Datametrics 10QSB 2007 Q3 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

(X)   QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2007

( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

Commission File No. 1-8690

DATAMETRICS CORPORATION

(Exact name of small business issuer as specified in its charter)

Delaware	95-3545701
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification number)

1717 Diplomacy Row, Orlando, FL 32809

(Address of principal executive offices)

407.251.4577

(Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o  NO x

Number of shares outstanding of the issuer's common stock, par value $.01, outstanding as of September 19, 2007: 11,534,736 shares.

Transitional Small Business Disclosure Format (Check one): YES o  NO x

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DataMetrics Corporation

Table of Contents

	Page
Part I. Financial Information
Item 1 - Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet - July 31, 2007	3
Condensed Consolidated Statements of Operations --	4
Nine months ended July 31, 2007 and 2006
Three months ended July 31, 2007 and 2006
Condensed Consolidated Statement of Capital Deficit --	5
Nine months ended July 31, 2007
Condensed Consolidated Statements of Cash Flows --	6
Nine months ended July 31, 2007 and 2006
Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2 - Management Discussion and Analysis	9
Item 3 - Controls and Procedures	12
Part II - Other Information
Item 1 -- Legal Proceedings	13
Item 2 -- Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3 -- Defaults upon Senior Securities	13
Item 4 -- Submission of Matters to a Vote of Security Holders	13
Item 5 -- Other Information	13
Item 6 -- Exhibits	13
Signatures	14
Certifications	15

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CONDENSED CONSOLIDATED BALANCE SHEET

JULY 31, 2007

(Unaudited)

(in thousands, except per share data)

ASSETS
Current assets
Cash	$	158
Accounts receivable, net of allowance for doubtful accounts of $1		294
Inventory, net of allowance for obsolete inventory of $5,797		850
Other current assets		12
Total current assets		1,314
Property and equipment
Furniture, fixtures and computer equipment		1,197
Machinery and equipment		555
Total property and equipment		1,752
Less accumulated depreciation		1,752
Net property and equipment		0
Total Assets	$	1,314
LIABILITIES AND CAPITAL DEFICIT
Current liabilities
Accounts payable	$	384
Accrued expenses		433
Accrued interest		183
Warranty reserve		40
Notes payable - related parties		500
Short term debt		141
Total current liabilities		1,681
Commitments and contingencies
Capital deficit
4% Cumulative preferred stock, $.01 par value ($1,500 aggregate liquidation
preference); 40,000 authorized; 1,000 issued and outstanding		10
Common stock, $.01 par value; 800,000 shares
authorized; 11,535 issued and outstanding		116
Additional paid in capital		64,683
Accumulated deficit		(65,176	)
Total capital deficit		(367	)
Total Liabilities and Capital Deficit	$	1,314

The accompanying notes to condensed unaudited consolidated financial statements are an integral part of these statements.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS AND THREE MONTHS ENDED JULY 31, 2007 AND 2006

(Unaudited)

(in thousands, except per share data)

	Three Months Ended						Nine months Ended
	July 31						July 31
		2007			2006			2007			2006
Sales	$	643		$	329		$	2,566		$	2,537
Cost of sales		482			529			1,762			2,073
Gross profit		161			(200)			804			464
Selling, general and administrative
Personnel and related costs		196			172			679			563
Other		171			199			602			667
Total selling, general and administrative		367			371			1,281			1,230
Loss from operations		(206	)		(571	)		(477	)		(766	)
Other income (expense)		(18	)		6			(24	)		(1,940	)
Net loss	$	(224	)	$	(565	)	$	(501	)	$	(2,706	)
Loss per share of common stock
Basic and diluted	$	(0.02	)	$	(0.05	)	$	(0.04	)	$	(0.31	)
Weighted average number of common shares outstanding
Basic and diluted		11,535			11,115			11,507			8,794

The accompanying notes to condensed unaudited consolidated financial statements are an integral part of these statements.

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CONDENSED CONSOLIDATED STATEMENT OF CAPITAL DEFICIT

FOR THE NINE MONTHS ENDED JULY 31, 2007

(Unaudited)

(in thousands)

	Common Stock				Ser. B Preferred					Additional					Total
		Number		Dollar		Number		Dollar		Paid-In		Accumulated			Capital
		of Shares		Amount		of Shares		Amount		Capital		Deficit			Deficit
Balance, Oct. 31, 2006		11,360	$	114		700	$	7	$	64,367	$	(64,654	)	$	(166	)
Issuance of series B preferred stock						300		3		297					300
Issuance of common stock for series B preferred stock dividend		175		2						19		(21	)		-
Net loss												(501	)		(501	)
Balance, July 31, 2007		11,535	$	116		1,000	$	10	$	64,683	$	(65,176	)	$	(367	)

The accompanying notes to condensed unaudited consolidated financial statements are an integral part of these statements

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JULY 31, 2007 AND 2006

(Unaudited)

(in thousands)

	2007			2006
Cash flows from operating activities
Net loss	$	(501	)	$	(2,706	)
Adjustments to reconcile net loss used in operating activities:
Gain on sale of building		-			(216	)
Depreciation		7			4
Expenses paid from debt financing		-			249
Options issued to investors during restructuring		-			2,186
Issuance of common stock in lieu of payment for director fee		-			50
Changes in current assets and liabilities
Accounts receivable-net		(214	)		41
Inventory-net		(145	)		259
Other current assets		31			46
Accounts payable		101			(321	)
Accrued expenses		260			(134	)
Net cash used in operating activities		(461	)		(542	)
Cash flows from investing activities
Proceeds from sale of building		-			1,445
Net cash provided by investing activities		-			1,445
Cash flows from financing activities
Proceeds from loan payable		-			248
Proceeds from issuance of series B preferred stock		300			-
Payments on long term debt		-			(1,180	)
Net cash provided by (used in) financing activities		300			(932	)
Net (decrease) increase in cash		(161	)		(29	)
Cash, beginning of period		319			146
Cash, end of period	$	158		$	117
Supplemental disclosure of cash flow information:
Cash paid for interest		-		$	72
Issuance of common stock options for restructuring incentive expenses		-		$	2,186
Issuance of common stock in extinguishment of long-term debt and related interest expense		-		$	3,081
Issuance of series B preferred stock in extinguishment of long-term debt and related interest expense		-		$	500
Conversion of series A preferred stock into common stock		-		$	489
Expenses paid with the issuance of notes payable		-		$	249
Issuance of note payment for extinguishment of short term bridge loan		-		$	200
Forgiveness of debt as part of the sale of building		-		$	30
Issuance of common stock in lieu of payment of directors fee		-		$	50
Issuance of common stock for series B preferred stock dividend	$	21			-

The accompanying notes to condensed unaudited  consolidated financial statements are an integral part of these statements

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Notes to condensed consolidated financial statements (unaudited)

1. Organization and Summary of Significant Accounting Policies:

(a) Basis of Presentation—The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Form 10-KSB, as filed with the SEC on February 13, 2007.

The accompanying condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position and the results of operations for the interim periods presented. The results of operations for an interim period are not necessarily indicative of the results of operations for a full fiscal year.

(b) Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosed amounts of contingent assets and liabilities at the date of the financial statements, and the amounts of revenues and expenses recognized during the reporting period. Actual results could differ from those estimates.

(c) Research and Development Expenses—The Company expenses research and development costs as incurred. Research and development expense was $79,160 and $5,169 for the nine month period ended July 31, 2007 and 2006 respectively.

2. New Accounting Pronouncements

In June 2006, Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 48 “Accounting for Uncertainty in Income Taxes”. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standard (“SFAS”) 109. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. Management has not yet determined the impact this pronouncement will have on the Company’s financial statements.

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This standard defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States (“GAAP”), and expands disclosures about fair value measurements. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. DataMetrics is currently evaluating the requirements of SFAS 157 and has not yet determined the impact on the Company’s financial condition, results of operations or cash flows.

In February 2007, the FASB issued SFAS 159, “Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115”. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The statement is effective for fiscal years beginning after November 15, 2007. DataMetrics is currently evaluating the requirements of SFAS 159 and has not yet determined the impact on the Company’s financial condition, results of operations or cash flows.

3. Inventories

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

Inventories as of July 31, 2007 consist of the following:	(in thousands)
Inventories Parts and sub-assemblies	$	680
Work in Process		170
Obsolete Inventory		5,797
Total Inventory		6,647
Reserve for Obsolete Inventory		5,797
Net Inventory	$	850

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4. Short term debt

Short term debt at July 31, 2007 consist of the following:
In December 1998, the Company closed a private placement of approximately $3.45 million of 10% Subordinated Notes originally due in December 2000. As of July 31, 2007 all but $141 of this debt has been converted. Negotiations for the settlement of the remainder of this debt are ongoing. The debt is unsecured and callable under certain conditions.	$141

5. Notes payable-related parties

Notes Payable at July 31, 2007 consist of the following:
Notes Payable to investors; interest expense at 10% is to be paid monthly commencing January 31, 2007, including accrued and unpaid interest from 2006; principal and unpaid interest is due in full in December 2007. The note is secured by a first priority lien on all Company assets.	$500

6. Common stock

On December 15, 2006 the Company issued 174,887 shares of Common Stock with a par value of $0.01 in the amount of $20,986 ($0.12 per share) to a related party, SG DMTI Capital, LLC in lieu of the 4% annual cumulative dividend on the Series B Preferred Stock that was due on November 30, 2006.

7. Preferred stock

On December 6, 2006 the Company issued 300,000 shares of Series ‘B’ Preferred Stock with a par value of $0.01 to a related party, SG DMTI Capital, LLC. At January 31, 2007 the Company has 1,000,000 shares of Series ‘B’ Preferred Stock with a par value of $0.01 per share outstanding. The stock has a cumulative dividend of 4% per annum.

8. Loss per share of common stock

Basic and diluted loss per share of common stock are computed using the weighted-average number of shares of common stock outstanding during the period. Potentially dilutive securities have been excluded from the computation of diluted earnings per share, as their effect is antidilutive. If the Company had reported net income, diluted earnings per share would have included the shares used in the computation of net loss per share plus common equivalent shares related to 12,935,000 for outstanding options and warrants for the fiscal years 2007 and 2006.

9. Subsequent events

On August 31, 2007, Mr. Edward Kroning resigned his position as Chief Financial Officer of the Company. Mr. Kroning retains his position as Corporate Secretary of the Company. Ms. Tami Tharp was elected by the Board of Directors to serve as the interim Chief Financial Officer until her successor is appointed.

On September 4, 2007, the Company signed an agreement to increase the principal balance of the Secured Promissory Note from $500,000 to $570,000, a net increase of $70,000. The additional $70,000 did not alter any of the rights and obligations with respect to the Secured Promissory Note other than increasing the principal amount of the loan. The entire principal and any unpaid accrued and unpaid interest (which accrues at a rate of 10% per annum) is due in full in December 2007.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto. The following discussion contains certain forward-looking statements that involve risk and uncertainties. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, risks and uncertainties related to the need for additional funds. We undertake no obligation to publicly release the results of any revisions to those forward-looking statements that may be made to reflect any future events or circumstances.

Business Overview

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

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

For the year ended July 31, 2007, the Company has experienced slower than expected receipt of orders. Many of the military programs from which the Company anticipates generating its revenue have been rescheduled and military priorities have been reconsidered to account for short, medium, and long-term needs. The Company expects to see an increase in order activity in the remaining quarter and attributes the delay in orders due to a focus on budget spending for troops and munitions in the war effort in Afghanistan and Iraq. The following phases in this war and projected increase in overall military and defense spending may entail more sophisticated surveillance techniques and equipment, which will require data processing and peripheral equipment similar to the products we currently supply for the AWACS, P3 Orions aircraft and the armed forces.

RESULTS of OPERATIONS

For the Nine months Ended July 31, 2007

Sales. We had sales of $2,566,000 in the nine months ended July 31, 2007 compared to $2,537,000 in the comparable period in 2006, an increase of $29,000 or 1.14%. The increase in sales for the nine months ended July 31, 2007 is attributable mainly to an increase in the receipt of orders from the U.S. Government and major Defense Contractors.

Cost of sales. We had cost of sales of $1,762,000 in the nine months ended July 31, 2007, representing approximately 68.67% of sales, compared to cost of sales of $2,073,000 in the comparable period in 2006, which represented 81.71% of sales. The decrease of $311,000 or 15.00% was primarily due to a reduction in manufacturing overhead and fixed costs that were recorded in the comparable period in 2006.

Gross profit. We had gross profit of $804,000 in the nine months ended July 31, 2007 representing approximately 31.33% of sales, compared to a gross profit of $464,000 in the comparable period in 2006, which represented 18.29% of sales. The increase of $340,000 was primarily attributable to the decrease in cost of sales as previously discussed.

Selling, general and administrative expenses. We had selling, general and administrative, “SG&A”, expenses for the nine months ended July 31, 2007 of $1,281,000 approximately 49.92% of sales, compared to $1,230,000 in the comparable period in 2006, which represented 48.48% of sales. This represents an increase of $51,000 or 4.15% in SG&A and is attributable mainly to increased personnel and related costs associated with an increase in headcount for the fiscal year.

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Loss from operations. We had loss from operations for the nine months ended July 31, 2007 of $(477,000) compared to loss from operations of $(766,000) in the comparable period in 2006, a decrease of $289,000 or 37.73%. The net decrease in loss from operations is attributable mainly to a reduced cost of sales of 15.00 % and an increase in SG&A as previously discussed.

Other expense. We had other expense of $24,000 for the nine months period ended July 31, 2007 compared to $1,940,000 in the comparable period in 2006, a decrease of $1,916,000 or 98.76%. The decrease was due primarily to warrants totaling 386,315,000 which were issued during 2006. The exercise price for the warrants was less than the market price of the stock resulting in stock based cost being recorded. The decrease is also due to a reduction in interest expense as a result of the debt restructuring that occurred on December 30, 2005 where the majority of long terms loans were either paid in full or converted into equity of the Company.

Net loss. We had net loss for the nine months ended July 31, 2007 of $(501,000) compared to a net loss of $(2,706,000) in the comparable period in 2006. The large net loss in 2006 was due primarily to warrants totaling 386,315,000 which were issued during 2006. The exercise price for the warrants was less than the market price of the stock resulting in stock based cost in the amount of $2,186,000 being recorded.

For the Three Months Ended July 31, 2007

Sales. We had sales of $643,000 for the three months ended July 31, 2007 compared to $329,000 in the comparable period in 2006, an increase of $314,000 or 95.44%. The increase in sales for the three months ended July 31, 2007 is attributable mainly to an increase in the receipt of orders from the U.S. Government and major Defense Contractors.

Cost of sales. We had cost of sales of $482,000 the three months ended July 31, 2007, representing approximately 74.96% of sales, compared to cost of sales of $529,000 in the comparable period in 2006, which represented 160.79% of sales. The decrease of $47,000 or 8.88% was primarily due to a reduction in manufacturing overhead and fixed costs that were recorded in the comparable period in 2006.

Gross profit. We had gross profit of $161,000 in the three months ended July 31, 2007 representing approximately 25.04% of sales, compared to a gross profit of $(200,000) in the comparable period in 2006, which represented (60.79)% of sales. The increase of $361,000 or 180.50% was primarily due to the increase in sales as previously discussed.

Selling, general and administrative expenses. We had selling, general and administrative, “SG&A”, expenses for the three months ended July 31, 2007 of $367,000, approximately 57.08% of sales, compared to $371,000 in the comparable period in 2006, which represented 112.77% of sales. SG&A expenses, stated as a percentage of sales, decreased substantially between years due to increased sales for 2007 as compared to the same period in 2006.

Loss from operations. We had loss from operation for the three months ended July 31, 2007 of $(206,000) compared to loss from operations of $(571,000) in the comparable period in 2006, a decrease of $365,000 or 63.92%. The decrease in loss from operations is attributable mainly to an increased sales volume of 95.44%.

Other (expense)/income. We had other expense of $(18,000) for the three months period ended July 31, 2007 compared to other income of $6,000 in the comparable period in 2006, a decrease in other income of $24,000 or 400.00%. The increase in other expense is primarily attributable to directors compensation that was not recorded in the comparable period in 2006.

Net loss. We had net loss for the three months ended July 31, 2007 of $(224,000) compared to a net loss of $(565,000) in the comparable period in 2006. The decrease in net loss is due to an increase in sales as discussed previously.

LIQUIDITY and CAPITAL RESOURCES

The Company's principal capital requirements have been to fund working capital. The Company has relied primarily on internally generated funds, private placement proceeds, and subordinated debt to finance its operations. The Company has no material commitments for capital expenditures which would affect its liquidity.

Net cash used in operating activities was $461,000 and $542,000 in 2007 and 2006 respectively. The change from 2006 to 2007 was primarily due to an increase in inventory levels to fulfill upcoming sales orders and as a result of the net loss.

Net cash provided by investing activities in 2006 was $1,445,000 derived from the sale of the building. There were no investing activities in 2007.

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Net cash provided / (used) by financing activities was $300,000 and $(932,000) in 2007 and 2006, respectively. The change from 2006 to 2007 was primarily related to the refinancing of the property located at 1717 Diplomacy Row, Orlando, FL., and the issuance of Preferred stock as described below.

The Company has generated much of the cash flow to sustain current operations through a combination of sales and from debt and equity transactions.

On December 6, 2006, the Company issued SGD 300,000 shares of Series B Preferred Stock for $300,000. As a result, an aggregate of 1,000,000 shares of shares of Series B Preferred Stock, the total amount of shares issuable under the Series B Preferred Stock and Warrant Purchase Agreement dated December 30, 2005, have been issued to SGD. The proceeds of the sale of the 300,000 shares were used for general working capital.

On December 15, 2006 the Company issued 174,887 shares of Common Stock with a par value of $0.01 in the amount of $20,986 to a related party, SG DMTI Capital, LLC in lieu of the 4% annual cumulative dividend on the Series B Preferred Stock that was due on November 30, 2006.

On September 4, 2007, the Company signed an agreement to increase the principal balance of the Secured Promissory Note from $500,000 to $570,000, a net increase of $70,000. The additional $70,000 did not alter any of the rights and obligations with respect to the Secured Promissory Note other than increasing the principal amount of the loan. The entire principal and any accrued and unpaid interest (which accrues at a rate of 10% per annum) is due in full in December 2007. The proceeds were used for general working capital.

The liquidity of the Company has been affected by net losses for the second and third quarters of 2007, and fiscal years 2006 and 2005, which raise doubt about the Company’s ability to continue as a going concern. The Company’s realization of assets and satisfactions of liabilities in the ordinary course of business are dependent upon several factors including the Company’s ability to secure additional funding through investment groups and the generation of sufficient cash flow to satisfy its obligations on a timely basis.

The Company as part of its plan towards resolving these issues has taken the actions described below. Management believes that its current and future plans provide an opportunity to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event the Company cannot continue as a going concern.

·   During fiscal year 2007, the operations and processes of the Company are being analyzed and restructured to obtain greater efficiencies in production and distribution. Management continues to evaluate operations as well and has made several changes in management and personnel that are designed to improve product distribution, project completion and on-time delivery. Management believes that these efficiencies have positioned the Company to experience increased sales volume.

·   Effective May 24, 2007, Mr Daniel Bertram resigned his postion as a member of the Board of Directors, Chief Executive Officer and President of the Company. Mr. John Marceca was elected to serve as President and Chief Operating Officer.

·   On June 1, 2007 the Company successfully completed a reduction in force reducing annual payroll expense approximately $167,000 and reducing the employee headcount from 31 to 27 employees.

Off-Balance Sheet Arrangements

We have no off-balance arrangements to report.

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Item 3.CONTROLS AND PROCEDURES

(A) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s Principal Operating Officer and Principal Financial Officer of the effectiveness of the design and operation of the Company’s disclosure control and procedures. The Company’s disclosure controls and procedures are designed to provide a reasonable level of assurance of achieving the Company’s disclosure objectives. The Company’s Principal Operating Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures are in fact, effective at this reasonable assurance level as of the period covered. In addition, the Company reviewed its internal controls, and there have been no significant changes in its internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation or from the end of the reporting period to the date of this Form 10-QSB.

(B) Changes In Internal Controls Over Financial Reporting

In connection with the evaluation of the Company’s internal controls during the nine months ended July 31, 2007 the Company’s Principal Operating Officer and Principal Financial Officer have determined that there are no changes to the Company’s internal controls over financial reporting that has materially affected, or is reasonable likely to materially affect, the Company’s internal controls over financial reporting.

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PART II. Other Information

Item 1. LEGAL PROCEEDINGS

The Company is, from time to time, the subject of litigation, claims and assessments arising out of matters occurring during the normal operation of the Company's business. In the opinion of management, the liability, if any, under such current litigation, claims and assessments, that are material, have been properly accrued.

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

Item 3. DEFAULTS UPON SENIOR SECURITIES

The Company is in default on certain unsecured indebtedness of $140,960 in principal and $103,371 in unpaid interest as the monthly payments of $10,000 that were to commence September, 2006 for the unpaid interest have not been paid as scheduled per the agreement.

The Company is in default on certain secured indebtedness of $500,000 in principal and $79,280 in unpaid interest as the monthly payments of $5,000 that were to commence January, 2007 for the unpaid interest have not been paid as scheduled by the agreement.

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

None

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS AND OTHER INFORMATION

Signatures

Certifications

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SIGNATURES

In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: September 19, 2007    

DataMetrics Corporation

Registrant

By /s/ John Marceca

John Marceca

President & Chief Operating Officer

By /s/ Tami Tharp

Tami Tharp

Acting Chief Financial Officer

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