ to ____________ .

Commission File Number 0-15885

NATIONAL DATACOMPUTER, INC.

(Exact name of registrant as specified in its charter)

Delaware	04-2942832
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

900 Middlesex Turnpike, Billerica, MA	01821
(Address of principal executive offices)	(Zip Code)

(978) 663-7677

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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    ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes    ¨    No    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨    Accelerated filer  ¨

Non-accelerated filer  ¨    (Do not check if a smaller reporting company)    Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  ¨    No  x

The number of shares of Common Stock outstanding at May 13, 2009 was 4,274,496.

NATIONAL DATACOMPUTER, INC.

INDEX

PART I.  FINANCIAL INFORMATION

		Page No.
Item 1.	Financial Statements:
	Balance Sheets as of March 31, 2009 and December 31, 2008	3
	Statements of Operations for the three months ended March 31, 2009 and 2008	4
	Statement of Stockholders’ Deficit for the three months ended March 31, 2009	5
	Statements of Cash Flows for the three months ended March 31, 2009 and 2008	6
	Notes to Financial Statements	7
Item 2.	Management’s Discussion and Analysis or Plan of Operation	10
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	16
Item 4.	Controls and Procedures	16
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults upon Senior Securities	17
Item 4.	Submissions of Matters to a Vote of Security Holders	17
Item 5.	Other Information	17
Item 6.	Exhibits	17
Signatures		18
Exhibit Index		19

2

NATIONAL DATACOMPUTER, INC.

BALANCE SHEETS

	March 31,			December 31,
	2009			2008
	(Unaudited)			(Audited)
Assets
Current Assets:
Cash	$	196,984		$	119,549
Accounts receivable, net of allowance for doubtful accounts of $3,000		207,429			114,874
Deferred hardware and software costs		17,424			634,603
Prepaid expenses		151,835			97,314
Total current assets		573,672			966,340
Property and equipment, net		31,709			38,926
Capitalized software development costs, net		1,956			3,036
Prepaid maintenance, net of current		101,971			109,257
Total Assets	$	709,308		$	1,117,559
Liabilities and Stockholders' Deficit:
Current Liabilities:
Current obligations under capital lease	$	19,346		$	20,310
Accounts payable		693,145			704,185
Customer deposits		3,589			2,045
Accrued payroll and related taxes		30,185			18,266
Other accrued expenses		33,039			44,979
Deferred revenues		424,395			1,194,049
Total current liabilities		1,203,699			1,983,834
Deferred revenues, net of current		451,938			102,434
Obligations under capital lease, net of current portion		1,523			6,323
Total Liabilities		1,657,160			2,092,591
Commitments and contingencies
Stockholders' Deficit:
Preferred stock, $0.001 par value; 3,333 shares authorized;
no shares issued or outstanding		—			—
Common stock, $0.001 par value; 6,000,000 shares authorized; 4,274,496 shares
issued and outstanding at March 31, 2009 and December 31, 2008.		4,275			4,275
Capital in excess of par value		15,973,560			15,971,797
Accumulated deficit		(16,925,687	)		(16,951,104	)
Total Stockholders' Deficit		(947,852	)		(975,032	)
Total Liabilities and Stockholders' Deficit	$	709,308		$	1,117,559

The accompanying notes are an integral part

of these financial statements.

3

NATIONAL DATACOMPUTER, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended
	March 31,			March 31,
	2009			2008
Revenues:
Product	$	885,358		$	139,271
Services		116,355			277,921
Total Revenues		1,001,713			417,192
Cost of revenues		749,785			239,109
Gross Profit		251,928			178,083
Operating expenses:
Selling and marketing		79,620			59,070
General and administrative		146,702			188,334
		226,322			247,404
Income (loss) from operations		25,606			(69,321	)
Other income (expense):
Interest income		148			2,424
Gain on currency exchange		844			1,691
Interest expense		(1,181	)		(2,347	)
Net income (loss)	$	25,417		$	(67,553	)
Basic and diluted net income (loss) per share	$	0.01		$	(0.03	)
Weighted average shares (basic and diluted)		4,274,496			2,378,628

The accompanying notes are an integral part

of these financial statements.

4

NATIONAL DATACOMPUTER, INC.

STATEMENT OF STOCKHOLDERS' DEFICIT

	Common Stock				Capital in					Total
			Par		excess		Accumulated			stockholders'
	Shares		value		of par value		deficit			deficit
Balance at December 31, 2008 (Audited)		4,274,496	$	4,275	$	15,971,797	$	(16,951,104	)	$	(975,032	)
Net income		—		—		—		25,417			25,417
Stock based compensation related to options granted		—		—		1,763		—			1,763
Balance at March 31, 2009 (Unaudited)		4,274,496	$	4,275	$	15,973,560	$	(16,925,687	)	$	(947,852	)

The accompanying notes are an integral part

of these financial statements.

5

NATIONAL DATACOMPUTER, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended
	March 31,			March 31,
	2009			2008
OPERATING ACTIVITIES:
Net income (loss)	$	25,417		$	(67,553	)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization		8,297			9,746
Stock based compensation related to options granted		1,763			1,736
Changes in assets and liabilities:
Increase in accounts receivable		(92,555	)		(131,628	)
Decrease in inventories		—			1,822
Decrease (increase) in deferred hardware and software costs		617,179			(293,784	)
Increase in prepaid expenses and other assets		(47,235	)		(225,821	)
Decrease in accounts payable		(11,040	)		(716,993	)
Increase in customer deposits		1,544			—
Decrease in accrued expenses		(21	)		(43,537	)
(Decrease) increase in deferred revenues		(420,150	)		1,454,420
Net cash provided by (used for) operating activities		83,199			(11,592	)
Cash flows from investing activities:
Purchases of property and equipment		—			(12,257	)
Net cash used for investing activities		—			(12,257	)
Cash flows from financing activities:
Principal payments on note payable		—			(5,862	)
Principal payments on obligations
under capital lease		(5,764	)		(6,464	)
Net cash used for financing activities		(5,764	)		(12,326	)
Net increase in cash		77,435			(36,175	)
Cash, beginning of period		119,549			257,019
Cash, end of period	$	196,984		$	220,844
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	1,181		$	2,347

The accompanying notes are an integral part

of these financial statements.

6

NATIONAL DATACOMPUTER, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

1.    Basis of presentation:

Company

National Datacomputer is engaged exclusively in providing solutions through the use of mobile information systems in the distribution market segment within the product supply chain. We design, market, sell and service computerized systems used to automate the collection, processing, and communication of information related to product sales and inventory control. Our products and services include application-specific software, data communication, handheld computers, related peripherals and accessories, as well as associated education and support.

General

The unaudited financial statements included herein have been presented pursuant to the rules of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosure required by accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. In the opinion of management, these statements include all adjustments, consisting only of normal, recurring adjustments necessary for a fair presentation of the financial position of National Datacomputer, Inc. (the “Company”) as of March 31, 2009, and the results of their operations and cash flows for the three months ended March 31, 2009 and 2008. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report for the year ended December 31, 2008, which are included in the Company’s Form 10-K filed on March 27, 2009. The year-end condensed balance sheet data was derived from audited financial statements.

Reverse Stock Split

On July 31, 2008, our Board of Directors approved a reverse stock split and established a ratio of 1-for-15. This move followed a vote at our Annual Shareholders’ Meeting on June 24, 2008, in which shareholders authorized the Board to effect the reverse stock split. Upon market open on July 31, 2008, our common stock began trading on a split-adjusted basis under the new trading symbol "NDCP.”

The number of shares of our authorized common stock was reduced from 50,000,000 shares as of July 30, 2008, to approximately 3,333,333 shares post-split. The number of shares reserved for issuance under our stock option plans was also reduced proportionately. As a result of the reverse stock split, every 15 shares of common stock that was issued and outstanding was automatically combined into one issued and outstanding share, without any change in the par value of such shares. No fractional shares were issued in connection with the reverse stock split. Stockholders who would be entitled to fractional shares will receive cash in lieu of receiving fractional shares. The reverse stock split affected all shares of common stock, stock options and warrants of NDI outstanding as of immediately prior to the effective time of the reverse stock split.

All shares of common stock have been adjusted to reflect a 1 for 15 reverse stock split which was effective July 31, 2008.

7

2.    Recent accounting pronouncements:

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS 157 prescribes a single definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The provisions of SFAS No. 157 with respect to nonfinancial assets and liabilities recorded fair value were effective for the Company in the first quarter of 2009.  The adoption of this standard had no effect on the Company as it does not have any nonfinancial assets or liabilities which are measured at fair value on a nonrecurring basis.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1. This FSP amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments not measured on the balance sheet at fair value in interim financial statements as well as in annual financial statements. Prior to this FSP, fair values for these assets and liabilities were only disclosed annually. This FSP applies to all financial instruments within the scope of SFAS 107 and requires all entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments. This FSP shall be effective for interim periods ending after June 15, 2009. This FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. We are currently evaluating the disclosure requirements of this new FSP.

3.    Share-based payments:

The Company accounts for share-based compensation according to the provisions of SFAS No. 123(R), “Share−based Payment”, which establishes accounting for equity instruments exchanged for employee services. Under SFAS 123(R), share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity grant). The majority of the Company’s share-based compensation arrangements vest over four years.

During the three months ended March 31, 2009 and 2008, share-based compensation expense amounted to $1,763 and $1,736.

The Company estimates the fair value of stock options using the Black-Scholes valuation model.  Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend rate.  The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options granted in the three months ended March 31, 2009.    Estimates of fair values are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

Stock options outstanding and related disclosures have been adjusted to reflect a 1 for 15 reverse stock split which was effective July 31, 2008.

8

There were no options granted during the three months ended March 31, 2009. The weighted average grant date fair value of options granted was $0.18 during the three months ended March 31, 2008. The fair value of options at date of grant was estimated using the Black-Scholes option-pricing model with the following assumptions:

	Three Months ended	Three Months ended
	March 31, 2009	March 31, 2008
Expected option term (1)	n/a	6.25 years
Expected volatility factor (2)	n/a	103.8%
Risk-free interest rate (3)	n/a	2.62%
Expected annual dividend rate	n/a	0%

(1)  The option life was determined using the simplified method for estimating expected option life, which qualifies as “plain-vanilla” options.

(2)  The stock volatility for each grant is determined based on the review of the experience of the weighted average of historical monthly price changes of the Company’s common stock over the most recent six years, which approximates the expected option life of the grant of 6.25 years.

(3)  The risk-free interest rate for periods equal to the expected term of the share option is based on the U.S. Treasury yield curve in effect at the time of grant.

Stock Option Plans

On January 1, 1998, the Board of Directors adopted the 1998 Stock Option Plan ("1998 Plan") which provides for issuance of non-qualified options to employees. As of March 31, 2009, there were options to purchase 1,332 shares of common stock outstanding and no shares available for grant under the 1998 Plan. These options are fully vested and expire in May 2009.

On March 30, 2007, the Board of Directors adopted the 2007 Employee, Director and Consultant Stock Option Plan ("2007 Plan") which provides for the issuance of both incentive and non-qualified stock options to employees, consultants and directors. A maximum of 133,333 shares of common stock of the Company was reserved for issuance in accordance with the terms of the 2007 Plan. On June 24, 2008, upon stockholders approval the maximum number of shares reserved for issuance under the 2007 Plan was increased to 200,000.

Upon the approval of the 2007 Plan, our 1997 Plan and our 1998 Plan terminated. All outstanding options under our 1997 and 1998 Stock Option Plans will remain in effect, but no additional option grants may be made. As of March 31, 2009, there were 88,331 options outstanding under the 2007 Plan and 108,333 shares available for grant under the 2007 Plan.

9

The following table summarizes information about stock options outstanding at March 31, 2009:

	Number of shares		Weighted average exercise price		Remaining contractual life in years		Aggregate intrinsic value
Outstanding at December 31, 2008		92,996	$	0.61		8.38	$	—
Granted		—
Exercised		—
Cancelled/forfeited		(3,333)		0.67
Outstanding at March 31, 2009		89,663		0.61		8.13	$	—
Options vested or expected to vest at March 31, 2009 (1)		79,944		0.63		8.12	$	—
Options exercisable at March 31, 2009		23,415		1.06		7.79	$	—

(1)  In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future.  Options expected to vest are calculated by applying an estimated forfeiture rate to the unvested options.

ITEM 2.    Management’s Discussion and Analysis or Plan of Operation.

The following discussion provides an analysis of the financial condition and results of operations of the Company and should be read in conjunction with the Unaudited Financial Statements and Notes thereto appearing elsewhere herein and our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2008.

The discussion below contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act that involve risks and uncertainties. We generally use words such as “believe,” “may,” “could,” “will,” “intend,” “expect,” “anticipate,” “plan,” and similar expressions to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in the Company’s filings with the Security and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2008, filed on March 27, 2009.

Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made, and we cannot assure you that our future results, levels of activity, performance or achievements will meet these expectations. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.

Summary

Our mission is to provide solutions through the use of mobile information systems in the distribution market segment within the product supply chain. We design, market, sell, and service computerized systems used to automate the collection, processing, and communication of information related to product sales and inventory control. Our products and services include application-specific software, data communication, handheld computers, related peripherals, and accessories, as well as associated education and support.

10

From the very beginning we designed our software solution based on the customer’s unique specifications. Our first entry into the market was a DOS-based Route Accounting software solution named RouteRider® which we developed in 1988. The RouteRider software, running on our first generation of rugged handheld Datacomputer® (“Datacomputer”) the DC3.0, was originally designed and built for an office coffee service company. Since that time multiple generations of Datacomputers (DC3X, DC4 and DC4CE) were designed and brought to market and our software application was improved customer by customer and market by market. To date we have provided dependable solutions for distribution markets such as baking, dairy, beer, soda, water, wine and spirits.

Although our Datacomputers running our original RouteRider software are still available for purchase, we have now channeled all of our experience into new portable and highly parameterized Route Accounting solution software named RouteRider LE®, (“RRLE”). RRLE is a mobile sales force automation application designed to increase efficiency, improve productivity and make companies more profitable and competitive by allowing sales and distribution personnel to gather, enter and share data at the point of work. It has been designed to run on the very latest industry standard Microsoft™ operating systems and architectures which increases our market potential by running on industry preferred operating systems and handheld devices.

Our goal continues to be a leading supplier in the route accounting system markets and in selected other market sectors which we may identify in the future. The key elements of this strategy include: (i) listening to our customers and prospects and then designing and building solutions that resolve their inventory and supply chain product problems; (ii) continuously updating our software solutions to remain current with customers' needs as well as existing technology; and (iii) hiring people with industry experience.

Results of Operations

Three months ended March 31, 2009 compared to three months ended March 31, 2008.

For the three months ended March 31, 2009, we reported a net income of $25,417 compared to a net loss of $67,553 for the three months ended March 31, 2008. The increased income was a direct result of higher revenues.

Revenue and Gross Profit

Total revenues increased 140% to $1,001,713 for the three months ended March 31, 2009 from $417,192 for the three months ended March 31, 2008. Total product revenues increased 536% to $885,358 for the three months ended March 31, 2009 from $139,271 for the comparable prior period. The increase was due from revenue recognized on a large sale of our new route software product, RRLE.

Total service revenues decreased 58% to $116,355 for the three months ended March 31, 2009 from $277,921 for the comparable prior period. The decrease is a direct result of lower maintenance and repair contracts for our Datacomputers, combined with lower professional service billings.

Gross profit was $251,928 or 25% of revenues for the three months ended March 31, 2009, compared to $178,083 or 43% of revenues for the prior comparable period.  The improved gross profit in absolute dollars was due to our increased sales and our continued effort towards reducing our expenses. The decreased profit as a percentage of revenues was due to sales during the three months ended March 31, 2008 which carried a higher profit.

11

Operating Expenses

Selling and marketing expenses for the three months ended March 31, 2009 were $79,620 compared to $59,070 for the prior comparable period, an increase of $20,550 or 35%.  The increase is due primarily to higher commission expenses as a result of higher revenue.

General and administrative expenses for the three months ended March 31, 2009 were $146,702 compared to $188,334 for the prior comparable period, a decrease of $41,632 or 22%. The decrease is a result of lower legal fees combined with lower occupancy cost related to our relocation to smaller quarters.

Liquidity and Capital Resources

We generated cash of $83,199 and used cash of $11,592 for operating activities for the three months ended March 31, 2009 and 2008, respectively. For the three months ended March 31, 2009, our principal operating cash was provided by a decrease in deferred hardware and software costs along with our income from operations. This was offset by a decrease in deferred revenues and an increase in accounts receivable. For the three months ended March 31, 2008, our principal operating cash was used to fund our loss from operations combined with a decrease in accounts payable, along with an increase in accounts receivable, deferred hardware and software cost and prepaid expenses, offset by an increase in deferred revenues related to new orders for RRLE scheduled for completion in early 2009.

We did not use any cash for investing activities from operation for the three months ended March 31, 2009. We used cash of $12,257 for investing activities from operations for the three months ended March 31, 2008. The cash was used for the purchase of capital equipment. As of March 31, 2009, we had no material commitments for capital expenditures.

We used cash of $5,764 and $12,326 for financing activities for the three months ended March 31, 2009 and 2008, respectively. During the three months ended March 31, 2009, we made payments on obligations under our capital leases. During the three months ended March 31, 2008, we made payments on obligations under our notes payable and capital leases.

We have an accumulated deficit of approximately $16,926,000 through March 31, 2009. As a result of our deficit and our cash position, the report of our independent registered public accounting firm relating to the financial statements as of and for  the year ended December 31, 2008 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. As of March 31, 2009, we had approximately $197,000 in cash and negative working capital of $630,000. In the event that we cannot generate sufficient cash for working capital, we may have to reduce our level of operations, which will make it more difficult for us to continue our business as a going concern.

We continue exploring all opportunities to improve our financial condition by pursuing potential revenues sources through increased marketing efforts. There is a possibility that we may not realize adequate revenues in the near future to meet cash flow requirements, and therefore might require us to implement further cost saving actions or attempt to obtain additional financing. We believe that based on our current revenue expectations, the expected timing of such revenues, and our current level of expenses we have sufficient cash to fund our operations through the end of 2009. There can be no assurance that such financing, if required, will be available on reasonable terms, if at all.

12

Commitments, Contractual Obligations and Off-Balance Sheet Arrangements

Our only off-balance sheet arrangements are non-cancelable operating leases entered into in the ordinary course of business, as discussed in our Annual Report on Form 10-K for the year ended December 31, 2008.

As of March 31, 2009, there are no material changes in our contractual obligations as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.

Concentration of Credit Risk

The Company sells its products to customers principally in the United States of America. During the first 3 months of 2009, one customer accounted for approximately 88% of our total revenues.

Critical Accounting Policies and Estimates

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Revenue Recognition.

We recognize product revenue in accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements”.  Revenue related to product sales is recognized upon shipment provided that title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, the sales price is fixed or determinable, collection of the related receivable is reasonably assured and customer acceptance criteria, if any, have been successfully demonstrated. Where the criteria cannot be demonstrated prior to shipment, or in the case of new products, revenue is deferred until acceptance has been received. Our sales contracts provide for the customer to accept title and risk of loss at the time of delivery of the product to a common carrier.

Our revenue arrangements sometimes involve multiple elements (i.e. products and services). Revenue under multiple arrangements is recognized in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables”.  Under this method, if an element is determined to be a separate unit of accounting, the revenue for the element is based on fair value and determined by verifiable objective evidence, and recognized at time of delivery. If the arrangement has an undelivered element, we ensure that we have objective and reliable evidence of the fair value of the undeliverable element. Fair value is determined based upon the price charged when the element is sold separately.  When products and services are sold together and fair values have been established, revenue related to the hardware is generally recognized when title and risk of loss have passed, and revenue related to services are recognized as the services are provided.  If fair values of the various elements have not been established, we defer all revenue until all elements have been delivered.

13

For revenue arrangements with multiple deliverables that include or represent software products and services as well as any non-software deliverables for with a software deliverable is essential to its functionality, we recognize revenue in accordance with the American Institute of Certified Public Accountants (“AICPA”)’s Statement of Position 97-2,  “Software Revenue Recognition”  (“SOP 97-2”). The application of SOP 97-2 requires judgment, including whether a software arrangement includes multiple elements, and if so, whether vendor-specific objective evidence (VSOE) of fair value exists, no significant obligations with regard to installation on implementation remain, and customer acceptance, when applicable, is obtained.  Our revenue arrangements may include hardware, software, services and maintenance.  If software is essential to the functionality of the hardware, we generally defer the recognition of revenue related to the hardware until the software revenue can be recognized.  If services are essential to the functionality of the software, revenue related to the services are also deferred until the software revenue can be recognized.  If the only undelivered element is maintenance for which VSOE of fair value can be established, revenue related to the software and the related elements is recognized upon customer acceptance of the software.  The maintenance will then be recognized ratably over the contract term.

Service revenue that is not essential to the functionality of a software product is recognized as the services are provided on a time and materials basis.

Hardware and software maintenance that is not sold as part of a multiple element arrangement is recognized ratably over the contract maintenance term.

Third party hardware and software costs that are incurred in direct connection to deferred hardware and software revenue are also deferred until recognition of the related revenue.

Accounts Receivable

The Company records trade receivables at their principal amount, adjusted for write-offs and allowances for uncollectible amounts.  The Company reviews its trade receivables monthly, and determines, based on management’s knowledge and the customer’s payment history, any write-off or allowance that may be necessary.  The Company follows the practice of writing off uncollectible amounts against the allowance provided for such accounts.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. We evaluate our inventories to determine excess or slow moving products based on quantities on hand, current orders and expected future demand. For those items in which we believe we have an excess supply or for those items that are obsolete, we estimate the net amount that we expect to realize from the sale of such products and record an allowance.

Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” we review the carrying values of our long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable.  Any long-lived assets held for disposal are reported at the lower of their carrying amounts or fair values less costs to sell.

14

Share-Based  Compensation

The Company accounts for share-based compensation according to the provisions of SFAS No. 123(R), “Share−based Payment”, which establishes accounting for equity instruments exchanged for employee services. Under SFAS 123(R), share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity grant). The majority of the Company’s share-based compensation arrangements vest over four years.

The Company estimates the fair value of stock options using the Black-Scholes valuation model.  Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend rate. Estimates of fair values are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

Capitalized Software Research and Development Costs.

Costs associated with the development of computer software are charged to operations prior to establishment of technological feasibility, as defined by Statement of Financial Accounting Standards (SFAS) No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”. Costs incurred subsequent to the establishment of technological feasibility and prior to the general release of the products are capitalized.

Capitalized software costs are amortized on a product-by-product basis. The annual amortization is the greater of the amount computed using (a) the ratio that current gross revenue for a product bears to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product. Amortization begins when the product is available for general release to the customer.

Recent accounting pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS 157 prescribes a single definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The provisions of SFAS No. 157 with respect to nonfinancial assets and liabilities recorded fair value were effective for the Company in the first quarter of 2009.  The adoption of this standard had no effect on the Company as it does not have any nonfinancial assets or liabilities which are measured at fair value on a nonrecurring basis.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1. This FSP amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments not measured on the balance sheet at fair value in interim financial statements as well as in annual financial statements. Prior to this FSP, fair values for these assets and liabilities were only disclosed annually. This FSP applies to all financial instruments within the scope of SFAS 107 and requires all entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments. This FSP shall be effective for interim periods ending after June 15, 2009. This FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. We are currently evaluating the disclosure requirements of this new FSP.

15

ITEM 3.    Quantitative and Qualitative Disclosures about Market Risk

No discussion is required pursuant to Form 10-Q Instruction to paragraph 305(c).

ITEM 4.    Controls and Procedures

a) Evaluation of Disclosure Controls and Procedures. We have conducted an evaluation under the supervision of the Chief Executive Officer and the Chief Accounting Officer (its principal executive officer and principal financial officers, respectively), regarding the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act of 1934) as of March 31, 2009. Based on the aforementioned evaluation, management has concluded that our disclosure control and procedures were not effective as of March 31, 2009 because of the existence of three material weaknesses in our internal control over financial reporting related to (i) our finance group’s inability to perform the testing of internal controls on financial reporting due to our limited number of personnel engaged in accounting and finance functions and a resulting lack in the segregation of duties, and (ii) the potential inability of our accounting staff to handle certain complex accounting issues. and (iii) as a result of the fact that our September 30, 2008 Form 10-Q was originally filed without a review having been performed by our Independent Registered Public Accounting Firm, our Independent Registered Public Accounting Firm has concluded that as of March 31, 2009 a material weakness existed related to our disclosure controls and procedures, specifically with regards disclosures and procedures mandated by Securities and Exchange Commission regulations.  Notwithstanding the existence of the material weaknesses described above, management has concluded that the consolidated financial statements in this Form 10-Q fairly presents, in all material respects, the Company’s financial position, results of operations and cash flows for the periods and dates presented.

(b)    Changes in Internal Control over Financial Reporting

No changes in our internal control over financial reporting occurred during the quarter ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

16

PART II - OTHER INFORMATION

Item 1.    Legal Proceedings

We are not a party to any legal proceedings.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

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

(a)  Exhibits

31.1                                Certification of the Chief Executive Officer

31.2                                Certification of the Chief Accounting Officer

32.1                                Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

17

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 22, 2009	/s/ William B. Berens
	William B. Berens
	President and Chief Executive Officer (principal executive officer)

		��
May 22, 2009	/s/ Bruna Bucacci
	Bruna Bucacci
	Chief Accounting Officer (principal financial and accounting officer)

18

EXHIBIT INDEX

Exhibit No. Title

31.1  Certification of the Chief Executive Officer.

31.2  Certification of the Chief Accounting Officer.

32.1  Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

19