ANNUAL REPORT 1997




                                   COVER PAGE







                                      
<PAGE>
<TABLE>
<CAPTION>



                                FINANCIAL SUMMARY

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

                                                                                                      96 to 97     95 to 96
At or For Year Ended November 30                          1997            1996            1995         % Change     % Change
------------------------------------------------------------------------------------------------------------------------------------

Operations
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                     <C>            <C>              <C>               <C>          <C>
Net revenues                                            $ 4,076,897    $ 6,142,954      $ 7,851,147       (33.6)       (21.8)
Net gain from restructuring of operations               $        -     $         -      $   366,764        NA           NA
Operating income (loss)                                 $  (864,398)   $ 195,496        $ (1,586,140)        *            *
Income (loss) before income taxes (benefit)             $(1,060,360)   $ 16,602         $ (2,246,272)        *            *
Net income (loss)                                       $(1,060,360)   $ 45,431         $ (2,344,163)        *            *
Weighted average common shares outstanding                3,453,451      3,453,451         2,904,322         -           18.9
(primary and fully diluted)
------------------------------------------------------------------------------------------------------------------------------------

Per Share Data^
------------------------------------------------------------------------------------------------------------------------------------

Net income (loss)                                            $ (.31)         $ .01           $ (.81)        *            *
Cash dividends                                               $    -          $   -           $   -         NA           NA
Stockholders' equity                                         $  .19          $ .50           $  .48      (62.0)          4.2

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

Financial Position
------------------------------------------------------------------------------------------------------------------------------------

Assets                                                  $ 2,757,331    $ 4,556,794      $ 5,084,450       (39.5)       (10.4)
Working capital                                           $ 570,259    $ 1,416,912      $ 1,227,144       (59.8)        15.5
Property and equipment                                  $ 1,129,377    $ 1,239,799      $ 1,357,555        (8.9)        (8.7)
Long-term debt, less current maturities                 $ 1,042,055    $ 1,102,264      $ 1,170,311        (5.5)        (5.8)
Stockholders' equity                                      $ 657,581    $ 1,717,941      $ 1,672,510       (61.7)         2.7

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Number of employees                                            25              28              29
Number of stockholders                                   approx. 1200    approx. 1200   approx. 1200

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 * Because the data changes from negative to positive, the percentage of change
   is not meaningful. 
^  Earnings (loss) per share, assuming full dilution, are
   equivalent to earnings (loss) per common share.


===================================================================================================================================
</TABLE>

                                                      INDEX
Financial Summary                                                           1
Letter to Shareholders                                                      2
Selected Financial Data                                                     4
Management's Discussion and Analysis                                        5
Independent Auditor's Report                                               11
Balance Sheets                                                             12
Statements of Operations                                                   14
Statements of Stockholders' Equity                                         15
Statements of Cash Flows                                                   16
Notes to the Financial Statements                                          18
Shareholder Information                                                    32
Directors and Officers                                                     32





                                       1
<PAGE>






                            DEAR FELLOW SHAREHOLDER:

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

The Company's turnaround profit of 1996 was unfortunately followed by a loss in
1997. We were not able to accomplish our objective of continuing the
profitability of our Company, instead we saw a decline in revenues.
Why?

The Board of Directors adopted a very clear business plan in the fall of 1995;
namely for NDCA to focus on being a technology supplier to OEMs and partners
instead of being a systems supplier to end users. The Company was reorganized
and staffed to implement this strategy and considerable sales and marketing
efforts were made to develop new OEM customers and partners. However, it did
become increasingly evident that this business plan would require more time than
expected to generate sufficient revenues to offset the loss of end user
revenues. Therefore, in September 1997, the Board of Directors adopted a revised
strategy based on the following focus points :

                  o    To establish and develop strategic alliances with
                       selected partners 
                  o    To pursue AGV system business in selected end user market
                       niches
                  o    To grow the distribution business by adding new
                       supplementary products
                  o    To develop a strong market position in the industrial
                       truck market
                  o    To expand the after sales business of service and
                       maintenance to end users

Accordingly, the Company was reorganized and staffed to execute the new strategy
and during the last six months we have seen clear indications that we are on the
right track. Some important milestones:

1.   In October, 1997, a strategic alliance agreement was signed with Munck
     Autech in Newport News, VA, a leading material handling system supplier.
     Under this agreement, Munck commits to NDC's technology and to use its best
     efforts to meet a target which, if met, would provide NDCA with purchase
     orders in excess of $ 9 million over the first three year period.

2.   A new License and Support Agreement with Mentor AGVS, a long time partner
     of NDCA, was negotiated in December, 1997, initially for a three year
     period. The agreement secures the continuation of this partnership at a
     time when Mentor will expand its AGV business under new ownership.

3.   Our quotation activity has increased at a steady rate in the last six
     months and new system orders are expected. For example, in February 1998,
     NDCA was awarded an order in excess of $500,000 from KMH Systems, a system
     integrator and engineering house, for a laser guided AGV system for a major
     paper company. The project should be implemented by August, 1998.

4.   An exclusive agreement of representation was signed in February, 1998, with
     Thrige Electric, the largest European manufacturer of electric motors for
     industrial trucks and other electric vehicles. Electric motor sales in the
     North American market are currently estimated at $150,000,000 annually. The
     Thrige agreement allows NDCA to earn commission revenues on this
     significant North American market. The agreement runs for an initial period
     of three years, subject to certain performance criteria. Our existing
     exclusive distribution agreement with Schabmuller, a subsidiary of Thrige
     Electric, was extended for another three year period in February, 1998.
     On-going negotiations regarding distribution of other strategic key
     products for the forklift market should be concluded during the
     Spring of 1998.

5.   Revenues from the after market are growing at a steady rate, due largely to
     increased sales efforts and attention to customer satisfaction. One focus
     area is to actively pursue service and maintenance contracts.





                                       2
<PAGE>




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

6.   During 1997 we successfully completed the installation of a large AGV
     system at a Polygram CD manufacturing facility in North Carolina. The
     system consists of ten laser guided vehicles, which handle most of the
     transportation needs in this highly automated factory. Munck Autech was our
     partner in this project. We also installed a four vehicle laser system at a
     Chrysler stamping plant under a contract from HK Systems.

During 1998 we will make preparations for the market introduction of "Teach-In",
a new and exciting product primarily targeted for the industrial truck market.
We expect this product to open the industrial truck market for a dramatically
higher level of automation.

We are facing a period with a lot of opportunities and I remain optimistic about
1998 and beyond despite the set-back in 1997. I appreciate your understanding
and continued support.


Charlotte, North Carolina
February 1998


Respectfully,






Ralph Dollander
President and CEO








                                       3
<PAGE>






<TABLE>
<CAPTION>


                             SELECTED FINANCIAL DATA

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

                                                                             At or For Year Ended November 30
                                                 -----------------------------------------------------------------------------------

<S>                                                     <C>               <C>             <C>              <C>                <C>
                                                        1997              1996            1995             1994              1993
-----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations Data:
    Net revenues                                    $ 4,076,897     $ 6,142,954     $ 7,851,147      $  9,472,585      $ 15,267,479
    Cost of goods sold                                2,695,289       3,864,393       5,597,305         6,214,318         8,993,742
-----------------------------------------------------------------------------------------------------------------------------------
       Gross profit                                 $ 1,381,608     $ 2,278,561     $ 2,253,842      $  3,258,267      $  6,273,737
-----------------------------------------------------------------------------------------------------------------------------------

Net gain from restructuring of operations           $         -     $         -     $   366,764      $        -        $        -
-----------------------------------------------------------------------------------------------------------------------------------

Operating expenses:
    Selling                                         $   693,106     $   656,537     $   776,907      $    517,884      $    667,039
    General and administrative                        1,552,900       1,422,586       3,288,619         4,014,174         3,601,896
    Research and development                                  -           3,942         141,220           113,356           224,418
    Public stock offering expense                             -               -               -                 -           247,078
-----------------------------------------------------------------------------------------------------------------------------------
                                                    $ 2,246,006     $ 2,083,065     $ 4,206,746      $  4,645,414      $  4,740,431
-----------------------------------------------------------------------------------------------------------------------------------
       Operating income (loss)                      $  (864,398)    $   195,496     $(1,586,140)     $ (1,387,147)     $  1,533,306
-----------------------------------------------------------------------------------------------------------------------------------

Net interest income (expense):
    Interest income                                 $        -      $     7,771     $     9,025      $     32,417      $     15,681
    Interest expense                                   (195,962)       (186,665)       (669,157)         (868,435)         (311,013)
-----------------------------------------------------------------------------------------------------------------------------------
                                                    $  (195,962)    $  (178,894)    $  (660,132)     $   (836,018)     $   (295,332)
-----------------------------------------------------------------------------------------------------------------------------------

Income (loss) before income taxes (benefit)         $ (1,060,360)   $    16,602     $(2,246,272)     $ (2,223,165)     $  1,237,974
Federal and state income taxes (benefit)                      -         (28,829)         97,891          (598,971)          475,047
-----------------------------------------------------------------------------------------------------------------------------------
       Net income (loss)                            $ (1,060,360)   $    45,431     $(2,344,163)     $ (1,624,194)     $    762,927
===================================================================================================================================


Weighted average number of
   common shares outstanding                          3,453,451       3,453,451       2,904,322         2,829,691         2,553,837
   (primary and fully diluted)
===================================================================================================================================

Earnings (loss) per common share:*                  $      (.31)    $       .01     $      (.81)     $       (.57)     $       .30
===================================================================================================================================
Cash dividend declared per common share             $         -     $         -     $         -      $          -      $       -
===================================================================================================================================

Balance Sheets Data:
Working capital                                     $   570,259     $ 1,416,912     $ 1,227,144      $ 1,935,720       $  2,268,784
Total assets                                        $ 2,757,331     $ 4,556,794     $ 5,084,450      $ 13,188,231      $ 14,481,806
Long-term debt, less current maturities             $ 1,042,055     $ 1,102,264     $ 1,170,311      $ 1,258,855       $  1,509,051
Total liabilities                                   $ 2,099,750     $ 2,838,853     $ 3,411,940      $ 9,711,853       $ 10,346,333
Stockholders' equity                                $ 657,581       $ 1,717,941     $ 1,672,510      $ 3,476,378       $ 4,135,473
</TABLE>

 * Earnings (loss) per share - assuming full dilution are equivalent to earnings
(loss) per common share.




                                       4
<PAGE>







                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

     The following discussion and analysis should be read in conjunction with
the financial statements (including the notes thereto) presented elsewhere
herein.

Overview

     The Company derives virtually all of its revenues from the sale of
hardware, software and engineering services in connection with projects
incorporating its Automated Guided Vehicle (AGV) control technology. Prior to
1996 the Company was also actively involved in the sale of Radio Frequency
Identification (RFID) products. In years prior to 1995 the Company's net
revenues from AGV systems, vehicles and technology were derived primarily from
sales to customers serving two industries -- textiles and newspaper publishing.
Net revenues since 1995 however have been less concentrated in these industries.
The Company's results of operations can be expected to continue to depend
substantially upon the capital expenditure levels in those industries and in
other industries that it may enter. During 1996 and for the first three quarters
of 1997, the Company refocused its sales efforts to existing original equipment
manufacturers (OEMs) and system integrators in the AGV systems industry. Such
OEMs and system integrators have historically sold products to end users to whom
the Company occasionally had direct sales. The Company reduced its sales effort
to such end users to avoid competing with its intended OEM customers. In
September of 1997, the Company began to pursue AGV system sales directly to end
users in selected market niches to supplement revenues obtained from OEMs and
system integrators.

     Due to the long sales cycle involved, uncertainties in timing of projects,
and the large dollar amount a typical project usually bears to the Company's
historical and current quarterly and annual net revenues, the Company has
experienced, and may be expected to continue to experience, substantial
fluctuations in its quarterly and annual results of operations.

     The Company sells its products and services primarily in two ways.
Vehicles, technology and other products and services may be sold in a "project"
that becomes an integrated AGV system. The primary business is to sell hardware,
software and services as standard items, with less involvement by the Company in
overall system design. The Company generally would recognize lower net revenue
but would realize a higher gross profit margin percentage in selling standard
items, in each case compared to the sale of a project, due to the inclusion in
project sales of other vendors' products and services with margins generally
lower than the Company's own products and services. Between any given accounting
periods, the levels of and mixture of standard item sales and project sales can
cause considerable variance in net revenues, gross profit, gross profit margin,
operating income and net income.

     Revenues from standard item sales are recognized upon shipment, while
revenues from project sales are recognized under the "percentage of completion"
method. Under this method, with respect to any particular customer contract,
revenues are recognized as costs are incurred relative to each major segment of
the project. Although the percentage of completion method will ordinarily smooth
out over time the net revenue and profitability effects of large projects, such
method nevertheless subjects the Company's results of operations to substantial
fluctuations dependent upon the progress of work on project segments. Such
segments can differ markedly from one another in amount and in gross profit
margin.

     Project contracts are billed upon attainment of certain "milestones." The
Company grants payment terms of 30 to 90 days to its customers. It typically
receives a cash advance ranging from 10% to 20% of the total contract amount.
Bills are thereafter delivered as milestones are reached. Upon delivery of the
project, the customer typically reserves a "retainage" of 10% to 20% pending
system acceptance.




                                       5
<PAGE>



                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

     Notwithstanding the receipt by the Company of cash advances and periodic
payments upon reaching project milestones, the Company requires external
financing for its costs and estimated earnings in excess of billings on
uncompleted contracts, inventories, receivables and other assets.

     The Company's backlog consists of all amounts contracted to be paid by
customers but not yet recognized as net revenues by the Company.

     Strategy diversification: At this time the Company believes it must convert
several OEM and system integrators away from their own in-house AGV technology
to the Company's technology to increase its present market share. Such
technology transfers can take one to several years before the Company will
recognize revenues from such relationships. Such customers must also replace in
volume and margin what the Company could otherwise obtain selling direct to end
users. The Company's strategy of not selling directly to end users contributed
to the losses incurred by the Company during 1997. The Company changed its sales
approach and began soliciting its products to end users during the fourth
quarter to ensure that its technology is available to such end users. In
order to avoid competing with its own customers, the Company will not
sell directly to end users where a qualified OEM or OEMs are specifying
NDC controls in their system solution to the potential end users. There
can be no assurances that such a strategy will be successful in the
short or long term.

     Distribution of products and technology: The Company also intends to pursue
other related products lines that can be distributed to its targeted customers
to supplement its existing AGV business. This should allow the Company to grow,
while making the Company less dependent on its present product line. There can
be no assurance, however that this strategy will meet management's objectives
for growth.

     Munck Agreement: On October 6, 1997, the Company executed a Strategic
Alliance Agreement with Munck Automation Technology. Inc. ("Munck") of Newport
News, Virginia. Munck is a major supplier of automated material handling systems
including AGVS vehicles and systems and automatic storage and retrieval systems
("AS/RS") to end users. The initial term of the agreement is three years,
subject to Munck reaching certain sale targets on an annual basis. The Agreement
extends, thereafter, in one year increments subject to the approval of both
companies.

     Pursuant to the Agreement, Munck agrees to promote solely NDC AGVS
technology in its sales efforts of new AGV systems to end users. Munck also has
committed to use its best efforts to meet a target which would provide purchase
orders to NDCA for a minimum of $9,400,000 for hardware, software and
engineering services over the initial three year term of the Agreement. There
can be no assurances that Munck will meet such targets. Under the Agreement,
NDCA will promote Munck products to end users. The two companies should
complement each other well and customers will benefit from the combined
resources and capabilities. This agreement strengthens the existing cooperation
the companies have enjoyed over the last year in marketing and installing AGV
systems.

     Forward-looking statements: This annual report (including information
included or incorporated by reference herein) contains certain forward-looking
statements with respect to the financial condition, results of operation, plans,
objectives, future performance and business of the Company.

     These forward-looking statements involve certain risk and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities:

a)   Revenues from end user systems sales and new OEMs may be lower than
     expected, or sales by Munck Automation may be substantially lower than the
     target of $9,400,000 over the initial three years of the agreement.
b)   New product lines from Thrige and Netzler and Dahlgren (Teach-in) may not
     be well received in the North American industrial truck market, thereby
     restricting growth opportunities for the Company.



                                       6
<PAGE>


                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

c)   The Company's existing bank relationships may not be extended which would
     cause the Company to default on its current obligations.
d)   The Company might not raise the additional working capital needed to
     finance the current business strategy which may have a serious impact on
     the Company's ability to sell its current and future products, as well as
     satisfy existing banking relationships.
e)   General economic or business conditions, either nationally or in the
     markets in which the Company is doing business, may be less favorable than
     expected resulting in, among other things, a deterioration of market share
     or reduced demand for its products.


RESULTS OF OPERATIONS

     The table below shows the relationship of income and expense items relative
to net revenues for the fiscal years ended November 30, 1997, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>

                                                                                          Percentage of Change
                                                                                          Period to Period
                                                 Percentage of net Revenues               Increase (Decrease)

---------------------------------------------------------------------------------------------------------------------
                                                                                     Year Ended       Year Ended
                                                       For year Ended                 November 30,   November 30,
                                               1997         1996       1995          1996 to 1997     1995 to 1996
                                               ----         ----       ----         ------------     ------------


<S>                                             <C>         <C>       <C>                <C>              <C>
Net Revenues                                    100.0 %     100.0 %   100.0   %          (33.6) %         (21.8) %
Cost of  goods sold                              66.1        62.9      71.3              (30.3)           (31.0)
------------------------------- ----------- ------------ ----------- ----------- -- ---------------- ----------------

Gross profit                                     33.9        37.1      28.7              (39.4)             1.1
Restructuring gain                                  -           -       4.7                  -           (100.0)
------------------------------- ----------- ------------ ----------- ----------- -- ---------------- ----------------

Operating expenses:
   Selling                                       17.0        10.7       9.9                 5.6           (15.5)
   General and administrative                    38.1        23.1      41.9                 9.2           (56.7)
   Research and development                         -         0.1       1.8              (100.0)          (97.2)
------------------------------- ----------- ------------ ----------- ----------- -- ---------------- ----------------

                                                 55.1        33.9      53.6                 7.8           (50.5)
------------------------------- ----------- ------------ ----------- ----------- -- ---------------- ----------------

Operating income (loss)                          (21.2)       3.2     (20.2)                  *               *
Net interest expense                               4.8        2.9       8.4                 9.5           (72.9)
------------------------------- ----------- ------------ ----------- ----------- -- ---------------- ----------------

Income  (loss)  before  income
taxes (benefit)                                  (26.0)        0.3    (28.6)                  *               *
Income Tax (benefit)                                  -       (0.4)     1.2              (100.0)              *
------------------------------- ----------- ------------ ----------- ----------- -- ---------------- ----------------

Net income (loss)                                (26.0) %      0.7  % (29.9) %                *  %            *   %
=============================== =========== ============ =========== =========== == ================ ================

</TABLE>
*   Because the data changes from negative to positive, or from positive to
    negative, the percentage of change is not meaningful.



                                       7
<PAGE>



                      MANAGEMENT'S DISCUSSION AND ANALYSIS

================================================================================
Fiscal Year Ended November 30, 1997 Compared To Fiscal Year Ended November 30,
1996.

     Net revenues decreased by $2,066,057 or 33.6%, from $6,142,954 for the
fiscal year ended November 30, 1996 to $4,076,897 for the fiscal year ended
November 30, 1997. The primary reason for the decrease in 1997 compared to 1996
was a decline in project or turnkey system sales to end users and system
integrators. The Company chose to market and sell exclusively to major OEMs and
potential OEMs in an effort to increase sales revenues with the existing OEM
suppliers to the AGVS market. The Company believed that in 1997 it was
undesirable to compete with such potential customers if the Company was to
increase sales with these existing OEM customers. The strategy attracted a major
OEM supplier, Munck Automation Technologies( "Munck"), which signed a strategic
alliance with the Company in October 1997. Pursuant to the Agreement Munck
agreed to promote exclusively NDC AGVS technology in its sales efforts of new
AGV systems to end users. It is expected that other major OEMs will take longer
to convert to the Company's technology. Therefore, since the Company's
anticipated increased revenues from OEMs did not occur in 1997, the Company
began again selectively selling turnkey systems to end users in September of
1997. The Company is also aggressively pursuing distribution of new products and
technology to its market place to increase revenues.

     Cost of goods sold decreased from $3,864,393 to $2,695,289, or 30.3%, due
primarily to the decreased level of net revenues. As a percentage of net
revenues, cost of goods sold increased to 66.1% compared to 62.9% the prior
year. The primary reason for the increase is the Company wrote-down
approximately $245,000 worth of inventory in 1997 compared to approximately
$110,000 in 1996. Gross profit decreased by $896,953, or 39.4%, from $2,278,561
to $1,381,608 due to the same factors.


     Selling expenses increased from $656,537 to $693,106, or 5.6% due primarily
to higher advertising and marketing expenses. General and administrative
expenses increased from $1,422,586 to $1,552,900, or 9.2% primarily due to a
write down of approximately $63,000 of intangibles and software, increases in
lease and maintenance expenses relating to new computer equipment and an
increase in the provision for bad debt expense of $36,000 relating to a
receivable from the former subsidiary NDC Technologies Australia PTY LTD.

     Primarily as a result of the foregoing, the operating income decreased by
$1,059,894 from an income of $195,496 to an operating loss of $864,398.

     Net interest expense increased from $178,894 to $195,962, an increase of
9.5%. The increase is primarily due to increased bank fees in 1997 compared to
1996.

     Income before income taxes decreased by $1,076,962, from an income of
$16,602, to a loss of $1,060,360 due primarily to the foregoing factors.

     Primarily as a result of the foregoing, net loss increased by $1,105,791,
from a net income of $45,431 to a net loss of $1,060,360.

Backlog

     Backlog consists of all amounts contracted to be paid by customers but not
yet recognized as net revenues by the Company. At November 30, 1997, the Company
had a backlog of approximately $415,000 compared to approximately $780,000 one
year earlier. Substantial fluctuations in backlog are considered normal due to
the size of AGV system contracts. Substantial fluctuations in the industry
makeup of the Company's backlog also are considered normal.


                                       8
<PAGE>



                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

Fiscal Year Ended November 30, 1996 Compared To Fiscal Year Ended November 30,
1995.

     Net revenues decreased by $ 1,708,193 or 21.8 %, from $7,851,147 for the
fiscal year ended November 30, 1995 to $6,142,954 for the fiscal year ended
November 30, 1996. The primary reason for the decrease in 1996 compared to 1995
is that the Company recognized no revenues in 1996 from its two subsidiaries NDC
Laser AB (NDCL) and NDC Australia PTY Ltd.(NDCTA), which were sold November
30,1995. The Company ceased to distribute its RFID product line in March of 1996
which also contributed to the Company realizing lower net revenues in 1996
compared to 1995 (see Note 13 of the Financial Statements).

     Cost of goods sold decreased from $5,597,305 to $3,864,393, or 31.0%, due
primarily to the decreased level of net revenues. As a percentage of net
revenues, cost of goods sold decreased to 62.9% compared to 71.3% the prior
year, due to a lower percentage of non-standard product revenues and lower
engineering costs. Gross profit increased by $24,719, or 1.1%, from $2,253,842
to $2,278,561 due to the same factors.


     Selling expenses decreased from $776,907 to $656,537, or 15.5% primarily
due to decreases in show, personnel and general selling expenses. The
elimination of the Company's two subsidiaries NDCL and NDCTA also contributed to
lowering selling expenses. General and administrative expenses decreased from
$3,288,619 to $1,422,586, or 56.7%. The lower general and administrative
expenses were the result of reductions in personnel, depreciation and
amortization, litigation expenses and a general across the board cutback of
expenses from the Company's restructuring in November of 1995. The Company's
sale of NDCL and NDCTA eliminated approximately $800,000 of fixed expenses for
the Company in 1996.

     Primarily as a result of the foregoing, the operating income increased by
$1,781,636, from a loss of $1,586,140 to a income of $195,496.

     Net interest expense decreased from $660,132 to $178,894, a decrease of
72.9%. The decrease is primarily due to reduced borrowing needs arising from
lower inventory levels, a significant cash receipt from the settlement of the
Schlafhorst arbitration case in the fourth quarter of 1995, and the reduction of
current debt resulting from the Company's restructuring.

     Income before income taxes increased by $2,262,874 , from a loss of
$2,246,272, to an income of $16,602 due primarily to the foregoing factors.

     The Company realized an income tax benefit of $28,829 in 1996 by applying
its current tax loss against its deferred tax liability. Income tax expense in
1995 of $97,891 was primarily due to income taxes of one of its subsidiaries.

     Primarily as a result of the foregoing, net income increased by $2,389,594,
from a loss of $2,344,163 to a net income of $45,431.




                                       9
<PAGE>





                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

Liquidity and Capital Resources

The Company experiences needs for external sources of financing to support its
working capital, capital expenditures and acquisition requirements when such
requirements exceed its cash generated from operations in any particular fiscal
period. The amount and timing of external financing requirements depend
significantly upon the nature, size, number and timing of projects and
contractual billing arrangements with customers relating to project milestones.
The Company has relied upon bank financing under a revolving working capital
facility, as well as long-term debt and capital leases and proceeds of its
public offering, and private offerings, to satisfy its financing needs.

During the year ended November 30, 1997, net cash provided by operating
activities was $189,867. The primary reason for the positive cash flow from
operating activities was that the Company significantly reduced its account
receivable balance from November 30, 1996. The Company paid down its Note
payable to the bank by $419,583, the payment was funded by a reduction of the
Company's cash balance and by positive cash flows from operating activities.

The Company entered into a new Inventory and Accounts Receivable Loan and
Security Agreement ("Loan Agreement") February 28, 1997 with the National Bank
of Canada and National Canada Business Corp. (herein collectively called the
"Lender"). The Loan Agreement allows the Company to borrow up to a maximum of
$1,250,000. The new agreement provides for an increase in potential available
credit compared to the maximum available credit of $750,000 under the prior
credit arrangement with NationsBank, N.A.

Loans made under the new Loan Agreement are evidenced by a demand promissory
Note. The Loan Agreement allows the Company to borrow pursuant to a borrowing
formula which is secured by Company's personal property as collateral. The
Company's outstanding loan amount at any one time shall not exceed the lesser of
(a) U.S $1,250,000 or (b) 80% of qualified accounts receivable ( as defined in
the Loan Agreement) plus 50% of all eligible inventory ( as defined in the Loan
Agreement) with a $400,000 cap on loans based on eligible inventory. The
borrowed funds will bear interest at the Lender's prime rate plus 1.5% per annum
for the first $450,000 outstanding and prime plus 2.75% per annum for amounts
outstanding in excess of $450,000. The Loan Agreement is further secured by 1)
an Inventory Repurchase Agreement and 2) a $450,000 irrevocable Letter of Credit
issued by a Swedish bank. Netzler & Dahlgren Co. AB (NDCab) is obligated to
repay the letter of credit bank any funds it disburses under the Letter of
Credit. The Company is ultimately responsible to repay to NDCab for any amounts
it pays in reimbursing the letter of credit bank. The Repurchase Agreement
guarantees that NDCab will repurchase from the Company on certain conditions up
to $400,000 worth of inventory, thereby providing funds to pay the Lender should
the Company default on its loan obligations.

The lender, at its discretion, may demand payment upon written notice to the
Company. The maturity date of the Agreement is April 1, 1998 or upon demand by
the Bank. The Company has not yet discussed the renewal with the bank and there
can be no assurances that the bank will renew or the Company will obtain
alternative financing.

During May 1997, the Mortgage Loan maturity date was extended from February 10,
1998 to May 16, 1999. The interest rate on the note was increased to 9.5% from
7.75% . The combined principle and interest monthly payment was changed to
$13,912 compared to $13,057 per the prior agreement.

As of February 1998 the Company has been delaying payments of approximately
$300,000 to its affiliate Netzler and Dahlgren so not to exceed current
borrowing maximums from the bank. Such deficiency in the cash flow may possibly
worsen if the Company does not generate enough new business. There can be no
assurance that such deferred payments will continue to be acceptable to Netzler
and Dahlgren. The Company is exploring the possibility of raising additional
equity capital or subordinated debt in order to improve its financial position .
Management believes a stronger financial position should contribute to
increasing customer and shareholder confidence in the Company's plans.






                                       10
<PAGE>






                                                Independent Auditor's  Report


 Charlotte, North Carolina
 To the Board of Directors
 NDC Automation, Inc.


We have audited the accompanying balance sheets of NDC Automation, Inc. as of
November 30, 1997 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended November 30, 1997. 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 generally accepted auditing
standards. 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 NDC Automation, Inc. as of
November 30, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended November 30, 1997 in conformity
with generally accepted accounting princiles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 18 to the
financial statements, the Company has suffered a significant loss from
operations in 1997. This raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 18. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


                                                    McGLADREY & PULLEN, LLP

 Charlotte, North Carolina
  January 9, 1998, except for the last sentence
  of the third paragraph of Note 5, as to which
  the date is February 23, 1998




                                       11
<PAGE>

<TABLE>
<CAPTION>



                                 BALANCE SHEETS

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

                                                                                    November 30,
<S>                                                                            <C>               <C> 
                                                                               1997              1996
------------------------------------------------------------------------------------------------------------------

      ASSETS (Note 5)

CURRENT ASSETS
     Cash and cash equivalents (Note 15)                                       $    72,368      $   399,501
     Accounts receivable, net (Notes 2 and 6)                                      670,489        1,526,390
     Inventories (Note 9)                                                          813,865        1,126,398
     Costs and estimated earnings in excess of
        billings on uncompleted contracts (Note 3)                                  23,406           49,277
     Prepaid expenses and other assets                                              47,826           51,935
------------------------------------------------------------------------------------------------------------------
             Total current assets                                              $ 1,627,954      $ 3,153,501
------------------------------------------------------------------------------------------------------------------
OTHER ASSETS                                                                   $         -      $    21,281
------------------------------------------------------------------------------------------------------------------



PROPERTY AND EQUIPMENT
      Land                                                                     $   300,000      $   300,000
      Building and improvements                                                  1,126,623        1,126,623
      Furniture, fixtures, and office equipment                                    152,016          226,559
      Machinery and equipment                                                       76,814          153,572
      Software (Note 14)                                                                 -          102,650
      Vehicles                                                                           -           23,629

------------------------------------------------------------------------------------------------------------------
                                                                               $ 1,655,453      $ 1,933,033
       Less accumulated depreciation                                               526,076          693,234

------------------------------------------------------------------------------------------------------------------
                                                                               $ 1,129,377      $ 1,239,799
------------------------------------------------------------------------------------------------------------------
INTANGIBLE ASSETS (Note 4)                                                     $         -      $   142,213
------------------------------------------------------------------------------------------------------------------
==================================================================================================================
                                                                               $ 2,757,331      $ 4,556,794
==================================================================================================================
</TABLE>

See Notes to Financial Statements





                                       12
<PAGE>

<TABLE>
<CAPTION>



                                              BALANCE SHEETS

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

                                                                                    November 30,
<S>                                                                            <C>               <C>
                                                                               1997              1996
------------------------------------------------------------------------------------------------------------------

      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Note payable, bank (Note 5)                                               $   427,634      $   847,217
     Current maturities of long-term debt (Note 5)                                  65,022           68,410
     Accounts payable and accrued expenses;
             including affiliates $307,815 at 1997
             and $422,050 at 1996 (Note 9)                                         535,201          702,305
     Billings in excess of costs and estimated
              earnings on uncompleted contracts (Note 3)                            29,838          118,657

------------------------------------------------------------------------------------------------------------------
             Total current liabilities                                         $ 1,057,695      $ 1,736,589
------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT (Note 5)                                                        $ 1,042,055      $ 1,102,264
------------------------------------------------------------------------------------------------------------------



COMMITMENTS AND CONTINGENCIES (Note 10 )

STOCKHOLDERS' EQUITY (Notes 11 and 12)
       Preferred stock, par value $.01 per share
             authorized 1,000,000 shares; no shares issued                     $         -      $         -
       Common stock, par value $.01 per share;
                11,000,000 shares authorized at 1997 and 1996; 3,453,451 shares
                were issued at 1997
                and 1996                                                            34,534           34,534
       Additional paid-in capital                                                4,211,566        4,211,566
       Accumulated deficit                                                      (3,588,519)      (2,528,159)
------------------------------------------------------------------------------------------------------------------
                                                                               $   657,581      $ 1,717,941
------------------------------------------------------------------------------------------------------------------
                                                                               $ 2,757,331      $ 4,556,794
==================================================================================================================
</TABLE>

                                       13
<PAGE>


<TABLE>
<CAPTION>





                                             STATEMENTS OF OPERATIONS

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

                                                                             Years ended November 30,
<S>                                                                  <C>               <C>               <C>
                                                                     1997              1996              1995
--------------------------------------------------------------------------------------------------------------------

Net revenues (Notes 6 and 9)                                         $ 4,076,897       $ 6,142,954      $ 7,851,147
Cost of goods sold (Note 9)                                            2,695,289         3,864,393        5,597,305
--------------------------------------------------------------------------------------------------------------------
    Gross profit                                                     $ 1,381,608       $ 2,278,561      $ 2,253,842
--------------------------------------------------------------------------------------------------------------------

Net gain from restructuring of operations (Notes 9 and 14)           $        -        $         -      $  366,764
--------------------------------------------------------------------------------------------------------------------

Operating expenses:
      Selling                                                        $   693,106       $   656,537     $    776,907
      General and administrative (Notes 4, 10 and 13)                  1,552,900         1,422,586        3,288,619
      Research and development                                                 -             3,942          141,220
--------------------------------------------------------------------------------------------------------------------
                                                                     $ 2,246,006       $ 2,083,065     $  4,206,746
--------------------------------------------------------------------------------------------------------------------
            Operating income (loss)                                  $  (864,398)      $  195,496      $ (1,586,140)
--------------------------------------------------------------------------------------------------------------------

Net interest income (expense):
      Interest income                                                $         -       $     7,771     $      9,025
      Interest expense (Note 9)                                         (195,962)         (186,665)        (669,157)
--------------------------------------------------------------------------------------------------------------------
                                                                     $  (195,962)      $  (178,894)    $   (660,132)
--------------------------------------------------------------------------------------------------------------------

Income (loss) before income taxes                                    $(1,060,360)      $    16,602     $ (2,246,272)

Federal and state income taxes (benefit) (Note 7)                              -           (28,829)          97,891
--------------------------------------------------------------------------------------------------------------------
           Net income (loss)                                        $ (1,060,360)         $ 45,431     $ (2,344,163)
====================================================================================================================

Average shares outstanding:
      Primary                                                          3,453,451         3,453,451        2,904,322
      Assuming full dilution                                           3,453,451         3,453,451        2,904,322
====================================================================================================================

Primary earnings per common and
    common equivalent shares                                        $       (.31)      $       .01     $       (.81)
====================================================================================================================

Earnings per common share-
    assuming full dilution                                          $       (.31)      $       .01     $       (.81)
====================================================================================================================

Dividends per common share                                          $          -       $        -      $          -
====================================================================================================================
</TABLE>

See Notes to Financial Statements




                                       14
<PAGE>


<TABLE>
<CAPTION>






                       STATEMENTS OF STOCKHOLDERS' EQUITY

====================================================================================================================================
                                                                                             Years Ended November 30,
------------------------------------------------------------------------------------------------------------------------------------
                                                   1997                          1996                       1995
                                                  Amount         Shares         Amount       Shares        Amount          Shares
Common Stock:
<S>                                              <C>          <C>              <C>          <C>             <C>           <C>
        Balance, beginning                       $ 34,534     3,453,451        $ 34,534     3,453,451       $ 29,024      2,902,514
        Stock options exercised (Note 12)               -             -               -             -             10            937
        Issuance of common stock (Note 11)              -             -               -             -          5,500        550,000
====================================================================================================================================
        Balance, ending                          $ 34,534     3,453,451        $ 34,534     3,453,451       $ 34,534      3,453,451
====================================================================================================================================

Additional Paid-in Capital:
       Balance, beginning                     $ 4,211,566                   $ 4,211,566                  $ 3,666,335
       Stock options exercised (Note 12)                -                             -                          731
       Issuance of common stock (Note 11)               -                             -                      544,500
====================================================================================================================================
       Balance, ending                        $ 4,211,566                   $ 4,211,566                  $ 4,211,566
====================================================================================================================================

Accumulated Deficit:
       Beginning deficit                      $(2,528,159)                 $ (2,573,590)                  $ (229,427)
       Net income (loss)                       (1,060,360)                       45,431                   (2,344,163)
====================================================================================================================================
       Ending deficit                         $(3,588,519)                 $ (2,528,159)                $ (2,573,590)
====================================================================================================================================


Cumulative Currency Translation Adjustment:
       Balance, beginning                             $ -                           $ -                     $ 10,446
       Adjustment for period                            -                             -                      (10,446)
====================================================================================================================================
       Balance, ending                                $ -                           $ -                          $ -
====================================================================================================================================

====================================================================================================================================
Stockholders' Equity at November 30             $ 657,581     3,453,451     $ 1,717,941     3,453,451    $ 1,672,510      3,453,451
====================================================================================================================================
</TABLE>

See Notes to Financial Statements



                                       15
<PAGE>
<TABLE>
<CAPTION>




                                                     STATEMENTS OF CASH FLOWS

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

                                                                                          Years ended November 30,
                                                                                  1997             1996                  1995
----------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                          <C>                 <C>                 <C>
         Net income (loss)                                                   $ (1,060,360)       $ 45,431            $ (2,344,163)
         Adjustments to reconcile net income (loss) to net
             cash provided by operating activities:
            Depreciation                                                          114,564         149,107                 403,996
            Amortization                                                           89,818         103,364                 221,481
            Amortization of unearned discount                                           -               -                  (1,588)
            Increase (decrease) in provision for doubtful accounts                 26,281         (42,500)               (149,332)
            Currency translation (gain)                                                 -               -                 (24,745)
            Loss  on sale of property and equipment                                26,027          20,630                   3,634
            Write-off of intangibles                                               52,394               -                       -
            Loss (gain) on foreign currency exchange rate                           3,652          (3,103)                  5,123
            Net restructuring gain                                                      -               -                (366,764)
            Deferred income taxes                                                       -         (28,829)                 98,502
        Change in assets and liabilities:
            (Increase) decrease in accounts receivable                            829,620        (280,753)              1,890,787
            Decrease in licence fee receivable                                          -               -                  38,412
            (Increase) decrease in inventories                                    312,533         803,251                (267,030)
            Decrease in income tax receivable                                           -               -                 542,900
            Decrease in costs and estimated earnings in
                excess of billings on uncompleted contracts                        25,871          73,983               4,407,306
            (Increase) decrease in prepaid expenses
                and other assets                                                    4,109         (20,602)                   (879)
            (Increase) decrease in other assets                                    21,281          (5,000)                (10,519)
            Decrease in accounts payable
                and accrued expenses                                             (167,104)       (300,269)             (2,159,168)
            Decrease in billings in excess of costs and
               estimated earnings on uncompleted contracts                        (88,819)       (158,870)               (950,271)
            Decrease in income taxes payable                                            -               -                 (55,828)
----------------------------------------------------------------------------------------------------------------------------------
            NET CASH PROVIDED BY
                OPERATING ACTIVITIES                                            $ 189,867       $ 355,840             $ 1,281,854
----------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
        Proceeds from the sale of property and equipment                          $ 6,535         $ 1,941                $ 12,503
        Proceeds from  the sales of  subsidiaries and related assets                    -               -               1,000,000
        Purchase of property and equipment                                        (36,703)        (41,045)                (66,418)
----------------------------------------------------------------------------------------------------------------------------------
            NET CASH PROVIDED BY (USED IN)
                 INVESTING ACTIVITIES                                           $ (30,168)      $ (39,104)              $ 946,085
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements




                                       16
<PAGE>
<TABLE>
<CAPTION>




                            STATEMENTS OF CASH FLOWS

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

                                                                                          Years ended November 30,
                                                                                   1997            1996                   1995
----------------------------------------------------------------------------------------------------------------------------------

CASH FLOW FROM FINANCING ACTIVITIES
<S>                                                                            <C>              <C>                  <C>
        Net borrowings (payments) on revolving credit  agreement               $ (419,583)      $ 202,842            $ (2,934,404)
        Principle payments on long-term borrowings,
            including capital lease obligations                                   (63,597)       (287,961)               (130,409)
        Proceeds from current and long-term borrowings                                  -               -                 200,000
        Net proceeds from exercise of stock options
             and common stock issued                                                    -               -                 550,741
----------------------------------------------------------------------------------------------------------------------------------

            NET CASH  USED IN
                 FINANCING ACTIVITIES                                          $ (483,180)      $ (85,119)           $ (2,314,072)
----------------------------------------------------------------------------------------------------------------------------------
       Effect of foreign currencies exchange rate changes
          on cash and cash equivalents                                           $ (3,652)        $ 3,103                $ (5,123)
----------------------------------------------------------------------------------------------------------------------------------
       Increase (decrease) in cash and cash equivalents                        $ (327,133)      $ 234,720               $ (91,256)

      Cash and cash equivalents:

           Beginning                                                              399,501         164,781                 256,037
----------------------------------------------------------------------------------------------------------------------------------
           Ending                                                                $ 72,368       $ 399,501               $ 164,781
==================================================================================================================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash payments (receipts) for:
           Interest                                                             $ 204,684       $ 187,614               $ 669,157
           Income taxes                                                               $ -             $ -              $ (489,423)
</TABLE>





                                       17
<PAGE>




                                           NOTES TO  FINANCIAL STATEMENTS

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

Note 1.  Nature of Business and Significant Accounting Policies

Nature of business:

The Company was formed to acquire, develop, market, and sell hardware, software
and engineering services that are incorporated into and used to control
automatic guided vehicle systems ("AGVS"). The Company also marketed and
distributed product identification devices using radio frequency identification
("RFID") technology. The Company markets its products and services to designers
of integrated automation systems, original equipment manufacturers, and end
users primarily within the North American continent. On July 1, 1992 the Company
purchased a wholly-owned subsidiary, NDC Technology Australia Pty. Ltd.
("NDCTA") which was formed for the same purposes as the Company but which
attempted to take advantage of the opportunities in the Pacific basin market
area. On June 22, 1993 the Company acquired the assets of AutoNavigator AB, a
Swedish manufacturer of laser guidance software and related equipment,
whereupon, a new subsidiary, NDC Laser AB ("NDC Laser") was formed to produce
and distribute these assets.

In an effort to focus the Company on its primary AGVS product line and its
business in North America, the Company sold certain intangible assets related to
its laser technology and its stock in NDC Laser and NDCTA on November 30, 1995.
In February of 1996 the Company reached an agreement with its primary supplier
of RFID equipment, Statec Technologies, S.A., to reassign the Company's
exclusive distribution and manufacturing rights for North America back to the
manufacturer. The effective date of the transfer was March 1, 1996. A summary of
the Company's significant accounting policies follows:

Principles of consolidation:

The consolidated financial statements for the years ended November 30, 1995
include the accounts of the Company and its wholly-owned subsidiaries, NDCTA and
NDC Laser. All material intercompany balances and transactions were eliminated
in consolidation. The financial statements for 1997 and 1996 are not
consolidated as both NDCTA and NDC Laser were sold on November 30,1995.

Revenue recognition:

The Company recognizes revenue from the sales of commercial products as
shipments are made.

The Company recognizes revenues under long-term contracts on the percentage of
completion method, measured by the percentage of each component cost incurred to
date to estimated total component contract costs for each component in the
contract. Component costs include material, direct labor, subcontracts,
engineering overhead, and miscellaneous costs. Provisions for estimated losses
are made in the period in which they first become determinable.

"Costs and estimated earnings in excess of billings on uncompleted contracts"
represent revenue recognized in excess of amounts billed. "Billings in excess of
costs and estimated earnings on uncompleted contracts" represent billings in
excess of revenues recognized.

Estimates:

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the 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.


                                       18
<PAGE>








                          NOTES TO FINANCIAL STATEMENTS

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

Note 1.  Nature of Business and Significant Accounting Policies (Continued)

Cash and cash equivalents:

For purposes of reporting the statements of cash flows, the Company considers
all cash accounts (see Note 15), and all highly liquid debt instruments
purchased with a maturity of three months or less, to be cash equivalents.

Inventories:

The inventories are priced at the lower of cost or market, with cost being
determined by the weighted average method. Inventories consist primarily of
parts for computerized material handling systems purchased from the affiliate
Netzler & Dahlgren and motor-in-wheel drive units purchased from Schabmuller
GMBH.

Property and equipment:

Property and equipment is stated at cost. Depreciation and amortization are
primarily computed using the straight-line method over the following useful
lives:
                                                                     Years

          Building and improvements                                  21-28
          Furniture, fixtures and office equipment                     4-7
          Machinery and equipment                                      3-5
          Software                                                     3-5
          Vehicles                                                     3-5


When certain property and equipment are fully depreciated, amortized or idle, it
is the Company's practice to write off the cost against accumulated
depreciation, or amortization, so that only costs not fully depreciated or idle,
are carried on the balance sheet. For the years ended November 30, 1997 and
1996, the Company has written off $102,650 and $908 of software, $105,143 and
$221,543 of machinery and equipment, and $82,862 and $193,955 of furniture and
office equipment, respectively.

Foreign currency translation:

Payables to foreign companies that are denominated in foreign currencies are
translated at rates that approximate the year-end foreign exchange rates.
Resultant gains or losses are reflected in cost of goods sold. The costs of
items of foreign origin which are included in inventory have been translated at
historical exchange rates prevailing at the date of acquisition.

Forward exchange contracts are purchased to hedge general exposed foreign
currency net asset or liability positions. Gains and losses from forward
exchange contracts that are intended to hedge identifiable foreign currency
commitments are included in the measurement of the related foreign currency
transaction. Management may from time to time enter into speculative hedging
transactions depending on market conditions. Gains and losses from such hedges
are recognized in the determination of net income (loss) as exchange rates
fluctuate.

The functional currency for the Company's foreign operations is the applicable
local currency. The translation of the foreign currencies into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period.


                                       19
<PAGE>







                          NOTES TO FINANCIAL STATEMENTS

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

Note 1.  Nature of Business and Significant Accounting Policies (Continued)

Income taxes:

Provisions for income taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences, operating
losses, and tax credit carryforwards, and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.

Intangible assets:

The marketing and manufacturing rights are recorded at cost and are being
amortized by the straight-line method over ten years. NDC Laser rights and
product rights, patents and the Statec Technologies, S.A. ("Statec")
distribution agreement were also recorded at cost and were amortized by the
straight-line method over five, ten and ten years, respectively. The goodwill
recognized in the business acquisition of NDCTA represented the excess of the
cost of acquiring the company over the fair value of the net assets received at
the date of acquisition. Goodwill was amortized over a 20 year period using the
straight-line method.

The Company annually assesses the remaining unamortized amounts of such
intangible assets to determine if impairment has occurred. The Company has
written off the remaining unamortized goodwill related to NDCTA as the
subsidiary was sold November 30, 1995. The intangibles related to Statec were
fully amortized during 1995 except for the patent, marketing and manufacturing
rights; however, such rights, were written-off during 1996 as the Company and
Statec entered into an agreement which reassigned all the rights back to the
manufacturer in March of 1996 ( see Note 13 ).


Research and development costs:

Research and development costs are charged to expense when incurred and are
included in the statements of operations. However, certain qualifying expenses
after the research and development phase was completed were capitalized in
accordance with Financial Accounting Standard No. 86, "Computer Software to be
Sold, Leased or Otherwise Marketed".


Earnings (losses) per common share:

Primary earnings (losses) per common and common equivalent share are calculated
using the weighted average number of common shares outstanding during each year
and on the net additional number of shares which would be issuable upon the
exercise of employee stock options, assuming that the Company used the proceeds
received to purchase additional common shares at market value.

Fully diluted earnings (losses) per common and common equivalent share use the
same computations.


Advertising:

The company follows the policy of charging the production costs of
advertising to expense as incurred.  Advertising expenses for the years
ending November 30, 1997, 1996, and 1995 were $91,340, $4,562 and $5,467
respectively.


                                       20

<PAGE>

<TABLE>
<CAPTION>










                          NOTES TO FINANCIAL STATEMENTS

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

Note 2. Accounts Receivable

Accounts receivable consist of the following at November 30, 1997 and 1996,
respectively:

<S>                                                                                   <C>                <C>
                                                                                      1997               1996

------------------------------------------------------------------------------ ------------------- ------------------
Trade and contract                                                               $        721,506    $     1,550,632

Less: Allowance for doubtful accounts                                                    (55,000)           (65,000)
------------------------------------------------------------------------------ ------------------- ------------------
                                                                                 $        666,506    $     1,485,632
Other                                                                                           -             36,515
Officers and employees                                                                      3,983              4,243
------------------------------------------------------------------------------ ------------------- ------------------
                                                                                 $        670,489   $      1,526,390
============================================================================== =================== ==================

</TABLE>





Note 3.  Costs and Estimated Earnings on Uncompleted Contracts

Costs and estimated earnings on uncompleted contracts consist of the following
at November 30, 1997 and 1996, respectively:
<TABLE>
<CAPTION>

<S>                                                                                   <C>                <C>
                                                                                      1997               1996

------------------------------------------------------------------------------ ------------------- ------------------
Costs incurred on uncompleted contracts                                           $       613,760  $         280,606
Estimated earnings                                                                        145,166            155,075
------------------------------------------------------------------------------ ------------------- ------------------
                                                                                  $       758,926  $         435,681
Less billings to date                                                             $      (765,358) $        (505,061)
============================================================================== =================== ==================
                                                                                  $       (6,432)  $         (69,380)
============================================================================== =================== ==================

Included in the accompanying balance sheets under the following captions:

                                                                                      1997               1996

------------------------------------------------------------------------------ ------------------- ------------------
Costs and estimated earnings in excess of billings
     on uncompleted contracts                                                     $       23,406   $          49,277
     Billings in excess of costs and estimated earnings
     on uncompleted contracts                                                            (29,838)           (118,657)
------------------------------------------------------------------------------ ------------------- ------------------
                                                                                  $       (6,432)  $         (69,380)

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

</TABLE>




                                       21
<PAGE>




                                            NOTES TO FINANCIAL STATEMENTS

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

Note 4.  Intangible Assets

The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of. SFAS No. 121 is effective for
fiscal years beginning after December 15, 1995. The Company is required
to review certain identifiable intangibles and goodwill for possible
impairment. Under the guidelines of the standard, the Company is
required to review long-lived assets and certain identifiable
intangibles to be held for impairment whenever events or changes in
circumstances, as outlined in Statement No. 121, indicate that the
carrying amount of an asset may not be recoverable. If these events or
changes in circumstances indicate that the carrying amount of an asset
that an entity expects to hold and use may not be recoverable, the
Company shall estimate the future cash flows expected to result from the
use of the asset and its eventual disposition. If the sum of the
expected future cash flows is less than the carrying amount of the
asset, the Company shall recognize an impairment loss in accordance with
the Statement.

Product rights were purchased from Netzler & Dahlgren Co AB in 1993 to
compliment the technology acquired by the Company from Autonavigator AB. The NDC
Laser rights were sold to Netzler and Dahlgren on November 30, 1995 (see Notes 9
and 14) as part of restructuring the Company. During 1997, the Company
determined that the prospective cash flows from these rights became uncertain
and wrote-off the remaining unamortized balance of $52,394. Intangible assets at
November 30, 1997 and 1996, respectively, consisted of the following:
<TABLE>
<CAPTION>

                                                                                         1997             1996

--------------------------------------------------------- ------------------------- ---------------- ----------------
<S>                                                                                  <C>              <C>
Netzler & Dahlgren navigator card products rights                                    $      449,092   $      449,092
--------------------------------------------------------- ------------------------- ---------------- ----------------
Less write-off                                                                               52,394               --
Less accumulated amortization                                                               396,698          306,879
--------------------------------------------------------- ------------------------- ---------------- ----------------
                                                                                     $            -   $      142,213
========================================================= ========================= ================ ================
</TABLE>

<TABLE>
<CAPTION>
<S>                                                                                   <C>             <C>
Note 5.  Pledged Assets, Note Payable, Bank and Long-Term Debt                           1997             1996
------------------------------------------------------------------------------------  -------------- ---------------

Note Payable Agreement that allows the Company to borrow up to
$1,250,000 and bears interest at the lender's prime rate plus 1.50% per
annum for the first $450,000 outstanding and prime plus 2.75% per annum
for amounts in excess of $450,000. The Company's loan outstanding shall
not exceed the lesser of (a) U.S. $1,250,000 or (b) 80% of qualified
accounts receivable plus 50% of all Eligible Inventory (as defined in
the loan agreement) with a $400,000 cap on loans based on Eligible
Inventory. The loan agreement is further secured by 1) an Inventory
Repurchase Agreement and 2) a $450,000 irrevocable Letter of Credit
issued by a Swedish Bank. Netzler & Dahlgren Co. AB (NDCab) is obligated
to repay the letter of credit bank any funds it disburses under the
Letter of Credit. The Company is ultimately responsible to repay to
NDCab any amounts it pays in reimbursing the Letter of Credit Bank . The
Repurchase Agreement guarantees that NDCab will repurchase on certain
conditions up to $400,000 worth of inventory, thereby providing funds to
pay lender should the Company be in default on its loan obligations. The
Loan Agreement terminates upon demand by the Bank or April 1, 1998. (1)(2)               $  427,634      $        --

Line of credit for $750,000 is with interest at prime plus 3.25%.  The
line is additionally secured by an irrevocable standby letter of credit
of $450,000.  (1)(2)  In December 1996 the Company obtained a commitment
from a new lender to replace the existing line to a maximum of $1,250,000.               $       --      $   847,217
------------------------------------------------------------------------------------     ----------      -----------
                                                                                         $  427,634      $   847,217
====================================================================================     ==========      ===========
</TABLE>




                                       22
<PAGE>
<TABLE>
<CAPTION>




                                           NOTES TO FINANCIAL STATEMENTS
=====================================================================================================================

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

Note 5.  Pledged Assets, Note Payable, Bank and Long-Term Debt (continued)

Long-term debt consists of the following:                                               1997                1996
----------------------------------------------------------------------------------  ----------------  ----------------
<S>                                                                                  <C>               <C>
Mortgage note payable to a bank, based on a 9.5% fixed rate. Original principal
balance to be repaid in twenty-three (23) consecutive monthly principal and
interest payments of $13,912, with one final payment of approximately $1,007,403
due on May 16, 1999(3). The note is collaterized by the Company's land and
building with a carrying value of $1,020,244 The loan also contains certain
financial covenants to which the Company must adhere. As of November 30, 1997,
the Company obtained waivers for certain financial covenants as specified by the
Mortgage note agreement.                                                             $   1,107,077     $   1,170,674

Less current maturities:                                                                    65,022            68,410
---------------------------------------------------------------------------------- ---------------- -----------------
                                                                                     $   1,042,055     $   1,107,264
================================================================================== ================ =================
</TABLE>

(1) The prime rate at November 30, 1997 was 8.50% and 8.25% at November 30,
1996.
(2) The line of credit is secured by a first priority security interest in the
Company's accounts receivable, inventory, software and intangibles.
(3) This note was refinanced with the same bank.

Maturities of long-term debt at November 30, 1997 are as follows:
<TABLE>
<CAPTION>

Year Ending
November 30
---------------------------------------------------------------------------------------------------- ----------------
<S>                                                                                                  <C>
1998                                                                                                  $       65,022
1999                                                                                                       1,042,055
==================================================================================================== ================
                                                                                                      $    1,107,077
==================================================================================================== ================

</TABLE>




                                       23
<PAGE>

<TABLE>
<CAPTION>



                          NOTES TO FINANCIAL STATEMENTS

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

Note 6.  Major Customers

Net revenues and accounts receivable as of and for the years ended November 30,
1997, 1996, and 1995, respectively, include sales to the following major
customers (each of which accounted for 10% or more of the total net revenues of
the Company for those years):

                                                                                 Amount of Net Revenues
                                                                                 Year Ended November 30,

<S>                                                                       <C>              <C>             <C>
Customer                                                                  1997             1996            1995
-------------------------------------------------------------------- ---------------- --------------- ---------------


A                                                                          $       *       $       *       1,033,991
B                                                                                  *               *       1,007,997
C                                                                                  *               *         903,210
D                                                                                  *         666,457               *
E                                                                            612,226               *               *
F                                                                            590,588               *               *

                                                                                   Accounts Receivable
                                                                                      November 30,

                                                                          1997             1996            1995
-------------------------------------------------------------------- ---------------- --------------- ---------------


A                                                                          $       *       $       *          75,847
B                                                                                  *               *               -
C                                                                                  *               *         143,710
D                                                                                  *          76,448               *
E                                                                             61,075               *               *
F                                                                            295,363               *               *

</TABLE>

*Not a major customer.

Because of the nature of the Company's business, the major customers vary
between years. Company B is NDC, Netzler & Dahlgren Co. AB (see Note 9)





                                       24
<PAGE>
<TABLE>
<CAPTION>




                                           NOTES TO FINANCIAL STATEMENTS

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

Note 7.   Income Taxes

Income taxes (benefit) consist of the following components for the years ended
November 30, 1997, 1996, and 1995, respectively:
<S>                                                               <C>                <C>                 <C>
                                                                  1997               1996                1995
----------------------------------------------------------- ------------------ ------------------ -------------------

Current                                                      $          -       $      -           $           (611)
Deferred                                                                -       $(28,829)                    98,502
----------------------------------------------------------- ------------------ ------------------ -------------------
                                                             $          -       $(28,829)          $         97,891
=========================================================== ================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>

Net deferred tax assets consist of the following components as of November 30,
1997 and 1996, respectively:

Deferred tax assets:
<S>                                                                             <C>                                <C>

   Allowance for doubtful accounts                                              $          21,513        $    25,425
   Inventory valuation reserves                                                            46,938             43,524
   Capitalized cost in ending inventory                                                    10,428             11,479
   Net operating loss carryforward                                                      1,349,438            803,195
   General business credit carryforwards                                                   45,367            206,547
   Depreciation                                                                            10,600                162
   Other reserves                                                                          20,254              6,063
   Unrealized losses or foreign currency exchange                                             403              1,637
------------------------------------------------------------------------------ ------------------- ------------------
                                                                                  $     1,504,941   $      1,098,032

   Less valuation allowance                                                             1,504,941          1,098,032
------------------------------------------------------------------------------ ------------------- ------------------

   Net deferred taxes                                                             $            -      $           -
============================================================================== =================== ==================
</TABLE>

The changes in the valuation allowance for the years ended November 30, 1997,
1996 and 1995 were $406,909, $(49,886) and $845,970, respectively. The valuation
reserve is the result of management's determination that the Company may not be
able to generate sufficient future taxable income to realize the recorded
deferred tax assets.

A reconciliation of the statutory income tax to the income tax expense (benefit)
included in the Statements of Operations is as follows:
<TABLE>
<CAPTION>


                                                               Years Ended November 30,
<S>                                          <C>                         <C>                         <C>
                                             1997                        1996                        1995
---------------------------------- -------------------------- ---------------------------- --------------------------
                                                 % of                        % of                       % of
                                   Dollar        Pre-tax       Dollar        Pre-tax      Dollar        Pre-tax
                                   Amount        Income        Amount        Income       Amount        Income
---------------------------------- ------------- ------------- ------------- ------------ ------------- -------------
Statutory federal income
  tax (benefit)                    $   (360,522)        (34.0)   $    5,645        34.0  $   (763,427)        (34.0)

Increase (decrease) in
taxes resulting from:
State income taxes                      (53,018)         (5.0)        1,873         11.3      (61,423)         (2.7)
Changes in valuation allowance          406,909          38.0       (49,886)      (300.5)     845,970          37.7
Other                                     6,631           1.0        13,539         81.6       76,771           3.4
================================== ============= ============= ============= ============ ============= =============
                                    $         -    $        -   $   (28,829)      (173.6)     $97,891           4.4
================================== ============= ============= ============= ============ ============= =============

</TABLE>





                                       25
<PAGE>




                          NOTES TO FINANCIAL STATEMENTS

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


Note 8.   401(k) Profit Sharing Plan

The Company has a profit sharing plan, the contributions to which are
discretionary.

The Company established a 401(k) profit sharing plan to which both the Company
and eligible employees may contribute. The Company may, at its discretion, match
the participant's contribution quarterly, up to a maximum of $700 per plan year.
The Company's contribution for the years ended November 30, 1997, 1996 and 1995
amounted to $17,340, $18,550, and $0, respectively.


Note 9.   Related Party Transactions

The Company is related to NDC, Netzler & Dahlgren Co. AB (Netzler & Dahlgren)
through common ownership (see Note 11).

Netzler & Dahlgren is the Company's largest supplier of AGVS control technology.
Accordingly, the Company's success is dependent upon its ability to obtain such
products on a timely basis. Although the Company has entered into a written
agreement with Netzler & Dahlgren for the supply of such products, there can be
no assurance that this company will continue to fulfill its obligations under
the agreement.

On December 1, 1987, the Company signed a ten (10) year master license agreement
with Netzler & Dahlgren to purchase certain products at prices stipulated in the
agreement. The Master License Agreement was set to expire December 1, 1997, and
provided for certain royalty payments based on 10% of revenues on license fee
contracts entered into after November 30, 1987. On November 30, 1995, the
Company entered into a restated Master License Agreement which resulted in an
additional ten year term through November 30, 2005.

On November 30, 1995 the Company sold certain intangibles related to its laser
technology and its stock in NDC Laser to Netzler & Dahlgren for $1,000,000. The
net effect of the sale caused the Company to immediately increase working
capital and realize a restructuring gain on the transaction (see Note 14). As
part of the sales price the Company receives contingent laser fees from Netzler
& Dahlgren for the years ending 1996, 1997 and 1998. For the year ending
November 30, 1996 and 1997 the Company earned and netted against trade payables
$174,750 and $109,750, respectively, in laser fees from Netzler & Dahlgren.

The Company had the following transactions with Netzler & Dahlgren for the years
ended November 30, 1997, 1996, and 1995, respectively:
<TABLE>
<CAPTION>

<S>                                                               <C>                <C>                 <C>
                                                                  1997               1996                1995
----------------------------------------------------------- ------------------ ------------------ -------------------
Sales                                                               $ 153,176    $       261,199    $      1,007,997
=========================================================== ================== ================== ===================
Purchases of hardware, software & engineering services              $  689,059   $     1,049,324    $        737,375

=========================================================== ================== ================== ===================
Interest expense                                                    $   17,968   $            -     $        279,540
=========================================================== ================== ================== ===================
</TABLE>

For the years ended November 30, 1997, 1996, and 1995, royalties expense was $0,
$0, and $500, respectively.




                                       26
<PAGE>





                          NOTES TO FINANCIAL STATEMENTS

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

Note 10.  Commitments

At November 30, 1997, the Company had $200,000 in outstanding forward exchange
contracts. These contracts are purchased as needed to hedge identifiable foreign
currency commitments.

The Company leases property and equipment under long-term operating leases
expiring on various dates through August, 2001. In addition, the Company has
rental expenses for facilities rented on a short term basis and on a
month-to-month basis, such expenses were $16,103, $38,514, and $201,183 for the
years ended November 30, 1997, 1996, and 1995, respectively.

Minimum rental commitments under long-term operating leases at November 30, 1997
were as follows:

1998                        $ 72,960
1999                          59,634
2000                          19,927
2001                           6,613
2002                               -
                    =================
                            $159,134
                    =================



The Company has an employment contract with the President dated March 1, 1996,
which provides for a minimum annual base salary of $120,000 plus $12,000 being
contributed to a retirement plan. The base salary is subject to annual reviews.
The contract expires on March 1, 1999.

Note 11.  Issuance of Common Stock

On November 30, 1995, the Company issued 550,000 shares of its common stock, par
value $.01 per share by converting $550,000 of debt payable to Netzler &
Dahlgren (see Note 9) to equity shares. The price for the shares sold was $1.00
per share and the shares are restricted pursuant to Rule section 144 promulgated
under the Securities Act of 1933.





                                       27

<PAGE>

                         NOTES TO FINANCIAL STATEMENTS

NOTE 12. STOCK OPTION PLANS

ACCOUNTING CHANGE

The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
123, Accounting for Stock-Based Compensation. FASB Statement No. 123, requires
that the Company account for its stock based compensation plans using a fair
value based method which measures compensation cost at the grant date based upon
the value of the awards, which is then recognized over the vesting period. The
accounting requirements of the statement apply to awards to employees entered
into fiscal years that begin after December 15, 1995 and to transactions with
non-employees entered into after December 15, 1995. The Statement allows and the
Company has elected to continue to use APB Opinion No. 25 Accounting for Stock
Issued to Employees to measure compensation cost, but is required to disclose
the pro forma effect on net income and earnings per share to reflect the
difference between the compensation cost from applying APB Opinion No. 25 and
the related cost measured by the fair value method defined in the statement for
all awards granted in years beginning after December 15, 1994. The Statement did
not change the reporting required for the Plans discussed below.

1990 AND 1993 STOCK OPTION PLANS:

On October 10, 1990, the Compensation Committee of the Board of Directors
adopted the NDC Automation, Inc. 1990 Stock Option Plan ("the 90 Plan"), the
adoption of which was ratified by the shareholders at the annual meeting held
on April 10, 1991. In September 1992, the Company registered up to 178,613
shares of common stock for issuance. On October 23, 1993, the Compensation
Committee of the Board of Directors adopted the NDC Automation, Inc. 1993
Stock Option Plan ("the 93 Plan"), the adoption of which was ratified by the
shareholders at the annual meeting held on May 5, 1994.

Options to purchase 174,375 shares of common stock were granted pursuant to the
90 Plan and are available for exercise upon achievement by the Company of
certain financial performance targets set by the Board of Directors on an
annual basis. The options will be exercisable for a term of ten years,
commencing on the date of the grant at an exercise price of $.7917 to $1.56 for
new employees. The 93 Plan authorized 100,000 options to purchase common stock,
of which 100,000 were granted and are available for exercise upon achievement by
the Company of certain financial performance targets set by the Board of
Directors on an annual basis. On October 24, 1994, the 93 Plan options were
repriced with approval by the Compensation Committee at an exercise price of
$1.56. On November 30, 1995 as part of his termination package, 30,000 options
were issued to Mr. Lofgren at a price of $1.4419. These options with a price
in excess of fair value were approved by the Board of Directors and are not
part of any formal Stock Option Plan. Such options are exercisable without
restriction.

Of the 274,375 total shares of common stock granted, the Compensation
Committee granted to the Company's current and former executive officers options
to purchase 120,375 shares of common stock at an exercise price of $.7917 for
the 90 Plan, and 18,000 shares of common stock for the 93 Plan at an exercise
price of $1.56. The exercise price of the options granted is based on the
average fair market value of the common stock for the five business days
preceding the date of the grant.

1997 STOCK OPTION PLAN:

On December 7, 1996, the Compensation Committee of the Board of Directors
adopted The NDC Automation, Inc. 1997 Stock Option Plan ("the 97 Plan"), the
adoption of which was ratified by the shareholders at the annual meeting held
April 25, 1997. The 97 Plan authorized 225,000 options to all officers and
employees in the form of incentive stock options, of which 210,000 were
granted in January 1997 and are available for exercise, at an exercise price of
$0.50 per share upon achievement by the Company of certain financial
performance targets set by the Board of Directors on an annual basis. No pro
forma compensation expense has been disclosed due to financial performance
targets not being obtained in 1997 and due to uncertainty of financial
performance targets being obtained prospectively.

                                       28
<PAGE>

                         NOTES TO FINANCIAL STATEMENTS

NOTE 12. STOCK OPTION PLANS (CONTINUED)

Transactions involving these plans for the years ended November 30, 1997, 1996
and 1995 respectively, are summarized as follows:


<TABLE>
<CAPTION>

STOCK OPTIONS                           1997*                        1996*                  1995*
-----------------------  --------------------------------  -----------------------  ------------------------
                           90      93      97   Total       90      93     Total     90     93       Total
                          Plan    Plan    Plan             Plan    Plan             Plan   Plan
                         ------  ------  -------  ------   ------  ------  -------  ------  -------  -------
<S>                      <C>     <C>     <C>      <C>      <C>     <C>     <C>      <C>     <C>      <C>
Outstanding, December 1  63,233  84,100           147,333  67,929  93,000  160,929  76,209  100,000  176,209
Granted                    -       -     210,000  210,000     -      -        -       -      30,000   30,000
Canceled                   -       (500) (10,500) (11,000) (4,696) (8,900) (13,596) (7,343) (37,000) (44,343)
Exercised                  -       -        -        -        -      -        -       (937)     -       (937)
----------------------------------------------------------  ----------------------  -------------------------

Outstanding, November 30  63,233  83,600  199,500  346,333  63,233  84,100 147,333  67,929   93,000  160,929
==========================================================  ======================  ========================

Exercisable, November 30   63,233  83,600    -     146,833  63,233  84,100  147,333 67,929   30,000   97,929
==========================================================  ======================= ========================

</TABLE>

* The weighted average exercise price per share of options outstanding, granted,
canceled, exercised, or exercisable for the 90 Plan is $0.7917, for the 93 Plan
is $1.56 and for the 97 Plan is $0.50.
                                       29
<PAGE>





                          NOTES TO FINANCIAL STATEMENTS


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

Note 13.  Reassign back Statec exclusive distribution agreement

On February 21, 1996 the Company and Statec entered into a letter of
understanding under which the Company reassigned to Statec the exclusive
distribution and manufacturing rights for North America effective March 1, 1996.
The assignment was contingent upon Statec making the following payments for a
total of $183,000, excluding inventory. The payments required were as follows:

     o    A down payment of $15,000 was due March 1, 1996

     o    Twenty-eight (28) monthly installments of $6,000 each, commenced March
          1, 1996 for a total of $168,000.

     o    Statec was to repurchase all NDCA inventory related to Statec products
          at the Company's net book value plus $15,000. All the inventory was to
          be repurchased on or before November 30, 1996.

The transfer permitted the Company to reduce associated fixed overhead expenses
with the sale of such products and allowed the Company to focus solely on its
AGVS product line.

Statec was in default under the agreement by not paying or repurchasing the
inventory with a cost of $71,272 and had not paid the agreed installments of
$6,000 monthly since December 1996. There remained a total number of 19 unpaid
installment equaling $114,000. In February of 1997, the Company was notified
that Statec became subject to a court ordered liquidation proceeding under
French law. On March 27, 1997 the Company received $47,884 for the repurchase of
all NDCA inventory related to Statec products and $20,000 per the Supplemental
Agreement between the Company and Statec. The amounts paid were approved by the
French court and terminate all obligations from Statec to the Company per the
Supplemental Agreement.

Note 14.  Net Gain From Restructuring of Operations

On November 30, 1995, the Company sold certain intangible assets related to its
laser technology and its stock in NDC Laser and NDCTA (see Notes 4 and 9). In
addition, the Company also reduced its activities with the CIM products acquired
from SSDI (a former subsidiary) resulting in the write-off of the remaining
carrying value of such software. The transactions described above resulted in a
net gain from restructuring of operations for the year ended November 30, 1995
as follows:

             Gain on sale of NDC Laser rights                 $    595,941
             Gain on sale of NDC Laser stock                         4,317
             Loss on sale of NDCTA stock                           (99,996)
             Write-off of the remaining unamortized
               portion of goodwill related to the
               business acquisition of NDCTA                       (41,273)
             Write-off of the remaining carrying
               value of CIMTEX software                            (92,225)
                                                              ------------
                                                              $    366,764
                                                              ============

There were no restructuring activities for the years ended November 30, 1997 and
1996.

Note 15.  Restricted Cash and Credit Risk

Under the Company's line of credit agreement, the Company's cash disbursements
are controlled and approved by the bank. Cash received by the Company is
deposited into bank-monitored cash collateral accounts where cash funds are used
to pay down the bank line of credit. Daily cash operating requirements of the
Company are then funded through advances under the borrowing base formula of the
line of credit (see Note 5).

                                       30
<PAGE>


                          NOTES TO FINANCIAL STATEMENTS

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


Note 16.  FASB Statements And Proposed Regulations

The FASB has issued SFAS No 128, Earnings Per Share, which the Company
has not been required to adopt as of November 30, 1997. The Statement,
which is effective for the Company's interim period ending February 28,
1998, specifies the computation, presentation and disclosure
requirements for earnings per share. The Company has determined that
there will be no material impact for SFAS No. 128 on the earnings per
share disclosure in Financial Statements.

The FASB has issued SFAS No. 130, Reporting Comprehensive Income, which the
Company has not been required to adopt as of November 30, 1997. The Statement,
which is effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. This statement requires that all items
that are recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.

Note 17.  Year 2000

At the turn of the century, computer-based information systems will be faced
with the problems potentially affecting hardware, software, networks, processing
platforms, as well as customer and vendor interdependencies. The Company is in
the process of assessing the effect of Year 2000 on the Company's operating
plans and systems. The Company is developing a plan for identifying, renovating,
testing and implementing its systems for Year 2000 processing and internal
control requirements. The cost of becoming Year 2000 compliant has not been
determined, however, management feels it will not be material to the Company's
financial statements.

Note 18.  Continued operations

The Company has suffered a significant loss from operations in 1997. Should such
losses continue its total liabilities will exceed its total assets. This raises
substantial doubt about the Company's ability to continue as a going concern.

Management has made plans in regards to these matters to develop an operating
plan that will increase revenues and minimize losses. This plan includes a
reorganization of present resources to support the following :

o Establish and develop strategic alliances with selected customers
o Pursue AGV system business in selected market niches
o Grow the distribution business by adding new supplementary products
o Develop a strong market position in the industrial truck market
o Expand the aftermarket sales business

The Company is also pursuing raising additional equity to assist in reaching its
goals.

Although the Company believes that its strategic plans will permit it to meet
its 1998 working capital needs, there can be no assurance that the Company can
successfully meet the objectives of such plans.




                                       31
<PAGE>
<TABLE>
<CAPTION>




                             SHAREHOLDER INFORMATION

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

<S>                                                                                     <C>
ANNUAL MEETING                                                                          DIRECTORS
      The annual meeting will be held at 10:00 am, Friday,
      May 8, 1998, at NDC Automation's Corporate offices                                Goran P.R. Netzler
      in Charlotte, North Carolina.                                                     Chairman of the Board of Directors,
                                                                                        NDC Automation, Inc.
                                                                                        President
                                                                                        Netzler and Dahlgren Co. AB
SHAREHOLDER RELATIONS
      A copy of NDC's Annual Report                                                     Ralph Dollander
      and form 10-KSB, which is filed with the Securiries and Exchange                  President
      Commission, will be sent to any shareholder upon
      written request to Manager-Investor Relations                                     NDC Automation, Inc.
      NDC Automation, Inc.,
      3101 Latrobe Drive                                                                Jan H.L. Jutander
      Charlotte, North Carolina 28211-4849                                              Vice President, Operation
                                                                                        Netzler and Dahlgren Co. AB
CORPORATE OFFICES
      NDC Automation, Inc.                                                              Richard D. Schofield
      3101 Latrobe Drive                                                                Director
      Charlotte, North Carolina 28211-4849

       (704) 362-1115 Telephone
       (704) 364-4039 Facsimile

STOCK EXCHANGE LISTINGS                                                                 OFFICERS
      Over the Counter: OTC Bulletin Board
      OTC Symbol: "AGVS"                                                                Ralph Dollander
                                                                                        President
TRANSFER AGENT                                                                          Chief Executive Officer
      First Citizens bank
      Raleigh, North Carolina                                                           Claude Imbleau
                                                                                        Vice President, Finance and Administration
LEGAL COUNSEL                                                                           Chief Financial Officer
      Parker, Poe, Adams and Bernstein, LLP
      Charlotte, North Carolina                                                         E. Thomas Watson
                                                                                        Secretary, NDC Automation, Inc.
      Shumaker, Loop and Kendrick, LLP                                                  Partner
      Charlotte, North Carolina                                                         Parker, Poe, Adams and Bernstein LLP

AUDITORS
      McGladrey & Pullen, LLP
      Charlotte, North Carolina

====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>

COMMON STOCK DATA
                                                                             Market Price Per Share
                                       ---------------------------------------------------------------------------------------------
                                                          1997                                              1996
                                       ---------------------------------------------      ------------------------------------------
Quarter Ended                                   High                  Low                         High                 Low
<S>                                      <C>         <C>        <C>        <C>              <C>         <C>      <C>        <C>
                                          Bid         Ask       Bid         Ask              Bid        Ask      Bid        Ask
------------------------------------------------------------------------------------------------------------------------------------
 February 28                             11/16       13/16      9/32       11/32             5/8        7/8      3/8       15/32
 May 31                                  13/32       17/32      9/32        3/8             1 1/16     1 5/16    3/8        1/2
 August 31                               31/32      1 1/32      5/16        3/8              5/8        7/8      1/4        1/2
 November 30                             13/16       15/16      1/4         3/8              5/8        3/4      1/4        3/8
====================================================================================================================================
</TABLE>


                                       32
<PAGE>