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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB

    (Mark One)

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

                For the fiscal year ended December 31, 2003

                                       OR

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

                For the transition period from __________ to __________


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


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

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

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

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


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

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

                                Yes [X]   No [ ]

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

        The registrant had revenues of approximately $4,600,000 during the
fiscal year ended December 31, 2003. As of March 19, 2004, 21,302,765 shares of
the registrant's common stock, $0.08 par value per share, were outstanding and
the aggregate market value of the common stock held by non-affiliates was
approximately $4,252,676 based on an average bid and asked price of $0.20 per
share as reported by the OTC Bulletin Board.

        Transitional Small Business Disclosure Format:  Yes [ ]   No [X]

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                                     PART I

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

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

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


ITEM 1. DESCRIPTION OF BUSINESS.

GENERAL

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

                                        1
<PAGE>

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

INDUSTRY BACKGROUND

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

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

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

PRODUCTS

        We design, manufacture, service, and distribute rugged, programmable
hand-held computers, and data collection devices. We are also a leading
implementer of software solutions, such as our RouteRider Software System, for
people who need portable solutions in the field rather than at a desk.
Additionally, we also provide software solutions specific to the inventory
service market.

HARDWARE

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

         Application programs for our Datacomputers can be written on
conventional desktop computers with commonly used programming languages and then
executed on the Datacomputer. Application programs and data are stored in the
Datacomputer's random access memory

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<PAGE>

("RAM") and can be readily changed by communicating revisions or new programs to
the Datacomputer through our communications setup. The Datacomputer can receive
data from bar-code readers, other computers (including other Datacomputers),
over telephone lines through a modem, and through the use of wireless
technology. Our Datacomputer product line includes various models of the
Datacomputer, bar-code readers, rugged printers, communication devices, carrying
cases, cables, and add-on memory boards.

DATACOMPUTER MODEL DC5(TM)

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

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

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

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

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

        We believe there is a fundamental shift underway in the way inventory
service companies do business. The DC5 is designed to capitalize on this change.
Approximately 46% of our 2003 total revenue was attributed to sales of the newer
DC5, up from 39% in 2002.

DATACOMPUTER MODEL DC4(TM)

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

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

                                        3
<PAGE>

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

        Approximately 2% of our 2003 total revenue was attributed to sales of
the DC4, down from 8% in 2002.

ICAL MODEL 100R(TM)

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

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

        Approximately 3% of our 2003 total revenue was attributed to the sale of
the ICAL 100R, down from 5% in 2002. Revenues generated by the ICAL 100R are
almost exclusively from customers who wish to continue to use their installed
base of ICAL devices. We intend to continue supporting the ICAL product line to
protect our customers' investments.

TAILORED SOFTWARE SOLUTIONS

ROUTERIDER(R)

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

        Salespeople returning to an office or warehouse at the end of the day
can exchange information by connecting their RouteRIDER Datacomputer to a
communications server either directly or through NDINet(TM), our proprietary
network software, which unattended, can receive information from multiple
RouteRIDER Datacomputers at multiple locations. Sales people who do not return
to an office or warehouse at the end of the day can call their home base every
evening to communicate the day's activities and load the RouteRIDER Datacomputer
with up-to-the-minute information on products, pricing, and the next day's
customers.

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

                                        4
<PAGE>

SMARTROUTE 2000(R)

        SMARTRoute 2000(R) Communication Server ("SMARTRoute") is a
Windows-based communication server software application. We believe that
SMARTRoute provides an important link between our Datacomputers and the
customer's host computer. It manages communications to and from the
Datacomputer. It maintains logs, back-ups for the Datacomputer, system reports,
and data archiving. It also archives and retrieves electronic signatures and
provides DEX\UCS communications.

NDI-DEJA VIEW(TM)

        NDI-DeJa View(TM) ("DeJa View") is file conversion software for the
route sales markets. Designed for collecting, retrieving and archiving documents
as images, this application is intended to help route operators meet their
specific needs for information management in an effortless, quick and efficient
way. We believe DeJa View is a flexible, user-friendly interface, which provides
a fast, intuitive method for retrieving any signed document, with signature.

W.I.N.

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

WINTAKES

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

FINANCIAL AUDIT

        NDI's Financial Audit Software ("FinAud") was developed in 1993 for the
DC2.5 datacomputer. In 2002, FinAud was updated to Enhanced FinAud to run on the
DC5.

        For retailers and inventory service companies, Enhanced FinAud allows
for convenient entry of financial audit data with full Audit Trail Reporting,
Inventory Recap Reporting, and Department Recount for inventory reconciliation.
Four standard reports are available from the stand-alone DC5 to be printed on a
user-supplied printer. Data can be exported in fixed format ASCII characters,
which enables users to upload to their laptops the totals collected from
financial inventory audits, and then create their own reports.

                                        5
<PAGE>

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

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

MARKETS

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

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

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

MARKETING AND DISTRIBUTION

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

        The DC5, both wireless and non wireless, is sold to existing and new
inventory service customers as well as the Value Added Reseller ("VAR") market
as an application software development platform and/or as an inventory data
collection solution using NDI application software. As a Windows CE based
solution, the DC5 provides a wide array of communication functions, from
wireless, to IrDA and Ethernet 10 BaseT. Additionally, support for Bluetooth
wireless is included for when Bluetooth becomes available. Due to the high-speed
keyboard and extremely rugged design, we believe the DC5 is highly suited to
data collection in a wide range of environments.

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

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DIRECT SALES FORCE

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

SERVICE AND SUPPORT

        We believe that superior service is a vital part of our competitive
strategy and we emphasize the quality of both our hardware and software service.
Our customer service department manages all installations, preparations and
follow-up support.

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

        Approximately 33% of our 2003 total revenue was attributed to service
and support sales.

KEY CUSTOMERS

        During 2003, one customer who has been one of our top customers since
1992 accounted for approximately 36% of our total revenues. Additionally, in
2003 our top four customers collectively accounted for 44% of our total
revenues.

SOURCES OF SUPPLY

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

COMPETITION

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

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

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EMPLOYEES

        As of December 31, 2003, we had 27 full-time employees, and 3
subcontractors. Of these employees and subcontractors, 3 were engaged in sales
and marketing, 9 in service and customer support, 4 in hardware and software
development, 7 in manufacturing and 7 in administration and finance. Our
employees are not represented by a labor union. We believe that our relationship
with our employees is good.

ITEM 2. DESCRIPTION OF PROPERTY.

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

ITEM 3. LEGAL PROCEEDINGS.

        We are not a party to any legal proceedings. As reported in our prior
annual and quarterly reports, we had been engaged in litigation with Infos
International, Inc. and Infos Group, Inc. since March 2000, but we entered into
a settlement agreement on January 28, 2004 for the dismissal of that dispute.

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

        None.














                                        8
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                                     PART II

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

        During the fiscal year ended December 31, 2003, our common stock was
traded on the OTC Bulletin Board ("OTC") under the symbol IDCP. On March 19,
2004, the last bid price for the common stock as reported by OTC was $0.20 per
share.

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

                                                   HIGH        LOW
                                                   ----        ---
                                      2002

               First Fiscal Quarter              $ 0.18      $ 0.06
               Second Fiscal Quarter               0.09        0.06
               Third Fiscal Quarter                0.09        0.06
               Fourth Fiscal Quarter               0.07        0.05

                                      2003

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

        As of March 19, 2004, there were approximately 2,292 stockholders of
record of our common stock.

DIVIDENDS

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

CHANGES IN SECURITIES

        On December 31, 2003, we issued an aggregate of 6,542,032 shares of our
common stock to Capital Bank Grawe Gruppe AG ("Capital Bank" and formerly RBB
Bank) in satisfaction of an aggregate interest payment of $267,000, which
interest was due under the terms of our Series B, C, and D Convertible Preferred
Stock that are currently issued, outstanding, and held by Capital Bank. No
underwriters were involved in the transaction, and there were no underwriting
discounts or commissions. We relied upon Section 4(2) of the Securities Act of
1933, as amended, because the transaction did not involve any public offering by
the Company.

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<PAGE>

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

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

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


                                           2003          2002        2003-2002
                                         -------       --------
        Revenues:
           Product                         67%            59%           25%
           Service                         33%            41%          (12%)
                                         -------       --------      ---------
                                          100%           100%           10%

        Cost of goods sold                 54%            57%           4%
                                         -------       --------      ---------

        Gross Profit                       46%            43%           18%

        Selling & Marketing                 8%            15%          (40%)
        Research & Development             10%            18%          (38%)
        General & Administrative           21%            35%          (35%)
                                         -------       --------      ---------

        Net income (loss)                   7%           (26%)         131%


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

        YEAR ENDED DECEMBER 31, 2003 COMPARED WITH YEAR ENDED DECEMBER 31, 2002

        For the year ended December 31, 2003 (the "2003 Period"), we reported a
net income of $336,791 compared to an operating loss of $1,070,814 for the year
ended December 31, 2002 (the "2002 Period").

        Product revenues for the 2003 Period were $3,079,406, a 25% increase as
compared to $2,459,742 for the 2002 Period. This increase was due to higher
sales of our inventory service products, mainly the DC5, which is gaining a
higher acceptance as an application software development platform used by value
added resellers and/or end-users. Service revenues for the 2003 Period were
$1,519,814, a 12% decrease as compared to $1,726,402 for the 2002 Period. This
decrease was a result of fewer support service contract renewals for our route
service products due to unfavorable economic conditions, along with customer
constraints on spending.

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<PAGE>

        Gross Profit for the 2003 Period was $2,116,028 or 46% of revenues as
compared to $1,792,734 or 43% of revenues for the 2002 Period. The Company was
able to improve its gross margin, despite an increase in inventory writedowns of
approximately $215,000, through planned reduction in labor costs and ongoing
price negotiations with vendors. The increase in inventory writedowns was
primarily attributable to the reduction of our estimates of net realizable value
of certain older, discontinued products which have been moving at a slower pace
during our transition to the faster and more efficient new generation of
wireless, Microsoft(TM) Windows(R) CE based hand-held computers.

        Research and development expenses decreased 38% to $462,819 for the 2003
Period from $747,090 in the 2002 Period. The decrease was the result of planned
reductions in personnel and personnel related expenses of approximately
$127,000, and a decrease in outside contractor costs of approximately $149,000.
As a percentage of total revenues, research and development expenses decreased
to 10% for the 2003 Period as compared to 18% for the 2002 Period.

        Selling and marketing expenses decreased 40% to $382,309 for the 2003
Period from $642,168 in the 2002 Period. The decrease was the result of planned
reductions in personnel and personnel related expenses of approximately
$314,000, a decrease in travel expenses of approximately $26,000, and other
general cost reductions of approximately $20,000, offset by an increase in
outside contractor costs of approximately $114,000. As a percentage of total
revenues, selling and marketing expenses decreased to 8% for the 2003 Period as
compared to 15% for the 2002 Period.

        General and administrative expenses decreased 35% to $948,255 for the
2003 Period from $1,465,055 for the 2002 Period. The decrease was partially
attributed to a provision recorded in 2002 in the amount of $351,269 for
doubtful subscription receivable. Excluding this provision, general and
administrative expenses decreased 15% due to a decrease in payroll costs of
approximately $90,000, a decrease in bad debt expense of approximately $41,000,
a decrease in professional fees of $26,000 and other general cost reductions of
approximately $9,000. As a percentage of total revenues, general and
administrative expenses decreased to 21% for the 2003 Period as compared to 35%
for the 2002 Period.

        LIQUIDITY AND CAPITAL RESOURCES

        During 2003, the Company has financed its operations primarily through
cash provided by operating activities and working capital. At December 31, 2003,
the Company had cash of $690,826 and working capital of $256,947. During the
twelve month period ended December 31, 2003, the Company's operations have
provided approximately $631,000 in cash. The increase in cash was mainly a
result of the Company's net income of $336,791, increased by non-cash charges
for depreciation and amortization of $180,609, along with a decrease in
inventory of $376,083. This was offset by a decrease in accounts payable of
$214,228 and a decrease in deferred revenues of $59,557. Cash used for investing
activities was $87,465, consistent with our commitment to growth through
technological improvement. The Company also used cash to make payments of
$29,651 on its outstanding note and capital lease payable.

        The Company has incurred an accumulated deficit of approximately $17.4
million through December 31, 2003. As a result of this accumulated deficit, the
report of its independent public

                                       11
<PAGE>

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

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

        In order to improve its cash position, the Company has taken a number of
steps to reduce operating expenses, while simultaneously pursuing sales
opportunities. There is a possibility that the latter might not result in
adequate revenues in the near future to meet cash flow requirements, and
therefore might require the Company to implement further cost saving action.

        The Company maintains adequate levels of inventory and has not
experienced any interruption of supplies or services from vendors.

COMMITMENTS

        The Company leases its office facilities under an operating lease
expiring September 30, 2005. The lease contains an option for renewal and
requires the payment of taxes and other operating costs. Total rent expense
under this operating lease was $243,043 and $274,629 for the years ended
December 31, 2003 and 2002, respectively.

        The Company also leases certain equipment under capital leases expiring
at various dates through 2005. The total cost of equipment recorded under these
capital leases was $232,730 at December 31, 2003 and 2002, respectively.

        Minimum future lease commitments under operating and capital leases at
December 31, 2003 are as follows:

                                                  OPERATING       CAPITAL

                                   2004            $181,000       $24,293
                                   2005             141,000         9,104
                                                  ----------     ---------

        Total Minimum Lease Payments               $322,000       $33,397
                                                  ==========
        Less: amount representing interest                          4,038
                                                                 ---------
        Present Value                                             $29,359
                                                                 =========


                                       12
<PAGE>

SUMMARY OF CRITICAL ACCOUNTING POLICIES; SIGNIFICANT JUDGMENTS AND ESTIMATES

        Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
significant estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. These items are constantly monitored and analyzed by management
for changes in facts and circumstances, and material changes in these estimates
could occur in the future. Changes in estimates are recorded in the period in
which they become known. We base our estimates on historical experience and
various other assumptions that we believe to be reasonable under the
circumstances. Actual results may differ from our estimates if past experience
or other assumptions do not turn out to be substantially accurate.

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

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

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

     We assess collectibility based on a number of factors, including past
     transaction and collection history with a customer. If we determine that
     collectibility of the sales price is not reasonably assured, revenue is
     deferred until such time as collection becomes reasonably assured, which is
     generally upon receipt of payment from the customer. Our normal payment
     terms are 30 days from invoice date. We maintain allowances for doubtful
     accounts for estimated losses resulting from the inability of our customers
     to make required payments. We base our estimates on our historical
     collection experience, current trends, credit policy and percentage of our
     accounts receivable by aging category. In determining these estimates, we
     look at historical write-offs of our receivables and review each customer's
     account to identify any specific collection issue. While such credit losses
     have historically been within our expectations and the allowances we
     established, we cannot guarantee that we will continue to experience the
     same credit loss rates that we have in the past. If the financial condition
     of our customers were to deteriorate, resulting in an impairment of their
     ability to make payment, additional allowances may be required. Our failure
     to accurately estimate the losses for doubtful accounts and ensure that
     payments are received on a timely basis could have a material adverse
     effect on our business, financial condition and results of operations. For
     the year ended December 31, 2003 and 2002, $1,311 and $1,033, respectively,
     were provided for doubtful accounts.

                                       13
<PAGE>

o    INVENTORIES. Inventories, which include materials, labor and manufacturing
     overhead, are stated at the lower of cost (first-in, first-out basis) or
     net realizable value. We record a provision for excess and obsolete
     inventory when impairment is identified through our review process.
     Obsolete inventory and inventory in excess of estimated usage over the next
     12 months is written down to its estimated net realizable value, if less
     than cost. The excess and obsolescence evaluation is based upon assumptions
     about future demand, product mix and possible alternative uses. In 2003, we
     recorded an inventory provision for excess and obsolete inventory of
     $327,000, which has been reflected in cost of revenues. If actual demand,
     product mix or possible alternative uses are less favorable than those
     projected by management, additional inventory write-downs may be required.

o    CAPITALIZED SOFTWARE RESEARCH AND DEVELOPMENT COSTS. Costs associated with
     the development of computer software are charged to operations prior to
     establishment of technological feasibility, as defined by SFAS No. 86,
     "Accounting for the Costs of Computer Software to be Sold, Leased, or
     Otherwise Marketed". Costs incurred subsequent to the establishment of
     technological feasibility and prior to the general release of the products
     are capitalized.

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

     No capitalized software costs were written down for the year ended December
     31, 2003. Amortization of capitalized software costs were $102,992 and
     $68,764 for the years ended December 31, 2003 and 2002, respectively.

o    ACCOUNTING FOR INCOME TAXES. We record income taxes using the asset and
     liability method. Deferred income tax assets and liabilities are recognized
     for the future tax consequences attributable to differences between the
     financial statement carrying amounts of existing assets and liabilities and
     their respective income tax bases and operating loss and tax credit
     carryforwards. Our financial statements contain certain deferred tax assets
     that have arisen primarily as a result of our history of operating losses
     incurred, as well as other temporary differences between book and tax
     accounting. Statement of Financial Accounting Standards No. 109,
     "Accounting for Income Taxes," requires the establishment of a valuation
     allowance to reflect the likelihood of realization of deferred tax assets.
     Significant management judgment is required in determining our provision
     for income taxes, our deferred tax assets and liabilities and any valuation
     allowance recorded against our net deferred tax assets. We evaluate the
     weight of all available evidence to determine whether it is more likely
     than not that some portion or all of the deferred income tax assets will
     not be realized. As a result of operating losses incurred prior to 2003 and
     uncertainty as to the extent and timing of profitability in future periods,
     we maintain a full valuation allowance of $3,923,000 as of December 31,
     2003. In the event that we are able to determine the realization of our
     deferred tax assets in the future, an adjustment to the deferred tax assets
     would increase net income in the period such determination was made. The
     amount of the deferred tax asset considered realizable is based on
     significant estimates, and it is at least reasonably possible that changes
     in these estimates in the near term could materially affect our financial
     condition and results of operations. Our effective tax rate may vary from
     period to period based on changes in estimated taxable income or loss,
     future expansion into areas with varying country, state, and local income
     tax rates, deductibility of certain costs and expenses by jurisdiction and
     as a result of acquisitions.

                                       14
<PAGE>

RECENTLY ISSUED ACCOUNTING STANDARDS

        In November 2002, the Emerging Issues Task Force, or EITF, reached
consensus on Issue No. 00-21, REVENUE ARRANGEMENTS WITH MULTIPLE DELIVERABLES.
Revenue arrangements with multiple deliverables include arrangements, which
provide for the delivery or performance of multiple products, services and/or
rights to use assets where performance may occur at different points in time or
over different periods of time. EITF Issue No. 00-21 is effective for revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
adoption of the guidance under this consensus did not have an impact on our
financial position, results of operations or cash flows.

        In April 2003, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, which amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In particular, SFAS No. 149
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative discussed in SFAS No. 133, clarifies
when a derivative contains a financing component, amends the definition of an
underlying (as initially defined in SFAS No. 133) to conform it to language used
in FASB Interpretation No. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE
REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF
OTHERS, and amends certain other existing pronouncements. SFAS No. 149 is
effective for all contracts entered into or modified after June 30, 2003,
subject to certain exceptions. The adoption of this statement did not have an
impact on our financial position, results of operations, or cash flows.

        In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY, which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances), while many of such
instruments were previously classified as equity or "mezzanine" equity. The
statement also requires that income statement treatment be consistent with the
balance sheet classification. That is, if the instrument is classified as a
liability, payments to the holders are interest expense, not dividends, and
changes in value are recorded in earnings. The statement relates to three
specific categories of instruments: mandatorily redeemable shares, freestanding
written put options and forward contracts that obligate an entity to purchase
its own shares, and freestanding contracts that obligate an entity to pay with
its own shares in amounts that are either unrelated, or inversely related, to
the price of the shares. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective in the
first interim period beginning after June 15, 2003. The adoption of this
statement did not have an impact on our financial position, results of
operations, or cash flows.

        In December 2003, the FASB issued a revision to FASB Interpretation, or
FIN, No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES. The revised FIN No.
46, which replaces the original FIN No. 46 issued in January 2003, clarifies the
application of Accounting Research Bulletin No. 51, CONSOLIDATED FINANCIAL
STATEMENTS, to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support. While this interpretation exempts certain
entities from its requirements, it also expands the definition of a variable
interest entity, or VIE, to a broader group of entities than those previously
considered special-purpose entities, or SPE's, and specifies the criteria under
which it is appropriate for an investor to consolidate VIE's. Application of the
revised FIN No. 46 is required in financial

                                       15
<PAGE>

statements of public entities that have interest in structures that are commonly
referred to as SPE's for periods ending after December 15, 2003. For all other
types of VIE's, application of the revised FIN No. 46 by public entities is
required for periods ending after March 15, 2004. The application of this
interpretation with respect to structures commonly referred to as SPE's did not
have an impact on our financial position, results of operations, or cash flows.
We currently do not expect the application of this interpretation with respect
to other types of VIE's to have an impact on our financial position, results of
operations, or cash flows.

        In December 2003, the Securities and Exchange Commission, or SEC,
published Staff Accounting Bulletin, or SAB, No. 104, REVENUE RECOGNITION. SAB
No. 104 was effective upon issuance and supersedes SAB No. 101, REVENUE
RECOGNITION IN FINANCIAL STATEMENTS, and rescinds the accounting guidance
contained in SAB No. 101 related to multiple-element revenue arrangements that
was superseded by EITF Issue No. 00-21. Accordingly, SAB No. 104 rescinds
portions of the interpretive guidance included in Topic 13 of the codification
of staff accounting bulletins. While the wording of SAB No. 104 has changed to
reflect the guidance of EITF 00-21, the revenue recognition principles of SAB
No. 101 have remained largely unchanged. The adoption of SAB No. 104 did not
have an effect on our financial position, results of operations, or cash flows.

ITEM 7. FINANCIAL STATEMENTS.

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

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

        As previously reported in our current reports on Form 8-K filed with the
Securities and Exchange Commission on January 15, 2003 and April 1, 2003, we
dismissed Pricewaterhouse Coopers LLP as our independent accountants effective
January 10, 2003, and named BDO Seidman, LLP as our independent accountants
effective March 31, 2003.

ITEM 8A.    CONTROLS AND PROCEDURES.

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

        (b) CHANGES IN INTERNAL CONTROLS. There were no changes in our internal
control over financial reporting, identified in connection with the evaluation
of such internal control that occurred during our last fiscal quarter, that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

                                       16
<PAGE>

                                    PART III

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

        We expanded our Board of Directors from two to four members, effective
as of March 1, 2004. Each of our directors is elected for a period of
one year and holds office until his successor is elected and qualified.
Vacancies may be filled by a majority vote of the directors then remaining in
office. Our officers are elected by and serve at the discretion of the Board of
Directors. The following table sets forth the year each of our current directors
was elected to the Board and the age, positions and offices currently held by
each director. For information about ownership of our voting securities by each
director, see "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."

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

John P. Ward          76      1967        Chairman of the Board, President, and
                                          Chief Executive Officer

William R. Smart      83      1989        Director

Gerald S. Eilberg     70      2004        Director, Senior Vice President of
                                          Finance and Administration, and Chief
                                          Financial Officer

John H. MacKinnon     63      2004        Director


BUSINESS EXPERIENCE AND BACKGROUNDS OF THE DIRECTORS

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

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

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

                                       17
<PAGE>

Electrical Engineering from Princeton University. Mr. Smart is a director of
American Petroleum Company and Hollingsworth & Vose Company.

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

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

AUDIT COMMITTEE

        Mr. Smart served as the sole member of the Audit Committee of our Board
of Directors during 2003. Mr. MacKinnon joined the Audit Committee in connection
with his election to the Board of Directors on March 1, 2004, and will serve as
Chairman of the Committee going forward, with Mr. Smart continuing to serve as a
member. The Audit Committee has furnished the Audit Committee Report set forth
below. The Audit Committee is not governed by an audit committee charter,
however the Audit Committee and the Board of Directors anticipate adopting an
audit committee charter during the second quarter of 2004. Our Board of
Directors determined that the Audit Committee did not contain an "audit
committee financial expert" as that term is defined by Item 401 of Regulation
S-B promulgated by the Securities and Exchange Commission during fiscal year
2003, since none of the members of the Board of Directors met this definition.
For fiscal year 2004, our Board of Directors has determined that our new Audit
Committee chairman, Mr. MacKinnon, will be an audit committee financial expert
as that term is defined in Item 401 of Regulation S-B. Mr. MacKinnon and Mr.
Smart both meet the independence requirements set forth in Section 303A of the
NYSE's listing standards.

        The Audit Committee has met with BDO Seidman, LLP to discuss the results
of its audit, the adequacy of the Company's internal and external accounting
controls, and the integrity of the Company's financial reporting. The Audit
Committee met once in 2003.

        AUDIT COMMITTEE REPORT

        This Audit Committee Report reviews actions taken with respect to the
Company's financial statements for the year ended December 31, 2003.

        The Company's management is responsible for the preparation,
presentation and integrity of the Company's financial statements and the
reporting process, including the system of internal and external controls. BDO
Seidman, LLP, the Company's independent accountants, is responsible for auditing
the Company's financial statements and expressing an opinion on the conformity
of those audited financial statements with accounting principles generally
accepted in the United States of America. In fulfilling its responsibilities for
2003, the Audit Committee took the following actions:

                                       18
<PAGE>

     o    Reviewed and discussed the audit plan, audit scope, identification of
          audit risks and the audited financial statements for the year ended
          December 31, 2003, with management and BDO Seidman, LLP;

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

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

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

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

Based upon the reports, discussions and reviews described in this Report, and
subject to the limitations on the role and responsibilities of the Committee
referred to above, the Committee has recommended to the Board and the Board has
approved, that the audited financial statements for the year ended December 31,
2003 be included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2003 to be filed with the Securities and Exchange Commission.

                                                             The Audit Committee
                                                                William R. Smart

NOMINATING, COMPENSATION & GOVERNANCE COMMITTEE

        Our full Board of Directors handled nominating, compensation and
governance matters during fiscal year 2003. Effective March 1, 2004, our Board
created a Nomination, Compensation & Governance Committee consisting of two
members, William R. Smart (Chairman) and John H. MacKinnon. The committee
reviews, approves and makes recommendations regarding our compensation policies,
practices and procedures, including determination of the compensation for our
Chief Executive Officer. The committee also makes recommendations to the full
Board as to the size and composition of the Board and makes recommendations as
to particular nominees. The committee considers nominations for our Board in
accordance with our Restated By-Laws, a copy of which is incorporated by
reference as an exhibit to this Annual Report on Form 10-KSB. The Committee also
reviews and makes recommendations to the full Board concerning corporate
governance matters.

                                       19
<PAGE>

EXECUTIVE OFFICERS

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

NAME                  AGE      POSITION

John P. Ward          76       Chairman of the Board, President, and
                               Chief Executive Officer

Gerald S. Eilberg     70       Director, Senior Vice President of Finance and
                               Administration, and Chief Financial Officer

William B. Berens     50       Vice President, Sales and Marketing

BUSINESS EXPERIENCE AND BACKGROUNDS OF THE EXECUTIVE OFFICERS

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

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

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

CODE OF ETHICS

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

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

                                       20
<PAGE>

        To our knowledge, based solely on a review of copies of any such forms
furnished to us and written representations from executive officers and
directors, we believe that all Section 16(a) filings applicable to our executive
officers, directors, and ten percent (10%) beneficial owners were complied with
during the year ended December 31, 2003.

ITEM 10. EXECUTIVE COMPENSATION

EXECUTIVE OFFICERS' COMPENSATION

        The following table sets forth the compensation paid during the three
years ended December 31, 2003, to (i) our Chief Executive Officer, (ii) and our
Chief Financial Officer, who earned total compensation in excess of $100,000
during the year ended December 31, 2003. We had no other executive officers
during fiscal year 2003.

                           SUMMARY COMPENSATION TABLE


                                                                    LONG TERM
                      ANNUAL COMPENSATION                          COMPENSATION
 ---------------------------------------------------------------   ------------
           (A)                          (B)      (C)        (D)        (G)
                                                                    SECURITIES
                                                                    UNDERLYING
                                                SALARY     BONUS   OPTIONS/SAR
NAME AND PRINCIPAL POSITION             YEAR     ($)        ($)        (#)

John P. Ward (1)                        2003   $174,205      --          0
 President, and CEO                     2002    170,281      --          0
                                        2001    122,450      --          0

Gerald S. Eilberg                       2003   $119,453      --          0
 Senior Vice President of Finance       2002    119,519   $5,000         0
 and Administration and CFO             2001    118,344      --          0


(1)  Mr. Ward joined us as our President, Chief Executive Officer and Chairman
     of the Board on April 1, 2001.

        We did not grant any stock options or stock appreciation rights to our
executive officers or directors during the year ended December 31, 2003.

                                       21
<PAGE>

                 AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2002
                        AND FISCAL YEAR-END OPTION VALUES

            The following table shows information regarding exercises of options
to purchase our common stock by each executive officer named in the Summary
Compensation Table during the fiscal year ended December 31, 2003. The table
also shows the aggregate value of options held by each executive officer named
in the Summary Compensation Table as of December 31, 2003.
<TABLE><CAPTION>
                                                              NUMBER OF
                                                             SECURITIES
                                                             UNDERLYING       VALUE OF
                                                             UNEXERCISED     UNEXERCISED
                                                               OPTIONS/      IN-THE-MONEY
                                                                SARS           OPTIONS
                                   SHARES                     AT FY-END       AT FY-END
                                  ACQUIRED       VALUE       EXERCISABLE/    EXERCISABLE/
                                ON EXERCISE     REALIZED    UNEXERCISABLE   UNEXERCISABLE
         NAME                       (#)           ($)            (#)           ($)(1)
          (a)                       (b)           (c)            (D)             (E)
---------------------------- ----------------- ---------- ---------------- ---------------
<S>                                 <C>           <C>      <C>                  <C>
John P.Ward,                         0             $0       15,000/7,887         $0
 President, CEO
---------------------------- ----------------- ---------- ---------------- ---------------
Gerald S. Eilberg                    0             $0      205,000/13,059        $0
 Senior Vice President
 Finance & Admin. and CFO
---------------------------- ----------------- ---------- ---------------- ---------------
</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. The value of the unexercised in-the-money options at year end
     is based on a value of $0.15 per share, the closing bid price of our common
     stock on the OTC Bulletin Board on December 31, 2003, less the per share
     exercise price. Mr. Eilberg had exercisable options to purchase 5,000 and
     200,000 shares of our common stock at exercise prices of $1.47 and $0.75,
     respectively. Mr. Ward had exercisable options to purchase 12,500 and 5,000
     shares of our common stock at exercise prices of $1.47 and $0.75 per share,
     respectively.

COMPENSATION OF DIRECTORS

        Our non-employee directors receive:

          o    an annual retainer of $6,000 for serving on the Board of
               Directors; and

          o    $1,000 plus reasonable travel and out-of-pocket expenses for
               attendance at each meeting of the Board of Directors.

                                       22
<PAGE>

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

        The following table and accompanying footnotes sets forth information
concerning the beneficial ownership of our securities, as of March 19, 2004,
for:

          o    our directors;

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

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

        In addition, the table sets forth information concerning the beneficial
ownership of our voting securities as of March 19, 2004 for each person known to
us to be the beneficial owner of more than five percent of our voting
securities. As of March 19, 2004, there were 21,302,765 shares of our common
stock and 4,150 shares of our preferred stock outstanding. Except as otherwise
noted, each named individual has sole voting and investment power with respect
to the securities set forth in the table.

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

        All of the 4,150 shares of Preferred Stock issued and outstanding and
17,128,325 shares of common stock are registered in the name of Capital Bank
Grawe Gruppe or its predecessor in interest, RBB Bank AG ("Capital Bank").
Capital Bank has informed us that it holds all of our securities solely in the
capacity as custodian for the benefit of numerous other investors, none of which
either individually or in the aggregate with affiliated entities, beneficially
own more than five percent (5%) of our issued and outstanding capital stock. On
a fully diluted basis, Capital Bank's shares would represent approximately 82%
of our common stock outstanding as of March 19, 2004.

        Pursuant to the rules of the Securities and Exchange Commission (the
"SEC"), shares of our securities that an individual or group has the right to
acquire within 60 days of March 19, 2004 pursuant to the exercise of options,
warrants or other securities convertible into such securities, are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in the table.


                                                NUMBER OF SHARES     PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1)        BENEFICIALLY OWNED     OF CLASS

Gerald S. Eilberg (2)........................        213,017            1.0%
John P. Ward (3).............................         43,868             *
William R. Smart (4).........................         17,500             *
John H. MacKinnon............................            200             *
All Directors and Executive Officers as
 a Group (4 persons) (5).....................        274,585            1.3%

                                       23
<PAGE>

* Less than 1%.

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

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

(3)  Includes 15,000 shares of Common Stock underlying currently excercisable
     options to purchase common stock. It also includes 28,868 shares held by
     Mr. Ward.

(4)  Includes 15,000 shares of common stock underlying currently exercisable
     options to purchase common stock. It also includes 2,500 shares held by Mr.
     Smart.

(5)  Includes an aggregate of 235,000 shares of common stock underlying
     currently excercisable options to purchase common stock held by our current
     executive officers and directors, and 39,385 shares held by the executive
     officers and directors.

EQUITY COMPENSATION PLAN INFORMATION

The following table provides certain aggregate information with respect to all
of the Company's equity compensation plans in effect as of December 31, 2003:
<TABLE><CAPTION>
---------------------------- --------------------- --------------------- --------------------------------------
                                   NUMBER OF                                 NUMBER OF SECURITIES REMAINING
                                  SECURITIES                              AVAILABLE FOR FUTURE ISSUANCE UNDER
                                 TO BE ISSUED        WEIGHTED AVERAGE     EQUITY COMPENSATION PLANS (EXCLUDING
                               UPON EXERCISE OF      EXERCISE PRICE OF          SECURITIES REFLECTED
                              OUTSTANDING OPTIONS   OUTSTANDING OPTIONS          IN FIRST COLUMN(A))
     Plan Category                   (A)                   (B)                           (C)
---------------------------- --------------------- --------------------- --------------------------------------
<S>                                <C>                   <C>                           <C>
Equity compensation plans
approved by security
holders (1)                         42,716                $1.47                         193,152
---------------------------- --------------------- --------------------- --------------------------------------
Equity compensation plans
not approved by
security holders (2)               472,000                $0.74                          28,000
---------------------------- --------------------- --------------------- --------------------------------------
Total                              514,716                $0.80                         221,152
---------------------------- --------------------- --------------------- --------------------------------------
</TABLE>

(1)  These plans consist of our 1986 Stock Option Plan, 1989 Stock Option Plan,
     1994 Stock Option Plan and 1995 Stock Option Plan.

(2)  These plans consist of our 1997 Stock Option Plan and 1998 Stock Option
     Plan, the terms of which are described in Note 10 to our audited financial
     statements for the year ended December 31, 2003 included in this Annual
     Report on Form 10-KSB. Additional terms of the 1997 Stock Option Plan and
     1998 Stock Option Plan are summarized as follows: Options may be granted to
     employees, directors and consultants of the Company. No options may be
     granted after the tenth anniversary of the date on which each plan was
     adopted by the Board of Directors. The term and vesting provisions of each
     option are determined by the Board of Directors. Upon cessation of
     employment, unless otherwise specified in the option award, options which
     have not vested are forfeited and options which have vested must be
     exercised within the earlier of three years or the original term of the
     option. Options to non-employees terminate upon termination of service
     unless otherwise specified in the award.

                                       24
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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

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

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

                                                                    PAGE
                                                                    ----


Report of Independent Auditors                                       31

Balance Sheets as of December 31, 2003 and
   December 31, 2002                                                 32

Statements of Operations for the years ended
   December 31, 2003 and December 31, 2002                           33

Statement of Stockholders' Equity for the years
   ended December 31, 2003 and December 31, 2002                     34

Statements of Cash Flows for the years ended
   December 31, 2003 and December 31, 2002                           35

Notes to Financial Statements                                        36

                                       25
<PAGE>


        (a)(2)  EXHIBITS.

        (i) The following exhibits are filed herewith:

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

3.1(a)    Certificate of Incorporation filed by the Company with the Secretary
          of State of Delaware on December 17, 1986.
3.2(a)    Certificate of Amendment of Certificate of Incorporation filed by the
          Company with the Secretary of State of Delaware on April 15, 1987 to
          increase the number of authorized shares.
3.3(b)    Certificate of Amendment of Certificate of Incorporation filed by the
          Company with the Secretary of State of Delaware on October 17, 1994 to
          increase the number of authorized shares.
3.3(c)    Certificate of Amendment of Certificate of Incorporation filed by the
          Company with the Secretary of State of Delaware on December 18, 1996
          to increase the number of authorized shares.
3.4(c)    Certificate of Amendment of Certificate of Incorporation filed by the
          Company with the Secretary of State of Delaware on December 18, 1996
          to effect a 1:4 reverse split of Common Stock.
3.5(d)    Certificate of Amendment of Certificate of Incorporation filed by the
          Company with the Secretary of State of Delaware on May 22, 2000 to
          increase the number of authorized shares.
3.6(l)    Certificate of Correction of Certificate of Amendment of Certificate
          of Incorporation filed by the Company with the Secretary of State of
          Delaware on June 5, 2000.
3.7(m)    Certificate of Correction of Certificate of Amendment of Certificate
          of Incorporations filed by the Company with the Secretary of State of
          Delaware on June 5, 2000.
3.8(e)    Statement of Designation of Series B Convertible Preferred Stock.
3.9(e)    Certificate of Increase of shares designated as Series B Convertible
          Preferred Stock.
3.10(f)   Statement of Designation of Series C Convertible Preferred Stock.
3.11(f)   Statement of Designation of Series D Convertible Preferred Stock.
3.12(g)   Statement of Designation of Series E Convertible Preferred Stock.
3.13(l)   Statement of Designation of Series F Convertible Preferred Stock.
3.14(h)   Restated By-Laws.
4.1       Instruments defining the rights of security holders (see Exhibits 3.1
          through 3.12 and 10.7).
4.2(l)    Specimen Certificate of Common Stock, $.08 par value per share.
10.1*(a)  1986 Stock Option Plan.
10.2*(i)  1989 Stock Option Plan.
10.3*(j)  1994 Stock Option Plan.
10.4*(k)  1995 Stock Option Plan.
10.5*(j)  1997 Stock Option Plan.
10.6*(j)  1998 Stock Option Plan.
10.7(g)   Form of Series E Convertible Preferred Stock Subscription Agreement
10.8(l)   Sixth Amendment to Lease dated August 14, 2000 by and between the
          Company and Middlesex Technology Center Trust V for the Company's
          principal offices.
14.1      Code of Ethics.
31.1      Certification of the Chief Executive Officer.
31.2      Certification of the Chief Financial Officer.
32.1      Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002.
-------------------

(a)       Previously filed with the Commission as Exhibit to, and incorporated
          herein by reference from, the Registration Statement on Form S-1 filed
          on April 17, 1987 (File No. 03313392)

(b)       Previously filed with the Commission as Exhibit to, and incorporated
          herein by reference from, the Form 10-KSB for the fiscal year ended
          December 31, 1994.

(c)       Previously filed with the Commission as Exhibit to, and incorporated
          herein by reference from, the Form 10-KSB for the fiscal year ended
          December 29, 1996.

(d)       Previously filed with the Commission as Exhibit to, and incorporated
          herein by reference from, Form 10-QSB for the quarterly period ended
          June 30, 2000.

                                       26
<PAGE>

(e)       Previously filed with the Commission as Exhibit to, and incorporated
          herein by reference from, the Form 8-K filed September 16, 1996.

(f)       Previously filed with the Commission as Exhibit to, and incorporated
          herein by reference from, the Form 8-K filed March 3, 1997.

(g)       Previously filed with the Commission as Exhibit to, and incorporated
          herein by reference from, the Form 8-K filed March 6, 1998.

(h)       Previously filed with the Commission as Exhibit to, and incorporated
          herein by reference from, Form 10-QSB/A for the quarterly period ended
          September 30, 1999.

(i)       Previously filed with the Commission as Exhibit to, and incorporated
          herein by reference from, the Company's Annual Report on Form 10-KSB
          for the fiscal year ended December 31, 1988.

(j)       Previously filed with the Commission as Exhibit to, and incorporated
          herein by reference from, the Company's Annual Report on Form 10-KSB
          for the fiscal year ended December 31, 1998.

(k)       Previously filed with the Commission as Exhibit to, and incorporated
          herein by reference from, the Form 10-KSB for the fiscal year ended
          December 31, 1995.

(l)       Previously filed with the Commission as Exhibit to, and incorporated
          herein by reference from, the Company's Annual Report on Form 10-KSB
          for the fiscal year ended December 31, 2000.

(m)       Previously filed with the Commission as Exhibit to, and incorporated
          herein by reference from, the Company's Annual Report on Form 10-KSB
          for the fiscal year ended December 31, 2001.

* Management contract or compensatory plan, contract or arrangement.


        (b) REPORTS ON FORM 8-K.

        During the last quarter of the period for which this report is filed, we
did not file any reports on Form 8-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

        On March 31, 2003, the Board of Directors appointed BDO Seidman, LLP,
independent public accountants, to audit our financial statements for the year
ended December 31, 2002 and December 31, 2003. PricewaterhouseCoopers LLP was
our independent public accountants during 2001 and 2002 but did not audit our
financial statements for the year ended December 31, 2002.

        Audit Fees
        ----------

        For the year ended December 31, 2003, BDO Seidman, LLP billed us $55,000
for the audit of our financial statements and for its review of our Quarterly
Reports on Form 10-Q. For the year ended December 31, 2002, BDO Seidman, LLP
billed us $35,000 for the audit of our financial statements, and
PricewaterhouseCoopers, LLP billed us $24,000 for its review of our Quarterly
Reports on Form 10-Q.

        Audit-Related Fees
        ------------------

        We did not pay any additional fees to our independent public accountants
for assurance and related services during the years ended December 31, 2003 and
2002.

                                       27
<PAGE>

        Tax Fees
        --------

        BDO Seidman, LLP has billed us $4,100 for the preparation of our 2002
corporate income tax return during the year ended December 31, 2003.

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

        We did not pay any additional fees to our independent public accountants
for other products or services during the years ended December 31, 2003 and
2002.

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

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

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

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

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

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

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

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

                                       28
<PAGE>

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































                                       29
<PAGE>

                                   SIGNATURES

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

                                   NATIONAL DATACOMPUTER, INC.


Date: March 30, 2004               By: /s/John P. Ward
                                       -------------------------------
                                       John P. Ward
                                       President and Chief Executive Officer

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


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

/s/ John P. Ward           Chairman of the Board, President       March 30, 2004
----------------           and Chief Executive Officer
John P. Ward               (principal executive officer)

/s/ William R. Smart       Director                               March 30, 2004
--------------------
William R. Smart

/s/ John H. MacKinnon      Director                               March 30, 2004
---------------------
John H. MacKinnon

/s/ Gerald S. Eilberg      Director, Senior Vice President of     March 30, 2004
---------------------      Finance and Administration and
Gerald S. Eilberg          Chief Financial Officer (principal
                           financial and accounting officer)




                                       30
<PAGE>

                         INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders
National Datacomputer, Inc.

We have audited the accompanying balance sheets of National Datacomputer, Inc.
as of December 31, 2003 and 2002, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of National Datacomputer, Inc. as
of December 31, 2003 and 2002, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred an accumulated deficit of
approximately $17.4 million that raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.



BDO Seidman, LLP
Boston, Massachusetts
February 18, 2004



                                       31
<PAGE>
                           NATIONAL DATACOMPUTER, INC.
                                 BALANCE SHEETS
<TABLE><CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                                     December 31,      December 31,
                                                                                         2003              2002
                                                                                     ------------      ------------
<S>                                                                                 <C>               <C>
Assets
Current Assets:
      Cash                                                                           $    690,826      $    176,492
      Accounts receivable, net of allowance for doubtful accounts of
         $1,311 and $1,033 in 2003 and 2002, respectively                                  75,000            64,901
      Inventories                                                                         399,704           773,841
      Other current assets                                                                 16,022            23,925
                                                                                     ------------      ------------
         Total current assets                                                           1,181,552         1,039,159
Fixed assets, net                                                                         132,214           199,311
Capitalized software development costs, net                                               208,726           236,719
                                                                                     ------------      ------------
         Total Assets                                                                $  1,522,492      $  1,475,189
                                                                                     ============      ============
Liabilities and stockholders' equity
Current Liabilities:
      Current obligations under capital lease                                        $     20,024      $     19,950
      Note payable, current portion                                                        54,000            66,000
      Accounts payable                                                                    209,705           423,933
      Accrued payroll and related taxes                                                    58,993            87,208
      Other accrued expenses                                                              122,907            80,744
      Deferred revenues                                                                   458,976           518,533
                                                                                     ------------      ------------
         Total current liabilities                                                        924,605         1,196,368
Obligations under capital lease, net of current portion                                     9,335            27,060
                                                                                     ------------      ------------
         Total Liabilities                                                                933,940         1,223,428
                                                                                     ------------      ------------
Commitments (Note 15)

Stockholders' Equity:
      Preferred stock, Series A convertible, $0.001 par value; 20 shares
         authorized; no shares issued or outstanding                                         --                --
      Preferred stock, Series B convertible $0.001 par value; 4,200 shares
         authorized; 2,400 shares issued and outstanding
         (liquidating preference of $2,400,000 )                                        2,105,832         2,105,832
      Preferred stock, Series C convertible $0.001 par value; 900 shares
         authorized, issued and outstanding (liquidating preference of $900,000)          834,370           834,370
      Preferred stock, Series D convertible $0.001 par value; 350 shares
         authorized, issued and outstanding (liquidating preference of $350,000)          324,639           324,639
      Preferred stock, Series E convertible $0.001 par value; 500 shares
         authorized, issued and outstanding (liquidating preference of $500,000)          273,880           273,880
      Preferred stock, Series F convertible $0.001 par value; 175 shares
         authorized; no shares issued or outstanding                                         --                --
      Common stock, $0.08 par value; 30,000,000 shares authorized;
         21,302,765 and 14,760,733 shares issued and outstanding at
         Devember 31, 2003 and 2002, respectively                                       1,704,220         1,180,857
      Capital in excess of par value                                                   12,732,835        12,989,198
      Accumulated deficit                                                             (17,387,224)      (17,457,015)
      Stock subscriptions receivable (net of allowance
         for doubtful accounts of $351,269)                                                  --                --
                                                                                     ------------      ------------
         Total Stockholders' Equity                                                       588,552           251,761
                                                                                     ------------      ------------
         Total Liabilities and Stockholders' Equity                                  $  1,522,492      $  1,475,189
                                                                                     ============      ============
</TABLE>
                   The accompanying notes are an integral part
                         of these financial statements.

                                       32
<PAGE>
                           NATIONAL DATACOMPUTER, INC.
                            STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
------------------------------------------------------------------------------------------------
                                                                           Years Ended
                                                                  ------------------------------
                                                                  December 31,      December 31,
                                                                      2003              2002
                                                                  ------------      ------------
<S>                                                              <C>               <C>
Revenues:
      Product                                                     $  3,079,406      $  2,459,742
      Services                                                       1,519,814         1,726,402
                                                                  ------------      ------------
          Total Revenues                                             4,599,220         4,186,144

Cost of revenues                                                     2,483,192         2,393,410
                                                                  ------------      ------------
          Gross Profit                                               2,116,028         1,792,734
                                                                  ------------      ------------
Operating expenses:
      Research and development                                         462,819           747,090
      Selling and marketing                                            382,309           642,168
      General and administrative                                       948,255         1,465,055
                                                                  ------------      ------------
                                                                     1,793,383         2,854,313
                                                                  ------------      ------------
Income (loss) from operations                                          322,645        (1,061,579)

Other income (expense):
      Interest income                                                   20,789              --
      Interest expense                                                  (6,643)           (9,235)
                                                                  ------------      ------------
Net income (loss)                                                 $    336,791      $ (1,070,814)
                                                                  ============      ============
Calculation of net income (loss) per common share:

Net income (loss)                                                 $    336,791      $ (1,070,814)
Preferred stock preferences                                           (267,000)         (267,000)
                                                                  ------------      ------------
Net income (loss) attributable to common stockholders             $     69,791      $ (1,337,814)
                                                                  ============      ============
Basic and diluted net income (loss) per share attributable to
      common stockholders                                         $       0.00      $      (0.11)
                                                                  ============      ============
Weighted average shares                                             14,778,656        12,094,707
                                                                  ============      ============
</TABLE>
                   The accompanying notes are an integral part
                         of these financial statements.

                                       33
<PAGE>
                           NATIONAL DATACOMPUTER, INC.
                        STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE><CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                            Preferred Stock        Preferred Stock        Preferred Stock        Preferred Stock
                                                Series B               Series C               Series D               Series E
                                          --------------------   --------------------   --------------------   --------------------
                                                  Net issuance           Net issuance           Net issuance           Net issuance
                                          Shares     price       Shares     price       Shares     price       Shares     price
                                          ------  ------------   ------  ------------   ------  ------------   ------  ------------
<S>                                       <C>    <C>               <C>  <C>               <C>  <C>               <C>  <C>
Balance at December 31, 2001               2,400  $  2,105,832      900  $    834,370      350  $    324,639      500  $    273,880

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

Increase in allowance for doubtful
   accounts                                 --            --       --            --       --            --       --            --

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

Issuance of common stock
   in satisfaction of accrued
   interest                                 --            --       --            --       --            --       --            --
                                          ------  ------------   ------  ------------   ------  ------------   ------  ------------
Balance at December 31, 2002               2,400     2,105,832      900       834,370      350       324,639      500       273,880

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

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

Issuance of common stock
   in satisfaction of accrued
   interest                                 --            --       --            --       --            --       --            --
                                          ------  ------------   ------  ------------   ------  ------------   ------  ------------
Balance at December 31, 2003               2,400  $  2,105,832      900  $    834,370      350  $    324,639      500  $    273,880
                                          ======  ============   ======  ============   ======  ============   ======  ============

                                                        Common Stock
                                          ----------------------------------------
                                                                        Capital in       Stock                          Total
                                                           Par           excess      subscription    Accumulated   stockholders'
                                            Shares        value       of par value    receivable       deficit        equity
                                          ----------   ------------   ------------   ------------   ------------   ------------
Balance at December 31, 2001              11,115,397   $    889,230   $ 13,013,825   ($   351,269)  ($16,119,201)  $    971,306

Net loss                                        --             --             --             --       (1,070,814)    (1,070,814)

Increase in allowance for doubtful
   accounts                                     --             --             --          351,269        351,269

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

Issuance of common stock
   in satisfaction of accrued
   interest                                3,645,336        291,627        (24,627)          --             --          267,000
                                          ----------   ------------   ------------   ------------   ------------   ------------
Balance at December 31, 2002              14,760,733      1,180,857     12,989,198           --      (17,457,015)       251,761

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

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

Issuance of common stock
   in satisfaction of accrued
   interest                                6,542,032        523,363       (256,363)          --             --          267,000
                                          ----------   ------------   ------------   ------------   ------------   ------------
Balance at December 31, 2003              21,302,765   $  1,704,220   $ 12,732,835   $       --     ($17,387,224)  $    588,552
                                          ==========   ============   ============   ============   ============   ============
</TABLE>
                   The accompanying notes are an integral part
                         of these financial statements.

                                       34
<PAGE>
                           NATIONAL DATACOMPUTER, INC.
                            STATEMENTS OF CASH FLOWS
<TABLE><CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                                    Years Ended
                                                                            ----------------------------
                                                                            December 31,     December 31,
                                                                                2003             2002
                                                                            -----------      -----------
<S>                                                                        <C>              <C>
Cash flows from operating activities:
       Net income (loss)                                                    $   336,791      $(1,070,814)
       Adjustments to reconcile net income (loss) to net
            cash provided by (used for) operating activities:
            Increase in allowance for doubtful subscriptions receivable            --            351,269
            Depreciation and amortization                                       180,609          178,323
            Changes in assets and liabilities:
                 (Increase) decrease in accounts receivable                     (10,099)         266,052
                 Decrease in inventories                                        376,083          369,118
                 (Decrease) increase in other current assets                      7,903           (8,995)
                 (Decrease) increase in accounts payable                       (214,228)          36,048
                 Increase (decrease) in accrued expenses                         13,948         (105,060)
                 Decrease in deferred revenues                                  (59,557)        (256,689)
                                                                            -----------      -----------
       Net cash provided by (used for) operating activities                     631,450         (240,748)
                                                                            -----------      -----------
Cash flows from investing activities:
       Purchases of fixed assets                                                (12,465)         (31,576)
       Purchase of capitalized software                                         (75,000)            --
       Additions to capitalized software development costs                         --            (62,930)
                                                                            -----------      -----------
       Net cash used for investing activities                                   (87,465)         (94,506)
                                                                            -----------      -----------
Cash flows from financing activities:
       Principal payment on note payable                                        (12,000)         (42,000)
       Principal payment on obligations
            under capital lease                                                 (17,651)         (14,898)
                                                                            -----------      -----------
       Net cash used for financing activities                                   (29,651)         (56,898)
                                                                            -----------      -----------

Net increase (decrease) in cash                                                 514,334         (392,152)
Cash, beginning of year                                                         176,492          568,644
                                                                            -----------      -----------

Cash, end of year                                                           $   690,826      $   176,492
                                                                            ===========      ===========
Supplemental Disclosure of Cash Flow Information:

       Interest paid                                                        $     6,643      $     9,235
                                                                            ===========      ===========
</TABLE>
                   The accompanying notes are an integral part
                         of these financial statements.

                                       35
<PAGE>

NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

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

2. LIQUIDITY

        The Company has incurred an accumulated deficit of approximately $17.4
million through December 31, 2003, recorded net income of approximately $0.35
million during 2003 and provided approximately $0.6 million of cash from
operations during 2003. As of December 31, 2003, the Company had approximately
$0.7 million in cash and working capital of approximately $0.26 million. In the
event the Company's operations are not profitable or do not generate sufficient
cash to fund the business, or if the Company fails to obtain additional
financing, if required, management will have to substantially reduce its level
of operations. These circumstances raise substantial doubt about the Company's
ability to continue as a going concern. These financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        REVENUE RECOGNITION
        -------------------

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

        Service revenue is recognized ratably over the contractual period.

        WARRANTY AND RETURN POLICY
        --------------------------

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

        FINANCIAL INSTRUMENTS
        ---------------------

        Fair values for cash, accounts receivable, accounts and note payable
approximate their carrying values at December 31, 2003 and 2002 due to their
short maturities.

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

                                       36
<PAGE>

        ACCOUNTS RECEIVABLE
        -------------------

        The Company records trade receivables at their principal amount,
adjusted for write-offs and allowances for uncollectable amounts. The Company
reviews its trade receivables monthly, and determines, based on management's
knowledge and the customer's payment history, any write-off or allowance that
may be necessary. The Company follows the practice of writing off uncollectable
amounts against the allowance provided for such accounts.

        INVENTORIES
        -----------

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

        SHIPPING AND HANDLING COSTS
        ---------------------------

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

        FIXED ASSETS
        ------------

        Fixed Assets are recorded at cost and depreciated over the estimated
useful lives of the assets, which range from 3 to 5 years, using the
straight-line method. Leasehold improvements are amortized over the shorter of
the useful lives or the remaining terms of the related leases. Maintenance and
repair costs are charged to operations as incurred.

        LONG-LIVED ASSETS
        -----------------

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

        CAPITALIZED SOFTWARE DEVELOPMENT COSTS
        --------------------------------------

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

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

                                       37
<PAGE>

        INCOME TAXES
        ------------

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

        NET INCOME (LOSS) PER SHARE
        ---------------------------

        Basic net income (loss) per share is computed by dividing net income
(loss), after deducting certain amounts associated with the Company's preferred
stock, 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.

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

        Common share equivalents consist of 2,623,500 and 2,623,624 shares of
common stock which may be issuable upon exercise of outstanding stock options
and warrants and the conversion of preferred stock at December 31, 2003 and
2002, respectively. All common share equivalents have been excluded from the
calculation of weighted average shares outstanding, as their inclusion would be
anti-dilutive.

        STOCK COMPENSATION
        ------------------

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

        In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure", which (i) amends SFAS
Statement No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation (ii)
amends the disclosure provisions of SFAS 123 to require prominent disclosure
about the effects on reported net income of an entity's accounting policy
decisions with respect to stock-based employee compensation and (iii) amend APB
opinion No. 28, "Interim Financial Reporting" to require disclosure about those
effects in interim financial information. Items (ii) and (iii) of the new
requirements in SFAS 148 are effective for financial statements for years ending
after December 15, 2002. The Company adopted the disclosure

                                       38
<PAGE>

requirements of SFAS 148 for the year ended December 31, 2002 and continues to
account for stock-based compensation utilizing the intrinsic value method. The
additional disclosures required by SFAS 148 are as follows:

                                                   Year ended      Year ended
                                                  December 31,    December 31,
                                                      2003            2002
                                                  ------------    ------------
Net income (loss):

             As reported                            $336,791      $(1,070,814)
             Pro forma                              $335,163      $(1,077,317)

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

             As reported                              $.00          $(0.11)
             Pro forma                                $.00          $(0.11)

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

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

        USE OF ESTIMATES
        ----------------

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

        COMPREHENSIVE INCOME (LOSS)
        ---------------------------

        SFAS No. 130, "Reporting Comprehensive Income" requires disclosure of
all components of comprehensive income (loss) on an annual and interim basis.
Comprehensive income (loss) is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. The Company's comprehensive income (loss) is the same as
its reported net income (loss) for the years ended December 31, 2003 and 2002.

                                       39
<PAGE>

4. RECENTLY ISSUED ACCOUNTING STANDARDS

        In November 2002, the Emerging Issues Task Force, or EITF, reached
consensus on Issue No. 00-21, REVENUE ARRANGEMENTS WITH MULTIPLE DELIVERABLES.
Revenue arrangements with multiple deliverables include arrangements, which
provide for the delivery or performance of multiple products, services and/or
rights to use assets where performance may occur at different points in time or
over different periods of time. EITF Issue No. 00-21 is effective for revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
adoption of the guidance under this consensus did not have an impact on the
Company's financial position, results of operations or cash flows.

        In April 2003, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, which amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In particular, SFAS No. 149
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative discussed in SFAS No. 133, clarifies
when a derivative contains a financing component, amends the definition of an
underlying (as initially defined in SFAS No. 133) to conform it to language used
in FASB Interpretation No. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE
REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF
OTHERS, and amends certain other existing pronouncements. SFAS No. 149 is
effective for all contracts entered into or modified after June 30, 2003,
subject to certain exceptions. The adoption of this statement did not have an
impact on the Company's financial position, results of operations, or cash
flows.

        In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY, which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances), while many of such
instruments were previously classified as equity or "mezzanine" equity. The
statement also requires that income statement treatment be consistent with the
balance sheet classification. That is, if the instrument is classified as a
liability, payments to the holders are interest expense, not dividends, and
changes in value are recorded in earnings. The statement relates to three
specific categories of instruments: mandatorily redeemable shares, freestanding
written put options and forward contracts that obligate an entity to purchase
its own shares, and freestanding contracts that obligate an entity to pay with
its own shares in amounts that are either unrelated, or inversely related, to
the price of the shares. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective in the
first interim period beginning after June 15, 2003. The adoption of this
statement did not have an impact on the Company's financial position, results of
operations, or cash flows.

        In December 2003, the FASB issued a revision to FASB Interpretation, or
FIN, No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES. The revised FIN No.
46, which replaces the original FIN No. 46 issued in January 2003, clarifies the
application of Accounting Research Bulletin

                                       40
<PAGE>

No. 51, CONSOLIDATED FINANCIAL Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support. While this interpretation
exempts certain entities from its requirements, it also expands the definition
of a variable interest entity, or VIE, to a broader group of entities than those
previously considered special-purpose entities, or SPE's, and specifies the
criteria under which it is appropriate for an investor to consolidate VIE's.
Application of the revised FIN No. 46 is required in financial statements of
public entities that have interest in structures that are commonly referred to
as SPE's for periods ending after December 15, 2003. For all other types of
VIE's, application of the revised FIN No. 46 by public entities is required for
periods ending after March 15, 2004. The application of this interpretation with
respect to structures commonly referred to as SPE's did not have an impact on
the Company's financial position, results of operations, or cash flows. The
Company currently does not expect the application of this interpretation with
respect to other types of VIE's to have an impact on the Company's financial
position, results of operations, or cash flows.

        In December 2003, the Securities and Exchange Commission, or SEC,
published Staff Accounting Bulletin, or SAB, No. 104, REVENUE RECOGNITION. SAB
No. 104 was effective upon issuance and supersedes SAB No. 101, REVENUE
RECOGNITION IN FINANCIAL STATEMENTS, and rescinds the accounting guidance
contained in SAB No. 101 related to multiple-element revenue arrangements that
was superseded by EITF Issue No. 00-21. Accordingly, SAB No. 104 rescinds
portions of the interpretive guidance included in Topic 13 of the codification
of staff accounting bulletins. While the wording of SAB No. 104 has changed to
reflect the guidance of EITF 00-21, the revenue recognition principles of SAB
No. 101 have remained largely unchanged. The adoption of SAB No. 104 did not
have an effect on the Company's financial position, results of operations, or
cash flows.

5. INVENTORIES

        Inventories consist of the following:
                                                  DECEMBER 31,     DECEMBER 31,
                                                      2003             2002
                                                  ------------     ------------

        Raw materials                               $208,592        $ 529,790
        Work-in-process                              180,868          155,200
        Finished goods                                10,244           88,851
                                                  ------------     ------------
                                                    $399,704         $773,841
                                                  ============     ============


                                       41
<PAGE>

6. FIXED ASSETS, NET
<TABLE><CAPTION>

        Fixed assets consist of the following:

                                                    ESTIMATED
                                                   USEFUL LIVES   DECEMBER 31,   DECEMBER 31,
                                                    (IN YEARS)        2003           2002
                                                   ------------   ------------   ------------
<S>                                                    <C>         <C>             <C>
        Production and engineering equipment           3-5         $664,528        $664,528
        Furniture, fixtures and office equipment        5           857,555         848,781
                                                     Life of
        Leasehold improvements                        Lease         29,749           29,749
                                                                  ------------   ------------
                                                                  $1,551,832     $1,543,058


        Less - accumulated depreciation and amortization          (1,419,618)    (1,343,747)
                                                                  ------------   ------------

                                                                    $132,214       $199,311
                                                                  ============   ============
</TABLE>

        At December 31, 2003 and 2002, equipment under capital lease totaled
$232,730. Related accumulated depreciation totaled $232,730 and $196,249,
respectively, at December 31, 2003 and 2002. Depreciation expense was $77,616
and $109,559 for the years ended December 31, 2003 and 2002, respectively.

7. CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET

        Capitalized software development costs consist of the following:

                                        ESTIMATED
                                      ECONOMIC LIVES  DECEMBER 31,  DECEMBER 31,
                                        (IN YEARS)        2003          2002
                                      --------------  ------------  ------------

        Internally developed software         3         $257,913      $257,913
        Purchased software                    3          135,000        60,000
                                                      ------------  ------------
                                                        $392,913      $317,913

        Less - accumulated amortization                 (184,187)      (81,194)
                                                      ------------  ------------

                                                        $208,726      $236,719
                                                      ============  ============

        As of December 31, 2003, the Company has capitalized $257,913 of costs
        incurred for the development of its Windows CE operating system. The
        Company has capitalized $135,000 of costs associated with the purchase
        of software for the development of its W.I.N. Windows application, and
        its Wintakes application. Amortization expense was $102,993 and $68,764
        for the years ended December 31, 2003 and 2002, respectively.

                                       42
<PAGE>

8. NOTE PAYABLE

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

INCOME TAXES

        Deferred tax assets are composed of the following:

                                                    DECEMBER 31,    DECEMBER 31,
                                                       2003            2002
                                                    ------------    ------------
        Net operating loss carryforwards            $3,602,000      $4,820,000
        Business tax credit carryforwards               44,000         114,000
        Other                                          277,000         240,000
                                                    ------------    ------------

        Gross deferred tax asset                    $3,923,000      $5,174,000
        Deferred tax asset valuation allowance      (3,923,000)     (5,174,000)
                                                    ------------    ------------
                                                    $      --       $      --
                                                    ============    ============

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

                                                             YEAR ENDED

                                                    DECEMBER 31,    DECEMBER 31,
                                                        2003            2002
                                                    ------------    ------------
        Statutory federal rate                          34.0%          (34.0%)
        Change in valuation allowance on
          deferred tax assets                          (34.0%)           34.0%
                                                    ------------    ------------
                                                          --               --
                                                    ============    ============

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

                                       43
<PAGE>

        At December 31, 2003, the Company has net operating loss and tax credit
carryforwards for federal tax purposes of approximately $10,250,000 and $44,000,
respectively, which expire in various years through 2021 and 2011, respectively.
The Company has state net operating loss carryforwards for tax purposes of
approximately $1,900,000, which expire in various years through 2007.

        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.

10. STOCK OPTIONS

        In 1986, 1989, 1994 and 1995, the Board of Directors approved the 1986
Stock Option Plan, the 1989 Stock Option Plan, the 1994 Stock Option Plan and
the 1995 Stock Option Plan (the "Plans"), respectively. 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 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.

        On August 19, 1997, the Board of Directors adopted the 1997 Stock Option
Plan ("1997 Plan") which provided for issuance of both incentive stock options
and non-qualified options to employees. A maximum of 200,000 shares of common
stock was reserved for issuance in accordance with the terms of the 1997 Plan.
The 1997 Plan now only provides for the issuance of non-qualified options since
stockholder approval was not obtained.

        On January 1, 1998, the Board of Directors adopted the 1998 Stock Option
Plan ("1998 Plan") which provides for issuance of non-qualified options to
employees. A maximum of 300,000 shares of common stock of the Company was
reserved for issuance in accordance with the terms of the 1998 Plan.

                                       44
<PAGE>

        A summary of the status of the Company's stock option plans as of
December 31, 2003 and 2002 is as follows:

                                    December 31, 2003        December 31, 2002
                                  ---------------------    ---------------------
                                               Weighted                 Weighted
                                                Average                  Average
                                  Number of    Exercise    Number of    Exercise
                                   Options       Price      Options       Price
                                  ---------    --------    ---------    --------

Outstanding at beginning of year   514,841       $0.80      544,949       $0.79
Granted                                --          --           -            -
Exercised                              --          --           -            -
Canceled/Expired                      (125)       1.47      (30,108)       0.69
                                  ---------    --------    ---------    --------

Outstanding at end of year         514,716       $0.80      514,841       $0.80
                                  =========    ========    =========    ========

Exercisable at end of year         488,520       $0.77      483,645       $0.77
                                  =========    ========    =========    ========


The following table summarizes information about stock options outstanding at
December 31, 2003:

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

    $ 0.73         222,000           4.01            222,000        $0.73
    $ 0.75         250,000           5.41            245,000         0.75
    $1.47           42,716           1.76             21,520         1.47
                 -----------                       -----------   -----------
    Total          514,716                           488,520        $0.77
                 ===========                       ===========   ===========

11. COMMON STOCK

        At December 31, 2003, the Company had reserved 1,998,783 shares of
common stock for issuance upon the exercise of common stock options and warrants
and the conversion of preferred stock.

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

                                       45
<PAGE>

12. CONVERTIBLE PREFERRED STOCK

        During 1996, the Company sold 4,200 shares of the newly designated
Series B convertible preferred stock for net proceeds of approximately
$3,685,200.

        On March 21, 2000, the Company issued 656,934 shares of its common
stock, par value $.08 per share (the "Shares"), to Capital Bank Grawe Gruppe AG
("Capital Bank" and formerly RBB Bank) upon the conversion by Capital Bank of
1,800 shares of the Company's Series B convertible preferred stock at a
conversion price of $2.74 per share.

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

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

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

        During 1998, the holders of a convertible note payable to a related
party, converted the note payable with an outstanding principal balance of
$175,000 into 175 shares of Series F convertible preferred stock at a stated
value of $1,000 per share.

        On January 4, 2001, the Company issued 1,423,825 shares of its common
stock, par value $.08 per share (the "Shares"), to Capital Bank Grawe Gruppe AG
("Capital Bank") upon the conversion by Capital Bank of 75 shares of the
Company's Series F convertible preferred stock at a conversion price of $1.00
per share

        On January 9, 2001, the Company issued 1,710,864 shares of its common
stock, par value $.08 per share (the "Shares"), to Capital Bank upon the
conversion by Capital Bank of 100 shares of the Company's Series F convertible
preferred stock at a conversion price of $1.00 per share. No underwriters were
involved in the transaction.

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

VOTING:

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

                                       46
<PAGE>

DIVIDENDS:

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

INTEREST:

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

        During the years ended December 31, 2003 and 2002, the Company incurred
interest in the amount of $267,000 and $267,000, respectively for Series B,
Series C, and Series D convertible preferred stock, for which the Company has
recorded a charge to accumulated deficit. During 2003, 4,826,203 shares were
issued in satisfaction of the accrued interest due for 2003 and 1,715,374 were
issued in satisfaction of the accrued and unpaid interest due for 2002. During
2002, 2,804,101 were issued in satisfaction of the accrued interest due for 2002
and 841,233 were issued in satisfaction of the accrued and unpaid interest due
for 2001.

LIQUIDATION PREFERENCE:

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

CONVERSION:

        In connection with the issuance of Series E convertible preferred stock,
the Company, with the approval of the shareholders of Series B, Series C, and
Series D convertible preferred stock, changed the conversion price of the Series
B, Series C, and Series D convertible preferred stock to $2.74 and provided
these shareholders with certain anti-dilution provisions. If at any time prior
to January 31, 2003, the Corporation's stockholders' equity at the end of any
quarter as reported on the Company's Form 10-KSB, or quarterly on Form 10-QSB
filing with the Securities and Exchange Commission does not exceed $1,500,000
plus 50% of the net proceeds of any future equity financing, then the conversion
price shall equal the lesser of $2.74 or sixty percent of the Corporation's
average closing price of its common stock for the five trading days prior to the
conversion.

                                       47
<PAGE>

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

        The shareholders of Series E convertible preferred stock shall have the
right to convert each share of Series E convertible stock into an amount of
shares of common stock equal to the stated value of $1,000 per share divided by
the conversion price of $0.75.

        On or after December 31, 1998, the conversion price for the Series E
convertible preferred stock shall equal sixty percent of the Corporation's
average closing bid price for the twenty trading days preceding the date of such
conversion, but in no event less than $0.60 and no more than $0.75 per share. If
at any time prior to January 31, 2003 the Company's stockholders' equity at the
end of any quarter does not exceed $1.5 million plus 50% of the net proceeds of
any future equity financing by any third party, then the conversion price shall
equal the lesser of $0.75 or sixty percent of the Company's bid price of its
common stock for the five trading days prior to the date of such conversion
notice. The shareholders of Series E convertible preferred stock may not convert
for a period of forty days from the date of issuance.

REDEMPTION:

        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 at its option the Series
B, Series C and Series D convertible preferred stock at a price of $1,000 per
share, subject to certain anti-dilution provisions.

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

13. ISSUANCE OF WARRANTS

        On December 30, 1995, the Company issued warrants to purchase 110,000
shares of the Company's common stock at $4.00 per share to a former
officer/stockholder in consideration of the officer providing collateral for the
Company's line of credit with a bank in the amount of $440,000. The Company
paid-off the note in April 1996. As a result, the bank returned the certificate
of deposits to the officer/stockholder.

14. CASHLESS OPTION EXERCISE PROGRAM

        On March 1, 1994, the Board of Directors approved the 1994 cashless
option exercise program for all employees. The program allows employees to
purchase shares of common stock, payable with both recourse and non-recourse
long term promissory notes receivable. Under the above program, employees
purchased a total of 87,818 shares of common stock at a price of

                                       48
<PAGE>

$4.00 per share. The notes receivable are due in March 2004, and are presented
as a reduction of stockholders' equity, net of related reserve for uncollectible
amounts, in the accompanying balance sheets.

15. COMMITMENTS

        The Company leases its office facilities under an operating lease
expiring September 30, 2005. The lease contains an option for renewal and
requires the payment of real estate taxes and other operating costs. Total rent
expenses under this operating lease was $243,043 and $274,629 for the years
ended December 31, 2003 and 2002, respectively.

        The Company also leases certain equipment under capital leases expiring
at various dates through the year 2005. The total cost of equipment recorded
under these capital leases was $232,730 at December 31, 2003 and 2002. The total
interest paid in connection with the capital lease obligations was $6,643 and
$9,235 for 2003 and 2002, respectively.

        Minimum future lease commitments under operating and capital leases at
December 31, 2003 are as follows:

                                              OPERATING    CAPITAL

                                   2004        $181,000    $24,293
                                   2005         141,000      9,104
                                              ---------    -------

        Total Minimum Lease Payments           $322,000    $33,397
                                              =========
        Less: amount representing interest                   4,038
                                                           -------

        Present Value                                      $29,359
                                                           =======

16. CONCENTRATION OF CREDIT RISK

        The Company sells its products to customers principally in the United
States of America. The Company performs on-going credit evaluations of its
customers, provides credit on an unsecured basis, and maintains reserves for
potential credit losses. Such losses, in the aggregate, have not exceeded
management's expectations. Accounts receivable from one customer accounted for
approximately 17% and 22% of total accounts receivable at December 31, 2003 and
2002, respectively. Management does not believe that the Company is subject to
any unusual credit risk beyond the normal credit risk attendant to operating its
business.

        One customer accounted for 36% of total net revenue for the year ended
December 31, 2003, while the same customer plus another accounted for 27% of
total net revenue for the year ended December 31, 2002.

        Export sales accounted for approximately 39% and 12% of net revenues in
the years ended December 31, 2003 and 2002, respectively.

                                       49