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 August 2, 1997

                                       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 1-7636

                              DATAPOINT CORPORATION

             (Exact name of registrant as specified in its charter)


          Delaware                                      74-1605174
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

                     4 rue d'Aguesseau 75008, Paris, France
               8410 Datapoint Drive, San Antonio, Texas 78229-8500
              (Address of principal executive offices and zip code)

                               (33-1) 40 07 37 37
                                 (210) 593-7000
              (Registrant's telephone number, including area code)


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

       Title of each class           Name of each exchange on which registered

Common Stock, $.25 par value                     New York Stock Exchange
$1.00 Exchangeable Preferred Stock, 
     $1.00 par value                             New York Stock Exchange
8-7/8% Convertible Subordinated Debentures
     Due 2006                                    New York Stock Exchange

    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. Yes No X .

    As of October 17, 1997,  17,817,728 shares of Datapoint  Corporation  Common
Stock were outstanding  (excluding  3,173,489 shares held in Treasury),  and the
aggregate  market value (based upon the last  reported  sale price of the Common
Stock on the New York Stock  Exchange -- Composite  Tape on October 17, 1997) of
the  shares of Common  Stock  held by  non-affiliates  was  approximately  $48.3
million.  (For purposes of calculating the preceding  amount only, all directors
and executive officers of the registrant are assumed to be affiliates.)


<PAGE>


PART I

ITEM 1.  Business.

General

    Datapoint Corporation,  including its subsidiaries  (hereinafter "Datapoint"
or "the  Company"),  is  principally  engaged in the  development,  acquisition,
marketing,  servicing,  and system  integration  of computer  and  communication
products -- both  hardware  and  software.  These  products and services are for
integrated computer,  telecommunication  and video conferencing network systems.
The Company is also  actively  engaged in the  business of  licensing  its video
conferencing  technology  and its  dual  protocol  local  area  network  ("LAN")
technology.

    Datapoint  was   reincorporated   in  Delaware  in  1976  as  the  successor
corporation to a Texas corporation. They were originally incorporated in 1968 as
Computer Terminal  Corporation and changed its name to Datapoint  Corporation in
1972. Its principal  executive  offices are located at 4 rue d'Aguesseau  75008,
Paris,  France  (telephone  number - (33-1)  40 07 37 37) and at 8410  Datapoint
Drive, San Antonio, Texas 78229-8500 (telephone number - (210)-593-7000).

    Throughout  the 1980's and the early  1990's,  the  Company's  business  was
characterized by a significant decline in total revenue,  recurring  significant
losses, and a reduction of the domestic workforce. This was primarily due to (1)
a mass entry of competitors in the  networking  marketplace  compounded by (2) a
marketplace demand for "Open Systems" products and standard interfaces,  both of
which had a negative  impact on the  traditional  networking and data processing
components of the Datapoint business. The marketplace was forced into a sameness
of design that lead to highly  competitive  pricing  being the only  significant
product  differentiator.  These adverse  effects were, in turn,  worsened by the
increasing   availability  of  low-cost,   off-the-shelf  software  applications
packages written in a number of industry-standard programming languages. Between
1994 and 1996,  the  Company  was able to  maintain a  consistent  and  slightly
increasing  revenue level while at the same time  restructuring  its  operations
mostly through significant workforce reductions worldwide. The aim was to reduce
its cost base to support such revenue  levels.  At the end of 1996,  the Company
sold its European based Automotive Dealer  Management  Systems business ("EADS")
to Kalamazoo  Computer Group,  plc, a public limited company organized under the
laws of England  ("Kalamazoo"),  (as discussed  more fully  below),  which was a
principal reason for the decline in revenue from 1996 to 1997.

    During fiscal years 1997 and 1996, the Company  pursued and is continuing to
pursue  actions to provide cash  infusions,  including  the sale of surplus real
estate and/or  selected  assets of the Company in order to improve its financial
condition.  In this  regard,  on May  28,  1996,  the  Company  entered  into an
agreement  with  Kalamazoo,  providing for the sale by Datapoint to Kalamazoo of
Datapoint's EADS for a purchase price of $33.0 million. During fiscal year 1997,
the Company  announced that  consideration was being given to the potential sale
of its  telephony  business.  The  Company  subsequently  decided  not to pursue
further  negotiations  with  interested  parties.  The Company will  continue to
position  itself as an integrated  system  provider of both  telephonic and data
transmission  services,  and as such, believes that its short term and long term
prospects can be better maximized by retaining the telephony business.

    Subsequent  to year end,  the  Company  entered  into a contract to sell the
three buildings it owns in San Antonio,  Texas to a private  unaffiliated  group
for approximately $3.1 million (net of mortgage  obligations and closing costs).
The sales  contract  provides  for the  leaseback  by the  Company of one of the
buildings  (approximately  40,000 square feet) for an initial lease term of five
years. The sale of the buildings closed on October 27, 1997.

     During the second quarter of 1997, the Company accepted 1,145,945 shares of
its $1.00 Exchangeable  Preferred Stock, having a liquidation preference $20 per
share ("the $1.00  Preferred  Stock"),  which was tendered in its exchange offer
(the "Exchange Offer") described in the proxy statement/prospectus  delivered to
the holders of the Company's common stock, par value $.25 per share (the "Common
Stock"),  and to the holders of $1.00  Preferred  Stock.  Under the terms of the
exchange  offer,  each share of $1.00 Preferred Stock tendered was exchanged for
3.25 shares of Common Stock.  The exchange offer expired  December 10, 1996. The
tendered shares  approximated  61.34% of the total  outstanding  shares of $1.00
Preferred Stock  immediately  prior to the expiration of the exchange offer. For
purposes of calculating net income applicable to common shareholders and related
per share amounts, a gain on exchange and retirement of preferred stock has been
added to net income or loss. This gain includes the excess of the carrying value
of preferred  stock  accepted in the exchange  over the fair value of the common
stock  issued.  In  addition,  the gain  includes  accumulated  dividends on the
retired preferred stock. The effect of this gain on income before  extraordinary
items per common share was approximately $.23 for the year ended August 2, 1997.

<PAGE>

     Patents and Trademarks

Datapoint owns certain patents, copyrights, trademarks and trade secrets in both
network  and  video  conferencing  technologies,  which  it  considers  valuable
proprietary   assets.   The  Company  believes  that  in  particular  its  video
conferencing  patents and multi-speed network processing patents and the related
patents are of material importance to its business as a whole.

Video Conferencing Patents

Datapoint  owns United  States Patent Nos.  4,710,917  and 4,847,829  related to
video  teleconferencing  technology.  Datapoint has filed  infringement  actions
against several  companies.  In 1995, the Company negotiated two settlements for
such  infringement  for an aggregate of $1.0 million,  and, in 1996, the Company
entered into an agreement  with NEC America,  Inc. for the licensing of the `917
and `829 patents for an undisclosed  amount.  Several patent  infringement suits
are currently pending:

     (1) Datapoint  Corporation v.  Compression  Labs,  Inc. No.  3:93-CV-2522-D
(N.D.     Texas);      trial     is     scheduled     for     November     1997;


     (2) Datapoint  Corporation v. PictureTel  Corporation,  No.  3:93-CV-2381-D
(N.D.   Texas);   trial   is   scheduled   for   early   calendar   year   1998.

     (3) Datapoint  Corporation v. Teleos  Communications,  Inc. No. 95-4455-AET
(D.N.J.);  this action is in the early  stages of  discovery;  no trial date has
been scheduled;

     (4)  Datapoint  Corporation  v.  Videolan   Technologies,   Inc.;  Videolan
Technologies,  Inc. v. Datapoint Corporation, No. 96 CV-604-H (W.D. Kentucky) et
al; in these  actions,  Datapoint  has asserted  that Videolan has infringed the
`917 and `829 patents.  Videolan has asserted the following  claims:  antitrust,
patent misuse,  unfair  competition,  and seeks a declaratory  judgment that the
`917 and `829 patents and another Datapoint patent, No. 4,686,698, are not valid
and are not infringed.  These actions are in the early stages; no trial date has
been set in either matter;

     (5) Datapoint  Corporation v. Intel Corp. No. 97-CV-2581 (N.D. Texas); this
action was filed on October 21,  1997.  In this action,  Datapoint  has asserted
that Intel  Corporation has infringed the '829 and '917 patents.  To date, there
has been no activity in this matter.

In  addition,  discussions  and  negotiations  are  taking  place  with  certain
companies to enter into mutually agreeable licensing arrangements.

In John  Frassanito and David A. Monroe v. Datapoint  Corp.,  No. H-95-812 (S.D.
Tex) plaintiffs alleged that the Company usurped various  patentable  inventions
and trade secrets in connection with the  development of its MINX systems.  They
also asserted a cause of action for patent  infringement,  and a cause of action
requiring   Datapoint  to  assign   certain   MINX-related   patents  and  other
intellectual  property.  On August 16, 1996, the Court  dismissed with prejudice
plaintiffs'  claims of  patent  infringement  against  Datapoint  and  dismissed
without prejudice plaintiff's pendent State law claims and Datapoint's State law
counter-claims  for lack of  subject  matter  jurisdiction.  Plaintiffs  in this
action moved to intervene in the Picturetel and CLI actions.  In September 1997,
the  Company   announced  that  it  had  received  a  court  order  approving  a
confidential agreement between the parties resolving this matter without further
proceedings.

Multi-speed Networking Patents

Datapoint is also the owner of United States Patent Nos. 5,008,879 and 5,077,732
related to Local Area Networks ("LAN"). The Company believes these patents cover
most products introduced by various suppliers to the local area network industry
and  dominates  certain  types  of  dual-speed  LAN  Adaptor  Products  recently
introduced by various  industry  leaders.  Datapoint has asserted one or both of
these patents in the United States  District  Court for the Eastern  District of
New York against a number of parties:

     (1)  Datapoint  Corporation  v.  Standard  Micro-Systems,  Inc.  and  Intel
Corporation, No. C.V.-96-1685;

     (2) Datapoint Corporation v. Cisco Systems, Plaintree Systems Corp., Accton
Technologies Corp., Cabletron Systems, Inc., Bay Networks,  Inc., Crosscom Corp.
and Assante Technologies, Inc. No. CV 96 4534;

     (3) Datapoint Corporation v. Dayna Communications,  Inc., Sun Microsystems,
Inc.,  Adaptec,  Inc.  International  Business Machines Corp.,  Lantronix,  SVEC
America Computer Corporation, and Nbase Communications, No. CV 96 6334; and

<PAGE>

     (4) Datapoint  Corporation v. Standard  Microsystems Corp. and Intel Corp.,
individually, and as representatives of the class of all manufacturers,  vendors
and users of Fast Ethernet-compliant, dual protocol local-area network products,
No. CV-96-03819.

These actions have been consolidated for discovery.  No trial date has been set.
In  addition,  discussions  are taking place with  certain  companies  which may
include one or more of the above  companies in an attempt to reach  agreement on
licensing arrangements.

The above  actions  represent the  Company's  continuing  efforts to license and
enforce  its video  conferencing  and  multi-speed  networking  patents  through
negotiations and/or litigation.  The Company believes that these patents provide
broad coverage in video conferencing and multi-speed  networking  technology and
present the  opportunity  for further  royalty  bearing  licenses.  Such royalty
bearing  licenses and  enforcement of its patents are a primary  strategy of the
Company's business to create long-term value for its stockholders.

Products

     The Company  provides  communication  solutions to the world  through data,
voice, and video  integration.  A complete line of products for data processing,
video communications, and telecommunications is available.

     The Company  has  enhanced  its MINX video  communications  products  which
provide the capacity for large video networks and data conferencing  features. A
complete   range  of   products   is   available   from  a  fully   interactive,
broadcast-quality,  full-motion  video network which can accommodate  over 3,000
local  workstations  to a single video station for a remote  office.  All of the
video products are interoperable  and provide  functionality and picture quality
that is unparalleled in the industry.

     In 1994,  consistent  with the Company's  patent  licensing  business,  the
Company began patent  infringement  suits against several  defendants related to
the Company's  video  conferencing  patents and dual protocol local area network
patents.  The Company's patent enforcement policy includes the identification of
video  conferencing  patents and dual protocol  local area network  products and
applications  which infringe the related  patents and the execution of licensing
agreements  through  a)  normal  commercial   negotiations  or  b)  pursuant  to
settlements of litigation brought against the patent infringers. The Company has
been successful in asserting its U.S. video  conferencing  patents  resulting in
payments for licenses.  On June 16, 1996, the Company  entered into an agreement
with NEC America,  Inc.  for the  licensing of  Datapoint's  video  conferencing
patents.  The Company is also taking steps through an  industry-wide  program to
license and enforce its  multi-speed  networking  patents  through  negotiations
and/or litigation.  Currently,  four patent  infringement suits are pending with
respect to  Datapoint's  patents  on its dual  protocol  local  area  networking
technology.  These  patents  cover  certain  ARCNET and Fast  Ethernet  products
recently  introduced by various suppliers to the local area network industry and
dominates certain types of dual-speed LAN Adaptor Products  recently  introduced
by various  industry  leaders.  Such royalty bearing licenses and enforcement of
its patents are a primary strategy of the Company's business to create long-term
value for its stockholders.

     The Company's Networking products are  industry-standard.  The file servers
are based  upon a  scalable  architecture  using the Intel  microprocessor.  The
multi-processor functionality is provided for the Company's highly sophisticated
RMS network operating system.  The same systems can be used for Windows NT, UNIX
and other operating systems.  The Company offers  high-performance,  Pentium PRO
file servers.  All systems support RAID disks and popular network protocols such
as TCP/IP and NetBios.

     The  Company's   networking   products   focus  on  linking  file  servers,
workstations, terminals, printers, and other peripherals (such as modems) to the
network.  High-performance  networking software and hardware components comprise
the product offering and provide the ability to implement high-capacity,  highly
efficient  networks composed of client/server and data  communications  devices.
The  networking  solutions  provide the capability of running  MS-DOS,  WINDOWS,
WINDOWS NT, UNIX, and RMS simultaneously along with flexible choices of adapters
such as  ARCNET,  ARCNETPLUS,  Ethernet  and  FastEthernet.  These  capabilities
provide customers the flexibility to design network  architectures to meet their
specific requirements.

     Realizing  that personal  computers are the desktop  workstation of choice,
the Company offers PC-based hardware and software. A Microsoft Windows compliant
terminal  emulation package for the RMS environment which can be run on existing
PCs is also provided.

     The  Company  offers a  complete  set of  telecommunications  products  and
services  to meet the  requirements  of large  call  centers,  customer  service
organizations,   and  telemarketing   firms.  Power  dialers  to  increase  call
efficiency for outbound communications applications,  interactive voice response
systems which allow customers to interrogate an  organization's  database with a
simple  telephone,  and automatic  call  distribution  systems that manage large
volumes of incoming calls comprise the portfolio of telecommunications products.
The  Company  has an  agreement  with Lucent to market  their  Definity  line of
automatic  call   distributors   through  several  of  the  Company's   European
subsidiaries.  The Company also has recently  added  Intelligent  Call  Exchange
("ICE") from Computer Talk Technology,  Inc.  ("CTT") to its product  portfolio.
This PC based  call  center  is the  first  of a new  generation  of  technology
products  addressing a much wider  marketplace  and takes advantage of the large
base of skilled engineers the Company has throughout  Europe.  In addition,  the
Company markets the Electronic Data Gathering  Expertise  ("EDGE")  telebusiness
software from International Management Associates,  Ltd., ("IMA") to enhance its
call center capabilities and provide vertical market applications for industries
throughout Europe.  Telecommunications  solutions are provided with the combined
expertise in networking, data processing, and telecommunications products.

<PAGE>

     The  supplier  and  value-added  reseller  relationships  that the  Company
continues  to  develop,   allow  its   customers   worldwide  to  enhance  their
productivity with sensible,  cost-effective computer-based networking, telephony
and video communication solutions.

Markets

Customers

    Datapoint  sells generally to business and government  customers,  including
the U.S. government,  financial institutions,  insurance companies,  educational
institutions,  and manufacturers.  During fiscal years 1995 through 1997, no one
customer accounted for 10 percent or more of consolidated revenues.

Domestic

    Datapoint  markets its  products in the United  States  through  independent
sales representatives who, on a commission basis, solicit orders for Datapoint's
products;  through value-added resellers,  who purchase Datapoint's products for
resale;  original equipment  manufacturers,  who integrate  Datapoint's products
into their overall offerings;  and through Datapoint's own end-user sales force.
Independent sales representatives, value-added resellers, and original equipment
manufacturers   generally  market  Datapoint's   products  in  conjunction  with
application software and other products developed and marketed by such firms.

International

    Datapoint's  products  are  marketed to  end-users  in over forty  countries
through a network of wholly-owned  subsidiaries  and  independent  distributors.
Datapoint  distributes its products  internationally  through wholly-owned sales
and service operations in Belgium, France, Germany, Holland, Italy, New Zealand,
Norway, Spain, Sweden, Switzerland and the United Kingdom and through authorized
distributors  worldwide.  During fiscal year 1997,  approximately  99 percent of
Datapoint's international revenue was derived from customers in Western Europe.

Customer Service

    In the United States,  Datapoint has entered into an agreement with Decision
Servcom, Inc. ("DSI"),  whereby DSI would serve as the non-exclusive  authorized
service agent for Datapoint's proprietary data processing products.  Maintenance
of equipment outside the United States is provided by Datapoint's  international
subsidiaries  and  distributors.  The  maintenance  operations  of the Company's
international  subsidiaries produced 44 percent of total company revenues and 50
percent of total company gross profit for the fiscal year ended August 2, 1997.

    Datapoint has entered into a subcontract  with Kalamazoo to provide computer
hardware and hardware  maintenance  service to Kalamazoo's  European  Automotive
Dealer  System  network.  Subsequent  to year end,  Kalamazoo  has  notified the
Company that Kalamazoo's German subsidiary will no longer purchase its equipment
requirements  from the Company on an exclusive basis.  The Kalamazoo  subsidiary
will,  however,  continue to market and  purchase  the  Datapoint  range of file
servers and software on a non-exclusive basis.

Manufacturing, Raw Materials, and Supplies

    The majority of Datapoint's  products are purchased from third parties,  who
manufacture products meeting Datapoint's  specifications.  The products are then
resold  badged/unbadged  within Datapoint  configurations upon the completion of
testing and  packaging  performed at the  Company's  facilities  in San Antonio,
Texas.

    Datapoint seeks,  and maintains where practical,  multiple sources of supply
for the products,  components, and raw materials which it uses. However, certain
products and components are purchased  only from single  sources,  and Datapoint
could  experience  manufacturing  delays if such  suppliers  should fail to meet
Datapoint's  requirements.  The delay of any  components,  whether for supply or
quality reasons,  can become critical to production flows. The Company's general
experience has been good in terms of minimizing  exposure;  however,  guarantees
regarding  possible  future  situations and rectifying  actions that could arise
cannot be made.

<PAGE>

Research and Product Development

    The technology involved in the design and operation of Datapoint's  products
is complex and subject to constant change.  Accordingly,  Datapoint is committed
to  a  program  of  research  and  development  which  is  oriented  toward  the
development  of new  hardware  and software  products  and the  improvement  and
expansion of its existing products and services.

    Datapoint incurred expense of $2.1 million,  $2.7 million,  and $4.3 million
in the fiscal  years ended  August 2, 1997,  July 27,  1996,  and July 29, 1995,
respectively,  on research and development  activities.  Datapoint maintains its
principal research and development facility in San Antonio, Texas.

Competition

    Datapoint  operates in the intensely  competitive  computer data processing,
video conferencing and telephony industries.  These industries are characterized
by the frequent introduction of new products based upon technological  advances.
Datapoint  competes,  domestically  and  abroad,  with a  substantial  number of
companies,  many of which are larger and have greater  resources than Datapoint.
Such  companies,  considered  in the  aggregate,  compete in the entire  line of
products  manufactured  and  marketed by  Datapoint.  These  competitors  differ
somewhat depending on the market segment, customer and geographic area involved.

    Competition in this market is based  primarily on the  relationship  between
price and  performance;  the ability to offer a variety of  products  and unique
functional   capabilities;   the   strength   of  sales,   service  and  support
organizations;  upgradability,  flexibility,  and ease of use of  products.  The
Company   could   be   adversely   affected   if  its   competitors   introduced
technologically superior products or substantial price reductions.

Backlog

    The backlog of firm orders for the sale or lease of the  Company's  products
as of  August  2,  1997 and July 27,  1996 was $9.6  million  and $8.1  million,
respectively.  Calculations were based on then existing end-user purchase prices
for products to be leased and gave effect to appropriate  discounts for products
to be sold. The backlog amounts are not necessarily  indicative of the Company's
future results, since an increasing amount of the Company's revenues are derived
from orders  obtained in the period of shipment.  Furthermore,  a portion of the
Company's  backlog may be cancelable  at the  customer's  option,  under certain
conditions,  without  financial  penalty.  All orders included in the backlog at
August 2, 1997,  are currently  scheduled for delivery  during the subsequent 12
months.  All  orders  are  subject to the  Company's  ability  to meet  delivery
commitments. The Company records only firm orders as backlog, and generally such
orders are  cancelable  only by the Company.  In the event that a new product is
released,  a customer is allowed to upgrade (i.e., cancel) an existing order and
place a new order for the new product.  This is done at the Company's discretion
with no financial penalty to the customer.

    Backlog is also not a reliable  indicator of future  results,  as changes in
product mix and costs may significantly impact reported results.  Therefore, the
Company  believes that the backlog data is not meaningful to an understanding of
the Company's business or future reported results.

Patents and Trademarks

     Datapoint owns certain patents, copyrights, trademarks and trade secrets in
both network and video  conferencing  technologies,  which it considers valuable
proprietary  assets.  The Company  does not  primarily  rely on these  rights to
establish or protect its market  position,  but does view them as providing  the
Company a  technological  advantage  in certain  cases and does  intend to fully
exploit their value.  The Company believes that its video  conferencing  patents
and multi-speed  network  processing  patents are of material  importance to its
business as a whole.

Video Conferencing Patents

Datapoint  owns United  States Patent Nos.  4,710,917  and 4,847,829  related to
video  teleconferencing  technology.  Datapoint has filed  infringement  actions
against several  companies.  In 1995, the Company negotiated two settlements for
such  infringement  for an aggregate of $1.0 million,  and, in 1996, the Company
entered into an agreement  with NEC America,  Inc. for the licensing of the `917
and `829 patents for an undisclosed  amount.  Several patent  infringement suits
are currently pending:

<PAGE>

     (1) Datapoint  Corporation v.  Compression  Labs,  Inc. No.  3:93-CV-2522-D
(N.D.     Texas);      trial     is     scheduled     for     November     1997;


     (2) Datapoint  Corporation v. PictureTel  Corporation,  No.  3:93-CV-2381-D
(N.D.   Texas);   trial   is   scheduled   for   early   calendar   year   1998;


     (3) Datapoint  Corporation v. Teleos  Communications,  Inc. No. 95-4455-AET
(D.N.J.);  this action is in the early  stages of  discovery;  no trial date has
been scheduled; 

     (4)  Datapoint  Corporation  v.  Videolan   Technologies,   Inc.;  Videolan
Technologies,  Inc. v. Datapoint Corporation, No. 96 CV-604-H (W.D. Kentucky) et
al; in these  actions,  Datapoint  has asserted  that Videolan has infringed the
`917 and `829 patents.  Videolan has asserted the following  claims:  antitrust,
patent misuse,  unfair  competition,  and seeks a declaratory  judgment that the
`917 and `829 patents and another Datapoint patent, No. 4,686,698, are not valid
and are not infringed.  These actions are in the early stages; no trial date has
been set in either matter;

     (5) Datapoint  Corporation v. Intel Corp. No. 97-CV-2581 (N.D. Texas); this
action was filed on October 21,  1997.  In this action,  Datapoint  has asserted
that Intel  Corporation has infringed the '829 and '917 patents.  To date, there
has been no activity in this matter.

In  addition,  discussions  and  negotiations  are  taking  place  with  certain
companies to enter into mutually agreeable licensing arrangements.

In John  Frassanito and David A. Monroe v. Datapoint  Corp.,  No. H-95-812 (S.D.
Tex) plaintiffs alleged that the Company usurped various  patentable  inventions
and trade secrets in connection with the  development of its MINX systems.  They
also asserted a cause of action for patent  infringement,  and a cause of action
requiring   Datapoint  to  assign   certain   MINX-related   patents  and  other
intellectual  property.  On August 16, 1996, the Court  dismissed with prejudice
plaintiffs'  claims of  patent  infringement  against  Datapoint  and  dismissed
without prejudice plaintiff's pendent State law claims and Datapoint's State law
counter-claims  for lack of  subject  matter  jurisdiction.  Plaintiffs  in this
action moved to intervene in the Picturetel and CLI actions.  In September 1997,
the  Company   announced  that  it  had  received  a  court  order  approving  a
confidential agreement between the parties resolving this matter without further
proceedings.

Multi-speed Networking Patents

Datapoint is also the owner of United States Patent Nos. 5,008,879 and 5,077,732
related to Local Area Networks ("LAN"). The Company believes these patents cover
most products introduced by various suppliers to the local area network industry
and  dominates  certain  types  of  dual-speed  LAN  Adaptor  Products  recently
introduced by various  industry  leaders.  Datapoint has asserted one or both of
these patents in the United States  District  Court for the Eastern  District of
New York against a number of parties:

     (1)  Datapoint  Corporation  v.  Standard  Micro-Systems,  Inc.  and  Intel
Corporation, No. C.V.-96-1685;

     (2) Datapoint Corporation v. Cisco Systems, Plaintree Systems Corp., Accton
Technologies Corp., Cabletron Systems, Inc., Bay Networks,  Inc., Crosscom Corp.
and Assante Technologies, Inc. No. CV 96 4534;

     (3) Datapoint Corporation v. Dayna Communications,  Inc., Sun Microsystems,
Inc.,  Adaptec,  Inc.  International  Business Machines Corp.,  Lantronix,  SVEC
America Computer Corporation, and Nbase Communications, No. CV 96 6334; and

     (4) Datapoint  Corporation v. Standard  Microsystems Corp. and Intel Corp.,
individually, and as representatives of the class of all manufacturers,  vendors
and users of Fast Ethernet-compliant, dual protocol local-area network products,
No. CV-96-03819.

These actions have been consolidated for discovery.  No trial date has been set.
In  addition,  discussions  are taking place with  certain  companies  which may
include one or more of the above  companies in an attempt to reach  agreement on
licensing arrangements.

The above  actions  represent the  Company's  continuing  efforts to license and
enforce  its video  conferencing  and  multi-speed  networking  patents  through
negotiations and/or litigation.  The Company believes that these patents provide
broad coverage in video conferencing and multi-speed  networking  technology and
present the  opportunity  for further  royalty  bearing  licenses.  Such royalty
bearing  licenses and  enforcement of its patents are a primary  strategy of the
Company's business to create long-term value for its stockholders.

<PAGE>


    The Company utilizes a number of trademarks,  most importantly  "DATAPOINT",
"ARCNET"  and  "MINX".   The  Company  registers  or  otherwise  protects  those
trademarks  it deems  valuable to its business and  anticipates  no  significant
impairment  of  its  ability  to  continue  to use  and  protect  its  important
trademarks.  Datapoint,  the "D" logo,  ARC,  ARCNET,  RMS,  MINX,  and Resource
Management System are trademarks of Datapoint Corporation registered in the U.S.
Patent and Trademark office. Attached Resource Computer, ARCNETPLUS, and DATALAN
are  trademarks  of the  Company.  (AT&T is a  registered  trademark of American
Telephone  and   Telegraph.   Ethernet  is  a  registered   trademark  of  Xerox
Corporation. Intel is a registered trademark of Intel Corporation. Microsoft and
MS-DOS are registered trademarks of Microsoft Corporation.  UNIX is a registered
trademark of UNIX System Laboratories, Inc.)

Employees

     At August 2, 1997, the Company had 641 employees. The Company considers its
relations with employees to be satisfactory.

Environmental Matters

    Compliance with current federal,  state, and local  regulations  relating to
the  protection of the  environment  has not had, and is not expected to have, a
material effect upon the capital expenditures, earnings, or competitive position
of Datapoint.


    ITEM 2.  Properties.

    Datapoint's  principal executive offices are located in Paris, France and in
San Antonio, Texas. Datapoint believes that its plants and offices are generally
well  maintained,  in good operating  condition and are adequately  equipped for
their present use.  Information  regarding the principal  plants and properties,
excluding leases assigned or subleased, as of August 2, 1997, is as follows:

                             Approximate   
                              Facility
      Location      Use      Sq. Footage        Owned or Leased Land Area

San Antonio, Texas  Office     144,000   Owned; 12 acres (Subject to mortgage)*
Gouda, Netherlands  Office      52,000   Owned; 1 acre (Subject to mortgage)
Paris, France       Office       7,000   Leased; expires June 30, 1999

    Additionally, at August 2, 1997, excluding leases assigned or subleased, the
Company  leased sales and service  offices having an aggregate of 295,000 square
feet in metropolitan  areas  throughout the world,  pursuant to lease agreements
which expire between 1997 and 2009. The aggregate  annual rental of all of these
sales and service offices is approximately $3.6 million and most of these leases
are subject to rental increases under certain escalation provisions and renewals
on similar terms.

*Subsequent  to year end, the Company  entered into a contract to sell the three
buildings  it owns in San  Antonio,  Texas to a private  unaffiliated  group for
approximately $3.1 million (net of mortgage  obligations and closing costs). The
sales contract provides for the leaseback by the Company of one of the buildings
(approximately  40,000 square feet) for an initial lease term of five years. The
sale of the buildings closed on October 27, 1997.


ITEM 3.  Legal Proceedings.


     In John  Frassanito and David A. Monroe v. Datapoint  Corp.,  No.  H-95-812
(S.D.  Tex)  plaintiffs  alleged  that the Company  usurped  various  patentable
inventions  and trade secrets in  connection  with the  development  of its MINX
systems.  They also  asserted a cause of action for patent  infringement,  and a
cause of action requiring Datapoint to assign certain  MINX-related  patents and
other  intellectual  property.  On August 16,  1996,  the Court  dismissed  with
prejudice  plaintiffs'  claims  of patent  infringement  against  Datapoint  and
dismissed without prejudice plaintiff's pendent State law claims and Datapoint's
State law counter-claims for lack of subject matter jurisdiction.  Plaintiffs in
this action moved to intervene in the Picturetel  and CLI actions.  In September
1997,  the Company  announced  that it had  received a court  order  approving a
confidential agreement between the parties resolving this matter without further
proceedings.

    From  time to  time,  the  Company  is a  defendant  in  lawsuits  generally
incidental to its business. The Company is not currently aware of any such suit,
which if decided adversely to the Company, would result in a material liability.
<PAGE>

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

Not applicable.

PART II

ITEM 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

Datapoint  Corporation  common  stock is traded on the New York  Stock  Exchange
under the symbol "DPT". As of October 17, 1997, there were  approximately  3,062
holders and  17,817,728  outstanding  shares of Common  Stock.  The prices below
represent  the high and low prices for composite  transactions  for stock traded
during the applicable period. The Company has not paid cash dividends to date on
its  common  stock and has no present  intention  to pay cash  dividends  on its
common stock in the near future.

             Fiscal
              year                             High              Low
                                                        
             1997   Q4                         3.13               .94
                    Q3                         1.13               .88
                    Q2                         1.50              1.00
                    Q1                         1.63               .94


                                               High             Low

             1996   Q4                         1.88             1.00
                    Q3                         1.88             1.00
                    Q2                         1.50             1.00
                    Q1                         2.38             1.38



<PAGE>


ITEM 6.  Selected Financial Data.

Selected Financial Data
Five-Year Comparison
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>

 
                                                           1997            1996          1995           1994           1993
<S>                                                      <C>             <C>           <C>            <C>            <C>    

Operating Results for the Fiscal Year
Total revenue                                            $142,121       $179,541       $174,901       $172,936       $208,344
Operating income (loss)                                     2,033          1,017        (18,232)       (81,021)        (1,258)
Income (loss) before extraordinary credit
and effect of change in accounting principle                1,173         19,015        (28,343)       (94,765)       (11,859)
Net income (loss)                                           2,383         19,342        (28,343)       (93,425)       (11,260)
Net income (loss) per common share:
Before extraordinary credit and effect of change
in accounting principle                                       .25           1.27          (2.29)         (6.69)          (.97)
After extraordinary credit and effect of change
in accounting principle                                       .32           1.30          (2.29)         (6.60)          (.93)
Net income per common share assuming full dilution:
Before extraordinary credit and effect of change
in accounting principle                                       n/a           1.11            n/a            n/a            n/a
After extraordinary credit                                    n/a           1.13            n/a            n/a            n/a

Financial Position at End of Fiscal Year
Current assets                                            $45,340        $69,995        $67,506        $79,915        $94,169
Fixed assets, net                                          11,764         14,625         18,877         29,088         27,950
Total assets                                               62,388         93,818        101,751        127,434        202,275
Current liabilities                                        53,679         76,965        100,256         98,202         74,759
Long-term debt                                             60,875         63,945         64,923         70,561         71,551
Stockholders' equity (deficit)                            (64,084)       (55,202)       (74,116)       (50,761)        47,021

Other Information
Average common shares outstanding                      16,353,629     13,455,878     13,194,667     14,430,574     14,081,964
Number of common stockholders of record                     3,070          3,142          3,274          3,378          3,710
Preferred shares outstanding                              721,976      1,868,071      1,846,456      1,784,456      1,784,456
Dividends paid or accumulated on preferred stock           $1,009         $1,885         $1,815         $1,784         $1,784
Number of employees                                           641            705            991          1,444          1,528
</TABLE>

No cash  dividends  on common  stock have been  declared  during  the  five-year
period.  
Net income for 1996 includes a gain of $32.2 million  resulting  from a
divestiture.
See notes to  Consolidated  Financial  Statements and Management  Discussion and
Analysis of Financial Condition and Results of Operations.

<PAGE>



     ITEM 7.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations.

Overview

Throughout  1997,  the  Company's  main  objectives  to preserve and improve the
Company's cash liquidity and financial position and to allow the Company to meet
its future operating cash flow requirements were as follows:

1. Product marketing to maintain  stabilized revenue levels,
2. Continued review and reduction of operating  costs, 
3. One-time cash infusions to meet operating requirements; and
4. The  vigorous  pursuit  of  patent  royalties  due from the  licensing  and
   enforcement of its video conferencing and multi- speed networking patents.

     During 1997,  the Company had net income of $2.4 million  compared with net
income of $19.3  million for the  previous  year.  Included in the net income of
$19.3 million for 1996 is a $32.2 million non-operating gain related to the sale
of EADS in the fourth quarter of 1996.

Included in non-operating income for 1997 is $6.2 million related to transaction
gains resulting from the strengthening  U.S. dollar against foreign  currencies.
This compares to a gain of $0.7 million for the prior year. These gains on short
term  intercompany  notes and international  subsidiary U.S. dollar  denominated
cash  are  offset  by a  translation  adjustment  to  Stockholders'  Equity  and
therefore have no impact on the Company's consolidated financial position.

During  1997,  the Company had total  revenue of $142.1  million,  a decrease of
$37.4  million  from the  previous  year.  Approximately  $17.5  million  of the
decrease is attributable to the loss of business (mostly service) resulting from
the  sale  of EADS  to  Kalamazoo.  Approximately  $7.2  million  was due to the
unfavorable  impact related to the strengthening  U.S. dollar when compared with
the same period in the prior year.  The  remainder was primarily due to a weaker
sales  performance in two of the Company's  western European  subsidiaries  when
compared to the previous year.

Operating   expenses   (research  and  development   plus  selling,   general  &
administrative)  for 1997 were $37.5  million,  a decrease of $16.8 million from
the $54.3 million recorded in 1996.  Approximately  $6.6 million of the decrease
is  attributable to the sale of EADS.  Approximately  $1.1 million is related to
the effect of the strengthening U.S. dollar when compared with the same period a
year ago,  and the  remainder  due to cost  cutting  actions  undertaken  by the
Company.  The Company  recorded  restructuring  charges of $2.4 million in 1997,
compared with $0.3 million recorded in the prior year.

     During 1997 and 1996, the Company  repurchased  approximately  $2.9 million
and  $0.7  million,  in  face  value,  of  its 8 7/8%  convertible  subordinated
debentures.  This  resulted in an  extraordinary  gain of $1.2  million and $0.3
million, respectively.

During the second quarter of 1997, the Company accepted  1,145,945 shares of its
$1.00  Exchangeable  Preferred  Stock,  having a liquidation  preference $20 per
share ("the $1.00  Preferred  Stock"),  which was tendered in its exchange offer
(the "exchange offer") described in the proxy statement/prospectus  delivered to
the holders of the Company's common stock, par value $.25 per share (the "Common
Stock"),  and to the holders of $1.00  Preferred  Stock.  Under the terms of the
exchange  offer,  each share of $1.00 Preferred Stock tendered was exchanged for
3.25 shares of Common Stock.  The exchange offer expired  December 10, 1996. The
tendered shares  approximated  61.34% of the total  outstanding  shares of $1.00
Preferred Stock  immediately  prior to the expiration of the exchange offer. For
purposes of calculating net income applicable to common shareholders and related
per share amounts, a gain on exchange and retirement of preferred stock has been
added to net income or loss. This gain includes the excess of the carrying value
of preferred  stock  accepted in the exchange  over the fair value of the common
stock  issued.  In  addition,  the gain  includes  accumulated  dividends on the
retired preferred stock. The effect of this gain on income before  extraordinary
items per common share was approximately $.23 for the year ended August 2, 1997.

The  Company's  proposal  to its  stockholders  to  adopt  an  amendment  to the
Company's  certificate of  incorporation  whereby all outstanding  shares of its
$1.00 Preferred Stock would be automatically converted into the right to receive
3.25 shares of Common Stock,  did not receive the requisite vote required of the
approval of holders.  The proposal  required  approval by at least two-thirds of
the  outstanding  shares  of  $1.00  Preferred  Stock  and  a  majority  of  the
outstanding shares of Common Stock, and thus was not adopted.

<PAGE>

The Company is  continuing to pursue  actions that will provide cash  infusions,
including the sale of surplus real estate and/or selected assets of the Company,
in order to improve its financial position. The Company had previously announced
that  consideration  was  being  given to the  potential  sale of its  telephony
business.  Subsequently,  the Company decided not to pursue further negotiations
with  interested  parties.  The Company will  continue to position  itself as an
integrated  system provider of both telephonic and data  transmission  services,
and as such,  believes that its short term and long term prospects can be better
maximized by retaining the telephony business.

Subsequent  to year end,  the Company  entered into a contract to sell the three
buildings  it owns in San  Antonio,  Texas to a private  unaffiliated  group for
approximately $3.1 million (net of mortgage  obligations and closing costs). The
sales contract provides for the leaseback by the Company of one of the buildings
(approximately  40,000 square feet) for an initial lease term of five years. The
sale of the buildings closed on October 27, 1997.


Financial Condition and Liquidity

During 1997,  the Company's net cash provided from  operations was $2.6 million.
Primarily,  this was  attributable to net income and strong accounts  receivable
collections,  offset by payments of long-standing  vendor  obligations and other
accrued  liabilities,  which include $2.6 million in payments for restructuring
costs.

During 1997, net cash used in investing activities was $4.2 million. Included in
this amount is $3.6 million of fixed asset purchases  (primarily test equipment,
spares, internally-used equipment and a subsidiary's building renovation).

Net cash  used in  financing  activities  was $3.8  million  in 1997,  primarily
related to the net paydown of the Company's borrowings.

     As of August 2, 1997,  the Company had  restricted  cash of $0.2 million as
compared to $0.9  million in the prior  year.  The 1997 and 1996  balances  were
restricted primarily to cover various lines of credits, reflected as payables to
banks.

Accounts payable  decreased to $12.2 million in 1997 from $20.3 million in 1996.
Throughout  the year,  the Company  continued to work with its accounts  payable
creditors  to extend  additional  credit  and  credit  terms,  thus  maintaining
functional  relationships  with such  creditors  during 1997. The Company has no
significant purchase commitments outstanding as of August 2, 1997.

The Company's cash and cash equivalents decreased $7.7 million to $15.5 million.
The  decrease in cash was chiefly a result of the revenue  decline,  payments of
long-standing  vendor  obligations,  and  payment of other  accrued  liabilities
including  executive  contractual  bonuses.   These  were  partially  offset  by
continued  strong  collections  of accounts  receivables.  The Company used $1.7
million to repurchase  8-7/8%  convertible  subordinated  debentures with a face
value of $2.9 million.

As of August 2, 1997, the Company has included in payables to banks an amount of
$3.7 million payable to  International  Factors "De Factorij" B.V., a subsidiary
of ABN-AMRO  Bank of the  Netherlands.  The loan is secured by the building that
the  Company's  Dutch  subsidiary  owns  in  the  Netherlands,  and  by  certain
receivables of the Company's U.K. and Dutch subsidiaries.

     The Company has available lines of credit from foreign banks to its foreign
subsidiaries. The unused lines of credit at August 2, 1997, totaled $2.6 million
after borrowings of $7.3 million.

The Company believes its available cash, cash equivalents and funds generated by
operations   will  be  sufficient  to  provide  its  working  capital  and  cash
requirements for fiscal 1998. In addition,  management believes the Company will
be able to discharge its  obligations  in the long term with cash generated from
operations  and other  sources such as sale of selected  assets  and/or  capital
transactions.

During 1993,  the Company  settled a long standing  patent-related  legal action
brought  against  it  by  Northern  Telecom  Inc.  ("NTI").   Pursuant  to  this
settlement,  during 1994 and 1993,  the Company  paid NTI $1.0  million and $7.5
million, respectively. The Company also agreed to a ten-year note payable to NTI
which required annual $1.0 million payments each December.  As of June 24, 1996,
the  December  1994 and December  1995  installments  were in arrears.  From the
proceeds of the sale of EADS,  the Company  paid NTI $2.2  million  representing
payment of these deferred payments plus accrued and unpaid interest.  On July 1,
1996, the Company entered into an agreement with NTI pursuant to which Datapoint
paid $5.05 million to NTI in full satisfaction of all amounts due and to be due.
The  prepayment  agreement  relieved the Company of its  obligation  to make the
annual $1.0 million payments, as well as certain contingent payment obligations.

<PAGE>


As a result of the Company's capital deficiency which existed at the end of 1994
and  throughout  1995,  1996,  and 1997,  the Company  determined not to pay the
quarterly  preferred dividend payments due to stockholders  during the period of
October 15, 1994  through  October 15, 1997.  On January 16,  1996,  the Company
announced  that it was in arrears on its $1.00  preferred  stock in an aggregate
amount equal to six full quarterly dividends.  As a result, each holder of $1.00
preferred  stock has the right to  exchange  each such share  (inclusive  of all
accrued and unpaid  dividends)  into two shares of the  Company's  common stock.
Under  this  right of  exchange,  28,300  shares of $1.00  preferred  stock were
converted to 56,600 shares of common stock during 1996. In addition, as a result
of the dividend  arrearages  the number of directors  constituting  the Board of
Directors  of the Company was  increased  by two with the vote of the holders of
the  $1.00  preferred  stock  (not  including  those  who have  exchanged  $1.00
preferred  stock for the Company's  common stock).  These rights  continue until
such time as the arrearages have been paid in full.

At August 2, 1997,  the Company had available  federal tax net operating  losses
aggregating  approximately $176.0 million, expiring in various amounts beginning
in 2001.  In the event that the  Company's  ability to utilize its net operating
losses to reduce its federal tax  liability  with  respect to current and future
income becomes subject to limitation, the Company may be required to pay, sooner
than it otherwise  might have to, any amounts owing with respect to such federal
tax liability,  which would reduce the amount of cash otherwise available to the
Company (see note 4 to Consolidated Financial Statements).

In  December  1994,  a lawsuit was brought  against  the Company  involving  the
earlier  sale of real  estate by the  Company.  In April 1996,  an adverse  jury
verdict was  rendered  against the  Company and two of its  executive  officers.
During the fourth quarter of 1996, a settlement was reached among the litigants.
As such, the District Court entered a Judgment Non Obstante Veredicto  (Judgment
Notwithstanding  the  Verdict)  that set aside the jury's  findings  against the
Company  and its two  executive  officers  and set aside all  damages.  The $3.3
million  settlement  avoided  considerable   expense,   including  the  business
disruption of a protracted appeal and legal process,  and had no material impact
on the Company's then current cash position.  The settlement included payment of
funds from a non-working  capital trust fund which were  otherwise not available
to the  Company,  issuance  of a short  term note,  and shares of the  Company's
common stock.


Reorganization/Restructuring Costs
(In thousands)

A rollforward of the restructuring  accrual from July 30, 1994 through August 2,
1997 is as follows:


                                                         TOTAL
Restructuring accrual as of July 30, 1994               $13,988
Fiscal 1995 additions                                     9,213
Fiscal 1995 asset write-offs                             (1,895)
Fiscal 1995 payments                                    (17,138)
----------------------------------------------------------------
Restructuring accrual as of July 29, 1995                $4,168
Fiscal 1996 additions                                       263
Fiscal 1996 payments                                     (3,776)
----------------------------------------------------------------
Restructuring accrual as of July 27, 1996              $    655
Fiscal 1997 additions                                     2,425
Fiscal 1997 payments                                     (2,572)
----------------------------------------------------------------
Restructuring accrual as of August 2, 1997                 $508
                                                           ====


The projected payout of the restructuring  accrual balance as of August 2, 1997,
which  relates  almost  entirely to unpaid  employee  termination  costs,  is as
follows:

First quarter 1998                                $   203
Second quarter 1998                                   166
Third quarter 1998                                     34
Fourth quarter 1998                                    34
Beyond                                                 71
-----------------------------------------------------------
Restructuring accrual as of August 2, 1997        $   508
                                                  =======

Restructuring  charges are not recorded until specific  employees are determined
(and notified of  termination)  by  management  in  accordance  with its overall
restructuring plan. Employee  termination payments are generally paid out over a
period of time rather than as one lump sum.  Although a  reasonable  estimate of
the amount of future  termination costs cannot be made at this time,  management
expects to incur additional charges for terminations.
<PAGE>

Results of Operations

The  following  is a summary of the  Company's  sources  of revenue  for each of
fiscal 1997, 1996 and 1995:

(In thousands)
                                    1997           1996           1995
                                    ----           ----           ----
Sales:
   U.S.                           $4,241         $3,185         $5,728
   Foreign                        74,127         95,691         78,459
                                  ------         ------         ------
                                  78,368         98,876         84,187

Service and other:
   U.S.                            1,185            906          1,393
   Foreign                        62,568         79,759         89,321
                                  ------         ------         ------
                                  63,753         80,665         90,714
                                  ------         ------         ------

Total revenue                   $142,121       $179,541       $174,901
                                ========       ========       ========

1997 Compared to 1996


During  1997,  the Company had total  revenue of $142.1  million,  a decrease of
$37.4  million  from the  previous  year.  Approximately  $17.5  million  of the
decrease is attributable to the loss of business (mostly service) resulting from
the  sale  of EADS  to  Kalamazoo.  Approximately  $7.2  million  was due to the
unfavorable  impact related to the strengthening  U.S. dollar when compared with
the same period in the prior year.  The  remainder was primarily due to a weaker
sales  performance in two of the Company's  western European  subsidiaries  when
compared to the previous year.

Gross profit  margins  during 1997 were 29.5%  compared with 30.9% for 1996. The
decrease  was  primarily  due to high  sales  volume of a low  margin  commodity
product in a Northern European  subsidiary,  a changing product mix toward lower
margin, non-company sourced product and competitive pricing pressures worldwide.

Included in non-operating income for 1997 is $6.2 million related to transaction
gains resulting from the strengthening  U.S. dollar against foreign  currencies,
as compared to a gain of $0.7 million for the prior year. These gains, caused by
the  strengthening  U.S. dollar against certain  foreign  currencies,  relate to
short  term  intercompany   notes  and  international   subsidiary  U.S.  dollar
denominated cash.

Operating   expenses   (research  and  development   plus  selling,   general  &
administrative)  during 1997 declined  30.9% or $16.8 million from 1996 to $37.5
million.  Approximately $6.6 million of the decrease is attributable to the sale
of EADS.  Approximately  $1.1 million related to the effect of the strengthening
U.S. dollar when compared with the same period a year ago, and the remainder due
to  cost  cutting  actions  undertaken  by the  Company.  The  Company  recorded
restructuring  charges  of $2.4  million  in 1997,  compared  with $0.3  million
recorded in the prior year.  Research and  development  expenses  decreased from
$2.7 million in 1996 to $2.1 million in 1997.  Management  expects  research and
development expenditures to remain relatively flat in 1998.

Non-operating  results for 1996 include a gain of $32.2 million from the sale of
the  Company's  European   Automotive  Dealer  Management  Systems  business  to
Kalamazoo  Computer Group,  plc. and a $0.7 million in foreign currency exchange
rate gains on certain of the  Company's  intercompany  payables and  receivables
offset by a $3.3 million legal settlement.

1996 Compared to 1995

Total revenue increased by 2.7% to $179.5 million in 1996 from $174.9 million in
1995. The increase was primarily  attributable to higher sales volume in certain
of the Company's European subsidiaries offset by a declining maintenance revenue
base in the European subsidiaries and a favorable impact of $2.2 million related
to the weakening U.S. dollar when compared with the same period of the previous
year.
<PAGE>

Included  in the  $1.0  million  operating  income  for  1996 is a $0.4  million
inventory  provision  and a $2.7 million  bonus accrual of which $2.1 million is
related  to  contractual  arrangements  with  three of the  Company's  executive
officers. The bonus is based upon the pre-tax profitability of the Company.

Gross  profit  margins  during  1996 were  30.9%  compared  with 32.9% for 1995.
Excluding the additional inventory provisions recorded in 1996, the gross profit
margins were 31.2%. The decrease was primarily due to the impact of a high sales
volume of a low margin commodity  product in a Northern European  subsidiary,  a
changing  product  mix toward  lower  margin,  non-company  sourced  product and
competitive pricing pressures worldwide.

Operating   expenses   (research  and  development   plus  selling,   general  &
administrative)  during 1996 declined  18.4% or $12.3 million from 1995 to $54.3
million.  The decline was a result of the continued  cost-cutting  actions taken
over 1996 and 1995  which  reduced  costs of  internal  operations  offset by an
unfavorable  impact of $0.5 million  related to the weakening  U.S.  dollar when
compared  with the same period a year ago.  Research  and  development  expenses
decreased from $4.3 million in 1995 to $2.7 million in 1996.  Management expects
research and development expenditures to remain relatively flat in 1997.

Non-operating  results for 1996 include a gain of $32.2 million from the sale of
the  Company's  European   Automotive  Dealer  Management  Systems  business  to
Kalamazoo  Computer Group,  plc. and a $0.7 million in foreign currency exchange
rate gains on certain of the  Company's  intercompany  payables and  receivables
offset  by a $3.3  million  legal  settlement.  Non-operating  results  for 1995
include the $1.7 million gain on the sale of vacant land in San Antonio,  Texas,
$1.0 million from the favorable settlement of two patent infringement  lawsuits,
and $1.5 million in foreign  exchange rate losses on the Company's  intercompany
payables and receivables.

     Cautionary  Statement  Regarding  Risks and  Uncertainties  That May Affect
Future Results

This Annual Report on Form 10-K contains  forward-looking  statements  about the
business,  financial condition and prospects of the Company.  The actual results
of  the  Company   could  differ   materially   from  those   indicated  by  the
forward-looking  statements because of various risks and uncertainties including
without  limitation  changes in product  demand,  the  availability of products,
changes in competition,  economic conditions,  new product development,  various
inventory  risks due to changes in market  conditions,  changes in tax and other
governmental  rules and regulations  applicable to the Company,  and other risks
indicated in the Company's filings with the Securities and Exchange  Commission.
These risks and  uncertainties are beyond the ability of the Company to control,
and in many cases, the Company cannot predict the risks and  uncertainties  that
could cause its actual results to differ  materially from those indicated by the
forward-looking  statements.  When used in this Annual Report on Form 10-K,  the
words "believes," "estimates," "plans," "expects," and "anticipates" and similar
expressions  as they relate to the  Company or its  management  are  intended to
identify forward- looking statements.


<PAGE>


ITEM 8.  Financial Statements and Supplementary Data.


              INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                                                    Page

Report of Ernst & Young LLP
     Independent Auditors                                            17

Consolidated Financial Statements

Consolidated Statements of Operations for the 
   fiscal years 1997, 1996 and 1995                                  18

Consolidated Balance Sheets 
   as of August 2, 1997 and July 27, 1996                            19

Consolidated Statements of Cash Flows for the 
   fiscal years 1997, 1996 and 1995                                  20

Consolidated Statements of Stockholders' Deficit  
   for the fiscal years 1997, 1996 and 1995                          21

Notes to Consolidated Financial Statements                           22

<PAGE>




REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS

The Board of Directors
Datapoint Corporation

We have  audited  the  accompanying  consolidated  balance  sheets of  Datapoint
Corporation  and  subsidiaries  (the  Company) as of August 2, 1997 and July 27,
1996  and the  related  consolidated  statements  of  operations,  stockholders'
deficit and cash flows for each of the three  fiscal  years in the period  ended
August 2, 1997. Our audits also included the financial statement schedule listed
in the index at Item 14(a).  These  financial  statements  and  schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of the
Company at August 2, 1997 and July 27, 1996 and the consolidated  results of its
operations  and its cash flows for each of the three  fiscal years in the period
ended  August  2,  1997  in  conformity  with  generally   accepted   accounting
principles.  Also, in our opinion the related financial statement schedule, when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therein.






                                                    Ernst & Young LLP

Dallas, Texas
October 3, 1997



<PAGE>


CONSOLIDATED STATEMENTS OF OPERATIONS
Datapoint  Corporation  and  Subsidiaries  Fiscal Years 1997,  1996 and 1995 
(In thousands, except share and per share data)
<TABLE>
<CAPTION>

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

Revenue:
Sales                                                                 $78,368        $98,876        $84,187
Service and other                                                      63,753         80,665         90,714

Total revenue                                                         142,121        179,541        174,901

Operating costs and expenses:
Cost of sales                                                          58,060         72,483         65,234
Cost of service and other                                              42,120         51,524         52,163
Research and development                                                2,146          2,661          4,303
Selling, general and administrative                                    35,337         51,593         62,220
Reorganization/restructuring costs                                      2,425            263          9,213
                                                                                                                                    
Total operating costs and expenses                                    140,088        178,524        193,133


Operating income (loss)                                                 2,033          1,017        (18,232)

Non-operating income (expense):
Interest expense                                                       (6,776)        (8,619)        (9,332)
Realized gain on sale of European based Auto Dealer Systems              --           32,200           --
Other, net                                                              5,924         (1,891)          (580)
                                                                                                                                   
Income (loss) before income taxes and extraordinary credit              1,181         22,707        (28,144)
Income taxes                                                                8          3,692            199
                                                                                                                                   
Income (loss) before extraordinary credit                               1,173         19,015        (28,343)

Extraordinary credit-debt extinguishment                                1,210            327           --
                                                                                                                                   

Net income (loss)                                                      $2,383        $19,342       $(28,343)
                                                                                                                                   
Net income (loss), less preferred stock dividends
paid or accumulated plus gain on exchange and retirement
of preferred stock                                                     $5,184        $17,457       $(30,158)
                                                                                                                                   

Net income (loss) per common share:
Before extraordinary credit and gain on exchange and retirement
of preferred stock                                                     $.25          $1.27         $(2.29)
Extraordinary credit-debt extinguishment                                .07            .03            --
                                                                                                                                   
Net income (loss)                                                      $.32          $1.30         $(2.29)
                                                                                                                                   

Net income per common share assuming full dilution:
  Before extraordinary credit                                           n/a          $1.11            n/a 
  Extraordinary credit-debt extinguishment                              n/a            .02            n/a
Net income                                                              n/a          $1.13            n/a

Average common shares outstanding:
Primary                                                            16,353,629     13,455,878     13,194,667
Assuming full dilution                                                  n/a       17,192,020          n/a

</TABLE>


See accompanying Notes to Consolidated Financial Statements.

<PAGE>


CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries  August 2, 1997 and July 27, 1996 
(In thousands, except share data)
<TABLE>
<CAPTION>
                                                                     1997         1996
------------------------------------------------------------------------------------------------
<S>                                                                 <C>         <C>    

Assets

Current assets:
Cash and cash equivalents                                           $15,490     $23,184
Restricted cash and cash equivalents                                    154         864
Accounts receivable, net of allowance for doubtful
accounts of $1,654 and $2,791, respectively                          22,731      38,735
Inventories                                                           3,962       3,726
Prepaid expenses and other current assets                             3,003       3,486
                                                                              
Total current assets                                                 45,340      69,995

Fixed assets, net                                                    11,764      14,625
Other assets, net                                                     5,284       9,198
                                                                              
                                                                    $62,388     $93,818
                                                                              

Liabilities and Stockholders' Deficit

Current liabilities:
Payables to banks                                                    $7,346      $9,831
Current maturities of long-term debt and
long-term debt subject to accelerated maturity                        1,271       3,114
Accounts payable                                                     12,209      20,280
Accrued expenses                                                     20,195      29,256
Deferred revenue                                                     11,386      11,642
Income taxes payable                                                  1,272       2,842
                                                                              
Total current liabilities                                            53,679      76,965

Long-term debt, exclusive of current maturities                      60,875      63,945
Other liabilities                                                    11,918       8,110

Commitments and contingencies

Stockholders' deficit:
Preferred stock of $1.00 par value. Shares authorized 
10,000,000; shares issued and outstanding 721,976 in
1997 and 1,868,071 in 1996 (aggregate liquidation 
preference, including dividends in arrears, $16,605 in 
1997 and $41,061 in 1996).                                              722       1,868
Common stock of $0.25 par value. Shares authorized 
40,000,000; shares issued 20,991,217, including
treasury shares of 3,203,102 in 1997 and 7,043,593 in 1996.           5,248       5,248
Other capital                                                       212,655     212,655
Pension liability adjustment                                         (4,488)       --
Foreign currency translation adjustment                               4,613      11,567
Retained deficit                                                   (276,202)   (248,226)
Treasury stock, at cost                                              (6,632)    (38,314)
                                                                              
Total stockholders' deficit                                          (64,084)   (55,202)
                                                                              
                                                                     $62,388    $93,818
                                                                               
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries Fiscal Years 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>

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

Cash flows from operating activities:
Net income (loss)                                           $2,383    $19,342   $(28,343)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization                                5,861      6,969      9,830
Proceeds from settlement of litigation                        --         --        5,540
Provision for losses (recoveries) on accounts receivable      (164)       170      2,147
Provision for fixed asset write-off                           --         --        1,895
Realized gain on sale of property                             --         --       (1,709)
Realized gain on sale of EADS                                 --      (32,200)      --
Gain on debt extinguishment                                 (1,210)      (327)      --
Deferred income taxes                                         (546)     1,420        (83)
Changes in assets and liabilities:
Decrease in receivables                                      5,792      1,467      4,111
(Increase) decrease in inventory                              (969)     5,436      8,885
Decrease in accounts payable and accrued expenses          (14,472)    (6,503)    (9,700)
Increase in other liabilities and deferred credits           5,496      2,482        614
Use of restricted funds held in trust                         --        3,018       --
Other, net                                                     449         21      1,221
                                                                                
Net cash provided from (used in) operating activities        2,620      1,295     (5,592)

Cash flows from investing activities:
Payments for fixed assets                                   (3,580)    (3,725)    (4,660)
Proceeds from the sale of EADS                                --       29,450       --
Proceeds from disposition of fixed assets                     --          278      7,948
Other, net                                                    (612)      (217)       699
                                                                                
Net cash provided from (used in) investing activities       (4,192)    25,786      3,987

Cash flows from financing activities:
Payments on borrowings                                     (18,272)   (44,963)   (33,149)
Proceeds from borrowings                                    13,799     31,383     31,840
Restricted cash for letters of credit                          710      1,685      1,763
Proceeds on sale of common stock                              --         --        2,536
                                                                                
Net cash provided from (used in) financing activities       (3,763)   (11,895)     2,990

Effect of foreign currency translation on cash              (2,359)      (495)       867
                                                                                
Net increase (decrease) in cash and cash equivalents        (7,694)    14,691      2,252
Cash and cash equivalents at beginning of year              23,184      8,493      6,241
                                                                                
Cash and cash equivalents at end of year                   $15,490    $23,184     $8,493
                                                                                

Cash payments for:
Interest                                                    $6,823     $8,625     $8,112
Income taxes (refunds), net                                    891        514       (152)
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

<PAGE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Datapoint Corporation and Subsidiaries Fiscal Years 1997, 1996, and 1995
(In thousands)                                                      
<TABLE>
<CAPTION>
                                                                    Foreign                                           
                                             $1.00                  Currency                 
                                   Common    Preferred   Paid In   Translation    Retained    Treasury
                                   Stock     Stock       Capital   Adjustment     Deficit      Stock       Other     Total
                               -----------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>        <C>       <C>         <C>         <C>          <C>           <C>      <C>

Balance at July 30, 1994           $5,248     $1,784    $212,599    $10,552     $(226,977)   $(53,967)     $-       $(50,761)
                                                                                                                  
Net loss                             --         --          --         --         (28,343)        --        -        (28,343)
Common Stock options exercised       --         --          --         --          (1,036)      1,292       --           256
Foreign currency
translation adjustment               --         --          --        2,452           --          --        --         2,452
Regulation S public filing           --         --          --         --          (4,029)      5,776       --         1,747
Consulting Compensation              --         --          --         --            (445)        594       --           149
Employment Separation                --         --          --         --            (814)      1,064       --           250
Executive Retirement Plan
contribution                         --           62          31       --             --          --        --            93
Common issued to 401(k) plan         --         --          --         --             (98)        139       --            41
                                                                                                              
                                                                                                              
Balance at July 29, 1995           $5,248     $1,846    $212,630    $13,004     $(261,742)   $(45,102)     $--      $(74,116)
                                                                                                           
Net income                           --         --          --         --          19,342        --         --        19,342
Foreign currency translation
adjustment                           --         --          --       (1,437)       --            --         --        (1,437)
Employment separation                --         --          --         --          (2,082)      2,413       --           331
Executive retirement
contribution                         --         --          --         --          (1,031)      1,238        --          207
Preferred Stock conversion           --          (28)       --         --            (439)        467        --          --
Common issued to 401(k) plan         --         --          --         --          (1,181)      1,366        --          185
Other                                --           50          25       --          (1,093)      1,304        --          286
                                                                                                                 
Balance at July 27, 1996           $5,248     $1,868    $212,655    $11,567     $(248,226)   $(38,314)      $--     $(55,202)
                                                                                                             
Net income                           --         --          --         --           2,383        --          --        2,383
Foreign currency translation
adjustment                           --         --          --       (6,954)       --            --          --       (6,954)
Pension liability adjustment         --         --          --         --          --            --        (4,488)    (4,488)
Preferred Stock conversion           --       (1,146)       --         --         (29,582)     30,728        --          --
Common issued to 401(k) plan         --         --          --         --            (213)        241        --           28
Other                                --         --          --         --            (564)        713        --          149
                                                                                                                  
Balance at August 2, 1997          $5,248       $722    $212,655     $4,613     $(276,202)    $(6,632)    $(4,488)  $(64,084)
                                                                                                                  
</TABLE>

See accompanying Notes to Consolidated Financial Statements.
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Datapoint  Corporation and  Subsidiaries 
August 2, 1997, July 27, 1996 and July 29, 1995 
(Dollars in thousands, except share data)

1.  Summary of Significant Accounting Policies

Liquidity

The Company believes its available cash, cash equivalents and funds generated by
operations   will  be  sufficient  to  provide  its  working  capital  and  cash
requirements for fiscal 1998. In addition,  management believes the Company will
be able to discharge its  obligations  in the long term with cash generated from
operations  and  other  sources  such as sale of  selected  assets  and  capital
transactions.

Fiscal Year

     The Company utilizes a 52-53 week fiscal year. References to 1997, 1996 and
1995 are for the fiscal years ended  August 2, 1997,  July 27, 1996 and July 29,
1995.

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its wholly-owned subsidiaries.  Intercompany accounts and transactions have been
eliminated upon consolidation.

Cash and Cash Equivalents

Cash equivalents include short-term,  highly-liquid  investments with maturities
of three  months or less from date of  acquisition  and as a result the carrying
value   approximates   fair  value  because  of  the  short  maturity  of  those
instruments.

Inventories

Inventories  are stated at the lower of standard  cost  (approximates  first-in,
first-out) or market  (replacement  cost as to raw materials and net  realizable
value as to work in process and finished products).

Fixed Assets

Fixed assets are carried at cost and  depreciated  for financial  purposes using
straight-line  and  accelerated  methods at rates based on the economic lives of
the assets, which are generally as follows:

        Buildings and land improvements                  5-30 years
        Machinery, equipment, furniture and fixtures     3-10 years
        Equipment leased to customers                       4 years
        Field support spares                                3 years

Major improvements that add to the productive  capacity or extend the life of an
asset are  capitalized  while repairs and  maintenance are charged to expense as
incurred.

In  March  1995,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement No. 121,  "Accounting for the Impairment of Long-Lived  Assets and for
Long-Lived  Assets to Be Disposed Of",  which requires  impairment  losses to be
recognized  for  long-lived   assets  used  in  operations  when  indicators  of
impairment  are present and the  undiscounted  cash flows are not  sufficient to
recover  the  assets'  carrying  amount.  The  impairment  loss is  measured  by
comparing  the fair  value of the  asset to its  carrying  amount.  The  Company
adopted  Statement No. 121 in the first quarter of 1997. The adoption of the new
impairment  rules  did not have a  material  impact on the  Company's  financial
statements.

<PAGE>


Debt

The carrying  amount and the fair value of the Company's  debt at August 2, 1997
are:

                                                   Carrying              Fair
                                                    Amount               Value
 8-7/8% convertible subordinated debentures         $60,783            $41,332

The fair value of the Company's 8-7/8%  convertible  subordinated  debentures is
based on a quoted market price at August 1, 1997.

Translation of Foreign Currencies

Management has determined that all of the Company's foreign subsidiaries operate
primarily  in  local   currencies.   All  assets  and   liabilities  of  foreign
subsidiaries are translated into U.S. dollars using the exchange rate prevailing
at the balance sheet date,  while income and expense  accounts are translated at
average exchange rates during the year.

Reclassifications

Certain  reclassifications to the financial statements for prior years have been
made to conform to the 1997 presentation.

Revenue Recognition

Revenue is recognized in accordance with the following criteria:

    o    Sales revenue is generally  recognized at the time of shipment provided
         that  there  are  no  significant  vendor  and  post-contract   support
         obligations  and  that  collections  of the  resulting  receivable  are
         probable.  If such obligations are present in the contract,  revenue is
         not recognized until such time as the contractual obligations are met.
    o    Software  revenue is recognized when the program is shipped,  or as the
         monthly  license  fees  accrue,  or  over  the  terms  of  the  support
         agreement.
    o    Service  revenue is  recognized  ratably over a  contractual  period
         or as services are provided. 
    o    Lease revenue is recognized on the operating method ratably over the
         term of the lease.

Income Taxes

The provision for income taxes is reduced by investment  tax credits,  which are
recognized  in the year the  assets  giving  rise to the  credits  are placed in
service  (flow-through  method) or when  realized  for income tax  purposes,  if
later.

No tax  provision  has  been  made for the  undistributed  earnings  of  foreign
subsidiaries as management expects these earnings to be reinvested  indefinitely
or received substantially free of additional tax.


Net Income (Loss) per Common Share

Net income  (loss) per common share is based on the weighted  average  number of
common shares outstanding during each year presented. The Company's common stock
equivalents,  which include  convertible  debt,  were  antidilutive in each year
presented and therefore, were excluded from the computations. The 1997, 1996 and
1995  computations  include  the  effect of  dividends  paid or  accumulated  on
preferred  stock  of  $1,009,  $1,885,  and  $1,815,  respectively.   For  1996,
convertible  preferred stock has been included in the fully diluted calculation.
The  convertible  preferred  stock was  antidilutive  for 1997,  and  therefore,
excluded from the fully diluted  calculation.  The FASB has recently issued SFAS
No. 128,  "Earnings per Share".  The Company will adopt this new standard at the
beginning  of fiscal  year 1998 and will not have a material  impact on earnings
per share.

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 amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.

<PAGE>


2.  Reorganization/Restructuring Costs
                                        

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

Employee termination costs               $2,425          $251       $6,842
Lease termination costs                      --            --          296
Asset write-offs                             --            12        2,075
--------------------------------------------------------------------------
                                         $2,425          $263       $9,213
==========================================================================

The Company's 1997,  1996, and 1995  restructuring  charges  primarily have been
driven by  management's  efforts to implement cost cutting  measures in light of
its overall plan to return to profitability.  In addition, continued competitive
pressures  in the  Company's  industry  and a slowdown of  customer  orders have
influenced the level of restructuring charges. Employee termination costs during
1997 relate to forty terminated employees at several European  subsidiaries.  At
August 2, 1997, accrued but unpaid restructuring costs were $508.

Restructuring  charges are not recorded until specific  employees are determined
(and notified of  termination)  by  management  in  accordance  with its overall
restructuring plan. Employee  termination payments are generally paid out over a
period of time rather than as one lump sum.  Although a  reasonable  estimate of
the amount of future  termination costs cannot be made at this time,  management
expects to incur additional charges for terminations.

3.  Non-operating Income (Expense)   
                                        1997          1996         1995
-----------------------------------------------------------------------
Interest earned                         $526          $421         $959
Foreign currency gains (losses)        6,195           728       (1,480)
Realized gain on sale of property         --            --        1,709
Litigation settlements                    --        (2,945)       1,000
Other                                   (797)          (95)      (2,768)
------------------------------------------------------------------------
                                      $5,924       $(1,891)       $(580)
========================================================================

Included in  non-operating  income for fiscal year 1997, is $6.2 million related
to  transaction  gains  resulting  from the  strengthening  U.S.  dollar against
foreign currencies, as compared to a gain of $0.7 million during the same period
a year ago.  These  gains on short  term  intercompany  notes and  international
subsidiary U.S. dollar  denominated cash are offset by a translation  adjustment
to  Stockholders'   Equity  and  therefore  have  no  impact  on  the  Company's
consolidated financial position.


<PAGE>


4.  Income Taxes

The provision for taxes consisted of the following:


                                              1997         1996         1995
--------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary credit:
    U.S.                                    $(3,262)       $(771)    $(22,305)
    Outside the U.S.                          4,443       23,478       (5,839)
--------------------------------------------------------------------------------
                                             $1,181      $22,707     $(28,144)
================================================================================

Provision for income taxes:
    U.S. federal:
    Current                                     $--           $6          $53

    Outside the U.S.:
    Current                                     554        2,266          229
    Deferred                                   (546)       1,420          (83)
--------------------------------------------------------------------------------
                                                  8        3,686          146
--------------------------------------------------------------------------------
Total provision                                  $8       $3,692         $199
================================================================================

     The differences  between the tax provision in the financial  statements and
the tax benefit computed at the U.S. federal statutory rates are:

                                                    1997       1996      1995
-----------------------------------------------------------------------------
Income taxes (tax benefits) at statutory rate       $413     $7,947   $(9,850)
Increase in taxes resulting from:
Benefit of U.S. tax loss not recognized            1,137        262     7,791
Foreign losses and other transactions on which
 a tax benefit could not be recognized                14        573     1,952
Effect of foreign tax refunds and U.S. tax
 associated with dividends paid                       --          6        53
Effect of federal tax rate less than 
 (greater than) foreign tax rates                    152       (539)      364
Benefit of operating loss carryforwards           (1,713)    (4,566)     (127)
Other, net                                             5          9        16
-----------------------------------------------------------------------------
Provision for income taxes                            $8     $3,692      $199
=============================================================================

The undistributed  earnings,  indefinitely reinvested in international business,
of the Company's foreign subsidiaries aggregated approximately $31,000 at August
2, 1997.  Determination of the amount of unrecognized  deferred tax liability on
these unremitted earnings is not practicable.


<PAGE>


The primary  components  of deferred  income tax assets and  liabilities  are as
follows:

                                                          1997         1996
Deferred income tax assets:
   Property, plant and equipment                        $3,848       $7,794
   Loss and credit carryforwards                        72,035       71,519
   Accrued restructuring costs                             178          335
   Other                                                 6,328        8,956
---------------------------------------------------------------------------
                                                        82,389       88,604
Less:  valuation allowance                              78,971       86,411
---------------------------------------------------------------------------
                                                         3,418        2,193
Deferred income tax liabilities:
   Accrued retirement costs                               (441)      (1,930)
   Foreign exchange gains                                 (578)          --
   Other                                                  (672)      (1,144)
---------------------------------------------------------------------------
                                                        (1,691)      (3,074)
Net deferred income tax asset (liability)               $1,727        $(881)
============================================================================

At August 2, 1997, the net deferred  income tax asset of $1,727 was presented in
the balance sheet,  based on tax jurisdiction,  as deferred income tax assets of
$3,418  and  deferred  income tax  liabilities  of  $1,691.  Realization  of the
Company's  deferred  tax assets is dependent on  generating  sufficient  taxable
income in  certain  taxing  jurisdictions  prior to the  expiration  of loss and
credit  carryforwards.  Management  believes that more likely than not,  certain
deferred  tax  assets  will not be fully  realized  in the near  future  and has
therefore  provided a  valuation  allowance  to reserve for those  deferred  tax
assets not considered realizable.

At  August  2,  1997,   the  Company  had  tax  operating   loss   carryforwards
approximating  $176,000  and $20,000  for  federal  and  foreign  tax  purposes,
respectively,   expiring  in  various  amounts   beginning  in  2001  and  1997,
respectively.  Federal long-term capital loss  carryforwards of $1,500 expire in
various amounts  beginning in 1998.  Utilization of the ordinary and capital tax
loss  carryforwards  is  subject to  limitation  in the event of a more than 50%
change in ownership of the Company.

The Company had unused investment, research, and alternative minimum tax credits
for income tax purposes at August 2, 1997 of  approximately  $3,300  expiring at
various dates through 2001 which may be used to offset future tax liabilities of
the Company.  Utilization of these credits is subject to limitation in the event
of a more than 50% change in ownership of the Company.

5.  Inventories
                                                 1997         1996

Finished and purchased products                $2,742       $2,606
Work in process                                 1,077          389
Raw materials                                     143          731
------------------------------------------------------------------
                                               $3,962       $3,726


<PAGE>


6.  Fixed Assets
                                                          Accumulated  
                                                 Cost    Depreciation      Net

August 2, 1997 
Property, plant and equipment:
Buildings and land improvements                $15,050      $10,799      $4,251
Machinery, equipment, furniture and fixtures    34,417       29,766       4,651
Land                                             1,237           --       1,237
--------------------------------------------------------------------------------
                                                50,704       40,565      10,139
Field support spares                            12,626       11,001       1,625
Equipment leased to customers                    3,243        3,243          --
--------------------------------------------------------------------------------
                                               $66,573      $54,809     $11,764
================================================================================

July 27, 1996 
Property, plant and equipment:
Buildings and land improvements                $17,093      $12,598      $4,495
Machinery, equipment, furniture and fixtures    91,553       84,946       6,607
Land                                             1,414           --       1,414
--------------------------------------------------------------------------------
                                               110,060       97,544      12,516
Field support spares                            14,161       12,238       1,923
Equipment leased to customers                    5,125        4,939         186
--------------------------------------------------------------------------------
                                              $129,346     $114,721     $14,625
================================================================================

During  fiscal  year  1997,  the  Company  disposed  of  fully  depreciated  and
non-utilized fixed assets with an approximate cost and accumulated  depreciation
of $62.5 million.

Subsequent  to year end,  the Company  entered into a contract to sell the three
buildings  it owns in San  Antonio,  Texas to a private  unaffiliated  group for
approximately $3.1 million (net of mortgage  obligations and closing costs). The
sales contract provides for the leaseback by the Company of one of the buildings
(approximately  40,000 square feet) for an initial lease term of five years. The
sale of the buildings closed on October 27, 1997.

7.  Lease Commitments

The Company  leases  certain  facilities  and equipment  under  various  leases.
Substantially  all of the leases are  classified  as  operating  leases.  Rental
expense for operating  leases for 1997,  1996 and 1995 was $5,933,  $7,386,  and
$10,922,  respectively.  Most of the leases contain  renewal options for various
periods and require the Company to maintain the property. Certain leases contain
provisions  for  periodic  rate  adjustments  to reflect  Consumer  Price  Index
changes.

     At August 2, 1997, future minimum lease payments for  noncancelable  leases
totaled   $15,728  and  are  payable  as  follows:   1998-$3,661;   1999-$3,177;
2000-$2,530; 2001-$2,250; 2002-$2,131 and $1,979 thereafter.

8.  Payables to Bank

As of August 2, 1997, the Company had included in payables to banks an amount of
$3,662  payable to  International  Factors "De  Factorij"  B.V., a subsidiary of
ABN-AMRO Bank of the  Netherlands.  The loan is secured by the building that the
Company's Dutch subsidiary owns in the Netherlands,  and by certain  receivables
of the Company's U.K. and Dutch subsidiaries.

The weighted  average  interest rate for short term  borrowings as of the fiscal
year end was 7.7% , 9.0%, 10.1% for 1997, 1996, and 1995, respectively.

     The Company has available lines of credit from foreign banks to its foreign
subsidiaries. The unused lines of credit at August 2, 1997, totaled $2.6 million
after borrowings of $7.3 million.

<PAGE>




9.  Accrued Expenses
                                                        1997        1996
------------------------------------------------------------------------

Salaries, commissions, bonuses and other benefits     $7,528      $9,247
Taxes other than income taxes                          4,612      11,161
Reorganization/restructuring costs                       508         655
Other                                                  7,547       8,193
------------------------------------------------------------------------
                                                     $20,195     $29,256

10.  Long-Term Debt
                                                     1997            1996
-------------------------------------------------------------------------

8-7/8% convertible subordinated debentures        $60,783         $63,652
6.5% to 9.0% real estate notes                        294             530
Other obligations                                   1,069           2,877
-------------------------------------------------------------------------
                                                   62,146          67,059
Less: current maturities of long-term debt          1,271           3,114
-------------------------------------------------------------------------
                                                  $60,875         $63,945
=========================================================================

Interest  on  the  8-7/8%   convertible   subordinated   debentures  is  payable
semiannually on June 1 and December 1. The debentures are  subordinated in right
of payments to all senior  indebtedness,  as defined,  and are convertible  into
common  stock of the  Company at any time prior to the close of business on June
1, 2006, unless previously  redeemed.  Each one thousand dollar principal amount
debenture is convertible into 55.231 shares of common stock and, as of August 2,
1997, there were 3,357,106 shares reserved for possible issuance. The debentures
are entitled to a mandatory  sinking  fund,  which  commenced  June 1, 1991,  of
$5,000  annually.  The  Company,  at its option,  may  increase the sinking fund
payment to $10,000 and may also receive  credit against  mandatory  sinking fund
payments for debentures  acquired through means other than the sinking fund. The
Company  has  applied  $35,000 in  previous  debenture  retirements  against the
sinking fund  requirements  for 1991 through  1997.  The Company also intends to
apply previous  debenture  retirements of $4,217 through August 2, 1997, against
the sinking fund  requirements  for 1998. The debentures are also  redeemable at
the  option  of the  Company,  in whole  or in part,  at any time at 100% of the
principal  amount  together  with  accrued  interest to the date of  redemption.
During fiscal 1997, the Company  repurchased  debentures with a total face value
of $2,869,  resulting in an extraordinary gain of $1,210, with no related income
taxes.  Subsequent to August 2, 1997, the Company repurchased  debentures with a
face value of $875 resulting in extraordinary gains of $174.

During fiscal 1993,  the Company  settled a long standing  patent-related  legal
action brought  against it by NTI. The Company agreed to a ten-year note payable
to NTI which  required  annual $1,000  payments  beginning in December 1993. The
Company was also  contingently  obligated to make payments to NTI dependent upon
the Company's future  profitability.  During 1995 and 1994, the Company incurred
no  liability  to make such  contingent  payments  as a result of the net losses
incurred.  On June 25, 1996, the Company paid NTI $2.2 million  representing the
two deferred principal payments on the secured debt which were due December 1994
and  December  1995 and accrued and unpaid  interest.  Additionally,  on July 1,
1996, the Company entered into a prepayment agreement with NTI pursuant to which
the Company paid $5.05  million to NTI in full  satisfaction  of all amounts due
and to be due  under the note.  The  prepayment  agreement  fully  relieves  the
Company of its  obligation  to make  annual  $1.0  million  payments to NTI that
commenced in December 1993 and of which seven  payments  remained to be made, as
well as certain contingent payment obligations.

Aggregate scheduled maturities of long-term debt are as follows:  1998--$1,271;
1999--$5,875;  2000--$5,000; 2001--$5,000; 2002--$5,000, and $40,000 thereafter.


11.  Stockholders' Deficit

     Throughout 1997, the Company issued 29,042 shares from common stock held in
treasury to participants in the U.S. 401(k) retirement and savings plan.

     During 1997 fiscal year, the Board of Directors elected to make a corporate
contribution to the Datapoint Corporation Supplemental Executive Retirement Plan
of 92,500 shares of the Company's common stock.

The $1.00 preferred  stock has a liquidation  preference of $20.00 per share and
cumulative  dividends  of $1.00  annually.  On January  16,  1996,  the  Company
announced  that it was in arrears on its $1.00  preferred  stock in an aggregate
amount equal to six full quarterly dividends.  As a result, each holder of $1.00
preferred  stock has the right to  exchange  each such share  (inclusive  of all
accrued and unpaid  dividends)  into two shares of the  Company's  common stock.
Under  this  right of  exchange,  28,300  shares of $1.00  preferred  stock were
converted to 56,600 shares of common stock during 1996. In addition, as a result
of the dividend  arrearages  the number of directors  constituting  the Board of
Directors  of the Company was  increased  by two with the vote of the holders of
the  $1.00  preferred  stock  (not  including  those  who have  exchanged  $1.00
preferred  stock for the Company's  common stock).  These rights  continue until
such time as the  arrearages  have been paid in full.  Dividends  of $2,166  and
$3,700  were  accumulated  and  unpaid  at  August  2,  1997 and July 27,  1996,
respectively.
<PAGE>

During the second quarter of 1997, the Company accepted  1,145,945 shares of its
$1.00  Exchangeable  Preferred  Stock,  having a liquidation  preference $20 per
share ("the $1.00  Preferred  Stock"),  which was tendered in its exchange offer
(the "exchange offer") described in the proxy statement/prospectus  delivered to
the holders of the Company's common stock, par value $.25 per share (the "Common
Stock"),  and to the holders of $1.00  Preferred  Stock.  Under the terms of the
exchange  offer,  each share of $1.00 Preferred Stock tendered was exchanged for
3.25 shares of Common Stock.  The exchange offer expired  December 10, 1996. The
tendered shares  approximated  61.34% of the total  outstanding  shares of $1.00
Preferred Stock  immediately  prior to the expiration of the exchange offer. For
purposes of calculating net income applicable to common shareholders and related
per share amounts, a gain on exchange and retirement of preferred stock has been
added to net income or loss. This gain includes the excess of the carrying value
of preferred  stock  accepted in the exchange  over the fair value of the common
stock  issued.  In  addition,  the gain  includes  accumulated  dividends on the
retired preferred stock. The effect of this gain on income before  extraordinary
items per common share was approximately $.23 for the year ended August 2, 1997.


12.  Stock Option Plans

     At  August  2,  1997,  4,578,404  shares  were  reserved  for  issuance  in
connection with the Company's stock option plans. Total options  outstanding for
all plans total 2,205,971 with a weighted average exercise price of $2.10.

Under  the  Company's  employee  stock  option  plans,  officers  and  other key
employees  may be granted  options to purchase  common  stock and related  stock
appreciation  rights.  Under the terms of these plans, options may be granted at
no less than 75% of fair  market  value and  expire no later than ten years from
the date of  grant.  The  Board  may  grant  options  exercisable  in full or in
installments, and has generally granted options at fair market value exercisable
in two to four  installments  beginning  one year from the date of grant.  As of
August 2, 1997 and July 27,  1996,  options  for  833,671  and  593,387  shares,
respectively,   under  the  employee  plans  were   exercisable   and  no  stock
appreciation  rights had been granted.  Options outstanding as of August 2, 1997
have an average  exercise price of $2.16 and expire during the period  September
1997 through June 2007.


                                       Employee Stock Option Plans
                                  Price Range        Number of Shares
                                    of Shares        Under      Available
                                  under Option       Option     for Option
Outstanding at July 30, 1994       $1.38-8.00    1,284,873        757,664
-------------------------------------------------------------------------
Granted                             2.69-3.94      557,000       (557,000)
Exercised                           1.38-1.63     (156,666)            --
Canceled                            1.63-7.38     (243,215)       243,215
Expired                                    --           --        (18,049)
--------------------------------------------------------------------------
Outstanding at July 29, 1995       $1.38-8.00    1,441,992        425,830
-------------------------------------------------------------------------
Granted                             1.06-1.94      413,500       (413,500)
Canceled                            1.38-6.75     (667,321)       667,321
Expired                                    --           --       (109,418)
--------------------------------------------------------------------------
Outstanding at July 27, 1996       $1.06-8.00    1,188,171        570,233
-------------------------------------------------------------------------
Authorized                                 --           --      2,000,000
Granted                             $.94-1.44    1,022,800     (1,022,800)
Exercised                                1.38       (5,000)            --
-------------------------------------------------------------------------
Outstanding at August 2, 1997       $.94-8.00    2,205,971       1,547,433
==========================================================================

On December 10, 1996,  the  stockholders  approved a 1996 Director  Stock Option
Plan. The plan is similar to the Company's previous director stock option plans.
The 1996 Director  Plan provides for a one-time  grant of an option to purchase,
at fair market value as of the date of the grant,  25,000 shares of common stock
to each director,  and an additional  50,000 shares to the present and any newly
elected  Chairman of the Board.  A maximum of 500,000 shares of common stock are
reserved  for the  issuance  of grants  under the 1996  Director  Plan,  and the
options,  which vest immediately upon grant,  expire five years from the date of
grant.  Total  director  options  outstanding as of August 2, 1997 total 300,000
with a weighted  average  exercise  price of $1.65 and expire  during the period
December 1998 through June 2002.
<PAGE>

                                                   Director Stock Option Plans
                                   Price Range           Number of Shares
                                   of Shares            Under      Available
                                   Under Option        Option     for Option
Outstanding at July 30, 1994          $1.88-6.31      265,000        250,000
----------------------------------------------------------------------------
Canceled                                    2.50      (50,000)        50,000
----------------------------------------------------------------------------
Outstanding at July 29, 1995          $1.88-6.31      215,000        300,000
----------------------------------------------------------------------------
Expired                                     1.88      (25,000)            --
----------------------------------------------------------------------------
Outstanding at July 27, 1996          $2.50-6.31      190,000        300,000
----------------------------------------------------------------------------
Authorized                                    --           --        500,000
Granted                               $1.19-1.63      275,000       (275,000)
Expired                               $1.88-2.50     (165,000)            --
----------------------------------------------------------------------------
Outstanding at August 2, 1997         $1.19-6.31      300,000        525,000
============================================================================

     The  FASB  has  issued  Statement  No.  123,  "Accounting  for  Stock-Based
Compensation",  ("SFAS No. 123") which requires either recognition or disclosure
of a charge for the value of stock  options  granted.  The Company  adopted this
statement  in 1997 and has  elected  to  continue  to apply  the  provisions  of
Accounting  Principles  Board  Opinion No. 25 and make the footnote  disclosures
required by SFAS No. 123.

         Accordingly,  no  compensation  cost has been  recognized for the stock
option plans. Had  compensation  cost been determined based on the fair value of
the  options a the grant date for awards in 1997 and 1996,  consistent  with the
provisions  of SFAS No. 123, the  Company's  net earnings and earnings per share
would have been the pro forma amounts indicated below:

(In thousands, except per share amounts)
                                                     1997        1996

Net income   --  As reported                         $2,383     $19,342
             --  Pro forma                            2,046      19,265
Primary earnings per share -- As reported              $.32       $1.30
                           -- Pro forma                 .30        1.30

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

                                                     1997             1996

Risk-free interest rate
     Employee stock option                           6.20%             5.87%
     Board of director stock option                  6.23%
Expected dividend yield
     Employee stock option                           0                 0
     Board of director stock option                  0
Expected volatility
     Employee stock option                           .668             .668
     Board of director stock option                  .668
Expected lives
     Employee stock option                           6                 6
     Board of director stock option                  3
Weighted average remaining
   contractual life
     Employee stock option                          10                10
     Board of director stock option                  5

     The weighted  average fair value of options  granted for the employee stock
option plans in 1997 and 1996 was $.99 and $1.52, respectively and for the board
of  director  options  in 1997 was $1.23.  
<PAGE>

     Summarized  information  about stock  options  outstanding  as of August 2,
1997, is as follows:

Range of Exercise Prices            $0.94-$1.94     $2.69-$4.94    $5.25-$8.00
-------------------------------------------------------------------------------

Number of shares outstanding         1,658,300       503,671        344,000

Weighted average exercise price
 of shares outstanding               $1.12           $2.77          $5.81

Weighted average remaining
 contractual life                    8.1 years       8.3 years     5.6 years

Number of shares exercisable         412,500         377,171        344,000

Weighted average exercise
 price of shares exercisable         $1.30           $2.79          $5.81


13.  Information Relating to Business Segments and International Operations

Business Segment Information

The Company  operates  in one  industry  and is an  international  computer  and
communications systems marketer,  manufacturer and developer.  Additionally, the
Company  provides  maintenance  services on its  products  in the United  States
through a  non-exclusive  agreement  with  Decision  Servcom,  Inc.  ("DSI") and
services  its  products  outside the United  States  through  its  international
distributors and subsidiaries.


International Operations

The Company  conducts the majority of its  international  marketing  and service
operations  through its  subsidiaries  and, to a lesser extent,  through various
distributorship  arrangements.   For  products  manufactured  domestically,  the
Company's  policy is to transfer  such  products to and  between  affiliates  at
prices which reflect market  conditions.  Financial  information on a geographic
basis follows:

                                               1997         1996        1995
-------------------------------------------------------------------------------
Revenue - unaffiliated customers:
United States - domestic                      $5,426       $4,090      $7,122
              - export sales                   2,088        3,529       3,899
Europe                                       133,845      170,806     162,146
Other international                              762        1,116       1,734
-------------------------------------------------------------------------------
Total revenue from unaffiliated customers    142,121      179,541     174,901

Revenue - intercompany:
United States                                  2,450        4,572       6,390
Europe                                            81          105         427
Eliminations                                  (2,531)      (4,677)     (6,817)
 -------------------------------------------------------------------------------
Total consolidated revenue                  $142,121     $179,541    $174,901
===============================================================================



Operating income (loss):          
United States                               $(5,340)     $(11,671)   $(25,201)
Europe                                        7,153        11,832       7,661
Other international                             154           444        (979)
Eliminations                                     66           412         287
----------------------------------------------------------------------------
Total operating income (loss)                $2,033        $1,017    $(18,232)
=============================================================================
<PAGE>


Identifiable assets:               
United States                                $8,212       $16,471    $21,469
Europe                                       55,558        82,497     83,894
Other international                             253           239      1,116
Eliminations                                 (1,635)       (5,389)    (4,728)
--------------------------------------------------------------------------
Total identifiable assets                   $62,388       $93,818    $101,751
=========================================================================


14.  Retirement Income Plans

Retirement expenses incurred by the Company were as follows:

                                     1997         1996          1995
--------------------------------------------------------------------
U.S.:
  Matching contributions              $47          $55          $119

Outside the U.S.:
  Defined benefit plans             1,059        1,279           510
  Other plans                         730          970           675
--------------------------------------------------------------------
                                    1,789        2,249         1,185
--------------------------------------------------------------------

                                   $1,836       $2,304        $1,304
====================================================================

U.S. Plans

The Company adopted a 401(k) retirement and savings plan effective January 1988.
The plan covers all  full-time  employees who have been employed for at least 12
months.  The Company's  retirement and savings plan  contribution has been a 25%
matching  contribution  for employee  contributions  up to 5% of each employee's
compensation.  At the Board's  discretion,  the Company  may also  contribute  a
profit sharing amount to the plan that is contingent upon the performance  level
of the Company at the net income line.

The  Company  maintains a  Supplemental  Executive  Retirement  Plan for certain
executive  employees  selected by the Board of Directors.  The plan provides for
employee contributions of up to 10% of applicable compensation.  In addition, at
the Board's  discretion,  the Company may also make  contributions on an annual,
individual  basis,  allocated on a pro-rata  basis  according  to  participant's
applicable  compensation  up to a  maximum  contribution  of 15%  of  applicable
compensation  per employee.  During the fiscal years ended August 2, 1997,  July
27, 1996, and July 29, 1995,  the Company  approved the  contribution  of 92,500
shares of its common stock and 50,000 and 62,000 shares of its Preferred  Stock,
respectively,  to the plan for  credit  to the  accounts  of  various  executive
officers.  The shares of preferred  stock were  converted into 364,000 shares of
common stock on December 10, 1996, as a result of the exchange offer.  Under the
terms of the  plan,  benefits  accrue to the  various  executive  officers  upon
satisfaction  of the  plan's  vesting  criteria  which is based  upon  length of
employment with the Company.

Plans Outside the U.S.

Most of the Company's foreign subsidiaries provide retirement income plans which
conform to the practice of the country in which they do  business.  The types of
company-sponsored plans in use are defined benefit and defined contribution.

Five of the  Company's  subsidiaries,  including  the  United  Kingdom,  utilize
defined benefit plans with employee  benefits  generally being based on years of
service and wages near retirement.  The plans cover all full-time  employees who
have been  employed  for at least 12 months.  Obligations  under these plans are
funded  primarily  through fixed rate of return  investments,  mostly  insurance
policies, except for Germany where reserves are established for the obligations.
The United  Kingdom's  defined  benefit  plan was capped and was  converted to a
defined contribution plan in fiscal year 1993.

The  Company's  United  Kingdom  and  New  Zealand   subsidiaries  have  defined
contribution  plans. The plans cover all full-time  salaried  employees who have
been  employed  for at  least 12  months  and  contributions  are  based  upon a
percentage of  compensation.  Obligations  under this plan are funded  primarily
through deposits in pooled investments.

<PAGE>



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

Defined benefit plans:

 Service cost                          $417         $659          $998
 Interest cost                        2,255        2,219         1,931
 Actual return on assets             (2,950)      (2,508)         (887)
 Net amortization and deferral        1,337          909        (1,532)
 ----------------------------------------------------------------------

Net pension cost                     $1,059       $1,279          $510
======================================================================

The funded plan status at August 2, 1997 and July 27, 1996 was:


                                             1997                  1996
                                      Over-     Under-      Over-    Under-
                                     funded     funded     funded    funded
Actuarial present value of:

Vested benefits                       --       $30,237    $22,533    $4,083

Accumulated benefit
obligations                           --       $30,244    $22,912    $4,202

Projected benefit
obligations                           --       $31,207    $23,861    $4,909

Plan assets at fair value             --       $24,786    $24,476    $1,180
                                                          
Plan assets in excess of
(less than) projected
benefit obligation                    --       (6,421)       615    (3,729)
Unrecognized past service cost        --          233         --        --
Unrecognized net (gain) loss          --        6,788      4,676    (1,635)
Unrecognized transition
net loss                              --          609        783        28
Minimum pension liability adjustment  --       (6,698)        --        --
                                                          
Prepaid (accrued) pension
cost                                  --      $(5,489)    $6,074   $(5,336)
                                                        

Unrecognized  gains and losses are amortized on a straight-line  basis over five
years.

Actuarial  assumptions  used to determine funded status for 1997 and 1996 varied
between  subsidiaries.  Discount  rates  used  to  determine  projected  benefit
obligations range from 4.5% to 7.6% in 1997 and from 5.0% to 9.0% in 1996. Rates
of increase in future  compensation  levels range from 3.0% to 3.5% in both 1997
and 1996. The long-term rates of return on plan  investments  range from 4.5% to
10.0% in 1997 and from 5.0% to 10.0% in 1996.


15.  Certain Relationships and Related Transactions

Director Agranoff is the Company's Vice President, General Counsel and Corporate
Secretary  , and a member  of the law firm  Pryor,  Cashman,  Sherman,  & Flynn.
During the fiscal years 1997, 1996, and 1995, Datapoint paid legal fees of $374,
$485,  and $51,  respectively,  to the law firm of Pryor,  Cashman,  Sherman,  &
Flynn, for legal services provided by attorneys other than Mr. Agranoff.

Director  Thomas  worked  from  August  1994  until  May 1,  1995,  as a special
consultant for which he received compensation of $0.5 (five hundred dollars) per
day payable in shares of common  stock plus  expenses.  Subsequently,  on May 5,
1995, in consideration of the additional work and  responsibilities he had taken
on for the Company as a special  consultant,  the Board of Directors  approved a
special compensation package for Director Thomas. From May 1, 1995, through July
31, 1995, he was paid at the rate of $0.5 (five hundred dollars) per day for his
services,  plus travel and housing expenses,  plus additional  compensation of a
flat  $2.0 (two  thousand  dollars)  per week for  expenses.  On July 31,  1995,
Director Thomas's  consulting contract was extended until December 31, 1995, and
then was to continue on a month-to-month  basis to July 31, 1996. On December 5,
1995,  Director Thomas was appointed to the position of Executive Vice President
and  Chief  Operating  Officer.  Director  Thomas  was also  entitled  under the
extended contract to participate in the Standard Health Benefit program until he
was appointed  Executive Vice  President and Chief  Operating  Officer.  At such
time, he converted to the Executive Health Benefit program.  During fiscal 1995,
the Board also  approved a one time special  issuance of 45,000 shares of common
stock of the Company to  Director  Thomas in  recognition  of his service to the
Company.  During the term Director  Thomas acted as a special  consultant he did
not accrue or receive  any  regular  Board or  committee  fees.  Mr.  Thomas was
promoted to  President  on June 12,  1997,  in addition to his position as Chief
Operating Officer.
<PAGE>

     Director  Ruffat had a consulting  agreement from January 1994 through June
1995 under which he received a monthly  compensation  of $10.  For 1996 and 1995
Director Ruffat was paid $50 and $80, respectively, for consulting services.

During fiscal 1997, the Company paid office rent and secretarial expenses of $73
to Canal  Capital  Corporation.  Chief  Executive  Officer  Edelman and Director
Agranoff are Canal  Capital  Corporation  board  members,  with Chief  Executive
Officer Edelman serving as Chairman of the Board.


16.  Commitments and Contingencies

From time to time, the Company is a defendant in lawsuits  generally  incidental
to its business.  The Company is not currently aware of any such suit,  which if
decided adversely to the Company, would result in a material liability.

In  1994,  the  Company  began  patent  infringement  lawsuits  against  several
defendants related to the Company's video conferencing patents and dual protocol
local area networking  patents.  In 1995, the Company negotiated two settlements
for an aggregate of $1.0 million and  negotiated  one  settlement in 1996 for an
undisclosed  amount.  Patent  infringement  suits against other  defendants  are
pending.  The aggregate amounts sought in these suits are substantial.  However,
no provision  has been made in the  accompanying  financial  statements  for any
possible  gains or cash infusions  resulting  from favorable  judgments in these
suits.

In  December  1994,  a lawsuit was brought  against  the Company  involving  the
earlier  sale of real  estate by the  Company.  In April 1996,  an adverse  jury
verdict was  rendered  against the  Company and two of its  executive  officers.
During the fourth quarter of 1996, a settlement was reached among the litigants.
As such, the District Court entered a Judgment Non Obstante Veredicto  (Judgment
Notwithstanding  the  Verdict)  that set aside the jury's  findings  against the
Company  and its two  executive  officers  and set aside all  damages.  The $3.3
million  settlement  avoided  considerable   expense,   including  the  business
disruption of a protracted appeal and legal process,  and had no material impact
on the Company's then current cash position.  The settlement included payment of
funds from a non-working  capital trust fund which were  otherwise not available
to the  Company,  issuance of a short term note,  and  issuance of shares of the
Company's common stock.


17.  Divestitures

On May 28, 1996, the Company  entered into an agreement with Kalamazoo  Computer
Group,  plc,  a public  limited  company  organized  under  the laws of  England
("Kalamazoo"),  providing for the sale by Datapoint to Kalamazoo of  Datapoint's
European based Automotive Dealer  Management  Systems business  ("EADS"),  other
than its United Kingdom operations, for a purchase price of $33.0 million.

As part of the agreement in connection  with the sale of the EADS business,  the
Company  agreed to continue to sell  hardware to Kalamazoo at various  discounts
from its normal  hardware  prices and to  continue to provide  hardware  service
maintenance  to Kalamazoo at a 15% discount from the Company's  normal  hardware
service  maintenance  prices.  The Company  transferred  to Kalamazoo all of its
employees who were dedicated to the EADS business.  The amounts below  represent
the  operations  of EADS sold to  Kalamazoo  plus the effect of discounts on the
continuing EADS business which are included in the  accompanying  1996 statement
of operations.
                                         1996

              Revenues                $17,028
              Costs and expenses       13,914


     ITEM 9. Changes in and  Disagreements  with  Accountants  on Accounting and
Financial Disclosure.

    Not Applicable.

<PAGE>

PART III

ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The names, ages, positions and offices with the Company of the current 
directors and executive officers of the Company are set forth below.
                                                                   Director/
                    Age as of                                       Officer
    Name          Aug. 2, 1997  Position                             Since

A. B. Edelman          57     Director-Chairman of the 
                              Board and Chief Executive Officer         1985
B. D. Thomas           46     President , Chief Operating Officer 
                              and Director                              1992
R. G. Conn             61     Vice President and 
                              Chief Financial Officer                   1997
P. P. Krumb            55     Vice President, Special Assistant 
                              to the Chairman and Director              1994
G. N. Agranoff         50     Vice President, General Counsel, 
                              Corporate Secretary and Director          1994
I. J. Garfinkel        60     Director                                  1991
D. R. Kail             62     Director                                  1985
C. F. Robinson         51     Director                                  1996
D. M. M. Ruffat        61     Director                                  1993
R. D. Summer           64     Director                                  1996
R. Edmonds             52     Vice President, Technical Services        1996
W. Gevers              60     Vice President, OSN                       1996
J. Perkins             49     Vice President, Development               1996

    The  principal  occupations  and business  experience of each of the current
directors and executive officers of the Company are described below.

     ASHER B.  EDELMAN,  age 57,  joined  Datapoint's  Board of Directors as its
Chairman in March 1985,  and has served in that  capacity and as Chairman of its
Executive  Committee to the present date, and as Chief  Executive  Officer since
February  1993. Mr.  Edelman has served as General  Partner of Asco Partners,  a
general partner of Edelman  Securities Company L.P. since June 1984. Mr. Edelman
is a director,  Chairman of the Board and Chairman of the Executive Committee of
Canal  Capital  Corporation,  and is a General  Partner  and  Manager of various
investment partnerships and funds. The principal business address of Mr. Edelman
is 19 rue de la Croix-d'or, 1204 Geneva, Switzerland.

    BLAKE D. THOMAS,  age 46, is currently  the  President  and Chief  Operating
Officer of the Company. He is President of Blake D. Thomas,  Inc., a corporation
that until 1991  published  The Thomas  Report,  an  investment  newspaper  that
specialized  in  evaluating  stocks traded on the New York Stock  Exchange,  was
General Partner of Mainsail Limited  Partnership from 1990 until its dissolution
in  December  1992,  has been since 1990  General  Partner of  Foresail  Limited
Partnership, which is engaged in the business of investing in listed securities;
and has been since  November 1991  President of Symba,  Inc.,  which until April
1996 was the  General  Partner of Windward  Limited  Partnership.  Windward  was
engaged in the business of investing in listed  securities  and was dissolved in
April 1996. He has served as a director of Datapoint  since 1992. He also served
from August 1994 through December 1995 as a special  consultant for the Board on
Datapoint general  management and business affairs.  In December 1995 he assumed
the position of Chief Operating Officer and in 1997 was appointed President,  as
well. The principal  business address of Mr. Thomas is 4 rue d'Aguesseau  75008,
Paris, France.

    RONALD  G.  CONN,  age 61,  joined  Datapoint  as Vice  President  and Chief
Financial   Officer  in  June  1997.   Mr.  Conn  most  recently  was  with  the
architectural/engineering  firm of  Pellham-Phillips-Hagerman as chief executive
officer  for two years.  Prior to that,  he owned and  operated a wood  products
manufacturing and retail sales business for 18 years, and was general manager of
one of the most successful midwestern theme parks for seven years prior to that.
The principal  business address of Mr. Conn is 4 rue d'Aguesseau  75008,  Paris,
France.

     PHILLIP P. KRUMB, age 55, is currently Vice President and Special Assistant
to the Chairman.  In addition,  Mr. Krumb is the Company's Principal  Accounting
Officer until  November 1, 1997.  Mr. Krumb joined the Company in September 1994
and was Vice President and Chief  Financial  Officer from September 1994 to June
1997.  Prior to joining the Company he was employed by IOMEGA  Corporation for 7
years as  Senior  Vice  President  Finance  and  Chief  Financial  Officer.  The
principal  business  address of Mr. Krumb is 8410 Datapoint  Drive, San Antonio,
Texas 78229-8500.

<PAGE>

     GERALD N. AGRANOFF,  age 50, is currently Vice  President,  General Counsel
and Corporate Secretary of Datapoint. Mr. Agranoff has been a General Partner of
Edelman Securities Company L.P. (formerly  Arbitrage  Securities  Company) Plaza
Securities  Company for more than five years. Mr. Agranoff is a director of Bull
Run Corporation, Atlantic Gulf Communities, The American Energy Group, Ltd., and
Canal Capital  Corporation.  Mr.  Agranoff has also been the General  Counsel to
Edelman  Securities Company L.P. and Plaza Securities Company for more than five
years.  The principal  business address of Mr. Agranoff is 8410 Datapoint Drive,
San Antonio, Texas 78229-8500.

    IRVING J. GARFINKEL,  age 60, has been a General Partner of Asco Partners, a
general  partner  of  Edelman  Securities   Company  L.P.  (formerly   Arbitrage
Securities  Company)  for more than five years.  Mr.  Garfinkel  also has been a
General  Partner and  controller of Plaza  Securities  Company for more than the
past five years.  He has served as a director of  Datapoint  since 1991,  and is
Chairman of the Audit Committee and serves on the  Compensation  Committee.  The
principal  business  address of Mr.  Garfinkel is 717 Fifth  Avenue,  4th Floor,
Suite 407, New York, New York 10022.

    DANIEL R. KAIL, age 62, has been Managing  Trustee of Management  Assistance
Inc. Liquidating Trust from January 1986 to December 31, 1996, and prior thereto
had been a director,  Executive Vice President and Chief Operating Officer since
October  1984 of  Management  Assistance  Inc.,  a  computer  manufacturing  and
servicing company.  He also was a director and Executive Vice President of Canal
Capital  Corporation  from 1987  until  1991.  He has  served as a  director  of
Datapoint  since  1985 and is  Chairman  of the  Independent  Committee  and the
Compensation  Committee  and a member  of the  Audit  Committee.  The  principal
business address of Mr. Kail is 105 North Avenue, Westport, Connecticut 06880.

    CHARLES F.  ROBINSON,  age 51, has been  General  Partner of  Anglo-American
Financial   since  its   inception  in  1979.   He  is  a  Director  and  Senior
Vice-President   of  Anglo-American   Investor  Services  Corp.   Anglo-American
Financial  was one of the first  market  makers in stripped  bonds.  Through its
subsidiaries Anglo-American Financial has also acted as an options broker on the
London Stock Exchange,  an SEC registered  Investment  Advisor,  and an NASD and
SIPC broker-dealer selling fixed-income securities to financial institutions and
individuals.  He was a Chartered Accountant with Arthur Young in London where he
was responsible for developing the firm's  computer  auditing  procedures in the
United  Kingdom.  Mr.  Robinson  obtained  a Senior  Optima  in  mathematics  at
Cambridge  University and is a Fellow of the Institute of Chartered  Accountants
in  England  and Wales.  The  principal  business  address  of Mr.  Robinson  is
FSI/Anglo-American  Financial,  675  Berkmar  Court,  Charlottesville,  Virginia
22901.

    DIDIER M. M.  RUFFAT,  age 61, is  currently  the Vice  President of Digital
Equipment Europe and the Managing  Director of Digital  Equipment France. He has
served for 25 years in various  capacities  with France's  BULL computer  group,
most  recently as President  and Chief  Executive  Officer of BULL  Europe,  and
previously in senior executive positions in sales, marketing and finance. He has
served as a director of  Datapoint  since  December  1993 and is a member of the
Compensation Committee. The principal business address of Mr. Ruffat is 8 rue de
la Renaissance 92187, Antony Cedex, France.

    ROBERT D. SUMMER, age 64, is currently President and Chief Executive Officer
of  Dimensional  Media  Associates,  Inc.  ("DMA").  Mr. Summer joined DMA after
holding a series of high level positions in the music industry. As President and
Chief Executive  Officer,  he guides DMA's transition from invention and product
development to full  operations,  including the rollout of consumer,  commercial
and medical products.  The company markets proprietary 3D optical  technologies.
Before joining DMA in 1995, Mr. Summer served as Executive Vice President,  Sony
Music Entertainment;  and concurrently as President, Sony Entertainment European
Community  Affairs,   representing  the  corporation's   software  interests  to
international  government groups. He joined CBS Records International in 1986 as
President and continued in that position  through the company's  acquisition  by
Sony in 1988.  Mr. Summer joined CBS Records after nearly three decades with RCA
Records, where he served in key executive posts including President,  RCA/Ariola
(now BMG);  President,  RCA  Records;  Vice  President,  RCA Records  USA;  Vice
President, RCA Records International; and President, RCA Red Seal, the company's
classical  music  division.  Mr.  Summer has served as Chairman of the Recording
Industry  Association  of American  (RIAA) and Vice  President and member of The
Board of Directors of the International  Federation of the Phonographic Industry
(IFPI) where he served a as key  negotiator  for the  industry.  He received his
bachelor's  degree in engineering  from Carnegie Mellon  University in 1955. The
principal business address of Mr. Summer is Dimensional Media Associates,  Inc.,
22 West 19th Street, New York, New York 10011.

     ROGER EDMONDS,  age 52, was promoted to Vice President,  Technical Services
in February 1996. Mr. Edmonds joined the Company's United Kingdom  subsidiary in
1972 as Project Leader,  and has held various  management  positions  within the
Company.   Mr.  Edmonds  is  also  currently  Technical  Director  of  the  U.K.
subsidiary.  The principal  business  address of Mr. Edmonds is Datapoint House,
400 North Circular Road, London NW10 0JG.

<PAGE>


    WALTER GEVERS,  age 60, was promoted to Vice  President,  OSN in March 1996.
Mr. Gevers joined the Company as Managing Director, Datapoint Belgium in January
1983. Prior to joining the Company, Mr. Gevers was employed by SAIT Electronics,
Datapoint's  distributor in Belgium,  for nineteen  years as Sales Manager.  The
principal business address of Mr. Gevers is rue de la Fusee 100, 1130 Bruxelles,
Belgium.

     JOHN R.  PERKINS,  age 49, was promoted to Vice  President,  Development  &
Production in May 1996. Mr. Perkins joined the Company as Director,  Engineering
in 1981.  Prior to joining the  Company,  Mr.  Perkins  was  employed by General
Electric  Information Services Company as Market Planner. The principal business
address of Mr. Perkins is 8410 Datapoint Drive, San Antonio, Texas 78229-8500.

    There are no family  relationships  between any of the executive officers of
the Company.


Audit, Compensation and Executive Committees

     The Company has Audit,  Compensation and Executive  Committees of the Board
of  Directors.  The Company  does not have a Nominating  Committee.  The current
members of the Audit  Committee are Irving J.  Garfinkel  (Chairman),  Daniel R.
Kail and Charles F. Robinson.  The current members of the Compensation Committee
are Daniel R. Kail  (Chairman),  Didier M. M. Ruffat,  Irving J.  Garfinkel  and
Robert D. Summer.  The members of the  Executive  Committee are Asher B. Edelman
(Chairman) and Blake D. Thomas.

The  Audit  Committee  annually   recommends  to  the  Board  of  Directors  the
independent  auditors for the Company and its  subsidiaries.  They meet with the
independent  auditors concerning the audit;  evaluate non-audit services and the
financial  statements and accounting  developments  that may affect the Company;
meet with  management  concerning  matters  similar to those  discussed with the
outside auditors; and make reports and recommendations to the Board of Directors
and the Company's  management and  independent  auditors from time to time as it
deems appropriate. The Committee met 5 times during the fiscal year ended August
2, 1997.

The  Compensation  Committee  makes  salary  recommendations   regarding  senior
management to the Board of Directors  and  administers  the Company's  Bonus and
Stock  Option Plan as  described  below.  The  Committee  met 2 times during the
fiscal year ended August 2, 1997.


Independent Committee

In connection  with the  aforementioned  Exchange  Offer,  the Board created the
Independent  Committee,  consisting of Director  Daniel R. Kail, to consider the
terms of the consideration to be offered in the Exchange Offer to the Holders of
Preferred  Stock.  The terms of the Exchange Offer were approved by the Board of
Directors  upon  the  recommendation  of the  Independent  Committee.  Upon  the
consummation of the Exchange Offer, the Independent Committee was dissolved.


Meetings of the Board of Directors and Committees

The Board of Directors  met 4 times during the fiscal year ended August 2, 1997.
Each director  attended at least 75% of the aggregate of (a) the total number of
meetings of the Board of  Directors  (held during the period of his service) and
(b) the total number of meetings held by all committees of the Board on which he
served (during the period that he served).


COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Datapoint  believes  that,  during the fiscal  year  ended  August 2, 1997,  its
officers and directors complied with all filing requirements under Section 16(a)
of the Securities  Exchange Act of 1934; except that executive  officers Messrs.
Edmonds, Gevers and Perkins failed to file Form 3 required by such Section.


<PAGE>


ITEM 11  EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS

Directors who are employees of Datapoint receive no additional  compensation for
serving on the Board of Directors or its committees. Each director who is not an
employee of  Datapoint  receives  fees as follows:  Each  non-employee  director
receives an annual fee of $15,000, payable in quarterly installments.  Executive
Committee  members receive an additional $5,000 annual fee.  Committee  Chairmen
receive an additional  $2,000 annual fee. Board members serving on more than one
committee receive an additional  $1,000 annual fee. Each  non-employee  director
also  receives  a fee of $750 for each  Board  meeting  attended,  $500 for each
committee   meeting  attended  and  $500  for  attendance  at  each  meeting  on
Datapoint's business other than a Board of Directors or committee meeting.  Each
non-employee director is, at Datapoint's expense, provided with $50,000 of group
term life insurance and $250,000  accidental death insurance.  Each non-employee
director  has the option to purchase,  at his own expense,  coverage for himself
and his dependents under Datapoint's group medical and dental insurance plan.

Datapoint  maintains a  retirement  plan and a  retirement  medical care plan to
cover  non-employee  Board members.  Both plans presently are purely contractual
rather than funded,  and are  self-insured  except that retirees are required to
participate  in  Medicare  parts A and B. The  retirement  plan  provides  for a
maximum  annual benefit equal to a director's  annual  retainer in effect on the
date of retirement.  A partial  benefit will be paid to directors with less than
five years'  service,  and a full benefit will be paid to directors with five or
more years of service.  The benefit will be payable for the greater of ten years
or life,  and in the event a retiree  should die within ten years of retirement,
the remaining  benefit will be paid to his estate.  The retirement  medical care
plan affords  non-employee  directors,  upon  retirement,  benefits and premiums
equivalent  to COBRA  coverage  available  to certain  former  employees  and/or
dependents under  Datapoint's  group medical plan. Only directors elected to the
Board prior to March 25,  1996 are  eligible to  participate  in the  retirement
plan.

Director Thomas worked from August 1994 until May 1 1995 as a special consultant
for which he received  compensation  of $500 per day payable in shares of common
stock plus  expenses.  Subsequently,  on May 5, 1995,  in  consideration  of the
additional  work  and  responsibilities  he had  taken on for the  Company  as a
special  consultant,  the Board of  Directors  approved  a special  compensation
package for Director  Thomas.  From May 1, 1995,  through July 31, 1995,  he was
paid at the rate of $500  per day for his  services,  plus  travel  and  housing
expenses,  plus additional  compensation of a flat $2,000 per week for expenses.
On July 31, 1995,  Director  Thomas's  consulting  contract  was extended  until
December 31, 1995 and then was to continue on a month-to-month basis to July 31,
1996.  Upon the  resignation  of Doris Bencsik as President and Chief  Operating
Officer,  Director  Thomas was  appointed on December 5, 1995 to the position of
Executive Vice President and Chief Operating  Officer.  Director Thomas was also
entitled  under the extended  contract to  participate  in the  Standard  Health
Benefit  program  until he was  appointed  Executive  Vice  President  and Chief
Operating  Officer.  At such time, he converted to the Executive  Health Benefit
program. During fiscal 1995, the Board also approved a one time special issuance
of  45,000  shares  of  common  stock  of the  Company  to  Director  Thomas  in
recognition of his service to the Company. During the term Director Thomas acted
as a special  consultant  he did not  accrue or  receive  any  regular  Board or
committee  fees.  Mr.  Thomas was promoted to  President  on June 12,  1997,  in
addition to his position as Chief Operating Officer.

     Director  Ruffat had a consulting  agreement from January 1994 through June
1995 under which he  received a monthly  compensation  of $10,000.  For 1996 and
1995 Director Ruffat was paid $50,000 and $80,000,  respectively, for consulting
services.


EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE REPORT

Datapoint's  executive  compensation  program  is  based  on  three  fundamental
principles.

Datapoint must offer compensation  opportunities  sufficient to attract,  retain
and reward talented  executives who are  sufficiently  capable of addressing the
challenges of a worldwide business in a difficult industry.

Compensation  should  include a  substantial  component  of  pay-for-performance
sufficiently  related  to the  financial  results  of  the  Company  and/or  the
executive's  performance  to  financially  motivate the  executive's  efforts to
increase  stockholder value. This may cause individual  compensation  amounts to
change significantly from year to year.

Compensation  should  provide a direct link between the  long-term  interests of
executives  and  stockholders.  Through the use of stock-based  incentives,  the
Compensation  Committee  focuses the  attention  of  executives  on managing the
Company from the perspective of an owner with an equity stake.

<PAGE>

For executive  officers,  compensation now consists  primarily of base salary, a
short-term  performance  incentive  opportunity  in the form of a variable  cash
bonus based on either the financial  performance of the Company or of their area
of  responsibility,  and a  long-term  incentive  opportunity  provided by stock
options.

The committee also obtains ratification by the non-employee members of the Board
on most aspects of compensation and long-term incentives for executive officers.

The  remainder of this Report  reviews the annual and  long-term  components  of
Datapoint's executive compensation program, along with the decisions made by the
committee regarding fiscal year 1997 compensation for both the CEO and the other
named executive officers.

Total Annual Compensation

Annual cash compensation  consists of two components;  a fixed base salary and a
variable annual bonus  opportunity.  As an executive's  level of  responsibility
increases,  a larger  portion of total  annual pay is based on bonus and less on
salary. Mr. Agranoff was the only named executive who received a salary increase
during the past year,  and Mr.  Edelman's  salary was last increased in December
1990.  The  Committee  sets the base salary of executive  officers  based upon a
subjective  analysis of competitive  salaries of equally  qualified  executives,
occasionally   confirmed  by  reference  to  general   salary   surveys;   prior
compensation  of the  individual or of previous  holders of the position is also
considered.  Contractual  minimum base salaries are customarily  negotiated with
the executives.

The short-term  performance incentive bonus opportunity is established either as
a percentage,  unique for each individual,  of a numerical corporate performance
indicia, or as a target percentage of pay which is the amount that can be earned
based upon assigned  objectives being met.  Performance is measured as a percent
of attainment against these objectives.  When performance exceeds objectives, an
executive's  incentive pay can exceed the target rate,  and when it falls below,
as was the case in fiscal  years  1995 and  1994,  individual  incentive  pay is
reduced accordingly.

Messrs. Edelman's,  Thomas's,  Conn's, Agranoff's, and Krumb's bonuses are based
on a contractually  specified  percentage of Datapoint's pre-tax profits,  which
are defined as net pre-tax  earnings,  excluding  the excess over $10 million of
the net of any extraordinary gains, due to debt repurchase or exchange,  against
all  extraordinary  losses.  During fiscal year 1995,  the Company  incurred net
losses and  therefore  no  bonuses  were paid in 1995  under  these  contractual
arrangements.  For the fiscal year 1996,  an  aggregate  of  approximately  $2.1
million  were paid under  these  contractual  arrangements.  For the fiscal year
1997,  an  aggregate  of  approximately   $0.4  million  was  paid  under  these
contractual arrangements.

The  remainder of the named  executives  have been  assigned  bonus targets of a
percentage of their base salary upon 100%  achievement of  individualized  goals
and  objectives;  a  substantial  portion of which are related to the  financial
performance   of   corporate    functions    relevant   to   their    respective
responsibilities.

Long Term Incentives

The committee believes that stock options appropriately link executive interests
to the  enhancement  of  stockholder  value and utilizes  them as its  long-term
incentive  program;  no additional  long-term  incentive  programs are utilized.
Stock  options  generally  are  granted at fair  market  value as of the date of
grant,  become  exercisable  over three years, and have a term of ten years. The
stock options  provide value to the recipients  only when the price of Datapoint
stock increases above the option grant price.

In 1997, the committee granted stock options to executive  officers,  as well as
to other  executives and selected key employees.  In determining the size of the
grant for Mr. Edelman and other named executive officers, the committee assessed
the following factors: their potential by position and ability (i) to contribute
to the  creation of  long-term  stockholder  value;  (ii) to  contribute  to the
successful execution of Datapoint's product line broadening strategy;  and (iii)
to implement Datapoint's cost reduction  objectives;  (iv) their relative levels
of responsibility; and (v) the number of options they already held.

This report has been provided by the Compensation Committee.

Daniel R. Kail, Chairman
Irving J. Garfinkel
Didier M.M. Ruffat
Robert D. Summer

<PAGE>

Supplemental Executive Retirement Plan

The  Company  maintains a  Supplemental  Executive  Retirement  Plan for certain
executive  employees  selected by the Board of Directors.  The plan provides for
employee contributions of up to 10% of applicable compensation.  In addition, at
the Board's  discretion,  the Company may also make  contributions on an annual,
individual  basis,  allocated on a pro-rata  basis  according  to  participant's
applicable  compensation  up to a  maximum  contribution  of 15%  of  applicable
compensation  per employee.  During the fiscal years ended August 2, 1997,  July
27, 1996, and July 29, 1995,  the Company  approved the  contribution  of 92,500
shares of its common stock and 50,000 and 62,000 shares of its Preferred  Stock,
respectively,  to the plan for  credit  to the  accounts  of  various  executive
officers.  The 1997  contribution  of  92,500  shares of  common  stock  will be
transferred  to the plan in 1998.  The shares of preferred  stock were converted
into 364,000  shares of common  stock on December  10, 1996,  as a result of the
exchange  offer.  Under the terms of the plan,  benefits  accrue to the  various
executive  officers upon  satisfaction  of the plan's vesting  criteria which is
based upon length of employment with the Company.
<PAGE>



Summary Compensation Table

The  following  table  sets  forth  certain   information   regarding  all  cash
compensation  paid or accrued for services  rendered by the Company's  five most
highly compensated executive officers for the last three fiscal years.
<TABLE>
<CAPTION>


--------------------------------------------------------------------------------------------------------------------------------
                                                Annual Compensation                Long-Term
Name and                                                               Other       Compensation            All
Principal                    Fiscal                                   Annual       Stock Options          Other
Position                     Year      Salary         Bonus        Compensation    Granted(#(16)     Compensation
--------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>      <C>           <C>              <C>            <C>              <C>

Asher B. Edelman  (1)        1997     $300,534      $196,126(2)      $134,613(3)    60,000           $30,000(14)
Chairman of the Board and    1996      299,956      1,152,918(2)      148,752(3)    40,000            17,952(14)
Chief Executive Officer      1995      275,104(4)           0         180,781(3)         0            30,000(14)

Blake D. Thomas (5)          1997     $250,000       $117,676(2)      $56,178(3)    50,000               0
President and                1996      145,166(8)     691,751(2)           $0      100,000               0
Chief Operating Officer      1995          n/a            n/a             n/a          n/a               n/a

Phillip P. Krumb (6)         1997     $175,000        $39,225(2)       $8,768(7)    50,000            $3,500(14)
Vice President and           1996      175,000        230,584(2)        9,373(7)         0               0
Special Assistant to the     1995      141,346(8)      50,000(9)       57,094(10)   50,000               0
Chairman

Gerald N. Agranoff (11)      1997     $200,000        $78,450(2)       $7,200(13)   50,000            $4,000(14)
Vice President, General      1996      172,481        400,000(12)       7,200(13)        0               0
Counsel and Corp. Secretary  1995      125,192(8)           0           6,000(13)   50,000               0

Roger Edmonds (15)           1997     $136,735        $41,021(12)        --         25,000              --
Vice President,Technical     1996         --             --              --            --               --   
Services                     1995         --             --              --            --               --

</TABLE>

Table Footnotes
(1)   Asher B. Edelman was named Chief Executive Officer in February 1993.
(2)   Represents contractual bonus based on the Company's net pre-tax earnings.
(3)   Represents payments incident to foreign assignment.
(4) Effective in 1995, Mr.  Edelman agreed to a 10% salary  reduction as part of
the Company's cost reduction plan. 
(5) Blake D. Thomas commenced employment with the Company in December of fiscal
1996 as  Executive  Vice  President  and Chief Operating Officer. On June 12,
1997, he was promoted to President in addition to Chief  Operating  Officer.  
(6) Phillip P. Krumb  commenced  employment with the Company  in  September 
of fiscal  1995 as Vice  President  and Chief  Financial Officer.  On June 12,
1997,  the  Company  accepted  his  resignation  as Chief Financial  Officer, 
however, he remained a Vice President of the Company,  and Special  Assistant
to the  Chairman and was  appointed to the Board of Directors
(7) Represents auto allowance and company match of employee profit sharing plan.
(8) Amount  reflects  partial  year of  employment.  
(9) Represents  a one-time guaranteed bonus per terms of employment agreement.  
(10) Represents relocation, housing and auto allowance.  
(11) Gerald N. Agranoff  commenced  employment with the Company in October of 
fiscal  1995 as Vice  President,  General  Counsel and Corporate  Secretary.  
(12) Represents a performance bonus. 
(13) Represents auto allowance.  
(14)  Represents  vested  portion  of  the  Company's  common  stock
contributions to the Supplemental  Executive  Retirement Plan on behalf of named
employee.  
(15)  Mr.  Edmonds  in  previous  years  was not one of the top  five
compensated  officers of the Company.  
(16) Excludes options granted as a member of the Company's Board of Directors.
<PAGE>

Stock Option Grants in Last Fiscal Year (1)

The following  table sets forth certain  information  regarding all stock option
grants made to five of the Company's most highly compensated  executive officers
for the last fiscal year.
<TABLE>
<CAPTION>


                              -------------------------------------------------------------------------
                                                   Options Granted in Fiscal 1997
                                       %of Total
                                        Options                                    Potential Gain at Assumed
                        Number of      Granted to     Exercise                     Annual Rates of Stock Price
                         Options      Employees in     Price      Expiration     Appreciation for Option Term (3)
            Name       Granted (2)    Fiscal Year    Per Share       Date            5%           10%
----------------------------------------------------------------------------------------------------------------
<S>                       <C>              <C>          <C>        <C>            <C>             <C>

Asher B. Edelman          60,000           5.87%        0.9688     10/9/06        $36,556         $92,641
Blake D. Thomas           50,000           4.89%        0.9688     10/9/06        $30,464         $77,201
Phillip P. Krumb          50,000           4.89%        0.9688     10/9/06        $30,464         $77,201
Gerald N. Agranoff        50,000           4.89%        0.9688     10/9/06        $30,464         $77,201
Roger Edmonds             25,000           2.44%        0.9688     10/9/06        $15,232         $38,600
----------------------------------------------------------------------------------------------------------------

Gain for all stockholders at assumed annual rates of 
  stock price appreciation (4):                                                 $25,028,108   $63,426,084

</TABLE>

(1) No Stock Appreciation Rights (SARs) have ever been granted by Datapoint.
(2) Each grant becomes exercisable in three equal annual installments commencing
on the first anniversary date. The table excludes director options granted.  
(3) The dollar amounts under these columns are the result of  calculations at 
the 5% and 10% rates required by the SEC and, therefore, are not intended to 
forecast possible future appreciation, if any, of the stock price.
(4) These  amounts  represent  the increase in the market value of  Datapoint's
outstanding  shares (17.7 million) as of August 2, 1997,  that would result
from the same stock price assumptions used to show the potential realizable
value for the named executives.

     Aggregated  Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values

The  following  table sets forth  certain  information  regarding  stock options
exercised by the Company's five most highly  compensated  executive officers for
the last fiscal year.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR
END OPTION VALUES         
<TABLE>
<CAPTION>

                        Number of                                                         Value of Unexercised                     
                         Shares                      Number of Unexercised               In-the-Money Options
                      Acquired on     Value        Options at August 2, 1997              at August 2, 1997
     Name               Exercise     Realized    Exercisable      Unexercisable      Exercisable        Unexercisable
---------------------------------------------------------------------------------------------------------------------------
<S>                          <C>         <C>        <C>               <C>                <C>                 <C>

Asher B. Edelman             0           0          188,333            86,667            $89,688              $96,872
Blake D. Thomas              0           0           58,333           116,667            $66,146             $143,227
Phillip P. Krumb             0           0           58,333            66,667            $15,625              $64,060
Gerald N. Agranoff           0           0           58,333            66,667            $26,563              $64,060
Roger Edmonds                0           0           12,500            27,500                 $0              $32,030

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

</TABLE>


<PAGE>


Performance Graph

Set forth below is a line graph comparing the five-year  cumulative total return
for  Datapoint  common stock with the Dow Jones  65-Composite  Average,  a broad
equity market index, and the Dow Jones computer systems index, excluding IBM.

                  Comparison of Five-Year Cumulative Total Return
<TABLE>
<CAPTION>

 Year     Datapoint Common Stock        Dow Jones Computer         Dow Jones 65-Computer
                                      systems index (w/o IBM)      Composite average
           actual YE     Base YE      actual YE    Base YE          actual YE       Base YE
<S>          <C>          <C>           <C>         <C>             <C>              <C>

FY  97       2.25         94.74         971.17      452.87          2,538.86         179.52
FY  96       1.13         47.37         477.75      222.78          1,746.32         123.48
FY  95       1.50         63.16         460.48      214.73          1,577.65         111.55
FY  94       3.75         157.89        181.90       84.82          1,635.12         115.62
FY  93       7.00         294.74        148.27       69.14          1,609.55         113.81
FY  92       2.38         100.00        214.45      100.00          1,414.24         100.00

</TABLE>

The graph assumes $100 invested on August 1, 1992, in Datapoint common stock and
each of the Dow Jones indexes,  and that all dividends were  reinvested.  During
the five-year period Datapoint did not pay any dividends on its common stock.

EMPLOYMENT AGREEMENTS

Effective April 25, 1990,  Datapoint entered into a written employment agreement
memorializing an existing understanding concerning the employment of Mr. Edelman
as Chairman of the Board of Directors and the Executive  Committee of Datapoint.
The agreement, as amended, now provides for a base salary of $300,000, an annual
bonus  opportunity  of 5% of the Company's net pre-tax  earnings  (excluding the
excess  over  $10  million  of the net of any  extraordinary  gains  due to debt
repurchase or exchange against all extraordinary  losses) and payment of certain
of his expenses,  subject to  limitations,  including  expenses  relating to his
presence at Datapoint's European offices. The amended agreement further provides
for a lump-sum  payment of two years salary and benefits  plus one year of bonus
at plan should Mr. Edelman's  employment  involuntarily  terminate other than by
death or disability, or for "cause" as strictly defined therein.

Effective October 1, 1994, Datapoint entered into an agreement with Mr. Agranoff
providing for his employment as Vice  President,  General  Counsel and Corporate
Secretary.  This agreement,  as amended,  now provides for a minimum annual base
salary of  $200,000  an annual  bonus  opportunity  of 2% of the  Company's  net
pre-tax  earnings  (excluding  the  excess  over $10  million  of the net of any
extraordinary gains due to debt repurchase or exchange against all extraordinary
losses), certain executive benefits, and continuation of base salary payments of
up to $100,000,  plus any performance  bonus he may be entitled to, as well as a
continuation  of  benefits  for  six  months  should  Datapoint   terminate  his
employment other than for cause.


Effective December 5, 1995,  Datapoint entered into an agreement with Mr. Thomas
providing for his  employment as Executive  Vice  President and Chief  Operating
Officer at a minimum annual base salary of $250,000.  The agreement provides for
an  annual  bonus  opportunity  of 3% of  the  Company's  net  pre-tax  earnings
(excluding the excess over $10 million of the net of any extraordinary gains due
to debt  repurchase  or exchange  against  all  extraordinary  losses),  certain
executive benefits,  and continuation of base salary payments of up to $100,000,
plus any  performance  bonus he may be entitled to, as well as a continuation of
benefits for six months should Datapoint terminate his employment other than for
cause.  The agreement  also provides for expatriate  accommodations  incident to
foreign  assignment.  Mr.  Thomas was promoted to President on June 12, 1997, in
addition to his position as Chief Operating Officer.
<PAGE>

Effective  June 12, 1997,  Datapoint  entered  into an  agreement  with Mr. Conn
providing for his employment as Vice President and Chief Financial  Officer at a
minimum  annual base salary of $175,000.  The  agreement  provides for an annual
bonus  opportunity  of 1% of the Company's net pre-tax  earnings  (excluding the
excess  over  $10  million  of the net of any  extraordinary  gains  due to debt
repurchase or exchange  against all  extraordinary  losses),  certain  executive
benefits,  and continuation of base salary payments of up to $100,000,  plus any
performance  bonus he may be entitled to, as well as a continuation  of benefits
for six months should  Datapoint  terminate his employment other than for cause.
The agreement also provides for certain  relocation  accommodations and provides
for expatriate accommodations incident to foreign assignment.

Effective September 19, 1994, Datapoint entered into an agreement with Mr. Krumb
providing for his employment as Vice President and Chief Financial  Officer at a
minimum  annual base salary of $175,000.  The  agreement  provides for an annual
bonus  opportunity  of 1% of the Company's net pre-tax  earnings  (excluding the
excess  over  $10  million  of the net of any  extraordinary  gains  due to debt
repurchase or exchange  against all  extraordinary  losses),  certain  executive
benefits,  and continuation of base salary payments of up to $100,000,  plus any
performance  bonus he may be entitled to, as well as a continuation  of benefits
for six months should  Datapoint  terminate his employment other than for cause.
The agreement  also provided for certain  relocation  accommodations  which were
terminated at the end of 1995.  Effective  June 12, 1997,  Mr. Krumb resigned as
Chief  Financial  Officer,  but will remain a Vice  President  of the Company as
Special  Assistant to the Chairman.  Effective  November 8, 1997, Mr. Krumb will
have a minimum  annual base salary of $60,000.  The  agreement  provides  for an
annual  bonus  opportunity  equal  to  1/4 of 1% of the  Company's  net  pre-tax
earnings  (excluding the excess over $10 million of the net of any extraordinary
gains due to debt repurchase or exchange against all extraordinary  losses), and
certain executive benefits.



ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


     (a) Security  Ownership of Certain Beneficial Owners. The following persons
are known to the Company to be beneficial  owners of more than five percent (5%)
of the Company's securities as defined under Exchange Act Rule 13(d)(3).


                              Common Stock        Preferred Stock    
                              Beneficially        Beneficially       Percent
Name and Address              Owned               Owned              of Class

Asher B. Edelman (1)         (See Table under
c/o Datapoint Corporation    Security Ownership 
717 Fifth Avenue             of Management (1)
New York, NY 10222

Lloyd I. Miller (2)                                47,900 (2)        6.6% (2)

    (1) Mr.  Edelman is part of a "group" as that term is used in  Exchange  Act
Section  13(d)(3).  See subsection (b) below for detailed  description as to the
amount and nature of beneficial ownership by the members of the group.

    (2) Mr. Miller filed an original Schedule 13D on February 7, 1997, reporting
47,900  Preferred  shares,  28,600 of which are  owned by LIM,  Inc.,  a Florida
corporation  of which he is sole  shareholder,  and 19,300 of which are owned by
Trust C under a September  20, 1983 Amended and  Restated  Trust  Agreement  for
which Trust Mr.  Miller  serves as Investment  Advisor.  Mr.  Miller  reported a
percentage  ownership  of  7.53%,  but that  percentage,  based  upon  currently
outstanding Preferred shares of 721,976 as of October 17, is now 6.6%.

(b)  Security Ownership of Management

The following  table sets forth  certain  information  regarding the  beneficial
ownership of the Common Stock,  Preferred  Stock and  Convertible  Debentures by
each director,  by each of the executive officers named in the table, and by the
directors and executive officers as a group as of October 15, 1997.

<PAGE>
<TABLE>
<CAPTION>


                                                                                                   Convertible
                                    Common Stock                                Preferred Stock    Debentures
                                    Beneficially              Percent           Beneficially        Beneficially
 Name of Officer/Director           Owned (1)                 of Class(12)      Owned(2)            Owned(3)
------- ------------------           -----------------         ------------      ----------       -----------
 <S>                                <C>                        <C>                <C>               <C>          
 Gerald N. Agranoff (O&D)              91,667(4)(5)(7)            *                  - 0 -           - 0 -
 Ronald G. Conn (O)                          - 0 -                                   - 0 -           - 0 -
 Asher B. Edelman (O&D)             3,115,990(4)(5)(6)(12)     17.7%              14,200**          $141,000*
 Roger Edmonds (O)                        23,333(4)                *                 - 0 -           - 0 -
 Irving J. Garfinkel (D)                 25,000(4)(5)(7)           *                 - 0 -           - 0 -
 Walter Gevers (O)                       63,333(4)                 *                 - 0 -           - 0 -
 Daniel R. Kail (D)                      25,000(4)                 *                 - 0 -           - 0 -
 Phillip P. Krumb (O&D)                  94,667(4)(8)              *                 - 0 -           - 0 -
 John Perkins (O)                        13,333(4)                 *                 - 0 -           - 0 -
 Charles F. Robinson (D)                 25,000(4)(12)             *                3,000*(9)        $47,000*(9)
 Didier Ruffat (D)                       50,000(4)                 *                 - 0 -           - 0 -
 Robert D. Summer (D)                    27,300(4)(10)             *                 - 0 -           - 0 -
 Blake D. Thomas (O&D)                 210,897(4)(11)           1.2%                 - 0 -           - 0 -

 Executive Officers and
    Directors of Datapoint as
    a group (12 persons)             3,765,520                 21.3%
</TABLE>

* Indicates  less than 1%  ownership as a percent of the  outstanding class(12)
**The percent of the outstanding class is 2.0% (12)


     (1)  Information  relating to beneficial  ownership is based upon ownership
information  furnished by each person using "beneficial  ownership"  definitions
set forth in Section 13 of the Securities  Exchange Act of 1934, as amended (the
"Exchange  Act").  Under  those  rules,  a person is deemed to be a  "beneficial
owner" of a security if that person has or shares "voting power", which includes
the  power to vote or to direct  the  voting of such  security,  or  "investment
power", which includes the power to dispose or to direct the disposition of such
security.  The person is also deemed to be a beneficial owner of any security of
which  that  person  has a right to  acquire  beneficial  ownership  (such as by
exercise of options) within 60 days. Under such rules,  more than one person may
be deemed to be a beneficial owner of the same  securities,  and a person may be
deemed to be a beneficial owner of securities as to which he or she may disclaim
any beneficial interest. Except as otherwise indicated in other table footnotes,
the  indicated  directors  and  executive  officers  possessed  sole  voting and
investment  power with respect to all shares of Common Stock and Preferred Stock
attributed.

     (2) The Company's $1.00 Preferred Stock ("Preferred Stock") is a non-voting
class of security. Each share may be exchanged, at the option of the holder, for
two (2) shares of Common Stock so long as six (6) quarters of accrued  dividends
remain outstanding and unpaid.

     (3) The Company's  8-7/8  Convertible  Subordinated  Debentures Due June 1,
2006  ("Convertible  Debentures")  is a non-voting  class of security.  Each one
thousand dollar ($1,000.00) principal amount may be exchanged,  at the option of
the holder, into 55.231 shares of Common Stock.

     (4) The tabulation  includes  shares of Common Stock which may be deemed to
be  beneficially  owned by such  persons  by reason of stock  options  currently
exercisable  or which may become  exercisable  within sixty (60) days after that
date.  The number of shares  deemed to be  beneficially  owned by reason of such
options is: Mr. Edelman, 221,667; Mr. Agranoff,  91,667; Mr. Thomas, 75,000; Mr.
Krumb, 91,667; Mr. Ruffat,  50,000; Mr. Summer,  25,000; Mr. Garfinkel,  25,000;
Mr. Kail, 25,000; Mr. Robinson, 25,000; Mr. Edmonds, 23,333; Mr. Gevers, 63,333;
Mr. Perkins 13,333; and all officers and directors as a group, 705,000.

     (5) Gerald N. Agranoff,  Asher B. Edelman and Irving Garfinkel are Trustees
of  the  Datapoint  Corporation  Supplemental  Executive  Retirement  Plan  (the
"Datapoint  Plan") which owns  443,731  Common  shares of which  131,647 will be
transferred  in the first quarter of fiscal year 1998. In the above  tabulation,
such shares have been excluded within each party's Common shares listing and the
listing for the directors and executive officers as a group.  Messrs.  Agranoff,
Edelman and Garfinkel each disclaim beneficial  ownership of these shares except
to the extent of  pecuniary  interests  in such shares with which each party may
currently be vested under the Plan. Mr. Edelman has a current vested interest in
145,288 shares under the Datapoint Plan which have been excluded.  Mr.  Agranoff
is currently  vested with 10,701  Common shares under the  Datapoint  Plan.  Mr.
Garfinkel has no current vested  interest under the Datapoint Plan. Mr. Krumb is
vested with 9,283 Common  shares and Mr.  Perkins with 4,344 Common shares under
the  Datapoint  Plan which have not been  included  in their  listed  beneficial
ownership.
<PAGE>

     (6) Mr. Edelman's listed beneficial ownership of 3,115,990 shares of Common
Stock is explained in detail in this paragraph, and is based upon his beneficial
ownership  reported on Schedule 13D. Mr. Edelman  reports  beneficial  ownership
jointly,  as a group, with the following named persons or entities.  Those whose
shares have been  included  within Mr.  Edelman's  listed  total are reported as
beneficially  owned pursuant to Rule 13d-3 by Mr.  Edelman.  As the  controlling
general  partner  of each of Plaza  Securities  Company,  A.B.  Edelman  Limited
Partnership  and Citas Partners  (which is the sole general partner of Felicitas
Partners,  L.P.),  Mr.  Edelman may be deemed to own  beneficially  the 441,348,
944,383  and 6,290  shares  held,  respectively,  by each of such  entities  for
purposes of Rule 13d-3 under the Exchange  Act, and these shares are included in
the listed  ownership.  Also  included  are the  361,267  shares  owned by Canal
Capital Corporation ("Canal"),  in which company Mr. Edelman and various persons
and entities with which he is affiliated own interests.  By virtue of investment
management  agreements  between A. B. Edelman Management Company Inc. and Canal,
A. B. Edelman  Management  Company Inc. has the authority to purchase,  sell and
trade in securities on behalf of Canal.  A. B. Edelman  Management  Company Inc.
therefore may be deemed to be the  beneficial  owner of the 361,267 shares owned
by Canal.  Mr.  Edelman  is the sole  stockholder  of A. B.  Edelman  Management
Company Inc. and these shares are included.  A. B. Edelman  Management  Company,
Inc. is also the sole general  partner of Edelman  Value  Partners,  L.P.  which
currently owns 297,175 shares of Common Stock which are included.  Also included
are the 201,460  shares owned by Mr.  Edelman's  spouse Maria Regina M. Edelman,
5,000 shares held by Mr. Edelman in a Keough account, 21,000 shares beneficially
owned by Mr. Edelman's daughters in accounts for which he is the custodian,  and
616,400  shares owned by Edelman Value Fund,  Ltd., for which Mr. Edelman serves
as the sole  investment  manager.  Also  included  are Mr.  Edelman's  presently
exercisable  options  to  purchase  221,667  shares.  As a Trustee  of the Canal
Capital Corporation Retirement Plan ("Canal Plan") which owns 128,681 shares and
the Datapoint Plan described above which owns 364,000 shares, Mr. Edelman may be
deemed to own  beneficially,  and share  voting  and  investment  power over the
shares  owned by each such Plan,  which are  excluded.  Also  excluded  from the
listed ownership are 54,907 shares beneficially owned by Mr. Edelman's daughters
in accounts for which their mother,  Penelope C.  Edelman,  is the custodian and
the 53,703 shares owned directly by Penelope C. Edelman.  Mr. Edelman  disclaims
beneficial ownership of these excluded shares.  Although disclaimed and excluded
for purposes of Rule 13d-3,  certain of the disclaimed  and excluded  shares are
nevertheless  reported  by Mr.  Edelman  as  beneficially  owned on his Form 4's
pursuant to the rules  promulgated  under  Section 16 of the  Exchange  Act. Mr.
Edelman's  beneficial  ownership  total does not include the  additional  Common
Stock which would be acquired upon the conversion of the Preferred Stock and the
Convertible  Debentures as described  below.  Upon such exchange,  Mr. Edelman's
listed  beneficial  ownership  would increase to 3,152,178 and his percentage of
the  outstanding  class would be 17.7%.  This  percentage  upon  exchange is the
listed percentage above pursuant to Rule 13d-3(d)(1).

     Mr.  Edelman's  listed  beneficial  ownership of 14,200 shares of Preferred
Stock is based upon the 5,100 Preferred  shares owned by Edelman Value Partners,
L.P.,  and the 9,100  Preferred  shares  owned by Edelman  Value Fund,  Ltd. Mr.
Edelman disclaims  beneficial  ownership of the Edelman Value Fund, Ltd. shares.
If exchanged for Common Stock, Mr.  Edelman's Common Stock beneficial  ownership
total listed above would increase by 28,400 shares.

     Mr.  Edelman's  listed  beneficial  ownership of $141,000.00 of Convertible
Debentures  is based upon the  $44,000.00  of  Convertible  Debentures  owned by
Edelman Value Partners,  L.P. and the $97,000.00 of Convertible Debentures owned
by Edelman Value Fund, Ltd. Mr. Edelman  disclaims  beneficial  ownership of the
Edelman Value Fund, Ltd. Convertible Debentures.  If exchanged for Common Stock,
Mr.  Edelman's  Common  Stock  beneficial  ownership  total  listed  above would
increase by 7,788 shares.

     (7) Messrs. Agranoff and Garfinkel are general partners of Plaza Securities
Company,  which owns 441,348 shares of Common Stock.  Each disclaims  beneficial
ownership of these  shares  which are  excluded in each  party's  listing in the
beneficial  ownership table above due to the sole voting and dispositive  powers
attributed to Mr.  Edelman in his Schedule 13D. Mr.  Agranoff is also a director
of Canal which owns 361,267 shares. Mr. Agranoff disclaims  beneficial ownership
of these shares and they are excluded from his beneficial  ownership listing due
to the sole voting and dispositive powers attributed to Mr. Edelman.

     (8) Mr. Krumb owns 3,000 Common  shares  directly in addition to the 91,667
shares represented by exercisable options.

<PAGE>

     (9) Mr. Robinson owns 3,000 Preferred  shares and $47,000.00 in Convertible
Debentures  directly in addition to the 25,000 shares represented by exercisable
options.

     (10) Mr. Summer owns 2,300 Common shares directly in addition to the 25,000
shares represented by exercisable options.

     (11) Mr.  Thomas owns  119,397  Common  shares  directly in addition to the
75,000 shares represented by exercisable  options. Mr. Thomas is also attributed
beneficial   ownership  of  16,500  Common  shares  owned  by  Foresail  Limited
Partnership as its sole general partner.

     (12) The percentage of the outstanding  class  calculations  are based upon
17,817,728 Common shares,  721,961 Preferred shares and $59,908,000  Convertible
Debentures  outstanding as of October 17, 1997. For purposes of calculating  Mr.
Edelman's  and  Mr.   Robinson's   percentages   of  Common  shares  under  Rule
13d-3(d)(1),  the common shares underlying their respective  Preferred Stock and
their  respective   Convertible  Debentures  upon  exchange  are  added  to  the
outstanding share total as if the exchange has occurred.


ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Edelman (the  Company's  current  Chairman of the Board and Chief  Executive
Officer),  and  Messrs.  Agranoff  and Kail  (currently  directors),  and former
Company  director Dwight D.  Sutherland were also directors of Intelogic  Trace,
Inc.,  ("Intelogic"),  a  wholly-owned  subsidiary of Datapoint and its computer
hardware  maintenance  division in the U.S.,  comprising four of Intelogic's six
directors, when Intelogic filed a voluntary petition for relief under Chapter 11
of the Bankruptcy Code in the U.S. Bankruptcy Court,  Western District of Texas,
San  Antonio  Division,  Case No.  94-52172-C-11  on August 5,  1994.  Intelogic
emerged from bankruptcy pursuant to approval of a modified first amended plan of
reorganization  on November 28, 1994.  The above named  directors  resigned from
Intelogic  on December 8, 1994.  On March 16,  1995,  Intelogic  again filed for
bankruptcy  protection  under  Chapter  11 of the  Bankruptcy  Code in the  U.S.
Bankruptcy  Court,  Western  District of Texas, San Antonio  Division,  Case No.
95-50753-LMC-11.  During  that  proceeding,  substantially  all  of  Intelogic's
operating  assets  were sold to a third  party on April 5,  1995.  Intelogic  is
effectively no longer in business.

The above named directors received  compensation  and/or benefits from Intelogic
prior to their  resignations.  Also,  these directors and former director may be
deemed to have beneficially owned  approximately 15% of Intelogic's common stock
as of July 30,  1994.  In  addition,  they had  options  to  purchase  shares of
Intelogic  common stock equal in the aggregate to approximately 1% of the amount
then  outstanding.  The overlap of directors  does not give rise to a reportable
compensation committee interlock.

Director  Agranoff had provided  various tax,  legal and real estate  consulting
services  prior to serving as Vice  President,  General  Counsel  and  Corporate
Secretary  for the  Company.  During  the fiscal  years  1997,  1996,  and 1995,
Datapoint paid legal fees of $374, $485, and $51, respectively,  to the law firm
of Pryor,  Cashman,  Sherman,  & Flynn, for legal services provided by attorneys
other than Mr. Agranoff.

Director  Thomas  worked  from  August  1994  until  May 1,  1995  as a  special
consultant for which he received  compensation of $500 per day payable in shares
of common stock plus expenses. Subsequently, on May 5, 1995, in consideration of
the additional  work and  responsibilities  he had taken on for the Company as a
special  consultant,  the Board of  Directors  approved  a special  compensation
package for Director  Thomas.  From May 1, 1995,  through July 31, 1995,  he was
paid at the rate of $500  per day for his  services,  plus  travel  and  housing
expenses,  plus additional  compensation of a flat $2,000 per week for expenses.
On July 31, 1995,  Director  Thomas's  consulting  contract  was extended  until
December 31, 1995 and then was to continue on a month-to-month basis to July 31,
1996.  Upon the  resignation  of Doris Bencsik as President and Chief  Operating
Officer,  Director  Thomas was  appointed on December 5, 1995 to the position of
Executive Vice President and Chief Operating  Officer.  Director Thomas was also
entitled  under the extended  contract to  participate  in the  Standard  Health
Benefit  program  until he was  appointed  Executive  Vice  President  and Chief
Operating  Officer.  At such time, he converted to the Executive  Health Benefit
program. During fiscal 1995, the Board also approved a one time special issuance
of  45,000  shares  of  common  stock  of the  Company  to  Director  Thomas  in
recognition of his service to the Company. During the term Director Thomas acted
as a special  consultant,  he did not accrue or  receive  any  regular  Board or
committee  fees.  Mr.  Thomas was promoted to  President  on June 12,  1997,  in
addition to his position as Chief Operating Officer.

     Director  Ruffat had a consulting  agreement from January 1994 through June
1995 under which he  received a monthly  compensation  of $10,000.  For 1996 and
1995, Director Ruffat was paid $50,000 and $80,000, respectively, for consulting
services.

<PAGE>



PART IV

ITEM 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

    (a)1 Financial Statements

     The consolidated  financial  statements listed in the accompanying index to
the financial statements are filed as part of this report.

    (a)2 Financial Statement Schedules

         Schedule II - Valuation and Qualifying Accounts and Reserves

         All other schedules are omitted since they are either not applicable or
         the required information is shown in the Company's financial statements
         or notes thereto.  Individual  financial  statements of the Company are
         omitted  because the Company is primarily an operating  company and all
         subsidiaries  included in the Consolidated  Financial  Statements being
         filed,  in the aggregate,  do not have minority  equity interest and/or
         indebtedness  to any person other than the Company or its  consolidated
         subsidiaries   in  amounts  which  together  exceed  5%  of  the  total
         consolidated  assets as shown by the most recent year-end  Consolidated
         Balance Sheet.

    (a)3 Exhibits

         The exhibits listed on the accompanying  index to exhibits are filed as
part of this report.

    (b) The  Company  filed a Form 8-KA on August  15,  1996 with  regard to its
divestiture of EADS.


<PAGE>


                                INDEX TO EXHIBITS

                                                                  Sequentially
Exhibit                                                            Numbered
Number     Description of Exhibits                                   Pages

(3)(a)     Certificate of  Incorporation  of Datapoint  Corporation,  as amended
           (filed as Exhibit (3)(a) to the Company's Annual Report on
           Form 10K for the year ended July 31, 1993, and incorporated herein 
           by reference).

(3)(b)     Bylaws of Datapoint  Corporation,  as amended (filed as 
           Exhibit (3)(b) to the Company's  Annual Report on Form 10-K for the
           year ended August 1, 1992, and incorporated herein by reference).

(4)(a)     Debenture  holder Notice of  Adjustment  to  Conversion  Rate,
           dated July 11, 1985, under Indenture dated as of June 1, 1981,
           between   Datapoint   Corporation  and  Continental   Illinois
           National  Bank and  Trust  Company  of  Chicago,  as  Trustee,
           providing for 8-7/8% Convertible  Subordinated  Debentures Due
           2006 (filed as Exhibit  (4)(a) to the Company's  Annual Report
           on Form  10-K  for the  year  ended  July  27,  1985  and said
           Indenture  filed as  Exhibit 4 to the  Company's  Registration
           Statement on Form S-16 (No.
           2-72395), each incorporated herein by reference).

(4)(b)     Certificate of Designation,  Preferences,  Rights and Limitations of
           Series of $1.00 Preferred Stock (filed as Exhibit (4)(e) to
           the Company's Registration Statement on Form S-4 dated
           April 30, 1992 and incorporated herein by reference).

(10)(a)    1983 Employee Stock Option Plan (filed as Exhibit (4)(a)(4) to the
           Company's Registration  Statement on Form S-8 dated November
           9, 1983 and incorporated herein by reference).

(10)(b)    1985 Director Stock Option Plan (filed as Exhibit (10)(i) to the 
           Company's  Annual Report on Form 10-K for the year ended August
           1, 1987 and incorporated herein by reference).

(10)(c)    1986 Employee Stock Option Plan (filed as Exhibit (10)(h) to the 
           Company's  Annual Report on Form 10-K for the year ended August
           1, 1987 and incorporated herein by reference).

(10)(d)    1991  Director  Stock  Option Plan (filed as Exhibit  (10)(b)(2)  to 
           Amendment  No. 1 dated  February 6, 1992 to the  Company's
           Registration Statement on Form S-4 (Registration No. 33-44097) and 
           incorporated herein by reference).

(10)(e)    1992 Employee Stock Option Plan (filed as Exhibit  (4)(a)(4) to the
           Company's  Registration  Statement on Form S-8 dated January
           19, 1993 and incorporated herein by reference).

(10)(f)    Agreement  for  Transfer of Assets and  Liabilities  in Exchange for
           Stock,  dated as of June 28, 1985,  between the Company and
           Intelogic  Trace,  Inc.  (filed  as  Exhibit  (10)(a)  to the 
           Company's  Current  Report on Form 8-K  dated  July 28,  1985 and
           incorporated herein by reference).

(10)(g)    Master  Maintenance  Agreement,  dated as of June 28, 1985,  between
           the Company and  Intelogic  Trace,  Inc.  (filed as Exhibit
           (10)(b) to the Company's Current Report on Form 8-K dated 
           July 28, 1985 and incorporated herein by reference).

(10)(h)    Maintenance  Agreement  regarding open systems products between the 
           Company and Intelogic Trace, Inc., (filed as Exhibit (10)(g)
           to the Company's Annual Report on Form 10-K for the year ended 
           August 1, 1992, and incorporated herein by reference).
           
<PAGE>

              INDEX TO EXHIBITS

                                                                   Sequentially
Exhibit                                                              Numbered
Number      Description of Exhibits                                    Pages

(10)(i)     Agreement  between the Company and Arbitrage  Securities  Company,  
            as amended (filed as Exhibit (10)(f) to the Company's Annual
            Report on Form 10-K for the year ended July 29, 1989 and 
            incorporated herein by reference).

(10)(j)     Indemnity  Agreements with Officers and Directors  (filed as 
            Exhibit (10)(f) to the Company's Annual Report on Form 10-K for the
            year ended August 1, 1987 and incorporated herein by reference).

(10)(k)     First Amendment to  Indemnification  Agreement with certain 
            Officers and Directors.  (filed as Exhibit (10)(h) to the Company's
            Annual Report on Form 10-K for the year ended July 28, 1990 and 
            incorporated herein by reference).

(10)(l)     Second  Amendment to Employment  Agreement  with A. B. Edelman
            (said amendment  filed as Exhibit  (10)(h)(3) to the Company's
            Registration  Statement  on Form S-4 dated  April  30,  1992),
            amending  Employment  Agreement  dated  January  9, 1991 (said
            agreement  filed as Exhibit  (10)(j) to the  Company's  Annual
            Report  on Form 10-K for the year  ended  July 28,  1990),  as
            amended  by  Amendment  No. 1 dated  December  1,  1990  (said
            amendment  filed as Exhibit  (10)(i) to the  Company's  Annual
            Report on Form 10-K for the year ended July 27, 1991), each of
            which are incorporated herein by reference.

(10)(m)     Employment  Agreement  with D. Berger (filed as Exhibit  (10)(m) to
            the Company's  Annual report on Form 10-K for the Year ended
            July 31, 1993 and incorporated herein by reference).

(10)(n)     Employment  Agreement  with J. Berger (filed as Exhibit  (10)(l) to
            the company's  Annual Report on Form 10-K for the year ended
            August 1, 1992 and incorporated herein by reference).

(10)(o)     Employment  Agreement  with K. L. Thrower  (filed as Exhibit(10)(o)
            to the  company's  Annual Report on Form 10-K for the year
            ended August 1, 1992 and incorporated herein by reference).

(10)(p)     First Amendment to the Grantor Trust Agreement dated June 18, 1991.
            (filed as exhibit (10)(n) to the Company's Annual Report on
            Form 10-K for the year ended July 27, 1991 and incorporated
            herein by reference).

(10)(q)     Manufacturing  facilities  Agreement of Lease  between the Company
            and Willis and Cox  Associates  dated June 21, 1991 (filed as
            Exhibit  (10)(q) to the  Company's  Annual  Report on Form 10-K for
            the year  ended  August 1, 1992 and  incorporated  herein by
            reference).

(10)(r)     Employment  Agreement  with D. Bencsik  (filed as exhibit  (10)(r)
            to the Company's  Annual Report on the Form 10-K for the year
            ended July 30, 1994 and incorporated herein by reference).

(10)(s)     Employment  Agreement with G. Agranoff and Amendment No. 1 to 
            Employment Agreement (filed as Exhibit (10) (s) to Amendment No. 2
            to the Company's Registration  Statement on Form S-4 filed on
            September 27, 1996 and incorporated herein by reference).

(10)(t)     Employment  Agreement  with B. Thomas (filed as Exhibit (10) (t) to
            Amendment No. 2 to the Company's  Registration  Statement on
            Form S-4 filed on September 27, 1996 and incorporated herein by 
            reference).
<PAGE>

                          INDEX TO EXHIBITS

                                                                  Sequentially
Exhibit                                                              Numbered
Number      Description of Exhibits                                   Pages


(10)(u)     Employment  Agreement  with P. Krumb (filed as Exhibit (10) (u) to
            Amendment  No. 2 to the Company's  Registration  Statement on
            Form S-4 filed on September 27, 1996 and incorporated herein by 
            reference).


(10)(v)     Settlement  Agreement  with NTI (filed as Exhibit (10) (v) to
            Amendment  No. 2 to the Company's  Registration  Statement on Form
            S-4 filed on September 27, 1996 and incorporated herein 
            by reference).

(10)(w)     Umbrella  Acquisition  Agreement between Kalamazoo and Datapoint 
            (filed as Exhibit 2 to the Company's Current Report on Form 8-K
            dated June 25, 1996 and incorporated herein by reference).

(10)(x)     Form of  Agreement  for sale of assets of Datapoint  Group Vendor
            and  Kalamazoo  (filed as Exhibit 3 to the  Company's  Current
            Report on Form 8-K dated June 25, 1996 and incorporated herein by
            reference).

(10)(y)     Agreement for sale of DARTS  Software  (filed as Exhibit 4 to the 
            Company's  Current  Report on Form 8-K dated June 25, 1996 and
            incorporated herein by reference).

(10)(z)     1996  Director  Stock  Option Plan (filed as Annex D to Amendment  
            No. 3 dated  October 31, 1996 to the  Company's  Registration
            Statement on Form S-4 (Registration No. 333-9627) and incorporated
            herein by reference).

(10)(aa)    1996  Employee  Stock  Option Plan (filed as Annex E to Amendment 
            No. 3 dated  October 31, 1996 to the  Company's  Registration
            Statement on Form S-4 (Registration No. 333-9627) and incorporated 
            herein by reference).

(10)(bb)    Employment Agreement with R. Conn.

(10)(cc)    Employment Agreement with R. Edmonds.

(10)(dd)    Employment Agreement with J. Perkins.

(10)(ee)    Amendment  No. 2 to Employment Agreement with G. Agranoff.

(10)(ff)    Amendment No. 1 to Summary of Modified Employment Agreement 
            - with P. Krumb.

(23)        Consent of Independent Auditors.

(27)        Article 5, Financial Data Schedule.


<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.



                                                  DATAPOINT CORPORATION
                                                      (Registrant)

                                              BY: /s/ Phillip P.Krumb
                                                  Asher B. Edelman
                                               Chief Executive Officer and
                                                    Chairman of The Board
                                         By Phillip P. Krumb, Attorney In Fact


DATED:  October 30, 1997


    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.

         Signature                      Title                      Date


/s/ Phillip P. Krumb          Vice President and 
    Phillip P. Krumb    Special Assistant to the Chairman      October 30, 1997
                          (Principal Accounting Officer)



Phillip P. Krumb, pursuant to powers of attorney which are being filed with this
report, has signed below as attorney-in-fact  for the following directors of the
Registrant:

             Gerald N. Agranoff          Charles F. Robinson
             Irving Garfinkel            Daniel Kail
             Robert D. Summer            Ronald G. Conn
             Blake D. Thomas

     Mr. Didier M.M.  Ruffat,  a director,  was unavailable for signature at the
time of the filing.


/s/ Phillip P. Krumb                                       October  30, 1997
    Phillip P. Krumb



<PAGE>


                                   Schedule II

                     DATAPOINT CORPORATION AND SUBSIDIARIES
                 Valuation and Qualifying Accounts and Reserves
                                 (In thousands)

<TABLE>
<CAPTION>


                                                                      (a)          (b)
                                   Balance        Charged         Charged
                                     at             to           (to) from        Other           Balance
                                  Beginning       Costs and        Other        Additions         at End
    Classification                 of Year        Expenses        Accounts      (Deductions)      of Year



Allowance for doubtful accounts:
<S>                                 <C>              <C>           <C>             <C>              <C>  

Year ended August 2, 1997           $2,791           $(164)        $(18)           $(955)           $1,654

Year ended July 27, 1996            $3,012            $170        $(102)           $(289)           $2,791

Year ended July 29, 1995            $2,568          $2,147         $(21)         $(1,682)           $3,012

</TABLE>

(a) Transfers to and from other balance sheet reserve accounts.
(b)  Accounts  written-off  net  of  recoveries,   other  expense  accounts  and
translation adjustments.


<PAGE>

                                   EXHIBIT 23


                         CONSENT OF INDEPENDENT AUDITORS


     We consent to the incorporation by reference in the following  registration
statements and related  prospectuses  of our report dated October 3, 1997,  with
respect to the  consolidated  financial  statements  and schedule of the Company
included in this Annual  Report on Form 10-K for the year ended  August 2, 1997:
Registration  Statement  No.  2-60374 on Form S-8,  Registration  Statement  No.
2-87765  on  Form  S-8,  Registration   Statement  No.  33-19328  on  Form  S-8,
Registration  Statement No. 33-19427 on Form S-8, and Registration Statement No.
33-57102 on Form S-8.







                                                    Ernst & Young  LLP

Dallas, Texas 
October 27, 1997
<PAGE>

                                                        EXHIBIT (10)(bb)
                              EMPLOYMENT AGREEMENT



     This  Agreement  ("Agreement"),  shall  govern the  employment  of Ron Conn
("Officer")  as  Vice  President  and  Chief  Financial   Officer  of  Datapoint
Corporation  ("Datapoint"),  a Delaware  Corporation  with a principal  place of
business at 8410  Datapoint  Drive,  San Antonio,  Texas  78229-8500  and 4, rue
d'Aguesseau,  75008  Paris,  France.  This  Agreement  shall  be for  employment
effective 9 June 1997.

     1.  POSITION.  The  parties  agree  that the  Officer is  employed  as Vice
President and Chief Financial Officer of Datapoint.  Officer shall report to the
Chairman  and  shall  devote  such  time and  attention  to the  duties  of Vice
President and Chief Financial Officer as the Chairman shall direct.

     2. TERM. The term of the Officer's employment shall be indefinite,  subject
to the provisions on termination set forth elsewhere herein.

     3.  SALARY.   Officer's  salary  shall  be  a  minimum  of  one  hundred  &
seventy-five  thousand U.S. Dollars  (US$175,000) per year,  payable biweekly in
arrears.

     4. BONUS.  Commencing with the fiscal year starting 1 August 1997,  Officer
shall be entitled to an annual bonus payable at the close of each of Datapoint's
fiscal years in an amount to be calculated as follows:

     Datapoint's net pre-tax earnings,  excluding the excess over $10,000,000 of
the net of any  extraordinary  gains due to debt repurchase or exchange  against
all extraordinary losses time one percent (1%).

     5.  STOCK  OPTIONS.  Officer  shall  be  recommended  to  the  Compensation
Committee  of Datapoint  for a stock option grant of 50,000  shares of Datapoint
Common  Stock at fair  market  value.  This  option will vest in three (3) equal
annual installments, exercisable over a period of three years.

     6. BENEFITS.  Officer shall be entitled to standard  employee benefits plus
the following benefits:

     a) Participation in the Executive  Medical Plan by Officer and family at no
cost to Officer. b) Group term life insurance under the U.S. Executive Life plan
as it may be  amended  from time to time.  c) In Paris,  the use of a  Datapoint
supplied automobile including the payment of insurance,  maintenance,  gas, oil,
etc. d) The housing  allowance - Datapoint  will pay Paris housing costs in full
until such time as Ron Conn has sold his residence in the United  States.  After
selling  his  home in the  United  States  Ron Conn  will pay $750 per  month to
Datapoint.  Paris  housing lease and costs are subject to approval in advance by
Blake Thomas,  President. e) Payment of reasonable relocation expenses to Paris,
subject to prior  approval  by  President  and Chief  Operating  Officer,  after
receipt of three (3) bids. f) Upon  termination  by whichever  party,  Datapoint
will repatriate  Officer and family to U.S. at no cost to Officer.  g) Datapoint
payment/reimbursement  of  reasonable  personal tax and  financial  planning and
preparation fees, capped at $1,500 annually. h) Datapoint pays one trip per year
for Officer's wife back to the United States.

7.   TERMINATION.

     7.1 BY OFFICER. Officer may terminate his employment at his own behest upon
ninety days written  notice to Datapoint  without any  termination  liability of
either party to the other, other than Datapoint's  obligation to pay Officer any
earned but unpaid salary and bonus or reasonable unreimbursed business expenses,
and any rights of Officer  under any stock option  and/or  indemnity  agreements
between Datapoint and Officer.

     7.2 BY DATAPOINT.The  termination of Officer's  employment at the behest of
Datapoint  at any time,  other than for cause,  shall  require  Datapoint to pay
Officer  the  sum of U.S.  $100,000.  This  amount  shall  be  paid in  biweekly
installments  equal to the payroll payments  previously made to Officer prior to
such  termination,  with the last  such  payment  being in  whatever  amount  is
required to complete  Datapoint's  obligation to Officer.  Officer shall also be
entitled  to  a  six  (6)  month  employee  (not   Executive)   medical  benefit
continuations, plus any performance bonus to which he might be entitled to under
the  provision of Section 4 hereof.  Datapoint  shall  further  remain liable to
Officer for any earned but unpaid  salary or  reasonable  unreimbursed  business
expenses,  and any rights of Officer under any stock and/or indemnity agreements
between  Datapoint and Officer.  This amount shall be reduced by any termination
payments and/or benefits required to be separately paid to Officer by law.

     8.  SUCCESSORS IN INTEREST.  This Agreement and the rights and  obligations
hereunder  shall be binding upon and inure to the benefit of the parties  hereto
and their respective legal representatives, and shall also bind and inure to the
benefit  of any  successor  of  Datapoint  by  merger  or  consolidation  or any
purchaser  or assignee of all or  substantially  all of its assets,  but neither
this Agreement nor any rights or benefits hereunder may otherwise be assigned by
either party hereto.

     9. INVALID  PROVISION.  In the event that any  provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining  provisions of this Agreement shall remain in full force and effect to
the fullest extent permitted by law.

     10. VENUE.  The parties agree that any  controversy or claim arising out of
or relating to this Agreement,  or any dispute arising out of the interpretation
or  application  of this  Agreement,  which the  parties  hereto  are  unable to
resolve,  shall be resolved  by the courts of  competent  jurisdiction  of Bexar
County, Texas.

     11.  GOVERNING LAW. This  Agreement  shall be governed by and construed and
enforced in accordance with the laws of Texas  applicable to agreements made and
to be performed entirely in Texas.

     12. ENTlRE AGREEMENT.  This Agreement shall constitute the entire agreement
between the parties  superseding all prior agreements,  and may not be modified,
amended or waived except by written agreement signed by both parties hereto.

     IN WITNESS of their  intention  to be bound,  the parties  hereto set their
signatures.

DATAPOINT CORPORATION                                         Ron CONN




Blake THOMAS,                                                          Ron CONN
President & Chief Operating Officer

Date:                                                                  Date:
<PAGE>



                                                             EXHIBIT (10)(cc)
                              EMPLOYMENT AGREEMENT



     This Agreement ("Agreement"),  shall govern the employment of Roger Edmonds
("Officer")  as Vice  President of Technical  Services of Datapoint  Corporation
("Datapoint"), a Delaware Corporation with a principal place of business at 8410
Datapoint  Drive, San Antonio,  Texas  78229-8500 and 4, rue d'Aguesseau,  75008
Paris,  France.  This Agreement  shall be for employment  effective  February 1,
1996.

     1.  POSITION.  The  parties  agree  that the  Officer is  employed  as Vice
President  of  Technical  Services of  Datapoint.  Officer  shall  report to the
Executive Vice President and Chief Operating  Officer and shall devote such time
and  attention  to the  duties  of  Technical  Services  as the  Executive  Vice
President and Chief Operating Officer shall direct.

     2. TERM. The term of the Officer's employment shall be indefinite,  subject
to the provisions on termination set forth elsewhere herein.

     3. SALARY.  Officer's  salary shall be a minimum of 84,000 Pounds  Sterling
per year,  payable in line with the normal  administration  of Datapoint  (U.K.)
Ltd. payroll.

     4.  BONUS.  Officer  shall  be  entitled  to an  annual  performance  bonus
opportunity  based upon a target amount of not less than thirty percent (30%) of
his base salary and  specific  qualification  criteria  to be set by  Datapoint.
Officer  shall be eligible to a pro-rated  portion of this bonus for fiscal year
1996  provided he remains in the employ of  Datapoint  through the close of that
year.  Officer shall not be eligible for this bonus for any fiscal year which is
not completed prior to termination of his employment.

     5. STOCK  OPTIONS.  Officer shall be entitled to  participate  fully in any
subsequent  general  grant of stock options to an extent  commensurate  with the
seniority of his position and his performance.

     6.  BENEFITS.  Officer  shall be  continued  on the  Datapoint  (U.K.) Ltd.
Executive Benefit system to the extent that, and for so long as, this may remain
reasonably  feasible;   to  the  extent  not  reasonably  feasible,   reasonably
equivalent benefits, at the time, shall be provided.

7.   TERMINATION.

     7.1 BY OFFICER. Officer may terminate his employment at his own behest upon
ninety days written  notice to Datapoint  without any  termination  liability of
either party to the other, other than Datapoint's  obligation to pay Officer any
earned but unpaid salary and bonus or reasonable unreimbursed business expenses,
and any rights of Officer  under any stock option  and/or  indemnity  agreements
between Datapoint and Officer.

     7.2 BY DATAPOINT.  The termination of Officer's employment at the behest of
Datapoint  at any time,  other than for cause,  shall  require  Datapoint to pay
Officer the sum of (6) months salary and  continuance  of benefits.  This amount
shall be paid in line  with  normal  administration  of  Datapoint  (U.K.)  Ltd.
payroll previously made to Officer prior to such termination, with the last such
payment being in whatever amount is required to complete Datapoint's  obligation
to  Officer;  and will be the total  payable  and not this  amount on top of any
amounts payable under U.K. law. Officer shall also be entitled to six (6) months
continuation of Datapoint (U.K.) Ltd.  Executive  Benefits as normally  provided
for under U.K. law and Datapoint  (U.K.) Ltd.  procedures,  plus any performance
bonus to which he might be entitled to under the  provision of Section 4 hereof.
Datapoint  shall  further  remain  liable to  Officer  for any earned but unpaid
salary or reasonable  unreimbursed business expenses,  and any rights of Officer
under any stock and/or indemnity  agreement between Datapoint and Officer.  This
amount shall be reduced by any termination  payments and/or benefits required to
be separately paid to Officer by law.

     8.  SUCCESSORS IN INTEREST.  This Agreement and the rights and  obligations
hereunder  shall be binding upon and inure to the benefit of the parties  hereto
and their respective legal representatives, and shall also bind and inure to the
benefit  of any  successor  of  Datapoint  by  merger  or  consolidation  or any
purchaser  or assignee of all or  substantially  all of its assets,  but neither
this Agreement nor any rights or benefits hereunder may otherwise be assigned by
either party hereto.

     9. INVALID  PROVISION.  In the event that any  provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining  provisions of this Agreement shall remain in full force and effect to
the fullest extent permitted by law.

     10. VENUE.  The parties agree that any  controversy or claim arising out of
or relating to this Agreement,  or any dispute arising out of the interpretation
or  application  of this  Agreement,  which the  parties  hereto  are  unable to
resolve,  shall be resolved  by the courts of  competent  jurisdiction  of Bexar
County, Texas.

     11.  GOVERNING LAW. This  Agreement  shall be governed by and construed and
enforced in accordance with the laws of Texas  applicable to agreements made and
to be performed entirely in Texas.

     12. ENTlRE AGREEMENT.  This Agreement shall constitute the entire agreement
between the parties  superseding all prior agreements,  and may not be modified,
amended or waived except by written agreement signed by both parties hereto.

     IN WITNESS of their  intention  to be bound,  the parties  hereto set their
signatures.

DATAPOINT CORPORATION                                         Roger EDMONDS




Blake THOMAS, Executive Vice President                        Roger EDMONDS
and Chief Operating Officer

Date:    March 25, 1996                                     Date:

<PAGE>


                                                              EXHIBIT (10)(dd)
                              EMPLOYMENT AGREEMENT


     This  Agreement  ("Agreement"),  shall  govern  the  employment  of John R.
Perkins ("Officer") as Vice President of Development and Production of Datapoint
Corporation  ("Datapoint"),  a Delaware  Corporation  with a principal  place of
business at 8410  Datapoint  Drive,  San Antonio,  Texas  78229-8500  and 4, rue
d'Aguesseau,  75008  Paris,  France.  This  Agreement  shall  be for  employment
effective May 1996.

     1.  POSITION.  The  parties  agree  that the  Officer is  employed  as Vice
President of Development  and  Production of Datapoint.  Officer shall report to
the Executive Vice President and Chief  Operating  Officer and shall devote such
time and attention to the duties of Development  and Production as the Executive
Vice President and Chief Operating Officer shall direct.

     2. TERM. The term of the Officer's employment shall be indefinite,  subject
to the provisions on termination set forth elsewhere herein.

     3. SALARY. Officer's salary shall be a minimum of $125,000 (one hundred and
twenty-five  thousand  U.S.  Dollars) per year,  payable in line with the normal
administration of Datapoint San Antonio payroll.

     4.  BONUS.  Officer  shall  be  entitled  to an  annual  performance  bonus
opportunity  based upon a target amount of not less than thirty percent (30%) of
his base salary and  specific  qualification  criteria to be set by Datapoint in
writing. In the event that specific  qualification criteria has not been set and
agreed to in writing  for any fiscal  year,  Officer  shall not be entitled to a
performance  bonus.  Officer shall not be eligible for this bonus for any fiscal
year which is not completed prior to termination of his employment.

     5. STOCK OPTIONS.  Subject to approval by the Compensation Committee of the
Board of  Directors  in their sole  discretion,  Officer  shall be  entitled  to
participate fully in any subsequent  general grant of stock options to an extent
commensurate with the seniority of his position and his performance.

     6.  BENEFITS.  Officer shall be entitled to standard  Datapoint San Antonio
employee benefits plus the following benefits:

     a) Participation in the Executive  Medical Plan by Officer and family at no
cost to Officer. b) Group term life insurance under the U.S. Executive Life plan
as it may be amended from time to time.

7.   TERMINATION.

     7.1 BY OFFICER. Officer may terminate his employment at his own behest upon
ninety days written  notice to Datapoint  without any  termination  liability of
either party to the other, other than Datapoint's  obligation to pay Officer any
earned but unpaid salary and bonus or reasonable unreimbursed business expenses,
and any rights of Officer  under any stock option  and/or  indemnity  agreements
between Datapoint and Officer.

     7.2 BY DATAPOINT.  The termination of Officer's employment at the behest of
Datapoint  at any time,  other than for cause,  shall  require  Datapoint to pay
Officer the sum of (6) months salary and  continuance  of benefits.  This amount
shall be paid in biweekly  installments equal to the payroll payments previously
made to Officer prior to such  termination,  with the last such payment being in
whatever  amount is  required  to complete  Datapoint's  obligation  to Officer.
Officer  shall also be  entitled  to a six (6) month  employee  (not  Executive)
medical benefit  continuations,  plus any performance bonus to which he might be
entitled to under the  provision of Section 4 hereof.  Datapoint  shall  further
remain  liable to  Officer  for any  earned  but  unpaid  salary  or  reasonable
unreimbursed business expenses, and any rights of Officer under any stock and/or
indemnity agreements between Datapoint and Officer. This amount shall be reduced
by any termination  payments  and/or benefits  required to be separately paid to
Officer by law.

     8.  SUCCESSORS IN INTEREST.  This Agreement and the rights and  obligations
hereunder  shall be binding upon and inure to the benefit of the parties  hereto
and their respective legal representatives, and shall also bind and inure to the
benefit  of any  successor  of  Datapoint  by  merger  or  consolidation  or any
purchaser  or assignee of all or  substantially  all of its assets,  but neither
this Agreement nor any rights or benefits hereunder may otherwise be assigned by
either party hereto.

     9. INVALID  PROVISION.  In the event that any  provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining  provisions of this Agreement shall remain in full force and effect to
the fullest extent permitted by law.

     10. VENUE.  The parties agree that any  controversy or claim arising out of
or relating to this Agreement,  or any dispute arising out of the interpretation
or  application  of this  Agreement,  which the  parties  hereto  are  unable to
resolve,  shall be resolved  by the courts of  competent  jurisdiction  of Bexar
County, Texas.

     11.  GOVERNING LAW. This  Agreement  shall be governed by and construed and
enforced in accordance with the laws of Texas  applicable to agreements made and
to be performed entirely in Texas.

     12. ENTlRE AGREEMENT.  This Agreement shall constitute the entire agreement
between the parties  superseding all prior agreements,  and may not be modified,
amended or waived except by written agreement signed by both parties hereto.

     IN WITNESS of their  intention  to be bound,  the parties  hereto set their
signatures.

DATAPOINT CORPORATION                                         John R. PERKINS




Blake THOMAS, Executive Vice President and                    John R. PERKINS
Chief Operating Officer

Date:                                               Date:  January 6, 1997
<PAGE>


                                                              EXHIBIT (10)(ee)
 
                      AMENDMENT #2 TO EMPLOYMENT AGREEMENT


     This  amendment is made as of the 7th day of October,  1997, by and between
GERALD N. AGRANOFF and DATAPOINT  CORPORATION,  located at 8410 Datapoint Drive,
San Antonio, Texas 78229-8500 ("Datapoint"), to modify the prior agreement among
the parties dated September 13, 1994 ("Agreement").

     1. Performance Bonus: Section 4 of the Agreement is deleted and replaced as
follows:

     "Officer  shall  immediately  be entitled to an annual bonus payable at the
close of each of  Datapoint's  fiscal  years in an  amount to be  calculated  as
follows:

     'Datapoint's net pre-tax  earnings,  excluding the excess over $10,000,000,
of the net of any extraordinary gains due to debt repurchase or exchange against
all extraordinary losses, times two percent (2%).'



DATAPOINT CORPORATION



_______________________________________              _________________________
Gerald N. Agranoff                                         Asher B. Edelman,

                                                                 Chairman

<PAGE>

                                                             EXHIBIT (10)(ff)
                    SUMMARY OF MODIFIED EMPLOYMENT AGREEMENT





     On June 12, 1997, the Company's Board of Directors  modified Mr. Phillip P.
Krumb's employment  agreement due to his resignation as Chief Financial Officer.
Mr. Krumb will remain as a Vice President and Special Assistant to the Chairman.
While his modified employment agreement has not yet been reduced to writing, the
modified compensation terms are as follows:

         Annual salary                                        $60,000
         Fixed benefits including executive medical plan      $  8,040
         Executive perquisites                                $  4,000
         Bonus equal to 1/4 of 1% of net pretax profits



<PAGE>