UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549










FORM
10-Q/A









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





For
the quarterly period ended September 30, 2008





OR




o
            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  o





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  o     
Accelerated filer  o





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  o    
 No  x





The
number of shares of Common Stock outstanding at November 21, 2008 was
4,274,496.





EXPLANATORY
NOTE
 
 This
Amendment to the Quarterly Report on Form 10-Q for National Datacomputer Inc.
(the “Company”) for the quarterly period ended September 30, 2008 is being filed
to disclose that the financial statements included in the Company’s Form 10-Q
for such quarterly period have not been reviewed by the Company’s Independent
Registered Public Accounting Firm. This Amendment does not change any previously
reported financial results, update disclosures or reflect events occurring after
the date of the filing of the Form 10-Q, or except for changes described above,
modify disclosures in the previously filed Form 10-Q.


NATIONAL
DATACOMPUTER, INC.


INDEX


PART
I.  FINANCIAL INFORMATION


Page
      No.Item
      1.
              Financial
      Statements:Balance
      Sheets as of September 30, 2008 and December 31, 2007
              3Statements
      of Operations for the three and nine months ended September 30, 2008 and
      2007
              4Statement
      of Stockholders’ Deficit for the nine months ended September 30,
      2008
              5Statements
      of Cash Flows for the nine months ended September 30, 2008 and
      2007
              6Notes
      to Financial Statements
              7Item
      2.
              Management’s
      Discussion and Analysis or Plan of Operation
              11Item 3.
              Quantitative
      and Qualitative Disclosures about Market Risk
              18Item
      4.
              Controls
      and Procedures
              18PART
      II. OTHER INFORMATIONItem
      1.
              Legal
      Proceedings
              20Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              20Item
      3.
              Defaults
      upon Senior Securities
              20Item
      4.
              Submissions
      of Matters to a Vote of Security Holders
              20Item
      5.
              Other
      Information
              21Item
      6.
              Exhibits
              21Signatures
              22Exhibit
      Index
              23
  2
 NATIONAL
DATACOMPUTER, INC.
 BALANCE
SHEETS
 
  September
      30,
              
              
              December
      31,2008
              
              
              2007(Unaudited)
              
              
              (Audited)AssetsCurrent
      Assets:Cash
              
              $
              163,830
              
              
              $
              257,019Accounts
      receivable, net of allowance for doubtful accounts of
    $3,000
              
              
              158,897
              
              
              
              76,158Inventories,
      net
              
              
              —
              
              
              
              2,401Deferred
      hardware and software costs
              
              
              669,401
              
              
              
              799,623Prepaid
      expenses
              
              
              278,348
              
              
              
              52,317Total
      current assets
              
              
              1,270,476
              
              
              
              1,187,518Prepaid
      expenses
              
              
              
              
              
              
              19,811Property
      and equipment, net
              
              
              46,840
              
              
              
              56,826Capitalized
      software development costs, net
              
              
              4,116
              
              
              
              9,289Total
      Assets
              
              $
              1,321,432
              
              
              $
              1,273,444Liabilities
      and Stockholders’ Deficit:Current
      Liabilities:Current
      obligations under capital lease
              
              $
              21,903
              
              
              $
              19,093Note
      payable
              
              
              —
              
              
              
              18,125Accounts
      payable
              
              
              788,712
              
              
              
              1,422,629Customer
      deposits
              
              
              1,190
              
              
              
              9,964Accrued
      payroll and related taxes
              
              
              40,310
              
              
              
              52,535Other
      accrued expenses
              
              
              72,959
              
              
              
              98,210Deferred
      revenues
              
              
              1,235,823
              
              
              
              508,058Total
      current liabilities
              
              
              2,160,897
              
              
              
              2,128,614Obligations
      under capital lease, net of current portion
              
              
              9,419
              
              
              
              27,680Total
      Liabilities
              
              
              2,170,316
              
              
              
              2,156,294Commitments
      and contingenciesStockholders’
      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
      and2,382,829
      shares issued and outstanding at September 30, 2008 and December 31,
      2007
              
              
              4,275
              
              
              
              2,383Capital
      in excess of par value
              
              
              15,970,302
              
              
              
              15,551,667Accumulated
      deficit
              
              
              (16,823,461
              )
              
              
              (16,436,900
              )Total
      Stockholders’ Deficit
              
              
              (848,884
              )
              
              
              (882,850
              )Total
      Liabilities and Stockholders’ Deficit
              
              $
              1,321,432
              
              
              $
              1,273,444
 The
accompanying notes are an integral part of these
financial statements.
 3
 
 NATIONAL
      DATACOMPUTER, INC.STATEMENTS
      OF OPERATIONS(Unaudited)Three
      Months Ended
                      
                      
                      Nine
      Months EndedSeptember
      30,
                      
                      
                      September
      30,
                      
                      
                      September
      30,
                      
                      
                      September
      30,2008
                      
                      
                      2007
                      
                      
                      2008
                      
                      
                      2007Revenues:Product
                      
                      $
                      19,175
                      
                      
                      $
                      444,686
                      
                      
                      $
                      1,006,077
                      
                      
                      $
                      797,739Services
                      
                      
                      139,950
                      
                      
                      
                      222,982
                      
                      
                      
                      635,215
                      
                      
                      
                      683,279Total
      Revenues
                      
                      
                      159,125
                      
                      
                      
                      667,668
                      
                      
                      
                      1,641,292
                      
                      
                      
                      1,481,018Cost
      of revenues
                      
                      
                      175,858
                      
                      
                      
                      511,986
                      
                      
                      
                      1,188,807
                      
                      
                      
                      1,029,243Gross
      Profit
                      
                      
                      (16,733
                      )
                      
                      
                      155,682
                      
                      
                      
                      452,485
                      
                      
                      
                      451,775Operating
      expenses:Selling
      and marketing
                      
                      
                      94,321
                      
                      
                      
                      76,758
                      
                      
                      
                      251,152
                      
                      
                      
                      243,378General
      and administrative
                      
                      
                      216,951
                      
                      
                      
                      175,048
                      
                      
                      
                      586,003
                      
                      
                      
                      625,507311,272
                      
                      
                      
                      251,806
                      
                      
                      
                      837,155
                      
                      
                      
                      868,885Loss
      from operations
                      
                      
                      (328,005
                      )
                      
                      
                      (96,124
                      )
                      
                      
                      (384,670
                      )
                      
                      
                      (417,110
                      )Other
      income (expense):Interest
      income
                      
                      
                      132
                      
                      
                      
                      1,518
                      
                      
                      
                      2,650
                      
                      
                      
                      6,013Gain (loss) on currency exchange
                      
                      
                      784
                      
                      
                      
                      12,543
                      
                      
                      
                      2,768
                      
                      
                      
                      20,561Interest
      expense
                      
                      
                      (2,325
                      )
                      
                      
                      (3,398
                      )
                      
                      
                      (7,309
                      )
                      
                      
                      (8,048
                      )Net
      loss
                      
                      
                      (329,414
                      )
                      
                      
                      (85,461
                      )
                      
                      
                      (386,561
                      )
                      
                      
                      (398,584
                      )Calculation
      of net loss per common share:Basic
      and diluted net loss per share attributable tocommon
      stockholders:
                      
                      
                      (0.12
                      )
                      
                      
                      (0.04
                      )
                      
                      
                      (0.12
                      )
                      
                      
                      (0.18
                      )Net
      loss attributable to common stockholders
                      
                      $
                      (0.12
                      )
                      
                      $
                      (0.04
                      )
                      
                      $
                      (0.12
                      )
                      
                      $
                      (0.18
                      )Weighted
      average shares
                      
                      
                      2,670,375
                      
                      
                      
                      2,382,829
                      
                      
                      
                      3,116,163
                      
                      
                      
                      2,179,156
   4
  NATIONAL
      DATACOMPUTER, INC.STATEMENT
      OF STOCKHOLDERS’ DEFICITCommon
      Stock
                        
                        
                        Capital
      in
                        
                        
                        
                        
                        
                        TotalPar
                        
                        
                        excess
                        
                        
                        Accumulated
                        
                        
                        stockholders’Shares
                        
                        
                        value
                        
                        
                        of par value
                        
                        
                        deficit
                        
                        
                        deficitBalance
      at December 31, 2007 (Audited)
                        
                        
                        2,382,829
                        
                        
                        $
                        2,383
                        
                        
                        $
                        15,551,667
                        
                        
                        $
                        (16,436,900
                        )
                        
                        $
                        (882,850
                        )Net
      loss
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (386,561
                        )
                        
                        
                        (386,561
                        )Net
      proceeds from raised capital
                        
                        
                        1,891,667
                        
                        
                        
                        1,892
                        
                        
                        
                        413,109
                        
                        
                        
                        
                        
                        
                        
                        415,000Stock
      based compensation related tooptions
      granted
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        5,526
                        
                        
                        
                        —
                        
                        
                        
                        5,526Balance
      at September 30, 2008 (Unaudited)
                        
                        
                        4,274,496
                        
                        
                        $
                        4,275
                        
                        
                        $
                        15,970,302
                        
                        
                        $
                        (16,823,461
                        )
                        
                        $
                        (848,884
                        )
     5
 NATIONAL
      DATACOMPUTER, INC.STATEMENTS
      OF CASH FLOWS(Unaudited)Nine
      Months EndedSeptember
      30,
                      
                      
                      September
      30,2008
                      
                      
                      2007OPERATING
      ACTIVITIES:Net
      loss
                      
                      $
                      (386,561
                      )
                      
                      $
                      (398,584
                      )Adjustments
      to reconcile net loss to netcash
      used for operating activities:Depreciation
      and amortization
                      
                      
                      30,567
                      
                      
                      
                      26,051Stock based compensation related to options granted
                      
                      
                      5,526
                      
                      
                      
                      2,266Changes
      in assets and liabilities:(Increase)
      decrease in accounts receivable
                      
                      
                      (82,739
                      )
                      
                      
                      21,757Decrease
      in inventories
                      
                      
                      2,401
                      
                      
                      
                      6,402Decrease (increase) in deferred hardware and software
costs
                      
                      
                      130,222
                      
                      
                      
                      (2,363
                      )Increase
      in other prepaid expenses
                      
                      
                      (206,220
                      )
                      
                      
                      (74,635
                      )(Decrease)
      increase in accounts payable
                      
                      
                      (633,917
                      )
                      
                      
                      152,197Decrease
      in customer deposits
                      
                      
                      (8,774
                      )
                      
                      
                      (10,099
                      )Decrease
      in accrued expenses
                      
                      
                      (37,476
                      )
                      
                      
                      (28,277
                      )Increase
      in deferred revenues
                      
                      
                      727,765
                      
                      
                      
                      100,575Net
      cash used for operating activities
                      
                      
                      (459,206
                      )
                      
                      
                      (204,710
                      )Cash
      flows from investing activities:Purchases
      of property and equipment
                      
                      
                      (15,408
                      )
                      
                      
                      (15,187
                      )Additions
      to capitalized software development costs
                      
                      
                      —
                      
                      
                      
                      (1,674
                      )Net
      cash used for investing activities
                      
                      
                      (15,408
                      )
                      
                      
                      (16,861
                      )Cash
      flows from financing activities:Net
      proceeds from additional capital raised
                      
                      
                      415,000
                      
                      
                      
                      262,165Principal
      payments on note payable
                      
                      
                      (18,125
                      )
                      
                      
                      (22,085
                      )Principal
      payments on obligationsunder
      capital lease
                      
                      
                      (15,450
                      )
                      
                      
                      (9,509
                      )Net
      cash provided by financing activities
                      
                      
                      381,425
                      
                      
                      
                      230,571Net
      (decrease) increase in cash
                      
                      
                      (93,189
                      )
                      
                      
                      9,000Cash,
      beginning of period
                      
                      
                      257,019
                      
                      
                      
                      162,783Cash,
      end of period
                      
                      $
                      163,830
                      
                      
                      $
                      171,783Supplemental
      Disclosure of Cash Flow Information:Cash
      paid for interest
                      
                      $
                      6,848
                      
                      
                      $
                      8,048Non-cash
      investing and financing activities:Accrued
      compensation paid with stock
                      
                      $
                      —
                      
                      
                      
                      21,250Deferred
      compensation paid with stock
                      
                      $
                      —
                      
                      
                      
                      15,000Acquisition
      of property and equipment under capital lease
                      
                      $
                      —
                      
                      
                      
                      48,539
     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, except that such financial statements have not
been reviewed by our Independent Registered Public Accounting Firm. The
financial statements 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 September 30, 2008, and the
results of their operations and cash flows for the three and nine months ended
September 30, 2008 and 2007. 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, 2007, which are included
in the Company’s Form 10-KSB. 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 adoption of
SFAS No. 157 with respect to financial assets and liabilities in the first
quarter of 2008 had no effect on the Company’s results of operations or
financial position. In addition, the Company is evaluating the impact of SFAS
No. 157 for measuring nonfinancial assets and liabilities on future results of
operations and financial position.
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities.”   This statement
permits entities to choose to measure many financial instruments and certain
other items at fair value.  The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions.  The
adoption of SFAS No. 159 in the first quarter of 2008 did not have an impact on
the Company’s results of operations or financial position.
  In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations,”
which changes how business acquisitions are accounted.  SFAS No. 141R
requires the acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the transaction and
establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed in a business combination.  Certain
provisions of this standard will, among other things, impact the determination
of acquisition-date fair value of consideration paid in a business combination
(including contingent consideration); exclude transaction costs from acquisition
accounting; and change accounting practices for acquired contingencies,
acquisition-related restructuring costs, in-process research and development,
indemnification assets and tax benefits.  SFAS No. 141R is effective
for the Company for business combinations and adjustments to an acquired
entity’s deferred tax asset and liability balances occurring after
December 31, 2008.  The Company is currently evaluating the future
impacts and disclosures of this standard.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51.” This
statement is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. SFAS No. 160 requires
the recognition of a noncontrolling interest (minority interest) as equity in
the consolidated financial statements and separate from the parent’s equity. The
amount of net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income statement. SFAS
No. 160 amends certain of ARB No. 51’s consolidation procedures for
consistency with the requirements of SFAS No. 141(R). This statement
requires changes in the parent’s ownership interest of consolidated subsidiaries
to be accounted for as equity transactions. This statement also includes
expanded disclosure requirements regarding the interests of the parent and its
noncontrolling interest. The Company is currently evaluating the future impacts
and disclosures of this standard.
 
 In
December 2007, the SEC issued SAB No. 110.  SAB 110 allows for the
continued use of a “simplified” method, as discussed in SAB No. 107, in
developing an estimate of expected term of “plain vanilla” share options in
accordance with SFAS 123 (revised 2004).  Originally the SEC staff stated
in SAB 107 that it would not expect a company to use the simplified method for
share option grants after December 31, 2007.  Accordingly, the SEC
  8
 staff
will continue to accept, under certain circumstances, the use of the simplified
method beyond December 31, 2007.  The Company will continue to use of the
simplified method for determining the value of options granted as allowed by SAB
110.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities,” which changes the disclosure requirements
for derivative instruments and hedging activities. SFAS No. 161 requires
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133, “Accounting for Derivative Instruments
and Hedging Activities” and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. This statement’s
disclosure requirements are effective for fiscal years and interim periods
beginning after November 15, 2008. The Company is currently evaluating the
future impacts and disclosures of this standard.
 
  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).
 
 During
the nine months ended September 30, 2008 and 2007, share-based compensation
expense amounted to $5,526 and $2,266.
 
 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 nine months ended September 30,
2008.    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.
 
 The
weighted average grant date fair value of options granted was $0.15 and $0.45
during the nine months ended September 30, 2008 and 2007, respectively. The fair
value of options at date of grant was estimated using the Black-Scholes
option-pricing model with the following assumptions:
 
 Nine
      Months ended
                
                Nine
      Months endedSeptember 30,
      2008
                
                September 30,
      2007Expected
      option term (1)
                
                6.25
      years
                
                6.25
      yearsExpected
      volatility factor (2)
                
                103.8%
                
                99.6%Risk-free
      interest rate (3)
                
                2.62%
                
                4.57%Expected
      annual dividend rate
                
                0%
                
                0%
 
 9
 (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 August
19, 1997, the Board of Directors adopted the 1997 Stock Option Plan (“1997
Plan”) which provided for issuance of both incentive stock options and
non-qualified options to employees. As of September 30, 2008, there were options
to purchase 13,333 shares of common stock outstanding and no shares available
for grant under the 1997 Plan.
 
 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 September 30, 2008, there were options to purchase 1,332 shares of common
stock outstanding and no shares available for grant 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.
 
 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 September 30, 2008,
there were 91,664 options outstanding under the 2007 Plan and 108,333 shares
available for grant under the 2007 Plan.
 
 The
following table summarizes information about stock options outstanding at
September 30, 2008:
 
 Number
                  of
      shares
                Weighted
      average
                  exercise
      price
                Remaining
      contractual
                  life
      in years
                Aggregate
                  intrinsic
      valueOutstanding
      at December 31, 2007
                89,663
                $2.26
                7.21
                $  —Granted
                16,666
                0.23Exercised
                —Cancelled/forfeited
                —Outstanding
      at September 30, 2008
                106,329
                1.94
                7.56
                $  —Options
      vested or expected to vest at September 30, 2008 (1)
                96,246
                2.10
                7.44
                $ 
      —Options
      exercisable at September 30, 2008
                33,415
                $5.22
                4.89
                $  —
 
 (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.
 10
 4.    
Income Taxes:
  The
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No. 9” (“FIN
48”), on January 1, 2007. FIN 48 requires that the impact of tax positions be
recognized in the financial statements if they are more likely than not to be
sustained upon examination, based on the technical merits of the
position.  As discussed in the financial statements in the
2007 Form 10-KSB, the Company has a valuation allowance against
the full amount of its net deferred tax assets. The Company
currently provides a valuation allowance against deferred tax
assets when it is more likely than not that some portion, or all of its deferred
tax assets, will not be realized.  The implementation of FIN 48 had no
effect on the Company’s financial position or results of operations and there is
no interest or penalties as management believes the Company has no uncertain tax
position at September 30, 2008.
  The
Company is subject to U.S. federal income tax as well as well as income tax of
certain state jurisdictions. The Company has not been audited by the I.R.S. or
any states in connection with income taxes. The period from 2004-2007 remains
open to examination by the I.R.S. and state authorities.
 
   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-KSB filed with the Securities and Exchange
Commission for the year ended December 31, 2007.
 
 The
interim financial statements for the 9 months ended September 30, 2008 have not
been reviewed by our Independent Registered Public Accounting
Firm.
  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-KSB for
the year ended December 31, 2007, filed on March 28, 2008.
  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.
   
 11
 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 MicrosoftTMoperating systems and architectures which increases our market potential
by running on industry preferred operating systems and handheld
devices.
  During
2006 we divested ourselves from our audit business to better concentrate our
efforts on our new Route Accounting solution. The hand-held route solution,
interfacing with the J.D. Edwards system, we delivered in 2006 to an
internationally recognized company in the food services industry has been
successful and the company has continued to deploy additional routes in Europe.
During the last quarter of 2007, we contracted to deliver a comprehensive RRLE
Direct Store Delivery solution to a major national bakery, and also to a major
bottling company. The combined orders have a value of approximately $2,000,000
with delivery scheduled in 2008.
 
 Results
of Operations
 
 Three
months ended September 30, 2008 compared to three months ended September 30,
2007.
 
 For the
three months ended September 30, 2008, we reported a net loss of $329,414
compared to a net loss of $85,461 for the three months ended September 30, 2007.
The increased loss was a direct result of lower revenues.
 
 Revenue and Gross
Profit
 
 Total
revenues decreased 76% to $159,125 for the three months ended September 30, 2008
from $667,668 for the three months ended September 30, 2007. Total product
revenues decreased 96% to $19,175 for the three months ended September 30, 2008
from $444,686 for the comparable prior period. The decrease was due to lower
sales of our new route software product, RRLE. Total service revenues decreased
37% to $139,950 for the three months ended September 30, 2008 from $222,982 for
the comparable prior period. The decrease is a direct result of lower
maintenance and repair contracts for our Datacomputers.
   12
 We
experienced a negative gross profit of $16,733 for the three months ended
September 30, 2008, compared to $155,682 or 23% of revenues for the prior
comparable period.  The decline in gross profit was due to our
decreased product sales and lower professional service billings.
  Operating
Expenses
 
 Selling and marketing expenses for the
three months ended September 30, 2008 were $94,321 compared to 76,758 for the
prior comparable period, an increase of $17,563 or 23%.  The increase
is due primarily to higher expensesto support marketing of our flagship
RouteRider LETM Direct Store Delivery solution for the Beverage, Baking, Coffee
& Tea, Dairy, and Snack Food industries.
 
 General
and administrative expenses for the three months ended September 30, 2008 were
$216,951compared to $175,048 for the prior comparable period, an increase of
$41,903 or 24%. The increase is a result of higher legal and professional fees
related to the company’s reverse stock split.
 
 Nine
months ended September 30, 2008 compared to Nine months ended September 30,
2007.
 
 For the
Nine months ended September 30, 2008, we reported a net loss of $386,561
compared to a net loss of $398,584 for the Nine months ended September 30, 2007.
The reduced loss was a direct result of higher revenues combined with lower
payroll costs, resulting from reduced manpower, along with reduced legal and
directors’ fees.
  Revenue and Gross
Profit
 
 Total
revenues increased 11% to $1,641,292 for the nine months ended September 30,
2008 from $1,481,018 for the nine months ended September 30, 2007. Total product
revenues increased 26% to $1,006,077 for the nine months ended September 30,
2008 from $797,739 for the comparable prior period. The increase was due to
higher sales of our new route software product, RRLE, offset by decreased sales
of our Datacomputers. Total service revenues decreased 7% to $635,215 for the
nine months ended September 30, 2008 from $683,279 for the comparable prior
period. The decrease is a direct result of lower maintenance and repair
contracts for our Datacomputers, offset by higher billings of our professional
services for RRLE implementation projects.
 
 Gross
profit was $452,485 or 28% of revenues for the nine months ended September 30,
2008, compared to $451,775 or 31% of revenues for the prior comparable
period.  The decreased profit was due to sales during the nine months
ended September 30, 2007 which carried a higher profit.
 
 Operating
Expenses
 
 Selling
and marketing expenses for the nine months ended September 30, 2008 were
$251,152 compared to $243,378 for the prior comparable period, an increase of
$7,774 or 3%.  The increase is due primarily to higher commission
expenses resulting from higher revenues.
 
 General
and administrative expenses for the nine months ended September 30, 2008 were
$586,003 compared to $625,507 for the prior comparable period, a decrease of
$39,504 or 6%. The decrease is a result of reduced legal and directors’ fees
combined with lower payroll costs resulting from reduced manpower. These were
offset by higher professional fees related to the company’s reverse stock
split.
 
  13
 Liquidity
and Capital Resources
 
 We used
cash of $459,206 and $204,710 for operating activities for the nine months ended
September 30, 2008 and 2007, respectively. For the nine months ended September
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 accounts
receivable and prepaid expenses, offset by a decrease in deferred hardware and
software cost and an increase in deferred revenues related to new orders for
RRLE scheduled for completion in the later part of 2008. For the nine months
ended September 30, 2007, our principal operating cash was used to fund our loss
from operations combined with an increase in prepaid expenses, along with a
decrease in accrued expenses and customer deposits, offset by an increase in
accounts payable and deferred revenues.
 
 We used
cash of $15,408 and $16,861 for investing activities from operations for the
nine months ended September 30, 2008 and 2007, respectively. The cash was used
for the purchase of capital equipment. As of September 30, 2008, we had no
material commitments for capital expenditures.
 
 We
generated cash of $381,425 and $230,571 for financing activities for the nine
months ended September 30, 2008 and 2007, respectively. During the nine months
ended September 30, 2008, we raised capital in the amount of $415,000, and made
payments on obligations under our notes payable and capital leases. During the
nine months ended September 30, 2007, we raised capital, net of expenses, in the
amount of $262,165 and made payments on obligations under our notes payable and
capital leases.
 
 We have
an accumulated deficit of approximately $16,823,000 through September 30, 2008.
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, 2007 contains an explanatory
paragraph regarding substantial doubt about our ability to continue as a going
concern. We have taken numerous steps to address this situation. In prior
periods, we divested ourselves of our audit business line in connection with a
transaction relating to shares of our preferred and common stock held by a
majority holder of our capital stock.  We also entered into an
arrangement with A.S.T., Inc. (“AST”) and Phyle Industries, Inc. (“Phyle”)
pursuant to which we sold our audit business line to AST in exchange for 4,150
shares of our preferred stock (representing all of our issued and outstanding
preferred stock).
 
 During
January 2007 acting as agent for certain new investors interested in purchasing
shares of our common stock, we caused the transfer of 30,339,236 shares of our
common stock, together with accrued but unpaid stock dividends (representing
approximately 90% of our common stock in the aggregate) that Phyle had
previously purchased from Capital Bank Grawe Gruppe AG (“CapitalBank”). These
investors paid Phyle $250,000 for the purchase of our common stock and agreed to
also provide us $350,000 to be used as working capital.
 
 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 2008. There can be no assurance that such financing, if
required, will be available on reasonable terms, if at all.
  14
 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-KSB for the year ended December 31, 2007.
 
 As of
September 30, 2008, there are no material changes in our contractual obligations
as disclosed in our Annual Report on Form 10-KSB for the year ended December 31,
2007.
  Concentration
of Credit Risk
 
 The
Company sells its products to customers principally in the United States of
America. During the first 9 months of 2008, three customers accounted for
approximately 84% 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 the majority of our 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
transactions sometimes involve multiple elements (i.e. systems 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 undeliverable 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.
 
 We
recognize revenue for software licenses 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. License
revenue is recognized upon customer acceptance, provided that persuasive
evidence of an arrangement exists, no significant obligations with regards to
installation or implementation remain, fees are fixed or determinable, and
collectibility is probable.
 
 15
 Hardware
and software maintenance is marketed under annual and multi-year arrangements
and revenue is recognized ratably over the contract maintenance
term.
  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. The Company evaluates its inventories to
determine excess or slow moving products based on quantities on hand, current
orders and expected future demand. For those items in which the Company believes
it has an excess supply or for those items that are obsolete, the Company
estimates the net amount that the Company expects to realize from the sale of
such products and records an allowance.
 
 Property and
Equipment
 
 Property
and equipment are recorded at cost and depreciated over the estimated useful
lives of the assets using the straight-line method. Leasehold improvements are
amortized over the shorter of the useful lives or the remaining terms of the
related leases. Maintenance and repair costs are charged to operations as
incurred.
 
 Capitalized
Software Research and Development Costs.
 
 Costs
associated with the development of computer software are charged to operations
prior to the 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.
 
 Stock-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).
  
 16
 Net 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.
 
 Warranty and Return
Policy
 
 The
Company’s warranty policy provides 90-day coverage on all parts and labor on all
products.  The policy with respect to sales returns provides that a
customer may not return inventory except at the Company’s option. The Company’s
warranty costs have historically been insignificant.
 
 Shipping and Handling
Costs
 
 Shipping
and handling costs are classified as a component of cost of goods sold. The
Company accounts for shipping and handling costs passed on to customers as
revenues.
 
 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 adoption of
SFAS No. 157 with respect to financial assets and liabilities in the first
quarter of 2008 had no effect on the Company’s results of operations or
financial position. In addition, the Company is evaluating the impact of SFAS
No. 157 for measuring nonfinancial assets and liabilities on future results of
operations and financial position.
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities.”   This statement
permits entities to choose to measure many financial instruments and certain
other items at fair value.  The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions.  The
adoption of SFAS No. 159 in the first quarter of 2008 did not have an impact on
the Company’s results of operations or financial position.
  In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations,”
which changes how business acquisitions are accounted.  SFAS No. 141R
requires the acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the transaction and
establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed in a business combination.  Certain
provisions of this standard will, among other things, impact the determination
of acquisition-date fair value of consideration paid in a business combination
(including contingent consideration); exclude transaction costs from acquisition
accounting; and change accounting practices for acquired contingencies,
acquisition-related
  17
 restructuring
costs, in-process research and development, indemnification assets and tax
benefits.  SFAS No. 141R is effective for the Company for business
combinations and adjustments to an acquired entity’s deferred tax asset and
liability balances occurring after December 31, 2008.  The Company is
currently evaluating the future impacts and disclosures of this
standard.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51.” This
statement is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. SFAS No. 160 requires
the recognition of a noncontrolling interest (minority interest) as equity in
the consolidated financial statements and separate from the parent’s equity. The
amount of net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income statement. SFAS
No. 160 amends certain of ARB No. 51’s consolidation procedures for
consistency with the requirements of SFAS No. 141(R). This statement
requires changes in the parent’s ownership interest of consolidated subsidiaries
to be accounted for as equity transactions. This statement also includes
expanded disclosure requirements regarding the interests of the parent and its
noncontrolling interest. The Company is currently evaluating the future impacts
and disclosures of this standard.
 
 In
December 2007, the SEC issued SAB No. 110.  SAB 110 allows for the
continued use of a “simplified” method, as discussed in SAB No. 107, in
developing an estimate of expected term of “plain vanilla” share options in
accordance with SFAS 123 (revised 2004).  Originally the SEC staff stated
in SAB 107 that it would not expect a company to use the simplified method for
share option grants after December 31, 2007.  Accordingly, the SEC staff
will continue to accept, under certain circumstances, the use of the simplified
method beyond December 31, 2007.  The Company will continue to use of the
simplified method for determining the value of options granted as allowed by SAB
110.
  In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities,” which changes the disclosure requirements
for derivative instruments and hedging activities. SFAS No. 161 requires
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133, “Accounting for Derivative Instruments
and Hedging Activities” and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. This statement’s
disclosure requirements are effective for fiscal years and interim periods
beginning after November 15, 2008. The Company is currently evaluating the
future impacts and disclosures of this standard.
   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 September 30,
2008. Based on the aforementioned evaluation, management has concluded that our
disclosure control and procedures were not effective as of September 30, 2008
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.
  18
 (b)           Management’s Annual Report on
Internal Control over Financial Reporting
  (i)       Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control system is designed to
provide reasonable assurance to our management and board of directors regarding
the reliability of financial reporting and the preparation of published
financial statements. All internal control systems, no matter how well designed,
have inherent limitations. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
reporting and financial statement preparation and presentation.
  (ii)       We
have assessed the effectiveness of our internal control over financial reporting
as of September 30, 2008. In making this assessment, we used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission,
or COSO, in Internal
Control—Integrated Framework.
  (iii)      Two
material weaknesses were identified in our internal control over financial
reporting relative to accounting for the quarter ended September 30, 2008. The
first material weakness was comprised of inadequate segregation of duties to
ensure a sufficient review of the work performed by our Chief Accounting Officer
(due to the limited number of personnel we retain as employees).  The
second material weakness was the potential inability of our accounting staff to
handle certain complex accounting issues.   We believe a
mitigating factor for this material weakness is the active participation of our
Audit Committee.   These material weaknesses did not result in
the restatement of any previously reported financial statements or any other
related financial disclosure nor did they disclose any errors or
misstatements.
  Because
of the material weaknesses described above, management has concluded that the
Company’s internal control over financial reporting was not effective as of
September 30, 2008. No other material weaknesses in our internal control over
financial reporting were identified.
  A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis.
  (c)           Changes in Internal Control over
Financial Reporting
  No
changes in our internal control over financial reporting occurred during the
quarter ended September 30, 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
  (d)           Remediation Plan for Material
Weakness
  In
response to the identified material weaknesses described above, our management,
with oversight from our Audit Committee, intends to continue to enhance our
internal control over financial reporting relative to accounting during this
fiscal year as follows:
  ·
                Interview
      and potentially retain third party consultants which may assist the
      Company’s accounting staff  in providing review and analysis of
      complex accounting issues, and
  ·
                Engage
      additional expert resources to review material transactions so as to
      provide a review of what are otherwise unsegregated duties of finance and
      accounting staff.
  
 19
 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 July
28, 2008, Anthony Stafford purchased 66,667 shares of our common stock at a
price of $0.75 per share for a total cash consideration of $50,000.
 
 On
September 18, 2008 Anthony Stafford, William Berens, Jack MacKinnon and other
investors purchased 1,825,000 shares of our common stock at a price of $0.20 for
a total cash consideration of $365,000.
 
  Item
3.      Defaults upon Senior Securities
 
 Not
Applicable.
 
  Item
4.      Submissions of Matters to a Vote of Security
Holders
 
 As
described in our Form 8-K filing on August 5, 2008, on June 24, 2008, we
submitted the following matters to a vote of our stockholders:
  1.
                To
      elect the Company’s director nominees to the Board of
      Directors.
  2.
                To
      approve an amendment to the Company’s Certificate of Incorporation, as
      amended (the “Certificate of Incorporation”) that Article Fourth of the
      Company’s Certificate of Incorporation be amended to effect a 1-for-15
      reverse stock split of the issued and outstanding shares of the Company’s
      common stock;
  3.
                To
      approve an amendment to the Restated Company’s Certificate of
      Incorporation to reduce  the number of authorized shares of
      common stock;
  4.
                To
      amend the 2007 Employee, Director and Consultant Stock Plan by increasing
      the shares of the Company’s common stock for grant under that plan from
      2,000,000 to 3,000,000 shares (which shares available for grant shall be
      reduced to 200,000 shares following the reverse stock
    split;
  5.
                To
      ratify the appointment of Carlin, Charron & Rosen, LLP as the
      independent registered public accounting firm of the
    Company;
  
 The votes
for each of the proposals were as follows:
  FOR:
                  AGAINST
                  ABSTAINProposal
      1.
                  29,975,674
                  -0-
                  343Proposal
      2.
                  29,925,670
                  50,923
                  83Proposal
      3.
                  29,925,793
                  50,775
                  108Proposal
      4.
                  29,872,903
                  51,028
                  52,745Proposal
      5.
                  29,975,750
                  661
                  265
  20
 
 
 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.
 
                         
 21
 
 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.January
      15, 2009
                  
                  /s/
      William B. BerensWilliam
      B. BerensPresident
      and Chief Executive Officer (principal executive
      officer)
    January
      15, 2009
                    
                    /s/ Bruna
      BucacciBruna
      BucacciChief
      Accounting Officer (principal financial and accounting
      officer)
 
                      
 22


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.































































23