<PAGE>   1

================================================================================

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                            ------------------------
                                  FORM 10-KSB

(MARK ONE)

[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

[ ]   TRANSITION REPORT UNDER 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)

<TABLE>
<S>                                   <C>
             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                  (ZIP CODE)
             OFFICES)
</TABLE>

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

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

                     COMMON STOCK, $.08 PAR VALUE PER SHARE
                                (TITLE OF CLASS)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                         Yes  [X]               No  [ ]

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

     The registrant had revenues of approximately $5,813,000 in the calendar
year ended December 31, 1997. The aggregate market value of the voting stock
held by non-affiliates of the registrant on March 20, 1998 was approximately
$1,541,490. As of March 20, 1998, 1,628,341 shares of Common Stock, $.08 par
value per share, of the registrant were outstanding. Unless otherwise indicated,
all per share data and information in this Form 10-KSB relating to the number of
shares of Common Stock reflect a 1:4 reverse stock split that was effected on
December 19, 1996.

================================================================================
<PAGE>   2

                                     PART I

     This annual report on Form 10-KSB contains forward-looking statements as
defined in the Private Securities Litigation Reform Act of 1995. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes", "anticipates", "plans", "expects", and similar
expressions are intended to identify forward-looking statements. The important
factors discussed in Item 1 "Description of Business" and Item 6 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" among
others, could cause actual future results to differ materially from those
indicated by forward-looking statements made herein and presented elsewhere by
management from time to time.

ITEM 1.  DESCRIPTION OF BUSINESS.

GENERAL

     The mission of National Datacomputer, Inc. (the "Company") is to provide
solutions to workplace problems through the use of mobile information systems.
The Company designs, manufactures, sells and services computerized systems used
to automate the collection, processing and communication of information related
to product sales, distribution, and inventory control. The Company's products
and services include data communication networks, application-specific software,
hand-held computers and related peripherals, and associated training and support
services. The Company's products facilitate rapid and accurate data collection,
data processing and two-way communication of information with a customer's host
information system.

     The Company invests in technologies that support its systems solution
approach, such as application software and network communication systems. The
Company believes that its future success depends on superior marketing, service
and solutions. The Company's goal is to be the leading supplier in selected
market sectors. The key elements of the Company's strategy include: (i)
performing effective market research to assess and identify market sectors that
represent viable business opportunities; (ii) providing system communications to
a customer's host information system in addition to data collection software and
hardware; (iii) updating hardware and software solutions to remain current with
customers' needs as well as existing technology; and (iv) maintaining superior
software to run the Company's hardware and network communications in selected
market segments.

     On February 20, 1998, the Company announced the signing of a letter of
intent, subject to a definitive agreement, to merge with Infos International,
Inc. ("Infos"). Infos is a privately held company with operations currently in
Germany, Italy, Portugal and Spain. Established in 1983, Infos designs,
manufactures, sells and supports hardware and software systems for Route
Accounting, Retail Applications and Sales Support. Infos's current hardware
products are based on "Open Systems" architecture which promotes ease and speed
of application development and provides for software portability and
maintainability. Infos unaudited sales for 1997 are approximately $14,000,000.

     The Company would be the surviving corporation of the merger while the
shareholders of Infos would acquire a majority of the issued and outstanding
capital stock of the combined entity.

INDUSTRY BACKGROUND

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

     The state of the art in microprocessors at the time was units with small
memories and programs written in proprietary or machine languages contained in
firmware. The applications were, by necessity, simple compared to other
applications of computers in business and industry. As the need for more
flexible and sophisticated programs grew, the use of units requiring firmware
became less and less desirable. This situation existed until the mid-1980s when
personal computers blossomed and the computer industry shifted to low-powered
CMOS electronics (generally categorized as semiconductors requiring small power
drain). At that point, the

                                        1
<PAGE>   3

opportunity to create software systems with the level of flexibility and
sophistication available in other parts of the software industry presented
itself and the hand-held personal computer was introduced.

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

PRODUCTS

     The Company designs, manufactures, markets and services rugged, hand-held
computers, data collection devices and associated peripherals. The Company
believes that its customers require products that allow flexible tailored
software solutions in a cost-effective and timely manner.

HARDWARE

     The Company's hand-held computers ("Datacomputers") include a
microprocessor, keyboard, LCD displays and full alphabetic and numeric character
sets. Application programs for the Datacomputer can be written on conventional
desk-top computers with commonly-used programming languages and then executed on
the Datacomputer. Application programs and data in Datacomputers are stored in
random access memory ("RAM") and can be readily changed by communicating
revisions or new programs to the Datacomputer through its industry standard
serial port. Datacomputers can receive data through bar-code readers, cables
from other computers (including other Datacomputers) and over telephone lines
through a modem. The Company's Datacomputer product line includes three models
of the Datacomputer, bar-code readers, printers, communication devices, carrying
cases, cables and add-on memory boards.

  Datacomputer Model DC4

     The Datacomputer Model DC4 (the "DC4") is a hand-held computer that was
introduced in late 1997 and which is designed for use by the Route Service
market. The DC4 is an advanced version of the DC 3X described below in that it
employs a faster processor and a faster internal modem. The DC4 also
incorporates several significant features not available in the DC 3X, such as a
touch-screen, a signature capture capability and two slots for PC-cards. The
enhanced processing power and ruggedness of the DC4 is drawing interest from
markets other than the Company's traditional markets, particularly in Europe.
The DC4 is intended to complement rather than replace the DC 3X, which will
continue be sold into its present markets. Several hundred DC4 units have been
shipped to date and the Company estimates that approximately 15% of its 1997
total revenue in 1997 was attributable to sales of the DC4.

  Datacomputer Model 3X

     The Datacomputer Model 3X (the "DC 3X") is a hand-held "Intel(TM) based"
computer designed for use by people whose jobs involve entry and access to a
computer as they stand or move about. The DC 3X contains an industry standard
bar-code port that allows quick and convenient scanning of bar-codes for
accurate inventory management and supports fixed beam pencil wands, CCD and
laser light beam readers for a multitude of scanning applications. The Company
estimates that approximately 36% of its 1997 total revenue was attributable to
the sale of the DC 3X.

     The DC 3X is designed to be highly reliable, tolerant to human error and
easy to use. The DC 3X is shock resistant, water tight and operates over a wide
temperature range. In addition, the DC 3X's full-sized, numeric key pad is
designed for fast and accurate data entry, even while a user is wearing gloves.
The Company also offers optional accessories, such as an internal modem that
allows communications over telephone lines.

     The Company offers the DC 3X in two different sales packages. The Pre-Sales
System (the "PSS") includes a DC 3X, software and various peripherals for sale
to customers who sell their products on routes and

                                        2
<PAGE>   4

who book the sales orders through a dedicated sales force. The Driver-Sales
System (the "DSS") is a packaged system that includes a DC 3X, one of several
portable or truck-mounted printers, peripherals and software. The DSS is used by
customers who sell their products through delivery drivers. The Company believes
that the application software included in the PSS and DSS packages described
above permits a high degree of customization for a variety of customer
applications.

     The PSS is typically purchased by distributors who sell products prior to
actual shipment. Due to the fact that the salesman is not required to create and
print out a delivery slip for any customer, there is no need for a printer. The
PSS allows the salesman to access all of the distributor's information on the
customer's account as well as to input the customer's next delivery order. The
DSS, on the other hand, is typically purchased by distributors who do not sell
products prior to actual shipment. Accordingly, a salesperson arriving at a stop
performs an inventory check, determines how much inventory should be delivered
and prints out the delivery slip for the customer.

     The DC 3X has many industrial applications, where portability, access
speed, ruggedness and small size are essential. Examples of two applications for
the DC 3X are set forth below:

     Delivery Routes.  At the end of each day, a driver parks his truck and goes
into the office where he connects his DC 3X to a host computer. The host
computer extracts and processes the information entered into the DC 3X by the
driver during his route. After processing the data, the host computer downloads
the delivery schedule and inventory for the driver's next day, including account
information about each customer. During the day, at each route stop, the driver
takes the customer's inventory, calculates what new stock needs to be added and
prints out a delivery slip for each customer. At the end of the day, a complete
report of the driver's deliveries can be printed. According to many of the
Company's customers, the implementation of the DC 3X has significantly improved
driver efficiency.

     Inspection Systems.  Using a DC 3X, a railroad inspector checks the
condition of railroad cars in the railroad yard. The DC 3X prompts the inspector
by requesting that he respond to a number of pre-determined questions. By
selecting specific answers to each question, the inspector reports a detailed
condition of each railroad car. After completing his inspection, the DC 3X is
connected to the railroad's repair center where the list of repairs and parts is
reviewed and processed by repairmen. The implementation of the DC 3X has
improved the effectiveness and efficiency of railroad car inspection and repair
by reducing human error and accelerating data collection and analysis. DC 3Xs
are presently in use at the Burlington Northern, Union Pacific, Illinois
Central, and Atchison, Topeka and Santa Fe Railroads.

  Datacomputer Model 2X

     The Datacomputer Model 2X (the "DC 2X") is an advanced version of the DC
2.5 described below. It has not been introduced to inventory services
marketplace, except to two companies. The DC 2X provides all the features of the
DC 2.5, but, is also faster, has more memory and provides for a PC card slot
option.

     The third largest inventory service company in the United States is one of
the Company's customers of the DC 2X, and formerly a customer of the DC 2.5. The
Company estimates that approximately 3% of its 1997 total revenue was
attributable to the sale of the DC 2X.

  Datacomputer Model 2.5

     The Datacomputer Model 2.5 (the "DC 2.5") is a hand-held computer designed
primarily for use by inventory auditors who enter voluminous numeric data,
mostly by touch keying. The Company offers utility software that includes a
modem, printer, bar code wand and scanner interfaces, screen and keyboard
routines, calculator functions and database functions. Due to the wide range of
optional features, the user is able to control the creation, updating and cost
of the DC 2.5's software.

     The DC 2.5 is marketed primarily to inventory service companies. An
inventory service company is an organization that contracts with businesses who
maintain large inventories, such as department or retail stores. The Company
estimates that approximately 21% of its 1997 total revenue was attributable to
the sale of the DC 2.5.
                                        3
<PAGE>   5

  ICAL Model 100R

     The ICAL Model 100R (the "ICAL 100R") is designed and used for inventory
taking for financial and control purposes. The ICAL 100R allows a user to divide
a store's inventory into a maximum of 128 separate departments and keep a
running total in each department. The ICAL 100R is a recent version of a
hand-held product sold by the Company to the inventory audit market for the last
17 years. The Company estimates that approximately 6% of its 1997 total revenue
was attributable to the sale of the ICAL 100R.

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

     Revenues generated by the ICAL 100R are almost exclusively from current
customers of the Company who wish to continue to use their installed base of
ICAL devices. The Company intends to continue to support the ICAL product line
to protect its customers' investments.

MARKETS

     The Company currently focuses on the route accounting system market for
hand-held computers and believes it is well positioned in this industry to
become a leading provider. Route accounting involves concurrent order taking,
product delivery and inventory tracking. Salespeople enter customer orders in
hand-held computers and use the Company's 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 hand-held computers is transferred to
the host information system and instructional and control information for the
next day's delivery routes is transferred back to the hand-held computer.

MARKETING AND DISTRIBUTION

     The Company has separate marketing efforts for its Datacomputer products
and its ICAL 100R. Management believes that the Datacomputer products have a
wide variety of applications that have not yet been fully exploited by the
Company or potential users of the Datacomputer.

     Recognizing the need to focus the Company's limited resources, the Company
has applied its business strategy for Datacomputers to a limited number of
selected markets. The Company is currently focused in market sectors where
businesses distribute their products on routes. The Company believes that the
route sales and service market is attractive because (i) customer acceptance of
hand-held computers has been established in several sectors; (ii) customers have
realized a substantial return on their investment in hand-held computers; and
(iii) the Company enjoys a competitive advantage in this market due to its
software and related services. To date, the Company believes it has gained the
leading positions in the office coffee service market sector, and has penetrated
the beer distribution, bakery, snacks and dairy market sectors.

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

     The Company primarily sells and distributes its systems and products
through a direct sales force that concentrates on systems sales.

DIRECT SALES FORCE

     The Company believes that the optimum method for the marketing and sale of
its products is gained through direct sales. Therefore, direct selling is the
Company's primary strategy in the route sales and service market. The Company
believes that the key elements to successful direct selling include: (i)
maintaining a well-qualified direct sales staff that is experienced in marketing
and selling solutions to medium and large accounts; (ii) performing
well-executed software solutions; (iii) offering excellent service; and (iv)
maintaining good customer references.

                                        4
<PAGE>   6

SERVICE AND SUPPORT

     The Company believes that superior service is a vital part of its
competitive strategy and therefore emphasizes the quality of both hardware and
software service. The Customer Service department manages all installations,
preparations, and follow-up support with each customer.

     The Company typically offers industry-standard 90 day warranties and offers
several flexible service arrangements and maintenance contracts to meet customer
needs. In addition to technical support of installed systems, the Company
provides pre-installation site surveys, installation services, user training,
technical training, application software support and host information system
interface assistance.

SOURCES OF SUPPLY

     The Company believes there is more than one supplier for all of its raw
materials and maintains inventories and close working relationships with its
suppliers to ensure timely and reliable delivery. Although the Company has not
experienced major interruptions in production due to a shortage of raw
materials, prolonged supply shortages would materially and adversely affect the
Company's manufacturing operations, business and financial performance.

COMPETITION

     The market for the Company's products is highly competitive and rapidly
changing. The Company's competitors include Norand, Symbol Technologies, Telxon
and related third-parties, all of which have greater financial, marketing and
technical resources than the Company. In addition, larger corporations could
enter into the route sales and service segment of the hand-held computer market.
The Company competes on the basis of product features, software, quality,
service and price.

EMPLOYEES

     As of December 31, 1997, the Company had 44 full-time employees. Of these
employees, 8 were engaged in sales and marketing, 11 in service and customer
support, 6 in hardware and software development, 12 in manufacturing and 7 in
administration and finance. The Company's employees are not represented by a
labor union. Management believes that the Company's relationship with its
employees is good.

ITEM 2.  DESCRIPTION OF PROPERTY.

     The Company maintains its principal offices and manufacturing operations in
a leased 19,000 square foot facility in Billerica, Massachusetts. The Company's
lease expires on September 30, 2000. The annual base rent for the Company's
leased facilities is approximately $123,300. The lease further provides that the
Company will pay to its landlord as additional rent its pro rata share of
certain operational and maintenance costs at the facility during the term of the
lease. The Company believes that its facilities are adequate for its current
needs and that additional space, if required, would be available at competitive
rates.

ITEM 3.  LEGAL PROCEEDINGS.

     The Company is not presently involved in any material pending litigation.

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

     None

                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     Since March 7, 1997, the Company's Common Stock has traded on the NASDAQ
Small Cap Market Quotation System ("NASDAQ") under the symbol "IDCP". From
January 1, 1996 to March 6, 1997, the
                                        5
<PAGE>   7

Company's Common Stock was traded on the National Quotation Bureau Incorporated
("NQBI") under the symbol "NDCP." On March 20, 1998, the last sale price for the
Common Stock as reported by NASDAQ was $1.00 per share.

     For the periods indicated below, the table sets forth the range of high and
low sale prices for the Common Stock as reported by NASDAQ and NQBI, as
applicable.

<TABLE>
<CAPTION>
                                                             HIGH       LOW
                                                            -------    ------
<S>                                                         <C>        <C>
1996
----

First Fiscal Quarter......................................  $ 11.00    $ 4.00
Second Fiscal Quarter.....................................    20.00     10.00
Third Fiscal Quarter......................................    13.75     11.00
Fourth Fiscal Quarter.....................................    11.25      4.00
1997
----

First Fiscal Quarter......................................  $  6.88    $ 3.88
Second Fiscal Quarter.....................................     3.75      2.00
Third Fiscal Quarter......................................     1.88      1.00
Fourth Fiscal Quarter.....................................     1.00      0.38
</TABLE>

     As of March 20, 1998, there were approximately 2,400 stockholders of record
of the Company's Common Stock.

DIVIDENDS

     Since inception, the Company has not paid any dividends on its Common Stock
and management does not anticipate the payment of any dividends to its
stockholders in the foreseeable future. The Company currently intends to
reinvest earnings, if any, in the development and expansion of its business. The
declaration of dividends in the future will be at the election of the Board of
Directors and will depend upon the earnings, capital requirements and financial
position of the Company, general economic conditions and other pertinent
factors. The Company's outstanding Preferred Stock also requires that holders of
Preferred Stock be entitled to receive dividends prior to the payment of
dividends on the Company's Common Stock.

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

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

RESULTS OF OPERATIONS

  Year Ended December 31, 1997 Compared with Year Ended December 29, 1996

     Revenues increased approximately 16% to approximately $5,813,000 in 1997
from approximately $5,032,000 in 1996. The increase in revenues was primarily
due to the introduction of Datacomputer model DC4, which contributed to an
increase in sales of units of the Company's Datacomputers. Sales of the DC4
accounted for approximately 15% of the Company's total revenues.

     Service and other revenue increased to approximately $1,168,000 in 1997
from approximately $1,029,000 in 1996, an increase of approximately 14%. The
Company expects that service and other revenues will continue to rise as the
Company's installed base of hand-held computers continues to expand, although no
assurance of such a result can be given.

     Cost of sales and services increased approximately 3% to $3,265,000 in 1997
from approximately $3,155,000 in 1996. As a percentage of sales, however, cost
of sales and services decreased to approximately 56% in 1997 from approximately
63% in 1996. This decrease is primarily due to the institution of the Company's
quality control programs, which improved the quality of the Company's products
and led to fewer field support demands and, thereby, lower field support costs.

                                        6
<PAGE>   8

     Research and development expenses decreased to approximately $1,276,000 in
1997 from approximately $1,303,000 in 1996, a decrease of approximately 2%. The
decrease resulted primarily from a reduction in the Company's research and
development staff and an increase in the percentage of research and development
conducted by the Company internally, which has reduced the level of third-party
development costs in many areas. Although no assurance can be given, the Company
expects to maintain research and development spending necessary to enhance
current products and to develop future products.

     Selling, general and administrative expenses decreased to approximately
$2,373,000 in 1997 from approximately $2,624,000 in 1996, a decrease of
approximately 10%. The lower level of costs, resulted primarily from the
Company's ongoing evaluation of its operations and organizational structure.

     The Company's operating loss was approximately $1,101,000 in 1997 as
compared to a loss from operations of approximately $2,051,000 in 1996. The
decreased loss was primarily attributable to the increase in the Company's sales
and the decrease in the expenses discussed above.

     The Company had interest income in 1997 of approximately $13,000 compared
to approximately $34,000 in 1996. The decrease was primarily a result of lower
cash balances during 1997.

     Interest expense was approximately $125,000 in 1997 as compared to
approximately $26,000 in 1996. This increase resulted primarily from the
amortization of approximately $81,000 to interest expense related to the
discount on the convertible debt obtained in 1997 (Note 5).

LIQUIDITY AND CAPITAL RESOURCES

     During fiscal 1997, net cash used for operating activities decreased to
$1,786,353, as compared to net cash used in operating activities of $2,592,528
in fiscal 1996. During fiscal 1997 and fiscal 1996, net cash used for investing
activities were $143,774 and $8,645, respectively. In fiscal 1997, net cash
provided by financing activities was $1,416,573, consisting primarily of the
issuance of preferred stock and a convertible note. In fiscal 1996, net cash
provided by financing activities was $3,322,988. In fiscal 1997, the Company
incurred interest of $404,750 on its Series B, C and D Convertible Preferred
Stock as compared to $208,000 with respect to the Series B Convertible Preferred
Stock in fiscal 1996. In fiscal 1997, the Company also issued Common Stock
valued at $386,000 in satisfaction of interest due on Series B, C, and D
Convertible Preferred Stock, as compared to $124,000 in fiscal 1996.

     In March 1998, the Company designated and sold 500 shares of Series E
Convertible Preferred Stock with a warrant to purchase up to 700,000 shares of
common stock at an exercise price of $.75 per share, for net proceeds of
$497,900. The warrant expires in March 2000. The Series E Convertible Preferred
Stock was sold to the same stockholder of the previously issued Series B, Series
C and Series D Convertible Preferred Stock. The proceeds of this financing were
allocated to the preferred shares and warrant based on management's estimate of
their fair values. This resulted in $214,000 being ascribed to the warrant which
was recorded as additional paid-in-capital and $283,900 being recorded as
preferred stock. Series E Convertible Preferred Stock has voting rights,
dividend preference, liquidation preference, mandatory conversion and Company
redemption terms similar to the Company's existing Series B, Series C and Series
D Convertible Preferred Stock. The Subscription Agreement for Series E
Convertible Preferred Stock offers anti-dilution protection to its shareholders.
Series E Convertible Preferred Stock is convertible into shares of common stock
at a conversion price of $.75.

     Also in March 1998, the Company refinanced the $250,000 convertible debt by
making a principal payment of $75,000 and issuing a convertible note payable for
$175,000. The note bears interest at a rate of 6% per annum, matures in March
1999, and is convertible into shares of the Company's common stock at a
conversion price equal to the average closing bid price for the Company's common
stock for the five days ending March 6, 1998. The note can be converted at the
option of the holder after January 1, 1999.

     The Company, in conjunction with the issuance of the Series E Convertible
Preferred Stock, canceled its previously issued warrants to purchase 700,000
shares of common stock for $4.00 per share. Additionally, the Company changed
the conversion price on Series B and Series C Convertible Preferred Stock to
$2.74 and offered anti-dilution protection to these shareholders. In addition,
the holder of the Series E Convertible
                                        7
<PAGE>   9

Preferred Stock agreed to place into escrow 2,100 shares of the Series B
Convertible Preferred Stock that is also owned by this shareholder. The Company
may at its option and at any time through January 31, 2000 redeem the escrowed
shares of Series B Convertible Preferred Stock at a price of $1,250 per share.

     At December 31, 1997, the Company had cash of $208,731 and a current ratio
of 2.1:1. The Company anticipates that available cash, together with cash flow
from anticipated operations, will be sufficient to meet its working capital
needs for the remainder of fiscal 1998. However, unanticipated adverse results
of operations could impact anticipated cash flows and, as a result, there can be
no assurance that the Company will not be required to raise additional capital
or that the Company will be able to raise additional capital on favorable terms,
if at all.

IMPACT OF THE YEAR 2000 ISSUE

     The Year 2000 Issue refers to potential problems with computer systems or
any equipment with computer chips or software that uses dates where the date has
been stored as just two digits (e.g., 97 for 1997). On January 1, 2000, any
clock or date recording mechanism incorporating date sensitive software which
uses only two digits to represent the year may recognize a date using 00 as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
similar business activities.

     The Company is in the process of conducting a review of its internal
information systems to determine the extent of any Year 2000 problem. Such
review includes specific inquiries about the Year 2000 issue posed to the
vendors of its software programs. The Company is still gathering information,
but although there exists the possibility that Year 2000 issues will be
identified, based on such a review to date, the Company does not currently
expect that any such problems will have a material adverse effect on the
Company's future operating results or financial condition.

     The Company is in the process of contacting its major suppliers and
customers in an effort to determine the extent to which the Company may be
vulnerable to those parties' failure to timely correct their own Year 2000
problems. To date, the Company is unaware of any situations of noncompliance
that would materially adversely affect its operations or financial condition.
There can be no assurance, however, that instances of noncompliance which could
have a material adverse effect on the Company's operations or financial
condition will not be identified; that the systems of other companies with which
the Company transacts business will be corrected on a timely basis; or that a
failure by such entities to correct a Year 2000 problem or a correction which is
incompatible with the Company's information systems would not have a material
adverse effect on the Company's operations or financial condition.

NEW ACCOUNTING PRONOUNCEMENT

     In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 97-2, "Software Revenue Recognition." SOP 97-2 provides guidance on the
timing and amount of revenue recognition when licensing, selling, leasing or
otherwise marketing computer software. SOP 97-2 supersedes SOP 91-1 (also
entitled "Software Revenue Recognition") and is effective for transactions
entered into during fiscal years beginning after December 15, 1997. The Company
will be required to adopt SOP 97-2 for its fiscal year ending December 31, 1998.
The adoption of SOP 97-2 is not expected have a material effect on the Company's
financial position or its results of operations.

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.

                                        8
<PAGE>   10

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

     Not applicable.

                                    PART III

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

     Each Director of the Company 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 Directors then remaining in office. Officers are elected by
and serve at the discretion of the Board of Directors. The following table sets
forth the year each Director was elected a Director and the age, positions and
offices currently held by each Director. For information about ownership of the
Company's voting securities by each Director, see "Security Ownership of Certain
Beneficial Owners and Management."

<TABLE>
<CAPTION>
                                            YEAR
                                        FIRST BECAME
             NAME                AGE      DIRECTOR              POSITION
             ----                ---    ------------            --------
<S>                              <C>    <C>             <C>
Dr. Malcolm M. Bibby...........  57         1996        Chairman of the Board,
                                                          President, and CEO
William R. Smart...............  77         1989        Director
John P. Ward...................  70         1967        Director
</TABLE>

     Section 16(a) ("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 the Company's Common Stock to file initial
reports of ownership on Form 3 and reports of changes in ownership on Form 4
with the Securities and Exchange Commission (the "SEC") and any national
securities exchange on which the Company's securities are registered. Executive
officers, Directors and greater than ten percent (10%) beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.

     Based solely on a review of copies of such forms furnished to the Company
and written representations from executive officers and Directors, the Company
believes that all Section 16(a) filings applicable to its executive officers,
Directors and ten percent (10%) beneficial owners were complied with during the
fiscal year ended December 31, 1997.

BUSINESS EXPERIENCE AND BACKGROUNDS OF THE DIRECTORS

     The background of each of the Company's current Directors is as follows:

     DR. MALCOLM M. BIBBY has served as a Director of the Corporation since
January 1996 and was elected Chairman of the Board in July 1996. Dr. Bibby has
also served as President and Chief Executive Officer of the Company since April
1996. He was President of LXE Inc. ("LXE"), a diversified wireless data
communications products company, from 1983 to December 1994. During this period
LXE's annual revenues grew from approximately $600,000 to approximately
$63,000,000. Prior to LXE, Dr. Bibby was an Executive Assistant to the President
at Ciba Vision Care, a Vice President of Product Development at Wesley-Jessen,
Inc. and a Project Manager/Group Leader for hardware and software development at
Monsanto Co. Dr. Bibby holds a Bachelor of Science degree and a Ph.D. both in
Electrical Engineering from the University of Liverpool and an Master of
Business Administration from the University of Chicago.

     WILLIAM R. SMART has served as a Director of the Company since December
1989. He spent 32 years with the General Electric Company where his
responsibilities included distribution and marketing management and general
management as a Division Vice President. He spent nine years with Honeywell,
Inc. where he served as Vice President in charge of European operations and
Senior Vice President of Honeywell Information Systems, responsible for
international operations as well as for the corporate staff. Mr. Smart currently
serves as a Senior Vice President of the Cambridge Strategic Management Group, a
privately-held

                                        9
<PAGE>   11

management consultant company. Mr. Smart holds a Bachelor of Science degree in
Electrical Engineering from Princeton University. Mr. Smart is also the
non-executive Chairman of 1st Carolina Corporation (the "Corporation"). The
Corporation filed a Chapter 7 bankruptcy petition in the United States
Bankruptcy Court for the District of South Carolina on August 16, 1994 (Case
Number 94-73884).

     JOHN P. WARD has served as a Director of the Company since its founding in
1967. Since February 1996, Mr. Ward has served as the Chief Executive Officer of
Midas Vision Systems, Inc., a privately held company specializing in machine
vision systems for automatic optical inspections. From 1990 to 1996 Mr. Ward was
the Chief Executive Officer and Director of Vanzetti Vision Systems, Inc., a
privately-held company specializing in infrared systems. Mr. Ward was Vice
President of Engineering, co-founder and Clerk of the Company from its founding
until December 1986. From 1953 to 1968 Mr. Ward was a Design Section Manager at
the Raytheon Company. 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.

EXECUTIVE OFFICERS

     The executive officers of the Company, their ages and positions held in the
Company are as follows:

<TABLE>
<CAPTION>
                NAME                  AGE                      POSITION
                ----                  ---                      --------
<S>                                   <C>    <C>
Dr. Malcolm M. Bibby................  57     President, Chairman of the Board and CEO
Gerald S. Eilberg...................  64     Vice President of Finance and Administration,
                                               Chief Financial Officer
Joseph C. Pinto.....................  51     Vice President of Operations
Larry F. Yeager.....................  48     Vice President of Research and Development
</TABLE>

BUSINESS EXPERIENCE AND BACKGROUNDS OF THE EXECUTIVE OFFICERS

     The following is a brief summary of the background of each executive
officer of the Company other than Dr. Malcolm M. Bibby, whose background is
summarized above.

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

     JOSEPH C. PINTO joined the Company in March 1984 as Materials Manager,
advanced into the position of Manufacturing Manager in September 1986 and was
appointed Vice President of Manufacturing in January 1988. Prior to joining the
Company, Mr. Pinto had been Production Control Manager at BLH Electronics, a
manufacturer of process control systems, since January, 1979. Mr. Pinto holds a
Bachelor of Science degree in Industrial Technology from Northeastern University
and a Master of Science degree in Systems Management from Western New England
College.

     LARRY F. YEAGER has served as Vice President of Research and Development
since joining the Company in December 1985. Prior to that, Mr. Yeager was Vice
President of Software Development at the Saddlebrook Corporation, a turnkey
systems company. During eight years at Saddlebrook Corporation, Mr. Yeager
developed various software products, including Pro-Forma Modeling, System M,
Client Controllable software products and numerous financial applications
programs. Prior to joining Saddlebrook, Mr. Yeager worked at the State Street
Bank and Trust Company of Boston, Massachusetts where he held the positions of
Manager of Capital Planning and Manager of Management Sciences. Mr. Yeager holds
a Bachelor of Science degree from Massachusetts Institute of Technology's Sloan
School of Management as well as a Masters degree in Business Administration from
Northeastern University.

     None of the Company's executive officers or Directors are related to any
other executive officer or Director.
                                       10
<PAGE>   12

ITEM 10.  EXECUTIVE COMPENSATION.

EXECUTIVE OFFICERS' COMPENSATION

     The following table sets forth the compensation paid during the fiscal
years ended December 31, 1997, December 29, 1996, and December 31,1995 ("Fiscal
1997, 1996 and 1995", respectively) to Dr. Malcolm M. Bibby, the Company's
President and with the other current executive officers of the Company, who
earned total compensation in excess of $100,000 during Fiscal 1997.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                      (E)
                                                                                      ---
                                                   ANNUAL COMPENSATION             LONG TERM
                                                -------------------------     COMPENSATION AWARDS
                     (A)                        (B)       (C)        (D)     ---------------------
                     ---                        ---       ---        ---     SECURITIES UNDERLYING
         NAME AND PRINCIPAL POSITION            YEAR     SALARY     BONUS       OPTIONS/SAR(#)
         ---------------------------            ----    --------    -----    ---------------------
<S>                                             <C>     <C>         <C>      <C>
Dr. Malcolm M. Bibby(1)(2)....................  1997    $127,818     $0                   0
  President, CEO and Chairman                   1996      72,051      0             118,750
  of the Board                                  1995           0      0                   0
Gerald S. Eilberg(3)..........................  1997    $102,106     $0                   0
  Vice President of Finance and                 1996     102,106      0               5,000
  Administration and CFO                        1995     102,106      0                   0
Larry F. Yeager(3)............................  1997    $100,522     $0                   0
  Vice President of Research                    1996     100,522      0               5,000
  and Development                               1995     100,522      0                   0
Richard C. Calcaterra(4)......................  1997    $101,350     $0                   0
  Former Vice President of Sales                1996      25,338      0              75,000
                                                                                          0
                                                1995           0      0
</TABLE>

---------------
(1) On February 28, 1996, May 31, 1996, and November 30, 1996, Incentive Stock
    Options to purchase 5,250, 48,000, 65,500 shares of Common Stock,
    respectively, at an exercise price of $6.00 were granted to Mr. Bibby. Such
    options were subsequently repriced on August 14, 1997 at an exercise price
    of $1.47 per share. See "Report on Repricing of Options". The options
    granted to Dr. Bibby have the following vesting periods: (i) 6,000 options
    were fully vested upon grant (ii) 16,250 vested fully in 1996 (iii) 23,000
    vested fully in 1997 (iv) 750 will vest fully in 1998 and (v) the remaining
    72,750 vest fully in ten years, but contain the following acceleration
    clauses: (a) 2,750 will vest 50% if net income before taxes for the five
    year period ended December 31, 1999 exceeds $1,000,000 and 100% if net
    income for the five year period exceeds $2,000,000; (b) 25,000 will vest if
    net income before taxes exceeds $750,000 and sales exceed $8,500,000 in any
    four consecutive quarters prior to December 31, 1997; (c) up to 45,000
    options will vest if sales during any four consecutive quarters exceed
    $8,500,00 and the following amounts of net income before taxes are exceeded:

<TABLE>
<CAPTION>
                NET INCOME BEFORE TAXES                  OPTIONS THAT VEST
                -----------------------                  -----------------
<S>                                                      <C>
     $1,000,000........................................        5,000
      1,250,000........................................       10,000
      1,500,000........................................       15,000
      1,750,000........................................       20,000
      2,000,000........................................       27,500
      2,250,000........................................       35,000
      2,500,000........................................       45,000
</TABLE>

(2) Dr. Bibby commenced employment with the Company in April 1996.

(3) On August 1, 1996, Incentive Stock Options to purchase 5,000 shares of
    Common Stock at an exercise price of $5.00 were granted to each of Messrs.
    Eilberg and Yeager. Such options were subsequently

                                       11
<PAGE>   13

    repriced on August 14, 1997 at an exercise price of $1.47 per share. See
    "Report on Repricing of Options". The options granted to Messrs. Eilberg and
    Yeager vest 25% in each of 1998, 1999, 2000 and 2001.

(4) On November 26, 1996, Incentive Stock Options to purchase 75,000 shares of
    Common Stock at an exercise price of $5.00 were granted to Mr. Calcaterra.
    Such options were subsequently repriced on August 14, 1997 at an exercise
    price of $1.47 per share. See "Report on Repricing of Options". The options
    granted to Mr. Calcaterra have the following vesting periods: (i) 25,000
    options vest 25% in each of 1997, 1998, 1999 and 2000 (ii) the remaining
    50,000 vest fully in ten years, but contain the following acceleration
    clauses: (a) 12,500 vest 100% if break-even level is reached in 1998; (b)
    25,000 will vest at the rate of 1,250 options per $100,000 of net income
    before taxes in 1998; (c) 12,500 will vest 50% if net income before taxes
    for the five year period ended December 31, 1999 exceeds $1,000,000 and 100%
    if net income for the five year period exceeds $2,000,000.

                                       12
<PAGE>   14

                AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
                            AND FY-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                     NUMBER OF UNEXERCISED
                                                                     SECURITIES UNDERLYING    VALUE OF UNEXERCISED
                                                                        OPTIONS/SARS AT       IN-THE-MONEY OPTIONS
                           SHARES ACQUIRED                            FY-END EXERCISABLE/         EXERCISABLE/
        NAME(A)           ON EXERCISE(#)(B)   VALUE REALIZED($)(C)    UNEXERCISABLE(#)(D)    UNEXERCISABLE($)(1)(E)
        -------           -----------------   --------------------   ---------------------   ----------------------
<S>                       <C>                 <C>                    <C>                     <C>
Malcolm M. Bibby........          0                    $0                45,250/73,500                 $0
  President, CEO
Gerald S. Eilberg.......          0                    $0                    15/18,059                 $0
  Vice President Finance
  & Admin. and CFO
Larry F. Yeager.........          0                    $0                    15/16,848                 $0
  Vice President of
  Research & Development
Richard C. Calcaterra...          0                    $0                 6,250/68,750                 $0
  Former Vice President
  of Sales
</TABLE>

---------------
(1) In-the-Money options, are those options for which the fair market value of
    the underlying shares of Common Stock is greater than the exercise price of
    the option. As of December 31, 1997, Messrs. Bibby, Eilberg, Yeager and
    Calcaterra had exercisable options to purchase 45,250, 15, 15, and 6,250
    shares of Common Stock, respectively, at share exercise prices of $1.47. See
    "Security Ownership of Certain Beneficial Owners and Management". The fair
    market value of the Company's Common Stock underlying the options as of
    December 31, 1997 was $0.56 (NASDAQ Small Cap Market Quotation System
    closing bid price on December 31, 1997).

COMPENSATION OF DIRECTORS

     During Fiscal 1997, the Company's Directors received an aggregate cash
compensation of $9,000 for their services as Directors. Messrs. Ward and Smart
received $4,500, respectively.

REPORT ON REPRICING OF OPTIONS

     On August 14, 1997, the Board of Directors approved the repricing of
certain options that had been granted previously pursuant to the Company's 1986,
1989, 1994 and 1995 Stock Option Plans. Certain outstanding options of the
Company were repriced at $1.47 per share. With the exception of the decrease in
the per share exercise price, all other terms of the previously granted options,
including original vesting provisions, remained unchanged.

     The Board of Directors approved the repricing of options to reflect the
fair market value of the Company's Common Stock based on its current trading
activities and to strengthen employee morale by providing an increased incentive
for all employees to continue their efforts. At its meeting on August 14, 1997,
the Board noted that the options were significantly out-of-the-money and,
therefore, ceased to be an employee incentive. The Board believes that the
repricing will renew the incentive feature.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth, as of March 20, 1998, certain information
concerning stock ownership of the Company by (i) each person who is known by the
Company to own beneficially 5% or more of the Company's voting securities, (ii)
each of the Company's Directors, and (iii) all Directors and officers as a
group. Except as otherwise indicated, the stockholders listed in the table have
sole voting and investment powers with respect to the shares indicated. For
purposes of this table, the Common Stock and the Series B Convertible Preferred
Stock, Series C Convertible Preferred Stock, Series D Convertible Preferred
Stock and Series E Convertible Preferred Stock (collectively, the "Preferred
Stock") are treated as one class. As of

                                       13
<PAGE>   15

March 20, 1998, the Company had 1,628,341 shares of Common Stock outstanding and
approximately 2,400 stockholders of record. In addition, the Company had 5,950
shares of Preferred Stock outstanding. Each share of Preferred Stock, which has
a face value of $1,000, is convertible into Common Stock at a conversion price
of $2.74 per share for the Series B, C and D, and $0.75 per share for Series E.
Based upon the conversion prices, the Preferred Stock would be convertible into
a total of 2,655,718 shares of Common Stock. Each holder of Preferred Stock is
entitled to the number of votes equal to the number of shares of Common Stock
into which such Preferred Stock is convertible. The Company has no other voting
securities.

<TABLE>
<CAPTION>
                                               NUMBER OF SHARES
 NAME AND ADDRESS OF BENEFICIAL OWNER(1)      BENEFICIALLY OWNED    PERCENTAGE OF CLASS(2)
 ---------------------------------------      ------------------    ----------------------
<S>                                           <C>                   <C>
Dr. Malcolm M. Bibby(3)...................           72,800                  1.7%
William R. Smart..........................            2,500                     *
John P. Ward(4)...........................           28,868               *
Gerald S. Eilberg(5)......................            8,032                     *
Larry F. Yeager(6)........................           13,430                     *
All Directors and Officers as a Group
  (6 persons)(3)(4)(5)(6)(7)..............          132,271                  3.1%
</TABLE>

---------------
 *  Less than 1%.

(1) The address for all of the named persons is c/o National Datacomputer, Inc.,
    900 Middlesex Turnpike, Bldg. 5, Billerica, Massachusetts 01821.

(2) Pursuant to the rules of the Securities and Exchange Commission, shares of
    Common Stock that an individual or group has a right to acquire within 60
    days pursuant to the exercise of options or warrants are deemed to be
    outstanding for the purpose of computing the percentage ownership of such
    individual or group, but are not deemed to be outstanding for the purpose of
    computing the percentage ownership of any other person shown in the table.
    This table reflects the ownership of all shares of Common Stock and the
    Preferred Stock voting as a single class.

(3) Includes an aggregate of 45,250 shares of Common Stock underlying vested
    options to purchase Common Stock.

(4) Includes 10,137 shares held by Mr. Ward's wife for which Mr. Ward disclaims
    beneficial ownership.

(5) Includes 15 shares of Common Stock underlying vested options to purchase
    Common Stock.

(6) Includes 15 shares of Common Stock underlying vested options to purchase
    Common Stock.

(7) Includes an aggregate of 45,420 shares of Common Stock underlying vested
    options to purchase Common stock held by four of the Company's officers.

     All of the Preferred Stock is registered in the name of RBB Bank AG ("RBB
Bank"). RBB Bank is not included in the table above because the Company has been
informed that RBB Bank holds such Preferred Stock solely in the capacity of
custodian for the benefit of numerous other investors. The Company has been
further informed that none of such investors, either individually or in the
aggregate with affiliated entities, beneficially owns more than five percent
(5%) of the Company's issued and outstanding capital stock.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     None

                                       14
<PAGE>   16

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

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

<TABLE>
<CAPTION>
                                                                PAGE
                                                                ----
<S>                                                             <C>
Report of Independent Accountants...........................    F-1
Balance Sheet as of December 31, 1997 and December 29,
  1996......................................................    F-2
Statements of Operations for the years ended December 31,
  1997 and December 29, 1996................................    F-4
Statements of Stockholders' Equity (Deficit) for the years
  ended December 31, 1997 and December 29, 1996.............    F-5
Statements of Cash Flows for the years ended December 31,
  1997 and December 29, 1996................................    F-6
Notes to Financial Statements...............................    F-7
</TABLE>

     (a)(2)  Exhibits.

     (i)  The following exhibits are filed herewith:

<TABLE>
<CAPTION>
EXHIBIT
  NO.                              DESCRIPTION
-------                            -----------
<S>        <C>
3a*        Certificate of Incorporation, as amended. (3c)
3b*        Certificate of Amendment of Certificate of Incorporation to
           increase the number of authorized shares. (3a)
3c*        Certificate of Amendment of Certificate of Incorporation to
           effect a 1:4 reverse split of Common stock.(3b)
3d**       Statement of Designation of Series B Convertible Preferred
           Stock. (4a)
3e**       Statement of increase of shares designated as Series B
           Convertible Preferred Stock. (4b)
3f(+)      Statement of Designation of Series C Convertible Preferred
           Stock. (99a)
3g(+)      Statement of Designation of Series D Convertible Preferred
           Stock. (99b)
3h(++)     Statement of Designation of Series E Convertible Preferred
           Stock. (4(a))
3i(++)     Form of Warrant. (4(c))
3j+        By-Laws. (3.02)
4a         Instruments defining the rights of security holders (see
           Exhibits 3a through 3j).
4b*        Specimen Certificate of Common Stock, $.08 par value per
           share. (4)
10a++%     1994 Stock Option Plan. (10)
10b#%      1995 Stock Option Plan. (10)
10c##%     1997 Stock Option Plan. (unnumbered)
10c<       Form of Regulation S Offshore Subscription Agreement. (4c)
10d(++)    Form of Regulation S Offshore Subscription Agreement. (4(b))
11         Statement Re: Computation of Per Share Earnings.
27         Financial Data Schedule
</TABLE>

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

<TABLE>
<S>  <C>
*    Previously filed with the Commission as Exhibits to, and
     incorporated herein by reference from, the Company's Annual
     Report on Form 10-K for the fiscal year ended December 29,
     1996.
**   Previously filed with the Commission as Exhibits to, and
     incorporated herein by reference from, the Company's Current
     Report on Form 8-K filed September 16, 1996.
(+)  Previously filed with the Commission as Exhibits to, and
     incorporated herein by reference from, the Company's Current
     Report on Form 8-K filed March 3, 1997.
(++) Previously filed with the Commission as Exhibits to, and
     incorporated herein by reference from, the Company's Current
     Report on Form 8-K filed March 6, 1998.
+    Previously filed with the Commission as Exhibits to, and
     incorporated herein by reference from, the Company's
     Registration Statement on Form S-1 filed April 17, 1987.
</TABLE>

                                       15
<PAGE>   17
<TABLE>
<S>  <C>
++   Previously filed with the Commission as Exhibits to, and
     incorporated herein by reference from, the Company's Proxy
     Statement filed August 30, 1994.
#    Previously filed with the Commission as Exhibits to, and
     incorporated herein by reference from, the Company's Annual
     Report on Form 10-K for the fiscal year ended December 31,
     1995.
##   Previously filed with the Commission as Exhibits to, and
     incorporated herein by reference from, the Company's Proxy
     Statement filed December 18, 1997.
<    Previously filed with the Commission as Exhibits to, and
     incorporated herein by reference from, the Company's Current
     Report on Form 8-K/A filed September 18, 1996.
%    Management contract or compensatory plan, contract or
     arrangement.
</TABLE>

     Where a document is incorporated by reference from a previous filing, the
Exhibit number of the document in that previous filing is indicated in
parentheses after the description of such document.

     (b)  Reports on Form 8-K.

     No reports on Form 8-K were filed during the last quarter of the period
covered by this report.

                                       16
<PAGE>   18

                                   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.

                                          By: /s/ MALCOLM M. BIBBY

                                            ------------------------------------
                                                      Malcolm M. Bibby
                                                         President

Date: March 30, 1998

     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.

<TABLE>
<CAPTION>
                       NAME                                      CAPACITY                    DATE
                       ----                                      --------                    ----
<S>                                                  <C>                                <C>

/s/ MALCOLM M. BIBBY                                 Chairman of the Board, President   March 30, 1998
---------------------------------------------------    and Chief Executive Officer
Malcolm M. Bibby                                       (principal executive officer)

/s/ WILLIAM R. SMART                                 Director                           March 30, 1998
---------------------------------------------------
William R. Smart

/s/ JOHN P. WARD                                     Director                           March 30, 1998
---------------------------------------------------
John P. Ward

/s/ GERALD S. EILBERG                                Chief Financial Officer            March 30, 1998
---------------------------------------------------    (principal financial and
Gerald S. Eilberg                                      accounting officer)
</TABLE>

                                       17
<PAGE>   19

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of National Datacomputer, Inc.

     In our opinion, the accompanying balance sheet and the related statements
of operations, of stockholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of National
Datacomputer, Inc. at December 31, 1997 and December 29, 1996, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. 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 of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit 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, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Boston, Massachusetts
March 30, 1998

                                       F-1
<PAGE>   20

                          NATIONAL DATACOMPUTER, INC.

                                 BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                       UNAUDITED
                                                                                       PRO FORMA
                                                       DECEMBER 31,   DECEMBER 29,    DECEMBER 31,
                                                           1997           1996       1997 (NOTE 10)
                                                       ------------   ------------   --------------
<S>                                                    <C>            <C>            <C>
                                              ASSETS
Current Assets:
  Cash and cash equivalents..........................  $    208,731   $    722,285    $    631,631
  Accounts receivable, net of allowance for doubtful
     accounts of $108,602 and $98,174 at December 31,
     1997 and December 29, 1996, respectively........     1,545,319        621,037       1,545,319
  Inventories........................................     1,298,979      1,479,153       1,298,979
  Other current assets...............................        59,800        153,741          59,800
                                                       ------------   ------------    ------------
     Total current assets............................     3,112,829      2,976,216       3,535,729
Fixed assets, net....................................       259,512        234,530         259,512
                                                       ------------   ------------    ------------
                                                       $  3,372,341   $  3,210,746    $  3,795,241
                                                       ============   ============    ============
                               LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Convertible debt to related party..................  $     75,000   $         --    $         --
  Current obligations under capital lease............        41,810         21,424          41,810
  Accounts payable...................................       349,807        125,454         349,807
  Accrued payroll and related taxes..................       127,675        171,104         127,675
  Accrued expenses -- other..........................       264,024        377,584         264,024
  Accrued interest on preferred stock (Note 7).......       102,750         84,000         102,750
  Deferred revenues, current portion.................       470,125        678,625         470,125
  Deferred compensation..............................        45,214         45,742          45,214
                                                       ------------   ------------    ------------
     Total current liabilities.......................     1,476,405      1,503,933       1,401,405
Convertible debt to related party....................       158,730             --         158,730
Obligations under capital lease......................        70,617        114,828          70,617
Deferred revenues....................................        38,143         75,143          38,143
                                                       ------------   ------------    ------------
                                                          1,743,895      1,693,904       1,668,895
                                                       ------------   ------------    ------------
</TABLE>

                                       F-2
<PAGE>   21

<TABLE>
<CAPTION>
                                                                                       UNAUDITED
                                                                                       PRO FORMA
                                                       DECEMBER 31,   DECEMBER 29,    DECEMBER 31,
                                                           1997           1996       1997 (NOTE 10)
                                                       ------------   ------------   --------------
<S>                                                    <C>            <C>            <C>
Commitments (Note 8)
Stockholders' equity
  Preferred stock, Series A convertible, $0.001 par
     value; 20 shares authorized; 0 shares issued and
     outstanding at December 31, 1997 and December
     29, 1996........................................            --             --              --
  Preferred stock, Series B convertible $0.001 par
     value; 4,200 shares authorized, issued and
     outstanding at December 31, 1997 and December
     29, 1996, respectively (liquidating preference
     of $4,200,000)..................................     3,685,206      3,685,206       3,685,206
  Preferred stock, Series C convertible $0.001 par
     value; 900 shares authorized; 900 and 0 shares
     issued and outstanding at December 31, 1997 and
     December 29, 1996, respectively (liquidating
     preference of $900,000).........................       808,412             --         808,412
  Preferred stock, Series D convertible $0.001 par
     value; 350 shares authorized; 350 and 0 shares
     issued and outstanding at December 31, 1997 and
     December 29, 1996, respectively (liquidating
     preference of $350,000).........................       303,995             --         303,995
  Preferred stock, Series E convertible $0.001 par
     value; 500 shares authorized; 0 shares issued
     and outstanding at December 31, 1997 and
     December 29, 1996, and 500 shares issued and
     outstanding pro forma (liquidating preference of
     $500,000).......................................            --             --         283,900
  Common stock, $0.08 par value; 5,000,000 shares
     authorized; 1,628,332 and 1,251,925 shares
     issued and outstanding at December 31, 1997 and
     December 29, 1996, respectively.................       130,267        100,154         130,267
  Capital in excess of par value.....................    10,310,761      9,755,957      10,524,761
  Accumulated deficit................................   (13,165,753)   (11,548,437)    (13,165,753)
  Unamortized stock compensation.....................       (93,173)      (124,769)        (93,173)
  Notes receivable -- employees......................      (351,269)      (351,269)       (351,269)
                                                       ------------   ------------    ------------
     Total stockholders' equity......................     1,628,446      1,516,842       2,126,346
                                                       ------------   ------------    ------------
                                                       $  3,372,341   $  3,210,746    $  3,795,241
                                                       ============   ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       F-3
<PAGE>   22

                          NATIONAL DATACOMPUTER, INC.

                            STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                      YEAR ENDED
                                                              ---------------------------
                                                              DECEMBER 31,   DECEMBER 29,
                                                                  1997           1996
                                                              ------------   ------------
<S>                                                           <C>            <C>
Revenues
  Net product revenue.......................................  $ 4,644,903    $ 4,003,376
  Service and other revenue.................................    1,167,875      1,028,638
                                                              -----------    -----------
                                                                5,812,778      5,032,014
Cost of sales and services..................................    3,264,805      3,155,416
                                                              -----------    -----------
                                                                2,547,973      1,876,598
                                                              -----------    -----------
Operating expenses:
  Research and development..................................    1,275,916      1,302,678
  Selling, general and administrative.......................    2,373,285      2,624,461
                                                              -----------    -----------
                                                                3,649,201      3,927,139
                                                              -----------    -----------
Loss from operations........................................   (1,101,228)    (2,050,541)
Other income (expense):
  Interest and other income.................................       13,258         33,865
  Interest expense..........................................     (124,596)       (25,914)
                                                              -----------    -----------
Net loss....................................................  $(1,212,566)   $(2,042,590)
                                                              ===========    ===========
Calculation of net loss per common share and dilutive share
  equivalent:
  Net loss..................................................  $(1,212,566)   $(2,042,590)
  Preferred stock preferences (Notes 2 and 7)...............     (667,412)    (5,408,000)
                                                              -----------    -----------
Net loss attributable to common stockholders................  $(1,879,978)   $(7,450,590)
                                                              ===========    ===========
Basic and diluted net loss per share........................  $     (1.40)   $     (6.17)
                                                              ===========    ===========
Weighted average shares.....................................    1,343,876      1,207,442
                                                              ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       F-4
<PAGE>   23

                          NATIONAL DATACOMPUTER, INC.

                  STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
                                                                                                           COMMON STOCK
                                  PREFERRED STOCK         PREFERRED STOCK         PREFERRED STOCK      --------------------
                                     SERIES B                SERIES C                SERIES D
                               ---------------------   ---------------------   ---------------------
                                        NET ISSUANCE            NET ISSUANCE            NET ISSUANCE                 PAR
                               SHARES      PRICE       SHARES      PRICE       SHARES      PRICE        SHARES      VALUE
                               ------   ------------   ------   ------------   ------   ------------   ---------   --------
<S>                            <C>      <C>            <C>      <C>            <C>      <C>            <C>         <C>
Balance at December 30,
  1995.......................     --     $       --      --       $     --       --       $     --     1,169,436   $ 93,555
Net loss.....................
Issuance of preferred
  stock......................  4,200      3,685,206
Interest on preferred stock
  (Note 7)...................
Issuance of common stock.....                                                                             33,969      2,717
Issuance of common stock
  under consulting
  agreement..................                                                                             31,192      2,495
Amortization of stock
  compensation...............
Issuance of common stock in
  satisfaction of accrued
  interest...................                                                                             17,328      1,387
Stock subscription receivable
  paid.......................
                               -----     ----------     ---       --------      ---       --------     ---------   --------
Balance at December 29,
  1996.......................  4,200      3,685,206                                                    1,251,925    100,154
Net loss.....................
Issuance of preferred
  stock......................                           900        867,183      350        337,400
Interest on preferred stock
  (Note 7)...................
Issuance of common stock in
  satisfaction of accrued
  interest...................                                                                            303,490     24,280
Amortization of stock
  compensation...............
Discounted conversion rate on
  Preferred Stock............                                     (172,266)               (136,998)
Amortization of discounted
  conversion rate on
  Preferred Stock............                                      146,308                 116,354
Issuance of common stock as
  payment of issuance cost on
  preferred stock and
  covertible debt............                                      (32,813)                (12,761)       72,917      5,833
Discounted conversion rate on
  convertible debt...........
                               -----     ----------     ---       --------      ---       --------     ---------   --------
Balance at December 31,
  1997.......................  4,200     $3,685,206     900       $808,412      350       $303,995     1,628,332   $130,267
                               =====     ==========     ===       ========      ===       ========     =========   ========

<CAPTION>
                                COMMON STOCK
                                ------------
                                                                            PREFERRED
                                 CAPITAL IN      NOTES      UNAMORTIZED       STOCK                           TOTAL
                                   EXCESS      RECEIVABLE      STOCK       SUBSCRIPTION   ACCUMULATED     STOCKHOLDERS'
                                OF PAR VALUE   EMPLOYEES    COMPENSATION    RECEIVABLE      DEFICIT      EQUITY (DEFICIT)
                                ------------   ----------   ------------   ------------   ------------   ----------------
<S>                             <C>            <C>          <C>            <C>            <C>            <C>
Balance at December 30,
  1995.......................   $ 9,438,978    $(351,269)    $      --       $(50,268)    $ (9,297,847)    $  (166,851)
Net loss.....................                                                               (2,042,590)     (2,042,590)
Issuance of preferred
  stock......................                                                                                3,685,206
Interest on preferred stock
  (Note 7)...................                                                                 (208,000)       (208,000)
Issuance of common stock.....        40,900                                                                     43,617
Issuance of common stock
  under consulting
  agreement..................       153,466                   (155,961)                                             --
Amortization of stock
  compensation...............                                   31,192                                          31,192
Issuance of common stock in
  satisfaction of accrued
  interest...................       122,613                                                                    124,000
Stock subscription receivable
  paid.......................                                                  50,268                           50,268
                                -----------    ---------     ---------       --------     ------------     -----------
Balance at December 29,
  1996.......................     9,755,957     (351,269)     (124,769)            --      (11,548,437)      1,516,842
Net loss.....................                                                               (1,212,566)     (1,212,566)
Issuance of preferred
  stock......................                                                                                1,204,583
Interest on preferred stock
  (Note 7)...................                                                                 (404,750)       (404,750)
Issuance of common stock in
  satisfaction of accrued
  interest...................       361,720                                                                    386,000
Amortization of stock
  compensation...............                                   31,596                                          31,596
Discounted conversion rate on
  Preferred Stock............       309,264                                                                         --
Amortization of discounted
  conversion rate on
  Preferred Stock............      (262,662)                                                                        --
Issuance of common stock as
  payment of issuance cost on
  preferred stock and
  covertible debt............        48,856                                                                      9,115
Discounted conversion rate on
  convertible debt...........        97,626                                                                     97,626
                                -----------    ---------     ---------       --------     ------------     -----------
Balance at December 31,
  1997.......................   $10,310,761    $(351,269)    $ (93,173)      $     --     $(13,165,753)    $ 1,628,446
                                ===========    =========     =========       ========     ============     ===========
</TABLE>

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

                                       F-5
<PAGE>   24

                          NATIONAL DATACOMPUTER, INC.

                            STATEMENT OF CASH FLOWS
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
                                                                       YEAR ENDED
                                                              ----------------------------
                                                              DECEMBER 31,    DECEMBER 29,
                                                                  1997            1996
                                                              ------------    ------------
<S>                                                           <C>             <C>
Cash flows from operating activities:
  Net loss..................................................  $(1,212,566)    $(2,042,590)
  Adjustments to reconcile net loss to net cash used for
     operating activities:
     Depreciation and amortization..........................      132,977          83,973
     Amortization of stock compensation.....................       31,596          31,192
     Amortization of deferred debt issuance costs and debt
      discount..............................................       91,952              --
     Gain on sale of property and equipment.................           --          (1,780)
     Changes in assets and liabilities:
       (Increase) decrease in accounts receivable...........     (924,282)        577,857
       (Increase) decrease in inventories...................      180,174        (206,229)
       (Increase) decrease in other current assets..........       92,460        (136,609)
       (Decrease) increase in accounts payable..............      224,353        (208,537)
       Decrease in accrued expenses and deferred
compensation................................................     (157,517)       (567,462)
       Decrease in deferred revenues........................     (245,500)       (122,343)
                                                              -----------     -----------
          Net cash used for operating activities............   (1,786,353)     (2,592,528)
                                                              -----------     -----------
Cash flows from investing activities:
  Purchases of fixed assets.................................     (143,774)        (14,295)
  Proceeds from sale of fixed assets........................           --           5,650
                                                              -----------     -----------
          Net cash used for investing activities............     (143,774)         (8,645)
                                                              -----------     -----------
Cash flows from financing activities:
  Proceeds from issuance of preferred stock, net of issuance
     costs..................................................    1,204,583       3,685,206
  Proceeds from issuance of convertible note to related
     party..................................................      250,000              --
  Proceeds from preferred stock subscription receivable.....           --          50,268
  Repayment of borrowings...................................           --        (440,000)
  Payments of obligations under capital lease...............      (38,010)        (16,103)
  Proceeds from issuance of common stock, net of issuance
     costs..................................................           --          43,617
                                                              -----------     -----------
          Net cash provided by financing activities.........    1,416,573       3,322,988
                                                              -----------     -----------
Net increase (decrease) in cash and cash equivalents........     (513,554)        721,815
Cash and cash equivalents at beginning of year..............      722,285             470
                                                              -----------     -----------
Cash and cash equivalents at end of year....................  $   208,731     $   722,285
                                                              ===========     ===========
Supplemental Cash Flow Information:
  Cash paid for interest....................................  $    18,894     $    33,613
  Non-cash investing and financing activities:
     Accrued interest on Series B preferred stock charged to
      accumulated deficit...................................      102,750          84,000
     Purchase of property and equipment under capital
      lease.................................................       14,185         142,813
     Demo equipment previously included in inventory
      reclassified to fixed assets..........................                       19,412
     Common stock issued in satisfaction of interest on
      Series B, C and D preferred stock.....................      386,000         124,000
     Common stock issued as payment of issuance cost for
      preferred stock ($45,574) and convertible debt
      ($9,115)..............................................       54,689              --
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       F-6
<PAGE>   25

                          NATIONAL DATACOMPUTER, INC.

                         NOTES TO FINANCIAL STATEMENTS

1.  ORGANIZATION

     National Datacomputer, Inc. (the "Company") designs, develops,
manufactures, markets and services a line of hand-held battery powered
microprocessor-based data collection products and computers and associated
peripherals for use in mobile operations.

     In 1997 and 1996, the Company used cash for operations of $1.8 million and
$2.6 million, respectively. The Company has financed its operations primarily
through the issuance of preferred stock and convertible debt totaling $1.5
million in 1997 and $3.7 million in 1996. The Company expects to finance its
short-term and long-term operating and financing requirements from cash
generated from operations and with the proceeds from the issuance of the Series
E Preferred Stock in March 1998 which generated $498,000. If the Company is not
successful in attaining and sustaining sufficient cash from operations, it will
need to reduce operating costs and or raise additional financing to maintain its
operations.

     On December 28, 1997, the Board of Directors of the Company voted to change
the end of the Company's fiscal year from the last Sunday in December to
December 31.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Cash and Cash Equivalents

     The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. The Company
invests its excess cash in US Treasury securities, and accordingly, these
instruments are subject to minimal credit and market risk. These investments,
which totaled $0 and $199,255 at December 31, 1997 and December 29, 1996,
respectively, are classified as held to maturity and have been recorded at
amortized cost, which approximates their fair market value. No realized or
unrealized gains or losses have been recognized.

  Revenue Recognition

     The Company recognizes revenue for products upon shipment. Revenue from
installation and training is recognized upon completion of the project. Service
revenue is recognized ratably over the contractual periods.

  Concentration of Credit Risk

     The Company sells its products to customers in diverse industries
nationwide, particularly delivery based services such as bakeries and beer
distributors. 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 two customers accounted for approximately
48% of total accounts receivable at December 31, 1997. Management does not
believe that the Company is subject to any unusual credit risk beyond the normal
credit risk attendant to operating its business.

  Inventories

     Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.

  Fixed Assets

     Fixed Assets are recorded at cost and depreciated over the estimated useful
lives of the assets principally using accelerated methods. Leasehold
improvements are amortized over the shorter of the useful lives or the remaining
terms of the related leases. Maintenance and repair costs are expensed as
incurred.

                                       F-7
<PAGE>   26
                          NATIONAL DATACOMPUTER, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

  Loss Per Share

     Loss per share is determined by dividing net loss, after deducting certain
amounts associated with the Company's preferred stock, by the weighted average
number of common shares outstanding during the year.

     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 7) are added to the net
loss to determine the amount of net loss attributable to common stockholders.

     During the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". The new
standard replaces the presentation of primary and fully diluted earnings per
share as prescribed in Accounting Principles Board Opinion No. 15, "Earnings per
Share", with a presentation of basic and diluted earnings per share on the face
of the statement of operations. Basic earnings per share is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share is computed using
the weighted average number of common shares outstanding and gives effect to all
dilutive common share equivalents outstanding during the period.

     Common share equivalents consist of 2,625,444 and 1,436,472 shares of
common stock which may be issuable upon exercise of outstanding stock options
and warrants and the conversion of preferred stock and convertible debt (Notes 5
and 7) at December 31, 1997 and December 29, 1996, respectively. All common
share equivalents have been excluded from the calculation of weighted average
shares outstanding as their inclusion would be anti-dilutive. The adoption of
SFAS No. 128 had no effect on the Company's per share calculation as the Company
incurred net losses for the years ended December 31, 1997 and December 29, 1996.

  Stock Compensation

     The Company's employee stock option plans are accounted for in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", ("APB 25"). In January 1996, the Company adopted SFAS No. 123,
"Accounting for Stock Based Compensation", for disclosure purpose only (Note 7).

  Research and Development and Computer Software Development Costs

     Research and development costs, other than software development costs, have
been charged to operations as incurred. SFAS No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased or Otherwise Marketed", requires the
capitalization of certain computer software development costs incurred after
technological feasibility is established. No software development costs have
been capitalized at December 31, 1997 or December 29, 1996.

  Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingencies at December 31, 1997 and December 29, 1996, and the
reported results of operations during the two years in the period ended December
31, 1997. Actual results could differ from those estimates.

  New Accounting Pronouncement

     In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 97-2, "Software Revenue Recognition." SOP 97-2

                                       F-8
<PAGE>   27
                          NATIONAL DATACOMPUTER, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

provides guidance on the timing and amount of revenue recognition when
licensing, selling, leasing or otherwise marketing computer software. SOP 97-2
supersedes SOP 91-1 (also entitled "Software Revenue Recognition") and is
effective for transactions entered during fiscal years beginning after December
15, 1997. The Company will be required to adopt SOP 97-2 for its fiscal year
ending December 31, 1998. The adoption of SOP 97-2 is not expected to have a
material effect on the Company's financial position or its results of
operations.

  Reclassifications

     Customer service support costs in the amount of $709,505 have been
reclassified from selling, general and administrative costs to cost of sales and
services in the fiscal 1996 statement of operation to conform with the current
year presentation.

3.  INVENTORIES

     Inventories consist of the following:

<TABLE>
<CAPTION>
                                                      DECEMBER 31,    DECEMBER 29,
                                                          1997            1996
                                                      ------------    ------------
<S>                                                   <C>             <C>
Raw materials.......................................   $  623,593      $  351,860
Work-in-process.....................................      450,238         592,741
Finished goods......................................      225,148         534,552
                                                       ----------      ----------
                                                       $1,298,979      $1,479,153
                                                       ==========      ==========
</TABLE>

4.  FIXED ASSETS

     Fixed assets consists of the following:

<TABLE>
<CAPTION>
                                                             ESTIMATED
                                                           USEFUL LIVES    DECEMBER 31,  DECEMBER 29,
                                                            (IN YEARS)         1997          1996
                                                           -------------   ------------  ------------
<S>                                                        <C>             <C>           <C>
Production and engineering equipment.....................       3-5         $  809,363    $  746,921
Furniture, fixtures and office equipment.................        5             717,629       622,112
Leasehold improvements...................................  Life of lease        23,021        23,021
                                                                            ----------    ----------
                                                                            $1,550,013    $1,392,054
Less -- accumulated depreciation and amortization........                    1,290,501     1,157,524
                                                                            ----------    ----------
                                                                            $  259,512    $  234,530
                                                                            ==========    ==========
</TABLE>

     At December 31, 1997, office and engineering equipment under capital lease
totaled $156,998. Related accumulated amortization of equipment under capital
lease totaled $77,100 at December 31, 1997. At December 29, 1996, office and
engineering equipment under capital lease totaled $142,813, with related
accumulated amortization of $28,563.

5.  CONVERTIBLE DEBT TO RELATED PARTY

     In March 1997, the Company issued an unsecured Convertible Promissory Note
for $250,000 to the majority stockholder. The note bears interest at the rate of
6% per annum and had an original maturity date of March 1998. In March 1998,
$175,000 of this note was refinanced and will mature in March 1999.

     The note is convertible at the option of the holder into shares of the
Company's common stock at a price of $2.74 per share. The discount of $97,626
implicit in the conversion terms at the date of issuance, based upon the market
price for the Company's common stock on that date, was recorded as a debt
discount and

                                       F-9
<PAGE>   28
                          NATIONAL DATACOMPUTER, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

additional paid in capital. The debt discount is being amortized over the term
of the note as a charge to interest expense. Amortization of the debt discount
totaled $81,356 and was recorded in the fourth quarter of 1997.

     As payment for certain issuance costs associated with the issuance of the
convertible debt, the Company issued 12,153 shares of unregistered common stock
at a value of $9,115. The Company has capitalized these costs in addition to
$4,000 of issuance costs paid in cash, as deferred debt issuance costs.
Amortization is provided using the straight-line method over the term of the
note. Amortization of debt issuance costs totaled $10,596 in 1997.

6.  INCOME TAXES

     Deferred tax assets are comprised of the following at December 31, 1997 and
December 29, 1996:

<TABLE>
<CAPTION>
                                                   DECEMBER 31,      DECEMBER 29,
                                                       1997              1996
                                                   ------------      ------------
<S>                                                <C>               <C>
Net operating loss carryforwards.................  $ 4,189,000       $ 3,746,000
Business tax credit carryforwards................      297,000           286,000
Other............................................      127,000           101,000
                                                   -----------       -----------
Gross deferred tax asset.........................  $ 4,613,000       $ 4,133,000
Deferred tax asset valuation allowance...........   (4,613,000)       (4,133,000)
                                                   -----------       -----------
                                                   $        --       $        --
                                                   ===========       ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                              YEAR ENDED
                                                     ----------------------------
                                                     DECEMBER 31,    DECEMBER 29,
                                                         1997            1996
                                                     ------------    ------------
<S>                                                  <C>             <C>
Statutory federal rate.............................     (34.0)%         (34.0)%
State taxes........................................      (6.0)%          (6.0)%
Non-deductible expenses............................       0.4%            0.1%
Other..............................................      (4.0)%          (2.3)%
Valuation allowance on deferred tax assets.........      43.6%           42.2%
                                                        -----           -----
                                                          0.0%            0.0%
                                                        =====           =====
</TABLE>

     The Company has generated losses from operations in each of the last two
years and has no taxable income available to offset the carryback of net
operating losses. In addition, although management's operating plans anticipate
taxable income in future periods, such plans make significant assumptions,
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, 1997, the Company has net operating loss and tax credit
carryforwards for federal tax purposes of $11,402,000 and $296,000,
respectively, which expire in various years through 2012 and 2004, respectively.
The Company has state net operating loss carryforwards for tax purposes of
$4,976,000, which expire in various years through 2002.

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

                                      F-10
<PAGE>   29
                          NATIONAL DATACOMPUTER, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7.  STOCKHOLDERS' EQUITY

  Stock Options

     In 1989, 1994 and 1995, the Board of Directors approved the 1989 Stock
Option Plan, the 1994 Stock Option Plan and the 1995 Stock Option Plan (the
"Plans"), respectively. The Plans provide for the granting of incentive stock
options and non-qualified stock options to purchase up to 323,685 shares of
common stock of the company to employees, officers, directors and consultants.
The exercise price for incentive stock options granted may not be less than 100%
of the fair market value per share of the common stock on the date granted (110%
for options granted to holders of more than 10% of the voting stock of the
Company). The exercise price per share for non-qualified options may not be less
than the lesser of 50% of the fair market value per share of the common stock on
the date of grant or the book value per share of common stock as of the end of
the fiscal year immediately preceding the date of grant. The term of options
granted under the Plans cannot exceed ten years (five years for options granted
to holders of more than 10% of the voting stock of the Company). Outstanding
options are written generally with five to ten year vesting periods, some with
acceleration if certain profitability levels are reached, and are fully
exercisable by 2007.

     On August 19 1997, the Board of Directors, subject to approval of the
stockholders, adopted the 1997 stock option plan which provides for issuance of
both incentive stock options and non-qualified options to employees. A maximum
of 200,000 shares of common stock of the Company will be reserved for issuance
in accordance with the terms of the 1997 Plan.

     A summary of the status of the Company's stock option plans as of December
31, 1997 and December 29, 1996 are summarized as follows:

<TABLE>
<CAPTION>
                                                           DECEMBER 31, 1997      DECEMBER 29, 1996
                                                          --------------------   --------------------
                                                                      WEIGHTED               WEIGHTED
                                                                      AVERAGE                AVERAGE
                                                          NUMBER OF   EXERCISE   NUMBER OF   EXERCISE
                                                           OPTIONS     PRICE      OPTIONS     PRICE
                                                          ---------   --------   ---------   --------
<S>                                                       <C>         <C>        <C>         <C>
Outstanding at beginning of year........................   288,972     $4.82      123,521     $4.19
Granted.................................................    16,875      1.47      292,650      4.94
Exercised...............................................        --        --           --        --
Canceled................................................   (28,131)     4.07     (127,199)     4.49
                                                           -------     -----     --------     -----
Outstanding at end of year..............................   277,716     $1.56      288,972     $4.82
                                                           =======     =====     ========     =====
Exercisable at end of year..............................    59,778     $1.85       54,248     $4.64
                                                           =======     =====     ========     =====
Weighted average fair value of options granted during
  the period............................................               $1.47                  $4.94
                                                                       =====                  =====
</TABLE>

     On August 14, 1997, the Board of Directors approved the repricing of
certain outstanding options with original exercise prices ranging from
$4.00 - $20.00 to a $1.47 exercise price. The exercise price of the repriced
options equaled the fair market value of the Company's common stock on the date
of repricing.

                                      F-11
<PAGE>   30
                          NATIONAL DATACOMPUTER, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes information about stock options outstanding
at December 31, 1997:

<TABLE>
<CAPTION>
                                               WEIGHTED AVERAGE                    WEIGHTED AVERAGE
                                                   REMAINING         NUMBER OF     EXERCISE PRICE OF
                                  NUMBER       CONTRACTUAL LIFE,      OPTIONS           OPTIONS
        EXERCISE PRICE          OUTSTANDING        IN YEARS         EXERCISABLE       EXERCISABLE
        --------------          -----------    -----------------    -----------    -----------------
<S>                             <C>            <C>                  <C>            <C>
$ 1.47........................    269,148            8.48              52,590            $1.47
  4.00........................      6,355            6.02               6,355             4.00
  5.00........................      1,375            8.92                  --               --
  6.40........................        383            5.06                 383             6.40
  8.00........................        317            2.99                 317             8.00
 20.00........................        133            1.97                 133            20.00
                                  -------                              ------            -----
          Total...............    277,711                              59,778            $1.85
                                  =======                              ======            =====
</TABLE>

     The Company did not recognize any compensation expense under APB No. 25
during the years ending December 31, 1997 and December 29, 1996.

     As discussed in Note 2, the Company elected to adopt SFAS No. 123 through
disclosure only. Had compensation cost for the Company's option plans been
determined based on the fair value of the options at the grant dates, as
prescribed by SFAS No. 123, the Company's net loss and net loss per share would
have been as follows:

<TABLE>
<CAPTION>
                                                               YEAR ENDED      YEAR ENDED
                                                              DECEMBER 31,    DECEMBER 29,
                                                                  1997            1996
                                                              ------------    ------------
<S>                                                           <C>             <C>
Net loss:
  As reported...............................................   $1,212,566      $2,042,590
  Pro forma.................................................   $1,304,272      $2,262,187
Basic and diluted net loss per share:
  As reported...............................................   $     1.40      $     6.17
  Pro forma.................................................   $     1.47      $     6.35
</TABLE>

     The fair value of each option grant under SFAS No. 123 was estimated on the
date of grant using the Black-Scholes option pricing model with the following
assumptions used for grants in 1997 and 1996, respectively:

<TABLE>
<S>          <C>
     I.      Dividend yield of 0% for both periods;
     II.     Expected volatility of 291% and 250%;
     III.    Risk free interest rates of 6.34% - 6.71% for options
             granted during the year ended December 31, 1997 and
             5.81% - 6.87% for the year ended December 29, 1996; and
     IV.     Weighted average expected option term of 10 years for both
             periods.
</TABLE>

     Because options vest over several years and additional options grants are
expected to be made in subsequent years, the above pro forma disclosures are not
necessarily representative of the pro forma effects on reported net income
(loss) for future years.

COMMON STOCK

     In January 1996, the Company entered into an agreement with a consulting
firm, whereby the Company would compensate the firm for their services through
the issuance of 31,192 shares of the Company's common stock. The value of these
shares at the time of issuance was estimated by management to be approximately

                                      F-12
<PAGE>   31
                          NATIONAL DATACOMPUTER, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

$156,000, which is being amortized to expense over the five year term of the
agreement. Unamortized amounts are presented as a reduction of stockholders'
equity in the accompanying balance sheet.

     On October 4, 1996, the Board of Directors approved an increase in the
number of authorized shares of Common Stock to 5,000,000 shares.

     At December 31, 1997, the Company had reserved 2,648,596 shares of common
stock for issuance upon the exercise of common stock options and warrants and
the conversion of preferred stock and convertible debt.

SERIES B CONVERTIBLE PREFERRED STOCK

     On April 19, 1996, the Board of Directors approved the designation of 3,000
shares of the Company's unissued preferred stock, $.001 par value, as Series B
Convertible Preferred Stock. On June 23, 1996, the Board of Directors approved
the designation of an additional 1,200 shares of Preferred Stock as Series B
Convertible Preferred Stock. During 1996, 4,200 shares were sold for net
proceeds of approximately $3,685,200. Each share of the Series B Convertible
Preferred Stock has the same number of common stock votes as its conversion
rights provide.

     Each share of the Series B Convertible Preferred Stock is convertible at
any time at the option of the holders into shares of common stock pursuant to a
ratio based upon the quoted market price of the Company's common stock. The
Series B Convertible Preferred Stock will convert into a number of shares of
common stock computed by dividing the stated value of preferred stock to be
converted by the average bid price for the Company's common stock for the five
days prior to the conversion, discounting the average bid price by forty
percent. However, in no event will the conversion price exceed $6.00 or be lower
than $4.00 per share.

     The minimum conversion price of $4.00 will be eliminated if, at any time
prior to March 31, 1999, the Company's stockholders' equity, as reported in any
annual report filed on Form 10-KSB, or quarterly report on Form 10-QSB, is below
$1,000,000. The Company can require conversion on the above terms at any time
after March 31, 1999.

     The estimated discount of $5,200,000 implicit in the conversion terms at
the dates of issuance of the Series B Convertible Preferred Stock, based upon
the quoted bid price for the Company's common stock on those dates, has been
included in the computation of net loss per share (Note 2) for the year ended
December 29, 1996.

     In addition, the Series B Convertible Preferred Stock has preference over
the common stock with respect to the payment of dividends. The amount of the
dividend for each share of Series B Convertible Preferred Stock, when and if
declared by the Company's Board of Directors, is equal to the amount of the per
share dividend of common stock declared multiplied by the number of shares of
common stock into which the Series B Convertible Preferred Stock is then
convertible.

     In addition to the dividend preference, the holders of Series B Convertible
Preferred Stock shall receive interest equal to 8% per annum of the stated value
of such Series B Convertible Preferred Stock. Such interest will accrue from the
original issuance date, and shall be payable in cash or common stock, at the
Company's option, on a quarterly basis, commencing with the fiscal quarter ended
June 30, 1996. Payment of interest due with respect to those shares of Series B
Convertible Preferred Stock that remain issued and outstanding at the end of
each of the Company's fiscal quarters shall be made within 15 days after the
filing with the Securities and Exchange Commission of the applicable report.

     During the year ended December 31, 1997 and December 29, 1996, the Company
incurred interest in the amount of $336,000 and $208,000 respectively, which has
been recorded as a charge to accumulated deficit. During 1997, 230,340 shares of
common stock were issued in satisfaction of the accrued interest for 1997 and
26,886 shares of common stock were issued in satisfaction of the accrued and
unpaid interest due for 1996. In addition $84,000 of interest remains unpaid,
and is included in accrued interest at December 31, 1997.
                                      F-13
<PAGE>   32
                          NATIONAL DATACOMPUTER, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     Upon liquidation of the Company, the holders of Series B Preferred Stock
have preference over the common stockholders to receive liquidating
distributions which equal the stated value of such shares of Series B
Convertible Preferred Stock, plus all dividends which have been accrued and are
unpaid.

     In the event that the price of the Company's common stock, as reported by
the NASDAQ SmallCap Market or the National Association of Securities Dealers
Electronic Bulletin Board, equals or exceeds $20.00 per share for a period of
twenty consecutive trading days, the Company may redeem the Series B Convertible
Preferred Stock at a price of $1,000 per share.

  Series C Convertible Preferred Stock

     In February 1997, the Board of Directors approved the designation of 900
shares of the Company's unissued preferred stock, $.001 par value, as Series C
Convertible Preferred Stock. During 1997, the Company sold 900 shares of newly
designated Series C Convertible Preferred Stock for net proceeds of $867,183. As
payment of certain offering costs associated with the issuance of the Series C
Convertible Preferred stock, the Company issued 43,751 shares of unregistered
common stock for a value of $32,813 based on the quoted market price.

     The holders of Series C Convertible Preferred Stock are entitled to receive
dividends, when and if declared by the Board of Directors before any cash
dividend is declared and paid to common stockholders, payable in cash or common
stock.

     The holders of Series C Convertible Preferred Stock are entitled to receive
interest equal to 6% per annum of the stated value. Such interest shall be
payable in cash or common stock at the Company's option, on a quarterly basis
commencing on March 31, 1997. Payment of interest due with respect to those
shares of Series C Convertible Preferred Stock that remain issued and
outstanding at the end of each of the Company's fiscal quarters shall be made
within 15 days after the filing with the Securities and Exchange Commission of
the applicable report.

     During the year ended December 31, 1997, the Company incurred interest in
the amount of $49,500 which has been recorded as a charge to accumulated
deficit. During 1997, 33,311 shares of common stock were issued in satisfaction
of the accrued interest for 1997. In addition, $13,500 of interest remains
unpaid, and is included as accrued interest at December 31, 1997.

     Upon liquidation of the Company, the holders of Series C Convertible
Preferred Stock have preference over common stockholders to receive liquidating
distributions which equal the stated value of such shares of Series C
Convertible Preferred Stock, plus all dividends which have been accrued and are
unpaid.

     The Series C preferred stockholders are entitled to a number of votes equal
to the number of whole shares of common stock into which the shares of Series C
Convertible Preferred Stock are convertible on the record date established. The
Series C shareholders are entitled to vote with the holders of all other classes
of securities as a single class.

     Each share of the Series C Convertible Preferred Stock is convertible into
common stock, at the option of the shareholder, at a rate equal to the stated
value of Series C convertible shares divided by the conversion price of $3.20.
Holders of Series C Convertible Preferred Stock may not convert for a period of
365 days from the date of issuance.

     The discount of $172,266 implicit in the conversion terms at the date of
issuance of the Series C Convertible Preferred Stock, based upon the market
price for the Company's common stock on the date of issuance, has been recorded
as a discount on the preferred stock and an increase to additional paid in
capital. The amortization of the conversion discount of $146,308 has been
included in the computation of net loss per share (Note 2) for the year ended
December 31, 1997.

                                      F-14
<PAGE>   33
                          NATIONAL DATACOMPUTER, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     In the event that the price of the Company's common stock, as reported by
the NASDAQ SmallCap Market or the National Association of Securities Dealers
Electronic Bulletin Board, equals or exceeds $20.00 per share for a period of
twenty consecutive trading days, after the lock-up period expires, the Company
may redeem the Series C Convertible Preferred Stock at a price of $1,000 per
share.

  Series D Convertible Preferred Stock

     In February 1997, the Board of Directors approved the designation of 350
shares of the Company's unissued preferred stock, $.001 par value, as Series D
Convertible Preferred Stock. During 1997, the Company sold 350 shares of newly
designated Series D Convertible Preferred Stock for net proceeds of $337,400. As
payment of certain offering costs associated with the issuance of the Series D
Convertible Preferred Stock, the Company issued 17,013 shares of unregistered
common stock for a value of $12,761 based upon the quoted market price.

     The holders of Series D Convertible Preferred Stock are entitled to receive
dividends, when and if declared by the Board of Directors before any cash
dividend is declared and paid to common stockholders, payable in cash or common
stock.

     The holders of Series D Convertible Preferred Stock are entitled to receive
interest equal to 6% per annum of the stated value. Such interest shall be
payable in cash or common stock at the Company's option, on a quarterly basis
commencing on March 31, 1997. Payment of interest due with respect to those
shares of Series D Convertible Preferred Stock that remain issued and
outstanding at the end of each of the Company's fiscal quarters shall be made
within 15 days after the filing with the Securities and Exchange Commission of
the applicable report.

     During the year ended December 31, 1997, the Company incurred interest in
the amount of $19,250, which has been recorded as a charge to accumulated
deficit. During 1997, 12,953 shares of common stock were issued in satisfaction
of the accrued interest. In addition, $5,250 of interest remains unpaid, and is
included as accrued interest at December 31, 1997.

     Upon liquidation of the Company, the holders of Series D Convertible
Preferred Stock have preference over common stockholders to receive liquidating
distributions which equal the stated value of such shares of Series D
Convertible Preferred Stock, plus all dividends which have been accrued and are
unpaid.

     The Series D preferred stockholders are entitled to a number of votes equal
to the number of whole shares of common stock into which the shares of Series D
Convertible Preferred Stock are convertible on the record date established. The
Series D shareholders are entitled to vote with the holders of all other classes
of securities as a single class.

     Each share of the Series D Convertible Preferred Stock is convertible into
common stock, at the option of the shareholder, at a rate equal to the stated
value of Series D convertible shares divided by the conversion price of $2.74.
Stockholders of Series D Convertible Preferred Stock may not convert for a
period of 365 days from the date of issuance.

     The discount of $136,998 implicit in the conversion terms at the date of
issuance of the Series D Convertible Preferred Stock, based upon the market
price for the Company's common stock on the date of issuance, has been recorded
as a discount on the preferred stock and an increase to additional paid in
capital. The amortization of the conversion discount of $116,354 has been
included in the computation of net loss per share (Note 2) for the year ended
December 31, 1997.

     In the event that the price of the Company's common stock, as reported by
the NASDAQ SmallCap Market or the National Association of Securities Dealers
Electronic Bulletin Board, equals or exceeds $20.00 per share for a period of
twenty consecutive trading days, after the lock-up period expires, the Company
may redeem the Series D Convertible Preferred Stock at a price of $1,000 per
share.
                                      F-15
<PAGE>   34
                          NATIONAL DATACOMPUTER, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

  Reverse Stock Split

     On October 4, 1996, the stockholders approved a 1:4 reverse stock split of
the Company's common stock ("the Reverse Split"). Accordingly, all shares, per
share amounts, conversion ratios, stock option and warrant data have been
restated to retroactively reflect the reverse split.

  Issuance of Warrants

     On January 17, 1996, the Company issued warrants to purchase 90,000 shares
of the Company's common stock at $5.24 per share to all of the former holders of
the Company's Series A Convertible Preferred Stock. These warrants were
immediately exercisable and expire after three years. These warrants were issued
in consideration of the conversion of the Series A Convertible Preferred Stock.
The fair value of these warrants was estimated by management and determined to
be materially consistent with the amount of dividends waived by the holders of
Series A Convertible Preferred Stock.

     In July 1996, the Company also issued warrants to purchase a total of 7,500
shares of the Company's common stock at $6.00 per share to two unrelated
parties. These warrants were immediately exercisable and expire after three
years. The value of these warrants at the time of issuance has been estimated by
management and determined not to be material to the Company's financial position
and results of operations.

     In September 1997, the Company issued warrants to purchase 700,000 shares
of the Company's common stock at $4.00 per share to the Series B stockholders.
These warrants are exercisable immediately and expire on September 30, 2000. The
value of these warrants at the time of issuance was estimated by management to
be negligible, based primarily upon the market price of the Company's stock,
accordingly, no compensation cost has been recorded. In March 1998, these
warrants were canceled in conjunction with the issuance of the Series E
Convertible Preferred Stock (Note 10).

  Cashless Option Exercise Program

     On March 1, 1994, the Board of Directors approved the 1994 cashless option
exercise program for all employees. The program allows employees to purchase
shares of common stock, payable with both recourse and non-recourse long term
promissory notes receivable. Under the above program, employees purchased a
total of 87,817 shares of common stock at a price of $4.00 per share. The notes
receivable, plus accrued interest, are due in March 2004, and are presented as a
reduction of stockholders' equity in the accompanying balance sheet.

8.  COMMITMENTS

     The Company leases its office facilities under an operating lease expiring
September 30, 2000. The lease contains an option for renewal and requires the
payment of taxes and other operating costs. At December 31, 1997, future minimum
rental payments under the operating lease amounted to $471,000 payable as
follows:

<TABLE>
<S>                                                             <C>
Year ending:
  1998......................................................    $171,000
  1999......................................................     171,000
  2000......................................................     129,000
</TABLE>

     Rent expense totaled $171,376 and $167,080 during the years ended December
31, 1997 and December 29, 1996, respectively.

                                      F-16
<PAGE>   35
                          NATIONAL DATACOMPUTER, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     The Company also leases certain equipment under capital leases expiring at
various dates through the year 2001. Future minimum lease payments under capital
leases, with remaining terms of one year or more, consist of the following at
December 31, 1997:

<TABLE>
<S>                                                             <C>
Year ending:
  1998......................................................    $ 56,000
  1999......................................................      48,000
  2000......................................................      30,000
  2001......................................................       1,000
                                                                --------
Total minimum lease payments................................    $135,000
Less: amount representing interest..........................      23,000
                                                                --------
Present value...............................................    $112,000
                                                                ========
</TABLE>

9.  FINANCIAL INSTRUMENTS

     The Company enters into various types of financial instruments in the
normal course of business. Fair values are estimated based on assumptions
concerning the amount and timing of estimated future cash flows and assumed
discount rates reflecting varying degrees of perceived risk. Accordingly, the
fair values may not represent actual values of the financial instruments that
could have been realized as of year end or that will be realized in the future.

     Fair values for cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses and convertible debt approximate their carrying values
at December 31, 1997 and December 29, 1996.

10.  SUBSEQUENT EVENTS

     In March 1998, the Company designated and sold 500 shares of Series E
Convertible Preferred Stock with a warrant to purchase up to 700,000 shares of
common stock at an exercise price of $.75 per share, for net proceeds of
$497,900. The warrant expires in March 2000. The Series E Convertible Preferred
Stock was sold to the same stockholder of the previously issued Series B, Series
C and Series D Convertible Preferred Stock. The proceeds of this financing were
allocated to the preferred shares and warrant based on management's estimate of
their fair values. This resulted in $214,000 being ascribed to the warrant which
was recorded as additional paid-in-capital and $283,900 being recorded as
preferred stock. Series E Convertible Preferred Stock has voting rights,
dividend preference, liquidation preference, mandatory conversion and Company
redemption terms similar to the Company's existing Series B, Series C and Series
D Convertible Preferred Stock. The Subscription Agreement for Series E
Convertible Preferred Stock offers anti-dilution protection to its shareholders.
Series E Convertible Preferred Stock is convertible into shares of common stock
at a conversion price of $.75.

     Also in March 1998, the Company refinanced the $250,000 convertible debt by
making a principal payment of $75,000 and issuing a convertible note payable for
$175,000. The note bears interest at a rate of 6% per annum, matures in March
1999, and is convertible into shares of the Company's common stock at a
conversion price equal to the average closing bid price for the Company's common
stock for the five days ending March 6, 1998. The note can be converted at the
option of the holder after January 1, 1999.

     The unaudited pro forma balance sheet reflects the financial position of
the Company at December 31, 1997 as if the transactions in the preceding two
paragraphs had taken place on that date.

     The Company, in conjunction with the issuance of the Series E Convertible
Preferred Stock, canceled its previously issued warrants to purchase 700,000
shares of common stock for $4.00 per share. Additionally, the Company changed
the conversion price on Series B and Series C Convertible Preferred Stock to
$2.74 and

                                      F-17
<PAGE>   36
                          NATIONAL DATACOMPUTER, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

offered anti-dilution protection to these shareholders. In addition, the holder
of the Series E Convertible Preferred Stock agreed to place into escrow 2,100
shares of the Series B Convertible Preferred Stock that is also owned by this
shareholder. The Company may at its option and at any time through January 31,
2000 redeem the escrowed shares of Series B Convertible Preferred Stock at a
price of $1,250 per share.

PROPOSED TRANSACTION

     On February 20, 1998, the Company announced the signing of a letter of
intent, subject to a definitive agreement, to merge with Infos International,
Inc. ("Infos"). Infos is a privately held company with operations currently in
Germany, Italy, Portugal and Spain. Established in 1983, Infos designs,
manufactures, sells and supports hardware and software systems for Route
Accounting, Retail Applications and Sales Support. Infos's current hardware
products are based on "Open Systems" architecture which promotes ease and speed
of application development and provides for software portability and
maintainability. Infos' unaudited sales for 1997 are approximately $14,000,000.

     The Company would be the surviving corporation of the merger while the
shareholders of Infos would acquire a majority of the issued and outstanding
capital stock of the combined entity.

                                      F-18