National Datacomputer (NDCP) 10-Q 2009 Q2 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 June 30, 2009

OR

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

For the transition period fromto

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 August 13, 2009 was 4,774,496.

NATIONAL DATACOMPUTER, INC.

INDEX

PART I.  FINANCIAL INFORMATION

	Page No.
Item 1.   Financial Statements:
Balance Sheets as of June 30, 2009 and December 31, 2008	3
Statements of Operations for the three and six months ended June 30, 2009 and 2008	4
Statement of Stockholders’ Deficit for the six months ended June 30, 2009	5
Statements of Cash Flows for the six months ended June 30, 2009 and 2008	6
Notes to Financial Statements	7
Item 2.   Management’s Discussion and Analysis or Plan of Operation	11
Item 3.Quantitative and Qualitative Disclosures about Market Risk	15
Item 4.   Controls and Procedures	15
PART II. OTHER INFORMATION
Item 1.   Legal Proceedings	16
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.   Defaults upon Senior Securities	16
Item 4.   Submissions of Matters to a Vote of Security Holders	16
Item 5.   Other Information	16
Item 6.   Exhibits	16
Signatures	17
Exhibit Index	18

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NATIONAL DATACOMPUTER, INC.

BALANCE SHEETS

	June 30,			December 31,
	2009			2008
	(Unaudited)			(Audited)
Assets
Current Assets:
Cash	$	191,268		$	119,549
Accounts receivable, net of allowance for doubtful accounts of $3,000		10,369			114,874
Deferred hardware and software costs		47,130			634,603
Prepaid expenses		154,205			97,314
Total Current Assets		402,972			966,340
Property and equipment, net		26,924			38,926
Capitalized software development costs, net		9,966			3,036
Prepaid maintenance, net of current		84,017			109,257
Total Assets	$	523,879		$	1,117,559
Liabilities and Stockholders’ Deficit:
Current Liabilities:
Current obligations under capital lease	$	15,272		$	20,310
Accounts payable		688,332			704,185
Customer deposits		2,045			2,045
Accrued payroll and related taxes		41,074			18,266
Other accrued expenses		31,318			44,979
Deferred revenues		393,305			1,194,049
Total Current Liabilities		1,171,346			1,983,834
Deferred revenues, net of current		380,830			102,434
Obligations under capital lease, net of current portion		-			6,323
Total Liabilities		1,552,176			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; 4,774,496 and 4,274,496 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively		4,775			4,275
Capital in excess of par value		16,024,843			15,971,797
Accumulated deficit		(17,057,915	)		(16,951,104	)
Total Stockholders’ Deficit		(1,028,297	)		(975,032	)
Total Liabilities and Stockholders’ Deficit	$	523,879		$	1,117,559

The accompanying notes are an integral part

of these financial statements.

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NATIONAL DATACOMPUTER, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2009			2008			2009			2008
Revenues:
Product	$	21,321		$	847,631		$	906,679		$	986,902
Services		145,127			217,344			261,482			495,265
Total Revenues		166,448			1,064,975			1,168,161			1,482,167
Cost of revenues		121,245			773,840			871,030			1,012,949
Gross Profit		45,203			291,135			297,131			469,218
Operating expenses:
Selling and marketing		45,333			97,761			124,953			156,831
General and administrative		131,342			180,718			278,044			369,052
		176,675			278,479			402,997			525,883
Income (loss) from operations		(131,472	)		12,656			(105,866	)		(56,665	)
Other income (expense):
Interest income		175			94			323			2,518
Gain on currency exchange		—			293			844			1,984
Interest expense		(931	)		(2,636	)		(2,112	)		(4,983	)
Net income (loss)		(132,228	)		10,407			(106,811	)		(57,146	)
		(0.03	)		0.00			(0.02	)		(0.02	)
Basic and diluted net income (loss) per share	$	(0.03	)	$	0.00		$	(0.02	)	$	(0.02	)
Weighted average shares (basic and diluted)		4,384,386			2,382,829			4,329,441			2,382,829

The accompanying notes are an integral part

of these financial statements.

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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		—		—		—		(106,811	)		(106,811	)
Stock based compensation related to options granted		—		—		3,546		—			3,546
Net proceeds from sale of common stock		500,000		500		49,500		—			50,000
Balance at June 30, 2009 (Unaudited)		4,774,496	$	4,775	$	16,024,843	$	(17,057,915	)	$	(1,028,297	)

The accompanying notes are an integral part

of these financial statements.

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NATIONAL DATACOMPUTER, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
	June 30,			June 30,
	2009			2008
OPERATING ACTIVITIES:
Net loss	$	(106,811	)	$	(57,146	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation and amortization		16,683			20,543
Stock based compensation related to options granted		3,546			3,621
Changes in assets and liabilities:
Decrease (increase) in accounts receivable		104,505			(179,394	)
Decrease in inventories		—			2,099
Decrease in deferred hardware and software costs		587,473			133,722
Increase in prepaid expenses and other assets		(31,651	)		(197,975	)
Decrease in accounts payable		(15,853	)		(610,428	)
Increase in customer deposits		—			(1,947	)
Increase (decrease) in accrued expenses		9,147			(38,456	)
(Decrease) increase in deferred revenues		(522,348	)		760,445
Net cash provided by (used for) operating activities		44,691			(164,916	)
Cash flows from investing activities:
Purchases of property and equipment		(2,521	)		(13,914	)
Additions to capitalized software development costs		(9,090	)		—
Net cash used for investing activities		(11,611	)		(13,914	)
Cash flows from financing activities:
Net proceeds from sale of common stock		50,000			—
Principal payments on note payable		—			(11,902	)
Principal payments on obligations under capital lease		(11,361	)		(9,364	)
Net cash provided by (used for) financing activities		38,639			(21,266	)
Net increase (decrease) in cash		71,719			(200,096	)
Cash, beginning of period		119,549			257,019
Cash, end of period	$	191,268		$	56,923
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	2,112		$	4,523

The accompanying notes are an integral part

of these financial statements.

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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 June 30, 2009, and the results of their operations and cash flows for the six months ended June 30, 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.

These accompanying unaudited interim condensed consolidated financial statements recognize the effects of all subsequent events that provide additional evidence about conditions that existed at June 30, 2009, including the estimates inherent in the process of preparing financial statements.  We have evaluated such subsequent events through August 13, 2009, which is the date the accompanying financial statements were issued.

We have an accumulated deficit of approximately $17,100,000 through June 30, 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 June 30, 2009, we had approximately $191,000 in cash and negative working capital of approximately $768,000. 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

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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.

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.

2. Recent accounting pronouncements:

In September 2006, the FASB issued Statement of Financial Accounting Standard (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 FASB Staff Position (“FSP”) No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” FSP No. FAS 107-1 and APB 28-1 requires summarized disclosure in interim periods of the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the financial statements, as required by SFAS No. 107, Disclosures about Fair Value of Financial Instruments andAccounting Principles Board Opinion No. 28, Interim Financial Reporting. Previous to FSP No. FAS 107-1 and APB 28-1, such disclosures were required only for annual periods. The adoption of FSP No. FAS 107-1 and APB 28-1 on April 1, 2009 resulted in additional disclosures in our condensed consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”. SFAS No. 165 establishes

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general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The adoption of SFAS No. 165 on June 30, 2009 required us to disclose the date through which we have evaluated subsequent events and whether that date is the date the financials were issued.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162”.  SFAS 168 replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” and establishes the “FASB Accounting Standards Codification TM ” (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles in the United States. All guidance contained in the Codification carries an equal level of authority. On the effective date of SFAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We have evaluated this new statement, and have determined that it will not have a significant impact on the determination or reporting of our financial results.

3. Fair Value Financial Instruments:

Cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable and accrued expenses are stated at carrying amounts that approximate fair value because of the short maturity of those instruments.

4. Net Income (Loss) Per Share:

Basic and diluted loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding. For the three and six months ended June 30, 2009, options to purchase 89,663 and 88,331 shares of common stock have not been included in the computation of diluted net loss per share because the effect would have been anti-dilutive.  For the three and six months ended June 30, 2008, options to purchase 106,334 shares of common stock have not been included in the computation of diluted net loss per share because the effect would have been anti-dilutive.

5. 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.

Share-based compensation expense amounted to $3,546 and $3,621 for the six months ended June 30, 2009 and 2008, respectively, and $1,783 and $1,885 for the three months ended June 30, 2009 and 2008, respectively.

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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 six months ended June 30, 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.

There were no options granted during the six months ended June 30, 2009. The weighted average grant date fair value of options granted was $0.18 during the six months ended June 30, 2008. The fair value of options at date of grant was estimated using the Black-Scholes option-pricing model with the following assumptions:

	Six Months ended	Six Months ended
	June 30, 2009	June 30, 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. During the second quarter of 2009, options to purchase 1,332 shares of common stock expired; no further grants are available under the 1998 plan.

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.

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Upon the approval of the 2007 Plan, our 1997 Plan and our 1998 Plan terminated. As of June 30, 2009, there were 88,331 options outstanding under the 2007 Plan and 111,669 shares available for grant under the 2007 Plan.

The following table summarizes information about stock options outstanding at June 30, 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
Granted	—
Exercised	—
Cancelled/forfeited	(4,665)	0.70
Outstanding at June 30, 2009	88,331	0.45	8.0	$  —
Options vested or expected to vest at June 30, 2009 (1)	78,612	0.45	8.0	$  —
Options exercisable at June 30, 2009	39,999	$0.47	7.92	$  —

(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.

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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.

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 June 30, 2009 compared to three months ended June 30, 2008.

For the three months ended June 30, 2009, we reported a net loss of $132,228 compared to a net income of $10,407 for the three months ended June 30, 2008. The increased loss was a direct result of lower revenues.

Revenue and Gross Profit

Total revenues decreased 84% to $166,448 for the three months ended June 30, 2009 from $1,064,975 for the three months ended June 30, 2008. Total product revenues decreased 97% to $21,321 for the three months ended June 30, 2009 from $847,631 for the comparable prior period. The decrease was due lower revenue of our RRLE software.

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Total service revenues decreased 33% to $145,127 for the three months ended June 30, 2009 from $217,344 for the comparable prior period. The decrease is a direct result of lower billings of our professional services.

Gross profit was $45,203 or 27% of revenues for the three months ended June 30, 2009, compared to $291,135 or 27% of revenues for the prior comparable period.  The decreased gross profit in absolute dollars was due to our decreased sales.

Operating Expenses

Selling and marketing expenses for the three months ended June 30, 2009 were $45,333 compared to $97,761 for the prior comparable period, a decrease of $52,428 or 54%. The decrease is due primarily to lower commission expenses associated with the lower revenue.

General and administrative expenses for the three months ended June 30, 2009 were $131,342 compared to $180,718 for the prior comparable period, a decrease of $49,376 or 27%. The decrease is a result of lower legal fees combined with lower occupancy cost related to our relocation to smaller quarters.

Six months ended June 30, 2009 compared to six months ended June 30, 2008.

For the six months ended June 30, 2009, we reported a net loss of $106,811 compared to a net loss of $57,146 for the six months ended June 30, 2008. The increased loss was a direct result of lower revenues, offset by decreased operating expenses.

Revenue and Gross Profit

Total revenues decreased 21% to $1,168,161 for the six months ended June 30, 2009 from $1,482,167 for the six months ended June 30, 2008. Total product revenues decreased 8% to $906,679 for the six months ended June 30, 2009 from $986,902 for the comparable prior period. The decrease was due to lower sales of our new route software product, RRLE.

Total service revenues decreased 47% to $261,482 for the six months ended June 30, 2009 from $495,265 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 $297,931 or 25% of revenues for the six months ended June 30, 2009, compared to $469,218 or 32% of revenues for the prior comparable period.  The decreased gross profit in absolute dollars was due to our decreased sales. The decreased profit margin as a percentage of revenues was due to sales during the six months ended June 30, 2008 which carried a higher profit.

Operating Expenses

Selling and marketing expenses for the six months ended June 30, 2009 were $124,953 compared to $156,831 for the prior comparable period, an decrease of $31,878 or 20%. The decrease is due primarily to lower payroll costs due to reduced manpower.

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General and administrative expenses for the six months ended June 30, 2009 were $278,044 compared to $369,052 for the prior comparable period, a decrease of $91,008 or 25%. The decrease is a result of lower professional fees combined with lower occupancy cost related to our relocation to smaller quarters.

Liquidity and Capital Resources

We generated cash of $44,691 and used cash of $164,916 for operating activities for the six months ended June 30, 2009 and 2008, respectively. For the six months ended June 30, 2009, our principal operating cash was provided by a decrease in deferred hardware and software costs along with a decrease in accounts receivable. This was offset by a decrease in deferred revenues and our loss from operations. For the six months ended June 30, 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 prepaid expenses and accounts receivable. This was offset by an increase in deferred revenues related to new orders for RRLE scheduled for completion in early 2009.

We used cash of $11,611 and $13,914 for investing activities from operation for the six months ended June 30, 2009 and 2008, respectively. The cash was used for the purchase of capital equipment and development of software. As of June 30, 2009, we had no material commitments for capital expenditures.

We generated cash of $38,639 and used cash of $21,266 for financing activities for the six months ended June 30, 2009 and 2008, respectively. During the six months ended June 30, 2009, we raised capital from the private sale of 500,000 shares of our common stock, to the Chairman of our Board of Directors, in the amount of $50,000 and made payments on obligations under our capital leases. During the six months ended June 30, 2008, we made payments on obligations under our notes payable and capital leases.

We have an accumulated deficit of approximately $17,100,000 through June 30, 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 June 30, 2009, we had approximately $191,000 in cash and negative working capital of approximately $768,000. 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.

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Critical Accounting Policies and Estimates

The accompanying discussion and analysis of the Company’s financial condition and results of operations are based on the Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company’s most critical accounting policies have a significant impact on the preparation of these financial statements. These policies include estimates and significant judgments that affect the reported amounts of assets, liabilities, revenues, and expenses.  The Company continues to have the same critical accounting policies and estimates as are described in Item 7, in the Company’s Annual Report on Form 10-K for fiscal year 2008 filed with the United States Securities and Exchange Commission.

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 June 30, 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 6 months of 2009, one customer accounted for approximately 79% of our total revenues.

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 June 30, 2009. Based on the aforementioned evaluation, management has concluded that our disclosure control and procedures were not effective as of June 30, 2009 because of the existence of two 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.

(b)Changes in Internal Control over Financial Reporting. No changes in our internal control over financial reporting occurred during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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

On June 10, 2009, Anthony Stafford purchased 500,000 shares of our common stock at a price of $0.10 per share for a total cash consideration of $50,000.

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.

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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.
August 14, 2009	By:	/s/ William B. Berens
		William B. Berens
		President and Chief Executive Officer (principal executive officer)

August 14, 2009	By:	/s/ Bruna Bucacci
		Bruna Bucacci
		Chief Accounting Officer (principal financial and accounting officer)

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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.

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