Diagnostic Retrieval Systems, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: DRS)") else Response.Write("(AMEX: DRS)") end if %>
5 Sylvan Way
Parsippany, NJ 07054
(201) 898-1500

UNION CITY, Ca., August 7, 1996/FOOLWIRE/ --- Diagnostic Retrieval Systems reported Q1 1997 earnings this morning. Revenues hit a record $27.4 million, an increase of 59% over the prior year. Q1 operating income of $2.5 million was 88% higher than last year. Net income was up 71% at $1.1 million or $0.18 per share, up from $0.12 per share a year ago.

New order bookings were $19 million (an 83% increase over last year) which was on plan, and their backlog at June 30th was $139 million, which was up 18% over the same period last year, but down 5% from Q4 1996 year end position. This decrease in backlog from year end is attributable to the net impact of revenues and bookings for the quarter. It is important to note that the company does not carry much backlog in the commercial business, which has a fairly high turnover in orders ranging from 30-90 days.

Their commercial business accounted for 19% of their Q1 revenues.

MILITARY CONTRACT WINS DURING Q1

Two of the more significant military awards received during the quarter included an initial award of $3.8 million on a contract from the US Navy with a total value, including options, of $17.8 million for the manufacture of additional sonar signal processing systems for the Navy's Mobile In-shore Undersea Warfare Systems Upgrade Program. This program employs electronically equipped vans to the defensive harbors and coastal regions as well as for amphibious operation-area surveillance.

The second award, totalling approximately $2 million, came from Rocky Barton Electro-Optical Systems to provide eye-safe laser range-finder systems for the US Army. The total potential value to DRS of this program, with its options, is approximately $16 million. The systems are used for combat training and simulations and use an eye-safe laser to initiate live firing and a laser detection system for target acquisition and foray. The systems will initially be used on the Army's Apache helicopter with future implementation planned for other helicopter platforms and certain ground vehicles.

PERFORMANCE HIGHLIGHTS BY GROUP

The increased revenues and profits for the quarter were generated by increased results at each of their 3 major operating groups. In the Media Technology Group, revenues from their commercial magnetic head business more than doubled over last year, primarily as a result of the contribution from their two latest magnetic head company acquisitions -- MagHead Engineering Company (purchased in February 1996) and their newest addition, Vicron Inc., a leading manufacturer of magnetic data and recording heads which they purchased during the quarter. In addition, they have experienced continuing sales growth in specialty heads for the computer disk drive industry.

The Electro-Optical Systems Group's higher revenues this quarter were attributable to the contribution of OMI, acquired last July. In the Electronic Systems Group, increased revenues reflected the continued progress on their airborne separation video system development program and increased shipments on two of their major display workstation programs.

As far as revenues by group, the Electronic Systems Group was $15 million, the Media Technology Group was about $8 million, and the Electro-Optical Systems Group was about $4 million.

COMPANY GROWTH

They are now operating from 15 locations and occupy 368,000 square feet, the bulk of which is leased, and they have more than 900 employees. They are very pleased with their Q1 performance.

A key part of the company's corporate strategy is to identify and acquire commercial businesses that complement DRS's core technology. Their Q1 acquisition of Vicron Technology is a good example of this. Vicron is a manufacturer of magnetic data recording heads and is located in Wisconsin -- actually a suburb of Minneapolis. Their acquisition of Vicron builds their extensive, lucrative, business base in commercial magnetic head products and represents an important step forward in DRS's growth strategy.

Everything the company was looking at last quarter, in terms of acquisitions, is still on the plate. They have a number of new companies they are looking at as well. The program is running pretty good. They are going to close, hopefully in a few days, on a very tiny acquisition in their Service Business -- it only represents about $1 million in sales, but it is an acquisition that they have been trying to put together for a number of months. They have another company in the magnetic head area that will generate about $5 million in revenues that they are moving on. Then there are a number of larger defense-related potentials they have. They are investigating all of those. They have to pick which of the possibilities they want to start with and then begin to move out into the due diligence area. There is plenty on their plate, it is just a matter of putting the resources to work to bring one of them home.

The company's growth will continue to be fueled by selective acquisitions that provide depth to their core technologies and markets while they build on their existing business base to capture new and follow-on programs and penetrate additional platforms with their commercial off-the-shelf technology. They are very pleased with their positive Q1 results which build on four consecutive years of improved performance and are looking forward to the challenge of the rest of the fiscal year.

AMEX VS. NYSE LISTING, DIVIDENDS, ETC.

The company was asked whether they were considering leaving the AMEX to seek listing on the NYSE. The company indicated that it is something they are exploring. They have met with the head of the AMEX and talked about a lot of the concerns relative to how companies that are listed on the AMEX are typically viewed by Wall Street and the institutional investment community. The company feels that the AMEX is going to try to make a much bigger effort to support them.

They feel that one of the key factors they must consider in a listing move is that they don't want the company to get ahead of itself. They feel that once a company switches to the NYSE, they can't really switch back, so they want to make sure that once they get there, they are well-followed and that they get the right kind of service. They don't want to get lost in the shuffle at the NYSE when they can get some good visibility on the AMEX. But, a move to the NYSE is still something that they continue to investigate.

Also related to the stock performance, there is no question in their minds at this point that combining the two classes of stock last March started to help, at least in terms of the trading of the stock -- they don't get the arbitrage they used to get between the two classes. And they are seeing the trading volume pick up now, so that has improved.

The company was asked if they had considered paying a stock dividend. The company indicated that they Board hasn't considered it officially, but they've talked about it informally from time to time because people have suggested it to them. They indicated that it is certainly something they can take under advisement.

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