UNITED STATES
                                ------ ------

                      SECURITIES AND EXCHANGE COMMISSION
                      ---------- --- -------- ----------

                            WASHINGTON, D.C. 20549
                            ----------- ---- -----

                          FORM 10-QSB/A Amendment #1
                          ---- -------- --------- --

{X} Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
--- --------- ------ -------- -- ------- -- -- ----- -- --- ---------- --------
Act of 1934 for the quarterly period ended July 31, 2006
--- -- ---- --- --- --------- ------ ----- ---- --- ----

                                      or

{} Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ________to_________

Commission File Number  1-8690

                             DataMetrics Corporation
            --------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            Delaware                                        95-3545701
--------------------------------                      ----------------------
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                       Identification Number)

          1717 Diplomacy Row
           Orlando, Florida                                   32809
----------------------------------------                   ----------
(Address of principal executive offices)                   (Zip Code)

                                 (407) 251-4577
              ----------------------------------------------------
                (Registrant's telephone number, including area code)

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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, $.01 Par Value --
11,359,849 shares as of September 1, 2006.

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes       No X
                                             -

This amendment is filed to revise the financial statements reported to reflect
for a change in the valuation of stock warrants that were issued during the
first fiscal quarter ended January 31, 2006.



                                      -1-

<page>

Index to Form 10-QSB
                                                                        Page No.
Part I - Financial Information                                       -----------
      Item 1. Financial Statements (unaudited):

            Consolidated Balance Sheet as of July 31, 2006                     3
            Consolidated Statement of Changes in Stockholders' Equity
                  for the Nine Months Ended July 31, 2006                      4
            Consolidated Statement of Changes in Stockholders' Equity
                  for the Nine Months Ended July 31, 2005                      5
            Consolidated Statements of Operations for the Three and Nine
                  Months Ended July 31, 2006 and July 31, 2005                 6
            Consolidated Statements of Cash Flows for the Nine Months
                  Ended July 31, 2006 and July 31, 2005                      7-8


Notes to Consolidated Financial Statements                                  9-11

      Item 2. Management's Discussion and Analysis of Financial
            Condition and Results of Operations                               12
      Results of Operations                                                13-14
      Liquidity and Capital Resources                                         15

Item 3. Controls and Procedures                                               16


Part II - Other Information
      Item 1.     Legal Proceedings                                           17
      Item 2.     Unregistered Sales of Equity Securities and uses of funds   17
      Item 3.     Defaults upon Senior Securities                             17
      Item 4.     Submission of matters to a vote of security holders.        17
      Item 5.     Other Information                                           17
      Item 6.     Exhibits and Reports on Form 8-K                            17

Certifications                                                             18-22

Signatures                                                                    23





                                      -2-

<page>




                     DATAMETRICS CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                   (Unaudited)
                       (in thousands, except share data)

<TABLE>
<CAPTION>
<S>                                                                                          <C>
                                                                                          July 31,
                                                                                           2006
                                                                                         --------
                                                                                        (Restated
                                                                                        See Note 2)
ASSETS
Current Assets
       Cash                                                                              $    117
       Accounts receivable, net of allowance for doubtful accounts of $0                      229
       Inventory, net of allowance for obsolete inventory of $6,070                           648
       Other Current Assets                                                                    48
                                                                                         --------
                         Total current assets                                               1,042

Property and Equipment
       Furniture, Fixtures and computer equipment                                           1,197
       Machinery and equipment                                                                548
                                                                                         --------
               Total Property and Equipment                                                 1,745
               Less Accumulated Depreciation                                               (1,745)
                                                                                         --------
                         Net Property and Equipment
                                                                                         --------

                         Total Assets                                                    $  1,042
                                                                                         ========

LIABILITIES AND STOCKHOLDERS DEFICIT
Current Liabilities
       Accounts Payable                                                                  $    171
       Accrued Expenses                                                                       362
       Warranty Reserve                                                                        40
       Notes Payable                                                                          641
                                                                                         --------
                         Total Current Liabilities
                                                                                            1,214

Stockholders Deficit:
       4% Cumulative Preferred Stock, $.01 par value ($750 aggregate
       liquidation
               preference); 5,000,000 Authorized; 500,000 issued and
               outstanding                                                                      5
       Common Stock, $.01 par value; 70,000,000 shares

               Authorized; 11,359,849 issued and outstanding                                  114

       Additional Paid In Capital                                                          64,169
       Accumulated
       Deficit                                                                            (64,460)
                                                                                         --------


                         Total Stockholders Deficit                                          (172)

                         Total Liabilities and Stockholders Deficit                      $  1,042
                                                                                         ========

</table>


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  The accompanying "Notes to Consolidated Financial Statements"
                    form an integral part of these statements.

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                                      -3-

<PAGE>



                    DATAMETRICS CORPORATION AND SUBSIDIARY
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
                   For the nine months ended July 31, 2006
                       (in thousands, except share data)
                            (Restated see Note 2)

<TABLE>
<CAPTION>

                               Common Stock      Ser. A Preferred       Ser. B Preferred     Add'l                Total
                               ------ ----       ----------------       ----------------                          Stock
                           Number       Dollar    Number   Dollar        Number   Dollar    Paid-in    Accum.    holders
                                                   of                     of
                          of Shares    Amount    Shares    Amount       Shares    Amount   Capital    Deficit    Deficit
                        ----------------------------------------------------------------------------------------------------
<S>                             <C>       <C>       <C>        <C>        <C>       <C>       <C>        <C>        <C>

Balances at
  Oct. 31,
      2005                1,070,403   $    11   892,652  $      9         --        --   $ 58,452   $(61,754)  $ (3,282)

Conversion of DMTR
loan
  of $2.9 million plus
  accrued in              8,157,872        82        --        --         --        --      2,998        --       3,080

Conversion of Series A
  Preferred into

  Common Stock            1,631,574        16  (892,652)       (9)        --        --        (7)        --          --

Conversion of 12%
Bridge
  loan into Series B
  Preferred Stock                --        --        --        --    500,000      $  5        495        --         500

Warrants for the
purchase
  of 386,314,860
  shares of Common
  Stock                          --        --        --        --         --        --      2,186        --       2,186

Issuance of Common
  Stock to officers
  & directors               500,000         5        --        --         --        --         45        --          50

Net Loss                         --        --        --        --         --        --        --     (2,706)     (2,706)


Balances at
   July 31,
                        ----------------------------------------------------------------------------------------------------
      2006               11,359,849   $   114        --        --    500,000      $  5   $ 64,169   $(64,460)  $   (172)

</TABLE>


Shares of Common Stock have been adjusted retroactively to reflect the reverse
stock split that occurred in April 2006.





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

  The accompanying "Notes to Consolidated Financial Statements"
                    form an integral part of these statements.

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


                                      -4-

<PAGE>

                     DATAMETRICS CORPORATION AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
                     For the nine months ended July 31, 2005
                        (in thousands, except share data)

<TABLE>
<CAPTION>

                           Common Stock     Ser. A Preferred   Add'l                       Total
                           ------ ----      ----------------                               Stock
                        Number     Dollar    Number  Dollar   Paid-In      Accum.         holders
                                              of
                       of Shares   Amount   Shares  Amount    Capital      Deficit       Deficit
                    ----------------------------------------------------------------------------------
<S>                           <C>     <C>        <C>    <C>        <C>           <C>           <C>
Balances at
 October 31, 2004     201,070,403   $  11    892,652  $  9   $  58,452   $  (61,171)   $  (2,699)

Net Loss                                                                     (1,053)      (1,053)


Balances at
  July 31, 2005         1,070,403   $  11    892,652  $  9   $  58,452   $  (62,224)   $  (3,752)

</TABLE>

Shares of Common Stock have been adjusted retroactively to reflect the reverse
stock split that occurred in April 2006.




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

  The accompanying "Notes to Consolidated Financial Statements"
                    form an integral part of these statements.

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


                                      -5-

<PAGE>

<TABLE>
<CAPTION>

                     DATAMETRICS CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)
                      (in thousands, except per share data)

                                          Three Months Ended       Nine Months Ended
                                          July 31,    July 31,   July 31,    July 31,
                                           2006        2005       2006        2005
                                        -----------  --------  ----------  ---------
                                                              (Restated
                                                               See Note
                                                                      2)
<S>                                            <C>        <C>        <C>        <C>

Sales                                    $    329   $    725   $  2,537   $  1,718

Cost of Sales                                 529        498      2,073      1,303
                                         --------   --------   --------   --------
Gross Profit                             $   (200)  $    227   $    464   $    415
                                         --------   --------   --------   --------

Selling, General and Administrative
       Personnel and Related Costs       $    172   $    236   $    563   $    820
       Other                                  199        138        667        305
                                         --------   --------   --------   --------
       Total Selling, General and
       Administrative                    $    371   $    374   $  1,230   $  1,125
                                         --------   --------   --------   --------

Income (Loss) from Operations            $   (571)  $   (147)  $   (766)  $   (710)


Other income and expense                        6       (117)    (1,940)      (343)
                                         --------   --------   --------   --------

       Net Income (Loss)                 $   (565)  $   (264)  $ (2,706)  $ (1,053)
                                         ========   ========   ========   ========


Loss per share of common stock;
       basic and diluted                 $ (0.051)  $ (0.247)  $ (0.308)  $ (0.984)
                                         ========   ========   ========   ========

Weighted avg. no. of shares outstanding
       basic and diluted                   11,115      1,070      8,794      1,070
                                         ========   ========   ========   ========

</TABLE>

Adjusted to reflect reverse stock split that occurred in April 2006.





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

  The accompanying "Notes to Consolidated Financial Statements"
                    form an integral part of these statements.

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



                                      -6-

<PAGE>



                     DATAMETRICS CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
                     (in thousands, except per share data)

                                         For the nine months ended
                                           July 31      July 31
                                        -----------   -------------
                                            2006         2005
                                         (Restated
                                          See Note
                                               2)
Cash Flows from Operating Activities:

      Net Loss                             (2,706)   (1,053)
      Adjustments to reconcile net loss
           to net cash used in operating
           activities:

      Gain on Sale of Building               (216)       --

      Depreciation expense                      4        40

      Amortization of Refinancing Costs        --       155

      Expenses Paid from Debt Financing       249        --

      Options Issued to Investors during
            restructuring                   2,186        --

      Directors Fee Paid with Common
            Stock                              50        --

Changes in assets and liabilities:

      Accounts receivable                      41       458

      Inventories                             259      (456)

      Prepaid expenses and other current
             assets                            46       (50)

      Accounts payable                       (321)       58

      Accrued expenses                       (134)      167

      Deferred Revenue                         --      (137)
                                          -------   -------

           Net cash used in operating
               activities                    (542)     (818)

Cash Flows from Investing Activities:

      Proceeds from Sale of Building        1,445        --

      Capital expenditures for property
               and equipment                   --        (8)
                                          -------   -------
           Net cash provided by (used
               in) investing activities     1,445        (8)

Cash Flows from Financing Activities:

      Proceeds from loan payable              248       879

      Payments on Long Term Debt           (1,180)      (30)
                                          -------   -------
           Net cash provided by (used
                in) financing activities     (932)      849



           Net (decrease) increase in
                cash                          (29)       23

           Cash at the beginning of the
                 period                       146        91
                                          -------   -------

           Cash at the end of the period      117       114
                                          -------   -------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
      INFORMATION
Cash paid during the period for:
      Interest, net                       $    72   $    80

                                      -7-

<PAGE>


NONCASH INVESTING / FINANCING ACTIVITIES
      Restructuring incentive expenses
           paid by issuing stock options  $ 2,186        --

      Conversion of long term debt and
           related accrued interest into
           common stock                   $ 3,081        --

      Conversion of long term debt and
           related accrued interest into
           Series B preferred stock       $   500        --

      Conversion of Series A preferred
           stock into common stock        $   489        --

      Expenses paid with the issuance of
            notes payable                 $   249        --

      Payment of short term bridge loan
            by issuing new note payable   $   200        --

      Forgiveness of debt as part of the
            sale of building              $    30        --

      Payment of Directors' Fees by
            issuing common stock          $    50        --












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

  The accompanying "Notes to Consolidated Financial Statements"
                    form an integral part of these statements.

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



                                      -8-

<PAGE>



                           DATAMETRICS CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                July 31, 2006
                                 (Unaudited)
                            (Restated See Note 2)

1. The financial statements include the accounts of DataMetrics Corporation.

The accompanying condensed financial statements are unaudited and have been
prepared by the Company in accordance with the rules and regulations of the
Securities and Exchange Commission relating to interim financial statements.
These condensed financial statements do not include all disclosures provided in
the company's annual financial statements. The condensed financial statements
should be read in conjunction with the financial statements and notes thereto
for the year ended October 31, 2005 contained in the company's Form 10-KSB filed
with the Securities and Exchange Commission. All adjustments of a normal
recurring nature, which, in the opinion of management, are necessary to present
a fair statement of results for the periods have been made. Results of
operations are not necessarily indicative of the results to be expected for the
full year.


2. Restatement of consolidated financial statements

The consolidated financial statements for the nine months ended July 31, 2006
have been restated to correct for the valuation of stock warrants that were
issued to investors in the first fiscal quarter ended January 31, 2006. As a
result of this correction, the following adjustments were made:

Statement of loss and deficit for the nine months ended July 31, 2006:

Decrease to paid in capital                           $3,687
                                                      ------

Net decrease to net loss                              $3,687
                                                      ------

Net decrease to accumulated deficit                   $3,687
                                                      ------

Net decrease to loss per share of common stock         $0.42
                                                       -----


3. INVENTORIES Stockroom inventories consist primarily of materials used by the
Company for existing and anticipated contracts and materials and finished
assemblies which are held to satisfy spare parts requirements of the Company's
customers. Those parts not expected to be sold within one year are classified as
a non-current asset and fully reserved. The Company evaluates all inventories
for obsolescence on a periodic basis and records estimated reserves accordingly.


Inventories as of July 31, 2006 consist of the following:

Inventories Parts and sub-assemblies                                       476
Work in Process                                                            172
Obsolete Inventory                                                       6,070
                                                                   ------------
Total Inventory                                                          6,718
Reserve for Obsolete Inventory                                         (6,070)
                                                                   ------------
Net Inventory                                                              648



                                      -9-

<PAGE>



4. NOTES PAYABLE

Notes Payable at July 31, 2006 consist of the following:

Notes Payable to investors; interest expense at 10% is paid quarterly; principal
and unpaid interest is due in full in December 2006. The note is secured by a
first priority lien on
all Company assets.                                                        500


Subordinated notes, originally due in December 2000, accruing
interest at 10%. The notes are unsecured. Negotiations for
repayment have begun with the holders of these notes and are
ongoing at this time                                                       141
                                                                   ------------
Total                                                                      641

All notes are current.

5. STOCK BASED COMPENSATION

The fair value of the option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:

      Risk free interest rate of 3 percent; dividend yield of 0%, expected life
of 10 years and volatility of 50%.


      A summary of the status of the Company's stock options as of July 31,
2006, and changes during the quarter are presented below. This summary reflects
the 30:1 reverse stock split that occurred in April 2006:

                                              --------------------
                                                            Weighted
                                                            Average
                                                Shares      Exercise
                                                (000s)       Price
                                                ------       -----
Outstanding at Beginning of Period                  58   $   39.20
Granted                                         12,877   $    0.30
Exercised                                            0         --
Expired / Canceled                                   0         --
Outstanding and Fully Exercisable at            ------   ---------
    the End of the Period                       12,935   $    0.47
                                                ------   ---------

Weighted  Average  Fair  Value of  Options
Granted During the Period                           --   $    0.16

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


For all options issued, the exercise price was less than the market price of the
stock and $2,186,000 of stock based cost was recorded.



      Significant option groups outstanding at July 31, 2006 and related
weighted average price and life information is as follows. This summary reflects
the 30:1 reverse stock split that occurred in April 2006:

                                      -10-

<PAGE>



                                                      Number           Weighted
                                                    Outstanding         Average
                                                       and            Remaining
                                                      Fully          Contractual
                                Exercise            Exercisable          Life
                                 Price                                   ----
                                                      (000s)            (YEARS)
                                                    -----------        ---------
                              $  42.00                 50                5.30
                                 30.00                  5                0.86
                                  1.65                  3                1.25
                                  0.30             12,877                9.50


                                                ---------
Total                                              12,935
                                                =========


Weighted average exercise price is $0.473 per option.

6. REVERSE STOCK SPLIT


On April 11, 2006, the Company elected to effect a Stock combination through a
30:1 reverse stock split. Details of the split are described on Schedule 14C as
filed with the Securities and Exchange Commission on March 2, 2006.

All amounts reported for the three and nine months ended July 31, 2005 have been
retroactively restated to reflect this split.



7.    Basic and Diluted Net Loss per Common Share

Basic and diluted net loss per share are computed using the weighted-average
number of shares of common stock outstanding during the period. Potentially
dilutive securities have been excluded from the computation of diluted earnings
per share, as their effect is antidilutive. If the Company had reported net
income, diluted earnings per share would have included the shares used in the
computation of net loss per share plus common equivalent shares related to
12,934,659 outstanding options and warrants as of July 31, 2006 and 2005
respectively.



                                      -11-

<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS.

      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 those
actual events or results may differ materially.


                               MANAGEMENT FOCUS

      The Company designs, develops, and manufactures computers and computer
peripheral equipment for military, industrial and commercial applications where
reliable operation of the equipment in challenging environments is imperative.
The systems and equipment are qualified for use in airborne, shipboard, and
ground based applications. The Company's product lines include a broad range of
computers, computer workstations, servers, printers, plotters and monitors.

      The Company offers military specified and ruggedized versions of flat
panel monitors and other peripheral equipment (including computers, printers,
keyboards and trackballs) encased in shock, vibration and temperature resistant
chassis. The chassis produced by the Company are used in conjunction with its
product by the military to house this sensitive ruggedized equipment. The Navy
P3 Orion, Air Force AWACS and Army Fire-Finder programs all require rugged rack
enclosures to protect the equipment from shock, vibration and other damage which
may be experienced in a harsh operating environment. DataMetrics continues to
increase its presence in the military arena including United States Air Force
avionics and ground-based systems as well as United States Army system
diagnostics. DataMetrics' equipment is designed and qualified for use as part of
commercial airlines cockpit systems.

      For the quarter ended July 31, 2006, the Company experienced slower than
expected receipt of orders. Many of the military programs from which the Company
anticipates generating its revenue have been rescheduled and military priorities
have been reconsidered to account for short, medium, and long-term needs. The
Company expects to see an increase in order activity in the following quarters
and attributes the delay in orders due to a focus on budget spending for troops
and munitions in the war effort in Afghanistan and Iraq. The following phases in
this war and projected increase in overall military / defense spending will
likely entail more sophisticated surveillance techniques and equipment, which
will require data processing and peripheral equipment much like we currently
supply for the AWACS, P3 Orions aircraft and the armed forces.


                                      -12-

<PAGE>



                            RESULTS OF OPERATIONS

               Three Month Period Ended July 31, 2006 Compared
                  To Three Month Period Ended July 31, 2005

      Sales for the quarter ended July 31, 2006 were $329,000 a decrease of
$396,000 or 55%, compared with sales of $725,000 in the same period in the prior
fiscal year. The decrease in sales for the three months ended July 31, 2006 is
attributable mainly to slower than anticipated receipt of orders.

    Cost of sales for the quarter ended July 31, 2006 was $529,000 (160% of
sales), an increase of $31,000 or 6%, compared with $498,000 (69% of sales) for
the same period in the prior fiscal year. Cost of sales as a percentage of Sales
has increased substantially due to the fixed nature of manufacturing overhead
and the substantial decrease in sales for the period.

    Selling, general and administrative ("SG&A") expenses for the quarter ended
July 31, 2006 were $371,000 (113% of sales), compared with $374,000 (52% of
sales) for the same period in the prior fiscal year. While SG&A remained
virtually unchanged, SG&A as a percentage of sales increased significantly due
largely to the relatively fixed nature of the components of selling, general,
and administrative expenses coupled with the substantial reduction of sales for
the period.

    Interest expense amounted to $16,024 for the quarter ended July 31, 2006
compared with net interest expense of $127,809 for the same period in the prior
year. The significant decrease in interest expense for the quarter ended July
31, 2006 compared to the same period of the prior year is attributable to the
reorganization which occurred early in fiscal year 2006. As a result of the said
reorganization, the majority of long term loans were either paid in full or
converted into equity of DataMetrics Corporation.

    The net loss for the quarter ended July 31, 2006 amounted to $565,000,
compared with a net loss of $264,000 for the same period in the prior year. The
loss for the current period is attributable to significant decrease in sales and
the fixed nature of selling, general & administrative expenses.



                Nine Month Period Ended July 31, 2006 Compared
                   To Nine Month Period Ended July 31, 2005
                            (Restated See Note 2)

    Sales for the nine months ended July 31, 2006 were $2,537,000 an increase of
$819,000 or 47%, compared with sales of $1,718,000 in the same period in the
prior fiscal year. The increase in sales for the nine months ended July 31, 2006
is attributable mainly to a substantial increase in receipt of orders from the
U.S. Government and major Defense Contractors in the previous two quarters.

    Cost of sales for the nine months ended July 31, 2006 was $2,073,000 (82% of
sales), an increase of $770,000 or 59%, compared with $1,303,000 (76% of sales)
for the same period in the prior fiscal year. Cost of sales increased compared
to the same period in the prior fiscal year primarily because of the
corresponding increase in variable manufacturing costs related to increased
sales in the current nine month period.

    Selling, general and administrative ("SG&A") expenses for the nine months
ended July 31, 2006 were $1,230,000 (49% of sales) an increase of $105,000, or
10%, compared with $1,125,000 (65% of sales) for the same period in the prior
fiscal year. While the dollar amount of SG&A expenses for 2006 increased by 10%
over the amount reported in 2005 due to restructuring costs in the first
quarter, SG&A



                                      -13-

<PAGE>


expenses, stated as a percentage of sales, decreased substantially
between years due to a substantial increase in sales for 2006 when compared to
2005.


    Interest expense amounted to $91,559 for the nine months ended July 31, 2006
compared with net interest expense of $371,218 for the same period in the prior
year. The dramatic decrease in interest expense for the nine months ended July
31, 2006 compared to the same period of the prior year is attributable mainly to
the Corporate reorganization which occurred early in fiscal year 2006. As a
result of the said reorganization, the majority of long term loans were either
paid in full or converted into equity of DataMetrics Corporation.


    The net loss for the nine months ended July 31, 2006 amounted to $2,706,000
compared with a net loss of $1,053,000 for the same period in the prior year.
While the Company's loss from operations increased marginally for the nine
months ended July 31, 2006 compared with the same period in the prior fiscal
year, net loss for the current period is much larger due to the effect of
issuing options valued at $2,186,000 during the restructuring that occurred in
the first quarter of 2006. The consolidated financial statements for the nine
months ended July 31, 2006 have been restated to correct for the valuation of
stock warrants that were issued to investors in the first fiscal quarter ended
January 31, 2006 which reduced the value assigned to the warrants by $3,687,000.


    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 July 31, 2006. 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.



                                      -14-

<PAGE>




LIQUIDITY AND CAPITAL RESOURCES

      Although the Company has generated much of the cash flow to sustain
current operations through a combination of revenues from sales and from equity
transactions, the debt obligations of previous periods were still outstanding at
the end of fiscal year 2005. As a result, additional capital and a significant
restructuring were required to meet its prior period debt obligations.

      The details of the restructuring are described with the filing of the
definitive information statement on Schedule 14C as filed with the Securities
and Exchange Commission on March 2, 2006.

      On April 11, 2006, the Company effected a Stock combination through a 30:1
reverse stock split. Details of the split are described in the above referenced
Schedule 14C.

      As part of the restructuring, on December 30, 2005, SG DMTI, LLC ("SGD")
purchased 500,000 shares of the Company's Series B Preferred Stock in exchange
for the cancellation of an aggregate of $499,563 in principal and $467 in
accrued interest on certain promissory notes (the "Notes") issued by the Company
and held by SGD. DMTR LLC ("DMTR") converted debt owed to DMTR by the Company
(which debt consisted of an aggregate principal amount of $2,900,000 and
accrued, but unpaid interest on the unpaid principal amount) into common stock.
The Company also issued SGD a warrant 50% of the then issued and outstanding
shares of common stock of the Company on a fully diluted basis for a period of
ten (10) years at an exercise price of $.01 (before giving effect to the one-for
30 reverse stock split).

      On December 30, 2005, the Company also issued SGD a secured promissory
note in the principal amount of $500,000 (the "Secured Note"). The Secured Note
accrues interest at a rate of ten (10%) percent per annum and matures on
December 31, 2006. Accrued interest on the Secured Note shall be paid quarterly
commencing March 31, 2006. The Secured Note is secured by a first priority lien
on all of the Company's assets, which lien was placed on the Company's assets at
the time of issuance of the $200,000 note (the "Bridge Note"), which the Company
previously issued to SGD on November 7, 2005. The Company used the proceeds of
the Secured Note to (i) repay the Bridge Note and all accrued interest thereon,
(ii) pay interest on the Notes exchanged for the Series B Preferred Stock, (iii)
pay for certain expenses incurred in connection with the transactions with SGD
and (iv) for general working capital.


      On August 23, 2006, the Company issued SGD 200,000 shares of Series B
Preferred Stock for $200,000 under the Series B Preferred Stock and Warrant
Purchase Agreement dated December 30, 2005. The proceeds were used for general
working capital. The Company also agreed to make monthly payments of $10,000
commencing September 2006 until all accrued and unpaid interest is repaid.



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 are discussed at appropriate points
in this report and the Company's other SEC filings. Others are included in the
fact that the Company has been engaged in supplying equipment and services to
the U.S. government defense programs which are subject to special risks,
including dependence on government appropriations, contract termination without
cause, contract re-negotiations and the intense competition for available
defense business.


                                      -15-

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Item 3.     CONTROLS AND PROCEDURES

      (a) Disclosure Controls and Procedures. Under the supervision and with the
participation of our management, including our principal operating and financial
officer, we have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as such term is defined in Rule 13a-15(e) or
Rule 15d-15(e) under the U.S. Securities Exchange Act of 1934, as amended)
within 90 days of the filing date of this quarterly report and, based on their
evaluation, our principal operating and financial officer have concluded that
these controls and procedures are working. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms,
and that such information is accumulated and communicated to our management,
including our principal executive and financial officer, as appropriate to allow
timely decisions regarding required disclosure.

      (b) Changes in Internal Control Over Financial Reporting. There were no
significant changes in our internal control over financial reporting identified
in connection with the evaluation required by Exchange Act Rule 13a-15(d) or
Rule 15d-15(d) that occurred during the period covered by this quarterly report,
or to our knowledge in other factors, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.


                                      -16-

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PART II.    OTHER INFORMATION


Item 1.     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, that are material, have been
properly accrued.


Item 2.     Unregistered Sales of Equity Securities and Uses of Proceeds.

            None.


Item 3.     Defaults upon Senior Securities

      The Company was in default on certain unsecured indebtedness of
 approximately $141,000 in principal and $90,000 in unpaid interest. In August
 2006, the Company and the holder of the indebtedness agreed that the Company
 would make monthly payments of $10,000 commencing September 2006 for the unpaid
 interest until all accrued and unpaid interest is repaid.


Item 4.     Submission of Matters to a Vote of Security Holders.

            None.

Item 5.     Other Information.

            None.


Item 6.     Exhibits

      (a)   Exhibits:

            31.1  Certification of COO Pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002


            31.2  Certification of CFO Pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002


            32    Certification of COO and CFO Pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002



                                      -17-

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