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 1, 1998

                                       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         National Association of Securities Dealers'
                                       Over-the-Counter Bulletin Board
$1.00 Exchangeable Preferred Stock,
   $1.00 par value                   National Association of Securities Dealers'
                                       Over-the-Counter Bulletin Board
8-7/8% Convertible Subordinated
   Debentures Due 2006                         Over-the-Counter

    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 X No .

    As of October 13, 1998,  18,158,572 shares of Datapoint  Corporation  Common
Stock were outstanding  (excluding  2,832,645 shares held in Treasury),  and the
aggregate  market value (based upon the last  reported  sale price of the Common
Stock  on the  National  Association  of  Securities  Dealers'  Over-the-Counter
Bulletin  Board --  Composite  Tape on October 13, 1998) of the shares of Common
Stock held by non-affiliates  was approximately  $8.5 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). The decline in
revenue levels in 1997 reflects the result of this sale.

    Since fiscal year 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.

    In addition,  on October 27, 1997,  the Company sold the three  buildings it
owned in San Antonio,  Texas to a private  unaffiliated  group for approximately
$3.2 million (net of mortgage obligations and closing costs). The sales contract
provided for the leaseback by the Company of one of the buildings (approximately
38,000 square feet) for an initial lease term of five years.

    Subsequent  to year-end,  the Company  signed a letter of intent to sell the
building  it owns in  Gouda,  Netherlands  to a private  unaffiliated  group for
approximately $2.2 million (net of mortgage  obligations and closing costs). The
sales contract provides for the leaseback by the Company of approximately 18,000
square  feet for an initial  lease term of five years and  approximately  12,000
square feet for an initial  lease term of one year.  The  Company  closed on the
sale of the building on October 26, 1998.

     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 in 1997,
and related per share  amounts,  a gain of $3,810 on exchange and  retirement of
preferred  stock was added to net income.  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.

<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 important to its business as a whole.

Video Conferencing Patents

     Datapoint,  along with John  Frassanito  and David A.  Monroe,  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.

The status of the patent infringement litigation is as follows:

     (1) Datapoint  Corporation v. PictureTel  Corporation,  No.  3:93-CV-2381-D
(N.D.  Texas).  This case was  tried in March and April of 1998 with an  adverse
result. Notice of Appeal has been filed.

     (2) Datapoint  Corporation v.  Compression  Labs,  Inc. No.  3:93-CV-2522-D
(N.D.  Texas);   Datapoint  Corporation  v.  Teleos  Communications,   Inc.  No.
95-4455-AET  (D.N.J.);  Datapoint  Corporation v. Videolan  Technologies,  Inc.;
Videolan  Technologies,  Inc. v.  Datapoint  Corporation,  No. 96 CV-604-H (W.D.
Kentucky) et al;  Datapoint  Corporation  v. Intel Corp.  No.  97-CV-2581  (N.D.
Texas). These cases have been dismissed subject to being reopened if the Company
is successful in its appeal of certain of the issues adversely determined in the
PictureTel litigation described above.

Multi-speed Networking Patents

     Datapoint  is also the owner of United  States  Patent Nos.  5,008,879  and
5,077,732  related to network  technology.  The Company  believes  these patents
cover most products  introduced by various suppliers to the networking  industry
and  dominates  certain types of  dual-speed  technology on networking  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,  and for purposes of
claim  construction.  On January 20,  1998,  a hearing  commenced  in the United
States  District  Court that  concluded  on January 23, 1998 during  which claim
construction was submitted to a Special Master.  The Special Master's report was
issued April of 1998.  The Company has filed two sets of  objections  to certain
portions  of this  report.  A final  hearing on such  objections  is expected to
scheduled  for  November of 1998.  These  objections  ultimately  may have to be
resolved at the Appellate Court level.

     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. While such royalty
bearing  licenses and  enforcement of its patents are important to the Company's
business to create long-term value for its stockholders, the ultimate outcome of
the  above  litigation,   appeals  with  respect  to  the  litigation,  and  /or
negotiations cannot be determined at this time.

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.
<PAGE>

     The Company has enhanced its MINX video  communications  products,  and its
Networked  Video  Systems,  NVS,  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  products 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
and Pentium II 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  resells 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  Intelligent  Call  Exchange  ("ICE")  from
Computer Talk Technology,  Inc. ("CTT") in 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.  Also,  during the fiscal year,  the Company  entered into a Value Added
Reseller  agreement with Nortel (Northern  Telecom) Europe allowing Datapoint to
sell and support Nortel's Symposium portfolio of multimedia products. As part of
the agreement,  the Company will create a unique Symposium  competency center to
provide  customers  with  solutions  support and  integration  facilities.  This
pan-European  agreement is currently  operational in Italy, but will be extended
to encompass other European countries. Telecommunications solutions are provided
with   the   combined   expertise   in   networking,    data   processing,   and
telecommunications products.

     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.
<PAGE>

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 1996 through 1998, 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,  Norway,
Spain,  Sweden,  Switzerland  and the  United  Kingdom  and  through  authorized
distributors worldwide.  During fiscal years 1998, 1997 and 1996,  approximately
99  percent,   99  percent  and  96  percent,   respectively,   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  service   operations  of  the  Company's
international  subsidiaries produced 41 percent of total company revenues and 52
percent of total  company gross profit for the fiscal year ended August 1, 1998.
In fiscal year 1996,  Datapoint  entered into a  subcontract  with  Kalamazoo to
provide hardware  maintenance service to Kalamazoo's  European Automotive Dealer
System network.

Manufacturing, Raw Materials, and Supplies

    The majority of Datapoint's  products are purchased from third parties.  The
products are then resold  badged/unbadged  within Datapoint  configurations upon
the completion of testing and packaging.

    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 product 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.

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 $2.5 million,  $2.1 million,  and $2.7 million
in the fiscal  years ended  August 1, 1998,  August 2, 1997,  and July 27, 1996,
respectively,  on research and development  activities.  Datapoint maintains its
principal research and development facility in San Antonio, Texas.
<PAGE>

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 1, 1998 and  August  2,  1997 was $8.5  million  and $9.6  million,
respectively.  Calculations were based on then existing end-user purchase prices
for products 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 1, 1998,  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  believes  that  in  particular  its  video
conferencing  patents and multi-speed network processing patents and the related
patents are important to its business as a whole.

Video Conferencing Patents

     Datapoint,  along with John  Frassanito  and David A.  Monroe,  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.

The status of the patent infringement litigation is as follows:

     (1) Datapoint  Corporation v. PictureTel  Corporation,  No.  3:93-CV-2381-D
(N.D.  Texas).  This case was  tried in March and April of 1998 with an  adverse
result. Notice of Appeal has been filed.

     (2) Datapoint  Corporation v.  Compression  Labs,  Inc. No.  3:93-CV-2522-D
(N.D.  Texas);   Datapoint  Corporation  v.  Teleos  Communications,   Inc.  No.
95-4455-AET  (D.N.J.);  Datapoint  Corporation v. Videolan  Technologies,  Inc.;
Videolan  Technologies,  Inc. v.  Datapoint  Corporation,  No. 96 CV-604-H (W.D.
Kentucky) et al;  Datapoint  Corporation  v. Intel Corp.  No.  97-CV-2581  (N.D.
Texas). These cases have been dismissed subject to being reopened if the Company
is successful in its appeal of certain of the issues adversely determined in the
PictureTel litigation described above.
<PAGE>

Multi-speed Networking Patents

     Datapoint  is also the owner of United  States  Patent Nos.  5,008,879  and
5,077,732  related to network  technology.  The Company  believes  these patents
cover most products  introduced by various suppliers to the networking  industry
and  dominates  certain types of  dual-speed  technology on networking  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,  and for purposes of
claim  construction.  On January 20,  1998,  a hearing  commenced  in the United
States  District  Court that  concluded  on January 23, 1998 during  which claim
construction was submitted to a Special Master.  The Special Master's report was
issued  April of 1998.  The  Company  has filed two sets  objections  to certain
portions of this report.  A final  hearing on such  objections is expected to be
scheduled  for  November of 1998.  These  objections  ultimately  may have to be
resolved at the Appellate Court level.

     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. While 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 ultimate
outcome of the above litigation, appeals with respect to the litigation, and /or
negotiations cannot be determined at this time.

    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 1, 1998, the Company had 652 employees. The Company considers its
relations with its 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.
<PAGE>

ITEM 2.  Properties.

    Datapoint's  principal executive offices are located in Paris, France and in
San Antonio,  Texas.  Datapoint  believes that its facilities 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 1, 1998, is as follows:

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

San Antonio, Texas   Office      38,000     Leased; expires October 1, 2002
Gouda, Netherlands   Office      52,000     Owned; 1 acre (Subject to mortgage)*
Paris, France        Office       7,000     Leased; expires June 30, 1999

    Additionally, at August 1, 1998, excluding leases assigned or subleased, the
Company  leased sales and service  offices having an aggregate of 302,000 square
feet in metropolitan areas worldwide,  pursuant to lease agreements which expire
between 1998 and 2009.  The  aggregate  annual  rental of all of these sales and
service  offices is  approximately  $3.1  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  signed a letter of intent to sell the
building  it owns in  Gouda,  Netherlands  to a private  unaffiliated  group for
approximately $2.2 million (net of mortgage  obligations and closing costs). The
sales contract provides for the leaseback by the Company of approximately 18,000
square  feet for an initial  lease term of five years and  approximately  12,000
square feet for an initial  lease term of one year.  The  Company  closed on the
sale of the building on October 26, 1998.


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.


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

Not applicable.
<PAGE>

PART II

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

Datapoint  Corporation  announced in early August that its  securities  would no
longer  be  listed  on the New York  Stock  Exchange  under  the  symbol  "DPT",
effective at the end of business  Friday,  August 21,  1998.  The New York Stock
Exchange's  decision  was an  administrative  event  for  Datapoint  and did not
reflect any material change in the Company's  financial health. As of August 24,
1998,  the common  stock is quoted on the  National  Association  of  Securities
Dealers'  Over-the Counter Bulletin Board under the symbol "DTPT". As of October
13,  1998,  there were  approximately  2,958  holders  of record and  18,158,572
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.
As of October 13, 1998, the closing price of the stock was $0.63.

             Fiscal
              year                             High              Low
              
             1998   Q4                         2.25             1.13
                    Q3                         3.13             1.50
                    Q2                         3.44             2.50
                    Q1                         4.13             2.06

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

<PAGE>

ITEM 6.  Selected Financial Data.

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

                                                               1998           1997           1996            1995           1994
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>            <C>             <C>            <C>

Operating Results for the Fiscal Year
Total revenue                                                $151,445       $142,121       $179,541        $174,901       $172,936
Operating income (loss)                                         5,074          2,033          1,017         (18,232)       (81,021)
Income (loss) before extraordinary credit
  and effect of change in accounting principle                 (1,224)         1,173         19,015         (28,343)       (94,765)
Net income (loss)                                                (669)         2,383         19,342         (28,343)       (93,425)
Basic earnings (loss) per common share:
   Income (loss) before extraordinary credit                    (.11)            .01           1.28          (2.29)         (6.69)
   Gain on the exchange and retirement of preferred stock          --            .24             --              --            --
   Extraordinary credit                                          .03             .07            .02              --           .09
     Net income (loss) per share                                (.08)            .32           1.30          (2.29)         (6.60)
Diluted earnings (loss) per common share:
    Income (loss) before extraordinary credit                   (.11)            .01           1.11          (2.29)         (6.69)
   Gain on the exchange and retirement of preferred stock          --            .24             --              --            --
   Extraordinary credit                                          .03             .07            .02              --           .09
     Net income (loss) per share                                (.08)            .32           1.13          (2.29)         (6.60)


Financial Position at End of Fiscal Year
Current assets                                                $50,807        $45,340          $69,995       $67,506        $79,915
Fixed assets, net                                               9,468         11,764           14,625        18,877         29,088
Total assets                                                   66,816         62,388           93,818       101,751        127,434
Current liabilities                                            61,376         53,679           76,965       100,256         98,202
Long-term debt                                                 58,115         60,875           63,945        64,923         70,561
Stockholders' equity (deficit)                                (64,437)       (64,084)         (55,202)      (74,116)       (50,761)

Other Information
Average common shares outstanding                          17,967,924     16,109,774       13,455,878    13,194,667     14,430,574
Number of common stockholders of record                         2,966          3,070            3,142         3,274          3,378
Preferred shares outstanding                                  721,976        721,976        1,868,071     1,846,456      1,784,456
Dividends paid or accumulated on preferred stock                 $722         $1,009           $1,885        $1,815         $1,784
Number of employees                                               652            641              705           991          1,444
</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  1998,  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, and
3. The  vigorous  pursuit  of  patent  royalties  due from the  licensing  and
   enforcement of its video conferencing and multi-speed networking patents.

During  1998,  the Company  had a net loss of $669  thousand  compared  with net
income of $2.4  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.

During 1998,  the Company had total  revenue of $151.4  million,  an increase of
$9.3 million from the previous  year.  The increase in revenue was primarily due
to the  receipt of several  new  contracts  awarded  to the  Company's  Spanish,
Italian and British  subsidiaries  and continued  strong  hardware  sales in the
Swedish  subsidiary.  This revenue increase reflects the offset of approximately
$8.7 million,  resulting from a stronger U.S. dollar, on average,  during fiscal
1998, as compared to the same period of 1997.

Operating   expenses   (research  and  development   plus  selling,   general  &
administrative) for 1998 were $35.8 million, a decrease of $1.7 million from the
$37.5 million  recorded in 1997.  Approximately  $1.5 million of the decrease is
related to the effect of the  strengthening  U.S.  dollar when compared with the
same  period a year ago.  The  Company  recorded  restructuring  charges  of $96
thousand in 1998, compared with $2.4 million recorded in the prior year.

During 1998 and 1997,  the Company  repurchased  approximately  $2.7 million and
$2.9 million, in face value, of its 8 7/8% convertible  subordinated debentures.
This  resulted  in an  extraordinary  gain of $555  thousand  and $1.2  million,
respectively.

In previous fiscal years, included in non-operating income and expense were
transaction gains or losses resulting from the strengthening or weakening of the
U.S. dollar against foreign  currencies.  These exchange gains or losses related
to short  term  intercompany  notes and  international  subsidiary  U.S.  dollar
denominated cash were offset by translation  adjustment to Stockholders' Deficit
and therefore, had no impact on the Company's financial position.  

During fiscal year 1998,  management  reassessed the characteristics of its
intercompany notes with international  subsidiaries (payable by the U.S. parent)
and  determined  that a  substantial  portion  were  long-term in nature and not
payable  in the  foreseeable  future.  As a result,  during  fiscal  year  1998,
transaction  gains of $57  thousand  relating to these  loans are  included as a
foreign  currency  adjustment to  Stockholders'  Deficit,  which in prior years,
would have been  included in  non-operating  income and  expense,  as  described
above. During fiscal year 1997, a transaction gain of approximately $6.2 million
was included in non-operating income but was offset by translation adjustment to
Stockholders' Deficit.

In addition,  on October 27, 1997, the Company sold the three buildings it owned
in San Antonio,  Texas to a private  unaffiliated  group for approximately  $3.2
million (net of mortgage  obligations  and closing  costs).  The sales  contract
provided for the leaseback by the Company of one of the buildings (approximately
38,000 square feet) for an initial lease term of five years.

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 in 1997,
and related per share  amounts,  a gain of $3,810 on exchange and  retirement of
preferred  stock was added to net income.  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.
<PAGE>

Subsequent  to  year-end,  the  Company  signed a letter  of  intent to sell the
building  it owns in  Gouda,  Netherlands  to a private  unaffiliated  group for
approximately $2.2 million (net of mortgage  obligations and closing costs). The
sales contract provides for the leaseback by the Company of approximately 18,000
square  feet for an initial  lease term of five years and  approximately  12,000
square feet for an initial  lease term of one year.  The  Company  closed on the
sale of the building on October 26, 1998.

Financial Condition and Liquidity

During 1998, the Company's cash and cash equivalents  decreased $3.4 million due
primarily to the usage of cash in operations.

During 1998,  the  Company's net cash provided  from  investing  activities  was
approximately  $1.0  million.  Included in this amount is $3.2  million from the
sale of the San Antonio,  Texas office buildings  offset by  approximately  $2.4
million  of  fixed  asset  purchases  (primarily  test  equipment,  spares,  and
internally-used equipment).

Net cash  used in  financing  activities  was $2.5  million  in 1998,  primarily
related to the net paydown of the  Company's  borrowings.  As of August 1, 1998,
the Company had restricted cash of $352 thousand as compared to $154 thousand in
the prior year.  The 1998 and 1997 balances were  restricted  primarily to cover
various lines of credits, reflected as payables to banks.

As of  August  1,  1998,  the  Company  had cash and cash  equivalents  of $12.1
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 1999. In addition,  management believes the Company
will be able to discharge its  obligations  in the near term with cash generated
from operations and other sources such as sale of selected assets and/or capital
transactions.

As of August 1, 1998, the Company had included in payables to banks an amount of
$1,906 and $1,747, payable by the Dutch and U.K. subsidiaries,  respectively, to
International  Factors "De Factorij"  B.V., a subsidiary of ABN-AMRO Bank of the
Netherlands. The Dutch loan was secured by the building that the Company's Dutch
subsidiary  owned in the  Netherlands,  and by certain  receivables of the Dutch
subsidiary.  Subsequent  to year-end,  the Company  sold the Dutch  building (as
described  above)  and  from  the  proceeds  paid the  $1,906  Dutch  subsidiary
obligation. The U.K. loan is secured by certain receivables of the U.K.
subsidiary.

The Company has available lines of credit from foreign banks to its foreign
subsidiaries.  The  availability  of the  unused  lines of credit is  subject to
certain collateral  restrictions.  The unused lines of credit at August 1, 1998,
totaled $7.1 million after borrowings of $7.9 million.

As a result of the Company's capital deficiency which existed at the end of 1994
and throughout 1995, 1996, 1997, and 1998, the Company determined not to pay the
quarterly  preferred dividend payments due to stockholders  during the period of
October 15, 1994  through  October 15, 1998.  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. 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 1, 1998,  the Company had available  federal tax net operating  losses
aggregating  approximately  $184,000,  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).
<PAGE>

Reorganization/Restructuring Costs
(In thousands)

A rollforward of the restructuring  accrual from July 29, 1995 through August 1,
1998 is as follows:

                                                           TOTAL
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
Fiscal 1998 additions                                           96
Fiscal 1998 payments                                          (422)
-------------------------------------------------------------------
Restructuring accrual as of August 1, 1998                    $182

The projected payout of the  restructuring  accrual balance as of August 1, 1998
which  relates  almost  entirely to unpaid  employee  termination  costs,  is as
follows:

First quarter 1999                                         $    42
Second quarter 1999                                            105
Third quarter 1999                                              10
Fourth quarter 1999                                             10
Beyond                                                          15
--------------------------------------------------------------------
Restructuring accrual as of August 1, 1998                 $   182

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.

Results of Operations

The  following  is a summary of the  Company's  sources  of revenue  for each of
fiscal 1998, 1997 and 1996:

(In thousands)
                                           1998           1997           1996
                                           ----           ----           ----
Sales:
   U.S.                                  $3,182         $4,241         $3,185
   Foreign                               85,742         74,127         95,691
                                         ------         ------         ------
                                         88,924         78,368         98,876
Service and other:
   U.S.                                   1,123          1,185            906
   Foreign                               61,398         62,568         79,759
                                         ------         ------         ------
                                         62,521         63,753         80,665
                                         ------         ------         ------

Total revenue                          $151,445       $142,121       $179,541
                                       ========       ========       ========


1998 Compared to 1997

During 1998,  the Company had total  revenue of $151.4  million,  an increase of
$9.3 million from the previous  year.  The increase in revenue was primarily due
to the  receipt of several  new  contracts  awarded  to the  Company's  Spanish,
Italian and British  subsidiaries  and continued  strong  hardware  sales in the
Swedish  subsidiary.  This revenue increase reflects the offset of approximately
$8.7 million,  resulting from a stronger U.S. dollar, on average,  during fiscal
1998, as compared to the same period of 1997.

Gross profit  margins  during 1998 were 27.0%  compared with 29.5% for 1997. The
decrease  was  primarily  the  result of a large  volume of sales by a  Northern
European  subsidiary of lower margin product and competitive  pricing  pressures
worldwide  partially  offset by higher  service  margins due to  continued  cost
cutting actions.
<PAGE>

On October  27,  1997,  the  Company  sold the three  buildings  it owned in San
Antonio,  Texas to a private  unaffiliated  group for approximately $3.2 million
(net of mortgage obligations and closing costs). The sales contract provided for
the  leaseback  by the  Company of one of the  buildings  (approximately  38,000
square feet) for an initial lease term of five years.

In previous fiscal years, included in non-operating income and expense were
transaction gains or losses resulting from the strengthening or weakening of the
U.S. dollar against foreign  currencies.  These exchange gains or losses related
to short  term  intercompany  notes and  international  subsidiary  U.S.  dollar
denominated cash were offset by translation  adjustment to Stockholders' Deficit
and therefore, had no impact on the Company's financial position.  

During fiscal year 1998,  management  reassessed the characteristics of its
intercompany notes with international  subsidiaries (payable by the U.S. parent)
and  determined  that a  substantial  portion  were  long-term in nature and not
payable  in the  foreseeable  future.  As a result,  during  fiscal  year  1998,
transaction  gains of $57  thousand  relating to these  loans are  included as a
foreign  currency  adjustment to  Stockholders'  Deficit,  which in prior years,
would have been  included in  non-operating  income and  expense,  as  described
above. During fiscal year 1997, a transaction gain of approximately $6.2 million
was included in non-operating income but was offset by translation adjustment to
Stockholders' Deficit.

Operating expenses  (research and development plus selling,  general &
administrative) for 1998 were $35.8 million, a decrease of $1.7 million from the
$37.5 million  recorded in 1997.  Approximately  $1.5 million of the decrease is
related to the effect of the  strengthening  U.S.  dollar when compared with the
same  period a year ago.  The  Company  recorded  restructuring  charges  of $96
thousand  during 1998,  compared  with $2.4 million  recorded in the prior year.
Research and  development  expenses  increased from $2.1 million in 1997 to $2.5
million in 1998.

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
intercompany   notes  and  international   subsidiary  U.S.  dollar
denominated cash.
<PAGE>

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.

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.

YEAR 2000 COMPLIANCE

The Year 2000 Issue is the result of computer  programs  being written using two
digits  rather than four to define the  applicable  year.  Any of the  Company's
computer  programs or  hardware  that have  date-sensitive  software or embedded
chips may  recognize  a date  using "00" as the year 1900  rather  than the year
2000.  This  could  result  in  a  system  failure  or  miscalculations  causing
disruptions of operations,  including, among other things, a temporary inability
to process transactions, generate invoices, or engage in similar normal business
activities.

Based on recent assessments,  the Company determined that it will be required to
modify or replace  significant  portions of hardware  and software so that those
systems  will  properly  utilize  dates beyond  December  31, 1999.  The Company
presently  believes that with modifications and replacement of existing hardware
and  software,  the  Year  2000  Issue  can  be  mitigated.   However,  if  such
modifications  and  replacements  are not made, or are not completed on a timely
basis, the Year 2000 Issue could have a material impact on the operations of the
Company.

The Company's  plan to resolve the Year 2000 Issue  involves the following  four
phases:  assessment,  remediation,  testing,  and  implementation.  To date, the
Company has  substantially  completed (90%) of its assessment of all Information
Technology ("IT") systems that could be significantly affected by the Year 2000.
The  completed  assessment  indicated  that  most of the  company's  significant
information  technology systems could be affected,  particularly  general ledger
and the remaining financial systems (Billing, Inventory, etc.).

The  Company  has  also  assessed  its non  "IT"  operating  systems  to  insure
compliance with Year 2000.  Affected systems included those primarily related to
the office and facilities'  environment  (telephone  systems,  security systems,
etc.).  While the Company has determined that some of these systems are not Year
2000 compliant,  the Company intends to  replace/modify  these prior to July 31,
1999, and does not expect to have a material exposure with these systems.

The majority of the Company's  products are purchased  from third  parties,  who
furnish products meeting the Company's specifications.  The Company has obtained
information about the Year 2000 compliance  status of its significant  suppliers
and  subcontractors  and continues to monitor  their  compliance.  To date,  the
Company  is not aware of any  supplier/subcontractor  Year 2000 issue that would
materially  impact the Company's  results of operations,  liquidity,  or capital
resources.  However,  the Company has no means of ensuring that their  suppliers
will be Year 2000 ready. The inability of  suppliers/sub-contractors to complete
their Year 2000 resolution  process in a timely fashion could materially  impact
the Company.  The effect of  non-compliance  by suppliers is not determinable at
this time. 
<PAGE>

The Company  also sells a variety of  proprietary  software  products  which the
Company developed.  The Company is 90% complete with the assessment of Year 2000
compatibility of these software  products and has made the results  available on
the  Company's  Internet  "web"  page and have  communicated  these  results  to
customers on a demand basis.

For its information technology exposures,  to date, the Company is approximately
10%  complete  on  the  remediation  phase  and  expects  to  complete  software
reprogramming  and  replacement  no later than August 1, 1999.  Once software is
reprogrammed  and  replaced  for  a  system,  the  Company  begins  testing  and
implementation.  These phases run concurrently for different systems. Completion
of the testing and implementation phases for all significant systems is expected
by August 1, 1999.

For operating  equipment,  the Company is beginning the  remediation  phases and
expects to complete its remediation efforts by August 1, 1999.

The Company will utilize both internal and external  resources to reprogram,  or
replace,  test, and implement the software and operating equipment for Year 2000
modifications.  The total  cost of the Year 2000  project is  estimated  at $1.3
million and is being funded through  operating cash flows.  To date, the Company
has incurred  approximately $0.1 million (all expensed) related to all phases of
the Year 2000 project. Of the total remaining project costs,  approximately $1.0
million is attributable to the purchase of new software and operating equipment,
which  will  be   capitalized.   The  remaining  $0.2  million  relates  to  the
repair/replacement of hardware and software and will be expensed as incurred.

The Company  believes  that it has an effective  program in place to resolve the
Year 2000 issue in a timely  manner.  As noted  above,  the  Company has not yet
fully completed all necessary phases of the Year 2000 program. In the event that
the Company does not complete all phases,  there could be circumstances in which
the  Company  would be unable to  automatically  accept  customer  orders,  ship
products,  invoice customers or collect payments.  In these events,  the Company
would  resort to a previously  identified  list of problem  solving  priorities,
revert to some previous or manual operation and/or rely on previously identified
outsourcing or incremental staffing opportunities.

In  addition,  disruptions  in the economy  generally  resulting  from Year 2000
issues could also materially  adversely affect the Company. The Company could be
subject to litigation for computer system product  failure,  such as,  equipment
shutdown,  or failure to properly date business records. The amount of potential
liability or lost revenue cannot be reasonable estimated at this time.

The  Company  plans  to  complete  the  Year  2000  modifications  are  based on
management's best estimates,  which were derived utilizing numerous  assumptions
of future events including the continued availability of certain resources,  and
other factors. Estimates on the status of completion and the expected completion
dates are based on costs  incurred  to date  compared to total  expected  costs.
However,  there can be no guarantee  that these  estimates  will be achieved and
actual results could differ  materially from those plans.  Specific factors that
might  cause such  material  differences  include,  but are not  limited to, the
availability  and cost of personnel  trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.

NEW EUROPEAN CURRENCY

In January  1999,  certain  European  countries are scheduled to introduce a new
currency unit called the `euro'.  In conjunction  with the  preparation  for the
year 2000, the Company is also modifying  and/or  adapting  systems  designed to
properly  handle  the euro.  The  Company's  subsidiaries  will  formally  begin
reporting  in euro  currency  starting  with the August 1999  results (FY 2000).
While Datapoint will more than likely be required to deal with euro transactions
prior to that time,  the activity  will  primarily be done  manually.  The costs
required to be able to accommodate  the euro are combined with costs of becoming
year 2000 compliant,  and therefore not easily identifiable.  However,  they are
not  considered  to be so  significant  so as to have a  material  effect on the
Company's  business.  The  projected  costs  and  completion  dates for the euro
project are based upon management's best estimates.  Actual results could differ
materially from these estimates. 
<PAGE>

NEW ACCOUNTING STANDARDS

Comprehensive  Income.  In June 1997,  the Financial  Accounting  Standards
Board  ("FASB")  issued  Statement  No.  130,  Reporting  Comprehensive  Income.
Statement  No.  130  establishes  new rules for the  reporting  and  display  of
comprehensive  income and its  components.  Comprehensive  income is net income,
plus certain other items that are recorded directly to stockholders' equity. The
only  such  item  currently  applicable  to  the  Company  is  foreign  currency
translation   adjustments  and  minimum  pension  liability   adjustments.   The
Statement, which is required to be adopted by the Company in fiscal 1999, is not
expected to materially change the Company's financial reporting or disclosures.

Segments.  In June 1997, the FASB issued  Statement No. 131,  Disclosures  about
Segments of an Enterprise and Related Information. The Statement changes the way
public companies report segment  information in annual financial  statements and
also  requires  companies  to report  selected  segment  information  in interim
financial statements to shareholders.  The Company will adopt this new Statement
in the first quarter of fiscal 1999;  however,  this new pronouncement  will not
change reported net financial results.

Software  Revenue  Recognition.   In  October  1997,  the  Accounting  Standards
Executive  Committee issued Statement of Position 97-2 (SOP 97-2). SOP 97-2 sets
forth  guidelines for recognition of revenue for software sales.  This SOP which
is  required  to be adopted by the  Company in fiscal  1999 is not  expected  to
materially change the Company's financial reporting.

Market Risk Sensitive Instruments

Management has determined  that all of the Company's  foreign  subsidiaries
operate primarily in local currencies which represent the functional  currencies
of the  subsidiaries.  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. As such, the Company's  operating results are affected by
fluctuations  in the  value of the U.S.  dollar as  compared  to  currencies  in
European  countries,  as a result of the sales of its  products  and services in
these foreign markets.  A hypothetical,  uniform 10% strengthening of the dollar
relative to the currencies in which the Company's sales were  denominated  would
have  resulted in a decrease to gross profit of  approximately  $3.3 million for
the year ending August 2, 1998. This calculation assumes that each exchange rate
would  have  changed  in the same  direction  relative  to the U.S.  dollar.  In
addition to the direct effects of changes in exchange rates, which are a changed
dollar value of the resulting  sales,  changes in exchange rates also affect the
volume of sales or the foreign  currency  sales price as  competitors'  products
become  more or less  attractive.  The  Company's  sensitivity  analysis  of the
effects in foreign currency exchange rates does not factor in a potential change
in sales levels or local currency prices.
<PAGE>

In addition,  the Company has cash and  intercompany  receivables  and payables
which are denominated in various  functional  currencies of the subsidiaries and
parent.  At August 1, 1998,  the result of a uniform  10%  strengthening  of the
dollar relative to the currencies in which the Company's  intercompany balances
are denominated  would result in $ 3.7 million of foreign  currency  transaction
losses that would be  reported  as a  translation  adjustment  to  stockholders'
deficit.

The  Company's  long  term debt  consists  entirely  of 8 7/8%  convertible
subordinated  debentures.  As of  August 1, 1998, the carrying  amount of these
debentures was $58,115,  with a fair value of $32,980,  after  consideration  of
repurchases  through August 1, 1998. The following  table presents the aggregate
maturities and carrying amount of the debt principal.

                      Principal Amount by Expected Maturity
                          Fixed Interest Rate (8 7/8%)

                                                                          
                                                                          
                  1999    2000    2001   2002   2003  Thereafter  Total   
Long Term Debt
   Fixed Rate     $3.1     $5.0   $5.0   $5.0   $5.0     $35.0     $58.1  



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 1998, 1997 and 1996                                     18

     Consolidated Balance Sheets as of August 1, 1998
         and August 2, 1997                                            19

     Consolidated Statements of Cash Flows for the fiscal
         years 1998, 1997 and 1996                                     20

     Consolidated Statements of Stockholders' Deficit for the fiscal
         years 1998, 1997 and 1996                                     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 1, 1998, and August 2,
1997  and the  related  consolidated  statements  of  operations,  stockholders'
deficit and cash flows for each of the three  fiscal  years in the period  ended
August 1, 1998. 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 1, 1998,  and August 2, 1997 and the  consolidated  results of
its  operations  and its cash  flows for each of the three  fiscal  years in the
period ended August 1, 1998 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 26, 1998
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
Datapoint  Corporation  and  Subsidiaries  Fiscal Years 1998,  1997 and 1996
(In thousands, except share and per share data)
<TABLE>
<CAPTION>

                                                                            1998             1997              1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>              <C>               <C>

Revenue:
    Sales                                                                $88,924          $78,368           $98,876
    Service and other                                                     62,521           63,753            80,665
-------------------------------------------------------------------------------------------------------------------
        Total revenue                                                    151,445          142,121           179,541

Operating costs and expenses:
    Cost of sales                                                         70,029           58,060            72,483
    Cost of service and other                                             40,480           42,120            51,524
    Research and development                                               2,466            2,146             2,661
    Selling, general and administrative                                   33,300           35,337            51,593
    Reorganization/restructuring costs                                        96            2,425               263
-------------------------------------------------------------------------------------------------------------------
        Total operating costs and expenses                               146,371          140,088           178,524
-------------------------------------------------------------------------------------------------------------------

Operating  income                                                          5,074            2,033             1,017

Non-operating income (expense):
    Interest expense                                                      (6,148)          (6,776)           (8,619)
    Realized gain on sale of European based
      Auto Dealer Systems                                                     --               --            32,200
    Other, net                                                             1,195            5,924            (1,891)
--------------------------------------------------------------------------------------------------------------------
        Income before income taxes
           and extraordinary credit                                          121            1,181            22,707
Income taxes                                                               1,345                8             3,692
-------------------------------------------------------------------------------------------------------------------
        Income (loss) before extraordinary credit                        (1,224)           1,173            19,015

Extraordinary credit-debt extinguishment                                     555            1,210               327
-------------------------------------------------------------------------------------------------------------------

Net income (loss)                                                          $(669)          $2,383           $19,342
===================================================================================================================
Net income (loss), adjusted for preferred stock dividends paid or 
 accumulated plus gain on exchange and retirement of preferred 
 stock - Net Income (loss) applicable to common                          $(1,391)          $5,184           $17,457
===================================================================================================================

Basic earnings (loss) per common share:
    Income (loss) before extraordinary credit                            $ (.11)             $.01             $1.28
      Gain on the exchange and retirement of preferred stock                  --              .24                --
    Extraordinary credit-debt extinguishment                                .03              .07               .02
-------------------------------------------------------------------------------------------------------------------
        Net income (loss) per common share                                $(.08)             $.32             $1.30
===================================================================================================================

Diluted earnings (loss) per common share:
    Income (loss) before extraordinary credit                            $ (.11)             $.01             $1.11
      Gain on the exchange and retirement of preferred stock                  --              .24                --
    Extraordinary credit-debt extinguishment                                 .03              .07               .02
-------------------------------------------------------------------------------------------------------------------
        Net income (loss) per common share                                $(.08)             $.32             $1.13
===================================================================================================================


Average common shares outstanding:
      Basic                                                           17,967,924       16,109,774        13,455,878
      Diluted                                                         17,967,924       16,337,163         17,193,091
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


<PAGE>

CONSOLIDATED BALANCE SHEETS
Datapoint  Corporation  and  Subsidiaries  August 1, 1998 and August 2, 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                   1998               1997
----------------------------------------------------------------------------------------------------------
<S>                                                                              <C>               <C>
Assets

Current assets:
    Cash and cash equivalents                                                    $12,101           $15,490
    Restricted cash and cash equivalents                                             352               154
    Accounts receivable, net of allowance for doubtful
      accounts of $1,305 and $1,654, respectively                                 32,138            22,731
    Inventories                                                                    2,957             3,962
    Prepaid expenses and other current assets                                      3,259             3,003
----------------------------------------------------------------------------------------------------------
        Total current assets                                                      50,807            45,340

Fixed assets, net                                                                  9,468            11,764
Other assets, net                                                                  6,541             5,284
----------------------------------------------------------------------------------------------------------
                                                                                 $66,816           $62,388
==========================================================================================================

Liabilities and Stockholders' Deficit

Current liabilities:
    Payables to banks                                                             $7,902            $7,346
    Current maturities of long-term debt                                              --               601
    Accounts payable                                                              17,341            12,209
    Accrued expenses                                                              22,592            20,865
    Deferred revenue                                                              11,643            11,386
    Income taxes payable                                                           1,898             1,272
----------------------------------------------------------------------------------------------------------
        Total current liabilities                                                 61,376            53,679

Long-term debt, exclusive of current maturities                                   58,115            60,875
Other liabilities                                                                 11,762            11,918

Commitments and contingencies

Stockholders' deficit:
    Preferred stock of $1.00 par value.  Shares  authorized  10,000,000;  shares
      issued  and  outstanding  721,976 in 1998 and  721,976 in 1997  (aggregate
      liquidation preference, including dividends in arrears,
      $17,327 in 1998 and $16,605 in 1997).                                          722               722
    Common stock of $0.25 par value.  Shares authorized 40,000,000; shares
      issued 20,991,217, including treasury shares of
      2,951,909 in 1998 and 3,203,102 in 1997.                                     5,248             5,248
    Other capital                                                                212,655           212,655
    Pension  liability adjustment                                                 (6,084)           (4,488)
    Foreign currency translation adjustment                                        6,242             4,613
    Retained deficit                                                            (278,655)         (276,202)
    Treasury stock, at cost                                                       (4,565)           (6,632)
-----------------------------------------------------------------------------------------------------------
        Total stockholders' deficit                                              (64,437)          (64,084)
-----------------------------------------------------------------------------------------------------------
                                                                                 $66,816           $62,388
==========================================================================================================
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint  Corporation  and  Subsidiaries  Fiscal Years 1998,  1997 and 1996 
(In thousands)
<TABLE> 
<CAPTION>
                                                                            1998           1997           1996
--------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>            <C>           <C>
Cash flows from operating activities:
    Net income (loss)                                                      $(669)        $2,383        $19,342
    Adjustments to reconcile net income (loss) to net cash
    provided from (used in) operating activities:
      Depreciation and amortization                                        3,785          5,861          6,969
      Provision for losses (recoveries) on accounts receivable                33           (164)           170
      Realized gain on sale of property                                   (1,205)            --             --
      Realized gain on sale of EADS                                           --             --        (32,200)
      Gain on debt extinguishment                                           (555)        (1,210)          (327)
      Deferred income taxes                                                  836           (546)         1,420
      Changes in assets and liabilities:
       (Increase) Decrease in receivables                                 (7,515)         5,792          1,467
       (Increase) decrease in inventory                                    1,139           (969)         5,436
       Increase (Decrease) in accounts payable and accrued expenses        2,359        (14,472)        (6,503)
       Increase (Decrease) in other liabilities and deferred credits        (470)         5,496          2,482
        Use of restricted funds held in trust                                 --             --          3,018
      Other, net                                                             (11)           449             21
      --------------------------------------------------------------------------------------------------------
      Net cash provided from (used in) operating activities               (2,273)         2,620          1,295

Cash flows from investing activities:
    Payments for fixed assets                                             (2,354)        (3,580)        (3,725)
    Proceeds from the sale of EADS                                            --             --         29,450
    Proceeds from disposition of fixed assets                              3,200             --            278
    Other, net                                                               108           (612)          (217)
---------------------------------------------------------------------------------------------------------------
      Net cash provided from (used in) investing activities                  954         (4,192)        25,786

Cash flows from financing activities:
    Payments on borrowings                                               (84,939)       (18,272)       (44,963)
    Proceeds from borrowings                                              82,637         13,799         31,383
    Restricted cash for letters of credit                                   (198)           710          1,685
--------------------------------------------------------------------------------------------------------------
      Net cash used in financing activities                               (2,500)        (3,763)       (11,895)

Effect of foreign currency translation on cash                               430         (2,359)          (495)
---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                      (3,389)        (7,694)        14,691
Cash and cash equivalents at beginning of year                            15,490         23,184          8,493
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                 $12,101        $15,490        $23,184
==============================================================================================================

Cash payments for:
Interest                                                                  $6,188         $6,823         $8,625
Income taxes                                                                 807            891            514
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

<PAGE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Datapoint Corporation and Subsidiaries Fiscal Years 1998, 1997, and 1996
(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 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)
                                                                                                                            
Net loss                                   --          --          --         --         (669)         --         --         (669)
Foreign currency translation
 adjustment                                --          --          --      1,629           --          --         --        1,629
Pension liability adjustment               --          --          --         --           --          --     (1,596)      (1,596)
Stock options exercised                (1,078)      1,312         234
Common issued to 401(k) plan               --          --          --         --          (59)         84         --           25
Executive retirement contribution          --          --        (658)       658           --
Other                                      --          --          --         --           11          13         --           24
                                                                                                                                
Balance at August 1, 1998             $ 5,248    $    722    $212,655    $6,242     $(278,655)   $ (4,565)   $(6,084)    $(64,437)
                                                                                                                                
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Datapoint Corporation and Subsidiaries August 1, 1998,  August 2, 1997 
  and July 27, 1996
(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 1999. In addition,  management believes the Company will
be able to discharge its  obligations in the near 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 1998, 1997 and
1996 are for the fiscal years ended August 1, 1998,  August 2, 1997 and July 27,
1996.

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.


<PAGE>

Risk Concentration

Financial instruments which potentially subject the Company to concentrations of
credit risk are accounts receivable.  Concentrations of credit risk with respect
to the  receivables  are limited  due to the large  number of  customers  in the
Company's  customer base and their  dispersion  across  industries.  The Company
primarily sells to customers in Europe within,  but not limited to, the banking,
automotive,   government,  libraries,  and  telecommunications  industries.  The
Company maintains an allowance for losses based upon the expected collectibility
of accounts receivable.


Debt

The carrying  amount and the fair value of the Company's  debt at August 1, 1998
are:
                                                                   Estimated
                                            Carrying Amount        Fair Value
8-7/8% convertible subordinated debentures       $58,115             $32,980

The fair value of the Company's 8-7/8%  convertible  subordinated  debentures is
based on a quoted market price at July 31, 1998.

Translation of Foreign Currencies

Management has determined that all of the Company's foreign subsidiaries operate
primarily in local currencies  which represent the functional  currencies of the
subsidiaries.  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 1998 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  Company  accounts  for  income  taxes  under the  liability  method in
accordance with FASB Statement No. 109.

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.

<PAGE>

Net Income (Loss) per Common Share

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards  No. 128,  "Earnings  per Share,"  which became
effective  for the  Company's  financial  statements  beginning  with the period
ending January 31, 1998.  Statement 128 replaced the previously reported primary
and fully diluted  earnings per share with basic and diluted earnings per share.
Unlike  primary  earnings  per share,  basic  earnings  per share  excludes  any
dilutive  effects of options,  warrants,  and  convertible  securities.  Diluted
earnings  per share is very similar to the  previously  reported  fully  diluted
earnings per share.  All  earnings  per share  amounts for all periods have been
presented,  and where  necessary,  restated  to  conform  to the  Statement  128
requirements. The Company adopted this new standard during the second quarter of
fiscal year 1998.  The 1998,  1997 and 1996  computations  include the effect of
dividends paid or accumulated on preferred  stock of $722,  $1,009,  and $1,885,
respectively.

<TABLE>
<CAPTION>

                                      1998                     1997                        1996
                                      ----                     ----                        ----
                             Income   Shares  EPS      Income  Shares   EPS       Income    Shares      EPS
--------------------------------------------------------------------------------------------------------------
<S>                          <C>      <C>    <C>         <C>        <C>    <C>   <C>          <C>       <C>
Income (loss)  before extraordinary
  credit                     $(1,224)                    $1,173                  $19,015
Preferred stock dividends
  accumulated                   (722)                    (1,009)                  (1,885)
Gain on the exchange and
  retirement of preferred stock  --                       3,810                       --
Extraordinary credit             555                      1,210                      327                 __
------------------------------------------------------------------------------------------------------------
Basic EPS                    $(1,391) 17,968 $(.08)      $5,184    16,110 $.32   $17,457     13,456    $1.30
-------------------------------------------------------------------------------------------------------------

Dilutives:
  Stock Options                   --      --                 --       227                          1
  Convertible preferred stock     --      --                 --        --           1,885      3,736      __
  ----------------------------------------------------------------------------------------------------------
Diluted EPS                  $(1,391) 17,968 $(.08)      $5,184    16,337 $.32   $19,342     17,193    $1.13
-------------------------------------------------------------------------------------------------------------
</TABLE>

The EPS  computations  for fiscal years 1998,  1997 and 1996 exclude the 
following  shares for stock options and  convertible debentures  because their
effect would have been antidilutive:

                                      1998           1997             1996
                                      ----           ----             ----
    Stock options                     3,711           1,183          1,762
    Convertible preferred stock       1,444           1,444             --
    Convertible debentures            3,210           3,357          3,516


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.

2.  Reorganization/Restructuring Costs

                                         1998         1997          1996
------------------------------------------------------------------------
Employee termination costs                 $96        $2,425        $251
Asset write-offs                            --            --          12
------------------------------------------------------------------------
                                           $96        $2,425        $263
========================================================================

The Company's 1998,  1997, and 1996  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.  At August 1, 1998,  accrued but
unpaid restructuring costs were $182.

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.
<PAGE>

3.  Non-operating Income (Expense)
                                           1998          1997         1996
--------------------------------------------------------------------------
Interest earned                            $518          $526         $421
Foreign currency gains (losses)            (104)        6,195          728
Litigation settlements                       --            --       (2,945)
Gain on the sale of  buildings            1,205            --           --
Other                                      (424)         (797)         (95)
---------------------------------------------------------------------------
                                         $1,195        $5,924      $(1,891)
===========================================================================

During fiscal year 1998,  management  reassessed the characteristics of its
intercompany notes with international  subsidiaries (payable by the U.S. parent)
and  determined  that a  substantial  portion  were  long-term in nature and not
payable  in the  foreseeable  future.  As a result,  during  fiscal  year  1998,
transaction  gains of $57  thousand  relating to these  loans are  included as a
foreign  currency  adjustment to  Stockholders'  Deficit,  which in prior years,
would have been included in non-operating income and expense. During fiscal year
1997,  a  transaction  gain  of  approximately  $6.2  million  was  included  in
non-operating  income but was offset by translation  adjustment to Stockholders'
Deficit.


4.  Income Taxes

The provision for taxes consisted of the following:
                                                 1998         1997         1996
-------------------------------------------------------------------------------
Income (loss) before income taxes 
  and extraordinary credit:
    U.S.                                      $(5,655)     $(3,262)       $(771)
    Outside the U.S.                            5,776        4,443       23,478
-------------------------------------------------------------------------------
                                                 $121       $1,181      $22,707
===============================================================================

Provision for income taxes:
U.S. federal:
    Current                                        $--          $--          $6
Outside the U.S.:
    Current                                       509          554        2,266
    Deferred                                      836         (546)       1,420
-------------------------------------------------------------------------------
                                                1,345            8        3,686
-------------------------------------------------------------------------------
Total provision                                $1,345           $8       $3,692
===============================================================================

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

                                                   1998      1997      1996
---------------------------------------------------------------------------
Income taxes  at statutory rate                     $42      $413    $7,947
Increase in taxes resulting from:

Benefit of U.S. tax loss not recognized           2,057     1,137       262
Foreign losses and other transactions on 
 which a tax benefit could not be recognized         33        14       573
Effect of foreign tax refunds and U.S. tax
 associated with dividends paid                      --        --         6
Effect of federal tax rate less than 
 (greater than) foreign tax rates                    190       152      (539)
Benefit of operating loss carryforwards             (979)   (1,713)   (4,566)
Other, net                                             2         5         9
---------------------------------------------------------------------------
Provision for income taxes                        $1,345        $8    $3,692
===========================================================================

The undistributed  earnings,  indefinitely reinvested in international business,
of the Company's foreign subsidiaries aggregated approximately $32,000 at August
1, 1998.  Determination of the amount of unrecognized  deferred tax liability on
these unremitted earnings is not practicable.

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

                                                          1998         1997
Deferred income tax assets:
   Property, plant and equipment                        $1,769       $3,848
   Loss and credit carryforwards                        74,641       72,035
   Accrued restructuring costs                              64          178
   Other                                                 4,071        6,328
---------------------------------------------------------------------------
                                                        80,545       82,389
Less:  valuation allowance                              76,854       78,971
---------------------------------------------------------------------------
                                                         3,691        3,418
Deferred income tax liabilities:
   Accrued retirement costs                               (461)        (441)
   Foreign exchange gains                                 (837)        (578)
   Other                                                  (716)        (672)
---------------------------------------------------------------------------
                                                        (2,014)      (1,691)
Net deferred income tax asset                           $1,677       $1,727
===========================================================================

At August 1, 1998, the net deferred  income tax asset of $1,677 was presented in
the balance  sheet,  based on tax  jurisdiction,  as other  assets of $3,691 and
other liabilities of $2,014. 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.
<PAGE>

At August  1,  1998,  the  Company  had tax  operating  loss  carryforwards
approximating  $184,000 and $17,000 for  U.S.federal  and foreign tax  purposes,
respectively,   expiring  in  various  amounts   beginning  in  2001  and  1999,
respectively.  U.S. Federal long-term capital loss  carryforwards of $362 expire
in various  amounts  beginning in 2000.  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 1, 1998 of  approximately  $3,000  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
                                                 1998         1997

Finished and purchased products                $1,911       $2,742
Work in process                                   972        1,077
Raw materials                                      74          143
------------------------------------------------------------------
                                               $2,957       $3,962

6.  Fixed Assets
<TABLE>
<CAPTION>
                                                                Accumulated
                                                     Cost       Depreciation     Net
<S>                                                 <C>          <C>           <C>    
     
August 1, 1998 
Property, plant and equipment:
 Buildings and land improvements                    $11,723       $7,433       $4,290
 Machinery, equipment, furniture and fixtures        21,821       18,558        3,263
    ------------------------------------------------------------------------------------
                                                     33,544       25,991        7,553
Field support spares                                 12,360       10,463        1,897
Equipment leased to customers                           383          365           18
----------------------------------------------------------------------------------------
                                                    $46,287      $36,819       $9,468
========================================================================================

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
========================================================================================
</TABLE>
<PAGE>

In addition,  on October 27, 1997, the Company sold the three buildings it owned
in San Antonio,  Texas to a private  unaffiliated  group for approximately  $3.2
million (net of mortgage  obligations  and closing  costs).  The sales  contract
provided for the leaseback by the Company of one of the buildings (approximately
38,000 square feet) for an initial lease term of five years.

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  signed a letter  of  intent to sell the
building  it owns in  Gouda,  Netherlands  to a private  unaffiliated  group for
approximately $2.2 million (net of mortgage  obligations and closing costs). The
sales contract provides for the leaseback by the Company of approximately 18,000
square  feet for an initial  lease term of five years and  approximately  12,000
square feet for an initial  lease term of one year.  The  Company  closed on the
sale of the building on October 26, 1998.

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 1998,  1997 and 1996 was $4,419,  $5,933,  and
$7,386,  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 1, 1998,  future  minimum  lease  payments for all  noncancelable
leases  totaled  $16,900 and are payable as follows:  1999-$3,822;  2000-$3,434;
2001-$2,532; 2002-$2,094; 2003-$1,824 and $3,194 thereafter.

8.  Payables to Bank

As of August 1, 1998, the Company had included in payables to banks an amount of
$1,906 and $1,747, payable by the Dutch and U.K. subsidiaries,  respectively, to
International  Factors "De Factorij"  B.V., a subsidiary of ABN-AMRO Bank of the
Netherlands. The Dutch loan was secured by the building that the Company's Dutch
subsidiary  owned in the  Netherlands,  and by certain  receivables of the Dutch
subsidiary.  Subsequent  to year-end,  the Company  sold the Dutch  building (as
described  above)  and  from  the  proceeds  paid the  $1,906  Dutch  subsidiary
obligation.  The  U.K.  loan is  secured  by  certain  receivables  of the  U.K.
subsidiary.

The Company has  available  lines of credit  from  foreign  banks to its foreign
subsidiaries. The unused lines of credit at August 1, 1998, totaled $7.1 million
after  borrowings of $7.9 million.  The availability of the unused lines of
credit is subject to certain collateral restrictions.The weighted average 
interest rate for these short term  borrowings as of the fiscal year end 
was 7.2% , 7.7%, 9.0% for 1998, 1997, and 1996, respectively.

9.  Accrued Expenses
                                                            1998        1997
----------------------------------------------------------------------------
Salaries, commissions, bonuses and other benefits        $11,955      $7,528
Taxes other than income taxes                              4,147       4,612
Reorganization/restructuring costs                           182         508
Other                                                      6,308       8,217
----------------------------------------------------------------------------
                                                         $22,592     $20,865
<PAGE>

10.  Long-Term Debt
                                                            1998        1997
----------------------------------------------------------------------------
8-7/8% convertible subordinated debentures               $58,115     $60,783
6.5% to 9.0% real estate notes                                --         294
Other obligations                                             --         399

                                                          58,115      61,476
Less: current maturities of long-term debt                    --         601
----------------------------------------------------------------------------
                                                         $58,115     $60,875
============================================================================

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 1,
1998, there were 3,209,750 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  $40,000 in  previous  debenture  retirements  against the
sinking fund  requirements  for 1991 through  1998.  The Company also intends to
apply previous  debenture  retirements of $1,885 through August 1, 1998, against
the sinking fund  requirements  for 1999. 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 1998, the Company  repurchased  debentures with a total face value
of $2,668,  resulting in an  extraordinary  gain of $555, with no related income
taxes.  Subsequent to August 1, 1998, the Company repurchased  debentures with a
face value of $2,434 resulting in extraordinary gains of $1,284 as of October 7,
1998.

Aggregate scheduled maturities, after consideration of repurchases through
August 1, 1998, of long-term  debt are as follows:  1999--$3,115;  2000--$5,000;
2001--$5,000; 2002--$5,000; 2003--$5,000, and $35,000 thereafter.

<PAGE>

11.  Stockholders' Deficit

Throughout  1998,  employees of the Company  exercised  158,931 options for
shares of common  stock.  Additionally,  the Company  issued  10,031 shares from
common stock held in treasury to participants in the U.S. 401(k)  retirement and
savings plan.

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. 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
$2,888 and $2,166  were  accumulated  and unpaid at August 1, 1998 and August 2,
1997, 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 in 1997 and
related  per share  amounts,  a gain of $3,810 on  exchange  and  retirement  of
preferred  stock was added to net income.  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.

12.  Stock Option Plans

At  August  1,  1998,  5,594,473  shares  were  reserved  for  issuance  in
connection  with the  Company's  employee  stock  option  plans.  Total  options
outstanding for these plans total 3,411,169.

On January 28, 1998,  the  stockholders  approved a 1997  Employee  Stock Option
Plan. The plan is similar to the Company's previous employee stock option plans.
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.  In the
event of a change of control in the Company, all stock options would fully vest.
As of August 1, 1998 and August 2,  1997,  options  for  1,083,067  and  833,671
shares,  respectively,  under the employee plans were  exercisable  and no stock
appreciation  rights had been granted.  Options outstanding as of August 1, 1998
have an average  exercise price of $2.85 and expire during the period  September
2001 through March 2008.
<PAGE>

                                         Employee Stock Option Plans
                                     Price Range          Number of Shares
                                       of Shares        Under      Available
                                    Under Option       Option     for Option

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
----------------------------------------------------------------------------
Authorized                                    --           --      2,000,000
Granted                               $2.56-4.00    1,718,300     (1,718,300)
Exercised                               .94-2.69     (158,931)            --
Canceled                                .94-8.00     (354,171)       354,171
----------------------------------------------------------------------------
Outstanding at August 1, 1998          $.94-7.25    3,411,169      2,183,304
============================================================================
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 1, 1998, total 300,000
with a weighted  average  exercise  price of $1.65 and expire  during the period
December  1998 through June 2002.  No stock option grants were made to directors
in 1998.
<PAGE>

                                           Director Stock Option Plans
                                    Price Range             Number of Shares
                                    of Shares            Under      Available
                                    Under Option        Option     for Option

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
-----------------------------------------------------------------------------
Authorized                                     --           --             --
Granted                                        --           --             --
Expired                                        --           --             --
-----------------------------------------------------------------------------
Outstanding at August 1, 1998          $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 at the grant date for awards in 1998,  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. Because options vest over
several  years  and  additional   grants  are  expected,   the  effects  of  the
calculations  below  are not  likely  to be  representative  of  similar  future
calculations:
<PAGE>

(In thousands, except per share amounts)
                                                      1998    1997       1996
                                                     ------------------------
Net income (loss)--As reported                      $(669)   $2,383   $19,342
                 --Pro forma                       (1,395)    2,046    19,265
Basic earnings (loss) per share--As reported        $(.08)     $.32     $1.30
                               --Pro forma           (.12)      .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:
                                                 1998       1997         1996
Risk-free interest rate
     Employee stock option                       5.85%       6.20%       5.87%
     Board of director stock option                --        6.23%         --
Expected dividend yield
     Employee stock option                          0           0           0
     Board of director stock option                --           0          --
Expected volatility
     Employee stock option                       .653       .668         .668
     Board of director stock option                --       .668           --
Expected lives
     Employee stock option                          6          6            6
     Board of director stock option                --          3           --
Weighted average remaining contractual life
     Employee stock option                        10          10           10
     Board of director stock option               --           5           --

The weighted  average fair value of options  granted for the employee stock
option plans in 1998, 1997 and 1996 was $1.84, $.99, and $1.52, respectively and
for the board of director options in 1997 was $1.23.

Summarized  information about stock options outstanding as of August 1, 1998, is
as follows:

Range of Exercise Prices            $0.94-$1.94      $2.56-$4.94   $5.25-$7.25
------------------------------------------------------------------------------
Number of shares outstanding        1,347,369        2,122,300     241,500

Weighted average exercise price 
 of shares outstanding               $1.38            $3.55         $5.75

Weighted average remaining
   contractual life                 7.0 years        8.9 years    4.6 years

Number of shares exercisable        719,566          422,000       241,500

Weighted average exercise
   price of shares exercisable      $1.18            $2.77         $5.75

<PAGE>

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:

                                                1998         1997       1996
------------------------------------------------------------------------------
Revenue - unaffiliated customers:
  United States - domestic                    $4,305       $5,426       $4,090
                - export sales                 3,157        2,088        3,529
  Europe                                     143,471      133,845      170,806
  Other international                            512          762        1,116
------------------------------------------------------------------------------
Total revenue from unaffiliated customers    151,445      142,121      179,541

Revenue - intercompany:
  United States                                1,219        2,450        4,572
  Europe                                          56           81          105
  Eliminations                                (1,275)      (2,531)      (4,677)
 ------------------------------------------------------------------------------
Total consolidated revenue                  $151,445     $142,121     $179,541
==============================================================================

Operating income (loss):
  United States                              $(7,343)     $(5,340)    $(11,671)
  Europe                                      12,582        7,153       11,832
  Other international                            154          154          444
  Eliminations                                  (319)          66          412
------------------------------------------------------------------------------
Total operating income                        $5,074       $2,033       $1,017
==============================================================================
Identifiable assets:
  United States                               $5,648       $8,212      $16,471
  Europe                                      61,542       55,558       82,497
  Other international                            119          253          239
   Eliminations                                 (493)      (1,635)      (5,389)
-------------------------------------------------------------------------------
Total identifiable assets                    $66,816      $62,388      $93,818
==============================================================================

<PAGE>

14.  Retirement Income Plans

Retirement expenses incurred by the Company were as follows:

                                          1998         1997          1996
-------------------------------------------------------------------------
U.S.:
  Matching contributions                   $51          $47           $55
Outside the U.S.:
  Defined benefit plans                  2,047        1,059         1,279
  Other plans                              712          730           970
-------------------------------------------------------------------------
                                         2,759        1,789         2,249
-------------------------------------------------------------------------
                                        $2,810       $1,836        $2,304
=========================================================================


U.S. Plans

The Company has adopted a 401(k)  retirement  and savings  plan which 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.

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. For the fiscal year ended August 1, 1998, the Company
did not make a contribution,  however for the fiscal years ended August 2, 1997,
and July 27, 1996, the Company approved the contribution of 92,500 shares of its
common stock and 50,000 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 162,500 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  Trustees of the  Company's  United  Kingdom  subsidiary's  defined  benefit
pension  plan  have  implemented  an  investment   strategy  which  includes  an
investment  of  approximately  $6.7 million in the Edelman  Value Fund,  Ltd., a
related party, as of August 1, 1998. The United  Kingdom's  defined benefit plan
was capped and was converted to a defined contribution plan in fiscal year 1993.
<PAGE>

The Company's  United Kingdom  subsidiary has a defined  contribution  plan. The
plan covers 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.

                                          1998         1997          1996
-------------------------------------------------------------------------
Defined benefit plans:
 Service cost                             $275         $417          $659
 Interest cost                           2,325        2,255         2,219
 Actual return on assets                (2,388)      (2,950)       (2,508)
 Net amortization and deferral           1,835        1,337           909
 ------------------------------------------------------------------------
Net pension cost                        $2,047       $1,059        $1,279
=========================================================================

The funded plan status at August 1, 1998 and August 2, 1997 was as follows (all
plans were underfunded):

                                                     1998            1997
-----------------------------------------------------------------------------
Actuarial present value of:

 Vested benefits                                   $34,690            $30,237
Accumulated benefit obligations                    $34,690            $30,244
 Projected benefit obligations                     $35,671            $31,207
Plan assets at fair value                          $25,154            $24,786
-----------------------------------------------------------------------------
Plan assets in excess of  (less than) projected
 benefit obligation                                (10,517)            (6,421)
   Unrecognized past service cost                      334                233
   Unrecognized net (gain) loss                      8,986              6,788
   Unrecognized transition net loss                    599                609
Minimum pension liability adjustment                (9,230)            (6,698)
------------------------------------------------------------------------------
Accrued pension cost                               $(9,828)           $(5,489)
===============================================================================

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

Actuarial  assumptions  used to determine  funded status for 1998, 1997 and 1996
varied between subsidiaries.  Discount rates used to determine projected benefit
obligations  range from 4.5% to 7.6% in both 1998 and 1997 and from 5.0% to 9.0%
in 1996.  Rates of  increase in future  compensation  levels were 3% in 1998 and
ranged 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 8.0% in 1998,  from 4.5% to 10.0% in 1997,
and from 5.0% to 10.0% in 1996.

<PAGE>

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 1998,  1997,  and 1996,  Datapoint paid legal fees of $0, $374,
and $485, respectively, to the law firm of Pryor, Cashman, Sherman, & Flynn, for
legal services provided by attorneys other than Mr. Agranoff.

During fiscal year 1998 and 1997,  the Company paid office rent and  secretarial
expenses  of $69 and $73,  respectively,  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.

The  Trustees of the  Company's  United  Kingdom  subsidiary's  defined  benefit
pension  plan  have  implemented  an  investment   strategy  which  includes  an
investment  of  approximately  $6.7 million in the Edelman  Value Fund,  Ltd., a
related party, as of August 1, 1998.

On June 29, 1998, the Company had signed a letter of intent,  which subsequently
expired on August 20, 1998, to acquire Dimensional Media Associates ("DMA"). Mr.
Robert D. Summer is the  president  of DMA and a board member of  Datapoint.  In
addition to the letter,  Datapoint advanced DMA $200. This advance is secured by
a promissory note, payment of which has been guaranteed by a principal of DMA.


16.  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 
relation to the financial position and results of operations.


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.


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. 1, 1998  Position                              Since
A. B. Edelman            58     Director-Chairman of the Board 
                                  and Chief Executive Officer          1985
B. D. Thomas             47     President , Chief Operating Officer 
                                  and Director                         1992
R. G. Conn               62     Vice President and 
                                  Chief Financial Officer              1997
P. P. Krumb              56     Vice President, Special Assistant
                                  to the Chairman and Director         1994
G. N. Agranoff           51     Vice President, General Counsel, 
                                  Corporate Secretary and Director     1994
                                  and Director
I. J. Garfinkel          61     Director                               1991
D. R. Kail               63     Director                               1985
C. F. Robinson           52     Director                               1996
D. M. M. Ruffat          62     Director                               1993
R. D. Summer             65     Director                               1996
R. Edmonds               53     Vice President, Technical Services     1996
W. Gevers                61     Vice President, OSN                    1996
J. R.  Perkins           50     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 58,  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 Ch. Pecholettaz 9, 1066 EPALINGES, Switzerland.

    BLAKE D. THOMAS,  age 47, 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.
<PAGE>

    RONALD  G.  CONN,  age 62,  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 56, is currently Vice President and Special Assistant
to the  Chairman.  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.

     GERALD N. AGRANOFF,  age 51, is currently Vice  President,  General Counsel
and Corporate Secretary of Datapoint.  Mr. Agranoff is a General Partner of Asco
Partners,  the General  Partner of Edelman  Securities  Company  L.P.  (formerly
Arbitrage Securities Company) and a General Partner of Plaza Securities Company.
He has been  affiliated  with  these  companies  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,  and AgriFoods
International,  Inc. 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 61, 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 63, 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 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 52, 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.
<PAGE>

    DIDIER M. M. RUFFAT, age 62, was most recently 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 37, rue
de Chezy, 92200 Neuilly, S/Seine, FRANCE.

    ROBERT D. SUMMER, age 65, 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 as a 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 53, 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.

    WALTER GEVERS,  age 61, 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 50, 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 6 times during the fiscal year ended August
1, 1998.
<PAGE>

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 1, 1998.

Meetings of the Board of Directors and Committees

The Board of Directors  met 3 times during the fiscal year ended August 1, 1998.
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 1, 1998, its
officers and directors complied with all filing requirements under Section 16(a)
of the Securities Exchange Act of 1934

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 receive an additional 
$1,000 annual fee for each committee they serve on plus an additional  $1,000 
annual fee for serving on more than one committee. 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 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.
<PAGE>

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.

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 1998 compensation for both the CEO and the other
named executive officers.
<PAGE>

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.  None of the named  executives  received a salary change 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 1998,  the Company  incurred net
losses and  therefore  no  bonuses  were paid in 1998  under  these  contractual
arrangements. For fiscal years 1997 and 1996, an aggregate of approximately $0.4
and $2.1 million, respectively, were 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 1998, 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 year ended  August 1, 1998,  the
Company did not make a contribution,  however, for the fiscal years ended August
2, 1997 and July 27,  1996,  the Company  approved  the  contribution  of 92,500
shares  of  its  common  stock  and  50,000  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 162,500 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 (#)(12)     Compensation
--------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>         <C>          <C>            <C>                  <C>              <C>     
Asher B. Edelman   (1)             1998        $300,534          -         $110,987 (3)         225,000               -
Chairman of the Board and          1997         300,534      $196,126 (2)   134,613 (3)          60,000          $30,000 (10)
Chief Executive Officer            1996         299,956     1,152,918 (2)   148,752 (3)          40,000           17,952 (10)

Blake D. Thomas (4)                1998        $250,000          -          $51,354 (3)         180,000               -
President and                      1997         250,000     $117,676 (2)     56,178 (3)          50,000               -
Chief Operating Officer            1996         145,166(6)   691,751 (2)          0             100,000               -

Ronald G. Conn (5)                 1998        $175,000          -          $30,602 (3)          25,000               -
Chief Financial Officer            1997          20,254(6)       -               -               50,000               -
                                   1996           -              -               -                  -                 -

Gerald N. Agranoff (7)             1998        $200,000          -          $ 7,200 (9)         180,000               -
Vice President, General            1997         200,000     $ 78,450 (2)      7,200 (9)          50,000           $4,000 (10)
Counsel and Corp. Secretary        1996         172,481      400,000 (8)      7,200 (9)             -                 -

Roger Edmonds (11)                 1998        $138,020     $ 41,406 (8)         -               37,500               -
Vice President,  Technical         1997         136,735       41,021 (8)         -               25,000               -
   Services                        1996           -              -               -                  -                 -
</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)   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.  
(5)   Ronald G. Conn  commenced  employment  with the Company in June of fiscal
      1997 as Chief Financial Officer. 
(6)   Amount reflects partial year of employment. 
(7)   Gerald N.Agranoff commenced employment with the Company in October of
      fiscal 1995 as Vice President, General Counsel and Corporate Secretary. 
(8)   Represents a performance bonus.  
(9)   Represents  auto allowance. 
(10)  Represents  vested portion of the Company's common stock  contributions
      to the Supplemental  Executive  Retirement Plan on behalf of named
      employee. 
(11)  Mr. Edmonds in previous years was not one of the top five  compensated  
      officers of the  Company. 
(12)  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 1998
                    -------------------------------------------------------
                                    % 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           150,000       8.77%        4         10/7/07      $377,337       $956,245
Asher B. Edelman            75,000       4.38%        2.5625     3/4/08      $120,866       $306,297
Blake D. Thomas            120,000       7.01%        4         10/7/07      $301,870       $764,996
Blake D. Thomas             60,000       3.51%        2.5625     3/4/08       $96,693       $245,038
Ronald G. Conn              25,000       1.46%        2.5625     3/4/08       $40,289       $102,099
Gerald N. Agranoff         120,000       7.01%        4         10/7/07      $301,870       $764,996
Gerald N. Agranoff          60,000       3.51%        2.5625     3/4/08       $96,693       $245,038
Roger Edmonds               25,000       1.46%        4         10/7/07       $62,890       $159,374
Roger Edmonds               12,500       0.73%        2.5625     3/4/08       $20,144        $51,050
-----------------------------------------------------------------------------------------------------

<CAPTION>
Gain for all stockholders at assumed annual rates of stock 
  price appreciation                                                      $14,181,038    $35,937,504
</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.
(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 (18.0 million) as of August 1, 1998,  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.
<TABLE>
<CAPTION>



                        Number of                                                   Value of Unexercised
                         Shares                       Number of Unexercised         In-the-Money Options
                       Acquired on      Value       Options at August 1, 1998        at August 1, 1998
        Name            Exercise       Realized    Exercisable   Unexercisable   Exercisable  Unexercisable
-------------------------------------------------------------------------------------------------------------
<S>                         <C>           <C>            <C>            <C>           <C>            <C>

Asher B. Edelman            0             0              221,667        278,333       $10,312        $11,248
Blake D. Thomas             0             0              108,334        246,666       $17,187        $15,623
Ronald G. Conn              0             0               16,667         33,333            $0             $0
Gerald N. Agranoff          0             0               91,667        213,333        $6,249         $9,373
Roger Edmonds               0             0               23,333         54,167        $2,343         $4,687
-------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

Performance Table

Set forth below is a table 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.
<TABLE>
<CAPTION>


                             DATAPOINT CORPORATION
                              STOCK PRICE ANALYSIS

----------------------------------------------------------------------------------------------------
 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  98            1.25          17.86        1,201.56       810.39        2,786.06       173.10

FY  97            2.25          32.14         971.17        655.00        2,538.86       157.74

FY  96            1.13          16.07         477.75        322.22        1,746.32       108.50

FY  95            1.50          21.43         460.48        310.57        1,577.65        98.02

FY  94            3.75          53.57         181.90        122.68        1,635.12       101.59

FY  93            7.00         100.00         148.27        100.00        1,609.55       100.00
</TABLE>

The table assumes $100 invested on August 1, 1993, 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.
<PAGE>

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.

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  provided 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 remained as a Vice  President of the Company and
Special  Assistant to the  Chairman.  Effective  November 8, 1997,  Mr.  Krumb's
annual  base  salary was  $60,000.  For the  period  September  1, 1998  through
December 31, 1998,  Mr.  Krumb's salary was adjusted to an annual base salary of
$120,000  due to the extra time and effort  that Mr.  Krumb is  devoting  to the
Company's  special projects and business.  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.

<PAGE>

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).
<TABLE>
<CAPTION>

                                                            Preferred Stock  
                                   Common Stock              Beneficially       Percent
Name and Address               Beneficially Owned                Owned          of Class
<S>                          <C>                                <C>              <C>     

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

Lloyd I. Miller (2)                                             47,900 (2)       6.6% (2)
</TABLE>

    (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 13, is now 6.6%.

<PAGE>

(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  13,  1998.
<TABLE>
<CAPTION>

                                                                                                   Convertible
                                    Common Stock                                Preferred Stock    Debentures
                                    Beneficially              Percent           Beneficially        Beneficially
 Name of Officer/Director           Owned (1)                 of Class(13)      Owned(2)            Owned(3)
-------------------------           -----------------         ------------      ----------       -----------
<S>                                 <C>                        <C>                <C>               <C>               

 Gerald N. Agranoff (O&D)             148,333(4)(5)(7)           *                  - 0 -              - 0 -
 Ronald G. Conn (O)                    16,667(4)                 *                  - 0 -              - 0 -
 Asher B. Edelman (O&D)             3,685,238(4)(5)(6)(13)     20.5%              14,200**          $141,000*
 Roger Edmonds (O)                     40,000(4)                 *                  - 0 -              - 0 -
 Irving J. Garfinkel (D)               25,000(4)(5)(7)           *                  - 0 -              - 0 -
 Walter Gevers (O)                     85,000(4)                 *                  - 0 -              - 0 -
 Daniel R. Kail (D)                    25,000(4)                 *                  - 0 -              - 0 -
 Phillip P. Krumb (O&D)               121,333(4)(8)              *                  - 0 -              - 0 -
 John Perkins (O)                      30,294(4)(9)              *                  - 0 -              - 0 -
 Charles F. Robinson (D)               25,000(4)(10)(13)         *                 3,000*(10)        $47,000*(10)
 Didier Ruffat (D)                     50,000(4)                 *                  - 0 -              - 0 -
 Robert D. Summer (D)                  32,300(4)(11)             *                  - 0 -              - 0 -
 Blake D. Thomas (O&D)                318,847(4)(12)(13)        1.8%                - 0 -              - 0 -

 Executive Officers and
    Directors of Datapoint as
    a group (13 persons)            4,603,012                  25.5%
</TABLE>
* Indicates  less than 1%  ownership as a percent of the  outstanding class(13)
**The percent of the outstanding class is 2.0% (13)


(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.
<PAGE>

(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, 305,000; Mr. Agranoff,
         148,333; Mr. Thomas, 165,000; Mr. Conn, 16,667; Mr. Krumb, 108,333; Mr.
         Ruffat,  50,000; Mr. Summer,  25,000; Mr. Garfinkel,  25,000; Mr. Kail,
         25,000; Mr. Robinson,  25,000; Mr. Edmonds, 40,000; Mr. Gevers, 85,000;
         Mr.  Perkins  30,000;  and  all  officers  and  directors  as a  group,
         1,048,333.

(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 316,435 Common shares.  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 3,685,238 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,
         994,383 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 449,175 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 858,900  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 305,000
         shares.  Also  included are the 41,415  shares owned by Edelman  Family
         Partners,  L.P. for which Mr. Edelman serves as a general partner. As a
         Trustee of the Canal Capital Corporation Retirement Plan ("Canal Plan")
         which owns 121,181 shares and the Datapoint Plan described  above which
         owns 316,435 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
         54,007 shares beneficially owned by Mr. Edelman's daughters in accounts
         for which their mother,  Penelope C. Edelman,  is the custodian and the
         17,204  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 3,686,638 and
         his percentage of the outstanding class would be 20.5%. This percentage
         upon exchange is the listed percentage above pursuant to 
         Rule 13d-3(d)(1).
<PAGE>

     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 13,000 Common shares directly in addition to the 108,333
         shares represented by exercisable options.

(9)      Mr. Perkins owns 294 Common shares  directly in addition to the 30,000
         shares represented by exercisable options.

(10)     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. These Preferred shares and Convertible Debentures,
         if converted to Common Stock,  represent  8,596 Common shares and would
         increase Mr. Robinson's total listed above to 33,596 shares.

(11)     Mr. Summer owns 7,300 Common shares directly in addition to the 25,000
         shares represented by exercisable options.

(12)     Mr.  Thomas  owns  135,447  Common  shares  directly in addition to the
         165,000 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 and 1,900
         Common shares held in Mr. Thomas' self-employed pension plan.

(13)     The percentage of the  outstanding  class  calculations  are based upon
         18,158,572  Common shares,  721,976  Preferred  shares and  $55,681,000
         Convertible Debentures outstanding as of October 13, 1998. For purposes
         of calculating Mr. Edelman's and Mr.  Robinson's  percentages of Common
         shares under Rule  13d-3(d)(1),  as well as the  percentage of officers
         and directors as a group, 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.
<PAGE>


ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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  1998,  1997,  and 1996,
Datapoint paid legal fees of $0, $374, and $485,  respectively,  to the law firm
of Pryor,  Cashman,  Sherman,  & Flynn, for legal services provided by attorneys
other than Mr. Agranoff.

During fiscal year 1998 and 1997,  the Company paid office rent and  secretarial
expenses  of $69 and $73,  respectively,  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.

The  Trustees of the  Company's  United  Kingdom  subsidiary's  defined  benefit
pension  plan  have  implemented  an  investment   strategy  which  includes  an
investment  of  approximately  $6.7 million in the Edelman  Value Fund,  Ltd., a
related party, as of August 1, 1998.

On June 29, 1998, the Company had signed a letter of intent,  which subsequently
expired on August 20, 1998, to acquire Dimensional Media Associates ("DMA"). Mr.
Robert D. Summer is the  president  of DMA and a board member of  Datapoint.  In
addition to the letter,  Datapoint advanced DMA $200. This advance is secured by
a promissory note, payment of which has been guaranteed by a principal of DMA.

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.
<PAGE>

    (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  did not file any  Reports on Form 8-K  during the  quarter
ended August 1, 1998.
<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) 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).
<PAGE>

(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).
<PAGE>

(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.
<PAGE>

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

(10)(gg)          1997 Employee Stock Option Plan (filed as Annex A to the 
                  Company's  Definitive  Proxy Statement on Schedule 14(a) 
                  dated December 23, 1997, and incorporated herein by
                  reference).

(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/ Ronald G. Conn
                                                 Asher B. Edelman
                                                 Chief Executive Officer and
                                                 Chairman of The Board
                                             By Ronald G. Conn, Attorney In Fact


DATED:  October 30, 1998


    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/ Ronald G. Conn              Chief Financial Officer        October 30, 1998
-------------------------------
        Ronald G. Conn         (Principal Accounting Officer)



Ronald G. Conn,  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            Phillip P. Krumb
                 Blake D. Thomas             Didier M.M. Ruffat



/s/ Ronald G. Conn                                      October  30, 1998
----------------------------------------------
    Ronald G. Conn

<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


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

Allowance for doubtful accounts:

Year ended August 1, 1998           $1,654             $33         $179            $(561)           $1,305

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

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

</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 26, 1998, with
respect to the  consolidated  financial  statements  and  schedule of  Datapoint
Corporation  included  in this  Annual  Report on Form  10-K for the year  ended
August 1, 1998:  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, Registration  Statement No. 333-53265 on Form S-8, and
Registration Statement No. 333-53267 on Form S-8.

                                        Ernst & Young  LLP


Dallas, Texas
October 26, 1998