DATAMETRICS CORP, 10-K405, 1998-02-09

DATAMETRICS CORP
10-K405, 1998-02-09
COMPUTER PERIPHERAL EQUIPMENT, NEC

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-K
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE FISCAL YEAR ENDED OCTOBER 26, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______ TO ______

COMMISSION FILE NUMBER 0-8567

DATAMETRICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<CAPTION>
<S> <C>
DELAWARE 95-3545701
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>

25B HANOVER ROAD, SUITE 3305 FLORHAM PARK, NEW JERSEY 07932
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 871-0300

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, .01 par value American Stock Exchange
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant (based on the closing price of such stock as reported by the
American Stock Exchange) on January 23, 1998 was approximately $26,140,063.

The number of shares outstanding of the Registrant's Common Stock, as of the
latest practicable date:
14,710,597 shares of Common Stock as of January 23, 1998.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Datametrics Corporation definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days after the
close of the fiscal year ended October 26, 1997 are incorporated by reference
into Part III.

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PART I

ITEM 1. BUSINESS.

This report contains certain statements of a forward-looking nature relating
to future events or the future performance of the Company. Prospective
investors are cautioned that such statements are only predictions and that
actual events or results may differ materially. In evaluating such statements,
prospective investors should specifically consider various factors identified
in this report, including that Department of Defense contracts are subject to
termination without cause; competitive factors and pricing pressures; the
smooth start-up of the Florida facility; and the ability to arrange as needed
up to $2,500,000 of financing, which could cause actual results to differ
materially from those indicated by such forward-looking statements.

GENERAL

Datametrics Corporation ("Datametrics" or the "Company") designs, develops
and sells high-speed color printers, high-resolution non-impact
printer/plotters and ruggedized computers, printers and workstations for
government/defense and industrial markets. The Company is focused on the
manufacture and sale of its core product line of ruggedized printers and the
continuing development and manufacture of high-performance, high-reliability
communication workstations.

On July 21, 1997, Datametrics Corporation introduced a new family of five
industrial and government/defense high-speed concurrent thermal transfer
printers. The Company's new family of medium and wide format printers includes
the Harrier(TM), the Condor(TM) I and the Condor(TM) II for industrial
customers, and the Cobra(TM) I and Cobra(TM) II for government/defense
customers. The Harrier(TM), Condor(TM) series and Cobra(TM) series of print
engines are robust, rugged, high-performance printers which incorporate a wide
range of Datametrics' newly-developed technological capabilities in the area
of thermal transfer printing.

On November 19, 1997, Datametrics announced a North American automobile
license plate partnership agreement with Avery Dennison Corporation to provide
Datametrics' state-of-the-art digital imaging system solution for the
manufacture of vehicular license plates. Under the terms of the agreement,
Avery Dennison, which manufactures reflective license plate sheeting, will
market the Company's new Harrier(TM) single station industrial print engine
and Condor(TM) I four station industrial print engine as part of a total
system approach to the manufacture of vehicular license plates.

The Company was incorporated in California in October 1962 and was
reincorporated in Delaware in April 1987. The Company's corporate offices are
located at 25B Hanover Road, Suite 3305, Florham Park, New Jersey 07932.

COMPANY BACKGROUND

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. 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. government (or the prime contractors to the
U.S. government) 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.

Over the past several fiscal years, the Company has been significantly
impacted by market changes in the U.S. Department of Defense ("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
industrial and international opportunities for its ruggedized printers and
electronic communications equipment, expand its core ruggedized product line
and to explore opportunities for its high-speed digital color printer
products. The Company believes that despite the DoD budget forecast of overall
funding decreases, revenues attributable to its core product line will enjoy
modest growth as a result of

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its competitive position as a defense contractor and as a result of industrial
and international market
opportunities.

DEFENSE PRODUCTS

The Company designs, develops, manufactures and sells military specification
("mil-spec") and ruggedized computers, workstations and printers for use in
DoD applications. Products sold by the Company into the DoD markets can be
categorized into three basic groups: mil-spec printers, ruggedized computers,
and ruggedized printers. For the fiscal year ended October 26, 1997,
approximately 67% of the Company's revenues were derived from DoD business,
which includes contractors with U.S. government contracts as well as the DoD
itself.

Mil-spec products are designed specifically to meet military requirements
and must meet the stringent requirements for operation in adverse
environments, including shock, vibration, extreme temperatures and, in some
cases, nuclear radiation. Being so designed, these products are more reliable
and significantly more expensive than ruggedized or industrial products
(products designed for benign environments as are experienced in commercial
applications). Industrial products can be used in selected military
environments and are significantly less expensive than the mil-spec products.
The broader intermediary category includes the ruggedized products which are
generally configured to operate in some adverse environments but do not meet
full mil-spec requirements.

Military Printers. The Company manufactures a wide range of printers which
are categorized as either mil-spec or ruggedized. These printers utilize
thermal printing, impact printing and laser printing technologies. These
printers are purchased and utilized by the DoD as well as by companies and
organizations which manufacture, sell or use data processing or data
communications systems that require "hard copy" printouts. The Company's
products are incorporated into these systems. The military printers are more
reliable than conventional commercial printers and are designed to work in
severe environmental applications. The design and component selection allow
the Company's printers to withstand certain adverse effects of dirt and grime,
corrosion, droppage, bullets, moisture, extremes in hot and cold temperature,
and in some cases, nuclear radiation. In connection with the 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 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 printers in this standardization program
influenced the purchase of its printers on several defense programs.

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 operate in adverse environments while providing
quiet and reliable printing operations. The Company has developed a low cost
impact printer as well as a ruggedized laser printer which are targeted at the
low end of the severe environment market. These ruggedized products utilize
commercial components, some industrial (high-reliability, military rated)
components, and are encased in a rugged case to withstand moderately severe
environments.

The Company has experienced the highest sales volume of full mil-spec
printers with its DmC 1600 printer/plotter. These printers 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 proposed for most of the
Navy's nuclear super aircraft carriers and cruisers. In addition, the DmC
1600's are used for the U.S. Navy standard display consoles that are utilized
on virtually every fighting ship in the fleet. This printer is qualified for
the Navy's rigorous environmental standards. A special version of the DmC 1600
printer is being used 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 Communications Satellite Program, the DoD's global communications
system.

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The Company's DmC 1900 Model, a high resolution color printer/plotter, also
is used by 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 in 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 is used by the U.S. Navy for utilization
within a number of Aegis subsystems. The military color printer market has
been slow to develop due to cost considerations; however, the Company has
developed a new lower cost ruggedized printer which it believes should enjoy
higher sales.

Ruggedized Computers. The Company's ruggedized products combine
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. The Company 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 ("DEC"), Hewlett-Packard Company, Silicon
Graphics Inc., and Sun Microsystems Inc. This process often requires the
Company to design and manufacture cases, controls, backplanes and power
supplies. These products require much shorter development and testing periods
than mil-spec products. As such, these products allow the military to deploy
state-of-the-art computer technology rapidly, at a price greatly reduced from
full mil-spec systems. These timing and price factors are responsive to
current U.S. government trends.

A substantial portion of the Company's ruggedized products revenue is
derived from the sale of workstations into the international marketplace.
Workstations have been sold into the Japanese P-3 maritime patrol aircraft
program. Other sales have been to France, Italy and Israel. This marketplace
continues to be active for these products.

International Military. The Company believes that international markets
offer promising growth opportunities for the Company's high-end monochrome and
color printers and ruggedized printer, computers and workstations. As the U.S.
government funding continues to decrease, other countries are increasing their
military budgets, specifically in the Pacific Rim. These countries are
assuming more of the burden of their defense roles as the U.S. military
reduces its presence. The Company continues to be aggressive in the
international marketplace, although there is greater inherent risk.

Distribution and Sales. Defense products are distributed both domestically
and internationally through the Company's marketing force. This marketing
force is supported in certain regions by independent, commission-only sales
representatives.

SIGNIFICANT CUSTOMERS AND MATTERS CONCERNING DOD BUSINESS

Most of the customers for the Company's products are the DoD and prime
contractors under programs funded by the DoD. For the fiscal years ended
October 26, 1997, October 27, 1996, and October 29, 1995, direct and indirect
DoD business represented approximately 67%, 61% and 79%, respectively, of the
Company's revenues. Because the Company's products are intended to function as
subsystems, they are sold to customers which manufacture, sell or use data
processing or data communication systems which involve a processing, printing,
recording or data entry function for which the Company's products are suited.
While the Company may be a subcontractor on a government program with an
aggregate budget of billions of dollars extending over as much as a ten-year
period, the Company's share of the budget for any major program is relatively
small.

In the fiscal year ended October 26, 1997, the Company's five largest
customers in sales, Lockheed Martin (15.7%), U.S. government (13.7%), GTE
(12.5%), Computing Devices Canada (10.9%) and Digital Equipment Corporation
(10.8%), accounted for an aggregate of 64% of total Company sales. The loss of
any one of these customers could have a material adverse impact on the results
of operations and financial condition of the Company.

In the fiscal year ended October 27, 1996, the Company's five largest
customers in sales, Lockheed Martin (15.5%), Digital Equipment Corporation
(15.4%), GTE (11.3%), DoD (9.9%) and Raytheon (9.9%), accounted for an
aggregate of 62% of total Company sales.

Companies which are engaged primarily in supplying equipment and services,
directly or indirectly, to the U.S. government are subject to special risks
including dependence on government appropriations, termination

4
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without cause, contract renegotiation and competition for the available DoD
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.

The Company's DoD related contracts provide for the right to audit the
Company's cost records and are subject to defective pricing regulation.
Management does not believe that it has any material exposure of this sort on
any such contracts. Accordingly, no provisions have been made in the Company's
accounts in connection with defective pricing regulation.

HIGH-SPEED COLOR DIGITAL PRINTER

In fiscal 1994, the Company began an intensive program to develop a high-
speed color digital printer for the short-run production printer market. After
significant development and marketing costs, coupled with limited market
success, the Company in October 1996 idled and subsequently ceased all
manufacture and marketing of its CYMax product line to permit a comprehensive
strategic and operational feasibility study of its overall concurrent transfer
imaging ("CTI") technology and its potential applications. Following the
completion of the strategic and operational feasibility study, the Company
introduced a new family of five industrial and government/defense high-speed
concurrent thermal transfer printers on July 21, 1997. The Company's new
family of medium and wide format printers includes the Harrier(TM), the
Condor(TM) I and the Condor(TM) II for industrial customers, and the Cobra(TM)
I and Cobra(TM) II for government/defense customers.

The Harrier(TM), Condor(TM) series and Cobra(TM) series of print engines are
robust, rugged, high-performance printers which incorporate a wide range of
Datametrics' newly-developed technological capabilities in the area of thermal
transfer printing.

CERTAIN MARKET CONSIDERATIONS

The markets served by the Company 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 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 developments could result in a loss of anticipated
future revenues and impair the Company's competitiveness.

SERVICE

Pursuant to maintenance agreements, repair orders or warranty provisions,
the Company generally services its printers with its own employees at its
facility. In-house, non-warranty repairs and maintenance service provided 4.9%
and 8.1% of the Company's sales in fiscal 1997 and 1996, respectively. For
both military and commercial products, the Company's standard warranty period
is ninety 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 17.8% and 11.6%
of fiscal 1997 and 1996 revenue, respectively. The Company also sells
documentation, such as handbooks, operational manuals, schematics and other
technical data to assist its customers in maintaining their own equipment.

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BACKLOG

The Company's backlog of funded orders not yet recognized as revenue at
October 26, 1997, October 27, 1996, and October 29, 1995 was approximately
$2,794,000, $7,675,000 and $9,190,000, respectively. Approximately all of the
October 26, 1997 backlog is expected to be delivered during the fiscal year
ending October 25, 1998. On January 25, 1998 the Company's backlog was
$3,142,000.

Approximately 75% 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.

SOURCES OF SUPPLY

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
ruggedized 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.

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.

In domestic and international defense markets, the Company's principal
competitors are NAI Technologies, Inc., Miltope Group Inc. and Aydin Corp. 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 a trademark registration covering
its "DmC"(R) logo and for the Harrier(TM), the Condor(TM) and the Cobra(TM)
products. The Company has been granted two U.S. patents relating to its high-
speed color digital printer technology. The Company also has several U.S.
patent applications pending relating to its high-speed color digital printer.
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 trade secrets
and other proprietary information.

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.

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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
consist 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 $343,000, $5,557,000 amd $6,151,000 on
research and development during the fiscal years ended October 26, 1997,
October 27, 1996 and October 29, 1995, respectively. The research and
development expenses incurred in fiscal 1996 and 1995 related to product
development of a high-speed color digital printer and a low-cost ruggedized
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.

EMPLOYEES

As of October 26, 1997, the Company employed 95 persons on a full-time
basis, compared to 112 persons on a full-time basis as of October 27, 1996.
None of the Company's employees are represented by a union or are subject to a
collective bargaining agreement. The Company believes that its relations with
its employees are good.

OTHER MATTERS

The business of the Company is not seasonal.

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 adverse effect on the business,
financial condition or results of operations of the Company.

ITEM 2. PROPERTIES.

The Company's operations are currently 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.
A 6,600 square foot facility located in Calabasas, California was opened in
November 1997. This facility houses the Company's technology center and
administrative support. The lease is for a three year term through October
2000. In December 1997, the Company purchased a 43,000 square foot
manufacturing facility in Orlando, Florida (see Item 1. Other Matters). In
January 1998, the Company leased a 5,400 square foot office in Florham Park,
New Jersey in which the Company's Corporate offices are located. The lease
provides for a five year term through March 2003. Management believes that its
facilities are suitable and adequate for the Company's current needs.

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ITEM 3. LEGAL PROCEEDINGS.

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

Four former officers of the Company (the "Former Officers"), whose
employment relationships with the Company terminated in part as a result of
the Company's restructuring in October 1996, are seeking severance benefits
from the Company. On January 13, 1997, three of the Former Officers sued the
Company in the Superior Court of the State of California for Los Angeles
County, in order to enforce payment of severance benefits under certain
agreements, each dated as of October 7, 1996, between each Former Officer and
the Company (collectively, the "Severance Agreements"). The fourth Former
Officer has sued the Company in response to the Company's cross-complaint
described below. The Former Officers seek damages from the Company based upon
the Severance Agreements and an alleged implied promise not to terminate the
employment of the Former Officers with the Company without good cause. The
Former Officers have demanded that the Company pay to each of them (i) an
amount equal to one year of their respective annual salaries in effect as of
the date of termination, payable in a lump sum, (ii) twelve monthly
installments payable to the former officers, the total of which would also
equal their respective annual salaries, and (iii) attorneys' fees. Total
payments under the Severance Agreements, excluding attorneys' fees, would
aggregate approximately $1,200,000 if due in full to the Former Officers. The
complaint does not state, however, any specific amount of damages sought by
the plaintiffs.

On February 12, 1997, the Company filed a cross-complaint against the Former
Officers alleging breach of fiduciary duty, constructive fraud, civil
conspiracy and declaratory relief. At present, it is too early to evaluate
fully the Company's exposure, if any, under the above action. Management
believes, however, that it has legitimate defenses and intends to defend
vigorously this action.

In addition, on or about November 6, 1996, the Company received a demand by
the Former Officers claiming benefits under the Company's Supplemental
Executive Retirment Plan (the "SERP"). The Company has notified the Former
Officers that their respective claims under the SERP were being denied in
whole in accordance with the terms of the SERP. Three of the Former Officers
have disputed this denial and Imperial Trust Company, as trustee, has filed an
action in Interpleader in the United States District Court, Central District
of California. This procedure provides an appropriate forum in which this
dispute can be resolved by court action. An adverse determination could result
in additonal liability to the Company of approximately $350,000. The parties
currently are in settlement discussions and the Company anticipates that this
matter could be resolved in its second quarter of fiscal year 1998.

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

None.

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EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth certain information concerning the executive
officers of the Company as of January 30, 1998.

<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<C> <C> <S>
Daniel P. Ginns......... 47 Chairman of the Board of Directors since
October 9, 1996; Chief Executive Officer since
October 24, 1996; and Secretary since February
19, 1997. Mr. Ginns is also the President of
Belmont Capital, Inc.
Adrien A. Maught, Jr.... 48 President since January 3, 1997 and Director
since October 9, 1996.
Kenneth S. Polak........ 42 Chief Financial Officer since April 14, 1997;
Assistant Vice President since January 31,
1997; Assistant Secretary since November 4,
1996; and Controller since July 1, 1990.
James D. Sturgeon, Jr... 64 Chief Operating Officer since April 14, 1997;
Vice President, Manufacturing Operations since
April 1, 1992; and Vice President, Operations
since February 27, 1989.
</TABLE>

No family relationship exists between any of the individuals named above.
There were no arrangements or understandings between any officer and any other
person pursuant to which he was selected an officer.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

Datametrics Corporation's common stock has been listed on the American Stock
Exchange (Symbol DC) since July 26, 1988. The high and low sales prices for
the common stock as reported by the American Stock Exchange are set forth in
the following table.

<TABLE>
<CAPTION>
FISCAL 1997 QUARTER ENDED HIGH LOW
------------------------- -------- -------
<S> <C> <C>
January 26............................................... $1 9/16 $ 7/8
April 27................................................. $2 7/16 $1 1/4
July 27.................................................. $1 11/16 $1 1/8
October 26............................................... $2 1/4 $1 3/16
<CAPTION>
FISCAL 1996 QUARTER ENDED HIGH LOW
------------------------- -------- -------
<S> <C> <C>
January 28............................................... $9 9/16 $6 5/8
April 28................................................. $9 3/8 $5 3/4
July 28.................................................. $8 7/8 $2 5/16
October 27............................................... $3 7/16 $ 7/8
</TABLE>

There were approximately 778 stockholders of record as of October 26, 1997.

No cash dividends have been paid to common stockholders since the Company
was founded, and the Company does not intend to do so in the foreseeable
future.

ITEM 6. SELECTED FINANCIAL DATA.

FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------------------------------
OCTOBER 26, OCTOBER 27, OCTOBER 29, OCTOBER 30, OCTOBER 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Sales................. $16,797 $ 19,246 $18,956 $25,211 $23,984
Net income (loss)
before cumulative
effect of change in
accounting
principles........... $(3,101) $(17,386) $(9,213) $ 31 $ 545
Net (loss) income..... $(3,101) $(17,386) $(9,213) $ 31 $ 1,483
Net income (loss) per
share:
Primary............. $ (0.24) $ (1.39) $ (0.84) $ -- $ 0.26
Fully diluted....... $ (0.24) $ (1.39) $ (0.84) $ -- $ 0.23
Weighted average
number of shares
outstanding:
Primary............. 12,995 12,515 11,020 9,067 5,458
Fully diluted....... 12,995 12,515 11,020 9,067 6,404
Other data:
Total assets.......... $11,546 $ 15,940 $27,471 $19,886 $16,460
Long-term debt........ $ 1,019 $ 1,032 $ 919 $ 1,134 $ 1,433
Stockholders' equity.. $ 3,522 $ 5,013 $21,939 $13,661 $ 8,470
</TABLE>

The Company paid cash dividends to preferred stockholders in 1993. The
Company recorded a one-time cumulative benefit of $938,000 related to the
adoption of Statement of Financial Accounting Standards No. 109 for the year
ended October 31, 1993.

10
<PAGE>

During March and April 1994, the Company sold 2,300,000 shares of common
stock in a public offering. The net proceeds were approximately $5,138,000.
During June 1995, the Company sold 2,300,000 shares of common stock in a
public offering. The net proceeds were approximately $16,555,000.

Net loss for fiscal 1996 include certain non-recurring charges of
$5,518,000.

During February 1997, the Company sold 667,334 shares of common stock in a
private placement. The net proceeds were approximately $1,001,000.

On October 27, 1997, the Company had a private placement of 1,394,094 shares
at $1.75 per share for proceeds of approximately $2,440,000.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

RESULTS OF OPERATIONS

Fiscal Year 1997 Compared With Fiscal Year 1996

Sales for the year ended October 26, 1997 were $16,797,000, a decrease of
$2,449,000 or 13%, compared with sales of $19,246,000 in the prior fiscal
year. Sales of defense and defense related products decreased $2,331,000,
while other sales decreased by $117,000. Sales for fiscal 1997 were adversely
impacted by management's decision to discontinue the CYMax product line in
favor of developing a new family of industrial and government/defense thermal
transfer printers, the loss of a large, marginally profitable program, the
Company's decision not to accept orders for single or low quantity orders with
substantial development costs, and the Company's decision to relocate its
manufacturing operations to Florida.

Cost of sales for fiscal 1997 was $13,401,000 (80% of sales), a decrease of
$7,767,000 or 37%, compared with $21,168,000 (110% of sales) for the prior
fiscal year. Cost of sales as a percentage of sales was favorably impacted by
the Company's discontinuation of the CYMax product line. Cost of sales was
unfavorably impacted by four contracts that were begun prior to October 1996
that lost $1,060,000, the $524,000 of reserve taken for excess and obsolete
inventory, and $275,000 in severance benefits in connection with the Company's
relocation of its manufacturing operations to Florida.

Research and development ("R&D") expenses were $343,000 for fiscal 1997, a
decrease of $5,214,000 or 94%, compared with $5,557,000 for fiscal 1996. The
reduction is primarilly due to decreased spending on the Company's former
commercial thermal printer products. The Company spent $130,000 on the
development of the new family of industrial printers and the remainder on
various military products.

Selling, general and administrative ("SG&A") expenses for fiscal 1997 were
$5,670,000 (34% of sales) a decrease of $4,084,000, or 42%, compared with
$9,754,000 (51% of sales) for the prior fiscal year. The reduction in SG&A was
the result of the elimination of sales and marketing expenses for the
Company's former commercial thermal printer; the elimination of consulting
fees for the members of the board of directors, the closing of the DeSoto
Avenue facility, and a reduction in defense-related marketing expenses. This
reduction was partially offset by an increase in audit and legal fees for
1997. A significant part of the legal fees were incurred in defending against
legal actions brought by the former executive management of the Company. The
Company expensed $470,000 relating to its move of manufacturing operations to
Florida.

11
<PAGE>

Net interest expense amounted to $474,000 for the year ended October 26,
1997 compared with net interest expense of $80,000 for fiscal 1996. This
increase is due to decreased investment income, borrowings on the Company's
bank line of credit, borrowings on the cash surrender value of the Company's
key man life insurance policy and issuance of senior subordinated debentures
during the first quarter of fiscal 1997. Amortization of excess of acquired
net assets over cost was completed during the third quarter of fiscal 1996.
The amortization is a result of the acquisition of Rugged Digital Systems Inc.
("Rugged Digital") in August 1993.

The net loss for the year ended October 26, 1997 amounted to $3,101,000 a
decrease of $14,285,000 or 82%, compared with net loss of $17,386,000 for the
prior fiscal year.

Management has determined that, based on the Company's historical losses
from recurring operations, the Company will not recognize its net deferred tax
assets at October 26, 1997. 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.

The Company utilizes various computer software packages as tools in running
its accounting operations. Management plans to implement any necessary vendor
upgrades and modifications to ensure continued functionality with respect to
the widely discussed software issues associated with the Year 2000. At
present, management does not expect that material incremental costs will be
incurred in the aggregate or in any single future year.

The contract process in which products are offered for sale is generally set
before costs are incurred, and prices are based on estimates of the costs,
which include the anticipated impact of inflation.

Fiscal Year 1996 Compared With Fiscal Year 1995

Sales for the year ended October 27, 1996 were $19,246,000 an increase of
$290,000 or 1.5% compared with sales of $18,956,000 in the prior fiscal year.
Sales from military and ruggedized products increased $199,000 and sales of
commercial color products increased $91,000.

Cost of sales for fiscal 1996 was $21,168,000 (110% of sales) an increase of
$4,840,000 from cost of sales of $16,328,000 (86% of sales) for the prior
fiscal year. Cost of sales as a percent of sales was primarily impacted by
$5,102,000 of non-recurring charges for inventory reserves and tooling costs
relative to the Company's high-speed color digital printer product.

R&D expenses were $5,557,000 in fiscal 1996, a decrease of $594,000 or 10%
compared with $6,151,000 for fiscal 1995. Approximately 83% of the fiscal 1996
R&D expenses related to the development of the Company's high-speed color
digital printer product.

SG&A expenses for fiscal 1996 were $9,754,000 (51% of sales) an increase of
$3,686,000 from $6,068,000 (32% of sales) from the prior fiscal year. The
increase was due to heavy spending on marketing for the Company's high-speed
color digital printer product and certain non-recurring charges of $416,000
primarily for severance and accelerated depreciation.

Net interest expense amounted to $80,000 for the year ended October 27, 1996
compared to net interest income of $96,000 for fiscal 1995. The change was due
to decreased investment income on the remaining proceeds of the Company's
common stock offering and payment of interest on increased borrowings.
Amortization of excess of acquired net assets over cost was $229,000 for the
year ended October 27, 1996 compared to $304,000 for the prior fiscal year.
The decrease of $75,000 was due to the completion of amortization in the third
quarter of 1996. The amortization was a result of the acquisition of Rugged
Digital Systems, Inc. in August 1993.

The net loss for the year ended October 27, 1996 amounted to $17,386,000
compared with a net loss of $9,213,000 for the same period in the prior fiscal
year. The loss was primarily due to continued spending on the Company's high-
speed digital color printer. Cost of sales increased by $4,840,000, SG&A
expenses increased by $3,686,000, net interest expense increased by $176,000,
amortization decreased by $75,000, and taxes increased by $280,000. This loss
was partially offset by an increase in sales of $290,000 and by a decrease in
R&D expenses of $594,000.

12
<PAGE>

In October 1996, the Company idled the manufacture and marketing of its
CYMax series of high-speed color digital printers. This decision was made as a
result of the burdensome development and selling expenses of the CYMax
printers which experienced an indifferent market reception.

On October 8, 1996, a new Board of Directors was elected, effecting a change
in control of the Company. This change in control was brought about by a group
of stockholders who were dissatisfied with the strategic direction and
financial performance of the Company. On October 24, 1996, the Company
announced that it had accepted the resignations of four senior executives,
three members of the Board of Directors and had reduced its work force by
laying off 35 out of a total of 151 employees. These measures were undertaken
based upon the new Board of Directors' assessment of the Company's business
performance during the past several years, the then financial and operational
position of the Company and the perceived immediate need to implement new cost
control policies and procedures.

Primarily as a result of these changes, the Company recorded the following
non-recurring charges which totaled $5,518,000 in the fourth quarter of fiscal
1996: $876,000 of accelerated depreciation on property and equipment relative
to the idled production facilities for the former CYMax printer line; $304,000
in severance payments and accruals relating to employee and senior executive
terminations; $3,323,000 related to the writedown to estimated net realizable
value for CYMax inventory purchased during fiscal 1996; $542,000 for CYMax
material vendor claims; and $473,000 for a write-down of other assets and
other liabilities. As of October 27, 1996, $865,000 of the non-recurring
charges were accrued as liabilities.

LIQUIDITY AND CAPITAL RESOURCES

The Company 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 2% in 1997 and .25% in 1996 (8.5% reference rate at
October 26, 1997). The advance rate is eighty percent (80%) of eligible
accounts receivable, plus eighty percent (80%) of eligible progress billings
receivable, to a maximum progress billing receivables sublimit, which could
not exceed the lesser of ten percent (10%) of eligible receivables or
$500,000, plus 15% of qualified inventory up to a maximum sublimit of
$300,000. The facility expires on March 3, 1998. There was $992,000
outstanding at October 26, 1997.

The Credit Agreement requires the Company to maintain profitable quarterly
results, to maintain certain financial ratios and restricts or limits the
Company's ability to: (i) create certain liens; (ii) convey, transfer or sell
assets outside of the ordinary course of business; (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.
The Company was not in compliance with certain of these covenants at October
26, 1997, however, the Company has received waivers on all defaults.

During November 1996, the Company issued $1,850,000 of Senior Subordinated
Secured Debentures with a maturity date of May 25, 1998 and an annual interest
rate of 10%, (effective interest is 10.8% based upon original issue discount).
The proceeds from the sale of the Senior Subordinated Secured Debentures were
used to reduce the line of credit and fund working capital requirements. The
Senior Subordinated Secured Debenture holders received warrants to purchase a
total of 616,679 shares of common stock at a price of $1.50 for each share in
connection with the financing. The warrants are subject to call by the Company
if the closing market price of the Company's common stock is $3.00 or greater
for twenty consecutive days. The warrants expire November 25, 2001.

In addition to the above referenced subordinated debt, the Company has
received a commitment, subject to normal terms and conditions, from the
members of the Company's Board of Directors, to arrange to raise up to
$2,500,000 of capital for the Company as needed during the 1998 fiscal year
through a private placement of equity securities, debt securities or a
combination thereof. Although management is confident in its ability to
arrange for up to $2,500,000 of new capital, outside factors may impact the
amount of capital actually raised which may result in an adverse impact on the
Company's financial condition.

On October 27, 1997 the Company effected a private placement of 1,394,094
shares at $1.75 per share for proceeds of approximately $2,440,000.

13
<PAGE>

The Company's working capital and current ratios at the end of fiscal years
1997, 1996 and 1995 were $2,239,000, $3,187,000 and $19,252,000 and 1.3, 1.3
and 5.4, respectively. The deterioration in financial position in 1997 and
1996 is the result of the Company's losses.

Management believes that the Company must make approximately $700,000 of
capital expenditures (including capitalized leases) during fiscal 1998. The
Company's other principal commitments for fiscal 1998 are lease obligations
for the Company's facility, equipment lease and loan payments, and interest
due on bank borrowings and subordinated debt.

Management expects to finance the capital expenditure requirements and other
commitments from the bank line of credit, issuance of stock, subordinated
debt, capital leases, capital loans and from other sources of working capital.

FORWARD LOOKING STATEMENTS--CAUTIONARY FACTORS

Except for the historical information and statements contained in this
report, the matters set forth in this report are "forward looking statements"
that involve uncertainties and risks, some of which are discussed at
appropriate points in this report and the Company's other SEC filings,
including the fact that the Company is engaged in supplying equipment and
services to U.S. government defense programs which are subject to special
risks, including dependence on government appropriations, contract termination
without cause, contract renegotiation and the intense competition for
available defense business.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The response to this Item 8 is submitted as a separate section of this
report (see Item 14).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

On November 3, 1997, the Company changed its certifying accountants from
Ernst & Young LLP to Deloitte & Touche LLP as filed on Form 8-K on November 7,
1997.

PART III

The information required to be set forth herein, Item 10, "Directors and
Executive Officers of the Registrant," Item 11, "Executive Compensation," Item
12, "Security Ownership of Certain Beneficial Owners and Management," and Item
13, "Certain Relationships and Related Transactions," except for a list of the
Executive Officers which is provided in Part I of this Report, will be
included in a definitive proxy statement pursuant to Regulation 14A, which is
incorporated herein by reference. It is anticipated that copies of such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the close of the fiscal year ended October 26, 1997.

14
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) 1. Consolidated Financial Statements

The Consolidated Financial Statements listed in the accompanying Index to
Consolidated Financial Statements and Financial Statement Schedule on page F-1
hereof are filed as part of this report.

2. Consolidated Financial Statement Schedules

The Financial Statement Schedule listed in the accompanying Index to
Consolidated Financial Statements and Financial Statement Schedule on page F-1
hereof are filed as part of this report.

3. Exhibits

The exhibits listed in the accompanying Exhibit Index on pages E-1 and E-2
hereof are filed as part of this report.

(b) Reports on Form 8-K:

NONE

15
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Florham Park, State of New Jersey, on the 5th day of February, 1998.

Datametrics Corporation
(Registrant)

/s/ Daniel P. Ginns
_____________________________________
Daniel P. Ginns,
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ Daniel P. Ginns Chairman of the Board, Chief February 5, 1998
____________________________________ Executive Officer and
Daniel P. Ginns Director (Principal
Executive Officer)

/s/ Adrien A. Maught, Jr. President and Director February 5, 1998
____________________________________
Adrien A. Maught, Jr.

/s/ Kenneth S. Polak Chief Financial Officer and February 5, 1998
____________________________________ Assistant Secretary
Kenneth S. Polak (Principal Financial and
Accounting Officer)

/s/ Douglas S. Friedenberg Director February 5, 1998
____________________________________
Douglas S. Friedenberg

/s/ James Haber Director February 5, 1998
____________________________________
James Haber

/s/ Stephen R. Gass Director February 5, 1998
____________________________________
Stephen R. Gass
</TABLE>

16
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE

FORM 10-K

<TABLE>
<CAPTION>
PAGE
--------
CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Report of Deloitte & Touche LLP, Independent Auditors................. F-2
Report of Ernst & Young LLP, Independent Auditors..................... F-3
Consolidated Balance Sheets as of October 26, 1997 and October 27,
1996................................................................. F-4
Consolidated Statements of Operations for the years ended October 26,
1997, October 27, 1996 and October 29, 1995.......................... F-5
Consolidated Statements of Stockholders' Equity for the years ended
October 26, 1997,
October 27, 1996, and October 29, 1995............................... F-6
Consolidated Statements of Cash Flows for the years ended October 26,
1997, October 27, 1996, and October 29, 1995......................... F-7
Notes to Consolidated Financial Statements............................ F-8-F-20
<CAPTION>
FINANCIAL STATEMENT SCHEDULE
<S> <C>
II--Valuation and Qualifying Accounts................................. F-21
</TABLE>

All other schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or
because the information required is included in the Consolidated Financial
Statements and related notes.

F-1
<PAGE>

REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
Datametrics Corporation

We have audited the accompanying consolidated balance sheet of Datametrics
Corporation and subsidiaries (the "Company") as of October 26, 1997, and the
related consolidated statement of operations, stockholders' equity, and cash
flows for the fiscal year then ended. Our audit also included the financial
statement schedule listed in the index at Item 14(a)2 as it relates to the
fiscal year ended October 26, 1997. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit 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 overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

The accompanying consolidated balance sheet as of October 26, 1997 includes
approximately $2,095,000 of spare and repair parts inventories that the
Company does not expect to sell within one year, as current assets. In our
opinion, generally accepted accounting principles require that such
inventories be reflected as noncurrent assets. Recording such spare and repair
parts inventories as noncurrent assets would result in a decrease in
inventories, total current assets and working capital by $2,095,000 and an
increase in noncurrent assets by $2,095,000.

In our opinion, except for the effect on the consolidated balance as of
October 26, 1997 as discussed in the preceding paragraph such consolidated
financial statements present fairly, in all material respects, the
consolidated financial position of the Company at October 26, 1997, and the
results of their operations and their cash flows for the fiscal year then
ended in conformity with generally accepted accounting principles. Also, in
our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, the Company has experienced
recurring losses from operations and liquidity problems which raise
substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

/s/ Deloitte & Touche LLP

Jericho, New York
January 30, 1998

F-2
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Datametrics Corporation

We have audited the accompanying consolidated balance sheet of Datametrics
Corporation as of October 27, 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the two fiscal
years in the period ended October 27, 1996. 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 overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Datametrics Corporation at October 27, 1996 and the consolidated results of
its operations and its cash flows for each of the two fiscal years in the
period ended October 27, 1996, in conformity with generally accepted
accounting principles.

/s/ Ernst & Young LLP

Woodland Hills, California
January 17, 1997

F-3
<PAGE>

DATAMETRICS CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
OCTOBER 26, OCTOBER 27,
1997 1996
----------- -----------
(IN THOUSANDS, EXCEPT
FOR SHARE DATA)
<S> <C> <C>
ASSETS (Note 8)
---------------
Current Assets:
Cash and cash equivalents............................ $ 200 $ 386
Accounts receivable, net (Note 4).................... 2,875 5,735
Inventories, net (Note 5)............................ 5,996 6,945
Prepaid expenses and other current assets............ 173 16
-------- --------
Total current assets................................ 9,244 13,082
Property and Equipment, at Cost:
Machinery and equipment.............................. 3,717 4,319
Furniture, fixtures & computer equipment............. 2,132 2,521
Leasehold improvements............................... -- 475
-------- --------
5,849 7,315
Accumulated depreciation and amortization............ (4,618) (5,445)
-------- --------
Net property and equipment.......................... 1,231 1,870
Other Assets (Note 6).................................. 1,071 988
-------- --------
$ 11,546 $ 15,940
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Revolving line of credit (Note 8).................... $ 992 $ 2,550
Current maturities of capitalized lease obligations
(Note 11)........................................... 6 71
Current maturities of long-term debt (Note 9)........ 1,974 472
Accounts payable..................................... 1,643 3,528
Accrued commissions and payroll...................... 639 995
Accrued warranty..................................... 100 180
Other accrued expenses............................... 1,018 975
Other current liabilities (Note 18).................. 500 --
Advance payments and progress payments on contracts.. 133 1,037
Redeemed Series B Preferred Stock payable (Note 12).. -- 87
-------- --------
Total current liabilities........................... 7,005 9,895
Capitalized Lease Obligations, less current maturities
(Note 11)............................................. -- 7
Long-Term Debt, less current maturities (Note 9)....... -- 132
Loan Payable (Note 10)................................. 696 565
Other Long-Term Liabilities (Note 15).................. 323 328
Commitments and Contingencies (Note 11 and 14)
Stockholders' Equity (Notes 12, 13 and 16):
Preferred stock, $.01 par value; 5,000,000 shares
authorized.......................................... -- --
Common stock, $.01 par value; 40,000,000 and
20,000,000 shares authorized in 1997 and 1996,
respectively; 13,283,168 and 12,264,408 shares
issued and outstanding in 1997 and 1996,
respectively........................................ 133 123
Additional paid-in capital........................... 34,177 32,577
Accumulated deficit.................................. (30,788) (27,687)
-------- --------
Total stockholders' equity.......................... 3,522 5,013
-------- --------
$ 11,546 $ 15,940
======== ========
</TABLE>

See accompanying notes.

F-4
<PAGE>

DATAMETRICS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------
OCTOBER 26, OCTOBER 27, OCTOBER 29,
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Sales...................................... $16,797 $ 19,246 $18,956
Cost of sales............................ 13,401 21,168 16,328
Research & development................... 343 5,557 6,151
Selling, general & administrative........ 5,670 9,754 6,068
------- -------- -------
Loss from operations....................... (2,617) (17,233) (9,591)
Interest income (expense), net............. (474) (80) 96
Amortization of excess of acquired net as-
sets over cost............................ -- 229 304
------- -------- -------
Loss before provision for income taxes..... (3,091) (17,084) (9,191)
Provision for income taxes (Note 7)........ 10 302 22
------- -------- -------
Net loss................................... (3,101) (17,386) (9,213)
Preferred stock accretion.................. -- -- (48)
------- -------- -------
Net loss applicable to common stockholders. $(3,101) $(17,386) $(9,261)
======= ======== =======
Loss per share of common stock:
Primary and fully diluted net loss....... $ (0.24) $ (1.39) $ (0.84)
======= ======== =======
Weighted Average Number of Shares Outstand-
ing
Primary and fully diluted................ 12,995 12,515 11,020
======= ======== =======
</TABLE>

See accompanying notes.

F-5
<PAGE>

DATAMETRICS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
----------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- ------ ---------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balances at October 30,
1994................... 9,258,452 $ 93 $14,608 $ (1,040) $ 13,661
Preferred stock
accretion.............. -- -- -- (48) (48)
Issuance of common
stock.................. 2,773,130 27 17,512 -- 17,539
Net loss................ -- -- -- (9,213) (9,213)
---------- ---- ------- -------- --------
Balances at October 29,
1995................... 12,031,582 120 32,120 (10,301) 21,939
Issuance of common
stock.................. 232,826 3 457 -- 460
Net loss................ -- -- -- (17,386) (17,386)
---------- ---- ------- -------- --------
Balances at October 27,
1996................... 12,264,408 123 32,577 (27,687) 5,013
Issuance of common stock
and warrants........... 1,018,760 10 1,600 -- 1,610
Net loss................ -- -- -- (3,101) (3,101)
---------- ---- ------- -------- --------
Balances at October 26,
1997................... 13,283,168 $133 $34,177 $(30,788) $ 3,522
========== ==== ======= ======== ========
</TABLE>

See accompanying notes.

F-6
<PAGE>

DATAMETRICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------
OCTOBER 26, OCTOBER 27, OCTOBER 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net loss................................. $ (3,101) $(17,386) $(9,213)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of excess of acquired net
assets over cost....................... -- (229) (304)
Depreciation and amortization........... 1,192 2,132 970
Loss on disposal of assets.............. 284 328 206
Changes in assets and liabilities:
Accounts receivable...................... 2,860 843 2,152
Inventories.............................. 949 2,321 (609)
Prepaid expenses and other current
assets.................................. (20) 426 (175)
Other assets............................. (607) (2,687) (98)
Accounts payable......................... (1,885) 1,417 194
Accrued commissions and payroll.......... (356) 178 (28)
Accrued warranty......................... (80) 55 (57)
Other accrued expenses................... 43 640 (33)
Advance and progress payments from
customers............................... (904) 1,023 (524)
Other long-term liabilities.............. (5) -- --
Income taxes............................. -- 427 457
-------- -------- -------
Net cash used in operating activities...... (1,630) (10,512) (7,062)
Cash Flows from Investing Activities
Capital expenditures for property and
equipment............................... (356) (1,377) (1,655)
Proceeds from sale of fixed assets....... 43 -- --
-------- -------- -------
Net cash used in investing activities...... (313) (1,377) (1,655)
Cash Flows from Financing Activities
Borrowings on revolving line of credit... 11,258 6,100 1,950
Payments on revolving line of credit..... (12,816) (3,550) (2,550)
Increase in other current liabilities.... 500 -- --
Redemption of Series B Preferred Stock... (87) (383) (470)
Payments on capitalized lease
obligations............................. (72) (98) (163)
Borrowings on long-term debt............. 1,713 565 1,841
Payments on long-term debt............... (480) (420) (817)
Borrowings on loan payable............... 131 -- --
Proceeds from the issuance of common
stock and warrants...................... 1,610 460 17,539
-------- -------- -------
Net cash provided by financing activities.. 1,757 2,674 17,330
-------- -------- -------
Net increase (decrease) in cash and cash
equivalents............................... (186) (9,215) 8,613
Cash and cash equivalents at beginning of
the year.................................. 386 9,601 988
-------- -------- -------
Cash and cash equivalents at end of the
year...................................... $ 200 $ 386 $ 9,601
======== ======== =======
Supplemental disclosure of cash flow
information:
Interest, net............................ $ 282 $ 50 $ 39
Income taxes (refund).................... 10 (125) (435)
Supplemental schedule of non-cash investing
and financing activities:
Accretion on preferred stock............. -- -- 48
Issuance of capitalized lease
obligations............................. -- -- 199
Series B Preferred Stock escrow
settlement.............................. -- -- (33)
</TABLE>

See accompanying notes.

F-7
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Datametrics Corporation, a Delaware corporation, 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.

Basis of Presentation and Consolidation

The accompanying consolidated financial statements include the accounts of
Datametrics Corporation and subsidiaries (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation. The Company's fiscal year end is the last Sunday of each
October.

Revenue Recognition

Revenues include both product sales and revenues applicable to long-term
design and production contracts. A majority of revenues are recoginized based
on the percentage-of-completion method. The majority of the Company's revenues
from product sales and long-term contracts are measured using the "units-of-
delivery" method. Revenues applicable to certain fixed-price, long-term
contracts (principally design and development contracts) are measured using
the "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 on
these 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 six months.

Concentrations of Credit Risk and Major Customers

As is customary in the industry, the Company grants uncollateralized credit
to its clients, which include the U.S. government and large multi-national
corporations operating in a broad range of industries. In order to mitigate
its credit risk, the Company continually evaluates the credit worthiness of
its major commercial clients, and maintains allowances for potential losses
within management expectations.

Approximately 67%, 61% and 79% of the Company's sales during fiscal years
1997, 1996 and 1995, respectively, were to various U.S. government agencies
under prime contracts or to prime contractors having sales to such agencies.
Export sales to foreign customers amounted to $4,533,000 ($1,922,000 to
Canada, $2,354,000 to Europe and the Middle East, and $257,000 to the Pacific
Rim) or 27.0% of total sales in fiscal year 1997. The Company's five largest
customers accounted for 15.7%, 13.7%, 12.5%, 10.9% and 10.8% of the Company's
sales for the fiscal year ended October 26, 1997. Its three largest customers
accounted for 15.5%, 15.4%, and 11.3% of the Company's sales for the fiscal
year ended October 27, 1996. Its two largest customers accounted for 14.3% and
11.5% of the Company's sales for the fiscal year ended October 29, 1995.
Accounts receivable for these customers totalled $1,810,000 and $2,164,000 at
October 26, 1997 and October 27, 1996, respectively. No other customer
accounted for more than 10 percent of total revenues for fiscal 1997, 1996 and
1995.

F-8
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Cash and Cash Equivalents

The Company considers securities purchased within three months of their date
of maturity to be cash equivalents.

Inventories

Stockroom inventories are stated at the lower of cost (first-in, first-out)
or market. 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........................... 2 to 8 years
Leasehold improvements............... Shorter of the remaining term of the
lease or the life of the asset
</TABLE>

Intangible Assets

Intangible assets are stated at cost. Royalties and licenses are amortized
over the expected period of benefit, ranging from 3-5 years using the
straight-line method. The carrying value of intangible assets is adjusted if
the facts and circumstances suggest that such value may have been impaired.
The excess of the fair value of the net assets acquired over total purchase
price was amortized on a straight-line basis over three years, which
represented management's estimate of the period of benefit.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the
reporting period. The more significant estimates affecting amounts reported in
the financial statements relate to revenues and costs under long-term
contracts and inventory reserve accruals. Actual results could differ from
those estimates.

Net Loss Per Share

Net loss per share is based on the weighted average number of shares of
common stock outstanding. The effect of common stock equivalents have been
excluded from the net loss per share calculation because the effect would be
antidilutive.

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial statements:

Cash and Cash Equivalents: Due to the short maturity of these
instruments, the carrying amount reported on the balance sheet for cash and
cash equivalents approximates its fair value.

F-9
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Capitalized Lease Obligations: The carrying amount reported on the
balance sheet for capitalized lease obligations approximates its fair
value, as the current rate approximates the fair market value interest
rate.

Loans Payable: The carrying amounts of the Company's borrowings under
loans payable approximate its fair value as a result of the variable
interest rate that is adjusted periodically to market.

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," the Company evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying value
of an asset may not be recoverable. If the estimated future cash flows
(undiscounted and without interest changes) from the use of an asset are less
than the carrying value, a write-down would be recorded to reduce the related
asset to its estimated fair value.

Reclassifications

Certain reclassifications were made to 1996 balances to conform with 1997
presentation.

NOTE 2. RECENT DEVELOPMENTS--CHANGE IN CONTROL OF COMPANY

On October 8, 1996, a new Board of Directors was elected, effecting a change
in control of the Company. This change was brought about by a group of
stockholders who were dissatisfied with the strategic direction and financial
performance of the Company. On October 24, 1996, the Company announced that it
had accepted the resignations of four senior executives, three members of the
Board of Directors and had reduced its work force at all levels by laying off
35 out of a total of 151 employees. These measures were undertaken based upon
the new Board of Directors' assessment of the Company's business performance
during the past several years, the then financial and operational position of
the Company and the perceived immediate need to implement new cost control
policies and procedures. As a result of these changes, the Company recorded
non-recurring charges of $5,518,000 in the fourth quarter 1996.

In November 1996, the Board of Directors combined the operations of the
Company's two wholly-owned subsidiaries, Datametrics Technology Systems
Corporation and Datametrics Service Corporation, into the parent company,
Datametrics Corporation. This action is consistent with and supports the
Company's decision to eliminate the distinction of separate defense and
commercial business units within the organization.

Management believes that the Company must make approximately $700,000 of
capital expenditures (including capitalized losses) during fiscal 1998. The
Company's other principal commitments for fiscal 1998 are lease obligations
for the Company's facility, equipment lease and loan payments, and interest
due on bank borrowings and subordinated debt.

F-10
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 3. NON-RECURRING CHARGES

In connection with its relocation to Florida, the Company incurred certain
non-recurring charges totaling approximately $745,000 during the quarter ended
October 26, 1997. The components of the non-recurring charges were $275,000 in
severance payments and accruals related to employee terminations, $320,000
from the abandonment of leasehold improvements at the Woodland Hills,
California facility and $150,000 for moving expenses.

In connection with the change in control described in Note 2 and the
subsequent decision to cease all manufacture and marketing of its CYMax
product line, the Company incurred certain non-recurring charges totaling
approximately $5,518,000 during the quarter ended October 27, 1996. The
components of the non-recurring charges were $304,000 in severance payments
and accruals relating to employee and senior executive terminations, $876,000
resulting from the accelerated depreciation charges on CYMax property and
equipment, $3,323,000 related to the write-down to estimated net realizable
value for CYMax inventory purchased during fiscal 1996, $542,000 for CYMax
customer and materials vendor claims and $473,000 for a write-down of other
assets and other liabilities related to CYMax. As of October 27, 1996,
$865,000 of the non-recurring charges were accrued as liabilities. The reserve
recorded for the Company's inventory and the resulting net inventory balance
in the accompanying consolidated financial statements is based upon
managements' estimate of the future usefulness of the existing inventory
relative to the Company's operating assumptions. Depending on the Company's
actual success in utilizing its inventory, additional reserves may be required
beyond those recorded at year end.

NOTE 4. ACCOUNTS RECEIVABLE

Accounts receivable consists of the following:

<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
U.S. government or its prime contractors:
Amounts billed.......................................... $2,373 $ 3,032
Recoverable costs and accrued profits on progress
completed, not billed.................................. -- 121
------- -------
2,373 3,153
Foreign, commercial and other............................. 550 2,650
------- -------
2,923 5,803
Less allowance for doubtful accounts...................... (48) (68)
------- -------
$2,875 $ 5,735
======= =======
</TABLE>

NOTE 5. INVENTORIES

Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Stockroom inventories..................................... $ 9,689 $11,427
Contracts in process...................................... 529 1,286
------- -------
10,218 12,713
Less progress payments received on contracts.............. -- (193)
------- -------
10,218 12,520
Less reserve for obsolescense............................. (4,222) (5,575)
------- -------
$ 5,996 $ 6,945
======= =======
</TABLE>

F-11
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 6. OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash surrender value of life insurance...................... $ 738 $ 678
Other assets................................................ 333 310
-------- ------
$1,071 $ 988
======== ======
</TABLE>

NOTE 7. INCOME TAXES

The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
Under SFAS 109, income taxes for financial reporting purposes are determined
using the liability method. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting
basis and tax basis of assets and liabilities and are measured using the
enacted tax rates expected to apply to taxable income in the periods in which
the deferred tax asset or liability is expected to be realized or settled.
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:

<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carry-forwards........................ $ 11,082 $ 8,276
General business credit carry-forwards................... 449 777
Inventory accounting methods............................. 2,007 2,552
Deferred compensation accounting methods................. 509 185
Product warranty accruals................................ 43 67
Book over tax depreciation............................... 79 421
Other.................................................... 99 62
-------- --------
Total deferred tax assets.............................. 14,268 12,340
Other.................................................... (252) (252)
-------- --------
Total deferred tax liabilities......................... (252) (252)
-------- --------
14,016 12,088
Valuation allowance for deferred tax assets.............. (14,016) (12,088)
-------- --------
Net deferred tax assets.................................. $ -- $ --
======== ========
</TABLE>

F-12
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Net operating loss and tax credit carry-forwards of $26,500,000 and
$449,000, respectively, for federal income tax purposes will expire at various
times between 1998 and 2012. The acquisition of Rugged Digital 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 carry-forward 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.

The provision for income taxes on income is composed of the following:

<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................... $ -- $ -- $ (145)
State............................................. 10 29 22
Deferred:
Federal........................................... (1,523) (4,436) (3,178)
State............................................. (405) (1,395) (285)
Valuation allowance............................... 1,928 6,104 3,608
------ ------ -------
$ 10 $ 302 $ 22
====== ====== =======
</TABLE>

Based upon managements' judgment and the continued losses incurred by the
Company, the valuation allowance represents 100% of the Company's net deferred
tax assets. 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 (loss) before income taxes:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax expense (benefit) computed at
statutory rate................................. $(1,051) $(5,809) $(3,125)
State income tax expense (benefit), net of fed-
eral benefits.................................. (261) 19 (342)
Goodwill amortization........................... -- (78) (118)
Change in valuation allowance................... 1,928 6,104 3,608
Other, net...................................... (606) 66 (1)
------- ------- -------
$ 10 $ 302 $ 22
======= ======= =======
</TABLE>

NOTE 8. REVOLVING LINE OF CREDIT

F-13
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

stock. The Company was not in compliance with certain of these covenants at
October 26, 1997, however, the Company has requested the bank to waive all
defaults.

NOTE 9. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Loans Payable(a)........................................... $ 124 $ 604
Senior Subordinated Secured Debentures(b).................. 1,850 --
-------- ------
1,974 604
Less current maturities of long-term debt.................. 1,974 472
-------- ------
$ -- $ 132
======== ======
</TABLE>
- --------
(a) The Company had borrowed approximately $1,311,000 at interest rates
ranging from 10.03% to 10.80%, payable in monthly installments of
approximately $42,000, including interest, over a three-year period. The
borrowings are collateralized by furniture, fixtures and equipment with a
net book value of $516,000 and $783,000 at October 26, 1997 and October
27, 1996, respectively.

(b) During November 1996, the Company issued $1,850,000 of Senior Subordinated
Secured Debentures with a maturity date of May 25, 1998 and an annual
interest rate of 10%, (effective interest is 10.8% based upon original
issue discount). The proceeds from the sale of the Senior Subordinated
Secured Debentures were used to reduce the line of credit and fund working
capital requirements. The Senior Subordinated Secured Debenture holders
received warrants to purchase a total of 616,679 shares of common stock at
a price of $1.50 for each share in connection with the financing. The
warrants are subject to call by the Company if the closing market price of
the Company's common stock is $3.00 or greater for twenty consecutive
days. The warrants expire November 25, 2001.

NOTE 10. LOAN PAYABLE

During the year, the Company borrowed $131,000 against the cash surrender
value of its key-man life insurance policy. At October 26, 1997, the balance
was $696,000 at 7.8% per annum.

NOTE 11. LEASES

The Company currently leases its facilities under operating leases and
various equipment under operating and capital leases. The building leases
expire through 2004 and the equipment leases expire through 2002. 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 26, 1997 are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
(IN THOUSANDS)
<S> <C> <C>
1998....................................................... $ 850 $ 6
1999....................................................... 907 --
2000....................................................... 933 --
2001....................................................... 820 --
2002....................................................... 784 --
Thereafter................................................. 1,159 --
------ ---
Present value of minimum capitalized lease payments........ $5,453 $ 6
====== ===
</TABLE>

F-14
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Property and equipment under capital leases have a cost of $251,000 and an
accumulated depreciation of $71,000 and $68,000 at October 26, 1997 and
October 27, 1996, respectively. Rental expenses charged to operations were
$652,000, $780,000 and $716,000 for the fiscal years 1997, 1996 and 1995,
respectively.

NOTE 12. PREFERRED STOCK

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. On August 9, 1994, the
Company submitted an indemnification claim to the Escrow Participants for
approximately $720,000. During fiscal 1996, the Escrow Claim was settled for
$187,000. The first payment of $100,000 was made August 30, 1996, and the
final payment of $87,000 was made November 14, 1996. There are no Series B
Redeemable Preferred Stock outstanding.

NOTE 13. STOCK OPTION PLANS AND WARRANTS

Stock Options

The Company has several stock option plans which provide for the granting of
options to employees or directors at prices and terms as determined by the
Board of Directors. Such options vest over a period of one to four years. All
options issued by the Company to date have exercise prices which were equal to
market value of the Company's common stock at the date of grant.

The following table sets forth summarized information concerning the
Company's stock options:

<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE RANGE
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
Options outstanding for shares of common stock at
October 31, 1994...................................... 1,234 $0.2500-4.3125
Granted.............................................. 166 $5.7500-8.2500
Canceled or expired.................................. (25) $0.2500-2.6875
Exercised............................................ (303) $0.2500-5.7500
----- --------------
Options outstanding for shares of common stock at
October 29, 1995...................................... 1,072 $0.7500-8.2500
Granted.............................................. 657 $1.2500-8.3750
Canceled or expired.................................. (886) $1.2500-8.3750
Exercised............................................ (208) $0.7500-5.7500
----- --------------
Options outstanding for shares of common stock at
October 27, 1996...................................... 635 $1.2500-7.8750
Granted.............................................. 173 $1.4375-1.6250
Canceled or expired.................................. (500) $1.2500-7.8750
Exercised............................................ -- --
----- --------------
Options outstanding for shares of common stock at
October 26, 1997...................................... 308 $1.2500-7.8750
===== ==============
Shares reserved for issuance at October 26, 1997..... 1,619
=====
</TABLE>

F-15
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Weighted average option exercise price information for the years 1997 and
1996 was as follows:

<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Outstanding at beginning of year................................ $3.53 $2.82
Granted during the year......................................... $1.50 $6.42
Exercised during the year....................................... -- $1.70
Canceled, terminated and expired................................ $3.78 $5.23
Exercisable at year end......................................... $2.47 $3.09
</TABLE>

Significant option groups outstanding at October 26, 1997 and related
weighted average price and life information were as follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED
NUMBER REMAINING WEIGHTED AVERAGE NUMBER AVERAGE
EXERCISE PRICE RANGE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------------- -------------- ---------------- ---------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$1.2500................. 40 1.36 $1.2500 40 $1.2500
$1.5000-5.7500.......... 177 3.82 $1.9022 31 $3.3493
$7.8750................. 16 3.13 $7.8750 8 $7.8750
$1.2500-1.4375.......... 75 3.95 $1.2875 17 $1.2708
--- ---
308 3.50 $1.9831 96 $2.4746
=== ===
</TABLE>

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
For Stock Issued To Employees," and selected interpretations in accounting for
its stock-based compensation plans. Accordingly, as all options and warrants
have been granted at exercise prices equal to fair market value on the date of
grant, no compensation expense has been recognized by the Company in
connection with its stock-based compensation plans. Had compensation cost for
the stock options and warrants been determined based upon the fair value at
the grant date for awards under these plans consistent with the methodology
prescribed under Statement of Financial Accounting Standards No. 123,
"Accounting For Stock-Based Compensation," the Company's net loss and loss per
share would have been increased by approximately $1,560,000 and $913,000 or
$.12 and $.07 per share in 1997 and 1996, respectively. The weighted average
fair value of the options and warrants granted during 1997 and 1996 is
estimated at $.90 and $4.00 on the date of grant (using Black-Scholes option
pricing model) with the following weighted average assumptions for 1997 and
1996, respectively: volatility of 106% and 103%, risk-free interest rate of
4.99% and 5.12%, and an expected life of two to five years in 1997 and 1996.

Warrants

There are 200,000 shares of common stock reserved for issuance upon exercise
of warrants sold for $0.001 per warrant to the underwriters of the Company's
June 21, 1995 offering of common stock. The warrants are exercisable for a
period of five years beginning June 21, 1996 and have a per-share exercise
price equal to $9.60 (120% of the initial public offering price of $8.00).
There were 616,679 shares of common stock reserved for issuance upon exercise
of warrants issued in conjunction with the Company's November 25, 1996 Senior
Subordinated Debt Offering. The warrants are exercisable for a period of five
years beginning November 25, 1996 and have a per-share exercise price of
$1.50. There were 370,008 warrants outstanding at October 26, 1997. There are
200,000 shares of common stock reserved for issuance upon exercise of warrants
issued in conjunction with a commitment to raise up to $3,000,000 in capital
for the Company. The warrants are exercisable for a period of five years
beginning February 5, 1997 and have a per-share exercise price of $2.00. There
are 1,200,000 shares of common stock reserved for issuance upon exercise of
warrants issued to two executive officers/directors issued in conjunction with
their employment agreements (see Note 14). The warrants are exercisable for a
period of five years beginning November 13, 1996 and have a per-share exercise
price of $2.00.

F-16
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 14. COMMITMENTS AND CONTINGENCIES

Employment Agreements

The Company has employment agreements with two of its executive
officers/directors which expire December 31, 2002. The agreements
automatically renew on an annual basis unless notified by July 1. Such
agreements provide for minimum salary levels, adjusted annually for cost-of-
living changes, as well as for incentive bonuses which are payable if
specified management goals are attained. The aggregate commitment for future
salaries at October 26, 1997, excluding bonuses, was approximately $2,564,000.
These agreements also provide severance pay benefits upon termination of the
executive's employment with the Company as follows:

(a) Company-Initiated Termination Without Cause--the executive shall be
entitled to one payment of the Base Salary for a period equal to the
greater of (i) one year from the date of termination, or the remainder of
the employment term; and (ii) the Company shall continue to provide the
executive and the members of executive's immediate family all benefits
provided by the employment agreement. If any of these benefits terminate by
operation of law, the Company will reimburse executive for the costs of
replacing those benefits for the remainder of such period. As security for
all of the Company's obligations to make any payments to the executives,
the Company granted to the executives a subordinated security interest in
all assets of the Company now owned or hereafter acquired.

(b) Company-Initiated Termination in Connection with a Change in
Control--the executives shall be entitled to a cash payment equal to the
lesser of three years' base salary or the maximum amount which would not
result in any portion of the payment being subject to the excise tax under
Section 4999 of the Internal Revenue Code. "Change in Control" shall mean:
(i) a merger or consolidation in which the Company is not the surviving
corporation; (ii) a reverse merger; or (iii) the acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended, of the beneficial ownership of
securities of the Company representing at least fifty percent of the
combined voting power entitled to vote in the election of directors.

Litigation

Four former officers of the Company (the "Former Officers"), whose
employment relationships with the Company terminated in part as a result of
the Company's restructuring in October 1996, are seeking severance benefits
from the Company. On January 13, 1997, three of the Former Officers sued the
Company in the Superior Court of the State of California for Los Angeles
County, in order to enforce payment of severance benefits under certain
agreements, each dated as of October 7, 1996, between each Former Officer and
the Company (collectively, the "Severance Agreements"). The fourth Former
Officer has sued the Company in response to the Company's cross-complaint
described below. The Former Officers seek damages from the Company based upon
the Severance Agreements and an alleged implied promise not to terminate the
employment of the Former Officers with the Company without good cause. The
Former Officers have demanded that the Company pay to each of them (i) an
amount equal to one year of their respective annual salaries in effect as of
the date of termination, payable in a lump sum, (ii) twelve monthly
installments payable to the former officers, the total of which would also
equal their respective annual salaries, and (iii) attorneys' fees. Total
payments under the Severance Agreements excluding attorneys' fees would
aggregate approximately $1,200,000 if due in full to the Former Officers. The
complaint does not state, however, any specific amount of damages sought by
the plaintiffs.

F-17
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

In addition, on or about November 6, 1996, the Company received a demand by
the Former Officers claiming benefits under the Company's Supplemental
Executive Retirement Plan (the "SERP"). The Company has notified the Former
Officers that their respective claims under the SERP were being denied in
whole in accordance with the terms of the SERP. Three of the Former Officers
have disputed this denial and Imperial Trust Company, as trustee, has filed an
action in Interpleader in the United States District Court, Central District
of California. This procedure provides an appropriate forum in which this
dispute can be resolved by court action. The parties currently are in
settlement discussions and the Company anticipates that this matter could be
resolved in its second quarter of fiscal year 1998.

NOTE 15. 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 14% of their gross salary. Company contributions are
voluntary and at the discretion of the Board of Directors. There were no
Company contributions in fiscal years 1997, 1996 and 1995. 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 $105,000 and $101,000 at October 26, 1997 and October 27, 1996,
respectively, representing the net present value of the future benefits to be
paid, of which $57,000 and $53,000, respectively, have been classified as
long-term.

During November 1994, the Company established a Supplemental Employee
Retirement Plan (the "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. The
Company has accrued $616,000 and $276,000 at October 26, 1997 and October 27,
1996, respectively, for the SERP. The Company funds the liability through a
Rabbi Trust agreement at a bank on a yearly basis. The fund balance was
$266,000 and $276,000 at October 26, 1997 and October 27, 1996, respectively.

During January 1996, the Company established an Employee Qualified Stock
Purchase Plan (the "Q.S.P. Plan") with an aggregate of 200,000 shares of
Datametrics common stock available for purchase. It allows an employee to
defer up to 10% of their salary to purchase Datametrics common stock at 85% of
the closing price at four semi-annual dates. The plan expires December 31,
1997 or when all 200,000 shares have been purchased. A total of 54,756 and
24,711 shares were issued during fiscal 1997 and 1996, respectively.

NOTE 16. STOCKHOLDERS' EQUITY

In May 1997, the Company amended its certificate of incorporation to
increase the number of authorized shares of common stock to 40,000,000.

NOTE 17. RELATED PARTY TRANSACTIONS

Included in selling, general and administrative expenses during the year
ended October 26, 1997 are consulting fees in the amount of $118,000 paid to a
related entity of which an executive officer/director is the President.

F-18
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 18. SUBSEQUENT EVENTS

On October 27, 1997, the Company had a private placement of 1,394,094 shares
at $1.75 per share for proceeds of $2,440,000. Proceeds of $500,000 from this
private placement were received during the year and is included in other
current liabilities as of October 26, 1997.

In October 1997, the Company leased a 6,600 square foot office in Calabasas,
California under an operating lease which expires October 2000. The annual
rent is $87,000 in 1998, $95,000 in 1999 and $103,000 in 2000 (see Note 11).

In December 1997, the Company purchased a 43,000 square foot facility in
Orlando, Florida for $899,000. In connection with the acquisition of this
property, the Company obtained a mortgage loan in the amount of $975,000 which
includes approximately $76,000 to be used for building improvements. The loan
matures on March 9, 2008. The loan is interest only through March 9, 1998;
monthly payments of principal plus interest begin April 9, 1998, with a
balloon payment of $684,000 is due on March 9, 2008. Interest is based on
8.02% per annum through March 9, 2003 and is then adjusted to equal 2.25% in
excess of the weekly average yield on United Treasury Notes adjusted to a
constant maturity of five years as made available by the Federal Reserve
Board.

In January 1998, the Company leased a 5,400 square foot office in Florham
Park, New Jersey under an operating lease which expires March 2003. The annual
rent is $105,000 (see Note 11).

Maturities on the mortgage loan are as follows (in thousands):

<TABLE>
<S> <C>
1998................................................................ $ 11
1999................................................................ 21
2000................................................................ 23
2001................................................................ 24
2002................................................................ 26
Thereafter.......................................................... 870
----
$975
====
</TABLE>

The Company anticipates completing its move to Florida during February 1998.
Costs relating to the Company's move to Florida totaling $425,000 were accrued
as of October 26, 1997.

F-19
<PAGE>

DATAMETRICS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 19. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data for 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
JANUARY 27 APRIL 27 JULY 27 OCTOBER 26
---------- -------- ------- ----------
1997 (IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Sales................................ $ 3,957 $ 6,226 $ 4,307 $ 2,307
Net income (loss).................... 34 79 125 (3,339)
Earnings (loss) per common share:
Primary and fully diluted.......... -- 0.01 0.01 (0.25)
Weighted average number of common
shares outstanding:
Primary and fully diluted.......... 12,291 13,223 13,297 13,283
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
JANUARY 28 APRIL 28 JULY 28 OCTOBER 27
---------- -------- ------- ----------
1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales................................ $ 3,651 $ 4,697 $ 5,931 $ 4,967
Net loss............................. (2,265) (3,086) (2,829) (9,206)
Loss per common share:
Primary and fully diluted.......... (0.18) (0.24) (0.23) (0.75)
Weighted average number of common
shares outstanding:
Primary and fully diluted.......... 12,743 12,755 12,491 12,333
</TABLE>

In the fourth quarter of fiscal 1996, the Company recorded non-recurring
charges of $5,518,000. See Note 3 for additional information.

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

F-20
<PAGE>

DATAMETRICS CORPORATION

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

FOR EACH OF THE THREE FISCAL YEARS IN THE
PERIOD ENDED OCTOBER 26, 1997

<TABLE>
<CAPTION>
CLASSIFICATION 1997 1996 1995
-------------- ----------- ----------- ----------
<S> <C> <C> <C>
Reserve for doubtful accounts:
Balance at beginning of period........... $ 67,812 $ 46,747 $ 6,030
Add--provision charged to operations..... 2,495 21,065 41,769
Less--recovery of bad debt............... 3,000 -- --
Less--reserve applied during the year.... 19,539 -- 1,052
----------- ----------- ----------
Balance at end of period................. $ 47,768 $ 67,812 $ 46,747
=========== =========== ==========
Reserve for Warranty:
Balance at beginning of period........... $ 179,500 $ 124,500 $ 184,093
Add--provision charged to operations..... 142,419 221,365 200,831
Less--reserve applied during the year.... 221,919 166,365 260,424
----------- ----------- ----------
Balance at end of period................. $ 100,000 $ 179,500 $ 124,500
=========== =========== ==========
Reserve for inventory obsolescence:
Balance at beginning of period........... $ 5,575,113 $ 1,772,676 $1,477,534
Add--provision charged to operations..... 553,921 3,802,437 295,142
Less--reserve applied during the year.... 1,906,833 -- --
----------- ----------- ----------
Balance at end of period................. $ 4,222,201 $ 5,575,113 $1,772,676
=========== =========== ==========
Reserve for prepaid royalties:
Balance at beginning of period........... $ 820,472 $ 750,591 $ 750,591
Add--provision charged to operations..... -- 69,881 --
Less--reserve applied during the year.... 750,591 -- --
----------- ----------- ----------
Balance at end of period................. $ 69,881 $ 820,472 $ 750,591
=========== =========== ==========
Valuation allowances for deferred tax
assets:
Balance at beginning of period........... $12,088,000 $ 5,984,000 $2,376,000
Add--provision charged to operations..... 1,928,000 6,104,000 3,608,000
----------- ----------- ----------
Balance at end of period................. $14,016,000 $12,088,000 $5,984,000
=========== =========== ==========
</TABLE>

F-21
<PAGE>

EXHIBIT INDEX

The following exhibits are filed as part of this Form 10-K Statement or are
incorporated herein by reference.

DESCRIPTION OF EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
3.1 Restated Certificate of Incorporation of Registrant, as currently in
effect.*
3.2 Certificate of Designations, Preferences and Relative, Participating,
Optional and Other Special Rights of Series B Preferred Stock and
Qualifications, Limitations and Restrictions Thereof dated August 10,
1993 (incorporated by reference to Exhibit 4.1 to Registrant's Form
8-K dated August 10, 1993).
3.3 Bylaws of Registrant, as currently in effect (incorporated by
reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended
October 28, 1990).
3.4 First Amendment to the Restated By-Laws of the Registrant, dated
August 6, 1996 (incorporated by reference to Exhibit 3.0 to the
Registrant's Form 8-K dated August 6, 1996).
10.1 Line of Credit Agreement, Security Agreement, Addendum to Line of
Credit Agreement, and Loan Disbursement Instructions dated September
8, 1993 (incorporated by reference to Exhibit 10.1 to Registrant's
Form 10-K for the year ended October 31, 1993).
10.3 Lease for Woodland Hills facility between the Company and
Manufacturers Life Insurance Company dated as of December 19, 1993,
as amended on August 31, 1994 (incorporated by reference to Exhibit
10.2 to Registrant's Form 10-K for the year ended October 30, 1994).
10.4 Agreement between the Company and Sidney E. Wing dated March 17, 1989
(incorporated by reference to Exhibit 10.4 to Registrant's Form 10-K
for the year ended October 29, 1989).
10.5 Deferred Compensation Agreement between the Company and Garland S.
White dated October 18, 1989 (incorporated by reference to Exhibit
10.5 to Registrant's Form 10-K for the year ended October 29, 1989).
10.6 Amended and Restated Agreement and Plan of Merger dated as of May 12,
1993 between Registrant and Rugged Digital Systems, Inc. ("Rugged
Digital") (incorporated by reference to Exhibit 2 to Registrant's
Form 8-K dated May 12, 1993).
10.7 Escrow Agreement dated August 10, 1993 among the Registrant and others
relating to the acquisition of Rugged Digital (incorporated by
reference to Exhibit 4.3 to Registrant's Form 8-K dated August 10,
1993).
10.8 Debt Exchange Agreement dated August 10, 1993 among Registrant and
debt holders of Rugged Digital (incorporated by reference to Exhibit
4.2 to Registrant's Form 8-K dated August 10, 1993).
10.9 Security and Loan Agreement between Registrant and Imperial Bank
executed March 21, 1995, as amended May 15, 1995 (incorporated by
reference to Exhibit 10.1 to Registrant's Form 10-Q for the period
ended April 30, 1995), and as amended March 4, 1996 (incorporated by
reference to period ended April 30, 1995), and as amended March 4,
1996 (incorporated by reference to Exhibit 10.1 to Registrant's Form
10-Q for the period ended April 28, 1996).
10.10 Agreement between the Company and The Angeloff Company dated February
15, 1995 (incorporated by reference to Exhibit 10.2 to Registrant's
Form 10-Q for the period ended April 30, 1995).
21 List of Subsidiaries
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
24.1 Consent of Ernst & Young LLP, Independent Auditors.*
24.2 Consent of Deloitte & Touche LLP, Independent Auditors.*
27 Financial Data Schedule *
99.1 The Datametrics Employee Savings Plan And The Trust Agreement Pursuant
To The Datametrics Employee Savings Plan (incorporated by reference
to Exhibit 28 to Registrant's Registration Statement on Form S-8
filed on November 12, 1985 SEC File No. 33-01469).
99.2 The Amended and Restated 1993 Stock Option Plan of Datametrics
Corporation (incorporated by reference to Exhibit 28.2 to
Registrant's Form 10-K for the year ended October 31, 1993).
99.3 The 1986 Stock Option Plan of Datametrics Corporation, as amended
(incorporated by reference to Exhibit 28.1 to Registrant's
Registration Statement on Form S-8 filed on June 10, 1987, SEC
File No. 33-14969 and Exhibit 28.5 to Registrant's Form 10-K for the
year ended October 29, 1988).
99.4 The 1982 Stock Option Plan of Datametrics Corporation, as amended
(incorporated by reference to Exhibit 28.2 to Registrant's
Registration Statement on Form S-8 filed on June 10, 1987, SEC
File No. 33-14969).
99.5 The 1993 Directors' Option Plan of Datametrics Corporation
(incorporated by reference to Exhibit 28.5 to Registrant's Form 10-K
for the year ended October 31, 1993).
99.6 Datametrics Corporation Supplemental Executive Retirement Plan and
Master Trust Agreement (incorporated by reference to Exhibit 28.6 to
Registrant's Form 10-K for the year ended October 30, 1994).
99.7 The 1995 Stock Option Plan of Datametrics Corporation (incorporated by
reference to Exhibit 28.7 to Registrant's Form S-8 filed on May 30,
1996, S.E.C. File No. 333-04815).
99.8 The Datametrics Corporation Employee Qualified Stock Purchase plan
(incorporated by reference to Exhibit 28.8 to Registrant's Form S-8
filed on May 30, 1996, S.E.C. File No. 333-04815).
</TABLE>
- --------
* Filed herewith.

<PAGE>

EXHIBIT 3.1
State of Delaware

Office of the Secretary of State PAGE 1

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

I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "DATAMETRICS CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-SEVENTH DAY OF
JUNE, A.D. 1997, AT 9 O'CLOCK A.M.

[Logo of Office of Secretary of State]

/s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State

AUTHENTICATION: 8794918
DATE: 12/05/97

<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF DATAMETRICS CORPORATION

Datametrics Corporation, a corporation duly organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
-----------
hereby certify as follows:

1. The amendments to the Corporation's Certificate of Incorporation set
forth below were duly adopted in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware and have been duly
approved by the vote of the holders of a majority of the outstanding shares of
the Corporation's stock entitled to vote, in accordance with Section 211 of the
General Corporation Law of the State of Delaware.

2. The name of the Corporation is Datametrics Corporation and the
original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on September 5, 1980.

3. Article FOURTH of the Corporation's Certificate of Incorporation is
amended to read in its entirety as follows:

FOURTH: The Corporation is authorized to issue two classes of
------
shares of capital stock to be designated respectively, "Preferred
Stock" and "Common Stock." The total number of shares which the
Corporation is authorized to issue is forty-five million
(45,000,000). Five million (5,000,000) shares shall be Preferred
Stock and forty million (40,000,000) shares shall be Common Stock.
The Preferred Stock and the Common Stock shall each have a par value
of $.01. The aggregate par value of all shares of Preferred Stock
is $50,000 and the aggregate par value of all shares of Common Stock
is $400,000.

4. Article SIXTH of the Corporation's Certificate of Incorporation is
amended to read in its entirety as follows:

SIXTH: (a) The number of directors which shall
-----
constitute the whole Board of Directors of the Corporation shall
be as specified in the By-Laws of the Corporation.

<PAGE>

(b) The Board of Directors of the Corporation
shall be divided into three classes as nearly equal in number as possible,
hereby designated as Class I, Class II and Class III. The term of office of the
initial Class I directors shall expire at the next succeeding annual meeting of
the stockholders of the Corporation; the term of office of the initial Class II
directors shall expire at the second succeeding annual meeting of the
stockholders of the Corporation; and the term of office of the initial Class III
directors shall expire at the third succeeding annual meeting of the
stockholders of the Corporation. For the purposes hereof, the initial Class I,
Class II and Class III directors shall be those directors elected at the 1997
annual meeting of the stockholders of the Corporation and designated as members
of each such class, respectively. At each annual meeting of the stockholders of
the Corporation after the 1997 annual meeting, directors to replace those of a
class whose terms expire at such annual meeting shall be elected to hold office
until the third succeeding annual meeting and until their respective successors
shall have been duly elected and qualified. If the number of directors is
hereafter increased, the directors then in office shall select the class or
classes to which the newly created directorships shall be assigned so as to make
all classes as nearly equal in number as possible.

(c) Notwithstanding anything to the contrary
contained in the Certificate of Incorporation of the Corporation, the number of
directors may be increased or decreased from time to time only by the
affirmative vote of the holders of at least seventy-five percent (75%) of the
outstanding shares of voting stock of the Corporation or with the approval of a
majority of directors of the Corporation then in office, provided
that in no event shall the number of directors be fewer than five nor more than
nine.

(d) Notwithstanding anything to the contrary
contained in the Certificate of Incorporation of the Corporation, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
outstanding shares of voting stock of the Corporation shall be required to
alter, amend, repeal or adopt any provision inconsistent with this Article
SIXTH.

IN WITNESS WHEREOF, Datametrics Corporation has caused this Certificate of
Amendment to be executed by its authorized officer on this 30th day of May,
1997.

/s/ Daniel P. Ginns
-------------------
Daniel P. Ginns
Chairman of the Board and Chief Executive Officer

<PAGE>

EXHIBIT 24.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Datametrics Corporation of our report dated January 17, 1997, included in the
1996 Annual Report to Shareholders of Datametrics Corporation.

Our audits also included the financial statement schedule of Datametrics
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule listed above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.

We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-14969) pertaining to the Datametrics Employee Savings Plan and
the Registration Statement (Form S-8 No. 33-78128) pertaining to the 1993
Directors' Option Plan and the Amended and Restated 1993 Stock Option Plan of
Datametrics Corporation incorporated herein by reference, of our report included
in the Annual Report (Form 10-K) of Datametrics Corporation.

/s/Ernst & Young LLP

Woodland Hills, California
February 6, 1998

<PAGE>

EXHIBIT 24.2

INDEPENDENT AUDITORS' CONSENT
- -----------------------------

We consent to the incorporation by reference in Registration Statement Nos. 33-
14969 and 33-78128 each on Form S-8 of our report dated January 30, 1998 (which
expresses an exception relating to the Company's accounting for certain spare
and repair parts inventories and includes an explanatory paragraph relating to
recurring losses from operations and liquidity problems which raise substantial
doubt about the Company's ability to continue as a going concern) appearing in
this Annual Report on Form 10-K of Datametrics Corporation for the fiscal year
ended October 26, 1997.

/s/ Deloitte & Touche LLP

Jericho, New York
February 5, 1998

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF DATAMETRICS
CORPORATION AS OF AND FOR THE TWELVE MONTH PERIOD ENDING OCTOBER 26, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<PERIOD-START> OCT-27-1996
<FISCAL-YEAR-END> OCT-26-1997
<PERIOD-END> OCT-26-1997
<CASH> 200
<SECURITIES> 0
<RECEIVABLES> 2,923
<ALLOWANCES> 48
<INVENTORY> 5,996
<CURRENT-ASSETS> 9,244
<PP&E> 5,849
<DEPRECIATION> 4,618
<TOTAL-ASSETS> 11,546
<CURRENT-LIABILITIES> 7,005
<BONDS> 0
0
0
<COMMON> 133
<OTHER-SE> 34,177
<TOTAL-LIABILITY-AND-EQUITY> 11,546
<SALES> 16,797
<TOTAL-REVENUES> 16,797
<CGS> 13,401
<TOTAL-COSTS> 13,401
<OTHER-EXPENSES> 6,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 474
<INCOME-PRETAX> (3,091)
<INCOME-TAX> 10
<INCOME-CONTINUING> (3,101)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,101)
<EPS-PRIMARY> ($0.24)
<EPS-DILUTED> ($0.24)

</TABLE>