DATAMETRICS CORP, 424B1, 1995-06-21

DATAMETRICS CORP
424B1, 1995-06-21
COMPUTER PERIPHERAL EQUIPMENT, NEC

Previous: DDL ELECTRONICS INC, 8-K, 1995-06-21

Next: DOUGLAS & LOMASON CO, 8-K, 1995-06-21

<PAGE>

FILED PURSUANT TO RULE 424(b)(1)
REGISTRATION NO. 33-59485

PROSPECTUS

2,000,000 SHARES

[LOGO OF DATAMETRICS CORPORATION]

DATAMETRICS CORPORATION

COMMON STOCK

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

All of the shares of Common Stock offered hereby are being sold by
Datametrics Corporation (the "Company"). The Common Stock is traded on the
American Stock Exchange ("AMEX") under the symbol "DC." On June 20, 1995, the
closing price for the Common Stock as reported on the AMEX was $8.875 per
share. See "Price Range of Common Stock and Dividend Policy."

-----------

THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS."

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $8.00 $0.57 $7.43
- ------------------------------------------------------------------------------------------
Total(3)......................... $16,000,000 $1,140,000 $14,860,000
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
(1) The Company will sell to the Representatives of the Underwriters warrants
to purchase shares of Common Stock. The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting estimated expenses of $255,000 payable by the Company.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Common Stock on the same terms and conditions
set forth above for the purpose of covering over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $18,400,000,
$1,311,000 and $17,089,000, respectively. See "Underwriting."

-----------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to their right to reject any order in whole or in part. It is expected that
delivery of the shares will be made at the offices of Pennsylvania Merchant
Group Ltd in Radnor, Pennsylvania, on or about June 26, 1995.

-----------

PENNSYLVANIA MERCHANT GROUP LTD CRUTTENDEN ROTH
INCORPORATED

June 21, 1995.
<PAGE>

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

DmC(R), LAURA(R) and CYMAX(TM) are trademarks of the Company. Adobe(R) and
PostScript(R) are trademarks of Adobe Systems, Inc.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>

CONCURRENT TRANSFER IMAGING TECHNOLOGY

*SPEED *AFFORDABILITY

*QUALITY *SERVICEABILITY

The Company's concurrent transfer imaging technology combines the four most
important features of speed, affordability, quality and serviceability in one
digital color printer. The Company believes that its soon-to-be-launched CYMax
series of high-speed color printers, which are based upon CTI technology, will
print cost effectively, full-color high-quality images at speeds required by
short-run production printers.

SPEED

The Datametrics CYMax color printer can print a full-color, high-quality image
in less than three seconds, or twenty pages per minute. High speed translates
into shorter lead times and higher volumes for short-run production printers.

AFFORDABILITY

The Company believes that the acquisition price and the per page cost of the
CYMax color printer provide a cost effective solution for short-run production
printers.

QUALITY OUTPUT

The CYMax color printer delivers a combination of high speed printing and
quality color imaging. The Company's concurrent transfer imaging technology
uses a ribbon-based pigment marking process that outputs consistent color,
page after page. The Adobe(R) PostScript(R) Level 2 interpreter outputs a
palette of brilliant colors with accurate placement of dots.

<PAGE>

High capacity input rolls of a wide variety of paper stocks, labels or
transparency materials are cut on demand and delivered to the output station,
which allows the mixing of letter, legal, ledger, banners and pages of
virtually any length, all in the same print job.

SERVICEABILITY

While competing technologies require numerous replacement components, the
CYMax color printer supplies consist of four easily-replaceable ribbon
cartridges.

Competitive devices require complex consumable replacement.

CYMax Series Typical Color Laser Printers/Copiers

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. Except as otherwise indicated, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
Unless otherwise indicated, all references in this Prospectus to the "Company"
include Datametrics Corporation and its divisions.

THE COMPANY

Datametrics Corporation designs, develops, manufactures and sells high-speed
color printers, high-resolution non-impact printer/plotters and ruggedized
computers, printers and workstations. The Company is focused on the development
of high-speed color digital printers which utilize its proprietary concurrent
transfer imaging ("CTI") printing process, and has recently sold a limited
number of such printers to niche commercial users. The Company intends to
market its CYMAX(TM) ("CYMax") series of high-speed color digital printers,
based on CTI technology, to mass commercial users including short-run
production printers. The Company's high-speed color digital printers have
demonstrated the ability to print full-color, high-quality images on 8 1/2"X11"
pages in less than 3 seconds, or 20 color pages per minute. The Company
believes that no comparably priced digital color printer currently available
prints full-color, high-quality images at speeds equal to the Company's CYMax
series of high-speed color digital printers.

The Company believes that its proprietary CTI technology has numerous
potential applications in the color printer market, ranging from mass
commercial uses to niche applications. The Company has targeted the short-run
production printer market for its initial entry into mass commercial markets.
The short-run production printer market is characterized by printers whose
typical print run is 2,000 documents or less, and includes franchise and
independent quick print shops, in-plant printing departments, sign printers,
copy shops, service bureaus and commercial printers. Industry sources estimate
that in 1994 the market for short-run production color digital printers was
$519 million and is expected to grow to $740 million in 1996. In addition, the
total short-run production market, including color digital printers,
consumables such as ribbons and ink and printer service and maintenance, is
estimated to have been $1.2 billion in 1994 and is estimated to increase to
$2.0 billion in 1996.

In March 1995, the Company signed a multi-year strategic distribution
agreement with the A.B.Dick Company ("A.B.Dick") for the worldwide distribution
of the CYMax series color digital printers. This agreement provides A.B.Dick
with exclusive rights to sell the CYMax series of high-speed color digital
printers into the quick printer and commercial printer segments of the short-
run production printer market, comprising about one-third of the total
addressable market in potential revenues, subject to certain conditions. The
A.B.Dick agreement also provides non-exclusive rights to A.B.Dick to market,
sell and service the CYMax series of high-speed color digital printers into
other print-for-profit market segments and also to in-plant printing
facilities. A.B.Dick has a significant marketing and service presence through
its direct sales force and distribution network in over 80 countries in North
America, Europe, and the Pacific Rim. On May 5, 1995, A.B.Dick announced the
first CYMax high-speed color digital printer to be marketed under its label at
the Drupa exhibition in Dusseldorf, Germany. The Company is currently preparing
beta test units for field evaluation by A.B.Dick and other select customers and
anticipates that production deliveries will commence in calendar 1995.

On May 11, 1995, the Company entered into an agreement with International
Business Machines ("IBM") Corporation to provide field service for the CYMax
series of high-speed color digital printers under maintenance contracts between
the Company and its customers.

3
<PAGE>

In parallel with its pursuit of mass commercial markets, the Company intends
to leverage its CTI technology into niche markets and applications, such as
seismic data plotting, sign making, label and form printing and license plate
printing. In this regard, the Company has sold color printers to Halliburton
Oil Logging Services for use in the oil exploration industry and has a multi-
year agreement with AZON Corporation to develop and apply CTI technology to
print specialty vehicle license plates and street signs utilizing full-size
adhesive color labels.

To date, substantially all of the Company's sales have been derived from
business with the U.S. Department of Defense, other U.S. government agencies
and foreign military-related sales. The Company's military printers utilize
thermal or electrosensitive printer technologies and have greater reliability
than conventional impact printers because they are designed with high
reliability components for use in adverse environmental applications. The
Company manufactures both full military specification ("mil spec") and
ruggedized military printers. The design and component selection allow the
Company's printers to operate reliably under conditions of vibration, shock,
temperature extremes, dirt and grime and nuclear radiation. Several of the
Company's mil spec printers have been included in U.S. Government military
peripheral standardization programs, enabling the armed services to select the
Company's printers for new systems without incurring the expense of developing
new printer documentation for each system. The Company is also a value-added
ruggedizer of computer devices and peripherals, which are encased in shock,
vibration and temperature-resistant housings, for products of equipment
manufacturers such as Digital Equipment Corporation, Hewlett-Packard Company,
Silicon Graphics Inc., Sun Microsystems Inc. and Cray Research.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered hereby (1)....... 2,000,000 shares
Common Stock to be outstanding after
the offering (2)..................... 11,589,460 shares
Use of proceeds....................... To fund the development, manufacture
and marketing of the Company's CYMax
series high-speed color digital
printers; to redeem all of the
Company's outstanding shares of Series
B Redeemable Preferred Stock; and for
other working capital and general
corporate purposes, including possible
acquisitions.
AMEX symbol........................... DC
</TABLE>

- --------

(1) Assumes the Underwriters' over-allotment option is not exercised. See
"Underwriting."

(2) Excludes 1,419,290 shares of Common Stock reserved for issuance upon
exercise of outstanding stock options granted and available for grant under
the Company's stock option plans, 200,000 shares of Common Stock issuable
upon exercise of the Representatives' Warrants, and an indeterminate number
of shares of Common Stock issuable upon the exercise of warrants that may be
issued with respect to the Series B Redeemable Preferred Stock. See Notes 8
and 9 of Notes to Financial Statements, and "Description of Capital Stock"
and "Shares Eligible for Future Sale."
4
<PAGE>

SUMMARY SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------------------------------------- ------------------
OCTOBER 28, OCTOBER 27, OCTOBER 25, OCTOBER 31, OCTOBER 30, MAY 1, APRIL 30,
1990 1991 1992 1993(1) 1994 1994 1995
----------- ----------- ----------- ----------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................... $26,536 $21,017 $22,358 $23,984 $25,211 $12,367 $ 7,348
Gross profit............ 6,926 6,792 8,407 8,361 8,306 4,077 1,291
Research and development
expenses............... 699 726 1,390 1,951 2,297 975 2,646
Selling, general and
administrative
expenses............... 5,255 4,731 5,069 5,547 6,254 3,528 2,806
Income (loss) from
operations............. 972 1,335 1,948 863 (245) (426) (4,161)
Net income (loss)(2).... 564 675 1,337 1,483 31 (213) (4,050)
Earnings (loss) per
common share(3):
Primary............... $ .10 $ .13 $ .30 $ .26 $ -- $ (.03) $ (.40)
Fully diluted......... $ .10 $ .12 $ .22 $ .23 $ -- $ (.03) $ (.40)
Weighted average number
of shares
outstanding(3):
Primary............... 3,616 3,664 3,769 5,458 9,067 7,682 10,186
Fully diluted......... 5,816 5,864 5,946 6,404 9,067 7,682 10,186
</TABLE>

BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF APRIL 30,
1995
------------------
AS
ACTUAL ADJUSTED(4)
------ ----------
<S> <C> <C>
Working
capital..... $ 8,754 $22,420
Total assets. 15,953 29,619
Current por-
tion of cap-
ital leases
and loan ob-
ligations... 514 514
Long-term
debt........ 1,369 1,369
Capital lease
obligations
(less cur-
rent por-
tion)....... 117 117
Series B re-
deemable
preferred
stock....... 939 --
Stockholders'
equity...... 9,785 24,390
</TABLE>

- --------

(1) Includes the results of Rugged Digital from August 10, 1993, the date of
acquisition by the Company. See Note 2 of Notes to Financial Statements.

(2) Net income for fiscal year 1993 includes a cumulative effect of change in
accounting principle of $938,000. See Note 5 of Notes to Financial
Statements.

(3) See Note 1 of Notes to Financial Statements for an explanation of the
calculation of the number of shares used in computing net income per common
share.

(4) Adjusted to reflect the sale of 2,000,000 shares offered hereby and the
initial application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."

5
<PAGE>

RISK FACTORS

In addition to the other information in this Prospectus, the following risks
should be considered carefully in evaluating the Company and its business
before purchasing the Common Stock offered hereby.

LOSS IN FIRST SIX MONTHS; EXPECTED LOSS IN FISCAL YEAR 1995; IMPACT ON
LIQUIDITY

The Company reported a net loss of $4,050,000 for the six-months ended April
30, 1995, attributable to the Company's significant investment in its
commercial color printer technology and to declining defense-related sales
during such period. As a result of the Company's expected continued significant
investment in its high-speed color digital printer program, the Company expects
to incur a substantial loss for fiscal year 1995 which it is unable to quantify
at this time. In addition, the proceeds of this offering are necessary to
provide the needed liquidity to maintain this expected significant level of
research and development and to make anticipated production deliveries in
calendar 1995. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."

UNCERTAINTY OF COMMERCIAL IMPLEMENTATION OF COLOR PRINTER TECHNOLOGY

The Company's future success depends in large part on the timely and
successful development and marketing in commercial markets of products based
upon the Company's proprietary high-speed color digital printer technology.
Mass commercial implementation of the Company's technology remains uncertain
and is subject to a number of factors including, without limitation, timely
completion of the Company's product offerings, the timing of development of
competing color printing technologies, the availability of adequate
manufacturing capacity and distribution channels and the availability of
adequate working capital to finance development, manufacture and marketing of
the products. Although the Company has sold high-speed color digital printers
to Halliburton Oil Logging Services for use in the oil exploration industry,
the Company has not yet begun to ship CYMax series high-speed color digital
printers into mass commercial markets and is currently negotiating with third
party manufacturers to provide for full-scale production. There can be no
assurance, however, that any such agreements will be signed or, if so, when. If
the Company is unable to complete any of these efforts in a timely manner, such
failure could have a material adverse effect on the timely introduction and
sales of the CYMax series high-speed color digital printer into the short-run
production printer markets. See "Business--High-Speed Color Digital Printer."

DEPENDENCE ON THIRD PARTY DISTRIBUTION CHANNELS TO ACCESS CERTAIN MASS
COMMERCIAL PRINTER MARKETS

Because the Company believes that time-to-market is an important factor in
addressing available commercial markets, such as the short-run production
printer market, its primary distribution strategy is to align itself with
original equipment manufacturers ("OEMs") possessing brand name recognition and
established distribution channels. Accordingly, the Company has been seeking
OEM agreements to provide such distribution capabilities. In March 1995, the
Company signed a multi-year agreement with A.B.Dick for the worldwide
distribution of the Company's CYMax series of high-speed color digital
printers. The Company has received an initial purchase order from A.B.Dick in
excess of $2 million subject to the Company's ability to meet certain product
specifications and other customary contractual requirements. Other than the
initial purchase order, A.B.Dick is not obligated to make any further purchases
under the distribution agreement, and there can be no assurance that it will do
so.

The Company is also seeking other OEM distribution alliances. There can be no
assurance that the Company will be successful in securing other such alliances
and, if so, what capabilities or resources any other such alliance will
actually provide to the Company. Additionally, the Company is presently seeking
to establish third party distribution capabilities through national and/or
regional distribution networks for markets not specifically covered by OEM
candidates. Such distribution channels have not yet been established. There can
be no assurance that the Company will be successful in establishing such
distribution channels. Accordingly, there can be no assurance that the Company
will be able to successfully develop and market its CTI color printer
technology in certain mass commercial markets by these strategies. See
"Business--High-Speed Color Digital Printer."

6
<PAGE>

COMPETITION

The Company competes in each market it serves with numerous other companies,
many of which have far greater name recognition and financial, technical,
marketing and customer service resources than the Company. The principal
competitive factors in the commercial markets in which the Company participates
are image quality, performance and price. Competition in commercial color
printing markets is intense. The commercial color printing market is addressed
by numerous companies with various technologies, each with certain advantages
and disadvantages in terms of image quality, print speed and price. The Company
believes that its CTI technology currently has a print speed advantage over
competitive products and, therefore, is well-suited to high-volume color
printing/plotting. The commercial color printing market is characterized,
however, by rapid technological advances and downward price pressure as
competing technologies mature. The Company's principal competitors in the
commercial markets include Canon, Xerox, Minolta, Ricoh, Xeikon and Indigo.
Most of the Company's competitors have substantially greater financial and
technical resources than the Company. In addition, competitors in the
commercial color printer market are rapidly improving the quality and price of
their current printers. If one or more of the Company's competitors were to
introduce a printer with a significantly enhanced combination of image quality,
speed and price characteristics before the Company introduced its printer, such
introduction could have a material adverse effect on the Company's ability to
market a printer into such markets. If such a competitor's product introduction
occurred after the Company had a printer on the market, such product
introduction could also have a material adverse effect on the success of the
Company's printer in such markets.

In the domestic and international defense markets, the Company's principal
competitors are North Atlantic Industries, Inc., Aydin and Genesco, Inc. In
addition, many airborne electronic data processing and communications prime
contractors have the capability of manufacturing military and airborne
products, and several such companies do presently manufacture products
performing functions similar to the Company's products. In almost all cases,
these companies have substantially greater financial and technological
resources than the Company. In certain applications, the Company's printers are
higher in price than those of its competitors, and many of its competitors have
more experience in the markets for lower-cost military printers than the
Company. Management believes, however, that the Company's printers usually
perform at higher speed and with greater reliability in extreme environments.
There can be no assurance that the Company will be able to compete effectively
in either the commercial or the domestic or international defense markets for
its products. See "Business--Competition."

DEPENDENCE ON DEPARTMENT OF DEFENSE CONTRACTS; DECLINING DEFENSE SALES

The Company is currently highly dependent upon being selected to supply
printers, printer/plotters, ruggedized computers or workstations by government
contractors who have obtained U.S. Department of Defense ("DoD") contracts
which require those products, or by the DoD itself. Accordingly, the Company is
currently dependent upon continued DoD spending on programs which include its
products. For the fiscal years ended October 25, 1992, October 31, 1993 and
October 30, 1994, direct and indirect DoD business represented approximately
72%, 69% and 85%, respectively, of the Company's sales. Substantially all of
the Company's other sales during such periods were derived from business with
other U.S. government agencies and foreign military-related sales.

Since fiscal 1989, the Company has experienced generally declining defense-
related sales, principally as a result of an uncertain defense budget situation
that resulted in contract awards delays and reduced military program funding.
Management expects that these downward trends will continue for the foreseeable
future. The market for the Company's high-end military printers has been
particularly weak during this time period and is expected to continue to be
weak for the foreseeable future. This environment has resulted in substantial
decreases in the Company's backlog of funded orders. The Company's funded
backlog related to DoD business at the end of fiscal years 1990, 1991, 1992,
1993 and 1994 was approximately $15,511,000, $10,434,000, $4,394,000,
$6,629,000 and $5,075,000, respectively. The Company's funded backlog related
to DoD business at April 30, 1995 was $6,687,000.

7
<PAGE>

The Company's principal response to declining defense-related sales has been
to attempt to diversify into selected commercial markets, primarily through the
introduction of the CYMax series of high-speed color digital printers. There
can be no assurance, however, that the Company will successfully diversify into
such commercial markets, or that such diversification will offset the general
decline in the company's defense-related sales.

Companies engaged primarily in supplying equipment and services, directly or
indirectly, to the United States government are subject to special risks
including dependence on government appropriations, termination without cause,
contract renegotiation and competition for the available DoD business. In
addition, many of the Company's contracts provide for the right to audit the
Company's cost records and are subject to regulations providing for contract
price reductions if defective cost or pricing information was provided by the
Company. See "Business--Defense Products."

DEPENDENCE ON MAJOR CUSTOMERS

The Company's business is also substantially dependent on a relatively small
number of customers and defense programs. In fiscal 1994, the Company's five
largest customers in sales, Lockheed Corporation (21.6%), Raytheon Company
(13.5%), Rockwell International (10.7%), Martin Marietta Corporation (10.2%)
and the DoD (6.8%), accounted for an aggregate of 62.8% of total Company sales.
The loss of any one of these customers could have a material adverse effect on
the Company's result of operations and financial condition.

The Company's distribution of its CYMax product line is currently
substantially dependent on future sales by A.B.Dick under its worldwide
distribution agreement with the Company. A.B.Dick has given the Company an
initial purchase order for CYMax products, but there can be no assurance that
A.B.Dick will achieve or sustain a substantial level of sales of the Company's
CYMax series of high-speed color digital printers.

FLUCTUATIONS IN QUARTERLY RESULTS

The Company's results of operations are subject to considerable fluctuations
from quarter to quarter due to changes in demand for the Company's products and
other factors, and there can be no assurance that the Company will be
profitable in any particular quarter. Demand for the Company's products in each
of the markets it serves can vary significantly from quarter to quarter due to
revisions in budgets or schedules for customer projects requiring the Company's
products, changes in demand for the customers' products which incorporate or
utilize the Company's products and other factors beyond the Company's control.
In addition, demand for products based upon the Company's CTI technology is
highly uncertain given the emerging nature of the Company's technology, other
competing color printer products and technologies and the commercial color
printer market itself. See "Selected Financial Data" and "Management's
Discussion and Analysis of Results of Operations and Financial Condition."

TECHNOLOGICAL OBSOLESCENCE

The markets served by the Company, particularly the commercial color printer
market, are characterized by rapid technological advances, downward price
pressure in the marketplace as technologies mature, changes in customer
requirements and frequent new product introductions and enhancements. The
Company's business requires substantial ongoing research and development
efforts and expenditures, and its future success will depend on its ability to
enhance its current products, reduce product costs and develop and introduce
new products that keep pace with technological developments in response to
evolving customer requirements. The Company's failure to anticipate or respond
adequately to technological development or introduction could result in a loss
of anticipated future revenues and impair the Company's competitiveness.

RISKS OF FOREIGN SALES

The Company believes that foreign sales may represent a significant portion
of the Company's future sales. Foreign sales are subject to numerous risks,
including political and economic instability in foreign

8
<PAGE>

markets, restrictive trade policies of foreign governments, inconsistent
product regulation by foreign agencies or governments, the imposition of
product tariffs and the burdens of complying with a wide variety of
international and U.S. export laws and differing regulatory requirements. To
date, the Company's foreign sales have been transacted in U.S. dollars and many
payments have been supported by letters of credit. To the extent, however, that
future foreign sales are transacted in a foreign currency or not supported by a
letter of credit, the Company would be subject to the risk of losses due to
foreign currency fluctuations and difficulties associated with accounts
receivable collection.

SOLE OR LIMITED SOURCES OF SUPPLY

The Company relies to a substantial extent on sole suppliers to manufacture
several key components for use in the CYMax series of high-speed color digital
printers, including controllers, print heads and color printer ribbons. The
Company's reliance on sole suppliers for key components involves several risks,
including a potential inability to obtain an alternate supply of required
components and supplies, and reduced control over pricing and the timing of
delivery of the CYMax series high-speed color digital printers. Because the
manufacture of certain of these components, including controllers, print heads
and color printer ribbons, is specialized and requires long lead times, there
can be no assurance that delays in the ability to timely complete production
orders will not be caused by vendors. Any inability to obtain adequate
deliveries, or any other circumstance that would require the Company to seek
alternative sources of supply or to manufacture such components internally,
could delay shipment of the Company's products, increase its cost of goods sold
and have a material adverse effect on the Company's business, financial
condition and results of operations. The Company is currently engaged in
negotiations with other manufacturers for alternate sources of supply of print
heads and color printer ribbons. There can be no assurance, however, that any
agreements with such alternate supply sources will be signed or, if so, when.
See "Business--Sources of Supply."

In the military business area, the Company is generally not dependent upon
any one supplier for any raw material or component which it purchases, and
there are available alternative sources for such raw materials and components.
The Company is currently dependent, however, on certain OEM suppliers for
components used in its rugged computer devices and peripherals. The Company has
year-to-year renewable supply agreements with suppliers which have been renewed
in prior years. In the event any of these contracts are not renewed, however,
the Company's business would be materially and adversely impacted because the
Company would have to purchase similar components upon substantially less
favorable terms and conditions. See "Business--Sources of Supply."

DEPENDENCE ON KEY PERSONNEL

Management believes that the Company's success depends in part upon its
ability to attract and retain highly skilled management, technical, sales and
marketing personnel. Competition for such personnel is intense, and there can
be no assurance that the Company will be successful in attracting and retaining
such personnel. None of the Company's employees has an employment contract with
the Company. The Company does not maintain key-man life insurance on any of its
personnel (other than a key-man life insurance policy on the Company's Chairman
of the Board, Garland S. White). See "Management."

LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

The Company regards portions of the hardware designs and operating software
incorporated into its products as proprietary and attempts to protect them with
a combination of patent, copyright, trademark and trade secret laws, employee
and third-party nondisclosure agreements and similar means. Despite these
precautions, it may be possible for unauthorized third parties to copy certain
portions of the Company's products or to "reverse engineer" or otherwise obtain
and use to the Company's detriment information that the Company regards as
proprietary. Moreover, the laws of some foreign countries do not afford the
same protection to the Company's proprietary rights as do U.S. laws. There can
be no assurance, therefore, that any of these protections will be adequate or
that the Company's competitors will not independently develop technologies that
are substantially equivalent or superior to the Company's technologies. See
"Business-- Intellectual Property Rights."

9
<PAGE>

VOLATILITY OF STOCK PRICE

The trading price of the Company's Common Stock has from time to time
fluctuated widely and in the future may be subject to similar fluctuations in
response to quarter-to-quarter variations in the Company's operating results,
announcements of technological innovations or new products by the Company or
its competitors, announcements of marketing and distribution arrangements by
the Company, general conditions in the industries in which the Company competes
and other events or factors. In addition, in recent years broad stock market
indices, in general, and the securities of technology companies, in particular,
have experienced substantial price fluctuations. Such broad market fluctuations
also may adversely affect the future trading price of the Common Stock. In
addition, sales of substantial amounts of Common Stock in the public market
following this offering could adversely affect the future trading price of the
Common Stock. See "Price Range of Common Stock and Dividend Policy."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market following
this offering could adversely affect the future trading price of the Common
Stock. In addition to the 2,000,000 shares of Common Stock offered hereby, all
of the shares of Common Stock currently outstanding are available for immediate
sale in the public market as of May 17, 1995, other than a total of 617,323
shares owned beneficially by officers and directors of the Company which would
otherwise be available for immediate sale in the public market but may not be
sold until 120 days after the date of this Prospectus without the prior written
consent of the Underwriters under the terms of lock-up agreements described
herein under "Underwriting." See also "Shares Eligible for Future Sale."

The Company filed a "shelf" registration statement on Form S-3 on April 11,
1995 (the "Shelf Registration Statement") with the Securities and Exchange
Commission (the "Commission") which registers the resale of 170,000 shares of
Common Stock issuable to Cruttenden Roth Incorporated ("CRI") upon exercise of
outstanding warrants to purchase Common Stock. The Company issued these 170,000
shares to CRI after the Shelf Registration Statement was declared effective by
the Commission on June 16, 1995. The sale of up to 2,300,000 shares of Common
Stock offered hereby is not conditioned upon the consummation of the resale of
170,000 shares of Common Stock under the Shelf Registration Statement.

POSSIBLE DILUTIVE EFFECT OF OUTSTANDING OPTIONS AND WARRANTS

As of May 17, 1995, there were 1,419,290 shares of Common Stock reserved for
issuance upon exercise of outstanding stock options granted and available for
grant under the Company's stock option plans. Of such reserved shares, there
were 1,200,990 shares of Common Stock reserved for issuance upon the exercise
of stock options outstanding under the Company's stock option plans at exercise
prices ranging from $.75 to $5.75 per share, of which options to purchase
660,819 shares are currently exercisable. An additional 218,300 shares of
Common Stock are reserved for issuance upon the exercise of options available
for future grant under such plans. In addition, 200,000 shares of Common Stock
are reserved for issuance upon the exercise of the Representatives' Warrants.
To the extent the trading price of Common Stock at the time of exercise of any
such options or warrants exceeds the exercise price, such exercise will have a
dilutive effect on the Company's stockholders. See "Shares Eligible for Future
Sale."

CERTAIN CHARTER AND BY-LAW PROVISIONS, AND ANTI-TAKEOVER EFFECT OF DELAWARE LAW

The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges, including voting rights, of such shares without any further vote or
action by the Company's stockholders. The rights of the holders of Common Stock
will be subject to, and could be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance
of shares of Preferred Stock under certain circumstances could have the effect
of delaying, deferring or preventing a change of control of the Company. The
Company has no present plan or arrangement to issue any additional shares of
Preferred Stock. Certain provisions of Delaware law could delay or inhibit a
merger, tender offer or proxy contest involving the Company. See "Description
of Capital Stock."

10
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of 2,000,000 shares offered
hereby, and after deducting underwriting discounts and commissions, and
estimated offering expenses of $255,000, are estimated to be approximately
$14,605,000 ($16,834,000 if the Underwriters' over-allotment option is exercised
in full).

The original holders of the Company's Series B Redeemable Preferred Stock
(the "Series B Preferred Stock") are entitled to receive warrants to purchase
Common Stock at an exercise price of $.50 per share if the Series B Preferred
Stock remains outstanding on August 10, 1995. See "Description of Capital
Stock." The Series B Preferred Stock is redeemable for cash at any time in
whole or in part, at the Company's option, at a redemption price equal to 100%
of the liquidation preference per share, plus all accrued and unpaid dividends
thereon, if any, to the date of redemption. The Company intends to use
approximately $956,000 of the net proceeds of this offering to redeem all of
the outstanding shares of the Company's Series B Preferred Stock.

The Company intends to use the balance of the net proceeds of this offering
for the development, manufacture and marketing of products based upon its CTI
technology. A significant portion of the proceeds will be used by the Company
in connection with its ongoing investment in the CYMax high-speed color digital
printer program, including expected research and development expenses for the
CYMax series of high-speed color digital printers of approximately $2,000,000
in the second half of fiscal year 1995 and approximately $4,500,000 in fiscal
year 1996.

In addition, the net proceeds not so utilized will be used for the Company's
other working capital needs and for general corporate purposes. The Company may
also utilize a portion of the net proceeds from the offering for possible
investment in or acquisition of complementary businesses, products, product
development rights and technologies. The Company has no current understanding
or commitment with respect to any such investment or acquisition, however, and
there can be no assurance that any such investment or acquisition will become
available or will be made.

Prior to the use of the proceeds of this offering, the Company will invest
such proceeds in short-term and medium-term interest-bearing instruments, such
as certificates of deposit and short-term governmental obligations.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is traded on the AMEX under the symbol "DC." The
following table sets forth for the fiscal periods indicated the high and low
sales prices for the Common Stock as reported on the AMEX:

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED OCTOBER 31, 1993
1st Quarter............................................ $ 2 1/2 $1 1/16
2nd Quarter............................................ 2 5/8 1 1/2
3rd Quarter............................................ 1 13/16 1 1/4
4th Quarter............................................ 3 5/8 1 3/16

FISCAL YEAR ENDED OCTOBER 30, 1994
1st Quarter............................................ $ 4 1/8 $2 9/16
2nd Quarter............................................ 3 1/4 2 3/8
3rd Quarter............................................ 3 3/16 2 9/16
4th Quarter............................................ 5 1/4 3 7/16

FISCAL YEAR ENDING OCTOBER 29, 1995
1st Quarter............................................ $ 6 3/8 $3 3/4
2nd Quarter............................................ 9 1/4 5 1/8
3rd Quarter (through June 20, 1995).................... 10 5/8 8
</TABLE>

11
<PAGE>

For a recent last reported closing price of the Common Stock on the AMEX, see
the cover page of this Prospectus. As of May 17, 1995, the Company had 894
holders of record of Common Stock.

The Company has never paid cash dividends on its Common Stock and has no
plans to pay any such dividends in the foreseeable future. In addition, the
Company's bank line of credit currently prohibits the payment of dividends on
the Common Stock without written permission from the bank. The Company
currently intends to retain any earnings for working capital and general
corporate purposes.

CAPITALIZATION

The following table sets forth the capitalization of the Company at April 30,
1995, and as adjusted to reflect the sale of 2,000,000 shares of Common Stock
offered hereby and the initial application of the net proceeds therefrom to
redeem all of the outstanding shares of the Company's Series B Preferred Stock.
See "Use of Proceeds."

<TABLE>
<CAPTION>
AS OF
APRIL 30, 1995
-----------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Current portion of capital lease and loan obligations........ $ 514 $ 514
======= =======
Long-term debt due after one year............................ $ 1,369 $ 1,369
Capital lease obligations (less current portion)............. 117 117
Series B redeemable preferred stock (1)...................... 939 --
Stockholders' equity:
Preferred stock, $.01 par value--5,000,000 shares
authorized (1)............................................ -- --
Common stock $.01 par value--15,000,000 shares authorized,
9,417,582 shares issued and outstanding (11,417,582
shares as adjusted) (2).................................. 94 114
Additional paid-in capital................................ 14,813 29,398
Accumulated deficit....................................... (5,122) (5,122)
------- --------
Total stockholders' equity.............................. 9,785 24,390
------- --------
Total capitalization........................................ $12,210 $ 25,876
======= ========
</TABLE>

- --------
(1) See Note 8 of Notes to Financial Statements.

(2) Excludes 1,421,168 shares of Common Stock reserved for issuance at April
30, 1995 upon exercise of outstanding stock options granted and available
for grant under the Company's stock option plans, 170,000 shares of Common
Stock issuable upon exercise of warrants issued by the Company and 200,000
shares of Common Stock issuable upon exercise of the Representatives'
Warrants. See Notes 8 and 9 of Notes to Financial Statements, and
"Description of Capital Stock" and "Shares Eligible for Future Sale."

12
<PAGE>

SELECTED FINANCIAL DATA

This following selected financial data has been derived from and should be
read in conjunction with the Company's audited financial statements and
related notes and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" included elsewhere herein. The selected
financial data as of October 1990, 1991 and 1992 and for the years ended
October 1990 and 1991 have been derived from financial statements not included
herein. The selected statement of operations data for the six months ended May
1, 1994 and April 30, 1995 and the selected balance sheet data as of April 30,
1995 are taken or derived from the unaudited financial statements of the
Company. In the opinion of management, such unaudited financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for such periods. The results
of operations for the six months ended April 30, 1995 are not necessarily
indicative of the results to be expected for the fiscal year ending October
29, 1995. Amounts are in thousands, except per share data.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------------------------------------- ----------------------
OCTOBER 28, OCTOBER 27, OCTOBER 25, OCTOBER 31, OCTOBER 30, MAY 1, APRIL 30,
1990 1991 1992 1993(1) 1994 1994 1995
----------- ----------- ----------- ----------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales................... $26,536 $21,017 $22,358 $23,984 $25,211 $12,367 $7,348
Gross profit............ 6,926 6,792 8,407 8,361 8,306 4,077 1,291
Research and development
expenses............... 699 726 1,390 1,951 2,297 975 2,646
Selling, general and
administrative
expenses............... 5,255 4,731 5,069 5,547 6,254 3,528 2,806
Income (loss) from
operations............. 972 1,335 1,948 863 (245) (426) (4,161)
Interest income
(expense), net......... (408) (191) (129) (65) 2 (58) (39)
Cumulative effect of
change in accounting
principle(2)........... -- -- -- 938 -- -- --
Extraordinary item,
utilization of
operating loss and tax
credit carryforwards... 221 -- -- -- -- -- --
Net income (loss)....... 564 675 1,337 1,483 31 (213) (4,050)
Series A preferred stock
dividends paid(3)...... -- 385 190 114 -- -- --
Earnings (loss) per
common share(4):
Primary................ $ .10 $ .13 $ .30 $ .26 $ -- $ (.03) $ (.40)
Fully diluted.......... $ .10 $ .12 $ .22 $ .23 $ -- $ (.03) $ (.40)
Weighted average number
of shares
outstanding(4):
Primary................ 3,616 3,664 3,769 5,458 9,067 7,682 10,186
Fully diluted.......... 5,816 5,864 5,946 6,404 9,067 7,682 10,186
</TABLE>

<TABLE>
<CAPTION>
OCTOBER 28, OCTOBER 27, OCTOBER 25, OCTOBER 31, OCTOBER 30, APRIL 30,
1990 1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital......... $2,718 $3,620 $4,856 $8,708 $12,361 $8,754
Total assets............ 10,985 11,502 9,626 16,460 19,950 15,953
Note payable to bank.... 1,247 1,677 460 1,150 600 --
Long-term debt (less
current portion)....... 853 307 -- -- -- 1,369
Capital lease
obligations (less
current portion)....... -- -- 33 138 32 117
Series B redeemable
preferred stock........ -- -- -- 965 940 939
Series A preferred
stock(3)............... 2,572 2,572 2,489 -- -- --
Stockholders' equity.... 4,082 4,561 5,725 8,470 13,661 9,785
</TABLE>
- --------
(1) Includes the results of Rugged Digital from August 10, 1993, the date of
acquisition by the Company. See Note 2 of Notes to Financial Statements.
(2) See Note 5 of Notes to Financial Statements.
(3) All remaining shares of Series A Preferred Stock were converted into
Common Stock during fiscal 1993.
(4) See Note 1 of Notes to Financial Statements for an explanation of the
calculation of the number of shares used in computing net income per
common share.

13
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

OVERVIEW

The Company designs, develops, manufactures and sells high-speed color
printers, high resolution non-impact printer/plotters and ruggedized computers,
printers and workstations. Historically, the Company's products have been used
primarily for U.S. military applications. Over the past several years, the
Company has been significantly impacted by reductions in the U.S. defense
budget. In response, in fiscal 1989 the Company instituted cost containment
measures, increased operating efficiencies and focused its efforts on
maintaining higher margin products in its manufacturing mix and on cash
generation. In addition, the Company began to initiate efforts to reduce its
dependency on defense spending by applying its technology and experience to
commercial, industrial and international markets. For the past four fiscal
years, the Company has focused its research and development activities on
commercial applications of its products and technologies, in particular the
Company's proprietary, high-speed color printer technology.

The Company's operating cycle is long term and involves various types of
production contracts and varying production delivery schedules. Management
believes that inflation and changing prices have not had a material effect on
the Company's results of operations for the periods covered by the financial
statements included herein. The contract process in which products are offered
for sale is generally set before costs are incurred and the prices are based on
estimates of these costs which include the anticipated impact of inflation.
Accordingly, results of a particular period, or period-to-period comparisons of
recorded sales and profits, may not be indicative of future operating results.
The following comparative analysis should be viewed in this context.

RESULTS OF OPERATIONS

The following table sets forth certain statement of operations data as a
percentage of sales for the periods indicated:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
-------------------------- -----------------
OCT. 25, OCT. 31, OCT. 30, MAY 1, APR. 30,
1992 1993 1994 1994 1995
-------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
Sales...................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............. 62.4 65.1 67.1 67.0 82.4
----- ----- ----- ----- -----
Gross profit............... 37.6 34.9 32.9 33.0 17.6
Operating expenses:
Research and development
expenses................ 6.2 8.1 9.1 7.9 36.0
Selling, general and
administrative expenses. 22.7 23.1 24.8 28.5 38.2
----- ----- ----- ----- -----
Income (loss) from
operations................ 8.7 3.7 (1.0) (3.4) (56.6)
Interest income (expense),
net....................... (0.6) (0.3) -- (0.5) (0.5)
Amortization of excess of
acquired net assets over
cost...................... -- 0.3 1.2 1.1 2.1
----- ----- ----- ----- -----
Income (loss) before provi-
sion for income taxes and
cumulative effect of
change in accounting
principle................. 8.1 3.7 0.2 (2.8) (55.0)
Provision (benefit) for
income taxes.............. 2.2 1.4 0.1 (1.1) --
Cumulative effect of change
in accounting principle... -- 3.9 -- -- --
----- ----- ----- ----- -----
Net income (loss).......... 5.9% 6.2% 0.1% (1.7)% (55.0)%
===== ===== ===== ===== =====
</TABLE>

14
<PAGE>

Six Month Period Ended April 30, 1995 Compared To The Six Month Period
Ended May 1, 1994

Sales for the six month period ended April 30, 1995 were $7,348,000, a
decrease of $5,019,000 or 41% compared to $12,367,000 for the same period the
prior year. Sales from printer and workstation contracts relating to the
MILSTAR program declined $4,800,000 to $1,300,000, while other defense-related
workstation sales remained constant, other defense related printer sales
increased $400,000 and sales to other customers declined $619,000. The MILSTAR
program, which accounted for $4,600,000 in sales in the second half of fiscal
1994, is expected to account for less than $500,000 in the second half of
fiscal 1995. There can be no assurance that other DoD-related sales will
replace the MILSTAR program sales.

Gross profits for the six month period ended April 30, 1995 were $1,291,000
(18% of sales), a decrease of $2,786,000 or 68% compared to $4,077,000 (33% of
sales) for the same period the prior year. Gross profits as a percentage of
sales were adversely impacted by the Company's product mix shifting to lower
margin ruggedized products from higher margin full mil spec products and lower
production levels without a corresponding reduction in expenses.

Research and development expenses were $2,646,000 for the six month period
ended April 30, 1995, an increase of $1,671,000 or 171%, compared with $975,000
for the same period the prior year. Substantially all fiscal 1995 expenditures
related to the development of the Company's high-speed color digital printer
products.

Selling, general, and administrative expenses for the six month period ended
April 30, 1995 were $2,806,000 (38% of sales), a decrease of $722,000 or 20%
compared with $3,528,000 (29% of sales) for the same period the prior year.
This decrease was attributable to lower defense-related sales and marketing
expenses, consisting primarily of reduced commissions and payroll, partially
offset by increased marketing expenses for the Company's high-speed color
digital printer.

Net interest expense amounted to $39,000 for the six month period ended April
30, 1995, a net decrease of $19,000 compared with $58,000 for the same period
the prior year. This decrease was due to lower borrowings and higher interest
income partially offset by increased capital leases. Amortization of excess of
acquired net assets over cost was $152,000 for the six month period ended April
30, 1995 compared to $141,000 for the same period last year. The amortization
was a result of the acquisition of Rugged Digital in August 1993.

The net loss for the six months ended April 30, 1995 amounted to $4,050,000,
compared with a net loss of $213,000 for the same period in the prior year.
This was due to a decrease in gross profit of $2,786,000, an increase in
research and development costs of $1,671,000, and an increase in taxes of
$132,000, the aggregate of which was partially offset by a decrease in selling,
general, and administrative expenses of $722,000, a decrease in net interest
expense of $19,000, and an increase in amortization of excess of acquired net
assets over costs of $11,000.

Reduced military sales during fiscal 1995, along with increased competition
in the ruggedized peripheral market, increased research and development costs,
and higher interest expense due to capital leases and loans are expected to
result in a substantial loss for the Company in fiscal 1995.

Fiscal Year 1994 Compared with Fiscal Year 1993

Sales for the year ended October 30, 1994 were $25,211,000, an increase of
$1,227,000 or 5.0%, compared with sales of $23,984,000 in the prior year. In
fiscal 1994, decreases in nonmilitary-related sales of $1,163,000 and
international military printer sales of $1,363,000 were offset by increases in
printer and keyboard sales related to the DoD of $341,000 and ruggedized
computer and computer workstation sales of $6,618,000, reflecting twelve
months' results of such sales compared to less than three months in 1993. In
addition, in fiscal 1994, the Company only recognized $233,000 in sales (0.9%
of total Company sales) compared to $2,780,000 (11.6% of Company sales) in
fiscal 1993 from contracts for printers and keyboards

15
<PAGE>

for NASA's Space Station Freedom. In November 1993, the Company's contract was
terminated for convenience by McDonnell Douglas Corporation for reasons
unrelated to the Company's product. The Company's backlog of funded orders not
recognized as sales increased from $7,793,000 at October 31, 1993 to
$10,459,000 at October 30, 1994. This increase resulted primarily from
contracts with the Canadian Defense Department, partially offset by the DoD
delays in contract awards and reduced funding of military programs.

Gross profit for fiscal 1994 was $8,306,000 (32.9% of sales), a decrease of
$55,000, or 0.7%, compared with $8,361,000 (34.9% of sales) for the prior year.
Gross profit as a percent of sales decreased 0.8% in fiscal 1994 due to a
change in product mix. The remaining 1.2% gross profit decrease was due to a
cost overrun on a contract for a new black-and-white military printer.

Research and development expenses were $2,297,000 for fiscal year 1994
compared with $1,951,000 for the prior year. This increase was due to an
accelerated development schedule for the Company's high-speed color printer
technology in order to shorten time-to-market. The Company expects that this
development effort will cause research and development expenses to continue to
increase in fiscal 1995. The research and development expenses incurred in 1994
related to development of a high-speed commercial color printer technology and
product enhancements, lower-cost black-and-white printers and ruggedization of
newer-model workstations. The research and development expenses incurred in
fiscal 1993 related to development of a high-speed commercial color printer
technology, product enhancements and lower-cost black-and-white printers.

Selling, general and administrative expenses for fiscal 1994 were $6,254,000
(24.8% of sales) compared with $5,547,000 (23.1% of sales) for the prior year.
The increase was due to increased expenses associated with marketing the
Company's color printer technology.

Net interest income amounted to $2,000 for the year ended October 30, 1994
compared with net interest expense of $65,000 for fiscal 1993. This change in
interest expense was due to decreased borrowings and investment income on the
proceeds of the Company's common stock offering in 1994.

Net income for the fiscal year ended October 30, 1994 amounted to $31,000
compared with $1,483,000 for the prior year. This decrease of $1,452,000 was
attributable to a decrease in gross profit of $55,000, an increase in research
and development costs of $346,000, an increase in selling, general and
administrative costs of $707,000 and a change in accounting principle in fiscal
1993 resulting in a $938,000 gain. These amounts were partially offset by a
decrease in interest expense of $67,000, an increase in amortization of excess
of acquired net assets over cost of $205,000 and a decrease in income tax
expense of $322,000.

The Company had net deferred tax assets of $559,000 at October 30, 1994.
Management has determined that, based on the Company's carryback opportunities
and historical and expected future earnings from recurring operations, the
Company will more likely than not recognize these net deferred tax assets.
Ultimate recognition of these tax assets is dependent, to some extent, on
future revenue levels and margins. It is the intention of management to assess
the appropriate level for the valuation allowance each quarter.

Fiscal Year 1993 Compared with Fiscal Year 1992

Sales for the year ended October 31, 1993 were $23,984,000, an increase of
$1,626,000 or 7.3%, compared with sales of $22,358,000 in the prior year. In
fiscal 1993, nonmilitary-related printer sales increased by $1,800,000,
international military printer sales decreased by $600,000, printer and
keyboard sales related to the U.S. Department of Defense decreased by
$3,900,000, and Rugged Digital sales added $4,300,000 during the year. The
decrease in DoD printer and keyboard sales in fiscal 1993 was the result of an
uncertain defense budget situation that resulted in contract award delays and
reduced military program funding. In addition, in fiscal 1993, the Company
recognized $2,780,000 in sales (11.6% of total Company sales) from contracts
for printers and keyboards for NASA's Space Station Freedom. The Company's
backlog

16
<PAGE>

of funded orders not recognized as sales increased from $6,795,000 at October
25, 1992 to $7,793,000 at October 31, 1993. This increase resulted primarily
from the DoD contracts relative to Rugged Digital business partially offset by
award delays and reduced military program funding discussed above.

Gross profit for the year ended October 31, 1993 was $8,361,000 (34.9% of
sales), a decrease of $46,000 or 0.5% compared with $8,407,000 (37.6% of sales)
for the prior year. Gross profit as a percent of sales decreased 1.1% in fiscal
1993 due to a change in product mix. The remaining 1.6% gross profit decrease
was due to a cost overrun on a military color printer interface which may be
recovered on future orders.

Research and development expenses were $1,951,000 for fiscal year 1993
compared with $1,390,000 for the prior year. This increase was due to an
accelerated development schedule for the Company's high-speed color printer
technology in order to shorten time to market. The research and development
expenses incurred in fiscal 1993 related to development of a high-speed
commercial color printer technology, product enhancements and lower-cost black-
and-white printers. The research and development expenses incurred in fiscal
1992 related to product development for high-speed commercial color printer
technology and a low-cost, rugged, black-and-white printer and keyboard as well
as enhancements to existing products.

Selling, general and administrative expenses for the year ended October 31,
1993 were $5,547,000 (23.1% of sales) compared with $5,069,000 (22.7% of sales)
for the prior year. The increase was due to increased expense for marketing
relating to the Company's color printer technology.

Interest expense amounted to $65,000 for the year ended October 31, 1993
compared with $129,000 for the prior year. This reduction was due to decreased
borrowings and a lower overall interest rate.

The cumulative effect of change in accounting principle was the result of the
Company's adoption, effective as of the beginning of fiscal 1993, of a new
standard related to accounting for income taxes, Statement of Financial
Accounting Standards No. 109 (SFAS No. 109). The effect of adopting SFAS No.
109 was a one-time benefit to income of $938,000.

Net income for the year ended October 31, 1993 amounted to $1,483,000
compared with $1,337,000 for the prior year.

LIQUIDITY AND CAPITAL RESOURCES

The Company has entered into a revolving line of credit with a bank (the
"Credit Agreement"). The advance rate is eighty percent (80%) of eligible
accounts receivable, plus eighty percent (80%) of eligible progress billing
receivables, to a maximum of the progress billing receivable sublimit, which
will not exceed the lesser of ten percent (10%) of eligible accounts receivable
or $500,000. The lending facility is capped at $7,000,000 and expires on March
4, 1996. The interest rate is prime plus .25%. The loan is secured by
substantially all the Company's assets. As of May 17, 1995, the Company had
borrowings outstanding of $1,200,000 under the Credit Agreement and remaining
availability of approximately $1,000,000 under the terms of the Credit
Agreement.

The Credit Agreement requires the Company to maintain certain financial
ratios and restricts or limits the Company's ability to (i) create certain
liens, (ii) convey, transfer, or sell assets out of the ordinary course, (iii)
incur additional indebtedness, (iv) redeem or repurchase any class of stock,
and (v) pay dividends on its preferred or common stock. The Company is in
compliance with all of its covenants.

From time to time the Company receives advance payments on certain contracts.
These funds may be used for working capital requirements and other general
corporate purposes until needed to complete the contracts. At April 30, 1995,
the Company had $24,000 of advance payments in excess of costs.

17
<PAGE>

The Company's working capital and current ratios at the end of fiscal years
1992, 1993, 1994 and the period ending April 30, 1995 were $4,856,000,
$8,708,000, $12,361,000 and $8,754,000 and 2.4, 2.6, 3.7 and 3.8 respectively.

The Company expects to purchase approximately $1,700,000 of capital equipment
(including capitalized leases) during fiscal 1995, of which $1,283,000 of such
equipment had been purchased as of April 30, 1995. The Company's other
principal commitments for fiscal 1995 are lease obligations for the Company's
facility, operating leases, principal and interest due on equipment borrowings,
redemption of the Series B Preferred Stock and interest on bank borrowings. The
Company intends to use a portion of the proceeds of this offering to redeem all
of the outstanding shares of its Series B Preferred Stock. See "Use of
Proceeds."

Due to the Company's significant level of research and development costs and
the reduced sales and margins in its military business, the Company has
experienced negative cash flow from operations of $496,000 for the first six
months of fiscal year 1995. This negative cash flow from operations is expected
to continue for the remainder of fiscal year 1995.

The Company intends to fund its continued investment in its high-speed color
digital printers through a public offering of common stock. The proceeds of
such offering are necessary to provide the needed liquidity to maintain this
expected significant level of research and development and to make anticipated
production deliveries in calendar 1995. The Company intends to finance its
defense-related capital requirements and other liquidity needs from the
existing line of credit, capital leases and working capital. In addition,
pursuant to an agreement reached in February 1995, the Company expects that in
the third fiscal quarter of 1995, Cruttenden Roth Incorporated will exercise
the warrants previously granted to it in connection with the Company's public
offering consummated in March 1994, and the Company will receive the aggregate
warrant exercise price of $535,500 in cash.

BUSINESS ENVIRONMENT

As part of its business strategy, the Company has been investing substantial
resources in developing its commercial business. Results for 1995 are expected
to be impacted by continued significant investment in the Company's CYMax high-
speed color digital printer program, during which time the Company expects to
introduce products to the market for field evaluation. During calendar 1995,
the Company expects to make initial customer deliveries and to slowly increase
production, which the Company anticipates will begin generating incremental
commercial revenues.

Companies engaged in supplying equipment and services to U.S. government
defense programs are subject to special risks including dependence on
government appropriations, contract termination without cause, contract
renegotiation, and the intense competition for the available defense business.
Over the past several years, the Company has been significantly impacted by
market changes in the DoD. DoD budget forecasts indicate that overall funding
will continue to decrease for the foreseeable future, and the Company
anticipates that the results of its military business operations will continue
to be adversely affected by such decreases.

Reduced military sales during fiscal 1995, along with increased competition
in the ruggedized peripheral market, increased research and development costs,
and higher interest expense due to capital leases and loans are expected to
cause a substantial loss for the Company in fiscal 1995.

Because of the foregoing, as well as other factors affecting the Company's
operating results, past financial performance should not be considered to be a
reliable indicator of future performance.

18
<PAGE>

BUSINESS

The Company designs, develops, manufactures and sells high-speed color
printers, high-resolution non-impact printer/plotters and ruggedized computers,
printers and workstations. The Company is focused on the development of high-
speed color digital printers which utilize its proprietary concurrent transfer
imaging ("CTI") printing process and has recently sold a limited number of such
printers to niche commercial users. The Company intends to market its CYMax
series of high-speed color digital printers, based on CTI technology, to mass
commercial users including short-run production printers. The Company's high-
speed color digital printers have demonstrated the ability to print full-color,
high-quality images on 8 1/2 x 11" pages in less than 3 seconds, or 20 color
pages per minute. The Company believes that no comparably priced digital color
printer currently available prints full-color, high-quality images at speeds
equal to the Company's CYMax series of high-speed color digital printers.

The Company believes that its proprietary CTI technology has numerous
potential applications in the color printer market, ranging from mass
commercial uses to niche applications. The Company has targeted the short-run
production printer market for its initial entry into mass commercial markets.
The short-run production printer market is characterized by printers whose
typical print run is 2,000 documents or less and includes franchise and
independent quick print shops, in-plant printing departments, sign printers,
copy shops, service bureaus and commercial printers. In March 1995, the Company
signed a multi-year strategic distribution agreement with A.B.Dick for the
worldwide distribution of the CYMax series of high-speed color digital
printers. The Company is currently preparing beta test units for field
evaluation by A.B.Dick and other select customers and anticipates that
production deliveries will commence in calendar 1995.

The Company was incorporated in California in October 1962 and was
reincorporated in Delaware in April 1987. The Company's principal executive
offices are located at 21135 Erwin Street, Woodland Hills, California 91367,
and its telephone number is (818) 598-6200.

COMPANY BACKGROUND

The Company pioneered the development of high-speed, non-impact printers for
tactical military applications. At present, ruggedized printers remain the
Company's core product line, and the U.S. military remains its largest source
of revenue. Building from this base, the Company has developed and manufactured
other high-performance, high-reliability electronics communications equipment
for aerospace, defense, industrial and commercial markets. The Company's
current product line includes printers, printer/plotters and ruggedized
computers and workstations with diverse capabilities ranging from stringent
military specifications to varying commercial standards.

Over the past several fiscal years, the Company has been significantly
impacted by market changes in the DoD. DoD budget forecasts indicate that
overall funding will continue to decrease for the foreseeable future. The
Company's primary response to these adverse defense market conditions has been
to develop and aggressively pursue opportunities for its CYMax series of high-
speed color digital printers.

19
<PAGE>

BUSINESS STRATEGY

The Company's overall business strategy is to continue to aggressively pursue
opportunities to apply its technology and experience to the commercial
marketplace and thereby reduce its dependence on the U.S. defense industry. The
key elements of the Company's business strategy include:

Aggressively Pursue Mass Commercial Applications for CYMax High-Speed Color
Digital Printers.

The Company plans to market its CYMax high-speed color digital printers into
certain mass commercial markets, such as the short-run production printer
market, through its strategic distribution agreement with A.B.Dick and its
pursuit of OEM and reseller distribution agreements. The benefits the Company
is seeking through such agreements are a combination of established
distribution channels, financial support and brand name product recognition.

Leverage CTI Technology to Penetrate Niche Market Applications.

The Company intends to leverage its CTI technology into niche market
applications, such as seismic data plotting, sign making, label and form
printing and specialty vehicle license plate printing. These niche markets are
application driven and generally require a unique configuration of the printer.
The Company believes that such niche market applications may help foster long
term customer relationships as the products are customized with customer-funded
non-recurring engineering. The Company believes that it has the financial
resources and technical capabilities to manufacture and market such printer
configurations for these niche markets without the assistance of strategic
alliances.

Strengthen its Manufacturing and Service Capabilities through Third Party
Arrangements.

The Company is pursuing strategic manufacturing and field service alliances.
The Company believes that this strategy will allow it to increase manufacturing
capacity and service capabilities, while at the same time, focusing on its core
competencies in the development and marketing of technologically advanced,
high-speed color digital printers. As part of this strategy, on May 11, 1995,
the Company signed an agreement with IBM Corporation pursuant to which IBM
Corporation will provide field maintenance services for the Company's CYMax
series of high-speed color digital printers.

Continue to Invest in Product Development.

The Company believes that its CYMax series of high-speed color digital
printers offer a superior combination of image quality, speed and price for its
targeted applications. The Company plans to invest in significant ongoing
product development efforts to enhance image quality, reduce product and
operating costs and increase functionality and speed.

Preserve Leading Position in Military Printer Markets and Expand Rugged
Digital Operations.

The Company traditionally has been the leading manufacturer of high end, mil
spec printers. In spite of the significantly reduced market size over the past
few years, the Company believes that mil spec printers will continue to be an
important revenue source in the future. The Company intends to preserve a
leading position in this market through early identification of programs,
support of government program offices in formulating product requirements and
incremental investments in research and development to develop lower cost
military capable products. In addition, the Company has expanded its Rugged
Digital product line of ruggedized computers and peripherals, adding equipment
from several computer manufacturers in addition to its historical line of
Digital Equipment Corporation hardware products. This expansion has broadened
the Company's addressable defense markets and solidified its position in
traditional defense markets.

HIGH-SPEED COLOR DIGITAL PRINTER

The Company has designated its third generation high-speed color printers
targeted at commercial markets as the CYMax series of high-speed color digital
printers. The CYMax series of high-speed color digital printers, as well as the
Company's earlier generations of high-speed color printers, incorporates the

20
<PAGE>

Company's proprietary color printer technology utilizing a concurrent transfer
imaging process. CTI technology utilizes a unique high-speed, high-resolution
electronic print mechanism, proprietary image enhancement software algorithms,
paper alignment and control, and thermal energy management systems. The CTI
printing process utilized by the Company's high-speed technology has fewer
moving parts than most competing technologies and, as such, is expected to be
more reliable and easier to maintain. The Company has demonstrated that
products based on CTI technology can print a full-color, high-quality image on
an 8 1/2" x 11" page in less than three seconds, or 20 color pages printed per
minute. The Company believes that its CYMax series of high-speed color digital
printers will print full-color, high-quality images at a faster speed than any
comparably priced digital color printer now on the market.

The Company developed its first color printer in 1988 and shipped its first
product in 1989. In 1990, the Company initiated research and development on
high-speed thermal transfer printer technology. Beginning in 1991, under a
contract with Halliburton Oil Logging Services ("Halliburton") the Company
customized its technology to manufacture a high-speed, high-resolution color
printer for oil exploration. Halliburton utilizes the printers to plot seismic
sensor data on a continuous basis. Output plots are up to 400 feet long and are
printed at speeds of three inches per second. In September 1993 the Company
signed an OEM agreement with AZON Corporation of Johnson City, New York for
development of a configuration of a high-speed color printer for printing
specialty vehicle license plates. This printer will be used in a system for the
State of New York which is expected to go on-line in the latter part of 1995.

In fiscal 1994, the Company began an intensive program to develop a high-
speed color digital printer for the short-run production printer market. In
November 1994, the Company demonstrated a prototype of this third generation
high-speed color printer, designated as the CYMax series, at the Comdex show in
Las Vegas, Nevada and the XPLOR show in Phoenix, Arizona. On May 5, 1995,
A.B.Dick announced the first CYMax high-speed color digital printer to be
marketed under its label at the Drupa exhibition in Dusseldorf, Germany, one of
the largest printing shows in the world. Held every five years, the Company
believes that Drupa is attended by over 1,500 exhibiting manufacturers of
printing related equipment. The Company is currently preparing beta test units
for field evaluation by A.B.Dick and other select customers and anticipates
that production deliveries will commence in calendar 1995.

The Company's commercial color printer product strategy is based on providing
products that offer the best combination of image quality, speed, and price
(including acquisition price and operating costs) to certain target markets,
including the short-run production printer market. The Company believes that no
product or technology to date has offered all three of these characteristics at
satisfactory levels in a single product to such target markets. The Company
believes that its initial CYMax product offering, printing at a speed of 20
pages per minute, is the fastest digital color printer in the world in its
price category. Based on industry data, the Company believes that the
acquisition price for the initial CYMax product will be about one-half the
price of competitive products that print at lower speeds than the CYMax
product. The Company expects that the total operating costs of the CYMax
product series will be about 60% of the operating cost of competitive printers,
primarily due to the very low maintenance costs resulting from the simplicity
of the CYMax design. Since CYMax will be sold into print-for-profit
environments, the Company will continue to make significant research and
development investments in areas that will reduce the CYMax product's operating
costs, such as development of ribbon conservation techniques. The Company also
plans to make significant ongoing research and development investment to
enhance its image quality and to increase print speed.

In March 1995, the Company signed a multi-year strategic distribution
agreement with A.B.Dick of Niles, Illinois, for the worldwide distribution of
the CYMax series high-speed color digital printers. This agreement provides
A.B.Dick with exclusive rights to sell the CYMax products into the quick
printer and commercial printer segments of the short-run production printer
market, comprising about one-third of the total addressable market in potential
revenues, subject to certain conditions. The A.B.Dick agreement also provides
non-exclusive rights to A.B.Dick to market and sell the CYMax products into
other print-for-profit market segments and also to in-plant printing
facilities. A.B.Dick has a significant marketing and service

21
<PAGE>

presence through its direct sales force and distribution network in over 80
countries in North America, Europe, and the Pacific Rim. The Company is also
pursuing agreements with OEMs and resellers with strengths in market segments
not specifically covered by A.B.Dick.

On May 11, 1995, the Company entered into an agreement with IBM Corporation
pursuant to which IBM Corporation will provide field service for the CYMax
series printers under maintenance contracts between the Company and its
customers. The Company believes this alliance will enhance its competitive
positioning by providing its customers with the assurance that their printers
will be properly maintained by an established field service organization.

HIGH-SPEED COLOR DIGITAL PRINTER MARKETS

Market Overview. Industry sources estimate that in 1994 the short-run
production market for color printers was $519 million and is expected to grow
to $740 million in 1996. In addition, the total short-run production market,
including color digital printers, consumables such as ribbons and ink, and
printer service and maintenance, is estimated to have been $1.2 billion in 1994
and is estimated to increase to $2.0 billion in 1996.

Currently, the U.S. color printer market is dominated by traditional offset
presses. Traditional offset presses require very long set-up times and are
cost-effective only for very large print volumes, generally in excess of 5,000
document print runs. The color printer market is changing dramatically,
however, with the introduction of computer-driven electronic printers.
Electronic printers allow each printed page in a print run to be unique and do
not have lengthy set-up procedures like traditional offset presses, allowing
for color printing on demand. As a result of technological advances, the cost
of printing small runs of color documents on demand is being reduced
substantially. Electronic color printers currently can print short runs of
2,000 documents or less on a cost-effective basis. Based on industry data, the
Company believes that print runs of 2,000 documents or less currently account
for over 50% of the total number of U.S. color print runs annually. As the cost
of printing small runs of color documents on demand continues to decline, the
demand by consumers for short-run color printing services, and accordingly, the
demand for short-run production printers, is expected to grow substantially.

Short-Run Production Printer Market. Potential customers in this market
include franchise quick-print shops, independent quick-print shops, in-plant
printing departments, sign printers, copy shops, service bureaus, commercial
printers and institutions. The following table shows the number of short-run
production printers worldwide in 1994, and is based primarily on data compiled
by selected private market research firms.

<TABLE>
<CAPTION>
NORTH AMERICA REST OF WORLD TOTAL
------------- ------------- -----
(IN THOUSANDS OF PRINTSHOPS)
<S> <C> <C> <C>
In-Plants............................... 29.0 63.5 92.5
Sign Shops.............................. 33.0 58.3 91.3
Quick Printers.......................... 25.0 53.8 78.8
Other(1)................................ 18.7 27.9 46.6
----- ----- -----
Total................................... 105.7 203.5 309.2
===== ===== =====
</TABLE>
- --------
(1) This category includes commercial printers, copy shops, service bureaus and
institutions.

22
<PAGE>

The short-run production printer market has a fairly narrow range of
principal suppliers and print technologies. The following table shows the
principal suppliers, print technologies, printer speeds and range of suggested
retail printer prices in the short-run production printer market:

<TABLE>
<CAPTION>
APPROXIMATE
MANUFACTURER'S
SUGGESTED RETAIL
SUPPLIER PRINT TECHNOLOGY SPEED (PPM) PRICE
- -------- ---------------- ----------- -----------------
<S> <C> <C> <C>
DATAMETRICS CORPORATION:
CYMax 3240 Concurrent Transfer 20 $39,000
Imaging Process
PRINTER/COPIER
SUPPLIERS:
Canon CLC 700 Electrophotographic 7 $74,000
(simplex)(1)
Canon CLC 800 Electrophotographic 7 $84,900
(duplex)(1)
Xerox Majestik Electrophotographic 6 $67,500
Minolta CF80 Electrophotographic 7 $77,500
Ricoh 8015 Electrophotographic 15 $88,500
DIGITAL PRESS SUPPLIERS:
Xeikon DCP-1(2) Electrophotographic 35 $220,000-$320,000
Indigo E-Print 1000 Hybrid--Offset and Liquid Ink 33 $250,000-$420,000
</TABLE>

- --------

(1) Marketed also under the Eastman Kodak label.

(2) Marketed also by AM Multigraphics and by Agfa-Gevaert Belgium.

The Company believes that its CTI technology has numerous applications in the
short-run production printer market. The two segments of this market that the
Company has initially targeted are the print-for-profit and in-plant market
segments. The Company believes that a print speed of between 15-20 color pages
per minute is required in order for a printer to be effectively utilized in
these two market segments. The Company believes that no printer currently being
sold into these two market segments can achieve the price/performance of the
Company's color printers, with the highest priced electrophotographic printers
coming closest with an average print speed of up to 15 pages per minute. As
such, the 20 color page per minute speed achieved by printers using the
Company's CTI technology would represent a print speed advantage compared with
electrophotographic printers now being sold into such market segments. Other
printer products now sold into the short-run production printer market,
primarily digital presses, are generally characterized by their high print
speed (over 30 pages per minute) and their high acquisition cost (over $200,000
per printer). Printers based on the Company's CTI technology now have a print
speed of 20 color pages per minute, but are expected to have an acquisition
cost (approximately $39,000) significantly below other printers now sold into
this market. The Company believes that 20 color pages per minute is
sufficiently fast to operate effectively in the short-run production printer
market and that this market offers an attractive opportunity for its printers
on the basis of a significantly lower acquisition price alternative.

23
<PAGE>

Printer Technologies. The following table compares key aspects of the
Company's CTI technology with certain competitive print technologies which the
Company believes are capable of cost-effectively serving the short-run
production printer market:

<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE FULL-COLOR APPROXIMATE
MANUFACTURER'S PAGES AVERAGE COST
PRINTER SUGGESTED PRINTED PER
TECHNOLOGY ADVANTAGES DISADVANTAGES RETAIL PRICE PER MINUTE COLOR PAGE(1)
- ----------------------- ---------------- ---------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
DATAMETRICS TECHNOLOGY:
CONCURRENT TRANSFER High print Moderate image $39,000 20 $.36-$.39
IMAGING (paper makes speed; Low degradation on
only one pass through acquisition and lower grades of
four thermal heads and maintenance paper; Moderate
ribbon stations) costs; Excellent cost/page for
transparencies; low color print
Low cost/page coverage
for high color
print coverage
COMPETITIVE
TECHNOLOGIES:
ELECTROPHOTOGRAPHY (an Minimal High acquisition $67,500- 6-15 $.59-$.61
electronic image is degradation on and maintenance $88,500
produced to which lower grades of costs; Low print
electrically charged paper; Good speed
toner particles are transparencies
attracted, deposited
on the media and fused
to the paper through
heat and pressure)
DIGITAL COLOR PRESS Very high print Very high $220,000- 33-35 $.40-$.55
(several technologies, speed; Minimal acquisition and $420,000
including degradation on maintenance
electrophotography and lower grades of costs
hybrid offset press) paper; High
image/print
quality
</TABLE>
- --------
(1) The approximate average cost per full-color page data shown above is based
on industry data. The cost per full-color page includes all costs
associated with printing including consumables, maintenance, printer
amortization, labor and electricity. The cost per full-color page shown in
the table is based upon 50% print coverage on the page, which the Company
believes is the average color print coverage per page in the short-run
production printer market. The cost per full-color page for the Company's
CTI technology does not vary based on the color print coverage. For the
other printer technologies shown above, the cost per full-color page is
dependent upon the percentage of color print coverage on the page.

24
<PAGE>

Niche Markets. In parallel with its pursuit of distribution alliances to
enter mass commercial markets, the Company intends to leverage its current CTI
technology into other niche OEM markets and applications, such as seismic data
plotting, sign making, label and form printing and specialty vehicle license
plate printing. These niche markets are application driven and will generally
require a unique configuration of the printer. As such, customer-funded non-
recurring engineering may be sought to customize the product. The Company
believes that it has the financial resources and technical capabilities to
manufacture printers for these niche markets itself without the assistance of
strategic alliances. The Company pursues these niche markets through trade show
presentations, advertising and its contacts in the commercial printer industry.
An example of entry into such a niche market is the Company's September 1993
agreement with AZON Corporation ("AZON"), a leading U.S. supplier of
architectural and engineering drawing materials and pioneer in the coating of
full-color computer aided design and graphics products. Under the terms of the
agreement, the Company developed and delivered a second generation high-speed
color digital printer based upon CTI technology to be used for printing a new
generation of specialty vehicle license plates and street signs utilizing full-
size adhesive color labels. The agreement covers research and development, non-
recurring engineering expenses, production printers and consumables and has an
estimated sales value in excess of $11 million if all options are exercised by
AZON. There can be no assurance, however, that AZON will exercise the contract
options. In addition, either party may terminate the agreement on sixty days'
notice. AZON has the exclusive right to sell this specialty printer
configuration in certain vertical markets. In October 1994, AZON was awarded a
contract with the State of New York for a license plate system, which will
utilize the Company's printers.

DEFENSE PRODUCTS

The Company currently designs, develops, manufactures and sells mil spec and
ruggedized printers and ruggedized computers and workstations for use in U.S.
DoD applications. Products sold by the Company into the DoD markets can be
categorized into two basic groups: military printers and ruggedized computers.
For the year ended October 30, 1994, approximately 85% of the Company's
revenues were derived from DoD business and included contractors with U.S.
government contracts as well as the DoD itself.

Mil spec products are designed specifically for military requirements and
must meet stringent requirements for operation in adverse environments, such as
shock, vibration, extreme temperatures and nuclear radiation. As such, these
products are more reliable and significantly more expensive than ruggedized or
commercial products. At the other end of the spectrum, commercial products, as
the name implies, are designed principally for commercial applications, but in
some cases are suitable for military use. These products are generally
significantly less expensive than mil spec products. In a broad intermediate
category are ruggedized products, which generally have been configured to
operate in adverse environments but do not meet full mil spec requirements.

Military Printers. The Company manufactures a broad range of printers which
are categorized as either mil spec or ruggedized. These printers utilize
thermal printing or impact printing technologies. The Company's printers are
purchased and utilized by companies and organizations which manufacture, sell
or use data processing or data communications systems that require "hard copy"
printouts and into which the Company's products are incorporated. The Company's
military printers have greater reliability than conventional commercial
printers and are designed for use in severe environmental applications. The
design and component selection allow the Company's printers to withstand dirt
and grime, corrosion, droppage, bullets, moisture, extremes in hot and cold
temperature, and in some cases, nuclear radiation. In connection with U.S.
Government military peripheral standardization programs, the DoD has approved
and assigned nomenclature (military identification) to standard computer
peripherals for its defense systems. Several of the Company's mil spec printers
have been included in this standardization program enabling the armed services
to select the Company's printers for new systems without incurring the expense
of developing new printer documentation for each system. The Company believes
that the inclusion of the Company's mil spec printers in this standardization
program influenced the selection of the Company's printers for several defense
programs.

25
<PAGE>

The Company's high-resolution thermal printers utilize a thermal direct
imaging method of printing. In the past, printers utilizing the thermal
printing process generally could not meet the specifications required in
certain rigorous environments. Due to technological improvements, thermal
printers can now be built to meet the specifications required for more adverse
environments while providing inherent quiet, reliable printing operation. The
Company has also developed a low-cost impact printer, targeted at the low end
of the environmentally severe market. This low-cost "ruggedized" product
utilizes industrial (high-reliability, military rated) components, encased in a
rugged case to withstand moderately severe environments.

The Company's highest sales volume thermal printer is the DmC 1600 military
printer/plotter. The DmC 1600's are used for the U.S. Navy's Tactical Flag
Command Center ("TFCC"). The TFCC System provides the hard copy data utilized
by the Fleet Commander when tactical decisions are required during crisis
situations. The TFCC system is presently proposed for most of the Navy's
nuclear super aircraft carriers, battleships and cruisers. In addition, DmC
1600's are used for the U.S. Navy standard display consoles that are utilized
on virtually every fighting ship in the fleet. The DmC 1600 is qualified for
the Navy's rigorous environmental standards. Special versions of the DmC 1600
thermal printer have been selected for the U.S. Army REGENCY NET secure
communications systems, the U.S. Navy's on-board anti-submarine warfare
training program, and the MILSTAR Communication Satellite Program, the DoD's
global communications system.

The Company has completed initial deliveries of a number of high resolution
color printer/plotters, the DmC Series 1900, to the U.S. Navy. This product
line utilizes the thermal transfer process to produce high- resolution, full
color images on plain paper. The thermal transfer technology used with respect
to the DmC Series 1900 differs from the direct imaging thermal process in that
it uses plain paper and a multi-colored ribbon instead of direct imaging paper.
These products provide between 40,000 and 90,000 pixels (picture elements) per
square inch and up to 16,000,000 colors, shades or tones. This printer has been
selected by the U.S. Navy for utilization within a number of Aegis subsystems.
The military color printer market has been slow to develop, however, due to
cost considerations. The Company believes that the demand for military color
printers will increase if acquisition and operating costs are reduced.

Ruggedized Computers. In August 1993, the Company consummated the acquisition
of Rugged Digital Systems. See Note 2 of Notes to Financial Statements. The
Rugged Digital business is now operated as a part of the Defense Business Unit
of the Company. The Rugged Digital division combines environmental and
mechanical engineering technology with computer technology to produce products
that perform identically to commercial counterparts, but are able to operate in
adverse environments. Rugged Digital offers ruggedized versions of computer
devices and peripherals encased in shock, vibration and temperature resistant
housing, for products of equipment manufacturers such as Digital Equipment
Corporation, Hewlett-Packard Company, Silicon Graphics Inc., Sun Microsystems
Inc. and Cray Research. This process often requires Rugged Digital to design
and manufacture cases, controls, backplanes and power supplies. Rugged
Digital's products require much shorter development and testing periods than
mil spec products. As such, Rugged Digital's products allow the military to
deploy rapidly state-of-the-art computer technology at a price greatly reduced
from full mil spec systems. These timing and price factors are responsive to
current U.S. military procurement trends.

A substantial portion of Rugged Digital's total revenue for the past three
years has been derived from an ongoing contractual effort with Lockheed
Corporation to provide several suites of superminicomputers and workstations
for the MILSTAR Program. Based on an ongoing contractual effort, following the
acquisition by the Company, the Rugged Digital division received the production
follow-on addendum for five production systems. This award was in addition to
the existing cost plus fee incentive contract.

In addition, the Company's Rugged Digital division has been bidding
ruggedized workstations to the international marketplace. To date, the Rugged
Digital division has sold workstations to Kawasaki Heavy Industries of Japan
for the Japanese P3 maritime patrol aircraft and to Thomson CSF of France.
Other

26
<PAGE>

significant bids have been made to potential customers in Italy (Alenia),
France (Thomson CSF), Israel (Elbit), and Korea (Goldstar). Results of these
bidding efforts should be known in 1995. There can be no assurance, however,
that the Rugged Digital division will receive any such additional orders.

International Military. The Company believes that international markets offer
promising growth opportunities for the Company's high-end monochrome and color
printers and ruggedized computers and workstations. While the U.S. military has
been experiencing decreased funding over the past several years, certain other
countries, principally in the Pacific Rim, have been increasing their
participation in and spending for their own defense. In order to address this
market, the Company has contracted with sales representatives for numerous
foreign markets, including Italy, the United Kingdom, Spain, France, Australia,
New Zealand, South Korea, Taiwan, Sweden and Norway. The Company also actively
seeks selected opportunities to present its products at international military
trade shows in order to increase its general international presence and to
allow potential customers to formulate new program requirements based on the
Company's products.

Distribution and Sales. The Company distributes its defense products directly
through both domestic and international sales forces. The Company employs its
own direct sales force selling within North America, which is supported in
certain regions by independent, commission-only sales representatives. The
Company's international sales efforts are coordinated by its director of
international sales, who supervises 18 independent, commission-only sales
representatives in various countries throughout the world, each covering
specified territories.

In addition, the Company has sought to distribute its defense products
through teaming agreements with other companies. The Company has arranged with
Cray Research for Cray's sales personnel to sell the Company's ruggedized Cray
computers, and has participated as a sub-contractor to GTE (the prime
contractor) in the U.S. Army's Omnibus Common Hardware Systems-II Program, a
multi-year program for computer peripheral hardware. The Company has also been
engaged in on-going negotiations with Thomson CSF (France) to carry the
Company's defense products in Thomson's international sales catalog.

RESEARCH AND DEVELOPMENT ACTIVITIES

The Company is involved in both Company-sponsored and customer-sponsored
research and development. In the latter case, customers contract directly for
such activities. The customer-sponsored research and development primarily
consists of non-recurring engineering costs relating to production contracts.
In addition to design technology, this non-recurring engineering includes
development of maintenance and operator manuals, drawings, reliability and
maintainability analysis, technical design audits and data required to support
field repairs. Such costs do not qualify as research and development costs as
defined by Financial Accounting Standards Board Statement No. 2 and,
accordingly, have not been disclosed as such in the Company's financial
statements.

The Company expended approximately $1,390,000, $1,951,000 and $2,297,000 on
research and development during the fiscal years ended October 25, 1992,
October 31, 1993 and October 30, 1994 respectively, and $2,646,000 during the
six months ended April 30, 1995. The Company had no material backlog of
commercial product orders as of October 30, 1994. The research and development
expenses incurred in fiscal 1992 through 1995 related to product development
for a high-speed color digital printer and a low-cost rugged black and white
printer, as well as enhancements to existing products. Research and development
expenses relating to the Company's high-speed color digital printer were
primarily for the development of the CYMax printer and ongoing image quality
improvements.

The Company is currently negotiating with several third party manufacturers
for full-scale production of the CYMax series high-speed color digital
printers. Such third party manufacturing is expected to commence in early 1996.
Until that time, the Company plans to manufacture the printers at its facility
in

27
<PAGE>

Woodland Hills, California. The Company also manufactures its mil spec and
ruggedized printers and ruggedized computers and workstations at its Woodland
Hills facility.

SERVICE

In the commercial business area, the Company's strategy is to use third
parties to provide field service and support. On May 11, 1995, the Company
entered into an exclusive agreement with IBM Corporation to provide field
service for the CYMax series high-speed color digital printers under
maintenance contracts between the Company and its non-OEM or reseller
customers. The agreement contains customary termination and renewal provisions.
In addition, A.B.Dick has the right under its agreement with the Company to
provide service and support for high-speed color digital printers sold under
its label. The Company currently anticipates that A.B.Dick will offer to
provide field service and support to A.B.Dick's customers.

Pursuant to maintenance agreements, repair orders or warranty provisions, the
Company generally services its military printers with its own employees at its
facilities. In-house, non-warranty repairs and maintenance service provided
4.6% of the Company's sales in fiscal 1994. For both military and commercial
products, the Company's standard warranty period is 90 days, although longer
warranty periods are available at customer request for an additional charge.

Sales of spare parts for the Company's products amounted to 14.2% of fiscal
1994 revenue. The Company also sells documentation, such as handbooks,
operational manuals, schematics and other technical data to assist its
customers in maintaining their own equipment.

BACKLOG

The Company's backlog of funded orders not yet recognized as revenue at
October 31, 1993, October 30, 1994, and April 30, 1995 was approximately
$7,793,000, $10,400,000 and $13,609,000 respectively. Approximately 60% of the
October 30, 1994 backlog is expected to be delivered during the fiscal year
ending October 29, 1995.

Substantially all of the Company's backlog consists of orders which are
subject to termination at the convenience of the customer at any time. In the
event of such a termination, the Company is entitled to receive reimbursement
for its costs and, as long as the contract would have been profitable,
negotiated profit. Other than the contract with McDonnell Douglas for NASA's
Space Station Freedom, in recent years the Company has experienced no
significant terminations prior to completion of orders.

SOURCES OF SUPPLY

The Company relies to a substantial extent on sole suppliers to manufacture
several key components for use in the CYMax series of high-speed color digital
printers, including controllers, print heads and color printer ribbons. The
Company is currently engaged in negotiations with other manufacturers for
alternate sources of supply of print heads and color printer ribbons. There can
be no assurance, however, that any agreements with such alternate supply
sources will be signed or, if so, when. The Company's reliance on sole
suppliers for key components involves several risks, including a potential
inability to obtain an alternate supply of required components and supplies,
and reduced control over pricing and the timing of delivery of the CYMax series
high-speed color digital printers. Because the manufacture of certain of these
components, including controllers, print heads and color printer ribbons, is
specialized and requires long lead times, there can be no assurance that delays
in the ability to timely complete production orders will not be caused by
vendors. Any inability to obtain adequate deliveries, or any other circumstance
that would require the Company to seek alternative sources of supply or to
manufacture such components internally, could delay shipment of the Company's
products, increase its cost of goods sold and have a material adverse effect on
the Company's business, financial condition and results of operations.

28
<PAGE>

In the military business area, the Company is generally not dependent upon
any one supplier for any raw material or component which it purchases, and
there are available alternative sources for such raw materials and components.
The Company is currently dependent, however, on certain OEM suppliers for
components used in its rugged computer devices and peripherals. The Company has
year to year renewable supply agreements with suppliers which have been renewed
in prior years. In the event any of these contracts are not renewed, however,
the Company's business would be materially and adversely impacted because the
Company would have to purchase similar components upon substantially less
favorable terms and conditions. See "Risk Factors--Reliance on Certain
Suppliers."

COMPETITION

The Company competes in each of its target markets against other companies,
many of which have substantially greater financial, technical, marketing,
distribution and other resources than the Company. The principal competitive
factors in the markets in which the Company participates are image quality,
product performance and price.

Competition in color printing markets is intense, based on product
performance (principally image quality and print speed) and price. The market
is addressed by numerous companies with various technologies, each with certain
advantages and disadvantages in terms of image quality, print speed and price.
The Company believes that its CTI technology currently has a print speed
advantage over competitive products and, therefore, is well-suited to high-
volume color printing/plotting. The color printing market is characterized,
however, by rapid technological advances and downward price pressure as
competing technologies mature. The Company's principal competitors in the
commercial markets include Canon, Xerox, Minolta, Ricoh, Xeikon and Indigo.
Most of the Company's competitors have substantially greater financial and
technical resources than the Company. See "Risk Factors--Competition."

In domestic and international defense markets, the Company's principal
competitors are North Atlantic Industries, Inc., Aydin and Genesco, Inc. In
addition, many airborne electronic data processing and communications prime
contractors have the capability of manufacturing military and airborne
products, and several such companies do presently manufacture products
performing functions similar to the Company's products. In almost all cases,
these companies have substantially greater financial and technological
resources than the Company. In certain applications, the Company's printers are
higher in price than those of its competitors, and many of its competitors have
more experience in the markets for lower-cost military printers than the
Company. Management believes, however, that the Company's printers usually
perform at higher speed and with greater reliability in extreme environments.

INTELLECTUAL PROPERTY RIGHTS

It is the Company's policy to obtain appropriate proprietary rights
protection for any potentially significant new technology acquired or developed
by the Company. The Company has trademark registrations covering its "DmC(R)"
logo and LAURA(R), (the designation for the Company's high speed color
printer/plotter) and an application pending for CYMAX(TM) (the designation for
the Company's latest generation high-speed color digital printer targeted at
the short-run production printing market). The Company has been granted two
U.S. patents relating to its high-speed color digital printer. The Company also
has 23 U.S. patent applications pending relating to its high-speed color
digital printer. These two patents plus the 23 additional patent applications
also have been filed in certain targeted countries covered under the Patent
Cooperation Treaty ("PCT") and in Israel. There can be no assurance, however,
that any patents will be granted pursuant to these various applications in the
U.S. and abroad.

In addition, the Company relies on copyright and trade secret laws to protect
its proprietary rights. The Company attempts to protect its trade secrets and
other proprietary information through agreements with customers and suppliers,
proprietary information agreements with the Company's employees and consultants
and other similar measures. There can be no assurance, however, that the
Company will be successful in protecting its proprietary rights.

29
<PAGE>

While management believes that the Company's trademarks, patents, patent
applications, and other proprietary know-how have significant value, changing
technology makes the Company's future success dependent principally upon its
employees' technical competence and creative skills for continuing innovation.

EMPLOYEES

As of May 17, 1995, the Company employed 156 persons on a full-time basis.
None of the Company's employees are represented by a union or is subject to a
collective bargaining agreement. The Company believes that its relations with
its employees are excellent.

GOVERNMENTAL REGULATION

The Company's manufacturing operations are subject to various federal, state
and local laws, including those restricting or regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment. The Company is not involved in any pending or threatened
proceedings which would require curtailment of, or otherwise restrict, its
operations because of such regulations, and compliance with applicable
environmental laws has not had a material effect upon the capital expenditures,
financial condition or results of operations of the Company.

PROPERTIES

The Company's operations are conducted from a 65,000 square foot facility in
Woodland Hills, California. The facility lease provides for a ten-year term
through July 2004, with options for the Company to terminate the lease after
eight years and to extend the lease for an additional five years. Management
believes that an additional 10,000 square feet of short-term manufacturing
space may be required in the near future.

LEGAL PROCEEDINGS

There are no material legal proceedings pending against the Company.

30
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
Company's directors and executive officers.

NAME AGE POSITION
---- --- --------
<C> <C> <S>
Garland S. White 67 Chairman of the Board(1)
Sidney E. Wing 64 President, Chief Executive Officer and
Director(3)
John J. Van Buren 50 Senior Vice President, Chief
Financial Officer and Treasurer
Gerald A. Horwitz 59 Senior Vice President
Carl C. Stella 56 Senior Vice President
Ronald N. Iversen 47 Vice President/Commercial
Business Unit
Dann V. Angeloff 59 Director(1)
Richard A. Foster 59 Director(1)(2)
Burton L. Kaplan 66 Director(3)
Richard W. Muchmore 75 Director(2)
Kenneth K. Zeiger 62 Director(2)(3)
</TABLE>
- --------

(1) Member of Audit Committee

(2) Member of Compensation and Stock Option Committee

(3) Member of Nominating Committee

Following is a brief biography of each of the directors and executive
officers of the Company:

Mr. White has held his present position of Chairman of the Board of
Directors since March 1986. Mr. White is also the President of GW Products
Management, a sole-proprietorship founded in 1990. Mr. White was Chief
Executive Officer of the Company for more than five years until September
1988. Mr. White was President of the Company for more than five years until
August 1986 and then became President again from January 1988 to September
1988.

Mr. Wing was appointed to his present position in September 1988. From
September 1986 to September 1988, he was President and Chief Operating Officer
of Resdel Engineering Corporation in Arcadia, California. Prior to this time
for more than five years, he was Vice President of Business Development with
Interstate Electronics in Anaheim, California.

Mr. Van Buren has been Vice President, Chief Financial Officer and Treasurer
since April 1989. He was Controller, Electronic Instrumentation Division,
Eaton Corporation from October 1986 to April 1989 and Controller, Measurement
& Control Operations, Eaton Corporation from September 1985 to October 1986.

Mr. Horwitz has been Senior Vice President of the Company since August 1990.
From March 1990 to August 1990, he served as the Company's Vice President of
Business Development. For more than three years prior to that time, Mr.
Horwitz was Division Vice President, System Integration Division at
Ultrasystem Space and Defense.

Mr. Stella has been Senior Vice President since August 1990 and was Vice
President from October 1987 to August 1990. From 1984 to October 1987, he was
a manager at Trident Program Office, Ocean Technology, Inc. From 1976 to 1984,
he was director of engineering, Ocean Technology Inc.

Mr. Iversen was appointed Vice President of the Company's newly-created
Commercial Products Unit in August 1993. From April 1991 to August 1993, he
was the founder and President of Nugen Distribution

31
<PAGE>

International. From February 1984 to March 1991, he held a number of different
positions at Dataproducts Corporation, including Vice President, Marketing for
the last two such years.

Mr. Angeloff became a director of the Company in May 1993. Since 1976, he has
been the president of The Angeloff Company, a corporate financial advisory firm
founded by Mr. Angeloff. Mr. Angeloff is also a director of Nicholas/Applegate
Growth Equity Fund, Nicholas/Applegate Investment Trust, Seda Specialty
Packaging, Storage Equities, Inc. and Storage Properties, Inc.

Mr. Foster became a director of the Company in December 1990. Mr. Foster has
been an independent business consultant since August 1991. For more than five
years prior to that time he was President of Interstate Electronics
Corporation, Anaheim, California.

Mr. Kaplan became a director of the Company in 1982. Mr. Kaplan was President
and Chief Operating Officer of Burtree, Inc., Van Nuys, California, a
privately-held manufacturer of precision machined and sheet metal fabricated
components for electronics and hydraulics industries from July 1975 until his
retirement on February 1986. Since February 1986, Mr. Kaplan has been a
business consultant.

Mr. Muchmore has been a director of the Company since prior to 1970. Mr.
Muchmore was a Vice President and a Director of Raychem Corporation, an
electronics component manufacturing business located in Menlo Park, California
from February 1957 to March 1974. Mr. Muchmore has been an independent business
consultant since March 1974.

Mr. Zeiger has been a director of the Company since 1986. He was President,
Chief Operating Officer and a Director of AVW Electronic System, Inc. from
March 1988 to March 1991. From October 1987 until March 1988 and from March
1991 until August 1993, Mr. Zeiger was an independent business consultant.
Since August 1993, Mr. Zeiger has been Chief Executive Officer of KZC
Enterprises, Inc.

Each of the Company's outside directors receives an annual retainer fee of
$7,500 for services as a director, except for Mr. White who receives an annual
retainer of $15,000 plus a monthly retainer fee of $1,000 for services as
Chairman of the Board. In addition, outside directors (other than Mr. White)
receive $800 for each in-person Board meeting and Committee meeting, together
with reimbursement of out-of-pocket expenses. The Committee chairmen receive
$1,600 per in-person Committee meeting. In February 1995, the Company entered
into a consulting agreement with Mr. Angeloff under which he receives a $6,000
monthly retainer for service on the Board of Directors and for providing
financial advisory and consulting services to the Company. The agreement
provides that if Mr. Angeloff's services are requested on a capital raising or
merger/acquisition assignment the Company will pay Mr. Angeloff additional
monthly retainers of $10,000 or $7,500, respectively, for a minimum two month
term. Mr. Angeloff receives no other fees for Board or Committee meetings.

32
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of May 10, 1995, the number and percentage
ownership of the Company's Common Stock by each director of the Company and by
all officers and directors of the Company as a group. To the Company's
knowledge, no person or entity owns 5% or more of the Company's Common Stock.
Except as otherwise indicated, and subject to applicable community property and
similar laws, each of the persons named has sole voting and investment power
with respect to the Common Stock shown as beneficially owned. An asterisk
denotes beneficial ownership of less than 1%.

<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE
NATURE OF OF
BENEFICIAL OUTSTANDING
NAME AND ADDRESS(1) OWNERSHIP SHARES
------------------- ---------- -----------
<S> <C> <C>
Burton L. Kaplan........ 334,254(2) 3.5%
Garland S. White........ 115,155(3) 1.2%
Sidney E. Wing.......... 172,465(4) 1.8%
Kenneth K. Zeiger....... 25,476(5) *
Richard A. Foster....... 35,321(6) *
Richard W. Muchmore..... 11,876(7) *
Dann V. Angeloff........ 11,254(8) *
All Officers and Direc-
tors as a group (16
persons)............... 1,171,179 12.4%
</TABLE>
- --------
(1) The address for all persons listed is c/o the Company, 21135 Erwin Street,
Woodland Hills, California 91367.

(2) Includes 11,876 shares subject to non-qualified stock options which are
presently exercisable. Of such options, 11,250 have an exercise price of
$2.875 and expire on December 16, 1998 and 626 shares have an exercise
price of $5.75 and expire on December 12, 1999. Excludes 23,124 shares
subject to non-qualified stock options which are not presently exercisable.
Of such options, 18,750 have an exercise price of $2.875 and expire on
December 16, 1998 and 4,374 shares have an exercise price of $5.75 and
expire on December 12, 1999.

(3) Includes 13,446 shares subject to non-qualified stock options which are
presently exercisable. Of such options, 1,570 have an exercise price of
$1.375 and expire on August 13, 2001, 11,250 have an exercise price of
$2.875 and expire on December 16, 1998, and 626 have an exercise price of
$5.75 and expire on December 12, 1999. Excludes 24,679 shares subject to
non-qualified stock options which are not presently exercisable. Of such
options, 1,555 have an exercise price of $1.375 and expire on August 13,
2001, 18,750 have an exercise price of $2.875 and expire on December 16,
1998 and 4,374 have an exercise price of $5.75 and expire on December 12,
1999.

(4) Includes 170,000 shares subject to incentive stock options which are
presently exercisable. Of such options, 150,000 have an exercise price of
$1.25 and expire on September 5, 1998, 18,750 have an exercise price of
$3.25 and expire on October 27, 1998, and 1,250 have an exercise price of
$5.75 and expire on February 22, 2000. Excludes 50,000 shares subject to
incentive stock options which are not presently exercisable. Of such
options, 31,250 options have an exercise price of $3.25 and expire on
October 27, 1998 and 18,750 have an exercise price of $5.75 and expire on
February 22, 2000.

(5) Includes 11,876 shares subject to non-qualified stock options which are
presently exercisable. Of such options, 11,250 have an exercise price of
$2.875 and expire on December 16, 1998 and 626 have an exercise price of
$5.75 and expire on December 12, 1999. Excludes 23,124 shares subject to
non-qualified stock options which are not presently exercisable. Of such
options, 18,750 have an exercise price of $2.875 and expire on December 16,
1998 and 4,374 have an exercise price of $5.75 and expire on December 12,
1999.

(6) Includes 35,321 shares subject to non-qualified stock options which are
presently exercisable. Of such options, 23,445 have an exercise price of
$1.375 and expire on August 13, 2001, 11,250 have an exercise price of
$2.875 and expire on December 16, 1998, and 626 have an exercise price of
$5.75 and expire on

33
<PAGE>

December 12, 1999. Excludes 24,679 shares subject to non-qualified stock
options which are not presently exercisable. Of such options, 1,555 have an
exercise price of $1.375 and expire on August 13, 2001, 18,750 have an
exercise price of $2.875 and expire on December 16, 1998 and 4,374 have an
exercise price of $5.75 and expire on December 12, 1999.

(7) Includes 11,876 shares subject to non-qualified stock options which are
presently exercisable. Of such options, 11,250 have an exercise price of
$2.875 and expire on December 16, 1998 and 626 have an exercise price of
$5.75 and expire on December 12, 1999. Excludes 23,124 shares subject to
non-qualified stock options which are not presently exercisable. Of such
options, 18,750 have an exercise price of $2.875 and expire on December 16,
1998 and 4,374 have an exercise price of $5.75 and expire on December 12,
1999.

(8) Includes 6,254 shares subject to non-qualified stock options which are
presently exercisable. Of such options, 5,628 have an exercise price of
$2.875 and expire on December 16, 1998 and 626 have an exercise price of
$5.75 and expire on December 12, 1999. Excludes 13,746 shares subject to
non-qualified stock options which are not presently exercisable. Of such
options, 9,372 have an exercise price of $2.875 and expire on December 16,
1998 and 4,374 have an exercise price of $5.75 and expire on December 12,
1999.

34
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The Company is authorized to issue 15,000,000 shares of Common Stock, $.01
par value, of which 9,417,582 are issued and outstanding, and 5,000,000 shares
of Preferred Stock, $.01 par value, of which 615,000 have been designated as
Series B Preferred Stock, of which 545,950 are issued and outstanding as of May
17, 1995.

PREFERRED STOCK

The Board of Directors is authorized, without further action by the
stockholders, to issue from time to time shares of Preferred Stock in one or
more classes or series and to fix the designations, voting rights, liquidation
preferences, dividend rights, conversion rights, rights and terms of redemption
(including sinking fund provisions) and certain other rights and preferences of
the Preferred Stock. The issuance of shares of Preferred Stock under certain
circumstances could adversely affect the voting power of the holders of Common
Stock and may have the effect of delaying, deferring or preventing a change in
control of the Company. In connection with the acquisition of Rugged Digital,
the Company issued 613,110 shares of Series B Preferred Stock to holders of
Rugged Digital subordinated debt, of which 545,950 are presently issued and
outstanding. Series B Preferred Stock ranks senior to the Common Stock and
subordinate to all indebtedness of the Company. In the event of any voluntary
or involuntary liquidation, dissolution, or winding up of the Company, the
holders of the Series B Preferred Stock will be entitled to receive an
aggregate liquidation preference of $955,413 ($1.75 per share) over the Common
Stock. The Series B Preferred Stock is redeemable for cash at any time in whole
or in part, at the Company's option, at a redemption price equal to 100% of the
liquidation preference per share ($1.75 per share). The Company intends to use
a portion of the proceeds of this offering to effect the redemption of all of
the Series B Preferred Stock. See "Use of Proceeds."

Pursuant to the agreements under which the Series B Preferred Stock was
issued, the original holders of the Series B Preferred Stock have a contractual
right to receive warrants to purchase Common Stock (the "Warrants") in the
event that the Series B Preferred Stock remains outstanding on August 10, 1995.
Each original holder of Series B Preferred Stock who owns shares of Series B
Preferred Stock on such date (the "Warrant Issuance Date") shall receive a
Warrant to purchase that number of shares of Common Stock (rounded to the
nearest whole share) equal to the product of (1) a fraction, the numerator of
which is 200,000 and the denominator of which is 613,110, the aggregate number
of shares of Series B Preferred Stock issued in connection with the merger with
Rugged Digital, and (2) the number of shares of Series B Preferred Stock held
by such holder on the Warrant Issuance Date. In addition, as long as any shares
of Series B Preferred Stock are outstanding, every three months following the
Warrant Issuance Date (each, a "Subsequent Issuance Date"), the Company shall
issue and deliver to each of the original holders who owns shares of Series B
Preferred Stock a warrant to purchase that number of shares of Common Stock
(rounded to the nearest whole share) equal to the product of (1) a fraction,
the numerator of which is 25,000 and the denominator of which is 613,110, and
(2) the number of shares of Series B Preferred Stock held by such holder on the
Subsequent Issuance Date. Each Warrant provides that the exercise price for
each share of Common Stock covered thereby is $.50, and that it is exercisable
for a period from issuance through 30 days after the date on which no shares of
Series B Preferred Stock remain outstanding. The Warrant rights apply only to
shares of Series B Preferred Stock that are outstanding as of the Warrant
Issuance Date or a Subsequent Issuance Date, as the case may be, and no such
rights accrue with respect to shares of Series B Preferred Stock which are
redeemed or which otherwise cease to be outstanding prior to any such date. The
rights arising under the Warrants are personal to each original holder and may
not be sold, assigned or otherwise transferred, by operation of law or
otherwise, to any other person or entity. Because the Company has the right to
redeem the Series B Preferred Stock at any time at the liquidation preference,
the Company does not anticipate that it will ever issue any Warrants.

As of the date of this Prospectus, the Company has no plan or arrangement for
the issuance of any additional shares of Preferred Stock.

35
<PAGE>

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share on all
matters voted on by stockholders, and, except as otherwise required by law or
provided in any resolution adopted by the Board of Directors with respect to
any other series or class of the Common Stock or series of the Preferred Stock,
holders of such shares will exclusively possess all voting power. The Restated
Certificate of Incorporation of the Company does not provide for cumulative
voting for the election of directors. Subject to any preferential rights of any
other outstanding shares of the Preferred Stock designated by the Board of
Directors from time to time, when and as dividends or other distributions are
declared, whether payable in cash, in property or in securities of the Company,
the holders of shares of Common Stock will be entitled to share equally, share
for share, in such dividends or other distributions. The Common Stock has no
preemptive rights and no redemption, sinking fund or conversion provisions. All
shares of Common Stock are fully paid and nonassessable. As of May 17, 1995
there were 894 holders of the Company's Common Stock.

CERTAIN CHARTER PROVISIONS

The Company's Restated Certificate of Incorporation eliminates, to the
fullest extent permitted by law, the liability of its directors to the Company
and its stockholders for monetary damages for breach of the directors'
fiduciary duty. This provision is intended to afford the Company's directors
the benefit of the Delaware General Corporation Law, which provides that
directors of Delaware corporations may be relieved of monetary liability for
breach of their fiduciary duty of care, except under certain circumstances
involving breach of a director's duty of loyalty, acts or omissions not in good
faith or involving intentional misconduct or a knowing violation of law or any
transaction from which the director derived an improper personal benefit.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

The Company is subject to Section 203 of the Delaware General Corporation Law
("Section 203"), which restricts certain transactions and business combinations
between a corporation and an "Interested Stockholder" owning 15% or more of the
corporation's outstanding voting stock for a period of three years from the
date the stockholder becomes an Interested Stockholder. Subject to certain
exceptions, unless the transaction is approved by the Board of Directors and
the holders of at least 66 2/3% of the outstanding voting stock of the
corporation (excluding shares held by the Interested Stockholder), Section 203
prohibits significant business transactions such as a merger with, disposition
of assets to or receipt of disproportionate financial benefits by the
Interested Stockholder, or any other transaction that would increase the
Interested Stockholder's proportionate ownership of any class or series of the
corporation's stock. The statutory ban does not apply if, upon consummation of
the transaction in which any person becomes an Interested Stockholder, the
Interested Stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain stock plans).

REGISTRAR AND TRANSFER AGENT

The Transfer Agent and Registrar for the Common Stock is Chemical Trust
Company of California. Its telephone number is (213) 621-8000.

36
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

As of May 17, 1995, 1,419,290 shares of Common Stock were reserved for
issuance upon exercise of stock options which remained outstanding or available
for grant under the stock option plans of the Company. Of the authorized but
unissued shares of Common Stock, as of May 17, 1995, an aggregate of 10,500
shares were reserved for issuance upon exercise of stock options available for
grant under the Company's 1993 Stock Option Plan, 205,000 shares were reserved
for issuance upon exercise of stock options available for grant under the 1993
Directors' Stock Option Plan and 2,800 shares were reserved for issuance upon
exercise of stock options available for grant under the Company's 1986 Stock
Option Plan.

As of May 17, 1995, 170,000 shares of Common Stock were reserved for issuance
upon exercise of outstanding warrants to purchase Common Stock issued to
Cruttenden Roth Incorporated. The Company has entered into a Letter Agreement
dated February 17, 1995, as amended (the "Letter Agreement"), with Cruttenden
Roth Incorporated pursuant to which Cruttenden Roth Incorporated has agreed to
exercise its 170,000 warrants at an exercise price of $3.15 per share. The
Company filed a "shelf" registration statement on Form S-3 (the "Shelf
Registration Statement") on April 11, 1995 with the Securities and Exchange
Commission which registers the resale of these 170,000 shares. The Company
issued these shares to Cruttenden Roth Incorporated after the Shelf
Registration Statement was declared effective by the Securities and Exchange
Commission on June 16,1995. The sale of up 2,300,000 shares of Common Stock
offered hereby is not conditioned upon the consummation of the resale of
170,000 shares of Common Stock under the Shelf Registration Statement.

Upon completion of the sale of 2,000,000 shares of Common Stock offered
hereby, the Company will have 11,589,460 shares of Common Stock outstanding,
assuming no exercise of options outstanding under the Company's stock option
plans after May 17, 1995 and no other changes in the Company's outstanding
shares. All of these shares will be available for immediate sale in the public
market, other than a total of 617,323 shares held by officers and directors
that may not be sold for 120 days after the date of this Prospectus without the
Representatives' prior written consent under the terms of lock-up agreements.

37
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters") have severally agreed to purchase
from the Company the numbers of shares of Common Stock set forth opposite their
respective names in the table below:

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS OF COMMON STOCK
------------ ----------------
<S> <C>
Pennsylvania Merchant Group Ltd ......................... 615,000
Cruttenden Roth, Incorporated............................ 615,000
Dain Bosworth Incorporated............................... 40,000
Fahnestock & Co. Inc..................................... 40,000
First Albany Corporation................................. 40,000
Furman Selz Incorporated................................. 40,000
Janney Montgomery Scott Inc.............................. 40,000
Jefferies & Company...................................... 40,000
Kemper Securities, Inc................................... 40,000
Morgan Keegan & Company, Inc............................. 40,000
Needham & Company, Inc................................... 40,000
Principal Financial Securities, Inc...................... 40,000
Rauscher Pierce Refsnes, Inc............................. 40,000
Robinson-Humphrey Company, Inc........................... 40,000
Unterberg Harris......................................... 40,000
Brean Murray, Foster Securities, Inc..................... 25,000
Commonwealth Associates.................................. 25,000
Dabney/Resnick Inc....................................... 25,000
Gerard Klauer Mattison & Co., Inc........................ 25,000
Laidlaw Equities, Inc.................................... 25,000
Ormes Capital Markets, Inc............................... 25,000
Pacific Growth Equities, Inc............................. 25,000
Scott & Stringfellow, Inc................................ 25,000
Seidler Companies Incorporated........................... 25,000
Van Kasper & Company..................................... 25,000
---------
2,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent. The nature of the Underwriters'
obligation is that they are committed to purchase all shares of Common Stock
offered hereby if any of such shares are purchased.

The Company has been advised by the Underwriters, for whom Pennsylvania
Merchant Group Ltd ("PMG") and Cruttenden Roth Incorporated ("CRI") are acting
as Representatives (the "Representatives"), that the Underwriters propose
initially to offer the shares of Common Stock directly to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers (which may include Underwriters) at such public offering price
less a concession not to exceed $0.57 per share. The Underwriters may allow,
and such dealers may reallow, a discount not to exceed $0.10 per share in sales
to certain other dealers. After the offering to the public, the public offering
price and concessions and discounts may be changed by the Representatives of
the Underwriters.

The Company granted to the Underwriters an option, exercisable not later than
30 days after the date of this Prospectus, to purchase up to an additional
300,000 shares of Common Stock, at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to

38
<PAGE>

purchase approximately the same percentage thereof that the number of shares of
Common Stock to be purchased by it shown in the table above bears to the number
of shares of Common Stock offered hereby, and the Company will be obligated
pursuant to the option to sell such shares to the Underwriters. The
Underwriters may exercise the option only for the purposes of covering over-
allotments, if any, made in connection with the distribution of the shares of
Common Stock to the public.

The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales of shares of the Common Stock
offered hereby to any accounts over which they exercise discretionary
authority.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.

All of the Company's current directors and officers, who will own an
aggregate of 617,323 shares of Common Stock upon the completion of this
offering, have agreed not to sell, offer to sell, contract to sell or otherwise
dispose of any of their shares of Common Stock or any other security
convertible into or exchangeable for, or options or warrants to purchase or
acquire, shares of Common Stock without the prior written consent of PMG for a
period of 120 days after the date of this Prospectus. See "Shares Eligible for
Future Sale." In addition, the Company has agreed not to sell, issue, contract
to sell, offer to sell or otherwise dispose of any shares of Common Stock or
any other security convertible into or exchangeable for shares of Common Stock
without the prior written consent of PMG during the same period.

The Company has agreed to sell to the Representatives, for nominal
consideration, warrants to purchase 200,000 shares of Common Stock. The
warrants will have an exercise price per share equal to $10.20, be exercisable
beginning on the first anniversary of the date of this Prospectus for a period
of four years thereafter, and contain certain anti-dilution, registration
rights and exercise provisions. Until the first anniversary of the date of this
Prospectus, the warrants may not be sold, transferred, assigned or
hypothecated, except to the Underwriters or certain dealers, or their officers
or partners, subject to certain conditions.

CRI acted as the representative of the several underwriters in connection
with the sale to the public by the Company of 2,300,000 shares of Common Stock
which was consummated on March 23, 1994. In connection with such distribution,
CRI received warrants to purchase 170,000 shares of Common Stock at an exercise
price of $3.15 per share. These warrants became exercisable on March 23, 1995
and remain exercisable for a period of four years thereafter. Pursuant to the
terms of the Letter Agreement, CRI has exercised all of such warrants and
agreed to resell all shares of Common Stock underlying such warrants as soon as
practicable after June 16, 1995, the date of effectiveness of the Shelf
Registration Statement. The sale of up to 2,300,000 shares of Common Stock
offered hereby is not conditioned upon the consummation of the resale of
170,000 shares of Common Stock under the Shelf Registration Statement. See
"Shares Eligible for Future Sale."

LEGAL MATTERS

The legality of the Common Stock offered hereby will be passed upon for the
Company by Latham & Watkins, San Diego, California. Certain legal matters will
be passed upon for the Underwriters by Stradling, Yocca, Carlson & Rauth,
Newport Beach, California.

EXPERTS

The financial statements of the Company as of October 31, 1993 and October
30, 1994 and for each of the three years in the period ended October 30, 1994
appearing in this Prospectus and the Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
included or incorporated by reference herein and in the Registration Statement,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.

39
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), a registration statement on Form S-2 under the Act, with respect
to the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to such Registration
Statement, exhibits and schedules. Statements contained in this Prospectus as
to the contents of any contract or any other document referred to are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by
such reference to subject exhibit.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith, files reports, proxy or
information statements, and other information with the Commission. Such
reports, proxy statements and other information, as well as the Registration
Statement of which the Prospectus is a part and the exhibits and schedules
thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as at the following Regional Offices: 7
World Trade Center, 13th Floor, New York, New York 10048, and Northwestern
Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials also can be obtained from the Public Reference Section
of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, by mail at prescribed rates. The Common Stock is traded
on the AMEX, and the Company's reports, proxy or information statements and
other information filed with the AMEX may be inspected at the AMEX's offices at
86 Trinity Place, New York, New York 10006.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company's Annual Report on Form 10-K for the year ended October 30, 1994,
Annual Report on Form 10-K/A for the year ended October 30, 1994, Quarterly
Report on Form 10-Q for the quarter ended January 29, 1995, Quarterly Report on
Form 10-Q/A for the quarter ended January 29, 1995 and Quarterly Report on Form
10-Q for the quarter ended April 30, 1995, which have been filed by the Company
with the Commission, are incorporated by reference in this Prospectus.

Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Prospectus modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as modified
or superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into the document). Requests for copies should be
directed to John J. Van Buren, Senior Vice President and Chief Financial
Officer, Datametrics Corporation, 21135 Erwin Street, Woodland Hills,
California 91367, telephone (818) 598-6200.

40
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors....................... F-2
Balance Sheets as of October 30, 1994 and October 31, 1993.............. F-3
Statements of Operations for the years ended October 30, 1994, October
31, 1993 and October 25, 1992.......................................... F-4
Statements of Stockholders' Equity for the years ended October 30, 1994,
October 31, 1993 and October 25, 1992.................................. F-5
Statements of Cash Flows for the years ended October 30, 1994, October
31, 1993 and October 25, 1992.......................................... F-6
Notes to Financial Statements........................................... F-7
Unaudited Balance Sheet as of April 30, 1995 and Balance Sheet as of
October 30, 1994....................................................... F-16
Unaudited Statements of Operations for the six months ended April 30,
1995 and May 1, 1994................................................... F-17
Unaudited Statements of Cash Flows for the six months ended April 30,
1995 and May 1, 1994................................................... F-18
Notes to Unaudited Financial Statements................................. F-19
</TABLE>

F-1
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Datametrics Corporation

We have audited the accompanying balance sheets of Datametrics Corporation as
of October 30, 1994 and October 31, 1993, and the related statements of
operations, stockholders' equity, and cash flows for each of the three fiscal
years in the period ended October 30, 1994. 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 Datametrics Corporation at
October 30, 1994 and October 31, 1993 and the results of its operations and its
cash flows for each of the three fiscal years in the period ended October 30,
1994, in conformity with generally accepted accounting principles.

As discussed in Note 5 to the financial statements, effective October 26,
1992, the Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."

Ernst & Young LLP

Woodland Hills, California
December 9, 1994, except
for the fourth paragraph of Note 6,
as to which the date is
December 23, 1994

F-2
<PAGE>

DATAMETRICS CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 988 $ 199
Accounts receivable.................................. 8,730 8,491
Inventory............................................ 6,038 5,043
Income taxes receivable.............................. 325 --
Prepaid expenses..................................... 267 53
Deferred tax asset................................... 571 529
------- -------
Total current assets............................... 16,919 14,315
------- -------
Property and equipment, at cost:
Machinery and equipment.............................. 3,710 3,366
Furniture, fixtures & computer equipment............. 2,172 1,491
Leasehold improvements............................... 363 433
------- -------
6,245 5,290
Accumulated depreciation and amortization............ (3,970) (4,351)
------- -------
Net property and equipment........................... 2,275 939
Deferred tax asset..................................... 64 507
Other assets........................................... 692 699
------- -------
$19,950 $16,460
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank................................. $ 600 $ 1,150
Accounts payable..................................... 1,917 2,668
Accrued commissions and payroll...................... 845 1,079
Accrued warranty..................................... 182 272
Other accrued liabilities............................ 368 303
Advance payments and progress payments on contracts.. 538 11
Current portion of capital lease obligations......... 108 124
------- -------
Total current liabilities.......................... 4,558 5,607
Capital lease obligations.............................. 32 138
Other long-term liabilities............................ 150 330
Deferred tax liability................................. 76 --
Excess of acquired net assets over cost................ 533 950
Series B redeemable preferred stock 613,110 shares
authorized, 564,556 shares issued and outstanding in
1994 (613,110 in 1993) (liquidation preference and
redemption price $988 in 1994 and $1,073 in 1993)..... 940 965
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value--15,000,000 shares
authorized, 9,258,452 shares issued and outstanding
in 1994 (6,896,922 in 1993)......................... 93 69
Additional paid-in capital........................... 14,608 9,412
Accumulated deficit.................................. (1,040) (1,011)
------- -------
Total stockholders' equity......................... 13,661 8,470
------- -------
$19,950 $16,460
======= =======
</TABLE>
See accompanying notes.

F-3
<PAGE>

DATAMETRICS CORPORATION

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 25,
1994 1993 1992
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Sales.......................... $ 25,211 $ 23,984 $ 22,358
Cost of sales................ 16,905 15,623 13,951
------------ ------------ ------------
Gross profit............... 8,306 8,361 8,407
Operating expenses:
Research & development....... 2,297 1,951 1,390
Selling, general &
administrative.............. 6,254 5,547 5,069
------------ ------------ ------------
8,551 7,498 6,459
------------ ------------ ------------
Income (loss) from
operations................ (245) 863 1,948
Interest income (expense), net. 2 (65) (129)
Amortization of excess of
acquired net assets over cost. 293 88 --
------------ ------------ ------------
Income before provision for
income taxes and cumulative
effect of change in accounting
principle..................... 50 886 1,819
Provision for income taxes..... 19 341 482
------------ ------------ ------------
Income before cumulative effect
of change in accounting
principle..................... 31 545 1,337
Cumulative effect of change in
accounting principle.......... -- 938 --
------------ ------------ ------------
Net income................... 31 1,483 1,337
Preferred stock dividends and
accretion..................... (60) (66) (190)
------------ ------------ ------------
Net income (loss) applicable
to common stockholders...... $ (29) $ 1,417 $ 1,147
============ ============ ============
Earnings per share of common
stock:
Primary:
Income before cumulative
effect of change in
accounting principle....... $ -- $ 0.09 $ 0.30
Cumulative effect of change
in accounting principle.... -- 0.17 --
------------ ------------ ------------
Net income..................... $ -- $ 0.26 $ 0.30
============ ============ ============
Fully diluted:
Income before cumulative
effect of change in
accounting principle....... $ -- $ 0.08 $ 0.22
Cumulative effect of change
in accounting principle.... -- 0.15 --
------------ ------------ ------------
Net income..................... $ -- $ 0.23 $ 0.22
============ ============ ============
Weighted average number of
shares outstanding:
Primary...................... 9,067 5,458 3,769
Fully diluted................ 9,067 6,404 5,946
</TABLE>

See accompanying notes.

F-4
<PAGE>

DATAMETRICS CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
SERIES A
PARTICIPATING
CONVERTIBLE
PREFERRED
STOCK COMMON STOCK
------------- ----------------
ADDITIONAL TOTAL
NUMBER PAID-IN ACCUMULATED STOCKHOLDERS'
AMOUNT OF SHARES AMOUNT CAPITAL DEFICIT EQUITY
------------- --------- ------ ---------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balances at October 27,
1991................... $2,572 3,611,576 $36 $ 5,528 $(3,575) $ 4,561
Preferred stock
dividends............ -- -- -- -- (190) (190)
Conversion of
preferred stock...... (83) 71,000 1 82 -- --
Issuance of common
stock................ -- 18,000 -- 17 -- 17
Net income............ -- -- -- -- 1,337 1,337
------ --------- --- ------- ------- -------
Balances at October 25,
1992................... 2,489 3,700,576 37 5,627 (2,428) 5,725
Preferred stock
dividends............ -- -- -- -- (66) (66)
Conversion of
preferred stock...... (2,489) 2,129,000 21 2,468 -- --
Issuance of common
stock................ -- 1,067,346 11 1,317 -- 1,328
Net income............ -- -- -- -- 1,483 1,483
------ --------- --- ------- ------- -------
Balances at October 31,
1993................... -- 6,896,922 69 9,412 (1,011) 8,470
Preferred stock
accretion............ -- -- -- -- (60) (60)
Issuance of common
stock................ -- 2,361,530 24 5,196 -- 5,220
Net income............ -- -- -- -- 31 31
------ --------- --- ------- ------- -------
Balances at October 30,
1994................... $ -- 9,258,452 $93 $14,608 $(1,040) $13,661
====== ========= === ======= ======= =======
</TABLE>

See accompanying notes.

F-5
<PAGE>

DATAMETRICS CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 25,
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 31 $1,483 $1,337
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Cumulative effect of change in
accounting principle.................. -- (938) --
Amortization of excess of acquired net
assets over cost...................... (293) (88) --
Depreciation........................... 552 680 659
Loss (gain) on disposal of assets...... (6) 16 6
Changes in assets and liabilities, net of
effects from acquisition of Rugged
Digital Systems, Inc. (RDS):
Accounts receivable.................... (239) (1,586) 1,349
Inventory.............................. (995) 189 115
Prepaid expenses....................... (214) 174 97
Accounts payable....................... (751) 1,436 (272)
Accrued commissions and payroll........ (234) (143) 121
Advance and progress payments from
customers............................. 527 (216) (702)
Other accrued expenses................. 65 (152) (94)
Income taxes........................... (325) (291) (461)
Accrued warranty....................... (90) (50) 68
Other.................................. 180 (202) (87)
------ ------ ------
Net cash provided by (used in) operating
activities.............................. (1,792) 312 2,136
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and
equipment............................... (1,882) (428) (176)
Cash received from acquisition of RDS,
net..................................... -- 533 --
------ ------ ------
Net cash provided by (used in) investing
activities................................ (1,882) 105 (176)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable.............. 4,100 8,150 8,370
Payments on notes payable................ (4,650) (7,460) (9,587)
Proceeds from the issuance of common
stock................................... 5,220 100 17
Payments on long-term debt............... (85) (889) (533)
Payments on capital lease obligations.... (122) (77) (6)
Cash dividends on preferred stock........ -- (114) (190)
------ ------ ------
Net cash provided by (used in) financing
activities................................ 4,463 (290) (1,929)
Net increase in cash and cash equivalents.. 789 127 31
Cash and cash equivalents at beginning of
the year.................................. 199 72 41
------ ------ ------
Cash and cash equivalents at end of the
year...................................... $ 988 $ 199 $ 72
====== ====== ======
Cash paid (received) during the year for:
Interest, net............................ $ (1) $ 53 $ 143
Income taxes............................. (186) 359 944
Noncash investing and financing activities:
Accrued dividends on preferred stock..... -- -- 47
Conversion of preferred stock to common
stock................................... -- 2,489 83
Issuance of capital lease obligations.... -- 266 56
Issuance of 982,000 shares for
acquisition of RDS...................... -- 1,228 --
Exchange of Series B Preferred Stock for
subordinated debt of RDS................ -- 950 --
Series B Preferred Stock escrow
settlement.............................. (85) -- --
</TABLE>

See accompanying notes.

F-6
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS

OCTOBER 30, 1994

NOTE 1. SUMMARY OF SIGNIFICANT POLICIES

Business. Datametrics Corporation, a Delaware corporation ("the Company"), is
engaged primarily in the design, development, manufacture and sale of high-
speed, non-impact printers; high-resolution, non-impact printer/plotters; and
ruggedized computers and computer workstations. The Company's fiscal year ends
on the last Sunday of each October.

Basis of presentation. Certain prior year amounts have been reclassified to
conform with the 1994 presentation.

Revenue recognition. Revenues include both product sales and revenues
applicable to long-term design and production contracts. A majority of revenues
from product sales and long-term contracts are recorded as units are shipped.
Revenues applicable to certain fixed-price, long-term contracts (principally
design and development contracts) are recognized on the percentage-of-
completion (cost-to-cost) method, whereby revenue is measured by relating costs
incurred to total estimated costs. Sales under cost-reimbursement-type
contracts are recorded as costs are incurred. Applicable estimated profits are
included in sales in the proportion that incurred costs bear to total estimated
costs. Any anticipated losses on contracts are charged to income when
identified.

The Company provides an accrual for future warranty costs at the time of
revenue recognition based upon the relationship of prior year sales to actual
warranty costs. The warranty for the Company's products generally covers
defects in material and workmanship. The current accrual represents the average
outstanding warranty of approximately nine months.

Major customers. Approximately 85%, 69% and 72% of the Company's sales during
fiscal years 1994, 1993 and 1992, respectively, were to various U.S. government
agencies/Department of Defense under prime contracts or to prime contractors
having sales to such agencies. Export sales to foreign customers amounted to
$3,060,000 ($2,527,000 to Europe and $533,000 to the Pacific Rim) or 13% of
total sales in fiscal year 1993.

Cash and cash equivalents. The Company considers securities purchased within
three months of their date of maturity to be cash equivalents. Due to the short
maturity of these instruments, carrying value on the Company's balance sheet
approximates fair value.

Inventory. Stockroom inventory is stated at the lower of cost (first-in,
first-out) or market. The Company evaluates at least annually its stockroom
inventory for potential obsolescence or excessive levels based upon backlog and
forecasted usage. Contract inventory costs include purchased materials, direct
labor and manufacturing overhead. General and administrative costs are expensed
in the period incurred.

Property and equipment. Depreciation and amortization of property and
equipment are provided, using the straight-line method, over the following
estimated useful lives:

<TABLE>
<S> <C>
Machinery and equipment 2 to 5 years
Furniture, fixtures and computer equipment 3 to 8 years
Leasehold improvements Shorter of the remaining term
of the lease or the life of the asset
</TABLE>

Net income per share. Primary net income per share is based on the weighted
average number of shares of common stock outstanding and common stock
equivalents after reducing net income by preferred stock dividends. Fully
diluted net income per share additionally assumes the conversion of the
outstanding convertible preferred stock and the elimination of the related
dividend.

NOTE 2. ACQUISITION

On August 10, 1993, the Company acquired Rugged Digital Systems, Inc. (Rugged
Digital), a developer of ruggedized computers and computer workstations used
primarily by the military. The acquisition was

F-7
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

OCTOBER 30, 1994

accounted for as a purchase and accordingly, the purchase price and direct
costs of the acquisition have been allocated to the respective assets and
liabilities of Rugged Digital based upon their estimated fair values at the
date of the acquisition. The excess of the fair value of the net assets
acquired over the total purchase price was first allocated to reduce Rugged
Digital noncurrent assets to zero. The remaining excess value is being
amortized on a straight-line basis over three years, which represents
management's estimate of the period of benefit. Accumulated amortization of the
excess of fair value was $381,000 at October 30, 1994 and $88,000 at October
31, 1993.

The purchase price for accounting purposes consisted of 982,000 shares of
common stock at $1.25 a share ($1,228,000) and $432,000 of capitalized merger
costs for a total price of $1,660,000.

The operating results of Rugged Digital are included in the Company's results
of operations from the date of acquisition. The following unaudited pro forma
data presents the results of operations as if the acquisition had occurred at
the beginning of fiscal 1993 and does not purport to be indicative of what
would have occurred had the acquisition been made as of that date (in thousands
except per share data):

<TABLE>
<S> <C>
Sales............................................................ $33,067
Income before cumulative effect of change in accounting
principle....................................................... $ 453
Net income....................................................... $ 1,391
Earnings per share of common stock:
Primary:
Income before cumulative effect of change in accounting
principle..................................................... $ .06
Net income..................................................... $ .21
Fully diluted:
Income before cumulative effect of change in accounting
principle..................................................... $ .06
Net income..................................................... $ .19
Weighted average number of shares outstanding:
Primary........................................................ 6,195
Fully diluted.................................................. 7,141
</TABLE>

NOTE 3. ACCOUNTS RECEIVABLE

Accounts receivable consists of the following (in thousands):

<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
U.S. government or its prime contractors:
Amounts billed......................................... $3,931 $6,538
Recoverable costs and accrued profits on progress
completed, not billed................................. 2,935 613
------ ------
6,866 7,151
Foreign, commercial and other............................ 2,132 1,387
------ ------
8,998 8,538
Less billed but uncollected progress payments............ (268) (47)
------ ------
$8,730 $8,491
====== ======
</TABLE>

F-8
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

OCTOBER 30, 1994

NOTE 4. INVENTORY

Inventory consists of the following (in thousands):

<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Stockroom inventory....................................... $4,133 $3,640
Contracts in process...................................... 2,616 1,462
------ ------
6,749 5,102
Less progress payments received on contracts.............. (711) (59)
------ ------
$6,038 $5,043
====== ======
</TABLE>

NOTE 5. INCOME TAXES

Effective October 26, 1992, the Company changed its method of accounting for
income taxes from the deferred method to the liability method of accounting for
deferred income taxes with the adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). The cumulative
effect of adopting SFAS No. 109 was a one-time benefit to income of $938,000,
or $0.17 per share on a primary basis, in the year ended October 31, 1993.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The primary components
of the Company's net deferred tax assets are as follows (in thousands):

<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Net operating loss carryforwards.......................... $1,258 $1,154
General business credit carryforwards..................... 895 549
Inventory accounting methods.............................. 629 816
Deferred compensation accounting methods.................. 98 190
Product warranty accruals................................. 79 150
Other..................................................... 52 155
Book over tax depreciation................................ -- 398
------ ------
Total deferred tax assets............................... 3,011 3,412
------ ------
Tax over book depreciation................................ (76) --
------ ------
Total deferred tax liabilities.......................... (76) --
------ ------
2,935 3,412
Valuation allowance for deferred tax assets............... (2,376) (2,376)
------ ------
Net deferred tax assets................................. $ 559 $1,036
====== ======
</TABLE>

Management has determined, based on the Company's carryback opportunities and
historical and expected future earnings, that the Company will more likely than
not recognize these net deferred tax assets.

Net operating loss and tax credit carryforwards of $3,170,000 and $471,000,
respectively, for federal income tax purposes will expire at various times
between 1998 and 2005 and are the result of the Company's acquisition of Rugged
Digital. This acquisition constituted an ownership change of Rugged Digital for
federal income tax purposes. As a result of this ownership change, the amount
of Rugged Digital's net operating loss carryforward generated prior to the
ownership change that may be utilized against the Company's future taxable
income will be limited to approximately $170,000 annually and will result in a
portion of the net operating loss carryforward expiring prior to utilization.

F-9
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

OCTOBER 30, 1994

The provision for income taxes on income before the cumulative effect of a
change in accounting principle is composed of the following (in thousands):

<TABLE>
<CAPTION>
LIABILITY
DEFERRED METHOD METHOD
----------------- ---------
1994 1993 1992
-------- ------- ---------
<S> <C> <C> <C>
Current:
Federal.................................... $(469) $ 60 $370
State...................................... 11 107 239
Deferred:
Federal.................................... 369 204 (87)
State...................................... 108 (30) (40)
----- ---- ----
$ 19 $341 $482
===== ==== ====
</TABLE>

The components of the provision for deferred income taxes for the year ended
October 25, 1992 are as follows:

<TABLE>
<S> <C>
Revenue recognition under long-term contracts....................... $ 64
Other, net.......................................................... 63
----
$127
====
</TABLE>

The following is a reconciliation of the difference between the actual
provision for income taxes and the provision computed by applying the federal
statutory tax rate on income before income taxes and cumulative effect of
change in accounting principle (in thousands):

<TABLE>
<CAPTION>
1994 1993 1992
---- ---- -----
<S> <C> <C> <C>
Federal income tax computed at statutory rate.......... $17 $301 $ 618
State income tax, net of federal benefits.............. 3 51 109
General business tax credit carryovers................. -- -- (243)
Other, net............................................. (1) (11) (2)
--- ---- -----
$19 $341 $ 482
=== ==== =====
</TABLE>

NOTE 6. DEBT

The Company currently has a revolving line of credit agreement (the "Credit
Agreement") with a bank, collateralized by substantially all the Company's
assets, which allows the Company to borrow up to $3,000,000 at the bank's
reference rate plus .25% (7.75% reference rate at October 30, 1994 and 6.0%
reference rate at October 31, 1993).

The Credit Agreement requires the Company to maintain certain financial
ratios and restricts or limits the Company's ability to (i) create certain
liens; (ii) convey, transfer or sell assets; (iii) make capital expenditures;
(iv) incur additional indebtedness; (v) redeem or repurchase any class of its
stock; and (vi) pay dividends on its preferred or common stock. In addition,
the Credit Agreement requires the Company to achieve net income on an annual
basis and not incur losses in two consecutive quarters.

F-10
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

OCTOBER 30, 1994

The Credit Agreement was renewed on November 23, 1994 with the same terms and
conditions and expires on January 31, 1995. The Company is currently in
negotiations with several other banks and expects to enter into a new line of
credit. There can be no assurance, however, that the Company will be able to
obtain a new line of credit and, if so, on what terms. The balance outstanding
at October 30, 1994 was $600,000. As of December 9, 1994 there were no
outstanding balances against the Credit Agreement.

In addition, on December 23, 1994, the Company borrowed approximately
$925,000 at interest rates of 10.5%-10.8%, payable in monthly installments of
approximately $30,000, including interest, over a three-year period. The
borrowings are collateralized by furniture and fixtures with a net book value
of $895,000 at October 30, 1994.

NOTE 7. LEASES

The Company currently leases its building under an operating lease and leases
various equipment under operating and capital leases. The building lease
expires in fiscal 2004.

Minimum future rental commitments under non-cancelable operating leases
having remaining terms of one year or longer and capital leases for the twelve-
month periods subsequent to October 30, 1994 are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEAR LEASES LEASES
----------- --------- -------
(IN THOUSANDS)
<S> <C> <C>
1995................................................... $ 636 $114
1996................................................... 610 33
1997................................................... 614 --
1998................................................... 638 --
1999................................................... 645 --
Thereafter............................................. 3,114 --
------ ----
$6,257 147
======
Less imputed interest.................................. (7)
----
Present value of minimum capital lease payments........ $140
====
</TABLE>

Property and equipment under capital leases have a cost of $318,000 and an
accumulated depreciation of $190,000 at October 30, 1994.

Rental expenses charged to operations were $653,000, $704,000 and $675,000
for the fiscal years 1994, 1993 and 1992, respectively.

NOTE 8. PREFERRED STOCK

An aggregate of 5,000,000 shares are currently authorized and the Board of
Directors is authorized, without further action by the stockholders, to issue
shares of preferred stock in one or more classes or series and to fix the
designations, voting rights, liquidation preferences, dividend rights,
conversion rights, rights and terms of redemption (including sinking fund
provisions) and certain other rights and preferences of the preferred stock.

F-11
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

OCTOBER 30, 1994

The holders of Series A Preferred Stock were entitled to receive cumulative
quarterly cash dividends at an annual rate of $0.0875 (7%) per share paid
quarterly. During fiscal 1993, all shares outstanding were converted to common
stock on a one-for-one-basis.

During fiscal 1993, the Company issued 613,110 shares of Series B Redeemable
Preferred Stock with a liquidation preference and redemption price of $1.75 per
share in connection with its acquisition of Rugged Digital. The holders are not
entitled to dividends. Certain of the Series B Redeemable Preferred
Stockholders (the "Escrow Participants") placed 285,715 shares in escrow to
cover certain indemnification claims, up to an amount of $500,000, that the
Company might have arising out of the acquisition. The escrow agreement was
scheduled to expire on August 10, 1994. On August 9, 1994, the Company
submitted an indemnification claim to the Escrow Participants for approximately
$720,000. The Escrow Participants have rejected a majority of the
indemnification claim and the Company is pursuing its rights under the Rugged
Digital acquisition agreement. The Escrow Participants have accepted
approximately $85,000 of the claim, and 48,554 shares were released from escrow
and returned to the Company. The balance of the shares continue to be held in
escrow pending resolution of the remaining claims.

The original holders of the Series B Redeemable Preferred Stock have a
contractual right to receive warrants to purchase Datametrics Common Stock in
the event that the Series B Redeemable Preferred Stock remains outstanding on
August 10, 1995. The warrants would be exercisable on a one-for-one basis for
shares of Datametrics common stock and in the aggregate would be exercisable
for a number of shares of Datametrics common stock equal to 32.6% of the then-
outstanding shares of Series B Redeemable Preferred Stock. The warrant exercise
price would be $.50 per share. The Company currently intends to redeem all of
the Series B Redeemable Preferred Stock before the right to receive warrants
would be effective.

NOTE 9. STOCK OPTION PLANS AND WARRANTS

At October 30, 1994, the Company has reserved 1,599,674 shares of its common
stock for issuance pursuant to the exercise of options issued primarily under
its incentive stock option plans.

The Company has three incentive stock option plans and one non-qualified plan
(1993 Directors' Stock Option Plan) described as follows:

1982 Plan--This plan was adopted in 1982 and provided for the issuance of
200,000 shares of the Company's common stock.

1986 Plan--This plan, as amended, was adopted in 1986 and provides for the
issuance of 700,000 shares of the Company's common stock.

1993 Plan--This plan was adopted by the Board of Directors in 1993 and
provides for the issuance of 500,000 shares of the Company's common stock.

1993 Directors' Stock Option Plan--This plan was adopted in 1994 and provides
for the issuance of 400,000 shares of the Company's common stock.

Both the 1982 and 1986 plans have similar terms. The plans were established
for the granting of options to key employees at an exercise price not less than
the fair market value on the date of the grant, as determined by the Board of
Directors. The options become exercisable equally over 16 quarters from the
date of grant and expire 10 years from the date of grant. The Company may grant
the options during a 10-year period beginning on the date the plan originated.

F-12
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

OCTOBER 30, 1994

The 1993 plans differ from the earlier plans in that the options expire five
years from the date of grant. The Directors' Stock Option Plan is similar to
the 1993 plan but provides for the issuance of options to members of the Board
of Directors.

The following table summarizes the options exercisable and available for
grant at October 30, 1994:

<TABLE>
<CAPTION>
EXERCISABLE
----------------------
AVAILABLE
NUMBER PRICE RANGE FOR GRANT
------- -------------- ---------
<S> <C> <C> <C>
1982 Plan................................ 91,550 $ .75 - 2.375 --
1986 Plan................................ 499,462 $ .75 - 4.3125 27,800
1993 Plan................................ 63,025 $2.6875 - 3.25 103,000
1993 Directors Plan...................... 30,939 $ 2.875 235,000
</TABLE>

Information on options under the Company's plans is as follows at October 30,
1994:

<TABLE>
<CAPTION>
SHARES UNDER OPTION PRICE
OPTION RANGE
------------ ----------------
<S> <C> <C>
Outstanding at October 31, 1993............ 810,404 $ .25 - $3.25
Granted.................................... 537,000 2.6875 - 4.3125
Terminated................................. (52,000) .25 - 2.875
Exercised.................................. (61,530) .25 - 2.6875
--------- ----------------
Outstanding at October 30, 1994............ 1,233,874 $ .25 - 4.3125
========= ================
</TABLE>

The following table summarizes the options exercisable and available for
grant at October 31, 1993:

<TABLE>
<CAPTION>
EXERCISABLE
--------------------
AVAILABLE
NUMBER PRICE RANGE FOR GRANT
------- ------------ ---------
<S> <C> <C> <C>
1982 Plan.................................. 112,868 $.75 - 2.375 --
1986 Plan.................................. 493,937 $.25 - 3.125 800
1993 Plan.................................. -- -- 150,000
</TABLE>

Information on options under the Company's plans is as follows at October 25,
1992:

<TABLE>
<CAPTION>
SHARES UNDER OPTION PRICE
OPTION RANGE
------------ -------------
<S> <C> <C>
Outstanding at October 25, 1992............... 757,750 $ .25 - 3.125
Granted....................................... 170,000 1.435 - 3.25
Terminated.................................... (32,000) 1.00 - 1.50
Exercised..................................... (85,346) 1.25 - 1.875
------- -------------
Outstanding at October 31, 1993............... 810,404 $ .25 - 3.25
======= =============
</TABLE>

There are 170,000 shares of common stock reserved for issuance upon exercise
of warrants sold for $0.001 per warrant to the underwriters of the Company's
March 24, 1994 offering of common stock. The warrants are exercisable for a
period of five years beginning March 24, 1995 and have a per-share exercise
price equal to $3.15 (120% of the initial public offering price of $2.625).

F-13
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

OCTOBER 30, 1994

NOTE 10. CONTINGENCIES

The Company is, from time to time, the subject of claims and suits arising
out of matters occurring during the operation of the Company's business. In the
opinion of management, the liability, if any, under such current claims and
suits would not materially affect the financial position or the results of the
operations of the Company.

NOTE 11. EMPLOYEE BENEFIT PLANS

The Company sponsors a defined contribution 401(k) plan, as amended, covering
a majority of its employees. The plan allows eligible employees to contribute
up to 17% of their gross salary. Company contributions are voluntary and at the
discretion of the Board of Directors. There were no Company contributions in
fiscal 1994. Company contributions amounted to $94,000 and $140,000 for fiscal
years 1993 and 1992, respectively. Employees vest in Company contributions
based upon their years of vesting service, as defined.

In October 1989, the Company entered into agreements with two officers to
provide deferred compensation benefits upon their retirement. The Company has
accrued $229,000 and $324,000 at October 30, 1994 and October 31, 1993,
respectively, representing the net present value of the future benefits to be
paid, of which $148,000 and $228,000, respectively, have been classified as
long-term.

During November 1994, the Company established a Supplemental Employee
Retirement Plan (SERP), a defined benefit pension plan covering certain
officers to whom the plan is offered. Normal retirement age is 65, but
provision is made for earlier retirement. Benefits under the plan are generally
payable for up to fifteen years after a participant's retirement. However, the
participant may elect a lump-sum payment equal to 90% of the net present value
of the benefit amount at the participant's retirement date. Although all
necessary actuarial determinations are not complete, management does not
believe that the adoption of the SERP will have a material effect on the
financial position or future results of operations of the Company.

NOTE 12. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data for 1994 and 1993 are as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
1994 JANUARY 31 MAY 2 JULY 31 OCTOBER 30
---- ---------- ------ ------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales............................... $5,634 $6,733 $5,873 $ 6,971
Gross profit........................ 1,685 2,392 1,926 2,303
Net income (loss)................... (242) 29 27 217
Income (loss) per common share:
Primary........................... $(0.03) $ -- $ -- $ 0.02
Fully diluted..................... $(0.03) $ -- $ -- $ 0.02
Weighted average number of common
shares outstanding:
Primary........................... 7,762 7,985 9,720 10,045
Fully diluted..................... 7,762 7,985 9,720 10,045
</TABLE>

F-14
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)

OCTOBER 30, 1994
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------
1993 JANUARY 31 MAY 2 AUGUST 1 OCTOBER 31
---- ---------- ------ -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales............................... $5,321 $5,406 $5,474 $7,783
Gross profit........................ 2,119 2,137 1,993 2,112
Cumulative effect of change in
accounting principle............... 938 -- -- --
Net income.......................... 1,185 175 79 44
Income per common share:
Primary........................... $ .26 $ .03 $ .01 $ .01
Fully diluted..................... $ .19 $ .03 $ .01 $ .01
Weighted average number of common
shares outstanding:
Primary........................... 4,375 5,351 5,147 7,025
Fully diluted..................... 6,101 6,338 6,000 7,243
</TABLE>

Per share data may not always add to the total for the year because each
figure is independently calculated.

F-15
<PAGE>

DATAMETRICS CORPORATION

BALANCE SHEETS
(UNAUDITED)

<TABLE>
<CAPTION>
APRIL 30, OCTOBER 30,
1995 1994
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 676 $ 988
Accounts receivable.................................... 4,060 8,730
Inventory.............................................. 5,998 6,038
Income taxes receivable................................ 447 325
Prepaid expenses....................................... 278 267
Deferred tax asset..................................... 449 571
------- -------
Total current assets................................. 11,908 16,919
Property and equipment, at cost:
Machinery and equipment................................ 4,667 3,710
Furniture, fixtures & computer equipment............... 2,430 2,172
Leasehold improvements................................. 374 363
------- -------
7,471 6,245
Accumulated depreciation and amortization.............. (4,311) (3,970)
------- -------
Net property and equipment............................. 3,160 2,275
Deferred tax assets...................................... 64 64
Other assets............................................. 821 692
------- -------
$15,953 $19,950
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank................................... -- $ 600
Accounts payable....................................... $ 1,172 1,917
Accrued commissions and payroll........................ 578 845
Accrued warranty....................................... 144 182
Other accrued liabilities.............................. 460 368
Advance payments and progress payments on contracts.... 286 538
Current portion of capital lease and loan obligations.. 514 108
------- -------
Total current liabilities............................ 3,154 4,558
Capital lease obligations................................ 117 32
Long term debt due after one year........................ 1,369 --
Other long-term liabilities.............................. 132 150
Deferred tax liability................................... 76 76
Excess of acquired net assets over cost.................. 381 533
Series B redeemable preferred stock 613,110 shares
authorized, 545,950 shares issued and outstanding
in 1995 (564,556 in 1994) (liquidation preference
and redemption price $955 in 1995 and $988 in 1994)..... 939 940
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value--15,000,000 shares
authorized; 9,417,582 shares issued and outstanding
in 1995 (9,258,452 in 1994)........................... 94 93
Additional paid-in capital............................. 14,813 14,608
Accumulated deficit.................................... (5,122) (1,040)
------- -------
Total stockholders' equity........................... 9,785 13,661
------- -------
$15,953 $19,950
======= =======
</TABLE>

See accompanying notes.

F-16
<PAGE>

DATAMETRICS CORPORATION

STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
-----------------
APRIL 30, MAY 1,
1995 1994
--------- -------
(IN THOUSANDS,
EXCEPT
PER SHARE DATA)
<S> <C> <C>
Sales....................................................... $ 7,348 $12,367
Cost of sales............................................. 6,057 8,290
------- -------
Gross profit............................................ 1,291 4,077
Operating expenses:
Research & development.................................... 2,646 975
Selling, general & administrative......................... 2,806 3,528
------- -------
5,452 4,503
------- -------
Loss from operations.................................... (4,161) (426)
Interest expense, net....................................... 39 58
Amortization of excess of acquired
net assets over cost....................................... (152) (141)
------- -------
Income (loss) before provision for income taxes........... (4,048) (343)
Provision (benefit) for income taxes........................ 2 (130)
------- -------
Net income (loss)........................................... (4,050) (213)
Preferred stock accretion................................... (32) (30)
------- -------
Net income (loss) applicable to common stockholders....... $(4,082) $ (243)
======= =======
Net income (loss) per share of common stock: $ (0.40) $ (0.03)
======= =======
Weighted average number of shares outstanding:
Primary................................................... 10,186 7,682
Fully diluted............................................. 10,186 7,682
</TABLE>

See accompanying notes.

F-17
<PAGE>

DATAMETRICS CORPORATION

STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDING
-----------------
APRIL 30, MAY 1,
1995 1994
--------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss................................................... $(4,050) $ (213)
Adjustments:
Amortization of excess of acquired net assets............ (152) (141)
Depreciation and amortization............................ 397 290
Changes in balance sheet items:
Accounts receivable...................................... 4,670 2,963
Inventory................................................ 40 (528)
Prepaid expenses......................................... (11) (21)
Accounts payable......................................... (745) (1,222)
Accrued commissions and payroll.......................... (267) (446)
Advance and progress payments from customers............. (252) 464
Other accrued liabilities................................ 92 (72)
Income taxes............................................. -- (172)
Other.................................................... (218) (385)
------- -------
Net cash provided by (used in) operating activities.......... (496) 517
Cash Flows from Investing Activities:
Capital expenditures for property and equipment............ (1,084) (189)
------- -------
Net cash used in investing activities........................ (1,084) (189)
Cash Flows from Financing Activities:
Borrowings on notes payable................................ 750 3,500
Payments on notes payable.................................. (1,350) (4,650)
Proceeds from the issuance of common stock................. 206 5,192
Borrowings of long-term debt............................... 1,841 --
Payments on long-term debt................................. (95) --
Payments on capital lease obligations...................... (84) (68)
------- -------
Net cash provided by financing activities.................... 1,268 3,974
Net increase (decrease) in cash and cash equivalents......... (312) 4,302
Cash and cash equivalents at the beginning of the period..... 988 199
------- -------
Cash and Cash Equivalents at the End of the Period........... $ 676 $ 4,501
======= =======
Cash paid during the period for:
Interest................................................... $ 61 $ 69
Income Taxes............................................... -- 19
Noncash investing and financing activities:
Accretion on preferred stock............................... 16 30
Issuance of capital lease obligations...................... 199 --
</TABLE>

See accompanying notes.

F-18
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS

APRIL 30, 1995
(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

Financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the statements and
notes thereto included in the Company's latest Annual Report on Form 10-K filed
with the Securities and Exchange Commission.

The information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of Management, necessary to present a
fair statement of the results of operations for the interim periods. Much of
the Company's business is longer term and involves varying development,
production, and delivery schedules. Accordingly, results of a particular
quarter or quarter-to-quarter comparisons of recorded sales and profits may not
be indicative of future operating results or results for the fiscal year ending
October 29, 1995.

From our latest Annual Report on Form 10-K for which the following notes have
been omitted: note (2) pertains to the acquisition; note (3) pertains to
accounts receivable; note (4) pertains to inventory; note (5) pertains to
income taxes; note (7) pertains to leases; note (8) pertains to preferred
stock; note (9) pertains to stock option plans and warrants; note (10) pertains
to contingencies; note (11) pertains to employee benefit plans; and note (12)
pertains to quarterly financial data (unaudited).

Inventories are stated at the lower of cost (first-in, first-out) or market
and include materials, labor, and overhead.

Inventories as of April 30, 1995 are as follows:

<TABLE>
<S> <C>
Raw Material................................ $4,522,000
Work-in Process............................. 1,476,000
----------
$5,998,000
==========
</TABLE>

F-19
<PAGE>

NOTE 2. DEBT

The Company has entered into a revolving line of credit agreement (the
"Credit Agreement") with a bank. The advance rate is eighty percent (80%) of
eligible accounts receivable, plus eighty percent (80%) of eligible progress
billings receivables, to a maximum of the progress billing receivables
sublimit, which will not exceed the lesser of ten percent (10%) of eligible
receivables or $500,000. The lending facility is capped at $7,000,000 and
expires on March 4, 1996. The interest rate is prime plus .25%. The loan is
secured by substantially all the Company's assets. There was no outstanding
balance at April 30, 1995. As of May 17, 1995 the Company had borrowings
outstanding of $1,200,000 under the Credit Agreement and remaining availability
of approximately $1,000,000 under the terms of the Credit Agreement.

The Credit Agreement requires the Company to maintain certain financial
ratios and restricted or limited the Company's ability to (i) create certain
liens, (ii) convey, transfer, or sell assets, (iii) incur additional
indebtedness, (iv) redeem or repurchase any class of stock, and (v) pay
dividends on its preferred or common stock. The Company is in compliance with
all of its covenants.

F-20
<PAGE>

Graphic Image Appendix
----------------------

1. The inside front cover of the Prospectus contains representations of the
Company's CYMax logo above a photograph of the CYMax high-speed color
digital printer. The phrase "Datametrics CYMax Series of high-speed color
digital printers" appears below the photograph.

2. In the center of the gatefold there is a photograph of the CYMax
high-speed color digital printer with its lid raised. Also in the center of
the gatefold is a collage of various representative color printer outputs,
including price tags, merchandising labels, a jazz festival advertisement,
a real estate flyer, a drawing of a commercial artist, a newsletter, bar
charts and graphs, a personalized calendar, a happy birthday banner and a
map. In the lower right hand corner of the gatefold are line drawings of
the CYMax color printer and its four ribbon cartridges and a color laser
printer with its consumable replacement parts.

3. The inside back cover contains representations of the Company's CYMax and
DmC logos and a photograph of a bengal tiger. The phrase "A new era in
high speed color printing" appears below the photograph.

4. Representations of The Company's DmC logo appear on the outside front
and back covers of the Prospectus.
<PAGE>

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 11
Price Range of Common Stock and Dividend Policy........................... 11
Capitalization............................................................ 12
Selected Financial Data................................................... 13
Management's Discussion and Analysis of Results of Operations and
Financial Condition...................................................... 14
Business.................................................................. 19
Management................................................................ 31
Principal Stockholders.................................................... 33
Description of Capital Stock.............................................. 35
Shares Eligible for Future Sale........................................... 37
Underwriting.............................................................. 38
Legal Matters............................................................. 39
Experts................................................................... 39
Additional Information.................................................... 40
Incorporation of Certain Documents by Reference........................... 40
Index to Financial Statements............................................. F-1
</TABLE>

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

2,000,000 SHARES

[LOGO OF DATAMETRICS CORPORATION APPEARS HERE]

COMMON STOCK

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

PROSPECTUS

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

PENNSYLVANIA MERCHANT GROUP LTD

CRUTTENDEN ROTH
INCORPORATED

JUNE 21, 1995

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