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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, 2006

                                       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, $.001 PAR VALUE PER SHARE
                                (Title of class)

Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. |_| 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. |_|

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X| The registrant had revenues of
approximately $3.0 million during the fiscal year ended December 31, 2006. As of
March 30, 2007, 35,242,438 shares of the registrant's common stock, $0.001 par
value per share, were outstanding and the aggregate market value of the common
stock held by non-affiliates was approximately $297,227 based on the closing
price of $0.04 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 1A.    Risk Factors                                            6
          Item 2.     Description of Property                                12
          Item 3.     Legal Proceedings                                      13
          Item 4.     Submission of Matters to a Vote of Security Holders    13

PART II

          Item 5.     Market for Common Equity, Related
                      Stockholder Matters and Small Business Issuer
                      Purchases of Equity Securities                         13
          Item 6.     Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                    14
          Item 7.     Financial Statements                                   22
          Item 8.     Changes in and Disagreements with Accountants on
                      Accounting and Financial Disclosure                    22
          Item 8A.    Controls and Procedures                                22
          Item 8B.    Other Information                                      23

PART III

          Item 9.     Directors, Executive Officers, Promoters and
                      Control Persons; Compliance With Section 16(a)
                      of the Exchange Act                                    23
          Item 10.    Executive Compensation                                 28
          Item 11.    Security Ownership of Certain Beneficial Owners and
                      Management and Related Stockholder Matters             31
          Item 12.    Certain Relationships and Related Transactions         32
          Item 13.    Exhibits                                               34
          Item 14.    Principal Accountant Fees and Services                 36
          Item 15.    Signatures                                             38


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                                     PART I

ITEM 1. BUSINESS

DESCRIPTION OF BUSINESS.

      National Datacomputer, Inc. (hereinafter referred to as the "Company",
"we", "us" or "our") was organized as a Delaware corporation in 1986 and began
active operations in 1987 following our merger with an established computer
systems engineering business. We are engaged exclusively in providing solutions
through the use of mobile information systems in the distribution market segment
within the product supply chain. We design, market, sell, and service
computerized systems used to automate the collection, processing, and
communication of information related to product sales and inventory control. Our
products and services include data communication, application-specific software,
handheld computers, related peripherals, and accessories, as well as associated
education and support services for our hardware and software products.

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

      Although you can still buy our Datacomputers running our original
RouteRider software, we have now channeled all of our experience into a new
portable and highly parameterized Route Accounting solution designed to run on
the very latest industry standard Microsoft(TM) operating systems and
architectures which increases our market potential by running on industry
preferred operating systems and handheld devices.

      During the fiscal year ended December 31, 2006, we also divested ourselves
of our audit business line in connection with a transaction relating to shares
of our preferred and common stock held by a majority holder of our capital
stock. On November 29, 2006, we entered into an arrangement with A.S.T., Inc.
("AST") and Phyle Industries, Inc. ("Phyle") pursuant to which we sold our audit
business line to AST in exchange for 4,150 shares of our preferred stock
(representing all of our issued and outstanding preferred stock).

      During January 2007 acting as agent for certain new investors interested
in purchasing shares of our common stock, we caused the transfer of 30,339,236
shares of our common stock, together with accrued but unpaid stock dividends
(representing approximately 90% of our common stock in the aggregate) that Phyle
had previously purchased from Capital Bank Grawe Gruppe AG ("CapitalBank").
These investors paid Phyle $250,000 for the purchase of our common stock and
agreed to also provide us $350,000 to be used as working capital.

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

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current with customers' needs as well as existing technology; and (iii) hiring
people with industry experience.

PRODUCTS

      We are 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 companies that need the latest technology
to manage and improve their business operations. Our Route Accounting solution
functions as a combined point of sale and a rolling warehouse management system
with all the technical and audit functionality needed for today's working
environments.

      In June 2004 we signed a distribution partnership with Micronet, LTD,
giving us rights to market, sell and support a new mobile accounting software
product throughout the United States, Canada and Mexico. Since that time we have
worked with Micronet to modify this software so that it conforms to the North
American market. We plan to expand our sales team in order to increase revenues
which will give us the ability to boost productive partnerships with software
and hardware partners. In addition we also plan to design and develop ancillary
application software to go along with the existing Direct Store Delivery ("DSD")
software. By doing these two things we will be able to:

      o    Expand the market into non DSD sales;
      o    Increase our margins;
      o    Increase our competitive capabilities; and
      o    Improve our overall position as a preferred vendor for these products
           and services.

      This involves concurrent order taking, product delivery, signature
capture, inventory tracking, and asset control. Salespeople enter customer
orders in handheld computers 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 handheld computer is transferred to the
host information system and instructional and control information for the next
day's delivery routes is transferred back to the handheld computer.

      OUR TAILORED SOFTWARE SOLUTIONS

      1. ROUTERIDER(R) LE

      We are a recognized leader in technology in the DSD or Route Accounting
software. We have accumulated over 18 years of experience by developing an
installed base of well over a hundred clients. This experience or knowledge will
be the driving force in our growth for this sector. Also, our distribution
agreement with Micronet LTD, 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 software, named RouteRider(R) LE, ("RouteRider 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.

      We believe that RouteRider LE utilizes state of the art technology to
provide 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

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Digital Assistants) and communicates to the host or back office system through a
dedicated communication server. RouteRider LE is designed to enable 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 communications server that mediates between
the back office system and the handheld computers. 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 customers, 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) 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 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, prints out a delivery
slip for each customer and also captures customer signature. 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.

OUR HARDWARE PRODUCTS

      Our handheld 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 and splash resistant, and
operate over a wide temperature range.

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      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 handheld devices. Application programs and
data are stored in the Datacomputer's random access memory 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.

      DATACOMPUTER MODEL DC4(TM)

      Our Datacomputer Model DC4(TM) (the "DC4"), introduced in 1997, is
designed for use by the route service market. The DC4 is an advanced version of
our now discontinued model DC3X which 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 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 hybrid versions, allow the
salesman or delivery person to access all of the distributor's information on
the customer's account, as well as to input the customer's next delivery order.

MARKETING AND DISTRIBUTION

      Recognizing the need to focus our marketing resources, we have targeted
our business strategy for our software solutions 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 handheld computers has been established in
those sectors; (ii) customers have realized a substantial return on their
investment in handheld computers; and (iii) we enjoy a competitive advantage in
this market due to our software and related services. We continue to believe
that we have gained and maintain the leading position in the office coffee
service market, and are penetrating the beverage distribution, bakery, snacks,
and dairy markets.

      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
inventory 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

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medium and large accounts; (ii) using a consultative sales approach; (iii)
offering excellent service and support; and (iv) maintaining outstanding
customer references.

      SERVICE AND SUPPORT

      Superior service is a vital part of our competitive strategy and
institutionally 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 repair services for our own manufactured
hardware as well as other manufacturers' handhelds.

      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 53% of our 2006 total revenue was attributed to service and
support sales.

      KEY CUSTOMERS

      During 2006, three customers accounted for approximately 45% of our total
revenues. The majority of our customers place orders with us on an "as needed
basis"; however there are times when a customer will place an order for delivery
over a twelve month period.

      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 Eleven Technology, Apacheta Corporation,
BelTech Systems and Global Beverage Group, 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.

EMPLOYEES

      As of December 31, 2006, we had 12 full-time employees and one
subcontractor. Of these employees and subcontractor, three were engaged in sales
and marketing, six in service and customer support, and four in administration
and finance. Our employees are not represented by a labor union. We believe that
our relationship with our employees is good.

ITEM 1A. RISK FACTORS.

                          RISKS RELATED TO OUR BUSINESS

WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND MAY NEVER ACHIEVE OR
SUSTAIN PROFITABILITY.

      We will need financing to continue our operations and generate revenue to
become profitable and sustain profitability and positive cash flow. Our ability
to generate future revenue and sustain profitability will depend on a number of
factors, many of which are described throughout this risk factor section. If we
are unable to achieve and sustain profitability, the Company's share price would
likely decline.

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WE WILL NEED TO RAISE ADDITIONAL CAPITAL OR SELL ASSETS IN ORDER TO CONTINUE TO
OPERATE OUR BUSINESS, AND SUCH TRANSACTIONS MAY NOT BE AVAILABLE TO US ON
FAVORABLE TERMS, IF AT ALL.

      Because we have historically had losses and only a limited amount of cash
has been generated from operations, we have funded our operating activities to
date primarily from the sale of securities. In order to continue to fund the
development of our business, we will need additional capital, either through the
sale of securities or through the sale of assets. We cannot be certain that any
such financing or asset sales will be available on acceptable terms, or at all.
Moreover, additional equity financing, if available, would likely be dilutive to
the holders of our common stock, and debt financing, if available, would likely
involve restrictive covenants. If we sell assets that are currently used in the
conduct of our business, those assets would no longer be available to us as a
potential source of revenue generation. If we cannot raise sufficient additional
capital through means available to us, it would adversely affect our ability to
achieve our business objectives.

THE COMPANY HAS ONLY A SMALL NUMBER OF CUSTOMERS IN FINITE FIELDS, AND THE LOSS
OF THESE CUSTOMERS WOULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S
BUSINESS.

      Approximately 53% of our 2006 total revenue was attributed to service and
support sales. During 2006, one customer who has been one of our top customers
since 1990 accounted for approximately 29% of our total revenues. Additionally,
in 2006 our top three customers collectively accounted for 45% of our total
revenues.

OUR MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE, THEREFORE, OUR SUCCESS
DEPENDS ON OUR ABILITY TO ADAPT AND/OR INTRODUCE NEW PRODUCTS IN A TIMELY
FASHION.

      The life cycle of the technology and any future products developed by us
may be limited by the emergence of new products and technologies, changes in
customer preferences and other factors. Our future performance will depend on
our ability to consistently:

      o    identify emerging technological trends in our market;

      o    identify changing customer requirements;

      o    develop or maintain competitive technology, including new product
           offerings;

      o    improve the performance, features and reliability of our products,
           particularly in response to technological change and competitive
           offerings;

      o    bring technology to market quickly at cost-effective prices; and

      o    protect our intellectual property.

      We may not succeed in developing and marketing new products that respond
to technological and competitive developments and changing customer needs, and
such products may not gain market acceptance or be incorporated into the
technology or products of third parties. Any significant delay or failure to
develop new enhanced technologies, including new product offerings, and any
failure of the marketplace to accept any new technology and product offerings
would have a material adverse effect on our business, financial condition and
results of operations.

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COMPETITION IN THE HANDHELD COMPUTERIZED INVENTORY SOLUTIONS INDUSTRIES COULD
PREVENT US FROM ACHIEVING PROFITABILITY.

      The computerized inventory industries are highly competitive, and we
expect the intensity of the competition to increase. Many of our competitors
have greater financial, technical, research, marketing, sales, distribution,
service and other resources than we do. Moreover, our competitors may offer
broader product lines and have greater name recognition than we do, and may
offer discounts as a competitive tactic, forcing intense pricing pressure on our
products. In addition, several development stage companies are currently
creating or developing technologies and products that compete with or are being
designed to compete with our technologies and products. Our competitors may
develop or market technologies or products that are more effective or more
commercially attractive than our current or future products, or that may render
our technologies or products less competitive or obsolete.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE.

      Due to the nature of our business and our competitive role in the
industry, we will experience fluctuations in our quarterly operating results as
we have in the past and it is likely that these fluctuations will continue in
the future. These fluctuations are caused by many factors, including, but not
limited to:

      o    availability and pricing from our suppliers;

      o    changes in the demand for our products by customers;

      o    introductions or enhancements of products, or delays in the
           introductions or enhancements of products, by us or our competitors;

      o    rate and success of new customer development;

      o    changes in our pricing policies or those of our competitors;

      o    success in attracting, retaining and motivating qualified personnel;

      o    changes in general economic conditions; and

      o    obsolescence of inventory.

      A substantial portion of our operating expenses is related to personnel,
facilities, and sales and marketing programs and is fixed. Our expense level is
based in part on our expectations of future orders and sales, which are
extremely difficult to predict. Accordingly, we may not be able to adjust our
fixed expenses quickly enough to address any significant shortfall in demand for
our products in relation to our expectations.

      Fluctuations in our operating results may also result in fluctuations in
our common stock price. In such event, the trading price of our common stock
would likely suffer and adversely affect our ability to raise capital and the
value of your investment in the Company.

                          RISKS RELATED TO OUR COMPANY

IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL THERE IS SUBSTANTIAL DOUBT ABOUT
THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN.

      The independent registered public accounting firm's report on our
financial statements for the year ended December 31, 2006 contains an
explanatory paragraph about our ability to continue as a going concern. Although
we have been able to reduce our operating expenses by 17% in 2006, as compared
to 2005, we still have incurred an accumulated deficit of approximately $15.9
million through December 31, 2006. As of December 31, 2006, we had approximately
$163,000 in cash and a negative working capital of $678,127. The 2006 results
reflect significant cost reductions, which efforts we are continuing

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to undertake. However, even with the additional working capital from equity
transactions subsequent to year end, we will continue to have a current ratio of
less than 1, which is generally considered to place a company at higher
financial risk. In the event that we cannot generate sufficient cash for working
capital, we may have to reduce our level of operations, which will make it more
difficult for us to continue our business as a going concern.

IF WE ARE UNABLE TO HIRE OR RETAIN KEY PERSONNEL, WE MAY NOT BE ABLE TO OPERATE
OUR BUSINESS SUCCESSFULLY.

      We may not be successful in recruiting and retaining executive officers
and other key management and technical personnel. The competition for employees
with the necessary high level of technical expertise to design, market and sell
our products is intense, particularly in Massachusetts. We will need to hire
executives and a number of additional technical personnel if we are to sustain
the development of new products and our ability to sell those products. Because
competition for highly skilled technical personnel is so intense, companies in
the Company's industry are subject from time to time to complaints brought by
competitors alleging interference with contractual relations or wrongful hiring
of employees. Such lawsuits may be costly, may divert management attention and
resources from the operation of our business, and may therefore adversely affect
our financial condition and results of operations. In addition, the loss of the
management and technical expertise of our senior management could seriously harm
us.

NEITHER OUR DISCLOSURE CONTROLS AND PROCEDURES NOR OUR INTERNAL CONTROL OVER
FINANCIAL REPORTING CAN PREVENT ALL ERRORS OR FRAUD.

      Our management does not expect that our disclosure controls and procedures
or our internal control over financial reporting will prevent all errors or
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system will be attained. Furthermore, the design of a control system must
reflect the fact that there are resource constraints and the benefits of
controls must be considered relative to their costs. Because of the inherent
limitations in a cost-effective control system, no evaluation of controls can
provide absolute assurance that all misstatements due to error or fraud, if any,
may occur and not be detected on a timely basis. These inherent limitations
include the possibility that judgments in decision-making can be faulty and that
breakdowns can occur because of errors or mistakes. Our controls and procedures
can also be circumvented by the individual acts of some persons, by collusion of
two or more people or by management override of the controls. The design of any
system of controls is based in part on certain assumptions about the likelihood
of future events and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Furthermore,
controls may become inadequate because of changes in conditions or deterioration
in the degree of compliance with policies or procedures. While we seek to design
our controls and procedures to provide reasonable assurance that information
required to be disclosed in our periodic filings is timely disclosed, these
inherent limitations expose us to breakdowns in such controls and procedures.

                   RISKS RELATED TO OUR INTELLECTUAL PROPERTY

OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS MAY BE INSUFFICIENT TO PROTECT
OUR COMPETITIVE POSITION.

      Our business depends, in part, on our ability to protect our intellectual
property. We rely primarily on patent, copyright, trademark and trade secret
laws to protect our proprietary technologies. We cannot be sure that such
measures will provide meaningful protection for our proprietary technologies and
processes. We cannot be sure that any existing or future patents will not be
challenged, invalidated or circumvented, or that any rights granted thereunder
would provide us meaningful protection. The failure

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of any patents to provide protection to our technology would make it easier for
our competitors to offer similar products.

      We also generally enter into confidentiality agreements with our employees
and strategic partners, and generally control access to and distribution of our
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use our
products or technology without authorization, develop similar technology
independently or design around our patents. In addition, effective copyright,
trademark and trade secret protection may be unavailable or limited in certain
foreign countries in which we operate.

WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY RIGHTS DISPUTES WHICH COULD DIVERT
MANAGEMENT'S ATTENTION AND COULD BE COSTLY.

      From time to time, we may receive notices of claims of infringement,
misappropriation or misuse of other parties' proprietary rights. We cannot be
sure that we will prevail in these actions, or that other actions alleging
infringement by us of third-party patents, misappropriation or misuse by us of
third-party trade secrets or the invalidity of one or more patents held by us
will not be asserted or prosecuted against us, or that any assertions of
infringement, misappropriation or misuse or prosecutions seeking to establish
the invalidity of our patents will not seriously harm our business. For example,
in a patent or trade secret action, an injunction could be issued against us
requiring that we withdraw particular products from the market or necessitating
that specific products offered for sale or under development be redesigned.

      Irrespective of the validity or successful assertion of various claims of
infringement, misappropriation or misuse of other parties' proprietary rights,
we would likely incur significant costs and diversion of our management and
personnel resources with respect to the defense of such claims, which could
seriously harm our business. If any claims or actions are asserted against us,
we may seek to obtain a license under a third party's intellectual property
rights. We cannot be sure that under such circumstances a license would be
available on commercially reasonable terms, if at all. Moreover, we often
incorporate the intellectual property of our strategic customers into our
designs, and we have certain obligations with respect to the non-use and non-
disclosure of such intellectual property. We cannot be sure that the steps taken
by us to prevent our or our customers' misappropriation or infringement of the
intellectual property will be successful.

                       RISKS RELATING TO OUR COMMON STOCK

A SIGNIFICANT HOLDER OF SHARES OF OUR COMMON STOCK HAS SUFFICIENT OWNERSHIP TO
SINGULARLY DETERMINE THE RESULTS OF ANY STOCKHOLDER VOTE AND CONTROL OUR BOARD
OF DIRECTORS.

      As of March 30, 2007, Anthony Stafford and his four children beneficially
own an aggregate of 20,226,157 shares of our common stock, or 57.39%, and thus a
majority, of all outstanding shares of our common stock. Mr. Stafford has sole
voting authority over all of such shares and will thus be able to determine the
outcome of all corporate matters requiring stockholder approval, including the
election of all of our directors and transactions such as the sale of our
company. Mr. Stafford is also a member of our Board of Directors.

TRADING ON THE OTC BULLETIN BOARD MAY BE VOLATILE AND SPORADIC, WHICH COULD
DEPRESS THE MARKET PRICE OF OUR COMMON STOCK AND MAKE IT DIFFICULT FOR OUR
STOCKHOLDERS TO RESELL THEIR SHARES.

      Our common stock is quoted on the OTC Bulletin Board service of the
National Association of Securities Dealers. Trading in stock quoted on the OTC
Bulletin Board is often limited and characterized

                                       10
<PAGE>

by wide fluctuations in trading prices, due to many factors that may have little
to do with our operations or business prospects. This volatility could depress
the market price of our common stock for reasons unrelated to operating
performance. Moreover, the OTC Bulletin Board is not a stock exchange, and
trading of securities on the OTC Bulletin Board is often more sporadic than the
trading of securities listed on a quotation system like Nasdaq or a stock
exchange like Amex. Accordingly, shareholders may have difficulty reselling any
of the shares.

OUR STOCK IS A PENNY STOCK. TRADING OF OUR STOCK MAY BE RESTRICTED BY THE SEC'S
PENNY STOCK REGULATIONS AND THE NASD'S SALES PRACTICE REQUIREMENTS, WHICH MAY
LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.

      Our stock is a penny stock. The Securities and Exchange Commission has
adopted Rule 15g-9 which generally defines "penny stock" to be any equity
security that has a market price (as defined) less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain exceptions. Our
securities are covered by the penny stock rules, which impose additional sales
practice requirements on broker-dealers who sell to persons other than
established customers and "accredited investors". The term "accredited investor"
refers generally to institutions with assets in excess of $5,000,000 or
individuals with a net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document in a form prepared
by the SEC which provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer also must provide
the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer's confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt
from these rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.

      In addition to the "penny stock" rules promulgated by the Securities and
Exchange Commission, the NASD has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that customer. Prior
to recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, the NASD believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. The NASD requirements make it more
difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock.

                                       11
<PAGE>

FACTORS UNRELATED TO OUR BUSINESS COULD NEGATIVELY IMPACT THE MARKET PRICE OF
OUR COMMON STOCK.

      The stock markets have experienced extreme price and volume fluctuations
that have affected and continue to affect the market prices of equity securities
of many technology companies. These fluctuations often have been unrelated or
disproportionate to the operating performance of those companies. We expect that
the market price of our common stock will fluctuate as a result of variations in
our quarterly operating results, or for other reasons that are not related to
the performance of our business. These fluctuations may be exaggerated if the
trading volume of our common stock is low. In addition, due to the
technology-intensive nature of our business, the market price for our common
stock may rise and fall in response to various factors, including:

      o    announcements of technological innovations or new products, or
           competitive developments;

      o    investor perceptions and expectations regarding our or our
           competitors' products;

      o    acquisitions or strategic alliances by us or our competitors; and

      o    the gain or loss of a significant customer or order

In addition, market fluctuations, as well as general economic, political and
market conditions such as recessions, interest rate changes or international
currency fluctuations, may negatively impact the market price of our common
stock.

IF WE FAIL TO REMAIN CURRENT IN OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED
FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO
SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN
THE SECONDARY MARKET.

      Companies trading on the OTC Bulletin Board, such as us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports under Section 13, in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain current in
our reporting requirements, we could be removed from the OTC Bulletin Board. We
received a notice from the OTC Bulletin Board dated April 21, 2006 concerning
our failure to timely file our Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2005. OTC Bulletin Board advised us that our common stock
would be removed from the OTC Bulletin Board if we failed to file our annual
report by May 19, 2006. In addition, under the rules of the OTC Bulletin Board,
if we fail to timely file our periodic reports with the SEC two more times
within 24 months, our common stock will be ineligible for quotation on the OTC
Bulletin Board for one year. As a result, the market liquidity for our
securities could be severely adversely affected by limiting the ability of
broker-dealers to sell our securities and the ability of stockholders to sell
their securities in the secondary market.

ITEM 2. DESCRIPTION OF PROPERTY.

      We maintain our principal offices and manufacturing operations in a leased
14,509 square foot facility in Billerica, Massachusetts. Our lease expires on
September 30, 2008. The annual base rent for our leased facilities is
approximately $102,000. 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.

                                       12
<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

      We are not a party to any legal proceedings.

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

      On March 30, 2007, we submitted the following matters to a vote of our
stockholders:

      1.  To approve an amendment to the Company's Certificate of Incorporation,
          as amended (the "Certificate of Incorporation") to increase the number
          of authorized shares of the Company's common stock;
      2.  To approve an amendment to the Company's Certificate of Incorporation
          to decrease the par value of the Company's common stock;
      3.  To approve an amendment to the Company's Certificate of Incorporation
          to authorize the issuance of serial preferred stock, with authority
          vested in the Board of Directors of the Company to prescribe the
          classes, series and number of each class or series of the preferred
          stock of the Company and the voting powers, designations, preferences
          limitations, restrictions and relative rights of each class or series
          of the preferred stock of the Company ;
      4.  To adopt the 2007 Employee, Director and Consultant Stock Plan and to
          reserve 2,000,000 shares of the Company's common stock for grant under
          that plan;
      5.  To approve the sale and issuance of shares of the Company's common
          stock to the Company's current executive officers and members of the
          Board of Directors.

      Our stockholders voted in favor of the above matters.

                                     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 March 30, 2007, the last traded price for our common stock as reported
by OTC was $0.04 per share.

      For the periods indicated below, the table sets forth the range of high
and low last sale 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 retail transactions.

                                                          HIGH            LOW
                                      2005

           First Quarter                                 $ 0.12         $ 0.10
           Second Quarter                                  0.10           0.09
           Third Quarter                                   0.26           0.10
           Fourth Quarter                                  0.20           0.08

                                       13
<PAGE>

                                      2006

           First Quarter                                 $ 0.10         $ 0.09
           Second Quarter                                  0.09           0.03
           Third Quarter                                   0.04           0.03
           Fourth Quarter                                  0.08           0.02

      As of March 30, 2007, there were approximately 2,287 stockholders of
record of our common stock.

      Since many of the shares are held by brokers and other institutions on
behalf of stockholders, the Company is unable to estimate the total number of
individual stockholders represented by these holders of record.

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.

UNREGISTERED SALES OF SECURITIES

      On January 23, 2007, Anthony Stafford, and his four children, purchased
20,226,157 shares of our common stock. On March 30, 2007, upon stockholders'
approval we issued 7,079,155 shares of our common stock to our executive
officers and members of our Board of Directors, as described in Item 12 "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS." On March 30, 2007, we issued 564,236
shares of our common stock to each of our directors as part of their
compensation earned during 2006.

ISSUER REPURCHASES OF EQUITY SECURITIES

      On December 1, 2006, we purchased from AST all of the 4,150 shares of our
issued and outstanding preferred stock in exchange for the transfer of all the
assets and liabilities of our audit business.

      On January 2007 acting as agent for certain new investors, we caused the
transfer of 30,339,236 shares of our common stock together with rights to
receive accrued but unpaid stock dividends (representing approximately 90% of
our common stock in the aggregate) that AST had previously purchased from
Capital Bank.

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

OVERVIEW

      Our total revenues from continuing operations for the fiscal year ended
December 31, 2006, were $2,045,452 as compared to $1,266,884 for the fiscal year
ended December 31, 2005, an increase of 61%. Net loss from continuing operations
for 2006 was $153,431, or $(0.01) per share, as compared to a loss of $970,965
or $(0.05) per share for 2005.

                                       14
<PAGE>

      During the fiscal year ended December 31, 2006, we also divested ourselves
of our audit business line in connection with a transaction relating to shares
of our preferred and common stock held by a majority holder of our capital
stock. On November 29, 2006, we entered into an arrangement with A.S.T., Inc.
("AST") and Phyle Industries, Inc. ("Phyle") pursuant to which we sold our audit
business line to AST in exchange for 4,150 shares of our preferred stock
(representing all of our issued and outstanding preferred stock).

      During January 2007 acting as agent for certain new investors interested
in purchasing shares of our common stock, we caused the transfer of 30,339,236
shares of our common stock, together with accrued but unpaid stock dividends
(representing approximately 90% of our common stock in the aggregate) that Phyle
had previously purchased from Capital Bank Grawe Gruppe AG ("CapitalBank").
These investors paid Phyle $250,000 for the purchase of our common stock and
agreed to also provide us $350,000 to be used as working capital.

      One of these investors, Anthony Stafford, invested $400,000 for the
purchase of shares of our common stock previously held by CapitalBank. As a
condition to his investment, Mr. Stafford requested that our executive officers
and members of our Board of Directors provide an aggregate of $140,000 of the
$600,000 (including Mr. Stafford's $400,000) in funds which were raised to
acquire shares previously held by CapitalBank. Each of our executive officers
and the members of our Board of Directors, upon a majority approval from our
stockholders, agreed to make such an investment and therefore purchased an
aggregate of 7,079,155 shares of our common stock on the same terms on which Mr.
Stafford purchased his shares.

      As a result of the transactions, we redeemed and retired the prior
outstanding preferred stock, with a stated liquidation preference of $3,805,721
and we sold our audit business line, which constituted less than a majority of
our revenues in 2006, to AST. In January 2007, we received $350,000 of working
capital from the new investors. We believe this transaction was beneficial to
us, as it provides us the ability to better focus on our other core line, our
Route Accounting business. The sale of the audit business has been accounted as
a discontinued operation in accordance with SFAS No. 144. In 2006, we recorded a
loss of $7,977 from the sale of our audit business.

      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 (U.S. GAAP). 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 monitored and analyzed by management for
changes in 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.

                                       15
<PAGE>

      REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE.

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

      Our transactions sometimes involve multiple elements (i.e. systems and
services). Revenue under multiple arrangements is recognized in accordance with
Emerging Issues Task Force ("EITF") Issue No. 00-21, "ACCOUNTING FOR REVENUE
ARRANGEMENTS WITH MULTIPLE DELIVERABLES". Under this method, if an element is
determined to be a separate unit of accounting, the revenue for the element is
based on fair value and determined by verifiable objective evidence, and
recognized at time of delivery. If the arrangement has an undeliverable element,
we ensure that we have objective and reliable evidence of the fair value of the
undeliverable element. Fair value is determined based upon the price charged
when the element is sold separately.

      We recognize revenue for software licenses in accordance with the American
Institute of Certified Public Accountants ("AICPA")'s Statement of Position
97-2, "SOFTWARE REVENUE RECOGNITION" ("SOP 97-2"). The application of SOP 97-2
requires judgment, including whether a software arrangement includes multiple
elements. License revenue is recognized upon customer acceptance, provided that
persuasive evidence of an arrangement exists, no significant obligations with
regards to installation or implementation remain, fees are fixed or
determinable, and collectibility is probable.

      Hardware and software maintenance is marketed under annual and multi-year
arrangements and revenue is recognized ratably over the contract maintenance
term.

      INVENTORIES

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

      LONG-LIVED ASSETS

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

                                       16
<PAGE>

      SHARE-BASED  COMPENSATION

      Effective January 1, 2006, we adopted the provisions of SFAS 123(R),
SHARE-BASED PAYMENT, which established accounting for equity instruments
exchanged for employee services. Under SFAS 123(R), share-based compensation
cost is measured at the grant date, based on the fair value of the award, and is
recognized as an expense over the employee's requisite service period (generally
the vesting period of the equity grant). Prior to January 1, 2006, we accounted
for share-based compensation to employees in accordance with APB No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related interpretations. We also
followed the disclosure requirements of SFAS 123, ACCOUNTING FOR STOCK BASED
COMPENSATION. Therefore, no stock-based employee compensation expense had been
recorded in connection with the issuance of employee and director stock options
as all stock options granted under the plans were fixed awards and had an
exercise price equal to the market value of our common stock at the time of the
grant. We elected to adopt the modified prospective transition method as
provided by SFAS 123(R) and, accordingly, financial statement amounts for prior
periods presented in this Form 10-KSB have not been revisited to reflect the
fair value method of expensing share-based compensation.

      CAPITALIZED SOFTWARE RESEARCH AND DEVELOPMENT COSTS.

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

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

      No software costs were capitalized or written down during 2006.
Amortization of capitalized software costs was $33,808 and $61,499 for the years
ended December 31, 2006 and 2005, respectively.

     ACCOUNTING FOR INCOME TAXES.

     We record income taxes using the 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. SFAS 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
2006 and uncertainty as to the extent and timing of profitability in future
periods, we maintain a full valuation allowance of $3,236,000 as of December 31,
2006. 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

                                       17
<PAGE>

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 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.

      Any significant change in ownership, as defined in Section 382 of 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 in a single
year.

RESULTS OF OPERATIONS

      Although a challenging year in many respects, we have had some very
positive developments, such as an internationally recognized company in the food
services industry selecting one of our products, RouteRider LE, for route
accounting deployment throughout the United States and Europe. The handheld
solution which interfaces with the J.D. Edwards system went into production
during the last quarter of 2006.

      On December 1, 2006, we sold our audit business in exchange for our
preferred stock. The elimination of the outstanding shares of our preferred
stock is beneficial to our current stockholders because it results in no other
stockholders having a liquidation preference over the holders of our common
stock as well as the cessation of our obligation to issue cash or common stock
as interest payments with regards to the preferred stock. We recorded a net loss
of $7,977 on the sale of our audit business. This business has been reported as
a discontinued operation in accordance with SFAS No. 144,"ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS," and all periods presented have
been restated accordingly to reflect these operations as discontinued. Revenue
of the audit business for 2006 and 2005 was approximately $951,000 and
$1,406,000, respectively. Income from discontinued operations for 2006 and 2005
was approximately $134,000 and $203,000, respectively.

      The following discussion and analysis of results of operation focuses on
continuing operations and should be read in conjunction with the financial
statements and notes thereto appearing elsewhere herein.

YEAR ENDED DECEMBER 31, 2006 COMPARED WITH YEAR ENDED DECEMBER 31, 2005

      For the year ended December 31, 2006, we reported a loss from continuing
operations of $153,431 compared to a loss of $970,965 for the comparable prior
year. This improvement in net loss was due to increased revenues combined with
our cost reduction programs.

      REVENUE

      Our total revenue for the year ended December 31, 2006 increased 61% to
$2,045,452 compared to $1,266,884 for the comparable prior year.

      Product revenues for the year ended December 31, 2006 increased 130% to
$804,521 compared to $350,190 for the prior year. The increase is due to sales
of our new generation software product, RouteRider LE ("RRLE"). RRLE is a
portable and highly parameterized Route Accounting solution, which is designed
to run on industry standard operating systems (e.g. Microsoft's PocketPC 2002,
PocketPC 2003 and soon WindowsMobile 2005), databases and utilizes cellular,
Wi-Fi, and Bluetooth communications protocols.

                                       18
<PAGE>

      Service revenues for the year ended December 31, 2006 increased 35% to
$1,240,931 compared to $916,694 for the prior year. This increase is a result of
revenue recognized for training and support of our new RRLE software.

      Our gross profit was $1,121,353 or 55% of revenues for the year ended
December 31, 2006, compared to $579,140, or 46% of revenues from the prior year.
The improved margin is primarily due to higher revenue together with our cost
cutting efforts put in place during the first quarter of 2006.

      OPERATING EXPENSES

      Total operating expenses of $1,274,851 decreased 18% for the year ended
December 31, 2006 from $1,548,778 for the comparable prior year.

      Research and development expenses for the year ended December 31, 2006
were $75,596 compared to $114,918 for the prior year, a decrease of 34%. The
decrease is due to lower occupancy cost of approximately $28,000 and a decrease
in depreciation of approximately $10,000.

      Selling and marketing expenses for the year ended December 31, 2006 were
$296,292 compared to $434,650 for the prior year, a decrease of 32%. The
decrease is due to a decrease in payroll and related costs of approximately
$145,000, a decrease in printing and advertising of approximately $23,000, along
with a decrease in occupancy costs of approximately $16,000 offset by an
increase in sales commissions of approximately $48,000 due to higher sales. The
decrease in payroll was partly due to the transfer of our Vice President of
Sales to general and administrative upon his appointment to Chief Executive
Officer.

      General and administrative expenses for the year ended December 31, 2006
were $902,963 compared to $999,210 for the prior year, a decrease of 10%. The
decrease is due to a reduction in payroll and related costs of approximately
$152,000, a decrease in occupancy cost of approximately $31,000 partially offset
by an increase in legal fees of approximately $59,000 and an increase in
directors' fees of approximately $40,000.

      LIQUIDITY AND CAPITAL RESOURCES

      We generated cash of $7,317 and used cash of $731,504 from operating
activities from continuing operations for the years ended December 31, 2006 and
2005, respectively. For the year ended December 31, 2006, our principal
operating cash for continuing operations was generated by an increase in
accounts payable and accrued expenses along with a decrease in accounts
receivable offset by a decrease in customer deposits and the loss from
continuing operations. For the year ended December 31, 2005, our principal
operating cash requirement for continuing operations was used to fund our loss
from operations along with an increase in accounts receivable, offset by an
increase in customer deposits, accounts payable and accrued expenses.

      We used cash of $28,437 and $24,139 for investing activities from
continuing operations for the years ended December 31, 2006 and 2005,
respectively. The cash was used for the purchase of capital equipment and
investments in capitalized software. As of December 31, 2006, we had no material
commitments for capital expenditures.

      We used cash of $65,437 and $10,574 for financing activities from
continuing operations for the years ended December 31, 2006 and 2005,
respectively. The cash was used to make payments on obligations under our notes
payable and capital leases.

                                       19
<PAGE>

      We have an accumulated deficit of approximately $15,900,000 through
December 31, 2006. As a result of this deficit and our cash position, the report
of our independent registered public accounting firm contains an explanatory
paragraph regarding substantial doubt about our ability to continue as a going
concern. We have taken numerous steps to address this situation. During the
fiscal year ended December 31, 2006, we divested ourselves of our audit business
line in connection with a transaction relating to shares of our preferred and
common stock held by a majority holder of our capital stock. On November 29,
2006, we entered into an arrangement with A.S.T., Inc. ("AST") and Phyle
Industries, Inc. ("Phyle") pursuant to which we sold our audit business line to
AST in exchange for 4,150 shares of our preferred stock (representing all of our
issued and outstanding preferred stock).

       During January 2007 acting as agent for certain new investors interested
in purchasing shares of our common stock, we caused the transfer of 30,339,236
shares of our common stock, together with accrued but unpaid stock dividends
(representing approximately 90% of our common stock in the aggregate) that Phyle
had previously purchased from Capital Bank Grawe Gruppe AG ("CapitalBank").
These investors paid Phyle $250,000 for the purchase of our common stock and
agreed to also provide us $350,000 to be used as working capital.

      At December 31, 2006, we had current assets of $295,617 and current
liabilities of $973,744, reflecting a current ratio of 0.30. At December 31,
2005, we had current assets of $548,019 and current liabilities of $1,216,666,
reflecting a current ratio of 0.45. The decreased loss in 2006 reflects our
efforts to significantly reduce our costs; an effort which we to continue to
undertake. However, even with the additional working capital we received
subsequent to year end, we will continue to have a current ratio of less than 1,
which is generally considered to place a company at higher financial risk.

      We have re-aligned our spending from administration and manufacturing to
maintain key development programs while carefully managing our overall cash
usage. We are exploring all opportunities to improve our financial condition by
aggressively pursuing potential sales. 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 believe that based on our
current revenue expectations, the expected timing of such revenues, and our
current level of expenses we have sufficient cash to fund our operations through
the end of 2007.

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

COMMITMENTS, CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

      We lease our office facilities under an operating lease expiring September
30, 2008. 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 $140,343 and $212,846 for the years ended December 31, 2006 and 2005,
respectively.

      We also lease certain equipment under capital leases expiring at various
dates through 2009.

       Minimum future lease commitments under operating and capital leases at
December 31, 2006 are as follows:

                                       20
<PAGE>



                                                       OPERATING     CAPITAL

                                    2007               $163,593       $4,998
                                    2008                124,740        4,998
                                    2009                   --          2,915
                                                       --------      -------

            Total Minimum Lease Payments               $288,333       12,911
                                                       ========
            Less: amount representing interest                         2,647
                                                                     -------

            Present Value of minimum lease payments                  $10,264
                                                                     =======

RECENT ACCOUNTING PRONOUNCEMENTS

      In June 2006, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 48, "ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES," or FIN
48, which is an interpretation of FASB Statement 109, "ACCOUNTING FOR INCOME
TAXES." FIN 48 requires managements to perform a two-step evaluation of all tax
positions, ensuring that these tax return positions meet the "more-likely than
not" recognition threshold and can be measured with sufficient precision to
determine the benefit recognized in the financial statements. These evaluations
provide management with a comprehensive model for how a company should
recognize, measure, present, and disclose in its financial statements certain
tax positions that we have taken or expect to take on income tax returns. The
provisions of FIN 48 are effective for our interim reporting period beginning
January 1, 2007. We do not believe the adoption of this pronouncement FIN 48
will have a material impact on our financial position and results of operations.

      In September 2006, the SEC issued Staff Accounting Bulletin No. 108, or
SAB 108. SAB 108 addresses how the effects of prior years' uncorrected
misstatements should be considered when quantifying misstatements in current
year financial statements. SAB 108 requires companies to quantify misstatements
using a balance sheet and income statement approach and to evaluate whether
either approach results in quantifying an error that is material in light of
relevant quantitative and qualitative factors. When the effect of initial
adoption is material, companies will record the effect as a cumulative effect
adjustment to beginning of year retained earnings. The provisions of SAB 108 are
effective for our interim reporting period beginning January 1, 2007. We do not
believe the adoption of SAB 108 will have a material impact on our financial
position or results of operations.

      In September 2006, the FASB issued SFAS No. 157, "FAIR VALUE
MEASUREMENTS". SFAS 157 prescribes a single definition of fair value as the
price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. We
do not believe the adoption of SFAS 157 will have a material impact on our
financial condition or results of operations. SFAS 157 is effective for our
interim reporting period beginning January 1, 2008.

          CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

         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

                                       21
<PAGE>

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, AND OTHER
FACTORS DISCUSSED UNDER THE HEADING "RISK FACTORS" CONTAINED IN ITEM 1A OF THIS
ANNUAL REPORT.

         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
US OR TO ANY PERSON ACTING ON OUR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE CAUTIONARY STATEMENTS CONTAINED OR REFERRED TO IN THIS SECTION.

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.

      As reported on a Current Report on Form 8-K filed November 14, 2005, BDO
Seidman, LLP resigned on November 4, 2005, as the Company's independent
registered public accounting firm. On that same date, the Audit Committee of the
Company's Board of Directors engaged Carlin, Charron & Rosen, LLP to serve as
the independent registered public accounting firm to audit the Company's
financial statements as of and for the fiscal year ended December 31, 2005.
There have been no disagreements with our accountants on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to our accountants'
satisfaction, would have caused our accountants to make reference thereto in
their report on our financial statements.

      In 2006, there have been no disagreements with our accountants.

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

                                       22
<PAGE>

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.

ITEM 8B. OTHER INFORMATION.

      None

                                    PART III

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

      On March 30, 2007, our Board of Directors elected two new members, Anthony
Stafford and William Berens. 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 our Board of
Directors. The following table sets forth the year each of our current directors
was elected to our Board of Directors and the age, positions and offices
currently held by each director. For information about ownership of our voting
securities by each director, see Item 11 "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

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

Anthony Stafford    65    2007           Chairman of the Board

William B. Berens   53    2007           Director, President and Chief Executive
                                         Officer

John P. Ward        79    1967           Director

William R. Smart    85    1989           Director

John H. MacKinnon   66    2004           Director

BUSINESS EXPERIENCE AND BACKGROUNDS OF THE DIRECTORS

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

      ANTHONY STAFFORD joined our Board of Directors on March 30, 2007 upon his
election to Chairman. Mr. Stafford is the principal founder, chairman and owner
of Codec Systems Ltd. ("Codec"). Codec is a European leader in performance
management and business intelligence software which was established in August
1985 and currently has offices in Dublin, Warsaw, Cologne and London. Prior to
the establishment of Codec Mr. Stafford served as a financial controller in
multi-national organizations

                                       23
<PAGE>

including General Foods, IBM and Toyota. Mr. Stafford is also the co-founder and
Board Member of Catalina Avalon S.p. z.o.o., a privately held Polish company
which specializes in the construction industry in Poland. Mr. Stafford is also a
Fellow of the Chartered Institute of Management Accountants.

      WILLIAM B. BERENS has served as our President and Chief Executive Officer
since March 2006 and has been elected as a director on March 30, 2007. Mr.
Berens joined us on May 2003 as a consultant and then on March 1, 2004 became
our Vice President of Sales and Marketing. Prior to joining us, Mr. Berens
served as business consultant to high-tech companies. He was Vice President of
business development for Tower Technology from 2001 to 2002, and for Interleaf
(later acquired by BroadVision) from 1998 to 2000. 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.

      JOHN P. WARD has served on our Board of Directors since our formation and
on the Board of our predecessor in interest since 1967. From April 2001 to March
30,2007 he served as our Chairman. He also served as President and Chief
Executive Officer from April 2001 until March 2006. 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 capacity 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 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 Hollingsworth & Vose Company.

      JOHN H. MACKINNON has served as one of our directors and Chairman of the
Audit Committee since March 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.

      Our Board of Directors has determined that each of our directors, other
than John P. Ward and William B. Berens, are "independent directors" in
accordance with the rules of The NASDAQ Stock Market, Inc.

                                       24
<PAGE>

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 William R. Smart. 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 registered public accountants; approving
all audit and non-audit services and fees related thereto; reviewing, in
consultation with our management and independent registered 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 2007.

      The Audit Committee has met with the Company's independent registered
public accountants, Carlin, Charron & Rosen, 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
six times in 2006.

      AUDIT COMMITTEE REPORT

      This Audit Committee Report reviews actions taken with respect to the
Company's financial statements for the year ended December 31, 2006.

      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. Carlin, Charron & Rosen,
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 2006, 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, 2006, with management and Carlin, Charron & Rosen, LLP;

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

                                       25
<PAGE>

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

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
public accounting firm. 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, the audited financial statements for the year ended December 31, 2006
being included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2006 to be filed with the Securities and Exchange Commission.

                                                         The Audit Committee
                                                 John H. MacKinnon, Chairman
                                                            William R. Smart


NOMINATING, COMPENSATION AND GOVERNANCE COMMITTEE

      The Nominating, Compensation and Governance Committee of the Board of
Directors consists of two members, John H. MacKinnon (Chairman) and William R.
Smart. 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:

                                       26
<PAGE>

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

William B. Berens    53         President and Chief Executive Officer

Bruna A. Bucacci     53         Chief Accounting Officer and Director of
                                Operations

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 William B. Berens whose background is summarized
above.

      BRUNA A. BUCACCI has served as our Chief Accounting Officer since November
2005. Ms. Bucacci joined us in May 1996 as our Controller. In April 2004 she
also assumed the position of Director of Operations. Prior to joining our
Company, Ms. Bucacci was Corporate Controller for Thermedics Detection, Inc.
from 1991 to 1996. From 1984 to 1991 she held the position of Assistant
Controller for Thermedics Inc. Prior to that time Ms. Bucacci held various
managerial positions for Thermo Electron, Inc. Ms. Bucacci is a graduate of
Boston College where she received a BS degree in Mathematics and a graduate of
Bentley College where she received a BS degree in Accounting.

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 principal financial and
accounting officer. 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, 2006, except that an Initial Statement of
Beneficial Ownership of Securities on Form 3 for Bruna A. Bucacci, who became an
executive officer on November 18, 2005, was filed late; and Statement of Changes
of Beneficial Ownership of Securities on Form 4 for our officers John P. Ward,
William B. Berens and Bruna A. Bucacci and for our directors John H. MacKinnon
and Bill Smart for stock grants on December 29, 2005 were not filed.

                                       27
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

EXECUTIVE OFFICERS' COMPENSATION

     The following table sets forth all compensation paid or accrued during the
last two fiscal years ended December 31, 2006 and December 31, 2005 to our Chief
Executive Officer and our executive officers, other than our Chief Executive
Officer, whose compensation exceeded $100,000 during the fiscal year ended
December 31, 2006.

                           SUMMARY COMPENSATION TABLE
                               ANNUAL COMPENSATION

<TABLE><CAPTION>
----------------------- -------- ----------- --------- ---------- ---------- ---------------- ------------
<S>                      <C>       <C>        <C>      <C>        <C>           <C>              <C>
  Name and Principal     Year      Salary     Bonus    Stock      Option        All Other        Total
       Position                     ($)       ($)(1)    Awards     Awards    Compensation($)      ($)
                                                          ($)        ($)
----------------------- -------- ----------- --------- ---------- ---------- ---------------- ------------
William B. Berens        2006    130,473 (2)  10,000                                            140,473
President and Chief
Executive Officer
----------------------- -------- ----------- --------- ---------- ---------- ---------------- ------------
                         2005     130,580                                                       130,580
----------------------- -------- ----------- --------- ---------- ---------- ---------------- ------------
John P. Ward             2006    28,188 (3)                                                     28,188
President and Chief
Executive Officer
----------------------- -------- ----------- --------- ---------- ---------- ---------------- ------------
                         2005     126,180                                                       126,180
----------------------- -------- ----------- --------- ---------- ---------- ---------------- ------------
Bruna A. Bucacci         2006    98,151 (4)   5,000                                             103,151
Chief Accounting
Officer
----------------------- -------- ----------- --------- ---------- ---------- ---------------- ------------
                         2005      96,000                                                       96,000
----------------------- -------- ----------- --------- ---------- ---------- ---------------- ------------
</TABLE>

     (1)  Represents bonuses earned in the fiscal year ended December 31, 2006,
          which have not yet been paid.

     (2)  Mr. Berens joined us as our Vice President of Sales on March 1, 2004
          and he became our President and Chief Executive Officer on March 6,
          2006. Effective as of March 6, 2006, Mr. Berens has agreed to defer
          13% of his annual compensation on an ongoing basis pending improvement
          in the Company's operations and resulting cash position.

     (3)  Mr. Ward joined us as our President and Chief Executive Officer in
          April 2001 and he retired on March 6, 2006. Mr. Ward is currently the
          Chairman of our Board of Directors. Effective as of August 16, 2004,
          Mr. Ward had agreed to defer 20% of his annual compensation earned
          while he was an officer of the Company pending improvement in the
          Company's operations and resulting cash position.

     (4)  Ms. Bucacci joined us as our Controller in May 1996 and in April 2004,
          she assumed the additional position of Director of Operations. She
          become our Chief Accounting Officer on November 21, 2005.

      Mr. Berens became our President and Chief Executive Officer on March 6,
2006. We have not entered into a written employment agreement with him, but we
have arranged for him to receive an annual salary of $150,000, 13% of which will
be payable on a later date when we determine that the Company's operations and
resulting cash position has sufficiently improved. We have also agreed that in
the event of the termination of Mr. Berens' employment by us for any reason,
provided that at the time of termination, he has not engaged in any illegal
wrongdoing or acted in a manner that was not in the best interest of the
Company, Mr. Berens will be entitled to receive as severance payment, a payment
equal to

                                       28
<PAGE>

six months' of his annual salary to be paid on a monthly basis. He will also be
eligible to receive continued medical and dental benefits for such six-month
period. We do not have any arrangements with Mr. Berens for any types of
additional compensation, including bonus payments, insurance premium payments,
payments upon a termination following a change of control and retirement
benefits. For his fiscal 2006 performance, Mr. Berens earned a bonus of $10,000,
however such bonus has not yet been paid as of the date hereof. We have not
issued Mr. Berens any stock awards or options to purchase shares of our common
stock.

      Mr. Ward served as our President and Chief Executive Officer from April
2001 through March 6, 2006. We did not enter into a written employment agreement
with him, but had arranged for him to receive an annual salary of $150,000, 20%
of which will be payable on a later date when we determine that the Company's
operations and resulting cash position has sufficiently improved. Mr. Ward has
since retired and we do not have any arrangements with him for any types of
additional compensation, including retirement benefits, except any compensation
he may be entitled to for his services as Chairman of our Board of Directors (as
further described below). For his fiscal 2006 performance, Mr. Ward was not
awarded any bonus. On May 21, 1999, we issued Mr. Ward an option to purchase
10,000 shares of our common stock at an exercise price of $.075 per share. We
have not issued Mr. Ward any other stock awards or options to purchase shares of
our common stock.

      Ms. Bucacci became our Chief Accounting Officer on November 21, 2005. We
have not entered into a written employment agreement with her, but we have
arranged for her to receive an annual salary of $101,000. We do not have any
arrangements with Ms. Bucacci for any types of additional compensation,
including bonus payments, severance payments, insurance premium payments,
payments upon a termination following a change of control and retirement
benefits. For her fiscal 2006 performance, Ms. Bucacci earned a bonus of $5,000,
however such bonus has not yet been paid as of the date hereof. In the 2005
fiscal year, we paid Ms. Bucacci $96,000 as her annual salary and we arranged
for her to receive 77,000 shares of our common stock in lieu of a cash increase
to her salary from the amount she received during the 2004 fiscal year. We have
not issued her any other stock awards or options to purchase shares of our
common stock.

                        OPTION GRANTS IN FISCAL YEAR 2006

      We did not grant any stock options to our executive officers or directors
during the year ended December 31, 2006.


                  OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

      The following table shows grants of stock options and grants of unvested
stock awards outstanding on the last day of the fiscal year ended 2006,
including both awards subject to performance conditions and
non-performance-based awards, to the executive officers named in the Summary
Compensation Table.

                                       29
<PAGE>
<TABLE><CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                 Option Awards                                        Stock Awards
---------------------------------------------------------------------------------------------------------------------
<S>       <C>           <C>           <C>          <C>       <C>        <C>         <C>        <C>         <C>
Name      Number        Number of     Equity       Option    Option     Number of   Market     Equity      Equity
          of            Securities    Incentive    Exercise  Expiration Shares or   Value of   Incentive   Incentive
          Securities    Underlying    Plan         Price     Date       Units of    Shares or  Plan        Plan
          Underlying    Unexercised   Awards:        ($)                Stock That  Units of   Awards:     Awards:
          Unexercised   Options       Number of                         Have Not    Stock      Number of   Market or
          Options          (#)        Securities                        Vested      That Have  Unearned    Payout
              (#)       Unexercisable Underlying                           (#)      Not Vested Shares,     Value of
          Exercisable                 Unexercised                                     ($)      Units or    Unearned
                                      Unearned                                                 Other       Shares,
                                      Options                                                  Rights      Units or
                                         (#)                                                   That Have   Other
                                                                                               Not Vested  Rights
                                                                                                  (#)      That Have
                                                                                                           Not Vested
                                                                                                             ($)
---------------------------------------------------------------------------------------------------------------------
John P.    10,000                                    $0.75    5/26/09
Ward
---------------------------------------------------------------------------------------------------------------------
</TABLE>

DIRECTOR COMPENSATION

     The following table sets forth all compensation earned by the members of
our Board of Directors during the fiscal year ended December 31, 2006.

<TABLE><CAPTION>
       Name           Fees Earned     Stock      Option        All Other       Total
                         ($)(1)     Awards($)   Awards($)   Compensation($)     ($)
-------------------- ------------- ----------- ----------- ----------------- --------
<S>                      <C>        <C>                                       <C>
John P. Ward             28,000     6,250(2)                                  34,250

William R. Smart         29,000     7,500(3)                                  36,500

John H. MacKinnon        35,500     7,500(4)                                  43,000
</TABLE>


      (1)  Represents fees earned in the fiscal year ended December 31, 2006,
           which have not yet been paid.

      (2)  Represents an aggregate of 178,819 shares of common stock earned
           during the ten months Mr. Ward served as a director in the fiscal
           year ended December 31, 2006. The shares were earned on the last day
           of each fiscal quarter and the value represented in the table is
           based on the fair market value of our common stock as of such date.
           The shares will be issued upon approval of Proposal 1 and Proposal 2
           by the stockholders.

      (3)  Represents an aggregate of 192,708 shares of common stock earned
           during the twelve months Mr. Smart served as a director in the fiscal
           year ended December 31, 2006. The shares were earned on the last day
           of each fiscal quarter and the value represented in the table is
           based on the fair market value of our common stock as of such date.
           The shares will be issued upon approval of Proposal 1 and Proposal 2
           by the stockholders.

      (4)  Represents an aggregate of 192,708 shares of common stock earned
           during the twelve months Mr. MacKinnon served as a director in the
           fiscal year ended December 31, 2006. The shares were earned on the
           last day of each fiscal quarter and the value represented in the
           table is based on the fair market value of our common stock as of
           such date. The shares will be issued upon approval of Proposal 1 and
           Proposal 2 by the stockholders.

      We have arranged for the members of our Board of Directors to be
compensated for their service as directors. For the 2006 fiscal year, each
director earned an annual retainer of $12,000 and quarterly stock awards valued
at $1,875 on the last day of each quarter. In addition, each director earned
$1,000 for each in-person meeting and $500 for each telephonic meeting he
attended. In addition, the chairman of each of our Audit Committee and our
Nominating, Compensation and Governance Committee earned $750 for each meeting
he attended, and the committee members earned $500 for each meeting they
attended.

                                       30
<PAGE>

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

     The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of March 30, 2007 for (a) each
stockholder known by us to own beneficially 5% of our common stock, (b) each
current member of the Board of Directors, (c) each executive officer named in
the Summary Compensation Table on page 27 hereof, and (d) all current directors
and executive officers as a group. Beneficial ownership is determined in
accordance with the rules of the SEC and includes voting or investment power
with respect to the securities.

                                                     SHARES BENEFICIALLY
                                                          OWNED(1)
NAME                                                 NUMBER      PERCENT

Anthony Stafford(2)                                  20,226,157    57.39
     c/o Codec Systems Limited
     Hyde House, Adelaide Road
     Dublin 2, Ireland

Conor Stafford                                        2,500,000     7.09
     c/o Codec Systems Limited
     Hyde House, Adelaide Road
     Dublin 2, Ireland

Paula Stafford                                        2,500,000     7.09
     c/o Codec Systems Limited
     Hyde House, Adelaide Road
     Dublin 2, Ireland

Fiona Stafford                                        2,500,000     7.09
     c/o Codec Systems Limited
     Hyde House, Adelaide Road
     Dublin 2, Ireland

Ronan Stafford                                        2,500,000     7.09
     c/o Codec Systems Limited
     Hyde House, Adelaide Road
     Dublin 2, Ireland

Mary Lee Ingoldsby                                    2,022,616     5.74
     P.O. Box 647
     Hingham, MA 02043

John P. Ward(3)                                       1,228,995     3.49

William R. Smart(4)                                   1,310,266     3.72

John H. MacKinnon(5)                                  2,309,274     6.55

William B. Berens                                     2,022,615     5.74

Bruna A. Bucacci                                      1,088,308     3.09

All executive officers and directors as
a group (6 persons)(3)(4)                            28,165,615    79.93

                                       31
<PAGE>

*Represents beneficial ownership of less than 1% of the Company's outstanding
shares of common stock.

(1)  The number of shares of common stock issued and outstanding on March 30,
     2007 was 35,242,438. The calculation of percentage ownership of each listed
     beneficial owner is based upon the number of shares of common stock issued
     and outstanding on March 30, 2007, including shares of common stock subject
     to options and/or warrants held by such person at March 30, 2007 and
     exercisable within 60 days thereafter. The persons and entities named in
     the table have sole voting and investment power with respect to all Shares
     shown as beneficially owned by them, except as noted below.
(2)  Includes 10,000,000 shares beneficially owned by Mr. Stafford's four
     children: Conor Stafford, Paula Stafford, Fiona Stafford and Ronan
     Stafford. Mr. Stafford has voting control over all of such shares.

(3)  Includes 10,000 shares issuable to Mr. Ward upon his exercise of options to
     purchase our common stock, and 178,819 shares of common stock as part of
     compensation earned in 2006 while a director.

(4)  Includes 10,000 shares issuable to Mr. Smart upon his exercise of options
     to purchase our common stock, and 192,708 shares of common stock as part of
     compensation earned in 2006 while a director.

(5)  Includes 192,708 shares of common stock as part of compensation earned in
     2006 while a director.


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,
2006:

<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 not
approved by security holders (1)                220,000                       $0.75                       220,000
</TABLE>

     (1)  These plans consist of our 1997 Stock Option Plan and 1998 Stock
          Option Plan, the terms of which are described in Note 12 to our
          audited financial statements for the year ended December 31, 2006
          included in this Annual Report on Form 10-KSB. Additional terms of the
          1997 Stock Option Plan and 1998 Stock 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.

      As a condition to the purchase of our common stock by Mr. Stafford, each
of our executive officers and members of our Board of Directors previously
agreed, subject to the approval of our stockholders, to purchase an aggregate
7,079,155 shares at the same purchase price of $0.0197764 per share that Mr.
Stafford paid to acquire his shares of our common stock. Upon approval of our
stockholders, on March

                                       32
<PAGE>

30, 2007, we issued shares of our common stock to our executive officers and
members of our Board of Directors as follows:

                                                                    AGGREGATE
                                                    NUMBER OF     PURCHASE PRICE
      NAME                     TITLE                 SHARES

John P. Ward           Director                     1,011,308         $20,000

William R. Smart       Director                     1,011,308         $20,000

John H. MacKinnon      Director                     2,022,616         $40,000

William B. Berens      Chief Executive Officer      2,022,615         $40,000

Bruna A. Bucacci       Chief Accounting Officer     1,011,308         $20,000



                                       33
<PAGE>

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                  39

Balance Sheets as of December 31, 2006 and 2005                          40

Statements of Operations for the years ended
   December 31, 2006 and 2005                                            41

Statement of Stockholders' Deficit for the years
   ended December 31, 2006 and 2005                                      42

Statements of Cash Flows for the years ended
   December 31, 2006 and 2005                                            43

Notes to Financial Statements                                            44

         (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 affect 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(j)    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(k)    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).

                                       34
<PAGE>

4.2(l)    Specimen Certificate of Common Stock.
10.1*(i)  1997 Stock Option Plan. 10.2*(i) 1998 Stock Option Plan.
10.3(i)   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(l)   Code of Ethics.
31.1      Certification of the Chief Executive Officer.
31.2      Certification of the Chief Accounting Officer.
32.1      Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002.
--------------------

(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.
(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, 1998.
(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, 2000.
(k)      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.
(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, 2003.

* Management contract or compensatory plan, contract or arrangement.

                                       35
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      Carlin, Charron & Rosen, LLP has been our independent registered public
accounting firm since November 4, 2005, and audited our financial statements for
the years ended December 31, 2006 and 2005.

      Audit Fees

      For the year ended December 31, 2006, Carlin, Charron & Rosen, LLP billed
us $63,500 for the audit of our financial statements and its review of our
Quarterly Reports on Form 10-QSB. BDO Seidman, LLP billed us $5,000 for their
consent associated with the Form 10-KSB for the year ended December 31, 2005.

      For the year ended December 31, 2005, Carlin, Charron & Rosen, LLP billed
us $46,000 for the audit of our financial statements and for its review of our
Quarterly Report on Form 10-QSB for the quarter ended September 30, 2005. BDO
Seidman, LLP billed us $12,150 for its review of Quarterly Reports on Form
10-QSB for the first two quarters of 2005.

      Audit-Related Fees

      We did not pay any additional fees to our independent registered public
accounting firms for assurance and related services during the years ended
December 31, 2006 or 2005.

      Tax Fees

      For the year ended December 31, 2006, RMS McGladrey, Inc. billed us $4,000
for the preparation of our 2005 corporate income tax returns. For the year ended
December 31, 2005, BDO Seidman, LLP billed us $4,500 for the preparation of our
2004 corporate income tax returns.

      All Other Fees

      We did not pay any additional fees to Carlin, Charron & Rosen, LLP or BDO
Seidman, LLP for other products or services during the years ended December 31,
2006 or 2005.

      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.

                                       36
<PAGE>

      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.

                                       37
<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 2, 2007                   By: /s/ William B. Berens
                                           ------------------------
                                           William B. Berens
                                           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/ Anthony Stafford       Chairman of the Board                   April 2, 2007
-----------------------
Anthony Stafford

/s/ William B. Berens      President and Chief Executive Officer   April 2, 2007
-----------------------    (principal executive officer and
William B. Berens          director)


/s/ Bruna A. Bucacci       Chief Accounting Officer (principal     April 2, 2007
-----------------------    financial and accounting
Bruna A. Bucacci           officer)


/s/ John P. Ward           Director                                April 2, 2007
----------------
John P. Ward

/s/ William R. Smart       Director                                April 2, 2007
-----------------------
William R. Smart

/s/ John H. MacKinnon      Director                                April 2, 2007
-----------------------
John H. MacKinnon




                                       38
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Stockholders
National Datacomputer, Inc.

We have audited the accompanying balance sheets of National Datacomputer, Inc.
as of December 31, 2006 and 2005, and the related statements of operations,
stockholders'deficit and cash flows for the years then ended. 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. An audit includes 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 of 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 financial statements referred to above present fairly, in
all material respects, the financial position of National Datacomputer, Inc. as
of December 31, 2006 and 2005, and the results of its operations and its cash
flows for the years then ended 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 5 to the
financial statements, the Company has recurring operating losses and has
incurred an accumulated deficit of approximately $15.9 million at December 31,
2006. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans regarding those matters are also
described in Note 5. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

/s/ Carlin, Charron & Rosen LLP
Westborough, Massachusetts
April 2, 2007

                                       39
<PAGE>
<TABLE><CAPTION>
                           NATIONAL DATACOMPUTER, INC.
                                 BALANCE SHEETS
-------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>               <C>

                                                                               December 31,      December 31,
                                                                                   2006              2005
                                                                               ------------      ------------

Assets
Current Assets:
     Cash                                                                      $    162,783      $    125,508
     Accounts receivable, net of allowance for doubtful accounts of $3,000
       and $1,296 at December 31, 2006 and 2005, respectively                        98,985           127,585
     Inventories, net                                                                10,000              --
     Deferred software costs                                                         15,064              --
     Prepaid expenses                                                                 8,785            22,509
     Current assets of discontinued operations (Note 3)                                --             272,417
                                                                               ------------      ------------
       Total current assets                                                         295,617           548,019
Property and equipment, net                                                          22,539            31,206
Capitalized software development costs, net                                          15,615             9,666
                                                                               ------------      ------------
       Total Assets                                                            $    333,771      $    588,891
                                                                               ============      ============

Liabilities and Stockholders' Deficit:
Current Liabilities:
     Current obligations under capital lease                                   $      3,844      $      3,544
     Note payable, current portion                                                   27,775            54,000
     Accounts payable                                                               366,229           272,703
     Customer deposits                                                               24,911           143,031
     Accrued payroll and related taxes                                              146,485           157,627
     Other accrued expenses                                                         155,587            68,836
     Deferred revenues                                                              248,913           242,202
     Current liabilities of discontinued operations (Note 3)                           --             274,723
                                                                               ------------      ------------
       Total current liabilities                                                    973,744         1,216,666
Note payable, net of current portion                                                 18,125              --
Obligations under capital lease, net of current portion                               6,420             9,450
                                                                               ------------      ------------
       Total Liabilities                                                            998,289         1,226,116
                                                                               ------------      ------------

Convertible Preferred Stock (Note 14)                                                  --           4,005,971

Commitments and contingencies (Note 15)

Stockholders' Deficit:
     Preferred stock, $0.001 par value; 50,000 shares authorized;
       no shares issued or outstanding                                                 --                --

     Common stock, $0.001 par value; 50,000,000 shares authorized;
       26,640,866 and 22,586,681 shares issued and outstanding at
       December 31, 2006 and 2005, respectively                                      26,641            22,587

     Capital in excess of par value                                              15,225,364        14,517,418
     Accumulated deficit                                                        (15,916,523)      (19,183,201)
                                                                               ------------      ------------
       Total Stockholders' Deficit                                                 (664,518)       (4,643,196)
                                                                               ------------      ------------
       Total Liabilities and Stockholders' Deficit                             $    333,771      $    588,891
                                                                               ============      ============
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                       40
<PAGE>
<TABLE><CAPTION>
                           NATIONAL DATACOMPUTER, INC.
                            STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------------------------------------
                                                                                        Years Ended
                                                                               ------------------------------
                                                                               December 31,      December 31,
                                                                                   2006              2005
                                                                               ------------      ------------
<S>                                                                            <C>               <C>
Revenues:
    Product                                                                    $    804,521      $    350,190
    Services                                                                      1,240,931           916,694
                                                                               ------------      ------------
         Total Revenues                                                           2,045,452         1,266,884

Cost of revenues                                                                    924,099           687,744
                                                                               ------------      ------------

         Gross Profit                                                             1,121,353           579,140
                                                                               ------------      ------------

Operating expenses:
    Research and development                                                         75,596           114,918
    Selling and marketing                                                           296,292           434,650
    General and administrative                                                      902,963           999,210
                                                                               ------------      ------------
                                                                                  1,274,851         1,548,778
                                                                               ------------      ------------
Loss from operations                                                               (153,498)         (969,638)

Other income (expense):
    Interest income                                                                   1,958             2,913
    Gain (loss) on currency exchange                                                  6,747            (1,036)
    Interest expense                                                                 (8,638)           (3,204)
                                                                               ------------      ------------
oss from continuing operations                                                     (153,431)         (970,965)

    Income from discontinued operations (Note 3)                                    134,115           203,331
    Loss on sale of discontinued operations                                          (7,977)             --
                                                                               ------------      ------------
Net loss                                                                       $    (27,293)     $   (767,634)
                                                                               ============      ============

Calculation of net loss per common share:

Net loss                                                                       $    (27,293)     $   (767,634)
Preferred stock preferences                                                        (244,750)         (267,000)
                                                                               ------------      ------------
Net loss attributable to common stockholders                                   $   (272,043)     $ (1,034,634)
                                                                               ============      ============
Basic and diluted net loss per share attributable to
    common stockholders:
    Loss from continuing operations                                            $      (0.01)     $      (0.05)
    Income from discontinued operations                                                0.01              0.01
    Preferred stock preferences                                                       (0.01)            (0.01)
                                                                               ------------      ------------
    Net loss attributable to common stockholders                               $      (0.01)     $      (0.05)
                                                                               ============      ============

Weighted average shares                                                          25,141,373        22,136,654
                                                                               ============      ============
</TABLE>

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

                                       41
<PAGE>
<TABLE><CAPTION>
NATIONAL DATACOMPUTER, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
------------------------------------------------------------------------------------------------------------------------------------

                                                Common Stock
                                        ---------------------------                     Capital in                        Total
                                                           Par          Preferred         excess       Accumulated     stockholders'
                                           Shares         value           Stock        of par value      deficit         deficit
                                        ------------   ------------    ------------    ------------    ------------    ------------
<S>                                     <C>            <C>             <C>             <C>             <C>             <C>
Balance at January 1, 2005                22,134,181   $     22,134            --      $ 14,481,671    ($18,148,567)   ($ 3,644,762)

Net loss                                        --             --              --              --          (767,634)       (767,634)

Interest on preferred stock (Note 14)           --             --              --              --          (267,000)       (267,000)

Issuance of compensatory stock
 grants (Note 13)                            452,500            453            --            35,747            --            36,200

                                        ------------   ------------    ------------    ------------    ------------    ------------

Balance at December 31, 2005              22,586,681         22,587            --        14,517,418     (19,183,201)     (4,643,196)

Net loss                                        --             --              --              --           (27,293)        (27,293)

Reclassification of Convertible
  Preferred Stock                               --             --         3,538,721         467,250            --         4,005,971

Interest on preferred stock (Note 14)           --             --              --           244,750        (244,750)           --

Issuance of common stock
 in satisfaction of accrued interest       4,054,185          4,054            --            (4,054)           --              --

Retirement of Preferred Stock                   --             --        (3,538,721)           --         3,538,721            --
                                        ------------   ------------    ------------    ------------    ------------    ------------
Balance at December 31, 2006              26,640,866   $     26,641    $       --      $ 15,225,364    ($15,916,523)   ($   664,518)
                                        ============   ============    ============    ============    ============    ============
</TABLE>

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

                                       42
<PAGE>
<TABLE><CAPTION>
                           NATIONAL DATACOMPUTER, INC.
                            STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------------------------------------
                                                                                        Years Ended
                                                                               ------------------------------
                                                                               December 31,      December 31,
                                                                                   2006              2005
                                                                               ------------      ------------
<S>                                                                            <C>               <C>
OPERATING ACTIVITIES:
     Net loss                                                                  $    (27,293)     $   (767,634)
     Less: Income from discontinued operations                                     (134,115)         (203,331)
     Plus: loss on sale of discontinued operations                                    7,977              --
                                                                               ------------      ------------
     Loss from continuing operations                                               (153,431)         (970,965)
        Adjustments to reconcile net loss to net
            cash provided by (used for) operating activities:
            Interest on loan                                                          2,033              --
            Depreciation and amortization                                            31,155            57,252
            Compensatory stock grants                                                  --              36,200
            Changes in assets and liabilities:
               Decrease  (increase) in accounts receivable                           28,600          (101,402)
               Increase in inventories                                              (10,000)             --
               Increase in deferred software costs                                  (15,064)             --
               Decrease (increase) in other prepaid expenses                         13,724           (10,689)
               Increase in accounts payable                                         146,100           120,650
               (Decrease) Increase in customer deposits                            (118,120)          114,842
               Increase in accrued expenses                                          75,609            53,434
               Increase (decrease) in deferred revenues                               6,711           (30,826)
                                                                               ------------      ------------
     Net cash provided by (used for) continuing operatIons                            7,317          (731,504)
     Net cash provided by discontinued operatIons                                   128,857           625,262
                                                                               ------------      ------------
     Net cash provided by (used for) operating activities                           136,174          (106,242)
                                                                               ------------      ------------

Cash flows from investing activities:
     Purchases of property and equipment                                            (17,152)          (12,539)
     Purchase of capitalized software                                               (11,285)          (11,600)
                                                                               ------------      ------------
     Net cash used for continuing operations                                        (28,437)          (24,139)
     Net cash used for discontinued operations                                       (5,025)             --
                                                                               ------------      ------------
     Net cash used for investing activities                                         (33,462)          (24,139)
                                                                               ------------      ------------

Cash flows from financing activities:
     Principal payments on note payable                                             (62,707)             --
     Principal payments on obligations
            under capital lease                                                      (2,730)          (10,574)
                                                                               ------------      ------------
     Net cash used for financing activities - continuing operations                 (65,437)          (10,574)
                                                                               ------------      ------------

Net increase (decrease) in cash                                                      37,275          (140,955)
Cash, beginning of year                                                             125,508           266,463
                                                                               ------------      ------------

Cash, end of year                                                              $    162,783      $    125,508
                                                                               ============      ============

Supplemental Disclosure of Cash Flow Information:

     Cash paid for interest                                                    $      8,638      $      3,204
     Non-cash investing and financing activities:
            Accounts payable converted to note payable                         $     52,574      $       --
            Accrued interest on preferred stock charged to
               accumulated deficit                                             $    244,750      $    267,000
            Issuance of common stock in satisfaction of
               accrued interest                                                $    400,500      $       --
</TABLE>

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

                                       43
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      USE OF ESTIMATES

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

      REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE.

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

      Our transactions sometimes involve multiple elements (i.e. systems and
services). Revenue under multiple arrangements is recognized in accordance with
Emerging Issues Task Force ("EITF") Issue No. 00-21, "ACCOUNTING FOR REVENUE
ARRANGEMENTS WITH MULTIPLE DELIVERABLES". Under this method, if an element is
determined to be a separate unit of accounting, the revenue for the element is
based on fair value and determined by verifiable objective evidence, and
recognized at time of delivery. If the arrangement has an undeliverable element,
we ensure that we have objective and reliable evidence of the fair value of the
undeliverable element. Fair value is determined based upon the price charged
when the element is sold separately.

      We recognize revenue for software licenses in accordance with the American
Institute of Certified Public Accountants ("AICPA")'s Statement of Position
97-2, "SOFTWARE REVENUE RECOGNITION" ("SOP 97-2"). The application of SOP 97-2
requires judgment, including whether a software arrangement includes multiple
elements. License revenue is recognized upon customer acceptance, provided that
persuasive evidence of an arrangement exists, no significant obligations with
regards to installation or implementation remain, fees are fixed or
determinable, and collectibility is probable.

      Hardware and software maintenance is marketed under annual and multi-year
arrangements and revenue is recognized ratably over the contract maintenance
term.

                                       44
<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 uncollectible amounts. The Company reviews its
trade receivables monthly, and determines, based on management's knowledge and
the customer's payment history, any write-off or allowance that may be
necessary. The Company follows the practice of writing off uncollectible amounts
against the allowance provided for such accounts.

      INVENTORIES

      Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. The Company evaluates its
inventories to determine excess or slow moving products based on quantities on
hand, current orders and expected future demand. For those items in which the
Company believes it has an excess supply or for those items that are obsolete,
the Company estimates the net amount that the Company expects to realize from
the sale of such products and records an allowance.

      PROPERTY AND EQUIPMENT

      Property and equipment are recorded at cost and depreciated over the
estimated useful lives of the assets using the straight-line method. Leasehold
improvements are amortized over the shorter of the useful lives or the remaining
terms of the related leases. Maintenance and repair costs are charged to
operations as incurred.

      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 RESEARCH AND DEVELOPMENT COSTS.

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

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

      INCOME TAXES

      The Company accounts for income taxes in accordance with SFAS No. 109,
"ACCOUNTING FOR INCOME

                                       45
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

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.

      STOCK-BASED COMPENSATION

      Effective January 1, 2006, the Company adopted the provisions of SFAS
123(R), SHARE-BASED PAYMENT, which established accounting for equity instruments
exchanged for employee services. Under SFAS 123(R), share-based compensation
cost is measured at the grant date, based on the fair value of the award, and is
recognized as an expense over the employee's requisite service period (generally
the vesting period of the equity grant). Prior to January 1, 2006, the Company
accounted for share-based compensation to employees in accordance with APB No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related interpretations. The
Company also followed the disclosure requirements of SFAS 123, ACCOUNTING FOR
STOCK BASED COMPENSATION. Therefore, no stock-based employee compensation
expense had been recorded in connection with the issuance of employee and
director stock options as all stock options granted under the plans were fixed
awards and had an exercise price equal to the market value of our common stock
at the time of the grant. The Company elected to adopt the modified prospective
transition method as provided by SFAS 123(R) and, accordingly, financial
statement amounts for prior periods presented in this Form 10-KSB have not been
revisited to reflect the fair value method of expensing share-based
compensation.

      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.

      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 14) are subtracted from
the net income (loss) to determine the amount of net income (loss) attributable
to common stockholders.

      WARRANTY AND RETURN POLICY

      The Company's warranty policy provides 90-day coverage on all parts and
labor on all products. The policy with respect to sales returns provides that a
customer may not return inventory except at the Company's option. The Company's
warranty costs have historically been insignificant.

      SHIPPING AND HANDLING COSTS

      Shipping and handling costs are classified as a component of cost of goods
sold. The Company accounts for shipping and handling costs passed on to
customers as revenues.

3. DISCONTINUED OPERATIONS

      On November 29, 2006, the Company sold its audit business line to AST Inc.
("AST") in exchange for all our outstanding preferred stock. In early November
2006, AST informed our Board of Directors that it had acquired approximately 90%
of our outstanding

                                       46
<PAGE>

common stock and all of our outstanding preferred stock for $750,000 from
Capital Bank Grawe Gruppe AG ("CapitalBank") based on AST's assessment that the
value of the Common Stock held by CapitalBank was $250,000 and the value of the
Preferred Stock held by CapitalBank was $500,000.

      The Company sold its audit business to better focus on its route
accounting business. The audit business has been reported as a discontinued
operation in accordance with SFAS No. 144, "ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS," and all periods presented have been revised to
reflect the operations as discontinued.

      Revenues and income for the audit business for the calendar year 2006 and
2005 were as follow:

                                             YEAR ENDED DECEMBER 31,
                                             -----------------------
                                              2006            2005
                                              ----            ----
           Total Sales                      $951,099       $1,405,588
           Income                           134,115          203,331


      The following represents a detailed listing of the current assets and
current liabilities of discontinued operations:

                                                              DECEMBER 31, 2005
                                                              -----------------
      Current assets of discontinued operations:
           Accounts receivable, net                             $     11,576
           Inventories, net                                          175,919
           Prepaid expenses                                           24,499
           Property and equipment, net                                33,068
           Capitalized software development costs, net                27,355
                                                                -------------
                                  Total current assets          $    272,417
                                                                =============

      Current liabilities of discontinued operations:
           Accounts payable                                     $     44,576

           Customer deposits                                         113,725
           Accrued payroll and related taxes                           7,275
           Other accrued expenses                                      2,063
           Deferred revenues                                         107,084
                                                                -------------
                                Total current liabilities       $    274,723
                                                                =============

4. EQUITY TRANSACTIONS SUBSEQUENT TO YEAR END

      Anthony Stafford, an investor who has joined our Board of Directors on
March 30, 2007, is now

                                       47
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

a majority stockholder of our Company after investing $400,000 for the purchase
of shares of our Common Stock previously held by CapitalBank. As a condition to
his investment, Mr. Stafford requested that our executive officers and members
of our Board of Directors provide an aggregate of $140,000 of the $600,000
(including Mr. Stafford's $400,000) in funds which were raised to acquire shares
previously held by CapitalBank. Each of our executive officers and the members
of our Board of Directors agreed to make such an investment by purchasing an
aggregate of 7,079,155 shares of our Common Stock (the "Management Shares") on
the same terms on which Mr. Stafford purchased his shares.

      On March 30, 2007 our stockholders approved the sale and issuance of
shares of Common Stock to our executive officers and each member of our Board of
Directors, and in exchange for an aggregate of $600,000 capital contribution,
the new investors received an aggregate of 30,339,236 shares of our Common
Stock. The resulting per share purchase price was $.0197764 per share.

      Mr. Stafford, together with his four children, agreed to invest $400,000
in the Company, provided that at least a majority of the remaining $200,000
funds to be raised be provided on an individual basis by our executive officers
and the members of our Board of Directors. Our executive officers and the
members of our Board of Directors agreed to invest an aggregate of $140,000 and
two additional investors were identified to provide the remaining $60,000. As
described above, these funds were used to pay AST $250,000 for our Common Stock
held by CapitalBank as partial consideration for the purchase of the CapitalBank
Shares and the remaining $350,000 will be used to provide us with needed working
capital and to pay transaction expenses. Moreover, Mr. Stafford agreed to
acquire only our Common Stock so that we would not have to re-issue shares of
our Preferred Stock, thereby ensuring that the holders of our Common Stock would
not be affected by any liquidation preferences and that we would no longer have
any obligation to make quarterly interest payments in cash or Common Stock with
respect to the Preferred Stock.

      A result of these transactions is the elimination of the outstanding
shares of our Preferred Stock, which results in no other stockholder having a
liquidation preference over the holders of our Common Stock as well as the
cessation of our obligation to issue cash or Common Stock as interest payments
with regard to the Preferred Stock, which would potentially further dilute the
shares of our Common Stock that are currently outstanding. Additionally, the
stockholders will be able to vote as a single class.

5. LIQUIDITY AND MANAGEMENT PLANS

      We have an accumulated deficit of approximately $15,900,000 through
December 31, 2006. As a result of this deficit and our cash position, the report
of our independent registered public accounting firm contains an explanatory
paragraph regarding substantial doubt about the Company's ability to continue as
a going concern. We have taken numerous steps to address this situation. In
November 2006, in an effort to focus solely on our route accounting business, we
sold our audit business line to AST in exchange for our Preferred Stock. In
January 2007, a group of investors made a cash investment of $600,000, of which
they used $250,000 to purchase 30,339,236 shares of our common stock together
with accrued but unpaid stock dividends (representing approximately 90% of our
common stock in the aggregate) held by CapitalBank and provided us $350,000 to
be used as working capital.

      We have re-aligned our spending from administration and manufacturing to
maintain key development programs while carefully managing our overall cash
usage. We are exploring all opportunities to improve our financial condition by
aggressively pursuing potential sales. 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

                                       48
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

additional financing. We believe that based on our current revenue expectations,
the expected timing of such revenues, and our current level of expenses, we will
have sufficient cash to fund our operations through December 31, 2007. However,
there are no assurances that these plans will be successful or sufficient.

6. RECENT ACCOUNTING PRONOUNCEMENTS

      In June 2006, the FASB issued FASB Interpretation No. 48, "ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES" which is an interpretation of FASB Statement 109,
"ACCOUNTING FOR INCOME TAXES." FIN 48 requires managements to perform a two-step
evaluation of all tax positions, ensuring that these tax return positions meet
the "more-likely than not" recognition threshold and can be measured with
sufficient precision to determine the benefit recognized in the financial
statements. These evaluations provide management with a comprehensive model for
how a company should recognize, measure, present, and disclose in its financial
statements certain tax positions that the Company has taken or expects to take
on income tax returns. The provisions of FIN 48 are effective for the Company's
interim reporting period beginning January 1, 2007. The Company does not believe
the adoption of this pronouncement FIN 48 will have a material impact on its
financial position and results of operations.

      In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB
108). SAB 108 addresses how the effects of prior year uncorrected misstatements
should be considered when quantifying misstatements in current year financial
statements. SAB 108 requires companies to quantify misstatements using a balance
sheet and income statement approach and to evaluate whether either approach
results in quantifying an error that is material in light of relevant
quantitative and qualitative factors. When the effect of initial adoption is
material, companies will record the effect as a cumulative effect adjustment to
beginning of year retained earnings. The provisions of SAB 108 are effective for
the Company's interim reporting period beginning January 1, 2007. The Company
does not believe the adoption of SAB 108 will have a material impact on its
financial position or results of operations.

      In September 2006, the FASB issued SFAS No. 157, "FAIR VALUE
MEASUREMENTS". SFAS 157 prescribes a single definition of fair value as the
price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. The
Company does not believe the adoption of SFAS 157 will have a material impact on
its financial condition or results of operations. SFAS 157 is effective for the
Company's interim reporting period beginning January 1, 2008.

7. INVENTORIES

      Inventories related to continuing operations consist of the following:


                                                 DECEMBER 31,    DECEMBER 31,
                                                     2006            2005
                                                 ------------    ------------

      Raw materials                                 $   --          $   --
      Work-in-process                                10,000             --
      Finished goods                                    --              --
                                                 ------------    ------------
                                                    $10,000         $   --
                                                 ============    ============

                                       49
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

8. PROPERTY AND EQUIPMENT, NET

     Property and equipment related to continuing operations consist of the
following:
<TABLE><CAPTION>
                                                        ESTIMATED
                                                       USEFUL LIVES    DECEMBER 31,    DECEMBER 31,
                                                        (IN YEARS)         2006            2005
                                                       ------------    ------------    ------------
<S>                                                       <C>           <C>             <C>
     Production and engineering equipment                  3-5           $277,795        $ 592,185
     Furniture, fixtures and office equipment               5             542,847          893,130
                                                         Life of
     Leasehold improvements                               Lease            39,564           29,749
                                                                       ------------    ------------
                                                                          860,206        1,515,064

     Less - accumulated depreciation and amortization                     837,667        1,483,858
                                                                       ------------    ------------

                                                                         $ 22,539        $  31,206
                                                                       ============    ============
</TABLE>

      Depreciation expense from continuing operations was $25,819 and $42,899
for the years ended December 31, 2006 and 2005, respectively

9. CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET

     Capitalized software development costs related to continuing operations
consist of the following:
<TABLE><CAPTION>

                                                         ESTIMATED       DECEMBER 31,    DECEMBER 31,
                                                       ECONOMIC LIVES        2006            2005
                                                         (IN YEARS)
                                                       --------------    ------------    ------------
<S>                                                         <C>           <C>             <C>
     Internally developed software                           3             $ 27,801        $27,801
     Purchased software                                      3               22,885         11,600
                                                                         ------------    ------------
                                                                            50,686          39,401

     Less - accumulated amortization                                        35,071          29,735
                                                                         ------------    ------------

                                                                           $ 15,615        $ 9,666
                                                                         ============    ============
</TABLE>

      Amortization expense from continuing operations was $5,336 and $14,353 for
the years ended December 31, 2006 and 2005, respectively.

10. 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, 2005;
however, the event of default was waived by the holder, and payments recommenced
in March 2006. At December 31, 2006, the

                                       50
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS


remaining note payable balance was $6,000.

      On April 1, 2006, the Company signed an agreement with its landlord for
past due rent plus interest at 12% totaling $54,607. This amount is payable over
the remaining 30 months of the lease. At December 31, 2006, the remaining note
balance was $39,900.

11. INCOME TAXES

      Deferred tax assets are comprised of the following:

                                                 DECEMBER 31,     DECEMBER 31,
                                                     2006             2005
                                                 -----------      -----------

      Net operating loss carryforwards           $ 2,909,000      $ 3,045,000
      Business tax credit carryforwards                5,000            5,000
      Reserves and allowances                        338,000          377,000
      Depreciation and amortization                  (80,000)         (80,000)
      Accrued compensation                            64,000           39,000

                                                 -----------      -----------

      Gross deferred tax asset                     3,236,000        3,386,000
      Deferred tax asset valuation allowance      (3,236,000)      (3,386,000)
                                                 -----------      -----------
                                                 $       --       $       --
                                                 ===========      ===========

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

                                                          YEAR ENDED

                                                 DECEMBER 31,     DECEMBER 31,
                                                     2006             2005
                                                 -----------      -----------

      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, 2006, the Company has federal net operating loss
carryforwards for federal tax purposes of approximately $8,214,000, which expire
in various years through 2026. The Company has state net operating loss
carryforwards for tax purposes of approximately $1,856,000, which expire in
various years through 2011.

      Any significant change in ownership, as defined in Section 382 of the
Internal Revenue Code, may result in an annual limitation on the amount of the
net operating loss and credit carryforwards which

                                       51
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

could be utilized in a single year.

12. STOCK OPTIONS

      Effective January 1, 2006, the Company adopted the provisions of SFAS
123(R), SHARE BASED PAYMENT, which established accounting for equity instruments
exchanged for employee services. Under SFAS 123(R), share-based compensation
cost is measured at the grant date, based on the fair value of the award, and is
recognized as an expense over the employee's requisite service period (generally
the vesting period of the equity grant). Prior to January 1, 2006, the Company
accounted for share-based compensation to employees in accordance with APB No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related interpretations. The
Company also followed the disclosure requirements of SFAS 123, ACCOUNTING FOR
STOCK BASED COMPENSATION. Therefore, no stock-based employee compensation
expense had been recorded in connection with the issuance of employee and
director stock options as all stock options granted under the plans were fixed
awards and had an exercise price equal to the market value of our common stock
at the time of the grant. The Company elected to adopt the modified prospective
transition method as provided by SFAS 123(R) and, accordingly, financial
statement amounts for prior periods presented in this Form 10-KSB have not been
revisited to reflect the fair value method of expensing share-based
compensation.

      For the year ended December 31, 2006, no stock options were granted and no
share-based compensation was recognized in the accompanying statement of
operations.

      The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model. Key assumptions used to
estimate the fair value of the stock options include the exercise price of the
award, the expected option term, the expected forfeiture rate, the expected
volatility of the Company's stock over the option's expected term, the risk free
interest rate over the option's expected term, and the Company's expected annual
dividend yield. The Company believes that the valuation technique and the
approach utilized to develop the underlying assumptions are appropriate in
calculating the fair values of the Company's stock options. Estimates of fair
values are not intended to predict actual future events or the value ultimately
realized by persons who receive equity awards.

      For the year ended December 31, 2005, no stock options were granted and
there was no disclosure of pro-forma stock-based compensation expense.


SHARE-BASED INCENTIVE PLANS

      On August 19, 1997, the Board of Directors adopted the 1997 Stock Option
Plan ("1997 Plan") which provided for issuance of both incentive stock options
and non-qualified options to employees. As of December 31, 2006, 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, 2006, there were options to purchase 20,000 shares of common stock
outstanding and 280,000 shares available for grant under the 1998 Plan.

      The following table sets forth the stock option transaction for the year
ended December 31, 2006, as well as the average price and contractual life
information about options outstanding and exercisable at

                                       52
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS


December 31, 2006:
<TABLE><CAPTION>
                                                                Weighted
                                                                average
                                                                remaining
                                      Number of    Exercise     contractual   Intrinsic
                                        shares       Price         term         Value
----------------------------------- ------------- ----------- ------------- -------------
<S>                                   <C>          <C>         <C>
Outstanding at December 31, 2005       220,000      $  0.75     2.9 years
     Granted                               --          --
     Exercised                             --          --
     Cancelled/expired                     --          --
----------------------------------- ------------- ----------- ------------- -------------
Outstanding at December 31, 2006       220,000      $  0.75     1.9 years       $   --
----------------------------------- ------------- ----------- ------------- -------------
Exercisable at end of year             220,000       $ 0.75           --        $   --
----------------------------------- ------------- ----------- ------------- -------------
</TABLE>

13. COMMON STOCK

      On December 29, 2005, the Company awarded an aggregate of 452,500 shares
of common stock to its officers and directors. The shares had a per share fair
value of $.08 for a total of $36,200, which was recognized by the Company as
stock compensation expense.

      As of December 31, 2006, the Company has reserved 564,236 shares of Common
Stock to be issued to the members of the Board of Directors as part of their
2006 compensation. The shares had a per share fair value of $0.038 for a total
of $21,250, which was recognized by the Company as stock compensation expense.

14. CONVERTIBLE PREFERRED STOCK

      CapitalBank acted as investment agent and held shares of our capital stock
in its name on behalf of a number of investors who purchased shares of our
Preferred Stock in a series of transactions between 1996 and 1998. Holders of
our Preferred Stock were entitled to, among other things, quarterly interest
payments based on the value of the Preferred Stock as determined between the
Company and the initial holders of the Preferred Stock. Such mandatory interest
payments were payable in cash or in shares of our common Stock. As the first
shares of our Preferred Stock were issued in 1996, and as a result of the
Company's poor operating performance, which resulted in, among other things,
limited cash assets, we issued a substantial amount of shares of our Common
Stock to CapitalBank as mandatory interest payments.

      On November 30, 2006, CapitalBank held 22,301,900 shares of Common Stock,
which primarily consisted of shares of our Common Stock issued as interest
payments due through March 31, 2006. This amount excluded an additional
8,037,336 shares of Common Stock that the Company became obligated to issue as
interest payments due for the period beginning April 1, 2006 and ending November
30, 2006.

      During November 2006, AST entered into an agreement with CapitalBank to
acquire the CapitalBank Shares for $750,000. On November 29, 2006, we entered
into a written agreement with AST to act as agent for certain investors to
purchase the Common Stock held by AST in exchange for $250,000. We also
purchased the Preferred Stock held by AST in exchange for the transfer of all
the assets and liabilities of our audit business. Upon receiving the Preferred
Stock, our Board of Directors voted in favor of retiring the stock.

                                       53
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

INTEREST:

      Until November 30, 2006, the Series B convertible preferred shareholders
were entitled to receive interest equal to 8% per annum. Series C and Series D
convertible preferred shareholders were entitled to receive interest equal to 6%
per annum.

      During the years ended December 31, 2006 and 2005, the Company incurred
interest in the amount of $244,750 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 2006, we issued 4,054,185
shares of common stock in satisfaction of accrued interest for the last three
quarter of 2004 and the first three quarters of 2005. During 2005 no shares were
issued in satisfaction of the accrued interest.

      As of December 31, 2006 the Company owed $311,500 or 8,037,336 shares of
Common Stock in satisfaction of accrued interest for the period beginning
October 1, 2005 and ending November 29, 2006. These shares were issued March 30,
2007.

15. COMMITMENTS

      The Company leases its office facilities under an operating lease expiring
September 30, 2008. The lease contains an option for renewal and requires the
payment of real estate taxes and other operating costs. Total rent expense under
this operating lease was $140,343 and $212,846 for the years ended December 31,
2006 and 2005, respectively.

      The Company also leases certain equipment under capital leases expiring at
various dates through the year 2009.

      Minimum future lease commitments under operating and capital leases at
December 31, 2006 are as follows:


                                       54
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

                                 Year ending
                                 December 31,       Operating        Capital
                                 ------------       ---------        -------

                                     2007            $163,593         $4,998
                                     2008             124,740          4,998
                                     2009               -              2,915
                                                   -----------      ----------

      Total minimum lease payments                   $288,333         12,911
                                                   ===========
      Less: amount representing interest                               2,647
                                                                    ----------

      Present value of minimum lease payments                         10,264
      Less: Current obligations                                        3,844
                                                                    ----------

      Obligations under capital leases, net of current portion        $6,420
                                                                    ==========


16. CONCENTRATION OF CREDIT RISK

      The Company sells its products to customers principally in the United
States of America. During 2006, three customers accounted for approximately 45%
of our total revenues.

      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
58% and 57% of total accounts receivable at December 31, 2006 and 2005,
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 Company's total net revenues were generated by sales to customers in
the following countries:


                                 Percentage of               Percentage of
                                 net revenues                net revenues
                                     2006                        2005

      USA                             90%                         83%
      Japan                           1%                          12%
      Europe                          9%                          5%

               TOTAL                 100%                        100%



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