ANNUAL REPORT 1998




                                  COVER PAGE





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                                 INSIDE COVER


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<CAPTION>

                                FINANCIAL SUMMARY

==============================================================================================================
<S>                                                    <C>          <C>            <C>      <C>         <C>    
                                                                                          97 TO 98   96 TO 97
At or For Year Ended November 30                     1998         1997         1996       % CHANGE   % CHANGE
--------------------------------------------------------------------------------------------------------------

OPERATIONS
--------------------------------------------------------------------------------------------------------------
Net revenues                                      $ 4,015,698  $ 4,076,897   $ 6,142,954      (1.5)     (33.6)
Operating income (loss)                           $   (31,418) $  (864,398)  $   195,496     (96.4)         *
Income (loss) before income taxes (benefit)       $  (276,283) $(1,060,360)  $    16,602     (73.9)         *
Net income (loss)                                 $  (276,283) $(1,060,360)  $    45,431     (73.9)         *
Weighted average common shares outstanding          3,453,451    3,453,451     3,453,451        --         --
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PER SHARE DATA^
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Net income (loss)                                 $      (.08) $      (.31)  $        .01    (74.2)         *
Cash dividends                                    $        --  $        --   $         --       NA         NA
Stockholders' equity                              $       .11  $        .19  $        .50    (42.1)       4.2

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FINANCIAL POSITION
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Assets                                            $ 2,706,650  $ 2,757,331   $ 4,556,794      (1.8)     (39.5)
Working capital (deficit)                         $  (563,725) $   570,259   $ 1,416,912         *      (59.8)
Property and equipment                            $ 1,059,912  $ 1,129,377   $ 1,239,799      (6.2)      (8.9)
Long-term debt, less current maturities           $   114,889  $ 1,042,055   $ 1,102,264     (89.0)      (5.5)
Stockholders' equity                              $   381,298  $   657,581   $ 1,717,941     (42.0)     (61.7)

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Number of employees                                   22            25            28
Number of stockholders                           approx. 800   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.

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</TABLE>

                                                    INDEX
Financial Summary                                                        1
Letter to Shareholders                                                   2
Selected Financial Data                                                  3
Management's Discussion and Analysis                                     4
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:

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

On October 7, 1998, "Elaborate Lives - The Legend of Aida" had its world
premiere at the Alliance Theatre in Atlanta. This new musical is the first stage
production by Disney that is not based on a Disney movie production. All of the
19 new songs were composed by Elton John with lyrics by Tim Rice ("Evita", "The
Lion King "). The musical is scheduled to open in Chicago in the summer of 1999
and later on Broadway.

What does this have to do with NDC Automation and AGV systems?

This year we provided the guidance system for the very sophisticated
mechanical pyramid, which played a vital role and formed an integral part of the
stage set in this musical. The elaborate moving pattern of the pyramid was
possible only due to the flexibility and free-ranging capability of our LazerWay
navigation technology. This application, together with other theme park projects
we are involved in, are good examples of our new direction and strategy, namely
to identify and pursue new markets and new customers for our technology.

Another example of this is the recently announced cooperation agreement with
Harcon Engineering in Michigan, a long time supplier of material handling
equipment to DaimlerChrysler and other automobile manufacturers. The cooperation
with Harcon has already resulted in an order for the design phase of a large AGV
system at a new DaimlerChrysler facility in Detroit. The automotive industry has
historically been a major market for AGV systems, and through the cooperation
with Harcon we have positioned the Company to become a significant supplier in
this market.

Our strategy of providing turnkey AGV systems solutions to system integrators
and end-users is slowly but surely starting to turn the company around in a
positive direction. Although we did not manage to return to profitability in
1998, the profitable third and fourth quarters helped us to improve the
financial results substantially over 1997.

All of us at NDC Automation are looking forward to the last year of this
millennium with optimism and confidence and I hope you will share that feeling
and join our journey towards a brighter future.

Sincerely,



Ralph Dollander
President and CEO

                                       2
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<CAPTION>


                                         SELECTED FINANCIAL DATA

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

                                              1998         1997         1996         1995         1994
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Statements of Operations Data:
<S>                                        <C>          <C>          <C>          <C>          <C>        
    Net revenues                           $ 4,015,698  $ 4,076,897  $ 6,142,954  $ 7,851,147  $ 9,472,585
    Cost of goods sold                       2,387,342    2,695,289    3,864,393    5,597,305    6,214,318
-----------------------------------------------------------------------------------------------------------
       Gross profit                        $ 1,628,356  $ 1,381,608  $ 2,278,561  $ 2,253,842  $ 3,258,267
-----------------------------------------------------------------------------------------------------------

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

Operating expenses:
    Selling                                $   662,780  $   693,106  $   656,537  $   776,907  $   517,884
    General and administrative                 996,994    1,552,900    1,422,586    3,288,619    4,014,174
    Research and development                         -            -        3,942      141,220      113,356
-----------------------------------------------------------------------------------------------------------
                                           $ 1,659,774  $ 2,246,006  $ 2,083,065  $ 4,206,746  $ 4,645,414
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       Operating income (loss)             $   (31,418) $  (864,398) $   195,496  $(1,586,140) $(1,387,147)
-----------------------------------------------------------------------------------------------------------

Net interest income (expense):
    Interest income                        $        --  $        --  $     7,771  $     9,025  $    32,417
    Interest expense                          (244,865)    (195,962)    (186,665)    (669,157)    (868,435)
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                                           $  (244,865) $  (195,962) $  (178,894) $  (660,132) $  (836,018)
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Income (loss) before income taxes (benefit)$  (276,283) $(1,060,360) $    16,602  $(2,246,272) $(2,223,165)
Federal and state income taxes (benefit)            --           --      (28,829)      97,891     (598,971)
-----------------------------------------------------------------------------------------------------------
       Net income (loss)                   $  (276,283) $(1,060,360) $    45,431  $(2,344,163) $(1,624,194)
===========================================================================================================

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

Basic and diluted earnings (loss) per share $     (.08) $      (.31) $       .01   $     (.81) $      (.57)
===========================================================================================================

Cash dividend declared per common share    $        --  $        --  $        --   $       --  $        --
===========================================================================================================

Balance Sheets Data:
Working capital (deficit)                  $  (563,725) $   570,259  $ 1,416,912   $1,227,144  $ 1,935,720
Total assets                               $ 2,706,650  $ 2,757,331  $ 4,556,794   $5,084,450  $13,188,231
Long-term debt, less current maturities    $   114,889  $ 1,042,055  $ 1,102,264   $1,170,311  $ 1,258,855
Total liabilities                          $ 2,325,352  $ 2,099,750  $ 2,838,853   $3,411,940  $ 9,711,853
Stockholders' equity                       $   381,298  $   657,581  $ 1,717,941   $1,672,510  $ 3,476,378
</TABLE>

                                       3
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                     MANAGEMENT'S DISCUSSION AND ANALYSIS

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   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. In prior years 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 derived from other
industries, e.g. automotive, CD manufacturing, food, paper. 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,
however, the Company began to again pursue AGV system sales directly to end
users in selected market niches to supplement revenues obtained from sales to
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 component
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
components. Such components 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.

    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, receivable 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.

                                       4
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                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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    STRATEGY DIVERSIFICATION: The Company will have to convert several OEM 
customers away from their own in-house AGV technology to the Company's
technology to increase its present market share. Such technology conversions, if
they take place at all, can take one to several years to complete. Such
customers must also replace in volume and margin what the Company could
otherwise obtain systems selling direct to end-users or via system integrators
to end-users. The Company's OEM strategy contributed greatly to the losses
incurred by the Company during 1997. The Company changed its sales approach and
began soliciting its products directly to end-users during the fourth quarter of
1997 to ensure that its technology is available to such end-users. The Company
will not be selling directly to end users in situations in which 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 product 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. During 1997 and 1998 the Company realized minimal
revenues from such activities.

       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 was three years,
subject to Munck reaching certain sale targets on an annual basis. The Agreement
was to extend, thereafter, in one year increments subject to the approval of
both companies.

       Pursuant to the Agreement, Munck agreed to promote solely NDC AGVS
technology in its sales efforts of new AGV systems to end users. Munck also
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. During
1998 revenues from the agreement were well below the targets and there can be no
assurances that Munck will meet such targets. Under the Agreement, NDCA agreed
to promote Munck products to end users.

       Munck was acquired by Swisslog Management Ltd ("Swisslog"), headquarters
in Aurau, Switzerland in August of 1998. Swisslog is a major international
supplier of material handling automation including various types of conveying
technology, Warehouse Management Systems, AS/RS, AGVS, and robotic handling
systems. The ramifications of the Swisslog acquisition of Munck are not yet
known. The strategic alliance agreement was terminated by the Company
December 16, 1998 in order to facilitate negotiations of a new agreement more
consistent with the future direction of both companies. There can be no
assurance that a new agreement will be reached between the companies.

      HARCON AGREEMENT: On January 27, 1999 the Company signed an agreement with
Harcon Engineering, Inc. ("Harcon") of Roseville, Michigan with the objective of
jointly pursuing material handling systems projects, primarily in the automotive
industry. The Company received in January 1999 an order from Harcon for the
design phase of a major laser guided AGV system to be installed at a new Daimler
Chrysler facility in the Detroit area. The design phase order with anticipated
manufacturing orders related to the project could generate revenues for the
Company in excess of one million dollars.

                                       5
<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS

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

    RISK ASSOCIATED WITH YEAR 2000: The Company, in its day to day operations
relies upon various computer software and hardware that may be adversely
affected by a change in the millennium, from 1999 to 2000. In general,
information systems experts have predicted that a wide variety of problems, from
system failures to data entry and transfer errors, will result from the turn of
the century. Repeated system failures, data entry and transfer errors and
similar computer problems would result in a material adverse effect on the
Company and its operations. However, the Company has examined most of its
computer hardware and software and, based on such examination, does not
reasonably anticipate any significant internal problems as a result of the
change in millennium. The Company may, however, be adversely affected by
external systems problems, problems which the Company has minimal control.

    FORWARD-LOOKING STATEMENTS: This 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.
b) New product lines from Thrige and Netzler & Dahlgren (Teach-in) may not be
   well received in the North American industrial truck market, thereby
   restricting growth opportunities for the Company.
c) Manufacturing orders related to the Harcon project may not be received.
d) The Company's existing bank relationships may not be extended which would
   cause the Company to default on its current obligations.
e) The Company might be unable to 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.
f) 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.

                                       6
<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS

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

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, 1998, 1997 and 1996,
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,
                             1998       1997       1996    1997 to 1998  1996 to 1997
--------------------------------------------------------------------------------------
<S>                         <C>        <C>         <C>      <C>           <C>  

Net Revenues                100.0 %    100.0 %    100.0 %      (1.5) %       (33.6) %
Cost of  goods sold          59.5       66.1       62.9       (11.4)         (30.3)
--------------------------------------------------------------------------------------

Gross profit                 40.5       33.9       37.1        17.9          (39.4)
                                                   
Operating expenses:
  Selling                    16.5       17.0       10.7        (4.4)           5.6
  General and administrative 24.8       38.1       23.1       (35.8)           9.2
  Research and development     --         --        0.1          --         (100.0)
--------------------------------------------------------------------------------------

                             41.3       55.1      (26.1)        7.8           33.9
--------------------------------------------------------------------------------------

Operating income (loss)      (0.8)     (21.2)       3.2       (96.4)             *
Net interest expense          6.1        4.8        2.9        25.0            9.5
--------------------------------------------------------------------------------------

Income (loss) before income
  taxes (benefit)             (6.9)    (26.0)       0.3       (73.9)             *
Income Tax (benefit)            --        --       (0.4)         --         (100.0)
--------------------------------------------------------------------------------------

Net income (loss)             (6.9)%   (26.0) %     0.7  %    (73.9) %           *  %
======================================================================================
</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, 1998 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1997.

     Net revenues in 1998 did not change significantly compared to the prior
year. Revenues decreased by $61,199 or 1.5%, from $4,076,897 for the fiscal year
ended November 30, 1997 to $4,015,698 for the fiscal year ended November 30,
1998. The Company's strategy to increase revenues by selectively selling turnkey
systems to end users and system integrators in September of 1997 did not
generate significant revenues in 1998, but resulted in an expansion of its
customer base and markets. Orders were received in 1998 from such industries as
entertainment, automotive, postal service and airport security. Some of these
industries are new to the Company and may offer good future opportunities. The
Company's strategy to align itself with Munck Automation, Inc. ("Munck") did not
generate the projected business volume from Munck. Munck was recently acquired
by Swisslog Management Ltd., headquartered in Aurau, Switzerland, a world leader
in material handling equipment and solutions. In December 1998 the Company
terminated its strategic alliance agreement with Munck in order to facilitate
negotiations of a new agreement more consistent with the future direction of
both companies. The Company also aggressively pursued distribution of new
products and technology in 1998 to the AGVS market to increase revenues. The
primary products were motors for industrial truck manufacturers, batteries and
chargers for the AGV market. Such new products did produce interest in the
marketplace but did not result in significant revenues for the Company in 1998.
The Company will continue to focus on increasing revenues in 1999 by providing
more turnkey systems when appropriate and expand its existing product line.

   Cost of goods sold decreased from $2,695,289 to $2,387,342, or 11.4%, due
primarily to the lower engineering cost. As a percentage of net revenues, cost
of goods sold decreased to 59.5% compared to 66.1% the prior year. The primary
reason for the decrease is the Company experienced higher margins on revenues
related to its aftermarket and engineering revenues. Gross profit increased by
$246,748, or 17.9%, from $1,381,608 to $1,628,356 due to the same factors.


   Selling expenses decreased from $693,106 to $662,780, or 4.4% due primarily
to lower advertising and marketing expenses. General and administrative expenses
decreased from $1,552,900 to $996,994, or 35.8% primarily due to lower cost
related to depreciation, amortization of intangibles in 1998 compared to 1997.
The Company also did not write down any intangibles in 1998 compared to a write
down of $52,394 in 1997. Lower equipment leases cost, and general cost reduction
relating to a cutback in personnel in May of 1998 contributed to lower general
and administrative expenses compared to the prior year.

   Primarily as a result of the foregoing, the operating loss decreased by
$832,980 or 96.4%, from $864,398 to an operating loss of $31,418 for the current
year.

   Net interest expense increased from $195,962 to $244,865, an increase of
25.0%. The increase is primarily due to increased borrowings relating to a new
two year term loan from Netzler and Dahlgren.

   Primarily as a result of the foregoing, the net loss decreased by $784,077 or
73.9%, from $1,060,360 to a net loss of $276,283.

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, 1998, the Company
had a backlog of approximately $780,000 compared to approximately $415,000 one
year earlier.


                                       8
<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.


                                       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 offerings, and private offerings, to satisfy its external financing
needs.

During the year ended November 30, 1998 net cash used in operating activities
was $171,744. The current loss of $276,283 was the primary reason for the use of
cash from operating activities. To offset such uses the Company obtained a two
year loan from Netzler & Dahlgren for approximately $400,000 as described below.

The Company entered into an 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.

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 $300,000 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 $300,000 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 was April 1, 1998 and has been
extended to April 30, 1999, or upon demand by the Bank. The extension was
conditional upon Netzler & Dahlgren extending its $450,000 irrevocable Letter of
Credit to the Bank through May 1, 1999. To further secure Netzler & Dahlgren for
providing the Letter of Credit the Company entered into a Reimbursement
Agreement under which the Company granted to Netzler and Dahlgren a security
interest in the Company's land and building; such collateral is a junior lien to
the primary mortgage lender, security interest.

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.

During the second quarter of 1998 the Company had been delaying payments of
approximately $400,000 to its affiliate Netzler and Dahlgren so not to exceed
current borrowing maximums from the demand promissory note. On June 30, 1998 the
Company signed a promissory note to repay such debt over the next two years. The
note is to be repaid in 24 equal principal payments plus accrued interest at the
rate of 16% annually beginning July 31, 1998.

There are no assurances that the deficiency in the cash flow will not worsen if
the Company does not generate enough new business. The Company is exploring the
possibility of raising additional equity capital or subordinated debt in order
to improve its financial position. There can be no assurance that the Company
will be successful in raising the additional capital or subordinated debt to
improve its financial position. The Company's ability to continue as a going
concern would be adversely affected if such equity and/or debt financing is not
obtained in the near future or revenues did not increase to consistently provide
earnings for the Company.


                                       10
<PAGE>

                                    Independent Auditor's  Report


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


We have audited the accompanying balance sheets of NDC Automation, Inc. as of
November 30, 1998 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended November 30, 1998. 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, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended November 30, 1998 in conformity
with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 15 to the
financial statements, the Company has suffered a significant losses from
operations in 1998 and 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 15. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


                                             McGLADREY & PULLEN, LLP

 Charlotte, North Carolina
 January 15, 1999, except for the last
    sentence of the second paragraph of
    Note 5, as to which the date is
    February 24, 1999
                                       11
<PAGE>
<TABLE>
<CAPTION>

                                 BALANCE SHEETS

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

                                                                      November 30,
                                                                   1998          1997
------------------------------------------------------------------------------------------------

      ASSETS (Note 5)

CURRENT ASSETS
<S>                                                                 <C>           <C>     
     Cash and cash equivalents (Note 13)                         $    62,923   $    72,368
     Accounts receivable, net (Notes 2 and 6)                        805,891       670,489
     Inventories (Note 9)                                            593,794       813,865
     Costs and estimated earnings in excess of
            billings on uncompleted contracts (Note 3)               136,547        23,406
     Prepaid expenses and other assets                                47,583        47,826
------------------------------------------------------------------------------------------------
            Total current assets                                 $ 1,646,738   $ 1,627,954
------------------------------------------------------------------------------------------------



PROPERTY AND EQUIPMENT
      Land                                                       $   300,000   $   300,000
      Building and improvements                                    1,126,623     1,126,623
      Furniture, fixtures, and office equipment                      138,746       152,016
      Machinery and equipment                                         59,325        76,814
------------------------------------------------------------------------------------------------
                                                                 $ 1,624,694   $ 1,655,453
       Less accumulated depreciation                                 564,782       526,076

------------------------------------------------------------------------------------------------
                                                                 $ 1,059,912   $ 1,129,377

------------------------------------------------------------------------------------------------
                                                                 $ 2,706,650   $ 2,757,331
================================================================================================
</TABLE>

See Notes to Financial Statements


                                       12
<PAGE>
<TABLE>
<CAPTION>




                                 BALANCE SHEETS

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

                                                                      November 30,
                                                                   1998          1997
------------------------------------------------------------------------------------------------

      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
<S>                                                                <C>           <C>      
     Note payable, bank (Note 5)                                 $   346,657   $   427,634
     Current maturities of long- term debt (Note 5)                1,239,472        65,022
     Accounts payable and accrued expenses;
             including affiliates $169,837 at 1998
             and $307,815 at 1997 (Note 9)                           508,002       535,201
     Billings in excess of costs and estimated
              earnings on uncompleted contracts (Note 3)             116,332        29,838

------------------------------------------------------------------------------------------------
            Total current liabilities                            $ 2,210,463   $ 1,057,695
------------------------------------------------------------------------------------------------
LONG-TERM DEBT (Note 5)                                          $   114,889   $ 1,042,055
------------------------------------------------------------------------------------------------



COMMITMENTS AND CONTINGENCIES (Note 10 )

STOCKHOLDERS' EQUITY (Note 11)
       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 1998 and 1997;
                3,453,451 shares were issued at 1998
                and 1997                                              34,534        34,534
       Additional paid-in capital                                  4,211,566     4,211,566
       Accumulated deficit                                        (3,864,802)   (3,588,519)
------------------------------------------------------------------------------------------------
                                                                 $   381,298   $   657,581
                                                                                           
================================================================================================
                                                                 $ 2,706,650   $ 2,757,331
================================================================================================
</TABLE>

                                       13
<PAGE>
<TABLE>
<CAPTION>


                            STATEMENTS OF OPERATIONS

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

                                                               Years ended November 30,
                                                          1998           1997          1996
-------------------------------------------------------------------------------------------------

<S>                                                     <C>            <C>           <C>        
Net revenues (Notes 6 and 9)                            $ 4,015,698    $ 4,076,897   $ 6,142,954
Cost of goods sold (Note 9)                               2,387,342      2,695,289     3,864,393
-------------------------------------------------------------------------------------------------
    Gross profit                                        $ 1,628,356    $ 1,381,608   $ 2,278,561
-------------------------------------------------------------------------------------------------

Operating expenses:
      Selling                                           $   662,780    $   693,106   $   656,537
      General and administrative (Notes 4, 10)              996,994      1,552,900     1,422,586
      Research and development                                   --             --         3,942
-------------------------------------------------------------------------------------------------
                                                        $ 1,659,774    $ 2,246,006   $ 2,083,065
-------------------------------------------------------------------------------------------------
            Operating income (loss)                     $   (31,418)   $  (864,398)  $   195,496
-------------------------------------------------------------------------------------------------

Net interest income (expense):
      Interest income                                   $        --    $        --   $     7,771
      Interest expense (Note 9)                            (244,865)      (195,962)     (186,665)
-------------------------------------------------------------------------------------------------
                                                        $  (244,865)   $  (195,962)  $  (178,894)
-------------------------------------------------------------------------------------------------

Income (loss) before income taxes                       $  (276,283)   $(1,060,360)  $    16,602

Federal and state income taxes (benefit) (Note 7)                --             --       (28,829)
-------------------------------------------------------------------------------------------------
           Net income (loss)                            $  (276,283)   $(1,060,360)  $    45,431
=================================================================================================

Basic and diluted earnings (loss) per share             $      (.08)   $      (.31)  $       .01
=================================================================================================

Weighted average common shares outstanding                3,453,451      3,453,451     3,453,451
=================================================================================================

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

See Notes to Financial Statements


                                       14
<PAGE>
<TABLE>
<CAPTION>

                       STATEMENTS OF STOCKHOLDERS' EQUITY

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


                                                                           Years Ended November 30,
----------------------------------------------------------------------------------------------------------------------------------
                                                             1998                       1997                         1996
                                                      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    $    34,534   3,453,451
        Stock options exercised (Note 11)                  --           --             --           --             --          --
==================================================================================================================================
        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                 $ 4,211,566
       Stock options exercised (Note 11)                   --                          --                          --
==================================================================================================================================
       Balance, ending                            $ 4,211,566                $  4,211,566                 $ 4,211,566
==================================================================================================================================

ACCUMULATED DEFICIT:
       Beginning deficit                          $(3,588,519)               $ (2,528,159)                $(2,573,590)
       Net income (loss)                             (276,283)                 (1,060,360)                     45,431
==================================================================================================================================
       Ending deficit                             $(3,864,802)               $ (3,588,519)                $(2,528,159)
==================================================================================================================================


==================================================================================================================================
Stockholders' Equity at November 30               $   381,298    3,453,451   $    657,581    3,453,451    $ 1,717,941   3,453,451
==================================================================================================================================
</TABLE>

See Notes to Financial Statements


                                       15
<PAGE>

<TABLE>
<CAPTION>

                                      STATEMENTS OF CASH FLOWS

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

                                                                     Years ended November 30,
                                                                     1998       1997          1996
-----------------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                             <C>        <C>              <C>     
         Net income (loss)                                      $ (276,283)$ (1,060,360)  $   45,431
         Adjustments to reconcile net income (loss) to net
             cash provided by (used in) operating activities:
          Depreciation                                              82,825      114,564      149,107
          Amortization                                                  --       89,818      103,364
          Increase (decrease) in provision for doubtful accounts    (5,000)      26,281      (42,500)
          (Gain) loss  on sale of property and equipment            (1,637)      26,027       20,630
          Write-off of intangibles                                      --       52,394           --
          Loss (gain) on foreign currency exchange rate             (7,715)       3,652       (3,103)
          Deferred income taxes                                         --           --      (28,829)
        Change in assets and liabilities:
          (Increase) decrease in accounts receivable              (130,402)     829,620     (280,753)
          Decrease in inventories                                  220,071      312,533      803,251
          (Increase) decrease in costs and estimated earnings in
              excess of billings on uncompleted contracts         (113,141)      25,871       73,983
          (Increase) decrease in prepaid expenses
              and other assets                                         243        4,109      (20,602)
          (Increase) decrease in other assets                           --       21,281       (5,000)
          Decrease in accounts payable
              and accrued expenses                                 (27,199)    (167,104)    (300,269)
          Increase (decrease) in billings in excess of costs and
             estimated earnings on uncompleted contracts            86,494      (88,819)    (158,870)
-----------------------------------------------------------------------------------------------------
          NET CASH PROVIDED BY (USED IN)
              OPERATING ACTIVITIES                              $ (171,744)$    189,867    $ 355,840
-----------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
        Proceeds from the sale of property and equipment        $    2,142 $      6,535    $   1,941
        Purchase of property and equipment                         (13,865)     (36,703)     (41,045)
-----------------------------------------------------------------------------------------------------
          NET CASH  USED IN
               INVESTING ACTIVITIES                             $  (11,723)$    (30,168)   $ (39,104)
-----------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements


                                       16
<PAGE>
<TABLE>
<CAPTION>
                            STATEMENTS OF CASH FLOWS

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

                                                                       Years ended November 30,
                                                                     1998        1997         1996
-----------------------------------------------------------------------------------------------------

CASH FLOW FROM FINANCING ACTIVITIES
<S>                                                              <C>         <C>           <C>      
        Net borrowings (payments) on revolving credit  agreement $ (80,977)  $ (419,583)   $ 202,842
        Proceeds from current and long-term borrowings             402,183           --           --
        Principle payments on long-term borrowings                (154,899)     (63,597)    (287,961)
-----------------------------------------------------------------------------------------------------

          NET CASH  PROVIDED BY (USED IN)
               FINANCING ACTIVITIES                              $ 166,307   $ (483,180)   $ (85,119)
-----------------------------------------------------------------------------------------------------
       Effect of foreign currencies exchange rate changes
          on cash and cash equivalents                           $   7,715   $   (3,652)   $   3,103
-----------------------------------------------------------------------------------------------------
       Increase (decrease) in cash and cash equivalents          $  (9,445)  $ (327,133)   $ 234,720

      Cash and cash equivalents:

           Beginning                                                72,368      399,501      164,781
-----------------------------------------------------------------------------------------------------
           Ending                                                $  62,923   $   72,368    $ 399,501
=====================================================================================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
       Cash payments for :
           Interest                                              $ 244,828   $  204,684    $ 187,614

</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 markets its products and
services to designers of integrated automation systems, original equipment
manufacturers, and end users primarily within the North American continent.

A summary of the Company's significant accounting policies follows:


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.

CASH AND CASH EQUIVALENTS:

For purposes of reporting the statements of cash flows, the Company considers
all cash accounts (see Note 13), and all highly liquid debt instruments
purchased with a maturity of three months or less, to be cash equivalents. The
Company maintains demand deposits with a financial institution which are in
excess of the federally insured amount.

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.


                                       18
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

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

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


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
       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, 1998 and
1997, the Company has written off $0 and $102,650 of software, $21,886 and
$105,143 of machinery and equipment, and $22,739 and $82,862 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.

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.


                                       19
<PAGE>

                        NOTES TO FINANCIAL STATEMENTS

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

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


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 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 12 ).


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:

The Company adopted Statement of Financial Accounting Standards No. 128 (SFAS
No. 128) Earnings Per Share, which supercedes APS Opinion No. 15. SFAS No. 128
requires the presentation of earnings per share by all entities that have common
stock or potential common stock, such as options, warrants, and convertible
securites, outstanding that trade in a public market. Basic per share amounts
are computed, generally, by dividing net income or loss by the weighted-average
number of common shares outstanding. Diluted per share amounts assume the
conversion, exercise, or issuance of all potential common stock instruments
unless the effect is antidilutive, thereby reducing a loss or increasing the
income per common share. The Company initially applied Statement No. 128 for the
year ended November 30, 1998, and as required by the statement, has restated the
per share information for the two prior years to conform to the statement. As
described in Note 11, at November 30, 1998, 1997, and 1996 the Company had
options outstanding to purchase a total of 86,777, 146,833 and 107,333 shares of
common stock, respectively, at a weighted-average exercise price of varying
amounts. The inclusion of those potential common shares in the calculation of
diluted loss per share would have an antidilutive effect. Therefore, basic
and diluted loss per share amounts are the same in 1998, 1997 and 1996.
 

ADVERTISING:

The Company follows the policy of charging production cost of advertising to
expense as incurred. Advertising expenses for the years ending November 30,
1998, 1997 and 1996 were $15,649, $91,340, and $4,562 respectively.


                                       20
<PAGE>






                        NOTES TO FINANCIAL STATEMENTS

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

NOTE 2.  ACCOUNTS RECEIVABLE

Accounts receivable consist of the following at November 30, 1998 and 1997,
respectively:

                                                             1998         1997

--------------------------------------------------------------------------------
Trade and contract                                       $  850,336   $  721,506
                                                            

Less: Allowance for doubtful accounts                      (50,000)     (55,000)
--------------------------------------------------------------------------------
                                                         $  800,336   $  666,506
Other                                                         1,847           --
Officers and employees                                        3,708        3,983
--------------------------------------------------------------------------------
                                                         $  805,891   $  670,489
================================================================================







NOTE 3.  COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Costs and estimated earnings on uncompleted contracts consist of the following
at November 30, 1998 and 1997, respectively:

                                                           1998         1997

--------------------------------------------------------------------------------
Costs incurred on uncompleted contracts                 $  591,370   $  613,760
Estimated earnings                                         232,273      145,166
--------------------------------------------------------------------------------
                                                        $  823,643   $  758,926
Less billings to date                                     (803,428)    (765,358)
================================================================================

                                                        $   20,215   $   (6,432)
================================================================================

Included in the accompanying balance sheets under the following captions:

                                                             1998         1997

--------------------------------------------------------------------------------
Costs and estimated earnings in excess of billings
     on uncompleted contracts                            $ 136,547   $   23,406
Billings in excess of costs and estimated earnings
     on uncompleted contracts                             (116,332)     (29,838)
--------------------------------------------------------------------------------

                                                         $  20,215   $   (6,432)
================================================================================



                                       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. 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, 1998 and 1997, respectively, consisted of the
following:

                                                              1998        1997

--------------------------------------------------------------------------------
Netzler  &   Dahlgren   navigator   card                      $   --  $  449,092
products rights                                                     
--------------------------------------------------------------------------------
Less write-off                                                    --      52,394
Less accumulated amortization                                     --     396,698
--------------------------------------------------------------------------------

                                                              $   --  $       --
                                                                    
================================================================================


NOTE 5.  PLEDGED ASSETS, NOTE PAYABLE, BANK AND LONG-TERM DEBT

                                                                1998       1997
--------------------------------------------------------------------------------
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 $300,000 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 $ 346,657 $ 427,634 it pays in
reimbursing the Letter of Credit Bank . The Repurchase
Agreement guarantees that NDCab will repurchase on certain
conditions up to $300,000 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 30, 1999.(1)(2)  $346,657   $427,634
================================================================================


                                       22
<PAGE>

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


NOTE 5.  PLEDGED ASSETS, NOTE PAYABLE, BANK AND LONG-TERM DEBT (CONTINUED)

Long-term debt consists of the following :                  1998        1997
--------------------------------------------------------------------------------

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.  The note is
collaterized by the Company's land and
building with a carrying value of $978,932
The loan also contains certain financial
covenants to which the Company must adhere.
As of November 30, 1998, the Company obtained
waivers for certain financial covenants as
specified by the Mortgage note agreement.                        
                                                        $1,042,520   $1,107,077
                                                       
Note payable to Netzler & Dahlgren Co AB,
based on a 16.0% fixed rate. Original
principal balance to be repaid in
twenty-four (24) consecutive monthly
principal payments of 133,529 Swedih 
Krona, or approximately US$16,757 depending
on the exchange rate at time of payment,
plus interest. The note is collaterized
by the Company's land and building with a
carrying value of $978,932.                             $  311,841           --
--------------------------------------------------------------------------------

Less current maturities:                                 1,239,472       65,022
--------------------------------------------------------------------------------
                                                        $  114,889   $1,042,055
                                                                       
================================================================================

(1) The prime rate at November 30, 1998 was 7.75% and 8.50% at November 30,
1997. 

(2) The line of credit is secured by a first priority security interest in
the Company's accounts receivable, inventory, software and intangibles.

Maturities of long-term debt at November 30, 1998 are as follows:

Year Ending
November 30
--------------------------------------------------------------------------------

1999                                                                 $1,239,472
2000                                                                    114,889 
================================================================================
                                                                     $1,354,361
================================================================================


                                       23
<PAGE>


                        NOTES TO FINANCIAL STATEMENTS

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

NOTE 6.  MAJOR CUSTOMERS

Net revenues and accounts receivable as of and for the years ended November 30,
1998, 1997, and 1996, 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,

CUSTOMER                                           1998       1997       1996
--------------------------------------------------------------------------------

A                                               $  488,603   $      *    $     *
B                                                  482,826          *          *
C                                                  457,365          *          *
D                                                        *          *    666,457
E                                                        *    612,226          *
F                                                        *    590,588          *
                                                                        
                                                   
                                                      Accounts Receivable
                                                          November 30,

                                                   1998       1997       1996
--------------------------------------------------------------------------------

A                                                 $  51,711   $     *    $     *
B                                                    63,108         *          *
C                                                   162,899         *          *
D                                                         *         *     76,448
E                                                         *    61,075          *
F                                                         *   295,363          *


*Not a major customer.



                                       24
<PAGE>


                         NOTES TO FINANCIAL STATEMENTS

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

NOTE 7.   INCOME TAXES

Income taxes (benefit) consist of the following components for the years ended
November 30, 1998, 1997, and 1996, respectively:
                                             1998          1997         1996
--------------------------------------------------------------------------------

Current                                   $    --        $   --       $     -- 
Deferred                                                             
                                               --            --         (28,829)
--------------------------------------------------------------------------------
                                          $    --        $   --       $ (28,829)
                                               
================================================================================

Net deferred tax assets consist of the following components as of November 30,
1998 and 1997, respectively:

Deferred tax assets:
   Allowance for doubtful accounts                      $    19,558   $   21,513
   Inventory valuation reserves                              15,646       46,938
   Capitalized cost in ending inventory                       8,757       10,428
   Net operating loss carryforward                        1,479,799    1,349,438
   General business credit carryforwards                     45,367       45,367
   Depreciation                                              13,847       10,600
   Other reserves                                            17,236       20,254
   Unrealized losses or foreign currency exchange                --          403
--------------------------------------------------------------------------------
                                                        $ 1,600,210   $1,504,941
                                                          
 Less valuation allowance                                 1,600,210    1,504,941
                                                         
--------------------------------------------------------------------------------

   Net deferred taxes                                   $        --    $      --
================================================================================

The changes in the valuation allowance for the years ended November 30, 1998,
1997 and 1996 were $95,299, $406,909 and $(49,886), 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:


                                        Years Ended November 30,
                               1998               1997               1996
--------------------------------------------------------------------------------
                                  % OF               % of               % of
                         DOLLAR   PRE-TAX   Dollar   Pre-tax  Dollar    Pre-tax
                         AMOUNT   INCOME    Amount   Income   Amount    Income
--------------------------------------------------------------------------------
Statutory federal income                                       
  tax (benefit)          $(93,936) (34.0)  $(360,522) (34.0)  $ 5,645      34.0
                                                
Increase (decrease) in

taxes resulting from:
State income taxes        (13,814)  (5.0)    (53,018)  (5.0)    1,873      11.3
Changes in valuation       95,299   34.0     406,909   38.0   (49,886)   (300.5)
allowance
Other                      12,451    5.0       6,631    1.0    13,539      81.6
================================================================================
                          $    --     --   $      --     --   $(28,829)  (173.6)
================================================================================




                                       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, 1998, 1997 and 1996
amounted to $13,587, $17,340, and $18550, respectively.


NOTE 9.   RELATED PARTY TRANSACTIONS

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

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 November 30, 1995, the Company signed a ten (10) year master license
agreement with Netzler & Dahlgren to purchase certain products at prices
stipulated. The master license agreement provides for certain royalty payments
based on 10% of revenues on license fee contracts entered into after November
30, 1995.

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. 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, 1998, 1997 and 1996 the Company earned and netted against trade
payables $59,250, $109,750 and $174,750 respectively, in laser fees from Netzler
& Dahlgren.

The Company had the following transactions with Netzler & Dahlgren for the years
ended November 30, 1998, 1997, and 1996, respectively:

                                             1998          1997         1996
--------------------------------------------------------------------------------
Revenues                                   $   252,621   $  153,176  $   261,199
                                                            
================================================================================
Purchases of hardware, software &          $   490,656   $  689,059  $ 1,049,324
engineering services                                        
================================================================================
Interest expense                           $    76,499   $   17,968  $        --
                                                             
================================================================================


There was no royalty expense for the three years ended November 30, 1998.

                                       26
<PAGE>


                               NOTES TO FINANCIAL STATEMENTS

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

NOTE 10.  COMMITMENTS

At November 30, 1998, the Company had no outstanding forward exchange contracts.
These contracts are purchased as needed from time to time 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 $15,187, $16,103, and $38,514 for the
years ended November 30, 1998, 1997, and 1996, respectively.

Minimum rental commitments under long-term operating leases at November 30, 1998
were as follows:

1999          $    50,948
2000               17,013
2001                6,613
              ============
              $    74,574
              ============



The Company has an employment contract with the President 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.



                                       27
<PAGE>


                        NOTES TO FINANCIAL STATEMENTS

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

NOTE 11.  STOCK OPTION PLANS

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. The FASB has
issued for public comment certain interpretations of APB 25, which could have a
significant effect on the Company's future financial statements.

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.

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 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 1998 or 1997 and due to
uncertainty of financial performance targets being obtained prospectively.

                                       28
<PAGE>


                        NOTES TO FINANCIAL STATEMENTS

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

NOTE 11.  STOCK OPTION PLANS ( CONTINUED)


Transactions involving these plans for the years ended November 30, 1998, 1997
and 1996 respectively, are summarized as follows:
<TABLE>


STOCK OPTIONS             1998*                                         1997*                               1996*
---------------------------------------------------------------------------------------------------------------------------------
                 90 PLAN   93 PLAN   97 PLAN  TOTAL     90 PLAN   93 PLAN   97 PLAN   Total      90 PLAN    93 PLAN   Total
                 -----------------------------------    ------------------------------------     --------------------------------
<S>                 <C>    <C>       <C>       <C>      <C>         <C>      <C>      <C>         <C>       <C>        <C>

Outstanding,     63,233    83,600    199,520  346,333   63,233    84,100              147,333    67,929     93,000    160,929
December 1                  
Granted              --        --         --       --      --         --    210,000   210,000        --         --         --
Canceled         (33,556) (31,500)   (32,250) (97,306)     --       (500)   (10,500)  (11,000)   (4,696)    (8,900)   (13,596)
Exercised            --        --         --       --      --         --         --        --        --         --         --
-----------------------------------------------------   -------------------------------------  ----------------------------------

Outstanding,      29,677   52,100    167,250  249,027   63,233    83,600    199,500   346,333    63,233     84,100    147,333
November 30                                                                                            
=====================================================   =====================================  ==================================
 
Exercisable,      29,677   52,100         --   81,777   63,233    83,600         --   146,833    63,233     84,100    147,333
November 30                  
=====================================================   =====================================  ==================================

* 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.

</TABLE>


                                       29
<PAGE>


                        NOTES TO FINANCIAL STATEMENTS

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

NOTE 12.  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 13.  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).

NOTE 14.  FASB STATEMENTS AND PROPOSED REGULATIONS

The FASB has issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME, which the
Company has not been required to adopt as of November 30, 1998. 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.


                                       30
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

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

NOTE 14.  FASB STATEMENTS AND PROPOSED REGULATIONS (CONTINUED)

The FASB has issued SFAS No.131, Disclosures About Segments of an Enterprise and
Related Information, which the Company has not been required to adopt as of
November 30, 1998. This statement which is effective for Fiscal years beginning
after December 15, 1997 establishes standards for the manner in which a publicly
held enterprise reports certain information about operating segments of their
business. The information required to be disclosed for an entity's operating
segments not only consist of financial information, but also certain related
disclosures of the segment's products and services, geographic areas, and major
customers. The impact on disclosures is not anticipated to be significant.


NOTE 15.  CONTINUED OPERATIONS

The Company has suffered a significant loss from operations in 1998 and 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 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 1999 working capital needs, there can be no assurance that the Company can
successfully meet the objectives of such plans.

                                       31
<PAGE>

<TABLE>


                             SHAREHOLDER INFORMATION

====================================================================================================================================
<S>                                                                                   <C>  

ANNUAL MEETING                                                                         DIRECTORS
      The annual meeting will be held at 10:00 am, Friday,
      May 7, 1999, 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 SECURITIES AND EXCHANGE                 President
      COMMISSION, WILL BE SENT TO ANY SHAREHOLDER UPON WRITTEN REQUEST                 NDC Automation, Inc.
      TO MANAGER-INVESTOR RELATIONS 
      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                                             
                                                                                       Raymond O. Gibson
       (704) 362-1115 Telephone                                                        VP Operations
       (704) 364-4039 Facsimile                                                        Terion, Inc.

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

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

COMMON STOCK DATA
                                                                      Market Price Per Share
                                       ----------------------------------------------------------------------------------
                                                      1998                     -                     1997
                                       -------------------------------------         ------------------------------------
Quarter Ended                                High               Low                        High               Low
                                         Bid      Ask       Bid      Ask               Bid      Ask      Bid      Ask
-------------------------------------------------------------------------------------------------------------------------
 February 28                             9/32     13/32    5/32       3/16            11/16     13/16   9/32     11/32
 May 31                                 11/32     7/16     9/32     11/32             13/32    17/32    9/32      3/8
 August 31                               .32      7/16     3/16      .24              31/32    1 1/32   5/16      3/8
 November 30                             .22      .28      .125      .14              13/16    15/16     1/4      3/8
=========================================================================================================================

</TABLE>
                                       32