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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

 (Mark One)

     [X]  ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004

                                       OR

     [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of THE SECURITIES
          EXCHANGE ACT OF 1934

          For the transition period from _____________ to ______________


                           NATIONAL DATACOMPUTER, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

            DELAWARE                                        04-2942832
  (STATE OR OTHER JURISDICTION                            (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)

  900 MIDDLESEX TURNPIKE, BLDG. 5, BILLERICA, MASSACHUSETTS      01821
           (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)            (ZIP CODE)

                                 (978) 663-7677
                (ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)

    SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: NONE
      SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:

                     COMMON STOCK, $.08 PAR VALUE PER SHARE
                                (Title of class)

     Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

     The registrant had revenues of approximately $3.3 million during the fiscal
year ended December 31, 2004. As of April 04, 2005, 22,134,181 shares of the
registrant's common stock, $0.08 par value per share, were outstanding and the
aggregate market value of the common stock held by non-affiliates was
approximately $2,099,006 based on an average bid and asked price of $0.095 per
share as reported by the OTC Bulletin Board.

          Transitional Small Business Disclosure Format: Yes [ ] No [X]
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                                TABLE OF CONTENTS


PART I                                                                      PAGE

         Item 1:   Description of Business                                    2
         Item 2:   Description of Property                                   10
         Item 3:   Legal Proceedings                                         10
         Item 4:   Submission of Matters to a Vote of Security Holders       10

PART II

         Item 5:   Market for Common Equity, Related
                   Stockholder Matters and Small Business Issuer
                   Purchases of Equity Securities                            11
         Item 6:   Management's Discussion and Analysis of Financial
                   Condition and Results of Operations                       12
         Item 7:   Financial Statements                                      18
         Item 8:   Changes in and Disagreements with Accountants on
                   Accounting and Financial Disclosure                       19
         Item 8A:  Controls and Procedures                                   19

PART III

         Item 9:   Directors, Executive Officers, Promoters and
                   Control Persons; Compliance With Section 16(a)
                   of the Exchange Act                                       19
         Item 10:  Executive Compensation                                    25
         Item 11:  Security Ownership of Certain Beneficial Owners and
                   Management and Related Stockholder Matters                27
         Item 12:  Certain Relationships and Related Transactions            29
         Item 13:  Exhibits                                                  29
         Item 14:  Principal Accountant Fees and Services                    31



                                        1
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                                     PART I


     THE SECURITIES AND EXCHANGE COMMISSION ENCOURAGES COMPANIES TO DISCLOSE
FORWARD-LOOKING INFORMATION SO THAT INVESTORS CAN BETTER UNDERSTAND A COMPANY'S
FUTURE PROSPECTS AND MAKE INFORMED INVESTMENT DECISIONS. THIS ANNUAL REPORT ON
FORM 10-KSB CONTAINS SUCH "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE STATEMENTS MAY BE MADE
DIRECTLY IN THIS ANNUAL REPORT, AND THEY MAY ALSO BE MADE A PART OF THIS ANNUAL
REPORT BY REFERENCE TO OTHER DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, WHICH IS KNOWN AS "INCORPORATION BY REFERENCE."

     WORDS SUCH AS "MAY," "ANTICIPATE," "ESTIMATE," "EXPECTS," "PROJECTS,"
"INTENDS," "PLANS," "BELIEVES" AND WORDS AND TERMS OF SIMILAR SUBSTANCE USED IN
CONNECTION WITH ANY DISCUSSION OF FUTURE OPERATING OR FINANCIAL PERFORMANCE,
IDENTIFY FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS ARE
MANAGEMENT'S PRESENT EXPECTATIONS OF FUTURE EVENTS AND ARE SUBJECT TO A NUMBER
OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS. THESE RISKS AND
UNCERTAINTIES INCLUDE, AMONG OTHER THINGS: OUR INABILITY TO FURTHER IDENTIFY,
DEVELOP AND ACHIEVE COMMERCIAL SUCCESS FOR NEW PRODUCTS AND TECHNOLOGIES; THE
POSSIBILITY OF DELAYS IN PRODUCT DEVELOPMENT, MANUFACTURING AND SHIPMENT; THE
LEVELS AND TIMING OF PAYMENTS BY OUR CUSTOMERS; THE DEVELOPMENT OF COMPETING
PRODUCTS; OUR ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGIES;
PATENT-INFRINGEMENT CLAIMS; AND RISKS OF NEW, CHANGING AND COMPETITIVE
TECHNOLOGIES AND REGULATIONS IN THE UNITED STATES AND INTERNATIONALLY.

     IN LIGHT OF THESE ASSUMPTIONS, RISKS AND UNCERTAINTIES, THE RESULTS AND
EVENTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNUAL
REPORT OR IN ANY DOCUMENT INCORPORATED BY REFERENCE MIGHT NOT OCCUR.
STOCKHOLDERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY OF THE DATE OF THIS ANNUAL REPORT OR THE DATE OF
THE DOCUMENT INCORPORATED BY REFERENCE IN THIS ANNUAL REPORT. WE ARE NOT UNDER
ANY OBLIGATION, AND WE EXPRESSLY DISCLAIM ANY OBLIGATION, TO UPDATE OR ALTER ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE. ALL SUBSEQUENT FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO
THE COMPANY OR TO ANY PERSON ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN
THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS CONTAINED OR REFERRED TO IN THIS
SECTION.


ITEM 1. DESCRIPTION OF BUSINESS.

OVERVIEW

     Our mission is to provide solutions through the use of mobile information
systems in the distribution and inventory control market segment within the
product supply chain. We design, manufacture, 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 data communication, application-specific software,
hand-held computers, related peripherals, and accessories, as well as associated
education and support services for our hardware and software products. We were
organized as a Delaware corporation

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in 1986 and began active operations in 1987 following our merger with an
established computer systems engineering business. Since that time we have
delivered hardware and software solutions to the distribution and inventory
audit markets we have targeted.

     Our goal is to be the leading supplier in the route accounting system and
inventory services markets and in selected other market sectors which we may
identify in the future. The key elements of this strategy include: (i)
performing effective market research to assess the key essential elements of
each sector; (ii) listening to our customers and prospects and then designing
and building solutions that resolve inventory and supply chain product problems;
and (iii) continuously updating hardware and software solutions to remain
current with customers' needs as well as existing technology.

INDUSTRY BACKGROUND

     In the 1970s, microprocessor-powered equipment began to find applications
where portable, battery-powered units were required. These units found their
largest applications in the retail industry for entering re-order information
into the distribution systems which supply retail stores. A number of other data
collection applications also began to appear in the inventory service industry.

     The state of the art in microprocessors at the time was units with small
memories and programs written in proprietary or machine languages contained in
firmware. The applications used by these machines were, by necessity, simple
compared to other computer applications in business and industry. As the need
for more flexible and sophisticated programs grew, the use of units requiring
firmware became less and less desirable. This situation existed until the
mid-1980s, when personal computers blossomed and the computer industry shifted
to electronics with low-powered complementary metal oxide semiconductors
("CMOS"), which generally require less power. At that point, it became possible
to create software systems with the level of flexibility and sophistication
available in other parts of the computer industry, and the battery-powered,
hand-held personal computer was introduced.

     We believe that the future of hand-held computers is dependent on the
software or solutions industry. The opportunity to design computers for "people
who don't work at a desk" has opened up large new markets. The application of
this software technology to industries involving product distribution on truck
delivery routes is a good example of this opportunity, since the distribution
process can be highly automated, capturing every transaction as well as
supplying additional information for management controls not previously
possible.

OUR PRODUCTS

     We design, manufacture, service, and distribute rugged, programmable
hand-held computers, data collection devices, printers and associated
accessories. We are also a leading implementer of software solutions, such as
our Microsoft(TM) DOS(R)-based RouteRider product and the Microsoft(TM) Pocket
PC(R)-based RouteRider LE product, for people who need portable solutions in the
field rather than at a desk. Additionally, we also provide software solutions
specific to the inventory service market.

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     OUR HARDWARE PRODUCTS

     Our hand-held Datacomputer(R) ("Datacomputer") computers include a
microprocessor, keyboard, LCD displays, and full size alphabetic and numeric
character sets. Our Datacomputers are designed to be highly reliable, tolerant
to human error, and easy to use. They are shock resistant, watertight and
operate over a wide temperature range.

     Application programs for our Datacomputers are written on conventional
desktop computers with commonly used programming languages and then executed on
the Datacomputer or other supported hand-held devices. Application programs and
data are stored in the Datacomputer's random access memory ("RAM") and can be
readily changed by communicating revisions or new programs to the Datacomputer
through the communications setup we provide. The Datacomputer can receive data
from bar-code readers, other computers (including other Datacomputers), over
telephone lines through a modem, and through the use of wireless technology. Our
Datacomputer product line includes various models of the Datacomputer, bar-code
readers, rugged printers, communication devices, carrying cases, cables, and
add-on memory boards.

     1. DATACOMPUTER MODEL DC5(TM)

     In the first quarter of fiscal year 2001, we announced the introduction of
our Datacomputer Model DC5(TM) (the "DC5") as a new generation of hand-held
Datacomputer designed for the inventory service industry. An inventory service
company is an organization that contracts with businesses that maintain large
inventories, such as department or retail stores, to perform periodic physical
inventories.

     The DC5 is designed as a rugged, Microsoft(TM) Windows(R) CE-based mobile
Datacomputer with optional radio frequency (RF) connectivity to provide fast,
real-time, wireless transmission of collected data to a host computer, a process
that can greatly reduce the cost of inventory data collection and management.

     We believe that the DC5 is an ideal inventory management solution for
inventory service companies where having employees on the clock uploading
collected data is an expensive, time-consuming task.

     The DC5 is designed to speed the inventory taking process by freeing
employees from manually uploading information. Therefore, employees count
continuously, increasing business productivity and cost effectiveness. It also
allows inventory service companies to streamline their business processes with
access to real-time data and real-time SKU inventory with real-time terminal
emulation.

     The DC5 can also be used as an application software development platform to
allow value added resellers and end-user customers to develop applications to
meet specific customer requirements.

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     Approximately 39% of our 2004 total revenue was attributed to sales of the
newer DC5, down from 46% in 2003.

     2. DATACOMPUTER MODEL DC4(TM)

     Our Datacomputer Model DC4(TM) (the "DC4"), introduced in late 1997, is
designed for use by the route service market. The DC4 is an advanced version of
our now discontinued model DC3X in that it employs a faster processor and a
faster internal modem. Besides those enhancements, the DC4 also incorporates two
significant features not available in the DC3X, namely a touch-screen for
signature capture capability, and optical communication capability.

     We offer the DC4 usually with our RouteRider(R) software designed specially
for the DC3X and DC4 Datacomputers. These solutions are typically called
Pre-Sales System ("PSS") and Driver Sales System ("DSS"). Hybrids of these two
systems have also become standard features, so that one set of software can
easily use PSS and DSS functionality without the need for two versions or two
computers. Typically the PSS includes a Datacomputer, software and various
peripherals for use by customers who sell their products on routes and book the
sales orders through dedicated sales forces. The DSS is used by customers who
sell and invoice their products through delivery drivers and includes a
Datacomputer, a portable or truck-mounted printer, peripherals and software.

     The PSS and DSS versions, along with the hybrids versions, allow the
salesman or delivery man to access all of the distributor's information on the
customer's account, as well as to input the customer's next delivery order.

     Approximately 3% of our 2004 total revenue was attributed to sales of the
DC4, up from 2% in 2003.

     3. ICAL MODEL 100R(TM)

     Our ICAL Model 100R(TM) (the "ICAL 100R") is designed for taking inventory
for financial and shrinkage control purposes. The ICAL 100R allows a user to
divide a store's inventory into a maximum of 128 separate departments and keep a
running total in each department. We have sold the ICAL 100R to the inventory
audit market for the past 15 years.

     The primary customers for the ICAL 100R are inventory service companies
that take inventory for retailers and other institutions on a contract basis,
and retailers such as convenience store chains or others selling large
quantities of relatively low priced items.

     Approximately 4% of our 2004 total revenue was attributed to the sale of
the ICAL 100R, up from 3% in 2003. Revenues generated by the ICAL 100R are
almost exclusively from customers who wish to continue to use their installed
base of ICAL devices. We intend to continue supporting the ICAL product line to
protect our customers' investments.

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     OUR TAILORED SOFTWARE SOLUTIONS

     1. ROUTERIDER(R) LE

     On June 1, 2004, we announced a distribution agreement with Micronet LTD,
giving us exclusive rights to market, sell and support a new mobile accounting
software product throughout the United States, Canada and Mexico, subject to our
meeting annual sales quotas as defined. The agreement enables us to target major
food and beverage distributors, as well as distributors in other markets, by
providing them with an efficient solution which reduces costs, increases sales,
tracks operations more accurately, and enhances customer service.

     The new software, named RouteRider(R) LE, 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.

     Utilizing state of the art technology and 18 years of experience, we are
providing a complete and comprehensive mobile solution for Sales and Route
Accounting applications, including Pre-Sale; Van Sale (DSD) and Distribution.
The sales/field force is equipped with handheld computers or PDA's (Personal
Digital Assistants) and communicates to the host or back office system through a
dedicated communication server. The use of RouteRider LE enables sales and field
representatives to receive timely and updated information needed to make
decisions and close transactions effectively and efficiently.

     RouteRider LE runs on standard Microsoft(TM) Windows(R) operating systems.
RouteRider LE software includes a technologically innovative communications
server that mediates between the back office system and the PDAs. The server
implements a unique development that greatly enhances communication data rates.
The software is designed to include all of the functions that a sales person
might perform during his or her work.

     RouteRider LE contains detailed information on all customers, all products,
prices and promotions. Historical information down to the line item detail can
also be supplied. Surveys, voice messages, notes, graphics, e-mails, business
intelligence, accounts receivable and other information are designed to improve
the efficiency of the sales person on a daily basis.

     2. ROUTERIDER(R)

     Our Datacomputers can be equipped with our Microsoft(TM) DOS-based version
of RouteRider(R) ("RouteRider") software, which is designed to be a powerful but
easy-to-use route service system that can be customized for customers based on
the way they run their businesses. RouteRider-equipped Datacomputers allow sales
people to communicate orders electronically as often as they want throughout the
day, by modem or cellular phone.

     Salespeople returning to an office or warehouse at the end of the day can
exchange information by connecting their RouteRider Datacomputer to a
communications server either directly or through NDINet(TM), our proprietary
network software, which unattended, can receive information from multiple
RouteRider Datacomputers at multiple locations. Sales people who do

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not return to an office or warehouse at the end of the day can call their home
base every evening to communicate the day's activities and load the RouteRider
Datacomputer with up-to-the-minute information on products, pricing, and the
next day's customers.

     Once the results of daily activities are uploaded from the RouteRider
Datacomputer to the communications server, the server uploads this new data to
the customer's host system's route accounting, sales, distribution, accounts
receivable ("A/R"), and inventory programs, thereby saving data-entry costs and
eliminating transcription and keying errors. The server also downloads to the
salesperson's RouteRider Datacomputer all the updated information needed for the
next day's work--route schedule, customer files, history updates, customer
specific pricing changes, promotions, updated A/R status, open invoices, and
more. During the day, at each route stop, the driver takes the customer's
inventory, calculates what new stock needs to be added and prints out a delivery
slip for each customer. At the end of the day, a complete report of the driver's
deliveries can be printed. According to a number of our customers, the use of
our RouteRider Datacomputers has significantly improved driver efficiency.

     3. W.I.N.

     Our Wireless Inventory Network ("W.I.N.") software product is a Windows(R)
application designed for the inventory service market to provide faster and more
efficient inventory audits. W.I.N. is designed to deliver wireless connectivity
through a radio frequency carrier of 2.4 GHZ over line-of-sight distances of up
to 1,000 feet. Using our DC5 together with a PC base station allows the user to
transmit each inventory record in real-time from up to 62 simultaneous multiple
remote hand-helds. W.I.N. also delivers Stock Keeping Unit ("SKU") scanning
capability to allow the user control of their inventory down to an individual
item level.

     4. WINTAKES

     Our WINTAKES (Windows Inventory Taking System) software product is a
Windows(R) application designed for the inventory service market. It runs on the
DC5 and on a personal computer server, and is capable of generating over 45
specialized reports. WINTAKES gives the ability to import and edit the
customer's item master file, perform a physical (SKU) or financial inventory,
export the data into the customer's format, and generate specialized reports. It
was designed to provide the most flexible and highest quality inventory solution
for service companies, retailers, distributors, or anyone requiring a physical
or financial inventory.

     5. FINANCIAL AUDIT

     Our Financial Audit Software ("FinAud") product was developed in 1993 for
the DC2.5 Datacomputer. In 2002, FinAud was updated to Enhanced FinAud to run on
the DC5.

     For retailers and inventory service companies, Enhanced FinAud allows for
convenient entry of financial audit data with full Audit Trail Reporting,
Inventory Recap Reporting, and Department Recount for inventory reconciliation.
Four standard reports are available from the stand-alone DC5 to be printed on a
user-supplied printer. Data can be exported in fixed format

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ASCII characters, which enables users to upload to their laptops the totals
collected from financial inventory audits, and then create their own reports.

     The ability to consolidate files from DC2.5s and DC5s onto a single
datacomputer enables users to print stand-alone summary reports or send data to
a PC. This feature allows users to combine NDI-manufactured equipment in one
inventory.

     Enhanced FinAud also provides a utility called Master File Maker through
which users can create on their PC, and download to the DC5, a Master File that
allows them to define the unique configuration of each inventory site and store
that configuration for future use.

OUR MARKETS

     We currently focus on two markets for sales of our Datacomputers:

     THE ROUTE ACCOUNTING SYSTEM MARKET. Route accounting involves concurrent
order taking, product delivery, inventory tracking, and asset control.
Salespeople enter customer orders in our Datacomputers and use portable printers
to generate invoices that are left with the customers' orders at their
locations. At the end of a route delivery day, information stored in the
Datacomputer is transferred to the host information system and instructional and
control information for the next day's delivery routes is transferred back to
the Datacomputer.

     THE INVENTORY SERVICES MARKET. This market has requirements for products
with smaller displays and larger keyboards, both of which run counter to the
modern trends of hand-held computers providing larger displays and smaller
keyboards. These markets demand intensive numerical input and large memory
storage. We offer hardware products that meet these needs, together with
financial audit software, and real-time wireless software that aids in the
collection of inventory data.

MARKETING AND DISTRIBUTION

     Recognizing the need to focus our marketing resources, we have targeted our
business strategy for Datacomputers to a limited number of markets. We currently
focus on market sectors where businesses distribute their products through
routes. We believe that the route sales and service market is attractive
because: (i) customer acceptance of hand-held computers has been established in
those sectors; (ii) customers have realized a substantial return on their
investment in hand-held computers; and (iii) we enjoy a competitive advantage in
this market due to our software and related services. To date, we believe we
have gained the leading position in the office coffee service market, and have
penetrated the beverage distribution, bakery, snacks, and dairy markets.

     The DC5, both wireless and non-wireless, is sold to existing and new
inventory service customers as well as the Value Added Reseller ("VAR") market
as an application software development platform and/or as an inventory data
collection solution using our application software. As a Windows CE-based
solution, the DC5 provides a wide array of communication functions, from
wireless, to IrDA and Ethernet 10 BaseT. Additionally, support for Bluetooth

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wireless is included. Due to the high-speed keyboard and extremely rugged
design, we believe the DC5 is highly suited to data collection in a wide range
of environments.

     The ICAL 100R is sold principally to repeat inventory service customers who
already have a sizable investment in their use and applications for ICAL
products. We devote relatively few resources to generate additional sales of
ICAL units above those demanded by our existing customers.

     DIRECT SALES FORCE

     We primarily sell and distribute our products through a direct sales force,
which we believe offers the best method for marketing and selling our products.
Direct selling is our primary strategy in the route sales and service market. We
believe that the key elements to successful direct selling include: (i)
maintaining a well-qualified direct sales staff that is experienced in marketing
and selling solutions to medium and large accounts; (ii) using a consultative
sales approach; (iii) offering excellent service and support; and (iv)
maintaining good customer references.

     SERVICE AND SUPPORT

     We believe that superior service is a vital part of our competitive
strategy and we emphasize the quality of both our hardware and software service.
Our customer service department manages all installations, preparations and
follow-up support. We provide depot contract repair services for our own
manufactured hardware as well as other manufacturers' hand-helds.

     We typically offer industry standard 90-day warranties and several flexible
service arrangements and maintenance contracts to meet customer needs. In
addition to technical support of installed systems, we provide pre-installation
site surveys, installation services, customization and enhancements, user
training, technical training, application software support, and host information
system interface assistance.

     Approximately 40% of our 2004 total revenue was attributed to service and
support sales.

     KEY CUSTOMERS

     During 2004, one customer who has been one of our top customers since 1992
accounted for approximately 26% of our total revenues. Additionally, in 2004 our
top six customers collectively accounted for 47% of our total revenues.

     SOURCES OF SUPPLY

     We maintain raw material inventories and have close working relationships
with our suppliers in order to ensure timely and reliable delivery of our raw
materials. However, prolonged supply shortages would materially and adversely
affect our manufacturing operations, business and financial performance.

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     COMPETITION

     The market for our route service products is highly competitive and acutely
influenced by advances in technology, new product introduction and price
competition. Our competitors include Intermec Technologies Corporation, Symbol
Technologies/Telxon and related third parties, all of which have greater
financial, marketing and technical resources than we do. In addition, larger
corporations could enter the route sales and service segment of the hand-held
computer market. We compete in the hand-held computer market on the basis of
product features, software, quality and service.

     We enjoy a leadership position in the inventory service market and have two
known competitors, Inventory Science Systems Corporation ("ISS") and Palm Quest.
While ISS has been in business since 1996, we have not experienced any negative
impact on our business and see limited acceptance of their product in the
market. We compete in the inventory service market on the basis of product
features, software, quality and service.

EMPLOYEES

     As of December 31, 2004, we had 25 full-time employees, and 1
subcontractor. Of these employees and subcontractor, 4 were engaged in sales and
marketing, 9 in service and customer support, 3 in hardware and software
development, 4 in manufacturing and 6 in administration and finance. Our
employees are not represented by a labor union. We believe that our relationship
with our employees is good.

ITEM 2. DESCRIPTION OF PROPERTY.

     We maintain our principal offices and manufacturing operations in a leased
19,000 square foot facility in Billerica, Massachusetts. Our lease expires on
September 30, 2005. The annual base rent for our leased facilities is
approximately $178,000. The lease contains an option for renewal, and requires,
among other things, that we will pay to our landlord as additional rent our pro
rata share of certain operational and maintenance costs at the facility during
the term of the lease. We believe that our facilities are adequate for our
current needs and that additional space, if required, may be available at
competitive rates

ITEM 3. LEGAL PROCEEDINGS.

     We are not a party to any legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

     No matters were submitted to a vote of security holders during the quarter
ended December 31, 2004.

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                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES.

     Our common stock trades on the OTC Bulletin Board ("OTC") under the symbol
IDCP. On April 4, 2005, the last bid price for our common stock as reported by
OTC was $0.095 per share.

     For the periods indicated below, the table sets forth the range of high and
low bid prices for our common stock as reported by the OTC. The quotations
reflect inter-dealer prices, without retail mark-up, markdown or commission, and
may not represent actual transactions.

                                                          HIGH         LOW
                                      2003

           First Fiscal Quarter                          $ 0.08      $ 0.04
           Second Fiscal Quarter                           0.05        0.04
           Third Fiscal Quarter                            0.10        0.03
           Fourth Fiscal Quarter                           0.25        0.05

                                      2004

           First Fiscal Quarter                          $ 0.29      $ 0.15
           Second Fiscal Quarter                           0.26        0.12
           Third Fiscal Quarter                            0.12        0.08
           Fourth Fiscal Quarter                           0.12        0.08

     As of April 4, 2005, there were approximately 2,288 stockholders of record
of our common stock.

DIVIDENDS

     Since inception, we have not paid any dividends on our common stock and we
do not anticipate the payment of any dividends to our common stockholders in the
foreseeable future. We currently intend to reinvest earnings, if any, in the
development and expansion of our business. The declaration of dividends in the
future will be at the election of our Board of Directors and will depend upon
our earnings, capital requirements and financial position, general economic
conditions, and other pertinent factors. Our outstanding preferred stock
requires that holders of preferred stock be entitled to receive dividends prior
to the payment of any dividends on our common stock.

UNREGISTERED SALES OF SECURITIES

     During the quarter ended December 31, 2004, we did not issue any
unregistered securities.

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ISSUER REPURCHASES OF EQUITY SECURITIES

     During the quarter ended December 31, 2004, we did not repurchase any
shares of our common stock.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

     Our mission is to provide solutions through the use of mobile information
systems in the distribution and inventory control areas of the product supply
chain. We design, manufacture, 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 data
communication, application-specific software, hand-held computers, related
peripherals, and accessories. We were organized as a Delaware corporation in
1986 and began active operations in 1987 following our merger with an
established computer systems engineering business. Since that time we have
delivered hardware and software solutions to the distribution and inventory
audit markets we have targeted.

     Our hand-held Datacomputer computers include a microprocessor, keyboard,
LCD displays, and full alphabetic and numeric character sets. Our Datacomputers
are designed to be highly reliable, tolerant to human error, and easy to use.
They are shock resistant, and operate over a wide temperature range. Our current
generation Datacomputer, the DC5, was launched in the beginning of 2001 into the
Inventory Audit Specialist marketplace. The DC5 is designed as a rugged,
Microsoft Windows CE based mobile Datacomputer with optional radio frequency
(RF) connectivity to provide fast, real-time, wireless transmission of collected
data to a host computer, a process that can greatly reduce the cost of inventory
data collection and management.

     Our Datacomputers model DC4 can be equipped with our RouteRIDER(R)
software, which is designed to be a powerful but easy-to-use route accounting
system that can be customized for customers based on the way they run their
businesses. RouteRIDER(R) equipped Datacomputers allow sales people to
communicate orders electronically as often as they want throughout the day, by
modem. During 2004, we also began offering our new RouteRider(R) LE software,
which is designed to enable seamless integration of any host environment to
mobile computers running on any wireless hand-held device that supports
Microsoft's Pocket PC or Windows CE, while incorporating cell phone and Internet
communications.

     CRITICAL ACCOUNTING POLICIES

     Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
significant estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. These items are constantly monitored and analyzed by management
for changes in

                                       12
<PAGE>

facts and circumstances, and material changes in these estimates could occur in
the future. Changes in estimates are recorded in the period in which they become
known. We base our estimates on historical experience and various other
assumptions that we believe to be reasonable under the circumstances. Actual
results may differ from our estimates if past experience or other assumptions do
not turn out to be substantially accurate.

     A summary of those accounting policies that we believe are most critical to
fully understanding and evaluating our financial results is set forth below.
This summary should be read in conjunction with our financial statements and the
related notes included elsewhere in this Annual Report on Form 10-KSB.

     REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE. We recognize revenue when
there is persuasive evidence of an arrangement, title and risk of loss have
passed, delivery has occurred or the services have been rendered, the sales
price is fixed or determinable and collection of the related receivable is
reasonably assured. Title and risk of loss passes to the customer at the time of
delivery of the product to a common carrier. At the time of the transaction, we
assess whether the sales price is fixed or determinable based upon the payment
terms of the arrangement. If a significant portion of the sales price is not due
with normal payment terms, the sales price may not be deemed fixed and revenue
would be recognized as the amounts become due.

     Our product revenue is recognized upon delivery provided that customer
acceptance criteria can be demonstrated prior to shipment. Where the criteria
cannot be demonstrated prior to shipment, or in the case of new products,
revenue is deferred until acceptance has been received. We recognize revenue for
maintenance services ratably over the contract term, which is generally one year
or less.

     We assess collectibility based on a number of factors, including past
transaction and collection history with a customer. If we determine that
collectibility of the sales price is not reasonably assured, revenue is deferred
until such time as collection becomes reasonably assured, which is generally
upon receipt of payment from the customer. Our normal payment terms are 30 days
from invoice date. We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make required payments.
We base our estimates on our historical collection experience, current trends,
credit policy and percentage of our accounts receivable by aging category. In
determining these estimates, we look at historical write-offs of our receivables
and review each customer's account to identify any specific collection issue.
While such credit losses have historically been within our expectations and the
allowances we established, we cannot guarantee that we will continue to
experience the same credit loss rates that we have in the past. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payment, additional allowances may be required. Our
failure to accurately estimate the losses for doubtful accounts and ensure that
payments are received on a timely basis could have a material adverse effect on
our business, financial condition and results of operations. For the year ended
December 31, 2004 and 2003, $1,296 and $1,311, respectively, were provided for
doubtful accounts.

     INVENTORIES. Inventories, which include materials, labor and manufacturing
overhead, are stated at the lower of cost (first-in, first-out basis) or net
realizable value. We record a provision

                                       13
<PAGE>

for excess and obsolete inventory when impairment is identified through our
review process. Obsolete inventory and inventory in excess of estimated usage
over the next 12 months is written down to its estimated net realizable value,
if less than cost. The excess and obsolescence evaluation is based upon
assumptions about future demand, product mix and possible alternative uses. In
2004, we recorded an inventory provision for excess and obsolete inventory of
$45,000, which has been reflected in cost of revenues. If actual demand, product
mix or possible alternative uses are less favorable than those projected by
management, additional inventory write-downs may be required.

     CAPITALIZED SOFTWARE RESEARCH AND DEVELOPMENT COSTS. Costs associated with
the development of computer software are charged to operations prior to
establishment of technological feasibility, as defined by 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.

     No software costs were capitalized or written down for the year ended
December 31, 2004. Amortization of capitalized software costs were $117,156 and
$102,992 for the years ended December 31, 2004 and 2003, respectively.

     ACCOUNTING FOR INCOME TAXES. We record income taxes using the asset and
liability method. Deferred income tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective income tax bases and operating loss and tax credit carryforwards. Our
financial statements contain certain deferred tax assets that have arisen
primarily as a result of our history of operating losses incurred, as well as
other temporary differences between book and tax accounting. Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," requires
the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. Significant management judgment is required
in determining our provision for income taxes, our deferred tax assets and
liabilities and any valuation allowance recorded against our net deferred tax
assets. We evaluate the weight of all available evidence to determine whether it
is more likely than not that some portion or all of the deferred income tax
assets will not be realized. As a result of operating losses incurred through
2004 and uncertainty as to the extent and timing of profitability in future
periods, we maintain a full valuation allowance of $3,640,000 as of December 31,
2004. In the event that we are able to determine the realization of our deferred
tax assets in the future, an adjustment to the deferred tax assets would
increase net income in the period such determination was made. The amount of the
deferred tax asset considered realizable is based on significant estimates, and
it is at least reasonably possible that changes in these estimates in the near
term could materially affect our financial condition and results of operations.
Our effective tax rate may vary from

                                       14
<PAGE>

period to period based on changes in estimated taxable income or loss, future
expansion into areas with varying country, state, and local income tax rates,
deductibility of certain costs and expenses by jurisdiction and as a result of
acquisitions.

     RESULTS OF OPERATIONS

     The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere herein.

     YEAR ENDED DECEMBER 31, 2004 COMPARED WITH YEAR ENDED DECEMBER 31, 2003

     REVENUE

     For the year ended December 31, 2004 (the "2004 Period"), we reported a net
loss of $494,343 compared to a net income of $336,791 for the year ended
December 31, 2003 (the "2003 Period").

     Product revenues for the 2004 Period were $1,939,051, a 37% decrease as
compared to $3,079,406 for the 2003 Period. The decrease is primarily due to
decreased shipments of our inventory service products, mainly the DC5, which
experienced reduced demand from two of our major customers. Service revenues for
the 2004 Period were $1,309,185 a 14% decrease as compared to $1,519,814 for the
2003 Period. This decrease is a result of fewer support service contracts for
our route service products due to unfavorable economic conditions, along with
customer constraints on spending.

     Gross Profit for the 2004 Period was $1,327,724 or 41% of revenues as
compared to $2,116,028 or 46% of revenues for the 2003 Period. The decrease in
gross profit reflects a higher percentage of fixed manufacturing overhead costs
that were not offset due to our significant reduction in revenue.

     OPERATING EXPENSES

     Research and development expenses decreased 24% to $352,654 for the 2004
Period from $462,819 in the 2003 Period. The decrease is the result of planned
reductions in the use of outside subcontractors due to diminished spending on
internally developed product software, and the capitalization of cost incurred
in the development and construction of automated test fixtures for each of our
inventory products.

     Selling and marketing expenses increased 28% to $489,055 for the 2004
Period from $382,309 in the 2003 Period. The increase is primarily due to
increased marketing expenses along with increased sales personnel and travel
related to the launching of RouteRider LE, our new mobile route accounting
solution.

     General and administrative expenses increased 3% to $979,982 for the 2004
Period from $948,255 for the 2003 Period. The increase is primarily attributable
to increased legal expenses associated with the dismissal of a litigation
dispute with Infos International, Inc. and Infos

                                       15
<PAGE>

Group, Inc., and the negotiation of a distribution agreement for our RouteRide
LE software with Micronet LTD.

     PERCENTAGE RELATIONSHIP OF CERTAIN REVENUES AND EXPENSES

     The following table sets forth for the periods indicated the percentage
relationship of certain items in the statement of operations to revenues and the
percentage increase or decrease of such items as compared to the indicated prior
period:

                                         Relationship       Period to period %
                                       to revenues year     increase (decrease)
                                      ended December 31,        Year ended

                                        2004     2003            2004-2003
                                        ----     ----            ---------

     Revenues:
        Product                          60%      67%              (37%)
        Service                          40%      33%              (14%)
                                        ----     ----              ----

                                        100%     100%              (29%)

     Cost of goods sold                  59%      54%              (23%)
                                        ----     ----              ----

     Gross Profit                        41%      46%              (37%)

     Selling & Marketing                 15%       8%               28%
     Research & Development              11%      10%              (24%)
     General & Administrative            30%      21%                4%
                                        ----     ----              ----

     Net (loss) income                  (15%)      7%             (247%)

     LIQUIDITY AND CAPITAL RESOURCES

     During the twelve month period ended December 31, 2004, we used cash of
$353,933 for operating activities. Our principal operating cash requirements
were to fund our loss from operations, along with an increase in accounts
receivable and a decrease in deferred revenues, partially offset by a decrease
in inventory, an increase in accounts payable and non-cash charges for
depreciation and amortization.

     We used cash of $48,780 for the purchase of capital equipment, and we also
used cash of $21,650 to make payments on obligations under capital leases.

     We incurred an accumulated deficit of approximately $18.1 million through
December 31, 2004. As a result of this accumulated deficit and our cash
position, the report of our independent

                                       16
<PAGE>

registered public accounting firm contains an explanatory paragraph regarding
substantial doubt about the Company's ability to continue as a going concern.
The Company's plans to address the situation are presented below. However, there
are no assurances that these plans will be successful or sufficient.

     In the event our operations continue to be unprofitable or do not generate
sufficient cash to fund the business, or if we fail to obtain additional
financing, management will have to substantially reduce its level of operations.
These circumstances raise substantial doubt about our ability to continue as a
going concern. These financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

     In order to improve our cash position, we have taken a number of steps to
control our operating expenses, while simultaneously pursuing sales
opportunities. There is a possibility that the latter might not result in
adequate revenues in the near future to meet cash flow requirements, and
therefore might require us to implement further cost saving action or attempt to
obtain additional financing.

     We maintain adequate levels of inventory and have not experienced any
interruption of supplies or services from vendors.

COMMITMENTS

     The Company leases its office facilities under an operating lease expiring
September 30, 2005. The lease contains an option for renewal and requires the
payment of taxes and other operating costs. Total rent expense under this
operating lease was $237,527 and $243,043 for the years ended December 31, 2004
and 2003, respectively.

     The Company also leases certain equipment under capital leases expiring at
various dates through 2009. The total cost of equipment recorded under these
capital leases was $248,589 and $232,730 at December 31, 2004 and 2003,
respectively.










                                       17
<PAGE>

     Minimum future lease commitments under operating and capital leases at
December 31, 2004 are as follows:

                                                  OPERATING         CAPITAL
                                                  ---------         -------

                  2005                             $141,000         $13,959
                  2006                                 -              4,998
                  2007                                 -              4,998
                  2008                                 -              4,998
                  2009                                 -              2,915
                                                   --------         -------

     Total Minimum Lease Payments                  $141,000         $31,868
                                                   ========
     Less: amount representing interest                               8,300
                                                                    -------

     Present Value                                                  $23,568
                                                                    =======


RECENTLY ISSUED ACCOUNTING STANDARDS

     In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123(R), "Share-Based Payment", which revised SFAS No. 123 and
superseded APB Opinion No.25, "Accounting for Stock Issued to Employees". SFAS
No. 123(R) requires that companies recognize compensation expense associated
with grants of stock options and other equity instruments to employees in the
financial statements, effective as of the first reporting period that begins
after June 15, 2005. Compensation cost will be measured based on the fair value
of the instrument on the grant date and will be recognized over the vesting
period. This pronouncement applies to all grants after the effective date and to
the unvested portion of stock options outstanding as of the effective date. SFAS
No. 123(R) eliminates the ability to account for such transactions using the
intrinsic method currently used by the Company. The Company will be required to
adopt SFAS No. 123(R) as of July 1, 2005, and. the impact of this requirement on
the Company's financial statements is not expected to be material.

     In November 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (SFAS 151).
SFAS 151 clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs and spoilage. In addition, SFAS 151 requires that
allocation of fixed production overhead to the costs of conversion be based on
the normal capacity of the production facilities. The provisions of SFAS 151 are
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The Company does not expect adoption of SFAS 151 to have a material
impact on its results of operations and financial position.

ITEM 7. FINANCIAL STATEMENTS.

     See Item 13 below and the Index therein for a listing of the financial
statements and supplementary data filed as part of this report.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     None.

                                       18
<PAGE>

ITEM 8A. CONTROLS AND PROCEDURES.

     (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our principal
executive officer and principal financial officer, after evaluating the
effectiveness of our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
Annual Report on Form 10-KSB, have concluded that, based on such evaluation, our
disclosure controls and procedures were adequate and effective. In designing and
evaluating our disclosure controls and procedures, our management recognizes
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and our management necessarily is required to apply its judgment in evaluating
the cost-benefit relationship of possible controls and procedures.

     (b) CHANGES IN INTERNAL CONTROLS. There were no changes in our internal
control over financial reporting, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

     We expanded our Board of Directors from two to five members during 2004.
Each of our directors is elected for a period of one year and holds office until
his successor is elected and qualified. Vacancies may be filled by a majority
vote of the directors then remaining in office. Our officers are elected by and
serve at the discretion of the Board of Directors. The following table sets
forth the year each of our current directors was elected to the Board and the
age, positions and offices currently held by each director. For information
about ownership of our voting securities by each director, see "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."

                              YEAR
                              FIRST BECAME
NAME                 AGE      DIRECTOR         POSITION
----                 ---      --------         --------

John P. Ward         77       1967             Chairman of the Board, President,
                                               and Chief Executive Officer

William R. Smart     83       1989             Director

Gerald S. Eilberg    71       2004             Director, Senior Vice President
                                               of Finance and Administration,
                                               and Chief Financial Officer

John H. MacKinnon    64       2004             Director

Kenneth B. Brater    56       2004             Director

                                       19
<PAGE>

BUSINESS EXPERIENCE AND BACKGROUNDS OF THE DIRECTORS

     The background of each of our current directors is as follows:

     JOHN P. WARD has served on our Board of Directors since our formation and
on the Board of our predecessor in interest since 1967. He has served as our
Chairman, President and Chief Executive Officer since April 2001. From February
1996, through March 2001, Mr. Ward served as founder, director, and Chairman
Emeritus of MIDAS Vision Systems, Inc., a privately held company specializing in
machine vision systems for automatic optical inspections. Prior to MIDAS, Mr.
Ward served for a period of fifteen years in the capacities of electronics
design engineer for the Raytheon Company. Mr. Ward has 34 years of experience as
an entrepreneur during which he co-founded three high-tech companies, while
managing all aspects of new venture operations. Mr. Ward holds a Bachelor of
Science degree in Electrical Engineering from the Massachusetts Institute of
Technology and a Master of Science degree in Electrical Engineering from
Northeastern University.

     WILLIAM R. SMART has served as one of our directors since December 1989. He
spent 32 years with the General Electric Company where his responsibilities
included distribution and marketing management and general management as a
division vice president. He spent nine years with Honeywell, Inc. where he
served as vice president in charge of European operations and Senior Vice
President of Honeywell Information Systems, responsible for international
operations as well as for the corporate staff. Mr. Smart holds a Bachelor of
Science degree in Electrical Engineering from Princeton University. Mr. Smart is
a director of American Petroleum Company and Hollingsworth & Vose Company.

     GERALD S. EILBERG joined us in September 1988 as Vice President of Finance
and Administration and Chief Financial Officer and was elected to the Board of
Directors effective March 1, 2004. From October 1986 to August 1988, Mr. Eilberg
served as a financial consultant to small private and public companies. From
September 1982 to September 1986, he was President of Direct Marketing Inc.
Previous positions included Division and Corporate Controller positions with
large public companies. Mr. Eilberg is a graduate of the Boston University
School of Management and the Columbia University Graduate School of Business.

     JOHN H. MACKINNON has served as one of our directors and Chairman of the
Audit Committee effective with his appointment on March 1, 2004. Mr. MacKinnon
joined PricewaterhouseCoopers LLP in 1968 and was a partner from 1978 until his
retirement in 1999. Mr. MacKinnon served as a part-time consultant to the
Company under an arrangement that was terminated as of February 27, 2004. Mr.
MacKinnon also serves on the Boards of Directors of Lojack Corporation and
Biosphere Medical Inc. Mr. MacKinnon is a Certified Public Accountant and is
active in community affairs, including serving on the Boards of Trustees of
Emmanuel College, Laboure College and Blessed John XXIII National Seminary.

     KENNETH B. BRATER was appointed as one of our directors on October 7, 2004.
Mr. Brater is currently retired. Until 2004, Mr. Brater was Chairman - Executive
Committee of the Board, President and Chief Executive Officer of HTI Voice
Solutions, Inc., where he served on the Board of Directors since 1990. From
November 1989 until May 1990, Mr. Brater served as Vice

                                       20
<PAGE>

President of Sales and Marketing of HTI Voice Solutions, Inc. In May 1990, he
and a group of private investors acquired HTI, at which time Mr. Brater was
named President and Chief Executive Officer as well as appointed to the Board of
Directors. In 1987, he was Vice President and General Manager of IOC's Voice
System Division. Before that, Mr. Brater held various senior managerial
positions with General Instrument, General Signal and Chelsea Industries. From
1962 through 1965, Mr. Brater served as an Infantry Officer with the United
States Army. Mr. Brater holds a Bachelors degree from New York University and is
a member of the National Association of Corporate Directors.

     Our Board of Directors has determined that Kenneth B. Brater, John H.
MacKinnon, and William R. Smart are "independent directors" in accordance with
the rules of The Nasdaq Stock Market, Inc.

AUDIT COMMITTEE

     The Audit Committee of our Board of Directors consists of two members, John
H. MacKinnon (Chairman), who joined the committee upon his election to the Board
on March 1, 2004, and Kenneth B. Brater, who joined the committee upon his
election to the Board on November 1, 2004. William R. Smart also served on the
committee during 2004 until he was replaced by Mr. Brater on November 1, 2004.
The members of the Audit Committee satisfy the current independence standards
promulgated by the Securities and Exchange Commission and by the Nasdaq Stock
Market, as such standards apply specifically to members of audit committees. The
Board has determined that Mr. MacKinnon is an "audit committee financial
expert," as the Securities and Exchange Commission has defined that term in Item
401 of Regulation S-B.

     The functions of the Audit Committee include selecting, evaluating and
replacing, if needed, our independent certified public accountants; approving
all audit and non-audit services and fees related thereto; reviewing, in
consultation with our management and independent certified public accountants,
the scope and results of the interim reviews and the annual audit of our
financial statements included in our quarterly and annual reports filed with the
SEC; and overseeing and monitoring the processes and controls management has in
place to maintain the reliability and integrity of our accounting policies and
financial reporting process, to ensure the adequacy of internal accounting,
financial reporting and disclosure controls and to comply with legal and
regulatory requirements that may impact our financial reporting and disclosure
obligations.

     The Audit Committee has furnished the Audit Committee Report set forth
below. The Audit Committee is not governed by an audit committee charter,
however the Audit Committee and the Board of Directors anticipate adopting an
audit committee charter during 2005.

     The Audit Committee has met with BDO Seidman, LLP to discuss the results of
its audit, the adequacy of the Company's internal and external accounting
controls, and the integrity of the Company's financial reporting. The Audit
Committee met four times in 2004.

                                       21
<PAGE>

     AUDIT COMMITTEE REPORT

     This Audit Committee Report reviews actions taken with respect to the
Company's financial statements for the year ended December 31, 2004.

     The Company's management is responsible for the preparation, presentation
and integrity of the Company's financial statements and the reporting process,
including the system of internal and external controls. BDO Seidman, LLP, the
Company's independent registered public accounting firm, is responsible for
auditing the Company's financial statements and expressing an opinion on the
conformity of those audited financial statements with accounting principles
generally accepted in the United States of America. In fulfilling its
responsibilities for 2004, the Audit Committee took the following actions:

     o    Reviewed and discussed the audit plan, audit scope, identification of
          audit risks and the audited financial statements for the year ended
          December 31, 2004, with management and BDO Seidman, LLP;

     o    Discussed with BDO Seidman, LLP the matters required to be discussed
          by Statement on Auditing Standards No. 61 relating to the conduct of
          the audit; and

     o    Received written disclosures and the letter from BDO Seidman, LLP
          regarding its independence as required by Independence Standards Board
          Standard No. 1. The Audit Committee further discussed with BDO
          Seidman, LLP its independence. The Audit Committee considered, with a
          view to maintaining the independence of its independent registered
          public auditors, the nature and scope of the non-audit services
          supplied to the Company by its independent registered public auditors.

     o    The Audit Committee also considered the status of pending litigation,
          taxation matters and other areas of oversight relating to the
          financial reporting and audit process that the Committee determined
          appropriate.

The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not employed by the Company for
accounting or financial management or for any aspects of the Company's system of
internal accounting control. The members of the Audit Committee rely, without
independent verification, on the information provided to them and on the
representations made by management and the Company's independent registered
auditors. Accordingly, the Audit Committee's oversight does not provide an
independent basis to determine that management has maintained procedures that
are designed to assure compliance with accounting standards and applicable laws
and regulations. In addition, the Audit Committee's considerations and
discussions referred to above do not assure that the audit of the Company's
financial statements has been carried out in accordance with auditing standards
of the Public Company Accounting Oversight Board (United States).

Based upon the reports, discussions and reviews described in this Report, and
subject to the limitations on the role and responsibilities of the Committee
referred to above, the Committee has recommended to the Board and the Board has
approved, that the audited financial statements

                                       22
<PAGE>

for the year ended December 31, 2004 be included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 2004 to be filed with the
Securities and Exchange Commission.

                                                             The Audit Committee
                                                     John H. MacKinnon, Chairman
                                                               Kenneth B. Brater


NOMINATING, COMPENSATION AND GOVERNANCE COMMITTEE

     Effective March 1, 2004, our Board created a Nominating, Compensation and
Governance Committee consisting of two members, William R. Smart (Chairman) and
John H. MacKinnon. On November 1, 2004, Mr. Brater joined the Nominating,
Compensation and Governance Committee and was appointed Chairman. The committee
reviews, approves and makes recommendations regarding our compensation policies,
practices and procedures, including determination of the compensation for our
Chief Executive Officer. The committee also makes recommendations to the full
Board as to the size and composition of the Board and makes recommendations as
to particular nominees. The committee considers nominations for our Board in
accordance with our Restated By-Laws, a copy of which is incorporated by
reference as an exhibit to this Annual Report on Form 10-KSB. The Committee also
reviews and makes recommendations to the full Board concerning corporate
governance matters. The members of the Nominating, Compensation and Governance
Committee qualify as independent under the definition promulgated by the Nasdaq
Stock Market.

EXECUTIVE OFFICERS

     Our executive officers, their ages and positions with the Company are as
follows:

NAME                    AGE       POSITION
----                    ---       --------

John P. Ward            77        Chairman of the Board, President, and
                                  Chief Executive Officer

Gerald S. Eilberg       71        Director, Senior Vice President of Finance and
                                  Administration, and Chief Financial Officer

William B. Berens       51        Vice President, Sales and Marketing

BUSINESS EXPERIENCE AND BACKGROUNDS OF THE EXECUTIVE OFFICERS

     The following is a brief summary of the background of each of our executive
officers other than John P. Ward and Gerald S. Eilberg, whose backgrounds are
summarized above.

                                       23
<PAGE>

     WILLIAM B. BERENS joined us on March 1, 2004 as our Vice President of Sales
and Marketing. Prior to joining us, Mr. Berens was Vice President of business
development for Interleaf (later acquired by BroadVision) from 1998 to 2000, and
TOWER Technology from 2001 to 2002. Mr. Berens has spent the past 25 years in
the information processing industry in a variety of positions and industries.
From 1978 to 1991 Mr. Berens served in various management capacities with Wang
Laboratories, with his largest responsibility managing over 200 people and $60M
in revenue. In 1991, he became Director of Business Systems for Siemens Nixdorf
Information Systems, and was responsible for image and data entry sales in the
U.S. market. In 1996 he joined DSA - Software as Vice President of Sales, but
quickly became President of the warehouse management systems company. Mr. Berens
graduated from Boston College in 1976 with a BS in Computer Science and
Economics.

     None of our executive officers or directors is related to any other
executive officer or director.

CODE OF ETHICS

     We have adopted a code of ethics that applies to our chief executive
officer and our senior financial officers, including our chief financial officer
and controller. The text of the code of ethics is filed as an exhibit to our
Annual Report on Form 10-KSB and will be made available to stockholders without
charge, upon request, in writing to our Corporate Secretary at National
Datacomputer, Inc., 900 Middlesex Turnpike, Bldg. 5, Billerica, Massachusetts
01821. Disclosure regarding any amendments to or waivers from, provisions of the
code of ethics that apply to our financial officers will be included in a
Current Report on Form 8-K within four business days following the date of the
amendment or waiver.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
executive officers, directors, and persons who beneficially own more than ten
percent (10%) of our common stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission.
Executive officers, directors, and greater than ten percent (10%) beneficial
owners are required by SEC regulations to furnish us with copies of all Section
16(a) forms they file.

     To our knowledge, based solely on a review of copies of any such forms
furnished to us and written representations from executive officers and
directors, we believe that all Section 16(a) filings applicable to our executive
officers, directors, and ten percent (10%) beneficial owners were complied with
during the year ended December 31, 2004, except that Initial Statements of
Beneficial Ownership of Securities on Form 3 for our directors John H. MacKinnon
and Kenneth B. Brater, and our executive officer William B. Berens were filed
late.

                                       24
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

EXECUTIVE OFFICERS' COMPENSATION

     The following table sets forth the compensation paid during the three years
ended December 31, 2004, to (i) our Chief Executive Officer and (ii) up to four
of our next most highly compensated executive officers who earned total
compensation in excess of $100,000 during the year ended December 31, 2004.


                           SUMMARY COMPENSATION TABLE


                       ANNUAL COMPENSATION
---------------------------------------------------------------    ------------
                                                                   OTHER ANNUAL
                                             SALARY       BONUS    COMPENSATION
NAME AND PRINCIPAL POSITION        YEAR        ($)         ($)

John P. Ward (1)                   2004     $155,468(1)     --       16,458(2)
   President and CEO               2003      174,205        --       16,614(3)
                                   2002      170,281        --       28,896(4)

Gerald S. Eilberg                  2004     $117,321(1)     --
  Senior Vice President of         2003      119,453        --
  Finance and Administration       2002      119,519      $5,000
  and CFO

William B. Berens (5)              2004     $101,049        --
   Vice President of Sales         2003          --         --
                                   2002          --         --

(1)  Effective August 16, 2004, Mr. Ward and Mr. Eilberg have both agreed to
     defer 20% of their annual compensation because of the Company's cash
     position.

(2)  Includes $12,064 for a corporate apartment and the balance for
     reimbursement of travel expenses from Mr. Ward's home.

(3)  Includes $12,677 for a corporate apartment and the balance for
     reimbursement of travel expenses from Mr. Ward's home.

(4)  Includes $24,983 for a corporate apartment and the balance for
     reimbursement of travel expenses from Mr. Ward's home.

(5)  Mr. Berens joined us as our Vice President of Sales on March 1, 2004.


                        OPTION GRANTS IN FISCAL YEAR 2004

         We did not grant any stock options or stock appreciation rights to our
executive officers or directors during the year ended December 31, 2004.

                                       25
<PAGE>

                 AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2004
                        AND FISCAL YEAR-END OPTION VALUES

      The following table shows information regarding exercises of options to
purchase our common stock by each executive officer named in the Summary
Compensation Table during the fiscal year ended December 31, 2004. The table
also shows the aggregate value of options held by each executive officer named
in the Summary Compensation Table as of December 31, 2004.

--------------------------------------------------------------------------------
                                                      NUMBER OF
                                                     SECURITIES
                                                     UNDERLYING      VALUE OF
                                                     UNEXERCISED    UNEXERCISED
                                                      OPTIONS/     IN-THE-MONEY
                                                        SARS          OPTIONS
                                SHARES                AT FY-END      AT FY-END
                               ACQUIRED    VALUE    EXERCISABLE/   EXERCISABLE/
                             ON EXERCISE  REALIZED  UNEXERCISABLE  UNEXERCISABLE
          NAME                   (#)        ($)          (#)          ($)(1)
---------------------------  -----------  --------  -------------  -------------
John P.Ward,                      0          $0       17,500/0          $0
  President and CEO
---------------------------  -----------  --------  -------------  -------------
Gerald S. Eilberg                 0          $0       205,000/0         $0
  Senior Vice President
  Finance & Admin. and CFO
---------------------------  -----------  --------  -------------  -------------
William B. Berens                 0          $0          0/0            $0
   Vice President of Sales
--------------------------------------------------------------------------------

     (1)  In-the-Money options are those options for which the fair market value
          of the underlying shares of common stock is greater than the exercise
          price of the option. There were no unexercised in-the-money options at
          year end, based on a value of $0.15 per share, the closing bid price
          of our common stock on the OTC Bulletin Board on December 31, 2004,
          less the per share exercise price. Mr. Eilberg had exercisable options
          to purchase 5,000 and 200,000 shares of our common stock at exercise
          prices of $1.47 and $0.75, respectively. Mr. Ward had exercisable
          options to purchase 7,500 and 10,000 shares of our common stock at
          exercise prices of $1.47 and $0.75 per share, respectively.

COMPENSATION OF DIRECTORS

     Our non-employee directors receive:

     o    an annual retainer of $6,000 for serving on the Board of Directors;
          and
     o    $1,000 plus reasonable travel and out-of-pocket expenses for
          attendance at each meeting of the Board of Directors.

                                       26
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

     The following table and accompanying footnotes sets forth information
     concerning the beneficial ownership of our securities, as of April 4, 2005,
     for:

     o    our directors;

     o    each executive officer named in the Summary Compensation Table; and

     o    all of our Directors and executive officers, as a group.

     In addition, the table sets forth information concerning the beneficial
ownership of our voting securities as of April 4, 2005 for each person known to
us to be the beneficial owner of more than five percent of our voting
securities. As of April 4, 2005, there were 22,134,181 shares of our common
stock and 4,150 shares of our preferred stock outstanding. Except as otherwise
noted, each named individual has sole voting and investment power with respect
to the securities set forth in the table.

     For the purpose of this table, the common stock and the 2,400 shares of our
Series B Convertible Preferred Stock, 900 shares of our Series C Convertible
Preferred Stock, 350 shares of our Series D Convertible Preferred Stock and 500
shares of our Series E Convertible Preferred Stock (collectively, the "Preferred
Stock") are treated as one class on as "as converted" basis, with the Preferred
Stock converted at the stated conversion price of $2.74 per share for the Series
B, C and D and $0.75 per share for the Series E. Based upon these conversion
prices, the Preferred Stock would be convertible into a total of 1,998,783
shares of our common stock.

     All of the 4,150 shares of Preferred Stock issued and outstanding and
17,959,741 shares of common stock are registered in the name of Capital Bank
Grawe Gruppe or its predecessor in interest, RBB Bank AG ("Capital Bank").
Capital Bank has informed us that it holds all of our securities solely in the
capacity as custodian for the benefit of numerous other investors, none of which
either individually or in the aggregate with affiliated entities, beneficially
owns more than five percent (5%) of our issued and outstanding capital stock. On
a diluted basis, the shares of our common stock and Preferred Stock held by
Capital Bank for its investors would represent, in the aggregate, approximately
96% of our common stock as of April 4, 2005.

     Pursuant to the rules of the Securities and Exchange Commission (the
"SEC"), shares of our securities that an individual or group has the right to
acquire within 60 days of April 4, 2005 pursuant to the exercise of options,
warrants or other securities convertible into such securities, are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in the table.

                                       27
<PAGE>

                                               NUMBER OF SHARES      PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER          BENEFICIALLY OWNED      OF CLASS
------------------------------------          ------------------      --------

Gerald S. Eilberg (1).....................          213,017              1.0%
John P. Ward (2)..........................           46,368                *
William R. Smart (3)......................           20,000                *
John H. MacKinnon.........................              200                *
Kenneth Brater............................                0                *
William B. Berens ........................                0                *
All Directors and Executive Officers as
 a Group (6 persons) (4)..................          279,585
1.2%

* Less than 1%.

(1)  Includes 205,000 shares of common stock underlying currently exercisable
     options to purchase common stock. It also includes 8,017 shares held by Mr.
     Eilberg.

(2)  Includes 17,500 shares of Common Stock underlying currently excercisable
     options to purchase common stock. It also includes 28,868 shares held by
     Mr. Ward.

(3)  Includes 17,500 shares of common stock underlying currently exercisable
     options to purchase common stock. It also includes 2,500 shares held by Mr.
     Smart.

(4)  Includes an aggregate of 240,000 shares of common stock underlying
     currently excercisable options to purchase common stock held by our current
     executive officers and directors, and 39,585 shares held by the executive
     officers and directors.

EQUITY COMPENSATION PLAN INFORMATION

The following table provides certain aggregate information with respect to all
of the Company's equity compensation plans in effect as of December 31, 2004:

<TABLE><CAPTION>
------------------------------------- ---------------------------- ---------------------------- ---------------------------
                                                                                                   NUMBER OF SECURITIES
                                                                                                  REMAINING AVAILABLE FOR
                                                                                                   FUTURE ISSUANCE UNDER
                                                                                                 EQUITY COMPENSATION PLANS
                                      NUMBER OF SECURITIES TO BE    WEIGHTED AVERAGE EXERCISE      (EXCLUDING SECURITIES
                                        ISSUED UPON EXERCISE OF       PRICE OF OUTSTANDING          REFLECTED IN FIRST
           Plan Category                  OUTSTANDING OPTIONS                OPTIONS                    COLUMN(A))
                                                  (A)                          (B)                          (C)
------------------------------------- ---------------------------- ---------------------------- ---------------------------
<S>                                             <C>                          <C>                         <C>
Equity compensation plans approved
by security holders (1)                          21,425                       $1.47                       125,000
------------------------------------- ---------------------------- ---------------------------- ---------------------------
Equity compensation plans not
approved by security holders (2)                250,000                       $0.75                       250,000
------------------------------------- ---------------------------- ---------------------------- ---------------------------
Total                                           271,425                       $0.81                       375,000
------------------------------------- ---------------------------- ---------------------------- ---------------------------
</TABLE>

     (1)  These plans consist of our 1989 Stock Option Plan, 1994 Stock Option
          Plan and 1995 Stock Option Plan.

     (2)  These plans consist of our 1997 Stock Option Plan and 1998 Stock
          Option Plan, the terms of which are described in Note 10 to our
          audited financial statements for the year ended December 31, 2004
          included in this Annual Report on Form 10-KSB. Additional terms of the
          1997 Stock Option Plan and 1998 Stock

                                       28
<PAGE>

          Option Plan are summarized as follows: Options may be granted to
          employees, directors and consultants of the Company. No options may be
          granted after the tenth anniversary of the date on which each plan was
          adopted by the Board of Directors. The term and vesting provisions of
          each option are determined by the Board of Directors. Upon cessation
          of employment, unless otherwise specified in the option award, options
          which have not vested are forfeited and options which have vested must
          be exercised within the earlier of three years or the original term of
          the option. Options to non-employees terminate upon termination of
          service unless otherwise specified in the award.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Prior to his employment as our Vice President of sales and marketing in
March 2004, William Berens was engaged by the Company as a subcontractor in
charge of route sales beginning April 28, 2003. Mr. Berens' aggregate
compensation during the year ended December 31, 2003 was $66,298.

ITEM 13. EXHIBITS.

     (a)(1) Financial Statements. The financial statements required to be filed
by Item 7 herewith are as follows:

                                                                         PAGE


Report of Independent Registered Public Accounting Firm                   34

Balance Sheets as of December 31, 2004 and
   December 31, 2003                                                      35

Statements of Operations for the years ended
   December 31, 2004 and December 31, 2003                                36

Statement of Stockholders' Equity for the years
   ended December 31, 2004 and December 31, 2003                          37

Statements of Cash Flows for the years ended
   December 31, 2004 and December 31, 2003                                38

Notes to Financial Statements                                             39

                                       29
<PAGE>

     (a)(2) EXHIBITS.

     (i) The following exhibits are filed herewith:

Exhibit
  No.                      Description
  ---                      -----------

3.1(a)    Certificate of Incorporation filed by the Company with the Secretary
          of State of Delaware on December 17, 1986. 3.2(a) Certificate of
          Amendment of Certificate of Incorporation filed by the Company with
          the Secretary of State of Delaware on April 15, 1987 to increase the
          number of authorized shares.

3.3(b)    Certificate of Amendment of Certificate of Incorporation filed by the
          Company with the Secretary of State of Delaware on October 17, 1994 to
          increase the number of authorized shares.

3.3(c)    Certificate of Amendment of Certificate of Incorporation filed by the
          Company with the Secretary of State of Delaware on December 18, 1996
          to increase the number of authorized shares.

3.4(c)    Certificate of Amendment of Certificate of Incorporation filed by the
          Company with the Secretary of State of Delaware on December 18, 1996
          to effect a 1:4 reverse split of Common Stock.

3.5(d)    Certificate of Amendment of Certificate of Incorporation filed by the
          Company with the Secretary of State of Delaware on May 22, 2000 to
          increase the number of authorized shares.

3.6(l)    Certificate of Correction of Certificate of Amendment of Certificate
          of Incorporation filed by the Company with the Secretary of State of
          Delaware on June 5, 2000.

3.7(m)    Certificate of Correction of Certificate of Amendment of Certificate
          of Incorporations filed by the Company with the Secretary of State of
          Delaware on June 5, 2000.

3.8(e)    Statement of Designation of Series B Convertible Preferred Stock.

3.9(e)    Certificate of Increase of shares designated as Series B Convertible
          Preferred Stock.

3.10(f)   Statement of Designation of Series C Convertible Preferred Stock.

3.11(f)   Statement of Designation of Series D Convertible Preferred Stock.

3.12(g)   Statement of Designation of Series E Convertible Preferred Stock.

3.13(h)   Restated By-Laws.

4.1       Instruments defining the rights of security holders (see Exhibits 3.1
          through 3.12).

4.2(l)    Specimen Certificate of Common Stock, $.08 par value per share.

10.1*(i)  1989 Stock Option Plan.

10.2*(j)  1994 Stock Option Plan.

10.3*(k)  1995 Stock Option Plan.

10.4*(j)  1997 Stock Option Plan.

10.5*(j)  1998 Stock Option Plan.

10.6(l)   Sixth Amendment to Lease dated August 14, 2000 by and between the
          Company and Middlesex Technology Center Trust V for the Company's
          principal offices.

14.1(n)   Code of Ethics.

31.1      Certification of the Chief Executive Officer.

31.2      Certification of the Chief Financial Officer.
32.1      Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002.
----------------

(a)      Previously filed with the Commission as Exhibit to, and incorporated
         herein by reference from, the Registration Statement on Form S-1 filed
         on April 17, 1987 (File No. 033-13392)
(b)      Previously filed with the Commission as Exhibit to, and incorporated
         herein by reference from, the Form 10-KSB for the fiscal year ended
         December 31, 1994.
(c)      Previously filed with the Commission as Exhibit to, and incorporated
         herein by reference from, the Form 10-KSB for the fiscal year ended
         December 29, 1996.
(d)      Previously filed with the Commission as Exhibit to, and incorporated
         herein by reference from, Form 10-QSB for the quarterly period ended
         June 30, 2000.

                                       30
<PAGE>

(e)      Previously filed with the Commission as Exhibit to, and incorporated
         herein by reference from, the Form 8-K filed September 16, 1996.
(f)      Previously filed with the Commission as Exhibit to, and incorporated
         herein by reference from, the Form 8-K filed March 3, 1997.
(g)      Previously filed with the Commission as Exhibit to, and incorporated
         herein by reference from, the Form 8-K filed March 6, 1998.
(h)      Previously filed with the Commission as Exhibit to, and incorporated
         herein by reference from, Form 10-QSB/A for the quarterly period ended
         September 30, 1999.
(i)      Previously filed with the Commission as Exhibit to, and incorporated
         herein by reference from, the Company's Annual Report on Form 10-KSB
         for the fiscal year ended December 31, 1988.
(j)      Previously filed with the Commission as Exhibit to, and incorporated
         herein by reference from, the Company's Annual Report on Form 10-KSB
         for the fiscal year ended December 31, 1998.
(k)      Previously filed with the Commission as Exhibit to, and incorporated
         herein by reference from, the Form 10-KSB for the fiscal year ended
         December 31, 1995.
(l)      Previously filed with the Commission as Exhibit to, and incorporated
         herein by reference from, the Company's Annual Report on Form 10-KSB
         for the fiscal year ended December 31, 2000.
(m)      Previously filed with the Commission as Exhibit to, and incorporated
         herein by reference from, the Company's Annual Report on Form 10-KSB
         for the fiscal year ended December 31, 2001.
(n)      Previously filed with the Commission as Exhibit to, and incorporated
         herein by reference from, the Company's Annual Report on Form 10-KSB
         for the fiscal year ended December 31, 2003.

* Management contract or compensatory plan, contract or arrangement.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     BDO Seidman, LLP has been our independent registered public accounting firm
since March 31, 2003.

     Audit Fees

     For the year ended December 31, 2004, BDO Seidman, LLP billed us $73,650
for the audit of our financial statements and for its review of our Quarterly
Reports on Form 10-QSB. For the year ended December 31, 2003, BDO Seidman, LLP
billed us $55,500 for the audit of our financial statements and for its review
of our Quarterly Reports on Form 10-QSB.

     Audit-Related Fees

     We did not pay any additional fees to our independent registered public
accounting firm for assurance and related services during the years ended
December 31, 2004 or 2003.

     Tax Fees

     For the year ended December 31, 2004, BDO Seidman, LLP has billed us $4,500
for the preparation of our 2003 corporate income tax return. For the year ended
December 31, 2003, BDO Seidman, LLP has billed us $4,500 for the preparation of
our 2002 corporate income tax return.

                                       31
<PAGE>

     All Other Fees
     --------------

     We did not pay any additional fees to BDO Seidman, LLP for other products
or services during the years ended December 31, 2004 or 2003.

     Policy on Audit Committee Pre-Approval of Audit and
     ---------------------------------------------------
     Permissible Non-Audit Services of Independent Certified Public Auditors
     -----------------------------------------------------------------------

     Consistent with SEC policies regarding auditor independence, the Audit
     Committee has responsibility for appointing, setting compensation and
     overseeing the work of the independent registered public accounting firm.
     In recognition of this responsibility, the Audit Committee has established
     a policy to pre-approve all audit and permissible non-audit services
     provided by the independent registered public accounting firm.

     Prior to engagement of the independent registered public accounting firm
     for the next year's audit, management will submit an aggregate of services
     expected to be rendered during that year for each of four categories of
     services to the Audit Committee for approval.

     AUDIT services include audit work performed in the preparation of financial
     statements, as well as work that generally only the independent registered
     auditor can reasonably be expected to provide, including comfort letters,
     statutory audits, and attest services and consultation regarding financial
     accounting and/or reporting standards.

     AUDIT-RELATED services are for assurance and related services that are
     traditionally performed by the independent registered auditor, including
     due diligence related to mergers and acquisitions, employee benefit plan
     audits, and special procedures required to meet certain regulatory
     requirements.

     TAX services include all services performed by the independent registered
     auditor's tax personnel except those services specifically related to the
     audit of the financial statements, and includes fees in the areas of tax
     compliance, tax planning, and tax advice.

     OTHER FEES are those associated with services not captured in the other
     categories. The Company generally does not request such services from the
     independent registered auditor.

     Prior to engagement, the Audit Committee pre-approves these services by
     category of service. The fees are budgeted and the Audit Committee requires
     the independent registered auditor and management to report actual fees
     versus the budget periodically throughout the year by category of service.
     During the year, circumstances may arise when it may become necessary to
     engage the independent registered auditor for additional services not
     contemplated in the original pre-approval. In those instances, the Audit
     Committee requires specific pre-approval before engaging the independent
     registered auditor.

     The Audit Committee may delegate pre-approval authority to one or more of
     its members. The member to whom such authority is delegated must report,
     for informational purposes only, any pre-approval decisions to the Audit
     Committee at its next scheduled meeting.

                                       32
<PAGE>

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                       NATIONAL DATACOMPUTER, INC.


Date: April 15, 2005                   By: /s/ John P. Ward
                                           ----------------------
                                           John P. Ward
                                           President and Chief Executive Officer

     In accordance with the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


Name                     Capacity                                 Date
----                     --------                                 ----

/s/ John P. Ward         Chairman of the Board, President and     April 15, 2005
---------------------    Chief Executive Officer (principal
John P. Ward             executive officer)


/s/ William R. Smart     Director                                 April 15, 2005
---------------------
William R. Smart

/s/ John H. MacKinnon    Director                                 April 15, 2005
---------------------
John H. MacKinnon

/s/ Gerald S. Eilberg    Director, Senior Vice President of       April 15, 2005
---------------------    Finance and Administration and Chief
Gerald S. Eilberg        Financial Officer (principal
                         financial and accounting officer)

/s/ Kenneth B. Brater    Director                                 April 15, 2005
---------------------
Kenneth B. Brater

                                       33
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Stockholders
National Datacomputer, Inc.


We have audited the accompanying consolidated balance sheets of National
Datacomputer, Inc. as of December 31, 2004 and 2003 and the related consolidated
statements of income , stockholders' equity, and cash flows for each of the two
years in the period ended December 31, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of National
Datacomputer, Inc. at December 31, 2004 and 2003, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 2004, in conformity with accounting principles generally accepted
in the United States of America.


The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred an accumulated deficit of
approximately $18.1 million that raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


BDO Seidman, LLP
Boston, Massachusetts
March 25, 2005

                                       34
<PAGE>

                           NATIONAL DATACOMPUTER, INC.
                                 BALANCE SHEETS
================================================================================
<TABLE><CAPTION>
                                                                                   December 31,    December 31,
                                                                                       2004            2003
                                                                                   ------------    ------------
<S>                                                                                <C>             <C>
ASSETS
------
Current Assets:
      Cash                                                                         $    266,463    $    690,826
      Accounts receivable, net of allowance for doubtful accounts of $1,296 and
         $1,311 in 2004 and 2003, respectively                                          280,707          75,000
      Inventories                                                                       194,397         399,704
      Other current assets                                                               11,820          16,022
                                                                                   ------------    ------------
         Total current assets                                                           753,387       1,181,552
Fixed assets, net                                                                       116,481         132,214
Capitalized software development costs, net                                              86,920         208,726
                                                                                   ------------    ------------
         Total Assets                                                              $    956,788    $  1,522,492
                                                                                   ============    ============


Liabilities and stockholders' equity Current Liabilities:
      Current obligations under capital lease                                      $      6,604    $     20,024
      Note payable, current portion                                                      54,000          54,000
      Accounts payable                                                                  223,367         209,705
      Accrued payroll and related taxes                                                  95,300          58,993
      Other accrued expenses                                                             92,478         122,907
      Deferred revenues                                                                 373,866         458,976
                                                                                   ------------    ------------
         Total current liabilities                                                      845,615         924,605
Obligations under capital lease, net of current portion                                  16,964           9,335
                                                                                   ------------    ------------
         Total Liabilities                                                              862,579         933,940
                                                                                   ------------    ------------

Commitments (Note 15)

Stockholders' Equity:
      Preferred stock, Series A convertible, $0.001 par value; 20 shares
         authorized; no shares issued or outstanding                                         --              --

      Preferred stock, Series B convertible $0.001 par value; 4,200 shares
         authorized; 2,400 shares issued and outstanding (liquidating preference
         of $2,400,000)                                                               2,105,832       2,105,832

      Preferred stock, Series C convertible $0.001 par value; 900 shares
         authorized, issued and outstanding (liquidating preference of $900,000)        834,370         834,370

      Preferred stock, Series D convertible $0.001 par value; 350 shares
         authorized, issued and outstanding (liquidating preference of $350,000)        324,639         324,639

      Preferred stock, Series E convertible $0.001 par value; 500 shares
         authorized, issued and outstanding (liquidating preference of $500,000)        273,880         273,880

      Preferred stock, Series F convertible $0.001 par value; 175 shares
         authorized; no shares issued or outstanding                                         --              --

      Common stock, $0.08 par value; 30,000,000 shares authorized; 22,134,181
         and 21,302,765 shares issued and outstanding at Devember 31, 2004 and
         2003, respectively                                                           1,770,733       1,704,220

      Capital in excess of par value                                                 12,933,322      12,732,835
      Accumulated deficit                                                           (18,148,567)    (17,387,224)
      Stock subscriptions receivable (net of allowance for doubtful accounts
         of $351,269)                                                                        --              --
                                                                                   ------------    ------------
         Total Stockholders' Equity                                                      94,209         588,552
                                                                                   ------------    ------------
         Total Liabilities and Stockholders' Equity                                $    956,788    $  1,522,492
                                                                                   ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       35
<PAGE>

                           NATIONAL DATACOMPUTER, INC.
                            STATEMENTS OF OPERATIONS
================================================================================
<TABLE><CAPTION>
                                                               YEARS ENDED
                                                        ----------------------------
                                                        December 31,    December 31,
                                                            2004            2003
                                                        ------------    ------------
<S>                                                     <C>             <C>
Revenues:
    Product                                             $  1,939,051    $  3,079,406
    Services                                               1,309,185       1,519,814
                                                        ------------    ------------
       Total Revenues                                      3,248,236       4,599,220

Cost of revenues                                           1,920,512       2,483,192
                                                        ------------    ------------

       Gross Profit                                        1,327,724       2,116,028
                                                        ------------    ------------

Operating expenses:
    Research and development                                 352,654         462,819
    Selling and marketing                                    489,055         382,309
    General and administrative                               979,982         948,255
                                                        ------------    ------------
                                                           1,821,691       1,793,383
                                                        ------------    ------------
(Loss) income from operations                               (493,967)        322,645

Other income (expense):
    Interest income                                            4,437              29
    Other Income                                                  --          20,760
    Interest expense                                          (4,813)         (6,643)
                                                        ------------    ------------
Net (loss) income                                       $   (494,343)   $    336,791
                                                        ============    ============

Calculation of net (loss) income per common share:

Net (loss) income                                       $   (494,343)   $    336,791
Preferred stock preferences                                 (267,000)       (267,000)
                                                        ------------    ------------
Net (loss) income attributable to common stockholders   $   (761,343)   $     69,791
                                                        ============    ============
Basic and diluted net (loss) income per share
    attributable to common stockholders                 $      (0.03)   $       0.00
                                                        ============    ============
Weighted average shares                                   21,831,546      14,778,656
                                                        ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       36
<PAGE>

NATIONAL DATACOMPUTER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
================================================================================
<TABLE><CAPTION>

                           PREFERRED STOCK SERIES B   PREFERRED STOCK SERIES C   PREFERRED STOCK SERIES D   PREFERRED STOCK SERIES E
                           ------------------------   ------------------------   ------------------------   ------------------------

                                       NET ISSUANCE               NET ISSUANCE               NET ISSUANCE               NET ISSUANCE
                            SHARES        PRICE        SHARES        PRICE        SHARES        PRICE        SHARES        PRICE
                           ---------   ------------   ---------   ------------   ---------   ------------   ---------   ------------
<S>                        <C>         <C>            <C>         <C>            <C>         <C>            <C>         <C>
Balance at
December 31, 2002              2,400   $  2,105,832         900   $    834,370         350   $    324,639         500   $    273,880

Net income                        --             --          --             --          --             --          --             --

Interest on preferred
stock (Note 12)                   --             --          --             --          --             --          --             --

Issuance of common
stock in satisfaction
of accrued interest               --             --          --             --          --             --          --             --
                           ---------   ------------   ---------   ------------   ---------   ------------   ---------   ------------

Balance at
December 31, 2003              2,400      2,105,832         900        834,370         350        324,639         500        273,880

Net loss                          --             --          --             --          --             --          --             --

Interest on preferred
stock (Note 12)                   --             --          --             --          --             --          --             --

Issuance of common
stock in satisfaction
of accrued interest               --             --          --             --          --             --          --             --
                           ---------   ------------   ---------   ------------   ---------   ------------   ---------   ------------
Balance at
December 31, 2004              2,400   $  2,105,832         900   $    834,370         350   $    324,639         500   $    273,880
                           =========   ============   =========   ============   =========   ============   =========   ============



                                           COMMON STOCK
                           ------------------------------------------
                                                          CAPITAL IN                        TOTAL
                                               PAR          EXCESS        ACCUMULATED    STOCKHOLDERS'
                             SHARES           VALUE      OF PAR VALUE       DEFICIT         EQUITY
                           ------------   ------------   ------------    ------------    ------------

Balance at
December 31, 2002            14,760,733   $  1,180,857   $ 12,989,198    ($17,457,015)   $    251,761

Net income                           --             --             --         336,791    $    336,791

Interest on preferred
stock (Note 12)                      --             --             --        (267,000)   $   (267,000)

Issuance of common
stock in satisfaction
of accrued interest           6,542,032        523,363       (256,363)             --    $    267,000
                           ------------   ------------   ------------    ------------    ------------

Balance at
December 31, 2003            21,302,765      1,704,220     12,732,835     (17,387,224)        588,552

Net loss                             --             --             --        (494,343)   $   (494,343)

Interest on preferred
stock (Note 12)                      --             --        267,000        (267,000)             --

Issuance of common
stock in satisfaction
of accrued interest             831,416         66,513        (66,513)             --              --
                           ------------   ------------   ------------    ------------    ------------
Balance at
December 31, 2004            22,134,181   $  1,770,733   $ 12,933,322    ($18,148,567)   $     94,209
                           ============   ============   ============    ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       37
<PAGE>

                           NATIONAL DATACOMPUTER, INC.
                            STATEMENTS OF CASH FLOWS
================================================================================
<TABLE><CAPTION>
                                                                      YEARS ENDED
                                                              ----------------------------
                                                              December 31,    December 31,
                                                                  2004            2003
                                                              ------------    ------------
<S>                                                           <C>             <C>
Cash flows from operating activities:
      Net (loss) income                                       $   (494,343)   $    336,791
      Adjustments to reconcile net (loss) income to net
          cash (used for) provided by operating activities:
          Gain on sale of fixed assets                                 581              --
          Depreciation and amortization                            196,947         180,609
          Changes in assets and liabilities:
              Increase in accounts receivable                     (205,707)        (10,099)
              Decrease in inventories                              205,307         376,083
              Decrease in other current assets                       4,202           7,903
              Increase (decrease) in accounts payable               18,312        (214,228)
              Increase in accrued expenses                           5,878          13,948
              Decrease in deferred revenues                        (85,110)        (59,557)
                                                              ------------    ------------
      Net cash (used for) provided by operating activities        (353,933)        631,450
                                                              ------------    ------------

Cash flows from investing activities:
      Purchases of fixed assets                                    (48,780)        (12,465)
      Purchase of capitalized software                                  --         (75,000)
                                                              ------------    ------------
      Net cash used for investing activities                       (48,780)        (87,465)
                                                              ------------    ------------

Cash flows from financing activities:
      Principal payment on note payable                                 --         (12,000)
      Principal payment on obligations under capital lease         (21,650)        (17,651)
                                                              ------------    ------------
      Net cash used for financing activities                       (21,650)        (29,651)
                                                              ------------    ------------

Net increase (decrease) in cash                                   (424,363)        514,334
Cash, beginning of year                                            690,826         176,492
                                                              ------------    ------------
Cash, end of year                                             $    266,463    $    690,826
                                                              ============    ============


Supplemental Disclosure of Cash Flow Information:
      Cash paid for interest                                  $      4,813    $      6,643
      Non-cash investing and financing activities:
          Accrued interest on preferred stock charged to
              accumulated deficit                             $    267,000    $    267,000
          Acquisition of property and equipment under
              capital lease                                   $     15,859    $         --
          Common stock issued in satisfaction of interest
              on preferred stock                              $    267,000    $    267,000
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       38
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

     National Datacomputer, Inc. (the "Company") designs, develops,
manufactures, markets and services a line of hand-held battery powered
microprocessor-based data collection products and computers and associated
peripherals for use in mobile operations. The Company's products and services
include data communications networks, application-specific software, hand-held
computers and related peripherals, associated training and support services.

2. LIQUIDITY

     The Company has incurred an accumulated deficit of approximately $18.1
million through December 31, 2004, recorded a net loss of approximately $0.5
million during 2004 and used approximately $0.4 million of cash from operations
during 2004. As of December 31, 2004, the Company had approximately $0.3 million
in cash. In the event the Company's operations are not profitable or do not
generate sufficient cash to fund the business, or if the Company fails to obtain
additional financing, if required, management will have to substantially reduce
its level of operations. These circumstances raise substantial doubt about the
Company's ability to continue as a going concern. These financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     REVENUE RECOGNITION

     The Company recognizes revenue upon shipment, provided persuasive evidence
of an arrangement exists, there are no uncertainties regarding customer
acceptance, the sales price is fixed or determinable and collection of the
related receivable is probable.

     Service revenue is recognized ratably over the contractual period.

     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.

     FINANCIAL INSTRUMENTS

     Fair values for cash, accounts receivable, accounts and note payable
approximate their carrying values at December 31, 2004 and 2003 due to their
short maturities.

     Based on borrowing rates currently available to the Company for loans with
similar terms, the carrying value of capital lease obligations approximate fair
value.

                                       39
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

     ACCOUNTS RECEIVABLE

     The Company records trade receivables at their principal amount, adjusted
for write-offs and allowances for uncollectable 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 uncollectable 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.

     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.

     FIXED ASSETS

     Fixed Assets are recorded at cost and depreciated over the estimated useful
lives of the assets, which range from 3 to 5 years, 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.

     LONG-LIVED ASSETS

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

     CAPITALIZED SOFTWARE DEVELOPMENT COSTS

     Costs associated with the development of computer software are charged to
operations prior to establishment of technological feasibility, as defined by
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.

                                       40
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

     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 bear 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.

     INCOME TAXES

     The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the recognition of deferred taxes
for the difference between the financial statement and tax bases of assets and
liabilities, utilizing current tax rates. Deferred tax benefit or expense is
recognized as a result of the change in the deferred asset or liability during
the year. Valuation allowances are established, if necessary, to reduce the
deferred tax asset to the amount that will more likely than not be realized.

     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.

     Common share equivalents consist of 2,380,209 and 2,623,500 shares of
common stock which may be issuable upon exercise of outstanding stock options
and the conversion of preferred stock at both December 31, 2004 and 2003,
respectively. All common share equivalents have been excluded from the
calculation of weighted average shares outstanding, as their inclusion would be
anti-dilutive.

     Interest payable to preferred stockholders, the fair value of inducements
to convert preferred stock into common stock, and any discounts implicit in the
conversion terms upon issuance of preferred stock (Note 12) are subtracted from
the net income (loss) to determine the amount of net income (loss) attributable
to common stockholders.

     STOCK COMPENSATION

     The Company's employee stock option plans are accounted for in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," ("APB 25") and related interpretations. The Company adopted SFAS No.
123, "Accounting for Stock Based Compensation," for disclosure only (Note 10).

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which (i) amends SFAS Statement No.
123, "Accounting for Stock-Based Compensation," to provide alternative methods
of transition for an entity that voluntarily changes to the fair value based
method of accounting for stock-based employee compensation (ii) amends the
disclosure provisions of SFAS 123 to require prominent disclosure about the
effects on reported net income of an entity's accounting policy decisions with
respect to stock-based employee compensation and (iii) amends APB opinion No.
28,

                                       41
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

"Interim Financial Reporting" to require disclosure about those effects in
interim financial information. Items (ii) and (iii) of the new requirements in
SFAS 148 are effective for financial statements for years ending after December
15, 2002. The Company adopted the disclosure requirements of SFAS 148 for the
year ended December 31, 2002 and continues to account for stock-based
compensation utilizing the intrinsic value method. The additional disclosures
required by SFAS 148 are as follows:

                                                    Year ended       Year ended
                                                   December 31,     December 31,
                                                       2004             2003
                                                   -----------      -----------
     Net income (loss):
          As reported                              $  (494,343)     $   336,791
     Less: Employee stock based compensation
     under fair value method                            (1,628)          (1,628)
                                                   -----------      -----------
          Pro forma                                $  (495,971)     $   335,163
                                                   ===========      ===========

Basic and diluted net income (loss) per share
attributable to common stockholders:

           As reported                                $(0.03)           $0.00
           Pro forma                                  $(0.03)           $0.00

In calculating the pro forma effect of SFAS No. 123, the fair value of each
option grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions used for grants in 1999:

     o    Dividend yield of 0%;
     o    Expected volatility of 170%;
     o    Risk free interest rates of 5.53% - 6.24% for options granted during
          the year ended December 31, 1999; and
     o    Weighted average expected option term of 10 years.

     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.

     COMPREHENSIVE INCOME (LOSS)

     SFAS No. 130, "Reporting Comprehensive Income" requires disclosure of all
components of comprehensive income (loss) on an annual and interim basis.
Comprehensive income (loss) is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. The Company's comprehensive income (loss) is the same as
its reported net income (loss) for the years ended December 31, 2004 and 2003.

                                       42
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

4. RECENTLY ISSUED ACCOUNTING STANDARDS

     In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123(R), Share-Based Payment, which revised SFAS No. 123 and superseded
APB Opinion No.25, Accounting for Stock Issued to Employees. SFAS No. 123(R)
requires that companies recognize compensation expense associated with grants of
stock options and other equity instruments to employees in the financial
statements, effective as of the first reporting period that begins after June
15, 2005. Compensation cost will be measured based on the fair value of the
instrument on the grant date and will be recognized over the vesting period.
This pronouncement applies to all grants after the effective date and to the
unvested portion of stock options outstanding as of the effective date. SFAS No.
123(R) eliminates the ability to account for such transactions using the
intrinsic value method currently used by the Company. The Company will be
required to adopt SFAS No. 123(R) as of July 1, 2005 and the impact of this
requirement on the Company's financial statements is not expected to be
material.

     In November 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (SFAS 151).
SFAS 151 clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs and spoilage. In addition, SFAS 151 requires that
allocation of fixed production overhead to the costs of conversion be based on
the normal capacity of the production facilities. The provisions of SFAS 151 are
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The Company does not expect adoption of SFAS 151 to have a material
impact on its results of operations and financial position.

5. INVENTORIES

     Inventories consist of the following:
                                                 DECEMBER 31,   DECEMBER 31,
DECEMBER 29,  DECEMBER 31,                           2004           2003
                                                 -----------    -----------

     Raw materials                               $   148,793    $   208,592
     Work-in-process                                  12,438        180,868
     Finished goods                                   33,166         10,244
                                                 -----------    -----------
                                                 $   194,397    $   399,704
                                                 ===========    ===========

6. FIXED ASSETS, NET

     Fixed assets consist of the following:
<TABLE><CAPTION>

                                                 ESTIMATED
                                                USEFUL LIVES    DECEMBER 31,    DECEMBER 31,
                                                 (IN YEARS)         2004            2003
                                                ------------    -----------     -----------
<S>                                                <C>          <C>             <C>
     Production and engineering equipment           3-5         $   701,434     $   664,528
     Furniture, fixtures and office equipment        5              880,591         857,555
                                                  Life of
     Leasehold improvements                        Lease             29,749          29,749
                                                                -----------     -----------
                                                                $ 1,611,774     $ 1,551,832

     Less - accumulated depreciation and
       amortization                                              (1,495,293)     (1,419,618)
                                                                -----------     -----------

                                                                $   116,481     $   132,214
                                                                ===========     ===========
</TABLE>
                                       43
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

     Equipment under capital lease totaled $248,589 and $232,730 at December 31,
2004 and 2003, respectively. Related accumulated depreciation totaled $234,316
and $232,730, respectively, at December 31, 2004 and 2003. Related depreciation
expense was $1,586 and $77,616 for the years ended December 31, 2004 and 2003,
respectively.

7. CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET

     Capitalized software development costs consist of the following:

                                      ESTIMATED
                                    ECONOMIC LIVES   DECEMBER 31,   DECEMBER 31,
                                      (IN YEARS)         2004           2003
                                    --------------   -----------    -----------

     Internally developed software        3          $   257,913    $   257,913
     Purchased software                   3              130,350        135,000
                                                     -----------    -----------
                                                     $   388,263    $   392,913

     Less - accumulated amortization                    (301,343)      (184,187)
                                                     -----------    -----------

                                                     $    86,920    $   208,726
                                                     ===========    ===========

     As of December 31, 2004, the Company has capitalized $257,913 of costs
     incurred for the integration of Microsoft's Windows CE operating system
     into their DC5. The Company has capitalized $130,350 of costs associated
     with the purchase of software for the development of its W.I.N. Windows
     application, and its Wintakes application. Amortization expense was
     $117,156 and $102,993 for the years ended December 31, 2004 and 2003,
     respectively.

8.       NOTE PAYABLE

     On December 31 2001, the Company signed an unsecured promissory note
     payable to a vendor for a principal sum of $108,000 at an interest rate of
     2% per annum. The note required the Company to make eighteen principal
     payments of $6,000 per month from January 2002 through June 2003. Upon
     default of payment, the remaining principal balance will become immediately
     due and payable without notice or demand. The Company was in default of
     this note at December 31, 2004; however, the event of default was waived by
     the holder, and payments will recommence in September 2005. At December 31,
     2004, the note payable balance was $54,000.

                                       44
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

INCOME TAXES

     Deferred tax assets are composed of the following:

                                                    DECEMBER 31,   DECEMBER 31,
                                                        2004           2003
                                                    -----------    -----------

     Net operating loss carryforwards               $ 3,320,000    $ 3,602,000
     Business tax credit carryforwards                    5,000         44,000
     Reserves and allowances                            383,000        363,000
     Depreciation and amortization                      (77,000)       (98,000)
     Other                                                9,000         12,000
                                                    -----------    -----------

     Gross deferred tax asset                       $ 3,640,000    $ 3,923,000
     Deferred tax asset valuation allowance          (3,640,000)    (3,923,000)
                                                    -----------    -----------
                                                    $       --     $       --
                                                    ===========    ===========

     The Company's effective tax rate differs from the statutory U.S. federal
     tax rate as follows:

                                                            YEAR ENDED

                                                    DECEMBER 31,   DECEMBER 31,
                                                        2004           2003
                                                    -----------    -----------
     Statutory federal rate                            34.0%          34.0%
     Change in valuation allowance on
     deferred tax assets                              (34.0%)        (34.0%)
                                                    -----------    -----------
                                                         --             --
                                                    ===========    ===========

     The Company generated losses from operations in prior years. Although
management's operating plans anticipate taxable income in future periods, such
plans make significant assumptions which cannot be reasonably assured, including
continued development and market acceptance of new products and expansion of the
Company's customer base. Based on the weight of all available evidence, the
Company has provided a full valuation allowance for deferred tax assets since
the realization of these future benefits is not sufficiently assured. As the
Company achieves profitability, these deferred tax assets would be available to
offset future income tax liabilities and expense.

     At December 31, 2004, the Company has federal net operating loss
carryforwards for federal tax purposes of approximately $9,351,000, which expire
in various years through 2024. The Company has state net operating loss
carryforwards for tax purposes of approximately $2,200,000, which expire in
various years through 2009.

     Any significant change in ownership, as defined in the Internal Revenue
Code, may result in an annual limitation on the amount of the net operating loss
and credit carryforwards which could be utilized.

                                       45
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

10. STOCK OPTIONS

     In 1986, 1989, 1994 and 1995, the Board of Directors approved the 1986
Stock Option Plan, the 1989 Stock Option Plan, the 1994 Stock Option Plan and
the 1995 Stock Option Plan (the "Plans"), respectively. All of these Plans other
than the 1995 Plan have expired following their 10-year terms, and no further
options can be granted under these Plans. The Plans provided for the granting of
incentive stock options and non-qualified stock options to purchase up to
323,685 shares of common stock of the Company to employees, officers, directors
and consultants. The exercise price for incentive stock options granted may not
be less than 100% of the fair market value per share of the common stock on the
date granted (110% for options granted to holders of more than 10% of the voting
stock of the Company). The exercise price per share for non-qualified options
may not be less than the lesser of 50% of the fair market value per share of the
common stock on the date of grant or the book value per share of common stock as
of the end of the year immediately preceding the date of grant. The term of
options granted under the Plans cannot exceed ten years (five years for options
granted to holders of more than 10% of the voting stock of the Company).
Outstanding options are written generally with five to ten-year vesting periods,
some with acceleration if certain profitability levels are reached. As of
December 31, 2004, there were options to purchase 21,425 shares of common stock
outstanding under these Plans and 125,000 options available for grant under the
1995 Plan, which will expire on October 5, 2005.

     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. A maximum of 200,000 shares of common
stock was reserved for issuance in accordance with the terms of the 1997 Plan.
The 1997 Plan now only provides for the issuance of non-qualified options since
stockholder approval was not obtained. As of December 31, 2004, there were
options to purchase 200,000 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. A maximum of 300,000 shares of common stock of the Company was
reserved for issuance in accordance with the terms of the 1998 Plan. As of
December 31, 2004, there were options to purchase 50,000 shares of common stock
outstanding and 250,000 shares available for grant under the 1997 Plan.

                                       46
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

     A summary of the status of the Company's stock option plans as of December
31, 2004 and 2003 is as follows:

                                     December 31, 2004       December 31, 2003
                                    --------------------    --------------------
                                                Weighted                Weighted
                                                Average                 Average
                                    Number of   Exercise    Number of   Exercise
                                     Options     Price       Options      Price
                                    ---------   --------    ---------   --------

Outstanding at beginning of year     514,716     $0.80       514,841      $0.80
Granted                                  --        --            --         --
Exercised                                --        --            --         --
Canceled/Expired                    (243,291)     0.79          (125)      1.47
                                    ---------   --------    ---------   --------

Outstanding at end of year           271,425     $0.81       514,716      $0.80
                                    =========   ========    =========   ========

Exercisable at end of year           271,425     $0.81       489,520      $0.77
                                    =========   ========    =========   ========


The following table summarizes information about stock options outstanding at
December 31, 2004:

                                                                 Weighted
                              Weighted average               Average exercise
                                 Remaining       Number of       price of
                   Number    Contractual life,    Options        options
Exercise price  Outstanding       In years      Exercisable     Exercisable
--------------  -----------  -----------------  -----------  ----------------

    $ 0.75        250,000           3.01          250,000           $0.75
    $ 1.47         21,425           0.76           21,425            1.47
                -----------                     -----------     -----------
    Total         271,425                         271,425          $0.81
                ===========                     ===========     ===========


11. COMMON STOCK

     On May 1, 2000, the Company amended its Certificate of Incorporation to
increase the Company's authorized number of shares of common stock, $.08 par
value per share, from 5,000,000 shares to 30,000,000 shares.

     At December 31, 2004, the Company had reserved 1,998,783 shares of common
stock for issuance upon the exercise of common stock options and warrants and
the conversion of preferred stock.

                                       47
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

12. CONVERTIBLE PREFERRED STOCK

     During 1996, the Company sold 4,200 shares of the newly designated Series B
convertible preferred stock for net proceeds of approximately $3,685,200. On
March 21, 2000, the Company issued 656,934 shares of its common stock, par value
$.08 per share, to Capital Bank Grawe Gruppe AG ("Capital Bank" and formerly RBB
Bank) upon the conversion by Capital Bank of 1,800 shares of the Company's
Series B convertible preferred stock at a conversion price of $2.74 per share.
There are presently 2,400 shares of Series B convertible preferred stock
outstanding.

     During 1997, the Company sold 900 shares of Series C convertible preferred
stock for net proceeds of approximately $867,000.

     During 1997, the Company sold 350 shares of Series D convertible preferred
stock for net proceeds of approximately $337,400.

     During 1998, the Company sold 500 shares of Series E convertible preferred
stock with attached warrants to purchase up to 700,000 shares of common stock at
$.75 per share, for net proceeds of approximately $487,880. The proceeds of this
financing were allocated to the preferred shares and warrants based on
management's estimation of their relative fair values. This resulted in $214,000
being ascribed to warrants, which was recorded as additional paid-in-capital and
$273,880 being recorded as preferred stock.

     During 1998, the holders of a convertible note payable to a related party,
converted the note payable with an outstanding principal balance of $175,000
into 175 shares of Series F convertible preferred stock at a stated value of
$1,000 per share. On January 4, 2001, the Company issued 1,423,825 shares of its
common stock, par value $.08 per share, to Capital Bank upon the conversion by
Capital Bank of 75 shares of the Company's Series F convertible preferred stock
at a conversion price of $1.00 per share On January 9, 2001, the Company issued
1,710,864 shares of its common stock, par value $.08 per share, to Capital Bank
upon the conversion by Capital Bank of 100 shares of the Company's Series F
convertible preferred stock at a conversion price of $1.00 per share. No
underwriters were involved in the transaction. All of the shares of Series F
convertible preferred stock have been converted and are no longer outstanding.

     The Series B, Series C, Series D, and Series E convertible preferred stock
have the following characteristics:

VOTING:

     Holders of the Series B, Series C, Series D, and Series E convertible
preferred stock are entitled to a number of votes equal to the number of shares
of common stock into which these shares of convertible preferred stock are then
convertible. All shares of convertible preferred stock are entitled to vote with
the holders of common stock as a single class.

                                       48
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

DIVIDENDS:

     Holders of the Series B, Series C, Series D, and Series E convertible
preferred stock are entitled to receive dividends, when and if declared by the
Company's Board of Directors, prior and in preference to common shareholders,
equal to the amount of the per share dividend of common stock declared,
multiplied by the number of shares of common stock into which the convertible
preferred shares are then convertible.

INTEREST:

     In addition to the dividend preference, the holders of the Series B, Series
C and Series D convertible preferred stock shall receive interest per annum
based on the stated value of such shares. Series B convertible preferred
shareholders are entitled to receive interest equal to 8% per annum. Series C
and Series D convertible preferred shareholders are entitled to receive interest
equal to 6% per annum. Such interest will accrue from the original issuance
date, and shall be payable in cash or common stock, at the Company's option, on
a quarterly basis, commencing on the first quarter ended after issuance. Payment
of interest due with respect to those shares that remain issued and outstanding
at the end of the Company's quarters, shall be made within 15 days after the
filing with the Securities and Exchange Commission of the applicable report.

     During the years ended December 31, 2004 and 2003, the Company incurred
interest in the amount of $267,000 and $267,000, respectively for Series B,
Series C, and Series D convertible preferred stock, for which the Company has
recorded a charge to accumulated deficit. During 2004, 494,923 shares were
issued in satisfaction of the accrued interest due for the first quarter of 2004
and 336,493 shares were issued in satisfaction of the accrued and unpaid
interest due for the fourth quarter of 2003. During 2003, 4,826,203 shares were
issued in satisfaction of the accrued interest due for the first, second and
third quarter of 2003 and 1,715,374 were issued in satisfaction of the accrued
and unpaid interest due for fourth quarter of 2002.

LIQUIDATION PREFERENCE:

     Upon liquidation of the Company, the holders of Series B, Series C, Series
D and Series E convertible preferred stock have preference over the common
stockholders to receive liquidating distributions which equal the stated value
of such shares of stock, plus all accrued and unpaid dividends.

CONVERSION:

     In connection with the issuance of Series E convertible preferred stock,
the Company, with the approval of the shareholders of Series B, Series C, and
Series D convertible preferred stock, changed the conversion price of the Series
B, Series C, and Series D convertible preferred stock and provided these
shareholders with certain anti-dilution provisions. The current conversion price
for the Series B, Series C, and Series D convertible preferred stock is equal to
the lesser of $2.74 or sixty percent of the Corporation's average closing bid
price of its common stock for the five trading days prior to the conversion. The
current conversion price for the Series E

                                       49
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

convertible preferred stock is equal to the lesser of $0.75 or sixty percent of
the Corporation's average closing bid price of its common stock for the five
trading days prior to the conversion.

     Each share of the Series B, Series C, Series D and Series E convertible
preferred stock is convertible at any time, at the option of the holders into
shares of common stock computed by dividing the stated value of the preferred
stock by the conversion price.

REDEMPTION:

     In the event that the price of the Company's common stock, as reported by
the NASDAQ SmallCap market or the OTC Bulletin Board equals or exceeds $20.00
per share for a period of twenty consecutive trading days, the Company may
redeem at its option the Series B, Series C and Series D convertible preferred
stock at a price of $1,000 per share, subject to certain anti-dilution
provisions.

     If the closing bid price of the Company's common stock as reported by the
principal stock exchange in which the Corporation's common stock then trades
equals or exceeds $5.00 for twenty consecutive trading days, then the Company at
its option may redeem the then issued and outstanding shares of Series E
convertible preferred stock at a price of $1,000 per share, subject to certain
anti-dilution provisions.

13. CASHLESS OPTION EXERCISE PROGRAM

     On March 1, 1994, the Board of Directors approved the 1994 cashless option
exercise program for all employees. The program allows employees to purchase
shares of common stock, payable with both recourse and non-recourse long term
promissory notes receivable. Under the above program, employees purchased a
total of 87,818 shares of common stock at a price of $4.00 per share. The notes
receivable were due in March 2004, and are presented as a reduction of
stockholders' equity, net of related reserve for uncollectible amounts, in the
accompanying balance sheets.

14. COMMITMENTS

     The Company leases its office facilities under an operating lease expiring
September 30, 2005. The lease contains an option for renewal and requires the
payment of real estate taxes and other operating costs. Total rent expenses
under this operating lease was $237,527 and $243,043 for the years ended
December 31, 2004 and 2003, respectively.

     The Company also leases certain equipment under capital leases expiring at
various dates through the year 2009. The total cost of equipment recorded under
these capital leases was $248,589 and $232,730 at December 31, 2004 and 2003,
respectively. The total interest paid in connection with the capital lease
obligations was $4,813 and $6,643 for 2004 and 2003, respectively.

                                       50
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

     Minimum future lease commitments under operating and capital leases at
December 31, 2004 are as follows:

                                                       OPERATING     CAPITAL
                                                       ---------    ---------
                             2005                      $ 141,000    $  13,959
                             2006                            --         4,998
                             2007                            --         4,998
                             2008                            --         4,998
                             2009                            --         2,915
                                                       ---------    ---------

          Total Minimum Lease Payments                 $ 141,000    $  31,868
                                                       =========
          Less: amount representing interest                            8,300
                                                                    ---------

          Present Value                                             $  23,568
          Less: Current obligations                                     6,604
                                                                    ---------

          Obligations under capital leases,
          net of current portion                                    $  16,964
                                                                    =========

15. CONCENTRATION OF CREDIT RISK

     The Company sells its products to customers principally in the United
States of America. The Company performs on-going credit evaluations of its
customers, provides credit on an unsecured basis, and maintains reserves for
potential credit losses. Such losses, in the aggregate, have not exceeded
management's expectations. Accounts receivable from one customer accounted for
approximately 75% and 17% of total accounts receivable at December 31, 2004 and
2003, respectively. Management does not believe that the Company is subject to
any unusual credit risk beyond the normal credit risk attendant to operating its
business.


The companies' total net revenues were generated by sales to customers in the
following countries:

                              Percentage of    Percentage of
                              net revenues     net revenues
                                  2004             2003

                  USA              71%              60%
                  Japan            25%              36%
                  Other             4%               4%

                       Total      100%             100%



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