SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                    FORM 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934  

      For the fiscal year ended October 31, 1997
                                                                                

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
      EXCHANGE ACT OF 1934 (No Fee Required)

      For the transition period from               to

                         Commission file number 0-13284

                               V BAND CORPORATION
             (Exact name of registrant as specified in its charter)

        New York                                        13-2990015
(State or other jurisdiction of                        (IRS Employer
incorporation or organization)                         Identification No.)

                    565 Taxter Road, Elmsford, New York 10523

              (Address and zip code of principal executive office)

                                 (914) 789-5000

              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.01 par value
                                (Title of class)

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. [X]

The number of shares of Common Stock  outstanding,  as of December 31, 1997, was
5,412,591 shares.
<PAGE>

The  aggregate  market  value  of the  Common  Stock of the  registrant  held by
non-affiliates, as of December 31, 1997, was $3,126,597 *.
 
* The  Company  has  assumed  that all of the  outstanding  shares  were held by
non-affiliates  except  for the  shares  beneficially  owned by any  officer  or
director of the Company who owns 1% or more of the Company's  outstanding common
stock and persons  known by the Company  beneficially  to own 10% or more of the
Company's  outstanding  common stock.  The market value was based on the closing
price of these shares on December 31, 1997.

Documents incorporated by reference

None.
<PAGE>


                               V BAND CORPORATION
                             FORM 10-K ANNUAL REPORT
                   FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997


                                TABLE OF CONTENTS

                                                                             
                                     PART I

Item 1.         Business                                                     
                   
Item 2.         Properties                                                   
                     
Item 3.         Legal Proceedings                                            
                     
Item 4.         Submission of Matters to a Vote of Security Holders          
                    
                                  PART II

Item 5.         Market for the Registrant's Common Equity and Related 
                Stockholder Matters
                     
Item 6.         Selected Financial Data                                      
                    
Item 7.         Management's Discussion and Analysis of Financial Condition 
                and Results of Operations 
                                                                             
Item 8.         Financial Statements and Supplementary Data                  
                   
Item 9.         Changes in and Disagreements with Accountants on Accounting 
                and Financial Disclosure                                     
                     

                                 PART III

Item 10.        Directors and Executive Officers of the Registrant           
                     
Item 11.        Executive Compensation                                       
                    
Item 12.        Security Ownership of Certain Beneficial Owners and Management

Item 13.        Certain Relationships and Related Transactions     
                             
                                  PART IV

Item 14.        Exhibits, Financial Statement Schedule, and Reports on Form 8-K 


<PAGE>

                                     PART I

Item 1.    Business

General

V  Band  Corporation  (together  with  its  subsidiaries,  the  "Company"),  was
incorporated in New York in 1977 and commenced  business  operations in 1980. It
is a leading  supplier of instant  access voice  communications  systems.  These
systems  include  sophisticated   software-based   communications  workstations,
switching equipment, peripheral products, project management services, technical
services and wide-area  network (WAN) solutions.  V Band's products and services
are used  worldwide  by  financial  services  organizations  for the  trading of
stocks,  bonds and other financial  instruments.  Other applications include the
mission critical communications  requirements of the electric power industry and
emergency service providers.

The largest share of the Company's  sales derives from the sale of voice trading
systems to the financial services industry.  Traders and dealers require instant
access communication to a large constituency,  including peers,  customers,  and
market  information  providers.  In contrast to conventional  business telephone
systems,  voice trading systems utilize more network access lines than telephone
handsets.  Each workstation  provides the user with immediate push button access
to as  few as 30  and  as  many  as 320  telephone  lines  along  with a  visual
indication of the current  operational  status of each line. The Company's voice
trading systems offer a distributed  switching  architecture  (without a central
controller) and full software control for ease of moves, additions, and changes.
Other  markets  for these  systems  include  communication  control  centers for
utilities,  government and military agencies,  emergency service E9-1-1 dispatch
centers, airlines, and railroads.

Beginning in 1994, the Company implemented  significant changes in the manner in
which it conducts business.  During 1994, the Company established a direct sales
and service  network in the United  States and the United  Kingdom by  acquiring
four  companies  which  distributed  and serviced the Company's  products in the
principal markets of New York, London and Boston.  The Company further increased
its direct  sales and  service  network in the  United  States by opening  sales
offices in Chicago and San  Francisco.  In 1995,  the Company  restructured  its
manufacturing  process by out-sourcing the manufacture of many sub-assemblies of
the Company's  products.  In 1995, the Company also  reorganized its management,
engineering,  manufacturing and  administrative  organizations,  and reduced the
number of its  employees.  During  1996,  the Company  established  V Band Asian
Partners,  a  strategic  alliance  of  thirteen  distributors  of the  Company's
products in the Asian market.

In 1994, the Company  acquired certain assets of Windmill  Communications,  Inc.
("Windmill"),   Advantage  Communications,   Inc.  ("Advantage"),  ACT  Computer
Support,  LTD.  ("ACT") and acquired the  outstanding  capital  stock of Mercury
Dealing Systems ("Mercury").  The Windmill and Advantage  acquisitions  provided
the Company with a service presence and increased sales strength in the New York
City and Boston markets respectively. The Mercury and ACT acquisitions increased
the  Company's  sales  and  service   presence  in  the  London  market.   These
acquisitions,  coupled  with the  opening of sales  offices  in Chicago  and San
Francisco, implemented the Company's  strategy of enhancing market share through
the direct sale and full service of its products,  including project management,
maintenance and other services.  The Company's sales offices are complemented in
certain  regions of the domestic and global  marketplace by  distributors  which
sell and service the Company's products.
<PAGE>
During 1995,  the Company  transferred  the  production  of its printed  circuit
boards   from  an   internal   manufacturing   process  to   external   contract
manufacturers.  This action was  undertaken  to reduce the cost of the Company's
products  and  permitted  the  Company to  substantially  reduce the size of its
production facilities. The Company also reorganized its management, engineering,
manufacturing and  administrative  organizations  and substantially  reduced the
number of the Company's employees.

During  1996,  the  Company  established  V Band  Asian  Partners,  a  strategic
partnership with The Trade Wind Group, a long-time  distributor of the Company's
products  based in Australia.  V Band Asian  Partners is an alliance of thirteen
distributors whose marketing efforts and servicing  capabilities are coordinated
and supported by The Trade Wind Group. Through this partnership, the Company has
improved its ability to  capitalize  on the growth trend in the Asian  financial
marketplace.

During 1995,  the Company  executed an agreement with the Chicago Board of Trade
(CBOT) for the sale and  installation  of a major trading  floor  communications
system  that  includes   approximately  1,700  custom-designed   exchange  floor
telephones  and  various  peripheral   equipment  in  transactions   valued,  in
aggregate, at approximately $9 million. The (CBOT) exchange phone system employs
the same advanced  technology base used in the Company's Broad Band DN switching
architecture and Power Deck product line. The Company provided full installation
services,   including  project   management  and  cabling  for  the  9,000  line
communication system.

In 1996, the Company  executed an agreement for a major expansion and relocation
of the Chicago Board of Trade's financial  trading floor.  This contract,  which
augmented the agreement  mentioned  above,  was valued in excess of $2.5 million
and was completed in 1997.

During  1997,  the Company  completed  major  system  installations  in  several
non-traditional,  emerging  financial centers including Oslo, Norway and Moscow.
In 1997, the Company executed an agreement with the New York Mercantile Exchange
for the  sale,  installation  and  maintenance  of a  major  two  floor  trading
communications system that includes  approximately 600 custom-designed  exchange
floor telephones (with up to 8 handsets each) and various peripheral  equipment.
This transaction, valued at over $4.9 million, was completed in 1997.

In January 1998, the Company  established a plan to restructure  its operations.
The plan  include  consolidation  of office space in New York and London and the
centralization  of the  administrative  functions of the Company's United States
service  operation  into its New York  operation.  In addition,  the Company has
reassigned  several  marketing and  administrative  staff to field sales support
functions as a further effort to enhance revenues. As a result of this plan, the
Company  reduced the number of its emplpyees  from the October 31, 1997 level of
186 to 170 by the end of January 1998.

The Company's United Kingdom operation, which carries on business under the name
of V Band PLC, performs assembly,  sales, installation and maintenance services.
For the fiscal  years ended  October 31, 1997 and 1996,  V Band PLC had sales of
$7.1 and $7.4, respectively. At October 31, 1997, V Band PLC had 43 employees.
<PAGE>
Through  a  subsidiary,   Licom,  Inc.  ("Licom"),  the  Company  also  designs,
manufactures   and  sells  fiber   optic-based   voice  and  data   multiplexers
specifically designed for the "mission critical"  communications of the electric
power industry, such as inter-substation communications. Other markets for Licom
multiplexers   include  command  and  control  applications  for  "right-of-way"
companies such as utilities,  transportation  companies,  and emergency  service
organizations.  In 1997,  the Company  consolidated  the operations of its Licom
subsidiary into the operations of its core business in Elmsford, NY.

Products and Markets

The Company  introduced its first voice trading system in 1981.  Since then, the
Company has developed,  manufactured and distributed  several new generations of
systems,   increasing  power,  features,   flexibility  and  network  management
capabilities while reducing repair cost and space requirements.

In June 1990,  the Company  introduced  the  industry's  first all digital voice
trading  system,  the VIAX  DN.  Digital  connectivity  reduces  network  costs,
improves  reliability,  and offers  users the ability to program  their  station
options  directly from the console.  Digital  technology has sharply reduced the
space required for the common  equipment.  The Company's current digital system,
the  "BroadBand  DN",  requires  as little as  one-eighth  of the space that was
required by the systems first introduced in 1987.

In  1993,  the  Company   introduced  Power  Deck,  a  highly  advanced  digital
communications  workstation  for the  financial  community.  The Power Deck user
interface  is  fully  compatible  with the  Company's  BroadBand  DN  technology
platform,  and  features  state-of-the-art  surface  mount  design.  Significant
innovations   include  a  high  resolution   graphics  display,   enhanced  user
programmability  and an ergonomically  designed  detachable keypad that improves
productivity and gives users precise control of critical phone functions.

In 1995,  the Company  introduced  BroadBand  DN, the latest  generation  of its
distributed  digital  switch  system.  BroadBand  DN is  built  on a  high-speed
computing  platform allowing direct connection to the digital  facilities of the
public network and providing digital  connectivity to the desktop.  The system's
basic architecture allows for software feature enhancements and reduces the risk
of future  obsolescence.  The  administration  software  empowers  the user with
system control and configuration  capability,  allows diagnostic reporting,  and
eases the ability to perform moves,  adds, and changes from a personal computer.
The  Company's  digital  trading  consoles  give the users  access to all system
lines,  paperless button labeling and fully programmable  loudspeaker monitoring
of multiple lines simultaneously.

In 1995,  the  Company  introduced  DXi,  a  high-speed  digital  communications
console.  The DXi is fully compatible with the Company's BroadBand DN technology
platform  and employs the same base  technology  as the Power Deck.  The Company
also  introduced its digital  eXchange Phone that was installed  successfully at
the Chicago Board of Trade.  The eXchange Phone employs the  technology  base of
the Power Deck  product  line.  The  eXchange  Phone  provides  state-of-the-art
telecommunications   designed   specifically   for  the  hectic  and   demanding
environment  of an exchange.  The eXchange Phone was  ergonomically  designed to
optimize  trading  floor  space and  maintain  high  efficiency  for the  member
brokers.
<PAGE>
In 1995,  the Company  developed  the APL (Audio  Processing  Line) card,  which
increases the capacity of telephone  lines that can be handled by each BroadBand
DN node, by combining the AP-ACC (Audio Processing-Analog  Control Card) and ALC
(Analog  Line Card) cards into a single  card.  This card enables the Company to
increase the capacity and use of card space in its backroom  cabinets and racks.
Also,  a new  speaker  interface  was  developed  which  allows  speakers  to be
dynamically  programmed  from the Power Deck and DXi consoles.  The Company also
developed  advanced  intercom  features for its digital  trading  consoles and a
speakerphone for its Power Deck trading console.

In 1995,  the  Company  introduced  a suite of highly  sophisticated  networking
products  and tools  designed  to address  the needs of its  current  and future
customers.   These  products,   Global   Switching   Module  ("GSM"),   WAN  ONE
inter-networking  products,  PassPort Network  Management  Platform and F.A.S.T.
(Fast Access  Support  Technology),  represent  the leading  edge in  networking
capabilities for the financial trading environment.

The GSM,  which employs a one gigabit  switch for  information  throughput,  can
support a trading  floor with over 2,400 user  consoles and  delivers  access to
over 16,000 lines without system blocking.  The Company installed GSM at several
of its customer locations during 1996.

The WAN ONE  product  enables  remote  trading  floor  communication  systems to
operate as if they were located  together.  For  example,  traders in London can
have instant,  local access to lines in New York,  Canada, or virtually anywhere
in the world.  The Company believes WAN ONE provides a foundation for the remote
trading and advanced network services needs of the next generation.

The PassPort Network Management Platform is a sophisticated  UNIX-based suite of
tools that control and maintain large systems in a cost-effective  manner.  True
multi-tasking  and  simultaneous  multi-user  operations,  allows  large  system
managers to effectively  administer  distributed trading systems across existing
corporate LANs and WANs.

The Company's F.A.S.T.  service enables service  technicians to troubleshoot and
make moves,  adds and changes  (MACs)  remotely  through  phone  lines,  thereby
increasing system performance.

In 1996, a second generation  digital exchange floor phone product was developed
that  enables the use of up to eight  handsets per phone.  The Company  believes
that its  products are well  positioned  to compete for business in the exchange
floor marketplace.
 
In 1996, the Company  introduced the Clarity Speaker System. The Clarity Speaker
System allows  traders and brokers to  simultaneously  monitor an  unprecedented
number of lines  without the need for numerous  individual  speaker cube arrays.
The Clarity  Speaker  System  employs  features  that help users to more readily
manage incoming  communications  in a high traffic  environment  while requiring
minimal  space at the trading desk.  The Company also  introduced a DXi hard-key
button  module  that will  enable its Power  Deck and DXi  trading  consoles  to
support hard keys as well as softkeys, or a combination of both.

In 1997,  the Company  redesigned  and enhanced the physical  attributes  of its
Power Deck and DXi voice trading  consoles to increase  their visual appeal with
end users. This redesign involved new faceplates, rounded streamlined edging and
an all-new  color scheme.  In addition,  the Company is developing a full-duplex
version of the Clarity speaker system and added numerous  software  enhancements
to the feature set of its line of digital trading consoles.
<PAGE>
Through  Licom's  product  ProMX,   the  Company   supplies  fiber   optic-based
multiplexers to the electric power industry. The ProMX is an integrated, modular
multiplexing  unit  designed  to carry  "mission  critical"  communications  and
operate  in  circumstances  and  physical  environments  for which  conventional
equipment is not usually designed to withstand. ProMX interfaces with protective
relays,  supervisory  control  and data  acquisition  (SCADA),  voice,  data and
telemetry.  The ProMX units, or nodes,  communicate with fiber optic networks at
data  transmission  rates of 1.544  million bits per second (T1),  2.048 million
bits per second (E1) or 51.84 million bits per second (SONET OC1).  ProMX nodes,
common in  transmission  substations,  are often  located  together with console
systems  equipment in the command center.  Licom,  based in Elmsford,  New York,
continues to market, test, ship and support the ProMX product line.
 
Product Development

The Company's product development strategy is to continually improve its current
product lines and to develop  advanced new products and technologies to meet the
evolving needs of the markets it serves.  The Company's  emphasis is on software
and features that  facilitate the  integration of computer  networks and digital
voice systems within the trading floor environment.

The Company continues its research efforts into the practical application of ATM
(Asynchronous  Transfer  Mode)  technology  to  the  trading  room.  Application
development efforts also continue on CTI (Computer Telephone Integration), which
unites the computer and the telephone.  The Company believes that CTI will serve
as the enabling technology for ATM in the trading room. The Company has deployed
CTI at several customer sites, utilizing various client database applications.

The  Company  continues  to develop  specific  customer  hardware  and  software
enhancements to its ProMX product line.

During the years ended October 31, 1997,  1996 and 1995,  the  Company's  annual
research and development  expenditures were $3.6 million,  $3.1 million and $3.9
million or 12%, 9% and 13% of sales, respectively.

Sales, Service and Distribution

In 1994, the Company completed the  transformation of its distribution  channels
into a direct sales and service  network in the United States and United Kingdom
with the acquisition of certain assets of four unrelated companies  distributing
and or servicing the Company's products.  These business  acquisitions  provided
the Company with a service  presence and increased its sales strength in the New
York City, Boston and London markets.  These acquisitions advanced the Company's
strategy to enhance market share through the direct sale and full service of its
products,  which includes project management,  maintenance and other services in
the United States and United Kingdom.
<PAGE>
The Company  currently  maintains  direct sales and service  centers in New York
City, Boston,  Chicago, San Francisco and London to provide sales,  services and
support to  customers in the United  States and London  markets.  Through  these
centers,  the  Company  sells  equipment,  including  modifications  to existing
systems,  and support  services,  including  maintenance  contracts  and project
management.  The Company utilizes several distributors to support its operations
throughout other regions of the United States.

The Company  utilizes a network of  international  distributors to deliver sales
and service  support in other global markets,  such as Canada,  the Pacific Rim,
South America and Europe. To accommodate the increased  activity level of global
financial markets, V Band expanded its base of foreign distributors during 1996.
At present,  there are 25  authorized V Band  distributors  worldwide,  with new
digital systems placed in emerging financial centers in Russia, Greece and South
Africa.  During 1996, V Band  Corporation and  Australia-based  Trade Wind Group
announced the formation of V Band Asian  Partners,  a strategic  partnership  to
expand  distribution  channels for V Band's  products in Pacific Rim  countries.
Licom  uses  direct and  distributor  sales,  service,  project  management  and
maintenance in the United States and Canada,  and uses independent  distributors
for international sales and service.

Sales to Morgan  Guaranty  Trust Company of New York and  affiliates  (including
sales through its vendor,  AT&T Solutions)  represented 6%, 10% and 14% of sales
in 1997,  1996 and 1995,  respectively.  Sales to the Chicago Board of Trade and
its general  contractor  represented 10%, 21% and 13% of sales in 1997, 1996 and
1995,  respectively.  During  1997  sales  to The New York  Mercantile  Exchange
accounted for 16% of the Company's sales.
 
Equipment sales,  excluding  Licom's ProMX,  consisting of new systems installed
and modifications to existing systems, in all markets, were $24.4 million, $25.3
million and $20.5 million,  representing 79%, 77% and 69% of the Company's sales
in 1997, 1996 and 1995, respectively.  Licom sales represented 3%, 7% and 11% of
the Company's sales in 1997, 1996 and 1995,  respectively.  Service sales, which
consists of  maintenance  contract  sales,  support,  service and  miscellaneous
repairs  accounted  for 18%, 16% and 20%, of sales  during 1997,  1996 and 1995,
respectively.

The Company's  foreign sales for 1997,  1996 and 1995 were $11.4  million,  $9.7
million  and  $10.5  million,  or  37%,  29% and  36%,  respectively,  of  total
consolidated sales. For further information  regarding foreign sales, see Note 9
-- Notes to Consolidated Financial Statements.

The Company's sales of systems for application in "non-financial" communications
control centers of utilities,  railroads and other  "right-of-way"  companies as
well as E9-1-1 emergency  service centers and  government/military  applications
were, in the aggregate,  8%, 20% and 16% of the Company's  sales for 1997,  1996
and 1995, respectively.

Manufacturing and Sources of Supply

During 1995, the Company restructured its manufacturing operations to reduce the
cost of its  products by  out-sourcing  the  production  of its printed  circuit
boards. As part of this restructuring,  the Company significantly down-sized its
production  facility by  relocating  its  operations,  in July 1995, to a 15,000
square foot facility in Elmsford,  New York,  from its former 67,000 square foot
leased  facility in Yonkers,  New York.  This new facility  houses the Company's
purchasing,  production control,  final assembly,  quality control,  testing and
repair operations.
<PAGE>
The Company  primarily  utilizes two outside  subcontractors  to manufacture its
custom  fabricated,  printed  circuit boards.  The Company  provides the product
designs,  engineering  bill of materials  and testing  procedures to ensure that
suppliers meet the Company's quality and reliability standards.  The Company has
been be able to reduce some of its product  cost due to the  economies  of scale
afforded by the outside contractors in the purchase of components.

The  Company's  Licom  subsidiary  operates  from  the  Company's  Elmsford,  NY
facility.

The  Company's  United  Kingdom  manufacturing  operation,  consisting  of final
product  assembly and addition of local  content and testing,  is located at its
facility in Beckton, England, approximately 20 miles southeast of London.

The Company  believes that relations with its  subcontractors  and suppliers are
good.  Most  components  and parts used in the Company's  products are available
from a number of different  sources.  A few components  are currently  available
from a single source of supply. The Company believes that alternative components
should be readily  available;  however,  there can be no assurance  that, in the
event of a supply shortage, such components will be available in the quality and
quantity necessary to meet the Company's needs. In 1997, the Company experienced
several delays in the delivery of product,  primarily  related to the production
of Licom  products.  Otherwise,  to date,  the Company has not  experienced  any
significant  delays in the delivery of material  from either  subcontractors  or
vendors.  In accordance  with industry  practice,  the Company seeks to maintain
inventory in quantities  sufficient to ship products  within four to eight weeks
of  receipt of orders.  This  requires  the  Company to  maintain a  significant
investment in inventory.
<PAGE>
Patents

In 1994,  the Company was  granted a U.S.  patent  relating to the design of the
Power Deck  console  system.  In 1993,  the Company  was  granted a U.S.  patent
relating  to the  design of the VIAX DN console  system.  In 1992,  the  Company
received  patents  on its  system  digital  switch  architecture  and its  power
supplies.

The Company  believes that patent  protection  for its designs could enhance its
ability  to  successfully  market its  product  technology  at  reduced  risk to
competitors'  imitation of the Company's products.  However, no assurance can be
given  that  any  patent  issued  will  effectively  limit  competition  for the
Company's  products and the Company's  protection of its market position through
technological  development  has, to date,  derived  primarily from the Company's
ability to keep secret its  proprietary  information  and knowledge.  The unique
design  features of the Company's  products may be  susceptible  to discovery by
third  persons who have access to such  products.  Technological  changes in the
telephone  terminal  equipment  industry  occur  rapidly  and  new  patents  are
constantly  being issued for products sold in the industry.  No assurance can be
made that claims  will not be brought  against  the  Company  alleging  that the
Company's products,  or aspects thereof,  infringe on competitors'  patents. The
Company has no such claims pending. The Company seeks to protect its proprietary
rights to computer  software through  copyright,  non-disclosure  agreements and
software licenses.

Distributor Support and Warranty Policy

The Company's service personnel, together with third-party service firms engaged
by the Company or by the Company's customers,  perform all necessary maintenance
of products  sold by the Company or by its  distributors,  including  components
manufactured   by  others.   The  Company   performs   maintenance  and  assists
distributors and third-party  maintenance  companies under its standard warranty
policy.  The Company generally  warrants its products to be free from defects in
material and  workmanship for a period of one year from the date of installation
and repairs or replaces  defective products under warranty without charge to its
customers.

Competition

The market for the Company's products is highly competitive and is characterized
by advanced  technology,  rapid change and broad  product  support.  Many of the
Company's  competitors,  both in the  United  States  and  globally,  are  large
companies that  manufacture  and distribute a wide range of telephone  products,
and provide services such as installation and maintenance.  Management  believes
that  the  competitive  factors  in  its  product  lines  are  price,   quality,
reliability, product innovation, timely delivery, service and product support.

The  Company's  largest  competitors  in the United  States are IPC  Information
Systems,  Inc.  ("IPCI")  and  British  Telecom NA. In the United  Kingdom,  the
Company  competes with British  Telecom plc,  IPCI,  and Wyatts (a subsidiary of
Reuters Holdings plc). The Company  believes that these two markets,  the United
States  and  United  Kingdom,  comprise  60-65%  of the  global  market  for the
Company's  products.  The  competitors  in markets  served by ProMX products are
primarily RFL Technologies,  Pulsar Technologies,  Centronics Division of NORTEL
and ASEA Brown Boveri.
<PAGE>
The Company believes that its primary competitive advantages are the quality and
features of its products and its service and product support.  While the Company
is able to provide  these  advantages  to all  customers in the market places it
serves,  the  relatively  greater  size of the  Company's  competitors  has been
perceived to be a competitive disadvantage for the Company.

Backlog

As of October 31, 1997, 1996 and 1995, the Company's  backlog of purchase orders
that  management  believes to be firm was $3.8  million,  $8.3 million and $10.5
million,  respectively.  The Company  expects to deliver all  products  from its
October 31, 1997 backlog  during fiscal 1998.  The decrease in backlog from 1996
to  1997  is  primarily  due  to the  completion  of two  major  exchange  floor
contracts.  The Company generally  delivers large system configured  products to
customers  within six to twelve weeks of its receipt of firm  orders.  Where the
Company makes direct end-user installations,  deliveries generally occur four to
eight weeks from  receipt of firm orders.  Management  does not believe that the
Company's backlog is a meaningful indication of future sales.

Employees

As of October 31, 1997, the Company had 186 full-time employees, of whom 30 were
product  development  personnel,  101 were sales,  marketing and service support
personnel, 29 were production personnel,  and 26 were administrative  personnel.
This  compares  to 199 at October  31,  1996 and 241 at October  31,  1995.  The
decrease  from  1996  was  primarily  attributable  to the  reduction  of  Licom
personnel,  due to the  relocation  of  Licom's  operations  in May  1997 to the
Company's corporate  headquarters located at 565 Taxter Road, Elmsford,  NY. The
decrease  from  1995  was  primarily  attributable  to a  reorganization  of the
Company's  engineering,  manufacturing and administrative  functions in November
1995. In January 1998, the Company  further  reduced the number of its employees
to 170 as a result of a restructuring plan.

Many of the Company's employees are highly skilled,  and the Company's continued
success  will  depend,  in part,  on its  ability  to attract  and  retain  such
employees.  None  of  the  Company's  employees  are  covered  by  a  collective
bargaining  agreement;  however,  four employees of a wholly owned subsidiary of
the Company,  all of whom work in the Boston  service  center,  are members of a
local  collective  bargaining  unit. The Company believes its relations with its
employees are good. 

                         Private Securities Litigation
                        Reform Act Safe Harbor Statement

When used in this Annual  Report on Form 10-K and in other public  statements by
the Company and Company  officers,  the words "expect",  "estimate",  "project",
"intend"  and similar  expressions  are  intended to  identify  forward  looking
statements  regarding events and financial trends which may affect the Company's
future operating results and financial condition. Such statements are subject to
risks and  uncertainties  that could  cause the  Company's  actual  results  and
financial  condition to differ materially.  Such factors include,  among others:
(i) the intense  competition in the market places for the Company's products and
services;  (ii) the  sensitivity of the Company's  business to general  economic
conditions  and the economic  conditions of the  industries  which  purchase the
Company's  products  and  services;  (iii)  the  performance  of  the  Company's
suppliers and subcontractors (iv) changes in accounting principles, policies, or
guidelilnes; and (v) other economic, competitive, governmental and technological
factors affecting the Company's operations,  markets,  products,  services,  and
prices.  Additional factors are described in this Annual Report on Form 10-K and
in  the  Company's   other  reports  filed  with  the  Securities  and  Exchange
Commission.  Readers are cautioned not to place undue  reliance on these forward
<PAGE>
looking statements, which speak only as of the date made. The Company undertakes
no  obligation  to publicly  release the result of any revision of these forward
looking  statements to reflect events or  circumstances  after the date they are
made or to reflect the occurrence of unanticipated events.

Item 2. Properties

The  Company's   leases   executive   offices  and  engineering   facilities  of
approximately  22,800  square feet,  located at 565 Taxter Road,  Elmsford,  New
York.

The Company  conducts  its  assembly,  quality  assurance,  and repair  business
operations at a 15,000 square foot leased facility at Three  Westchester  Plaza,
Elmsford, New York.

Leases for the Company's  domestic sales and service support  locations  include
approximately:  8,900 and 2,500  square  feet  located in New York  City;  1,300
square  feet  located in Boston,  Massachusetts;  2,600  square feet in Chicago,
Illinois; and 983 square feet in San Francisco, California.
 
The Company  leases office and  production  space related to its United  Kingdom
operation.  It has a leased  sales  office of  approximately  2,700  square feet
located in London.  The  production  facility  and  administrative  offices with
approximately  20,000  square  feet are  located  within 20 miles  southeast  of
London.

Licom's  headquarters  and  operations  were  relocated  in May of  1997  to the
Corporate Headquarters located at 565 Taxter Road, Elmsford, New York.

In January 1998, the Company established a plan to reduce and/or consolidate its
office space in New York City and London.

Management believes that all of its facilities are in good condition and working
order and have adequate capacity to meet its needs for the foreseeable future.

Item 3.    Legal Proceedings

In October 1994,  the Company  commenced an action against  Technical  Telephone
Systems, Inc. ("TTSI") in New York State Supreme Court,  Westchester County, for
minimum  payments  due  to the  Company  in  the  amount  of  $650,000  under  a
distribution  agreement  between the Company and TTSI.  In November  1994,  TTSI
filed a counterclaim  against the Company denying all allegations  stated in the
Company's  complaint and alleging a breach of good faith and fair dealing by the
Company, claiming damages of $1 million. 

There is no other material pending legal proceedings as of December 31, 1997.

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

No matters were submitted to a vote of security holders during the fourth fiscal
quarter of the year ended October 31, 1997.
<PAGE>


                                     Part II

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

The  Company's  Common  Stock is traded in the  over-the-counter  market  and is
included  in  the  National   Association   of  Securities   Dealers   Automated
Quotation-National Market System ("NASDAQ") under the symbol VBAN. The following
table shows the high and low sales prices for the Company's  Common Stock quoted
in the over-the-counter  market for the fiscal quarters indicated as reported on
the NASDAQ.  The  quotations  represent  prices in the  over-the-counter  market
between  dealers in securities and do not include retail  markup,  markdown,  or
commissions.
<TABLE>
<CAPTION>

Fiscal 1997                                           High                Low
-----------                                           ----                ---
<S>                                                 <C>                <C>
Fourth Quarter                                      $ 2.44             $ 1.50
Third Quarter                                       $ 2.44             $ 1.38
Second Quarter                                      $ 2.00             $ 1.25
First Quarter                                       $ 2.50             $ 1.25
<CAPTION>

Fiscal 1996                                           High                Low
<S>                                                 <C>                <C>
Fourth Quarter                                      $ 3.38             $ 1.88
Third Quarter                                       $ 3.88             $ 1.63
Second Quarter                                      $ 3.38             $ 1.63
First Quarter                                       $ 2.38             $ 1.25
</TABLE>

As of December 31, 1997, there were  approximately  500 holders of record of the
Company's Common Stock.

The  Company  has never  paid a regular  dividend  on its  shares,  and does not
anticipate paying dividends in the near future.

Under the terms of the Credit Agreement,  dated as of May 28, 1997,  between the
Company and National Bank of Canada,  New York Branch, the Company is restricted
from  declaring  or paying  dividends  if an event of  default  occurred  and is
continuing thereunder.
<PAGE>
Item 6.  Selected Financial Data

The selected  financial data presented  below have been derived from the audited
financial statements of the Company, and should be read in connection with those
statements, which are included herein.
<TABLE>
<CAPTION>

                                                            For the Year Ended October 31,

                                             1997          1996        1995          1994          1993
                                           --------      --------     --------      --------     --------
                                                         (in 000's, except per share data)
<S>                                        <C>           <C>          <C>           <C>          <C>
Sales ................................     $ 31,081      $ 32,886     $ 29,351      $ 31,078     $ 25,741

Income (loss) before cumulative effect
    of accounting change .............       (8,512)           27      (11,594)          627       (1,134)

Cumulative effect of accounting change         --            --           --           1,242         --
                                           --------      --------     --------      --------     --------

Net income (loss) ....................     $ (8,512)     $     27     $(11,594)     $  1,869     $ (1,134)
                                           ========      ========     ========      ========     ========

Per share data:
    Income (loss) before cumulative
        effect of accounting change ..     $  (1.58)     $    .01     $  (2.18)     $    .12     $   (.21)

    Cumulative effect of accounting
        change .......................         --            --           --             .23         --
                                           --------      --------     --------      --------     --------

    Net income (loss) ................     $  (1.58)     $    .01     $  (2.18)     $    .35     $   (.21)
                                           ========      ========     ========      ========     ========

Weighted average number of shares  of
    common stock and common stock
    equivalents ......................        5,372         5,323        5,322         5,311        5,285

Cash dividends per common share ......     $    .00      $    .00     $    .00      $    .00     $    .00


Working capital ......................     $  5,151      $ 10,619     $  9,622      $ 18,935     $ 19,684

Total assets .........................     $ 14,552      $ 22,042     $ 21,212      $ 36,027     $ 30,639

Shareholders' equity .................     $  6,097      $ 14,488     $ 14,398      $ 26,039     $ 23,963

</TABLE>
<PAGE>
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Results of Operations

As an aid to understanding the Company's operating results,  the following table
shows, for the periods indicated, the percentage  relationship,  which each item
bears to sales.
<TABLE>
<CAPTION>
                                                   Fiscal Year Ended October 31,
                                                  ------------------------------
                                                    1997       1996        1995
                                                   -----      -----       ------ 

<S>                                                <C>        <C>         <C> 
Sales
    Equipment ..............................        81.8 %     84.2%       80.4 %
    Service ................................        18.2       15.8        19.6
                                                   -----      -----       ------ 
Total sales ................................       100.0      100.0       100.0
Cost of sales
    Equipment(*) ...........................        73.8       59.2        85.7
    Service(*) .............................        76.7       62.2        61.0
                                                   -----      -----       ------ 
Total cost of sales ........................        74.3       59.7        80.8
                                                   -----      -----       ------
Gross Profit ...............................        25.7       40.3        19.2
Selling, general and administrative expenses        39.2       31.0        44.6
Research and development expenses ..........        11.5        9.5        13.4
                                                   -----      -----       ------ 
Operating income (loss) ....................       (25.0)      (0.1)      (38.8)
                                                  ======      =====      ======= 
Net income (loss) ..........................       (27.4)%      0.1%      (39.5)%
                                                  ======      =====      ======= 
                                                                         
</TABLE>

*  Presented as a percentage of the related sales categories.

Sales

Sales for the year ended October 31, 1997 were $31.1 million, a $1.8 million, or
5% decrease from sales for 1996.  The decline in 1997 sales was primarily due to
a decrease in sales of the Company's Licom  subsidiary and was partially  offset
by an increase in the Company's  service sales.  Equipment sales,  which include
new  equipment  installations  plus moves,  adds,  and  changes  for  customers'
existing systems, decreased by 8% from $27.7 million in 1996 to $25.4 million in
1997. Of this $2.3 million decrease,  $1.5 million was attributable to a decline
in the sales of Licom's  products and $.8 million was attributable to a decrease
in the sale of the  Company's  other  products.  The  decline in the sale of the
Company's  Licom  products was primarily due to a decline in the number of units
sold resulting from increased competition in the market for Licom's products and
the Company's emphasis on the sale of its other products.

The Company  experienced a decline in demand for the Company's  products  during
the later  part of 1997.  This  decline  in demand,  if  continuing,  could have
a material impact on the Company's sales for 1998.
<PAGE>
Sales in 1997 to non-financial  customers (i.e.,  communication  control centers
for  utilities and  government  agencies)  accounted for $2.5 million,  or 8% of
sales,  a $3.5 million  decrease from 1996  non-financial  customer  sales.  The
decrease  was  related  primarily  to several  specific  sales of the  Company's
product in diverse applications in 1996.

Sales for the year ended October 31, 1996 were $32.9 million,  a $3.5 million or
a 12%  increase  from  sales  for 1995.  The  increase  in sales  was  primarily
attributable  to the  increase in sales of the  Company's  Power  Deck,  DXi and
eXchange  Phone  products  which  increased  to $15.4  million in 1996 from $9.9
million  in  1995,  or 56%,  as  product  migration  continued  in  favor of the
Company's  newer products.  Sales for the Company's older products,  Viax DN and
Viax Analog  decreased to $4.9  million in 1996 from $9.4 million in 1995,  or a
48% decrease. Sales for the Company's Licom ProMX decreased to $2.4 million from
$3.1  million,  or 23%,  due to  increased  competition  in the  market  for the
Company's  products.  Excluding  Licom's ProMX sales,  the Company's  sales were
$30.5  million  in 1996  compared  to  $26.3  in 1995,  or an  increase  of 16%.
Equipment sales, which include new equipment  installations plus moves, adds and
changes for customers' existing systems,  were $27.7 million in 1996 as compared
to $23.5 in 1995,  or an increase of 18%.  Excluding  Licom's  ProMX sales,  the
Company's  equipment sales were $25.3 million in 1996 compared to $20.5 in 1995,
or an increase of 23%. Service sales decreased to $5.1 million in 1996 from $5.8
million in 1995, or a 10% decrease.  This decrease was primarily attributable to
several  factors - a reduction in the Company's  repairs and other sales related
to E9-1-1  products, older Viax  products  and  miscellaneous  products  to $1.0
million in 1996 from $1.5 million in 1995.  Maintenance  sales remained level at
$4.2  million  for 1996 and 1995 as several  customers  historically  covered by
maintenance  contracts  upgraded to new systems during 1996 and those customers'
systems were covered under warranty contracts for all or part of the year.

Sales in 1996 to non-financial  customers (i.e.,  communication  control centers
for utilities and government agencies), which accounted for $6.0 million, or 18%
of sales, a $1.2 million  increase from 1995  non-financial  customer sales. The
increase  was  related  primarily  to several  specific  sales of the  Company's
product in diverse applications.

Since the Company sells products to its foreign  customers and  distributors for
U.S. dollars,  it is unaffected by currency  translations.  The Company's United
Kingdom  operation  primarily  transacts sales in pounds sterling or US dollars.
Those sales transacted in pound sterling were not materially impacted by foreign
exchange rate  fluctuations  during 1997 or 1996.  The Company has, from time to
time, hedged foreign currency transactions when deemed necessary.

Reflecting the transformation of the Company's  distribution channels from third
party distributors to a direct sales and service network,  $24.9 million, or 80%
of total  sales were  direct in 1997,  as  compared  to $28.4  million and $24.1
million, or 86% and 82% of sales in 1996 and 1995, respectively.

Gross Profit Margins

Gross  profit  margins  for  1997 and 1996  were 26% and 40%  respectively.  The
equipment  gross profit  margin was 26% in 1997 as compared to 41% in 1996.  The
decrease in equipment gross profit margins for 1997 was  attributable to special
fourth quarter 1997 expense adjustments,  including an $.8 million write-down of
certain  field and supplier  inventory  and a $.5 million  increase in inventory
reserves  related to components for older product lines. In addition,  the gross
profit margin was unfavorably  impacted by large customer  contracts,  for which
the Company obtained lower gross profit margins, large manufacturing variances,
<PAGE>
due to a lower volume of purchases during the year,  service  variances,  due to
large  contracts where the Company  incurred  additional  warranty costs,  and a
decrease in gross  profit  margins  from the  Company's  Licom  business  due to
increased  production costs. The service gross profit margin decreased to 23% in
1997 from 38% in 1996. This was primarily attributable to increased costs in the
Company's  service  operations  and an  increase  in the  amount of  technicians
providing warranty services related to several large contracts.

Gross  profit  margins  for 1996 and 1995  were 40% and 19%,  respectively.  The
equipment  gross profit margin was 41% in 1996, as compared to 14% in 1995.  The
increase in equipment  gross  margins for 1996 was  attributable  to the matters
relating to 1995 described below. The equipment gross profit margin for 1995 was
adversely affected by the special fourth quarter adjustment of $3.8 million, the
manufacturing  restructuring  program  initiated by the Company and  competitive
discounting for the Company's products.

The 1995 gross  profit was  affected  by several  special  fourth  quarter  1995
expense adjustments,  including a $2.6 million charge for increases in inventory
reserves and inventory  write-offs related to older product lines, a $.9 million
write-off of an intangible asset related to a license for product  technology no
longer used, and a $.3 million increase in warranty reserves.  Additionally, the
Company restructured its production  operations during the year from an internal
manufacturing process to one that relies to a significant extent on out-sourcing
of the  Company's  sub-assemblies.  This  restructuring  enabled  the Company to
reduce its gross  manufacturing  expenses by $3.0 million,  from $5.3 million in
1995 to $2.3  million in 1996.  Also,  the Company  found it  necessary to offer
larger discounts for its products in order to meet competitive  challenges.  The
service gross profit margin decreased  slightly to 38% in 1996 from 39% in 1995.
This was primarily  attributable to a decrease in the Company's repair sales for
older products, which have generally yielded higher gross profit margins.

Operating Expenses

Total  operating  expenses for 1997 increased to $15.8 million,  representing an
18% increase from $13.3 million for 1996.  Operating expenses as a percentage of
sales were 51% in 1997 as  compared  to 40% in 1996.  The  selling,  general and
administrative  expenses  increased as a percentage of sales to 39% in 1997 from
31% in 1996.

Total operating expenses for 1996 decreased to $13.3 million, representing a 22%
decrease from $17 million for 1995.  Operating expenses as a percentage of sales
were  40% in  1996  as  compared  to 58%  in  1995.  The  selling,  general  and
administrative  expenses  decrease as a percentage  of sales to 31% in 1996 from
45% in 1995 were attributable  primarily to the restructuring  program initiated
by the Company during 1995.

Selling, general and administrative costs for 1997 increased $2 million to $12.2
million,  or 20%, from $10.2 million in 1996.  The increase in selling,  general
and administrative expense was primarily attributable to the Company writing-off
the  remaining  value of the goodwill of $2.3 million  related to the  Company's
London operation.

Selling,  general and  administrative  costs for 1996  decreased $2.9 million to
$10.2  million,  or 22%,  from $13.1  million in 1995.  The decrease in selling,
general and  administrative  expenses was  attributable  to the  Company's  1995
restructuring.  Overall,  the  Company  reduced  the  number  of  its  full-time
employees  to 199 at October  31,  1996 from 241 at October  31, 1995 and 288 at
October  31,  1994.  Overall,  sales,  general  and  administrative  payroll and
<PAGE>
benefits  were  $2.2  million  lower  in  1996.   Part  of  this  reduction  was
attributable to severance  costs incurred in 1995 related to the  aforementioned
restructuring.  The Company was able to reduce  headcount  while  increasing its
operational  efficiency by  implementing  a new  management  information  system
towards the end of 1995.  This new system enabled the Company to streamline many
of its operational and administrative functions.

Research  and  development  expenses  for  1997 of $3.6  million  increased  $.5
million, or 15%, from $3.1 million in 1996. Research and development expenses as
a percentage  of sales  increased to 11% in 1997 as compared to 9% in 1996.  The
increase is primarily  due to prototype  and  development  expenses for specific
customer contracts.

Research and development expenses for 1996 of $3.1 million decreased $8 million,
or 21%,  from $3.9  million in 1995.  Research  and  development  expenses  as a
percentage  of sales  decreased  to 9% in 1996 as compared  to 13% in 1996.  The
decrease in research and development expenses was primarily  attributable to the
restructuring of the Company's  engineering  department,  which placed a greater
emphasis on software  development as opposed to hardware  development,  which is
less costly. In addition,  the products  introduced during the year require less
development expense to bring to the market.

Other Income and Expense

Interest  expense  was  $61,000 for 1997,  which was  primarily  due to the debt
acquired related to the credit facility  obtained by the Company in May 1997. No
interest expense was reported in 1996 or 1995.

The Company  reported no investment  income for 1997 compared to $.1 million for
1996

Net  investment  income for 1996 and 1995 remained  relatively  unchanged at $.1
million.

Provision for Income Taxes

The Company  accounts for income taxes in accordance with Statement of Financial
Accounting  Standards No. 109 ("SFAS 109")  "Accounting for Income Taxes." Under
SFAS 109, the deferred tax provision is determined  under the liability  method.
Under this method,  deferred tax assets and liabilities are recognized  based on
differences between the financial statement carrying amount and the tax basis of
assets and  liabilities  using  presently  enacted tax rates.  During 1995,  the
Company  recorded  an  additional  deferred  tax  asset of  $4,325,000  and also
recorded an  additional  valuation  allowance of  $4,876,000.  During 1996,  the
Company  reduced the  deferred  tax asset and  valuation  allowance by $208,000.
During  1997,  the  Company  increased  the  deferred  tax asset  and  valuation
allowance  by  $3,105,000  and  $3,805,000  respectively.  The  total  valuation
allowance as of October 31, 1997 of $8,623,000 reduces the deferred tax asset to
zero.  This reduction was made in light of the losses  recognized by the Company
in two of the  past  three  years.  The  Company's  1997,  1996,  and  1995  tax
provisions  of $700,000,  $5,000,  and $301,000  reflect  effective tax rates of
(9)%, 16%, and (3)%, respectively.

Net Income (Loss) Per Share

For 1997, the Company  recorded a net loss of $8.5 million or ($1.58) per share,
as compared  to a net income of $27,000 or $.01 per share in 1996.  The loss was
<PAGE>
primarily  attributable  to  the write-off of goodwill  related to the Company's
London  operation,   the  write-down  of  spare  and  prototype  inventory,  the
write-down of the Company's deferred tax asset, and a reduction in the Company's
gross profit margin.

For 1996,  the  Company  recorded  net income of  $27,000 or $.01 per share,  as
compared to net loss of $11.6 million, or $2.18 per share in 1995. The Company's
Licom subsidiary  recorded a net operating loss of $.5 million compared to a net
operating loss of $.1 million in 1995.  Excluding  Licom's results,  the Company
had net income of $.5 million, or $.09 per share in 1996.

The Company believes that the  implementation of the restructuring  plan adopted
by the  Company  in January  1998 will  result in the  inclusion  of a charge of
approximately  $1 million in the  results of  operations  of the Company for the
fiscal quarter ending January 31, 1998.

Liquidity and Capital Resources

The Company's  aggregate of cash, cash equivalents and marketable  securities at
October 31, 1997 declined $2 million,  to $.3 million,  compared to the balances
reported at October 31, 1996.  Accounts  receivable  increased $1.4 million,  to
$8.1 million in 1997 from $6.7 million in 1996 primarily due to retainage due on
large customer contract.  Other current liabilities  (excluding short-term debt)
decreased $2.1 million.  Offsetting these items,  short-term debt increased $2.9
million and inventory decreased $3.1 million.

The Company's  aggregate of cash, cash equivalents and marketable  securities at
October 31, 1996 declined $.7 million, to $2.3 million, compared to the balances
reported at October 31, 1995.  Accounts  receivable  increased $1.9 million,  to
$6.7 million in 1996 from $4.8 million in 1995, primarily due to the increase in
sales for the Company's  fourth  quarter  compared to the fourth quarter of 1995
and an increase in amount  outstanding,  (including  retainage) related to large
customer  contracts.  Total current  liabilities  increased due to the timing of
inventory  purchases  in the  fourth  quarter  to  support  sales for the fourth
quarter of 1996 and the first and second quarters of 1997. Capital  expenditures
were $.3 million in 1996 as compared to $.9 million in 1995.

The  Company's  working  capital was $5.2 million as of October 31, 1997, a $5.4
million  decrease  from $10.6  million as of October 31, 1996.  The reduction in
working  capital  as of  October  31,  1997 was  primarily  attributable  to the
increase  in  short-term  debt  and  decreases  in  inventory  and cash and cash
equivalents.  Working  capital was $10.6  million as of October 31,  1996,  a $1
million increase from $9.6 million as of October 31, 1995.

The Company's loss for 1997 has had a substantial  impact on its working capital
and liquidity.  On May 28, 1997 the Company entered into a Credit Agreement (the
"Credit  Agreement") with National Bank of Canada,  New York Branch.  The Credit
Agreement  provides a $4  million  credit  facility  to the  Company  secured by
substantially all of the assets of the Company and its domestic subsidiaries. As
a result of the Company's  results of operations for 1997, the Company failed to
satisfy the financial  covenants set forth under the Credit  Facility.  The Bank
has waived the Company's failure to satisfy the financial covenants set forth in
the Credit  Agreement and has amended those  covenants for fiscal year 1998. The
Company's  operations are dependant upon the continued  availability  of funding
under the Credit  Agreement.  The  continued  availability  of funding under the
Credit  Agreement is dependent,  in turn, upon the Company's  ability to satisfy
the amended financial  covenants set forth in the Credit Agreement which require
an improvement in the results of the Company's operations for 1998.
<PAGE>
The Company  has no  significant  commitments  for  capital  expenditures  as of
October 31,  1997.  The Company is in the early stages of the  development  of a
suite of software and hardware  products that  integrates  instant  access voice
communications  into a high bandwidth  multimedia network through the use of CTI
applications.  Further  development  of this  suite  of  products  will  require
substantial  capital  in  excess of that  generated  by the  Company's  existing
operations.  As a result,  the Company  intends to obtain  capital from external
sources to contribute to the funding of this project. There can be no assurance,
however, that such capital will be available to the Company.

Year 2000  

The Company utilizes software and related  technologies  throughout its business
that may be affected by the date change in the year 2000.  System  modifications
or replacements are underway which will make all computer systems at the Company
compliant  with  the year  2000  replacement.  Anticipated  spending  for  these
modifications  will  be  expensed  as  incurred  and is not  expected  to have a
material impact on the Company's ongoing results of operations.

Item 8.   Financial Statements and Supplementary Data

The response to this item is incorporated by reference to pages F-1 through F-12
and S-1 herein.

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

None.



<PAGE>


                                    PART III

Item 10.      Directors and Executive Officers of the Registrant
<TABLE>
<CAPTION>

Name                                     Age                  Office Held
----                                     ---                  -----------
<S>                                      <C>     <C>
Thomas E. Feil (1)                       56      Chairman, Chief Executive Officer, Director

Thomas Hughes                            38      President, Chief Operating Officer

Mark R. Hahn                             40      Vice President - Chief Financial Officer, Treasurer and Secretary

Gerald C. Walsh                          51      Senior Vice President - Sales and Operations

Luke P. La Valle, Jr. (2)(3)             55      Director

Thomas H. Lenagh (2)                     73      Director

Brian S. North (1)                       46      Director

Joseph M. O'Donnell (3)                  51      Director

A. Eugene Sapp, Jr. (1)                  61      Director

J. Stephen Vanderwoude (2)(3)            54      Director
----------
</TABLE>

(1)  Member of stock option committee.
(2)  Member of audit committee.
(3)  Member of compensation committee.


There is no family relationship among any of the directors or executive officers
of the Company. Information with respect to the directors and executive officers
of the Company, based upon information furnished by them, is set forth below.

Thomas E. Feil has served as Chairman of the Company from April 1985 to present,
as a Director since its inception and as Chief Executive Officer from April 1985
to August 1988 and from August 1993 to  present.  From the  Company's  inception
until April 1985, Mr. Feil was President of the Company.

Thomas Hughes was appointed President and Chief Operating Officer of the Company
in May 1997. He has been the Chief  Operating  Officer of the company since 1995
and was its Vice President of Marketing and Product  Planning from 1993 to 1995.
Mr.  Hughes  began his career with the Company in 1988 as a Staff  Engineer  and
held various engineering management positions of increasing responsibility until
his appointment as Vice President.  Prior to joining the Company, he worked as a
researcher  at CBS  Laboratories'  Technology  Center and a Systems  Engineer at
United Technologies.
<PAGE>
Mark R. Hahn was appointed  Vice  President and Chief  Financial  Officer of the
Company in August  1995.  He was  elected  Secretary  of the Company in 1995 and
elected Treasurer of the Company in 1996. Previously, he served as Controller of
the Company  since 1994.  Prior to joining the Company,  he was a consultant  to
American  Airlines  in Fort  Worth,  TX.  From  1991 to 1994,  he served as Vice
President  of  Finance  and  Controller  for  Business  Express  Corporation  in
Westport,  CT. He joined  Business  Express in 1990 as Controller.  From 1987 to
1990,  he held the positions of Corporate  Controller  and Director of Corporate
Planning and Accounting with Waldenbooks in Stamford, CT. He began his career as
a  certified  public  accountant  with  Price  Waterhouse.  

Gerald C. Walsh was appointed Senior Vice President, Sales and Operations of the
Company in May 1996.  Prior to joining  the  Company,  he was  Eastern  Regional
Manager,  National Accounts at Executone  Information Systems, Inc. From 1993 to
1995, Mr. Walsh served as Chief  Operating  Officer for Glasgal  Communications,
Inc., in Northvale,  New Jersey. From 1987 to 1992, he was Senior Vice President
and General Manager for Contel IPC.

Luke P. La Valle,  Jr. has served as a Director of the Company  since June 1992.
Since 1980,  Mr. La Valle has been  President  and Chief  Investment  Officer of
American Capital Management,  Inc., a New York City based investment  management
firm for  individuals,  trusts,  pension and profit sharing  accounts.  Prior to
forming American Capital Management, Inc., Mr. La Valle worked for United States
Trust Company of New York for 13 years  specializing in small company  investing
in the Pension and Institutional Investment Division.

Thomas H. Lenagh has served as a Director of the  Company  since June 1993.  Mr.
Lenagh has served as an independent financial consultant for the last six years.
He was formerly Chairman and Chief Executive Officer of Greiner Engineering from
1984 to 1986.  Prior to that he was Financial Vice President of Aspen  Institute
until 1984.  Previously,  he was  Treasurer  and  Portfolio  Manager of the Ford
Foundation.  Mr. Lenagh is a retired Captain of the United States Naval Reserve.
Mr.  Lenagh is also a  Director  of CML,  Inc.,  Gintel  Funds,  Adams  Express,
Clemente Growth Fund, ICN Pharmaceuticals,  Inc., Irvine Sensors Corporation and
Franklin Quest.

Brian S. North has served as a Director of the Company since September 1988. Mr.
North  is an  attorney  with  the law  firm of  Buchanan  Ingersoll Professional
Corporation in  Philadelphia.  From 1995 to 1997 he practiced law with White and
Williams.  From  1987 to  1994,  he was a  member  of the law  firm of  Elliott,
Reihner,  Siedzikowski,  North & Egan, P.C. and predecessor law firms. From 1980
to 1987, he was Senior Corporate Counsel of Sun Company, Inc.

Joseph M.  O'Donnell  has served as a Director of the  Company  since June 1991.
Since  July 1994,  Mr.  O'Donnell  has been the Chief  Executive  Officer  and a
Director of Computer Products, Inc., a manufacturer in Boca Raton, Florida. From
1993 to 1994, he was Chief Executive  Officer for Savin  Corporation,  after one
year of being an independent business consultant. From 1990 to 1992 he served as
President   and  Chief   Executive   Officer  of  GO/DAN   Industries   Inc.,  a
Connecticut-based  manufacturer  of  automobile  parts  sold  primarily  in  the
aftermarket.  He is also a Director  of  Cincinnati  Microwave,  Inc.,  and Boca
Research.

A. Eugene Sapp,  Jr. has served as a Director of the Company  since August 1994.
Mr. Sapp,  employed by SCI Systems  since 1962,  has been its  President,  Chief
Operating Officer and Director since 1981. Mr. Sapp also serves as a Director of
Irvine Sensors Corp.,  Computer Products,  Inc. of Boca Raton, Florida, and CMS,
Inc. of Tampa, Florida.
<PAGE>
J. Stephen Vanderwoude has served as Director of the Company since May 1994. Mr.
Vanderwoude is currently  Chairman and Chief Executive  Officer of Madison River
Telephone  Company LLC. He was President,  Chief Executive  Officer and Director
for Video Lottery  Technologies in Atlanta,  Georgia from 1994 to 1995. Prior to
that, he was the President and Chief Operating  Officer of Sprint  Corporation's
Local  Telecommunication  Division until September 1993.  Prior to the merger of
Sprint and Centel  corporations in March 1993, Mr. Vanderwoude was President and
a  Director  of Centel  Corporation  from 1988 and held  various  executive  and
management  positions  with  Centel  since  joining  the  company  in 1971.  Mr.
Vanderwoude is a Director of First Midwest, a bank holding company.

Each officer is elected by and serves at the pleasure of the Board of Directors.
Directors  are elected  annually by the  shareholders,  except when the Board of
Directors  may elect a director  to fill a vacancy on the Board.  The  executive
officers of the Company are elected annually by the Board of Directors.

The Board of Directors has three standing  committees:  Stock Option,  Executive
Compensation  and Audit  Committees.  The Stock Option  Committee  exercises the
responsibilities  of the Board in granting options under and  administering  the
Company's 1982  Incentive  Stock Option Plan and its 1984 Stock Option Plan. The
Executive  Compensation  Committee's principal functions are to recommend to the
Board of Directors the compensation  arrangements for the executive  officers of
the  Company.  The Audit  Committee's  principal  functions  are to review  with
internal financial staff and the Company's  independent  public accountant,  the
Company's   reporting  process  and  internal  controls  and  to  recommend  the
selection,  retention or termination of the independent public accountants.  The
Company has entered into Indemnity Agreements with each of its directors and its
officers, pursuant to which the Company is obligated to reimburse or pay certain
expenses  incurred  by its  directors  and  officers  arising out of claims made
against them in connection with their services to the Company.
<PAGE>
Item 11.      Executive Compensation

SUMMARY COMPENSATION TABLE

The following  table sets forth  information  for each of the fiscal years ended
October 31, 1997,  1996 and 1995  concerning the  compensation  of the Company's
Chairman and Chief Executive  Officer and each of its other  executive  officers
whose salary and bonus for fiscal 1997 exceeded $100,000:
<TABLE>
<CAPTION>

                                                                                            Long-term
                                                       Annual Compensation               Compensation (1)
                                              ----------------------------------------   ----------------
                                                                                            Securities
Name/                                                                     Other Annual      Underlying        All Other
Principal Position                     Year     Salary        Bonus       Compensation      Options (#)     Compensation (2)
------------------                     ----     ------        -----       ------------      ----------      ----------------
<S>                                    <C>     <C>         <C>               <C>              <C>         <C>        
Thomas E. Feil,                        1997    $200,000    $        -        $    -             -         $      1,627 
Chairman, Chief Executive              1996     200,000             -             -             -                2,000  
Officer and Director                   1995     199,000             -             -             -                1,528
                                                                     

Thomas Hughes, (3)                     1997     154,000             -             -           30,000             1,570
President-                             1996     150,000          2,000            -           90,000             1,500 
Chief Operating Officer                1995     103,616             -             -           16,000             1,036
                                                                    -

Mark R. Hahn, (3)                      1997     109,000             -             -           20,000             1,100
Vice President -                       1996     105,000          2,000            -           60,000             1,050
Chief Financial Officer                1995      85,077              -            -           17,000               285

Gerald C. Walsh                        1997     126,000             -             -           50,000                 -
Senior Vice President-                 1996      63,000             -             -           10,000                 -
Sales and Operations                   1995           -             -             -                -                 -
--------------- 
</TABLE>
(1)  Other  than the  Company's  401(k)  Plan and its  stock  option  and  stock
     purchase plans, the Company does not have any long-term incentive plans and
     does not grant restricted stock awards.

(2)  Includes amounts contributed by the Company under the Company's 401(k) Plan
     during   the  fiscal   year  and  any   additional   discretionary   annual
     contributions related to the prior fiscal year.

(3)  Mr.  Hughes and  Mr. Hahn  entered  into  agreements  with the  Company  in
     January 1998,  whereby they are each entitled to receive  approximately one
     year's  compensation  should  there be a change of control  of the  company
     prior to January 31, 1999
<PAGE>
STOCK OPTIONS

The  following  tables  summarize  option  grants  during the fiscal  year ended
October 31, 1997 to the named officers and the value of the options held by such
persons at the end of such fiscal year. None of the named officers exercised any
stock options  during the fiscal year ended  October 31, 1997.  The Company does
not maintain any pension plans or any supplementary pension award plans.

Option Grants in Fiscal 1997
<TABLE>
<CAPTION>

                                                                                             Potential Realizable Value
                                                                                             at Assumed Annual Rates of
                                                                                              Stock Price Appreciation
                                                  Individual Grants                               for Option Term
                         ------------------------------------------------------------------------------------------------

                            Number of       Percentage of
                            Securities      Total Options
                            Underlying       Granted to
                             Options        Employees in      Exercise Price     Expiration
  Name                       Granted         Fiscal Year         (per share)        Date               5%           10%
  ----                       -------         -----------         -----------        ----               --           ---
<S>                           <C>                <C>               <C>              <C>             <C>           <C>
Thomas Hughes                 30,000             17%               $1.44            2007            $42,317       $92,971
Mark R. Hahn                  20,000             11%                1.44            2007             28,211        61,981
Gerald C. Walsh               10,000              6%                1.44            2007             14,106        30,990
                                                                                     

</TABLE>

Aggregate Option Exercises in Fiscal 1997 and Fiscal Year-end Option Value
<TABLE>
<CAPTION>

                                                                                        Value of Unexercised In-the
                                                     Number of Unexercised Options           Money Options at
                                                               at FY-End                          FY-End
                                                    -------------------------------------------------------------------
                           Shares
                         Acquired on      Value
Name                      Exercise      Realized     Exercisable    Unexercisable     Exercisable     Unexercisable
----                      --------      --------     -----------    -------------     -----------     -------------
<S>                          <C>         <C>             <C>          <C>                <C>              <C>
Thomas E. Feil                -          $   -           25,000           -              $    -           $    -  
                                   
Thomas Hughes                 -              -           72,233       73,334               9,375               -
                                   
Mark R. Hahn                  -              -           44,334       52,666               6,250               -
                                    
Gerald C. Walsh               -              -           25,000       35,000               3,125               -
   
</TABLE>
<PAGE>
COMPENSATION OF DIRECTORS

The Company pays each outside  director an annual  director's fee of $7,500 plus
$500 for each board  meeting  attended (up to a limit of six meetings per year),
plus  deferred  cash  compensation,  payable  upon  termination  of service as a
director,  in an amount  equal to $2,000 for each year of service as a director.
Pursuant to the Company's Stock  Compensation  Plan for Non-Employee  Directors,
each  outside  director  may elect to have all or a portion of his  compensation
paid by the Company by means of the  issuance of the  Company's  Common Stock in
lieu of cash. Additionally, each director is reimbursed for out-of-pocket travel
expenses  incurred  to  attend  a  board  meeting  and  may  receive  reasonable
compensation  for chairing any committee of the board.  Outside  directors  also
receive,  upon election or re-election  as a director,  a grant of stock options
under  the  Company's  1984  Stock  Option  Plan  covering  2,000  shares of the
Company's  Common Stock,  at an exercise price equal to the fair market value on
the date of grant.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Messrs. La Valle, O'Donnell and Vanderwoude comprise the Compensation Committee.
Messrs.  Feil, North and Sapp comprise the Stock Option  Committee.  Messrs.  La
Valle,  Lenagh and  Vanderwoude  comprise  the Audit  Committee.  Mr. Feil is an
officer  and  employee of the  Company,  but is not  eligible  to receive  stock
options while serving on the stock option committee.
<PAGE>
Item 12.  Security Ownership of Certain Beneficial Owners and Management

Set forth below is  information  concerning  the stock  ownership of all persons
known by the Company to own beneficially more than 5% of the Company's shares of
Common Stock. Each director of the Company,  each executive officer named in the
executive  compensation  table and all directors  and executive  officers of the
Company as a group, as of December 31, 1997.
<TABLE>
<CAPTION>
                                                                          Number of Shares        Percentage of
                                                                         Beneficially Owned           Class
                                                                         ------------------           -----
<S>                                                                       <C>                          <C>
Thomas E. Feil                                                            1,461,472 (2)(4)             27.0%
565 Taxter Road, Elmsford, NY  10523

Thomas Hughes                                                                73,733 (4)                  *
565 Taxter Road, Elmsford, NY  10523

Mark R. Hahn                                                                 58,216 (4)                  *
565 Taxter Road, Elmsford, NY 10523

Luke P. La Valle, Jr.                                                        20,000 (1)(4)               *
50 Broad Street, Suite 1609, New York, NY  10004

Thomas H. Lenagh                                                             18,000 (1)(4)               *
6 Greenwich Office Park, Greenwich, CT 06831

Brian S. North                                                              103,000 (1)(3)(4)           1.9%
Eleven Penn Center, Philadelphia, PA  19103

Joseph M. O'Donnell                                                          20,000 (1)(4)               *
7900 Glades Road, Suite 500, Boca Raton, FL 33434

A. Eugene Sapp, Jr.                                                           6,000 (1) (4)              *
2101 West Clinton Ave., Huntsville, AL  35807

J. Stephen Vanderwoude                                                        8,000 (1) (4)              *
2316 Young Road, Southern Pines, NC  28388

Gerald C. Walsh                                                              25,000 (4)                  *
565 Taxter Road, Elmsford, NY 10523
All directors and executive officers as a group (10 persons)              1,783,421 (4)                32.9%
</TABLE>
* -  less than 1%

(1)  Excludes  options granted upon his election to serve as an outside director
     at the last  annual  meeting of  shareholders,  covering  2,000  additional
     shares, exercisable at and after the 1998 annual meeting of shareholders.

(2)  Excludes  80,000  shares  held  in an  irrevocable  trust  for  Mr.  Feil's
     daughter, over which Mr. Feil holds no voting or investment power.

(3)  Includes 80,000 shares held in an irrevocable  trust for which Mr. North is
     a trustee.  Mr. North has no economic  interest in the trust.  However,  he
     shares investment and voting authority over such shares with a co-trustee.
<PAGE>
(4)  Includes  shares that may be acquired upon  exercise of options,  which are
     currently  exercisable or are exercisable  within 60 days, as follows:  Mr.
     Feil, 25,000 shares;  Mr. Hughes,  72,233 shares;  Mr. Hahn, 44,334 shares;
     Mr. La Valle,  10,000 shares; Mr. Lenagh,  8,000 shares; Mr. North,  23,000
     shares;  Mr.  O'Donnell,   20,000  shares;  Mr.  Sapp,  6,000  shares;  Mr.
     Vanderwoude,  8,000 shares, Mr. Walsh, 25,000 shares; and all directors and
     executive officers as a group, 239,567 shares.


Item 13.     Certain Relationships and Related Transactions

In January 1997, Mr. Thomas E. Feil, the Company's Chief Executive Officer, made
a loan to the  Company  in the  principal  amount of  $200,000.  The loan to the
Company was payable upon demand, bore interest at an annual rate of nine percent
and was secured by a security interest in the Company's accounts receivable. The
loan was repaid in full, including interest of $6,855, in May 1997.
<PAGE>
                                     Part IV

Item 14.     Exhibits, Financial Statement Schedule, and Reports on Form 8-K

                  (a)      1.  Financial Statements:

                       Description                                              

                    Independent Auditors' Report
                                              
                    Consolidated Balance Sheets as of October 31, 1997 and 1996
                  
                    Consolidated  Statements of  Operations  for the Years Ended
                         October 31, 1997, 1996 and 1995

                    Consolidated  Statements  of  Shareholders'  Equity  for the
                         Years Ended October 31, 1997, 1996 and 1995

                    Consolidated  Statements  of Cash Flows for the Years  Ended
                         October 31, 1997, 1996 and 1995

                    Notes to Consolidated Financial Statements



                           2.  Financial Statement Schedule:

VIII Valuation and Qualifying  Accounts

All other  schedules not listed above have been omitted  because the information
has been otherwise supplied in the financial  statements or the notes thereto or
they are not applicable, or the amounts are insignificant or immaterial.

                  (b)      Reports on Form 8-K:

                           On June 11, 1997,  the Company filed a Current Report
                           on Form 8-K, reporting under Item 5, that the Company
                           entered  into a $4 million  secured  credit  facility
                           with the National Bank of Canada, New York Branch.

                  (c)      Exhibits:

                              3.1   Restated Certificate of Incorporation. (5)
                              3.2   Amended By-Laws. (1)
                              10.1  Lease   dated   April   22,   1988   between
                                    registrant  and URBCO,  Inc. for premises at
                                    565 Taxter  Road,  Elmsford,  New York.  (2)
                              10.2  Amended and  Restated  1982  Incentive Stock
                                    Option Plan, as amended. (10)
                              10.3  1984 Stock Option Plan adopted by Registrant
                                    on June 27, 1984, as amended. (7)
                              10.4  1986  Employee   Stock   Purchase  Plan,  as
                                    adopted by Registrant  in December  1985, as
                                    amended.(7)
                              10.5  Rights  Agreement,  dated as of February 20,
                                    1989  between the  Company  and  Registrar &
                                    Transfer Company, as rights agent. (4)
                              10.6  Letter of Registrant to Thomas E. Feil dated
                                    August 29, 1989. (1)
<PAGE>

                              10.7  Adoption of Non-Standardized Retirement Plan
                                    and Trust  (401-K) dated January 1, 1989, as
                                    amended.(5)
                              10.8  Amendment  dated October 14, 1991 to a lease
                                    dated April 22, 1988 between the Company and
                                    URBCO, Inc. for premises at 565 Taxter Road,
                                    Elmsford, New York. (7)
                              10.9  Second  Amendment dated February 20, 1992 to
                                    a lease  dated  April 22,  1988  between the
                                    Company and URBCO,  Inc. for premises at 565
                                    Taxter Road, Elmsford, New York. (7)
                              10.10 Third  Amendment  dated  May  28,  1993 to a
                                    lease  dated  April  22,  1988  between  the
                                    Company and URBCO,  Inc. for premises at 565
                                    Taxter Road, Elmsford, New York.6)
                              10.11 Fourth  Amendment  dated  June 8,  1994 to a
                                    lease  dated  April  22,  1988  between  the
                                    Company and URBCO,  Inc. for premises at 565
                                    Taxter Road, Elmsford, New York. (6)
                              10.12 Agreement  dated  July 1, 1992  between  the
                                    Company   and   California    Institute   of
                                    Technology. (9)
                              10.13 Share  Acquisition  Agreement dated July 28,
                                    1994,     relating    to    TR     Financial
                                    Communications  plc,  together  with Deed of
                                    Covenant  of  the  same  date   between  the
                                    Company and Mercury Communications  Limited.
                                    (8)
                              10.14 Stock  Compensation  Plan  for  Non-Employee
                                    Directors. (10)
                              10.15 Agreement  dated May 28,  1997  between  the
                                    Company  and  National  Bank of Canada,  New
                                    York Branch. (11)
                              16    Letter   regarding   change  in   certifying
                                    accountant (3)
                              21    Subsidiaries
                              23.1  Consent of Deloitte & Touche LLP
                              27    Financial Data Schedules

                              Footnotes to Exhibits

               1.  Filed as an exhibit to the  Company's  Annual  Report on Form
                   10-K for the year ended  October 31, 1989,  and  incorporated
                   herein by reference.
               2.  Filed as an exhibit to the  Company's  Annual  Report on Form
                   10-K for the year ended  October 31, 1988,  and  incorporated
                   herein by reference.
               3.  Filed as an exhibit to the Company's  Current  Report on Form
                   8-K  filed  March  18,  1994,  and  incorporated   herein  by
                   reference.
               4.  Filed as an exhibit to the Company's  registration  statement
                   on Form 8-A filed February 22, 1989, and incorporated  herein
                   by reference.
               5.  Filed as an exhibit to the  Company's  Annual  Report on Form
                   10-K for the year ended  October 31, 1990,  and  incorporated
                   herein by reference.
<PAGE>

               6.  Filed as an exhibit to the  Company's  Annual  Report on Form
                   10-K for the period ended October 31, 1994, and  incorporated
                   herein by reference.
               7.  Filed as an exhibit to the  Company's  Annual  Report on Form
                   10-K for the year ended  October 31, 1992,  and  incorporated
                   herein by reference.
               8.  Filed as an exhibit to the Company's  Current  Report on Form
                   8-K  filed  August  12,  1994,  and  incorporated  herein  by
                   reference.
               9.  Filed as an exhibit to the Company's Quarterly Report on Form
                   10-Q for the period ended January 31, 1994, and  incorporated
                   herein by reference.
              10.  Filed as an exhibit to the Company's  registration  statement
                   on Form S-8 filed November 29, 1996, and incorporated  herein
                   by reference.
              11.  Filed as an exhibit to the Company's Quarterly Report on Form
                   10-Q for the period  ended July 31,  1997,  and  incorporated
                   herein by reference.

<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

                                                 V BAND CORPORATION

Dated:  February 10, 1998                        By: /s/Mark R. Hahn
                                                     ---------------
                                                     Mark R. Hahn, 
                                                     Chief Financial Officer
                                                     (Principal Financial and 
                                                     Accounting Officer)

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS,  that each person whose signature  appears below
constitutes  and  appoints  each of Thomas E. Feil and Mark R. Hahn his true and
lawful   attorney-in-fact  and  agent,  with  full  power  of  substitution  and
resubstitution  for  him  and in his  name,  place  and  stead,  in any  and all
capacities,  to sign any or all  amendments  to this Annual Report on Form 10-K,
and to file  the  same,  with all  exhibits  thereto,  and  other  documents  in
connection therewith, with the Securities and Exchange Commission, granting unto
each of said  attorneys-in-fact  and agents full power and  authority  to do and
perform each and every act and thing  requisite  and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in   person,   hereby   ratifying   and   confirming   all  that  each  of  said
attorneys-in-fact and agents, or his substitutes, may lawfully do or cause to be
done by virtue hereof.
<PAGE>


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 in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>

Signature                                           Title                                    Date
---------                                           -----                                    ----
<S>                                       <C>                                      <C>
/s/ Thomas E. Feil
------------------                        Chairman, Chief Executive Officer and    February 10, 1998
Thomas E. Feil                            Director (Principal Executive Officer)


/s/ Thomas Hughes                         President and
------------------                        Chief Operating Officer                  February 10, 1998
Thomas Hughes


/s/ Mark R. Hahn
-----------------                         Chief Financial Officer (Principal       February 10, 1998
Mark R. Hahn                              Financial and Accounting Officer)


/s/ Luke P. La Valle, Jr.
------------------------                  Director                                 February 10, 1998
Luke P. La Valle, Jr.


/s/ Thomas H. Lenagh
--------------------                      Director                                 February 10, 1998
Thomas H. Lenagh


/s/ Brian S. North
------------------                        Director                                 February 10, 1998
Brian S. North


/s/ Joseph M. O'Donnell
-----------------------                   Director                                 February 10, 1998
Joseph M. O'Donnell


/s/ A. Eugene Sapp, Jr.
-----------------------                   Director                                 February 10, 1998
A. Eugene Sapp, Jr.


/s/ J. Stephen Vanderwoude
--------------------------                Director                                 February 10, 1998
J. Stephen Vanderwoude

</TABLE>
<PAGE>




                          INDEPENDENT AUDITORS' REPORT





Board of Directors and Stockholders
V Band Corporation

We  have  audited  the  accompanying  consolidated  balance  sheets  of  V  Band
Corporation  and  subsidiaries  as of October 31, 1997 and 1996, and the related
consolidated statements of operations,  shareholders' equity, and cash flows for
each of the three years in the period ended  October 31,  1997.  Our audits also
included the financial statement schedule listed at Item 14(a)2. These financial
statements  and  financial  statement  schedule  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements and financial statement 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,  such consolidated  financial  statements present fairly, in all
material respects, the financial position of V Band Corporation and subsidiaries
as of October 31, 1997 and 1996,  and the results of their  operations and their
cash flows for each of the three years in the period  ended  October 31, 1997 in
conformity with generally accepted accounting principles.  Also, in our opinion,
such  financial  statement  schedule,  when  considered in relation to the basic
consolidated  financial  statements  taken as a whole,  presents  fairly  in all
material respects the information set forth therein.






DELOITTE & TOUCHE  LLP

Stamford, Connecticut
December 17, 1997
(January 31, 1998 as to Note 4 and
February 9, 1998 as to Note 5)
<PAGE>
<TABLE>
<CAPTION>
                               V BAND CORPORATION AND SUBSIDIARIES
                                   CONSOLIDATED BALANCE SHEETS
                                    OCTOBER 31, 1997 AND 1996
                                  (in 000's, except share data)


                                                                           1997          1996
                                                                        --------       --------

<S>                                                                     <C>            <C>  
      ASSETS
Current Assets:
Cash and cash equivalents ........................................      $    336       $  2,258
Accounts receivable, less allowance for doubtful
      accounts of $498 in 1997 and $381 in 1996 ..................         8,079          6,737
Inventories, net .................................................         4,733          7,798
Deferred tax asset ...............................................          --              700
Prepaid expenses and other current assets ........................           458            680
                                                                        --------       --------
                         Total current assets ....................        13,606         18,173
                                                                        --------       --------

Fixed Assets:
Furniture, fixtures, equipment and leasehold improvements ........         9,539          9,701
Less: Accumulated depreciation and amortization ..................        (8,786)        (8,591)
                                                                        --------       --------
                         Total fixed assets ......................           753          1,110
                                                                        --------       --------

Other Assets .....................................................           193          2,759
                                                                        --------       --------

      TOTAL ASSETS ...............................................      $ 14,552       $ 22,042
                                                                        ========       ========

      LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt ..................................................      $  2,943       $   --
Accounts payable .................................................         2,557          3,196
Accrued wages ....................................................           894            973
Customer deposits ................................................           959          1,773
Other accrued expenses ...........................................         1,102          1,612
                                                                        --------       --------

                         Total  current liabilities ..............         8,455          7,554
                                                                        --------       --------

Commitments and Contingencies (Note 6)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                               V BAND CORPORATION AND SUBSIDIARIES
                                   CONSOLIDATED BALANCE SHEETS
                                    OCTOBER 31, 1997 AND 1996
                                  (in 000's, except share data)


                                                                           1997          1996
                                                                        --------       --------

<S>                                                                     <C>            <C>  
Shareholders' Equity:
Common stock, $.01 par value; authorized 20,000,000 shares;
      issued 7,131,913 shares in 1997 and 7,042,492 shares in 1996            71             70
Capital in excess of par value ...................................        19,872         19,776
Retained earnings (deficit) ......................................        (2,270)         6,242
Cumulative translation adjustment ................................           192            168
                                                                        --------       --------

                                                                          17,865         26,256

Less  -  Treasury stock, at cost; 1,719,322 shares................       (11,768)       (11,768)
                                                                        --------       --------
                                                                        
                         Total shareholders' equity...............         6,097         14,488
                                                                        --------       --------

      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................      $ 14,552       $ 22,042
                                                                       =========       ======== 

</TABLE>
                           See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>

                               V BAND CORPORATION AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF OPERATIONS
                       FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
                                (in 000's, except per share data)



                                                            1997           1996          1995
                                                         --------       --------       --------
<S>                                                      <C>            <C>            <C>  
Sales
       Equipment ..................................      $ 25,413       $ 27,703       $ 23,591
       Service ....................................         5,668          5,183          5,760
                                                         --------       --------       --------
            Total sales ...........................        31,081         32,886         29,351
                                                         --------       --------       --------

Cost of Sales
       Equipment ..................................        18,748         16,404         20,214
       Service ....................................         4,350          3,224          3,514
                                                         --------       --------       --------
            Total cost of sales ...................        23,098         19,628         23,728
                                                         --------       --------       --------

            Gross profit ..........................         7,983         13,258          5,623
                                                         --------       --------       --------

Operating Expenses
       Selling, general and administrative ........        12,188         10,189         13,076
       Research and development ...................         3,573          3,118          3,935
                                                         --------       --------       --------
            Total operating expenses ..............        15,761         13,307         17,011
                                                         --------       --------       --------

            Operating  loss .......................        (7,778)           (49)       (11,388)

Interest Expense ..................................           (80)
Other Income (Expense) ............................            46             81             95
                                                         --------       --------       --------
            Income (loss) before income taxes .....        (7,812)            32        (11,293)

Provision for Income Taxes ........................           700              5            301
                                                         --------       --------       --------

            Net income (loss) .....................      $ (8,512)      $     27       $(11,594)
                                                         ========       ========       ========
 
Net income (loss) per share .......................      $  (1.58)      $    .01       $  (2.18)
                                                         ========       ========       ========

Weighted average number of shares of common
    stock and common stock equivalents -
    primary and fully diluted .....................         5,372          5,323          5,322
                                                         ========       ========       ========
</TABLE>
                         See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>

                                       V BAND CORPORATION AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                               FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
                                                   (in 000's)




                                                     Capital in     Retained         Cumulative
                                     Common         Excess of Par    Earnings        Translation      Treasury
                                     Stock             Value         (Deficit)       Adjustment          Stock
                                    --------         --------        --------         --------        --------
<S>                                 <C>              <C>             <C>              <C>             <C> 
Balance, November 1, 1994 ..        $     70         $ 19,756        $ 17,809         $    172        $(11,768)

Proceeds from employee
   stock purchase plan .....                               20
Net loss ...................                                          (11,594)
Translation adjustment .....                                                               (67)
                                    --------         --------        --------         --------        --------

Balance, October 31, 1995 ..              70           19,776           6,215              105         (11,768)

Net income .................                                               27
Translation adjustment .....                                                                63
                                    --------         --------        --------         --------        --------

Balance, October 31, 1996 ..              70           19,776           6,242              168         (11,768)

Proceeds from employee
   stock purchase plan .....               1               96
Net loss ...................                                           (8,512)
Translation adjustment .....                                                                24
                                    --------         --------        --------         --------        --------

Balance, October 31, 1997 ..        $     71         $ 19,872        $ (2,270)        $    192        $(11,768)
                                    ========         ========        ========         ========        ========


</TABLE>


                                  See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
                                   V BAND CORPORATION AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                         FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1996 AND 1995
                                               (in 000's)


                                                                       1997         1996          1995
                                                                    --------      --------      --------
<S>                                                                 <C>           <C>           <C>
Cash Flows from Operating Activities:
Net income (loss) .............................................     $ (8,512)     $     27      $(11,594)
Adjustments to reconcile net income (loss) to net
   cash used in operating activities:
    Depreciation ..............................................          566           742           731
    Amortization and write-off of other assets ................        2,598           458         1,967
    Provision  (benefit) for doubtful accounts ................          117           (53)          237
    Provision for inventory reserves ..........................          473                         206
    Deferred income taxes .....................................          700                         551
    Gain on disposal of fixed assets ..........................                                     (166)
    Changes in assets and liabilities:
        Accounts receivable ...................................       (1,459)       (1,901)        2,649
        Inventories ...........................................        2,592          (202)        3,971
        Prepaid expenses and other current assets .............          222          (250)           75
        Other assets ..........................................           73            (9)          449
        Accounts payable and other current liabilities ........       (2,042)          740        (3,174)
        Foreign currency translation adjustment ...............           24            63           (67)
                                                                    --------      --------      --------
            Net cash used in operating activities .............       (4,648)         (385)       (4,165)
                                                                    --------      --------      --------
Cash Flows from Investing Activities:
Purchases of marketable securities ............................                                   (3,530)
Sales of marketable securities ................................                        187         7,946
Capital expenditures ..........................................         (209)         (284)         (910)
Proceeds from the sale of fixed assets ........................                                      257
                                                                    --------      --------      --------
            Net cash (used in) provided by investing activities         (209)          (97)        3,763
                                                                    --------      --------      --------
Cash Flows from Financing Activities:
Debt issuance costs ...........................................         (105)
Proceeds from issuance of common stock ........................           97                          20
Proceeds from short-term debt .................................        9,007
Payments of short-term debt ...................................       (6,064)
                                                                    --------      --------      --------
            Net cash provided by financing activities .........        2,935          --              20
                                                                    --------      --------      --------

Net decrease in cash and cash equivalents......................       (1,924)         (482)         (382)
Cash and cash equivalents, at beginning of year................        2,258         2,740         3,122
                                                                    --------      --------      --------
Cash and cash equivalents, at end of year......................     $    334      $  2,258      $  2,740     
                                                                    ========      ========      ========
Supplementary Disclosures: 

Income taxes paid .............................................     $    384      $     65      $    215
                                                                    ========      ========      ========
Interest paid .................................................     $     61      $   --        $   --
                                                                    ========      ========      ========
</TABLE>
                             See notes to consolidated financial statements.
<PAGE>
                       V BAND CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1:  The Company

V Band Corporation and its wholly-owned  subsidiaries  (the "Company")  designs,
manufactures,   sells,  installs  and  services  specialized  telephone  systems
consisting of sophisticated  telephone  consoles and supporting common equipment
for switching and access to telephone network facilities. These systems are sold
primarily  to  financial  services  firms for use by traders in the  trading and
dealing of stocks,  bonds,  commodities  and other  financial  instruments.  The
Company  also  designs,   manufactures  and  distributes  a  family  of  digital
communications  multiplexers  specifically  designed for the "mission  critical"
communications of the electric power industry. Other markets include command and
control  applications  for  "right-of-way"   companies  such  as  utilities  and
transportation companies, and emergency service organizations.

Note 2:  Significant accounting policies

Consolidation

The accompanying  consolidated  financial  statements  include the accounts of V
Band Corporation and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined by the
first-in, first-out method.

Furniture, fixtures, equipment and leasehold improvements

Furniture,  fixtures,  equipment and leasehold improvements are carried at cost.
Depreciation  is computed using the  straight-line  method over 3-10 years,  the
estimated useful lives of the assets.  Leasehold improvements are amortized over
the lesser of the term of the related lease or the estimated useful lives of the
improvements.

Revenue recognition

Equipment  revenue,  for new system  installations and modifications to existing
systems at customer  locations,  is  recognized  as the product is shipped.  For
long-term    contracts,    equipment    revenue   is   recognized    under   the
percentage-of-completion  method.  Service revenue,  which includes  maintenance
contract revenue and repairs, is recognized when the service has been completed.

Income taxes

Deferred  income taxes are provided for the  temporary  differences  between the
financial  reporting basis and the income tax basis of the Company's  assets and
liabilities using presently enacted tax rates.

Income (loss) per share

Income (loss) per share has been computed  using the weighted  average number of
shares of common stock and common stock equivalents (stock options) outstanding,
unless anti-dilutive, during each year.
<PAGE>
Cash and cash equivalents

The Company  considers  all highly  liquid debt  instruments  purchased  with an
original maturity of three months or less to be cash equivalents.

Foreign currency translation

For  translation of the financial  statements of its United Kingdom  operations,
the Company has determined  that the local currency is the functional  currency.
Assets and liabilities of foreign operations are translated at year-end exchange
rates and income statement accounts are translated at average exchange rates for
the  year.  The  resulting  translation  adjustments  are made  directly  to the
Cumulative  Translation  Adjustment component of Shareholders'  Equity.  Foreign
currency  transactions  are  recorded at the  exchange  rate  prevailing  at the
transaction date.

Management estimates

The preparation of financial  statements,  in conformity with generally accepted
accounting  principles,  requires  management to make estimates and  assumptions
that affect the reported  amounts of assets and  liabilities  and  disclosure of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues and  expenses  during the  reported  periods.
Actual results could differ from those estimates.

Impact of recently issued accounting standards

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards ("SFAS") No. 131, Disclosures About Segments of
an Enterprise and Related  Information,  which will be effective for the Company
beginning  November 1, 1998.  SFAS 131  redefines  how  operating  segments  are
determined  and  requires   disclosure  of  certain  financial  and  descriptive
information  about a  company's  operating  segments.  The  Company  has not yet
completed its analysis of which operating segments, if any, it will report on.

Note 3:  Inventories

Inventories are as follows, at October 31:
<TABLE>
<CAPTION>

                                             1997                       1996
                                         ------------             ------------
<S>                                      <C>                      <C>                                              
Finished goods                           $  3,374,000             $  4,757,000
Parts and components                        3,935,000                5,144,000
                                         ------------             ------------
                                            7,309,000                9,901,000
Less:  Inventory reserves                  (2,576,000)              (2,103,000)
                                         ------------             ------------
                                                                     
                                         $  4,733,000             $  7,798,000
                                         ============             ============
</TABLE>
<PAGE>
Note 4: Other assets

In July 1994,  the Company  acquired all of the issued share  capital of Mercury
Dealing Systems ("MDS"), a subsidiary of Mercury Communications Limited. MDS had
been a distributor  of the Company's  products in the United Kingdom since 1987.
The  aggregate  purchase  price for the  share  capital  of MDS was  $4,634,000,
inclusive of liabilities  assumed.  The  acquisition was accounted for under the
purchase method, whereby the excess of the purchase price over the fair value of
the net  assets  acquired  was  $3,389,000,  and was  amortized  over a ten-year
period.  On January 4, 1998, the Company  decided that the future  operations of
the MDS  business  could not  support the  carrying  value of the  goodwill  and
therefore  wrote-off the remaining net book value of $2.3 million.  In addition,
the Company will incur  approximately  $500,000 of costs in the first quarter of
fiscal 1998 in connection with the restructuring of the MDS operation.  See Note
6.

The following schedule reflects other assets at October 31:
<TABLE>
<CAPTION>

                                                 1997                 1996
                                              ----------          -----------                                             
<S>                                           <C>                 <C>  
MDS acquisition goodwill                                          $ 3,389,000
Other                                         $  208,000              399,000
                                              ----------          -----------                                             
                                                 208,000            3,788,000
Less:  Accumulated amortization                  (15,000)          (1,029,000)
                                              ----------          -----------                                             
                                              $  193,000          $ 2,759,000
                                              ==========          ===========
</TABLE>


Note 5:  Short-term Debt

In  January  1997,  the  Company  borrowed  $200,000  from the  Company's  Chief
Executive  Officer,  payable on demand and  bearing  9%  interest.  The loan was
secured by a security interest in the Company's account receivables.  On May 29,
1997,  the Company  repaid the amount  borrowed in full,  including  interest of
$6,855.

In May 1997, the Company entered into a Credit  Agreement with the National Bank
of Canada, (the "Credit  Agreement").  The Credit Agreement provides a revolving
loan and letter of credit  facility of up to $4 million with interest  rates (at
the Company's option) of prime plus 1/4 percent or LIBOR plus 2 1/4 percent. The
Company's  obligations  under the  Credit  Agreement  are  secured by a security
interest  in  all  of  the  assets  of  V  Band  Corporation  and  its  domestic
subsidiaries. The balance outstanding as of October 31, 1997 was $2,943,000. The
prime rate was 8.5% at October 31, 1997. As a result of the Company's results of
operations for 1997,  the Company failed to satisfy the financial  covenants set
forth in the Credit Agreement.  On February 9, 1998, National Bank of Canada has
waived the Company's  failure to satisfy those covenants at October 31, 1997 and
has amended them for fiscal year 1998.  In addition,  the interest  rate, on the
outstanding  borrowings,  has been  modified  to prime plus 2 percent  effective
February 1, 1998.
<PAGE>
Note 6:  Commitments and contingencies

(a) Litigation

In October 1994,  the Company  commenced an action against  Technical  Telephone
Systems,  Inc.  ("TTSI") in New York State Supreme Court,  New York County,  for
minimum  payments  due  to the  Company  in  the  amount  of  $650,000  under  a
distribution  agreement  between the Company and TTSI.  In November  1994,  TTSI
filed a counterclaim  against the Company denying all allegations  stated in the
Company's  complaint and alleging a breach of good faith and fair dealing by the
Company, claiming damages of $1 million. The Company has been in discussion with
TTSI and  believes  that a  settlement  will be agreed upon in the near  future,
whereby both the claim and the counter claim will be nullified and will not have
a material impact on the consolidated financial condition of the Company.

(b) Operating leases

The Company leases office and  production  space under leases  expiring  through
2005.  Certain of these lease  agreements  provide the option for  renewals  and
include  escalations based on increases in certain costs.  Future minimum annual
rental payments under these leases are as follows:

            1998                              $1,084,000
            1999                                 810,000
            2000                                 574,000
            2001                                 449,000
            2002                                 224,000
         Thereafter                              148,000

Rent expense for the years ended 1997,  1996, and 1995 was $956,000,  $1,007,000
and $1,152,000, respectively.

(c) Employment contracts

Subsequent to year-end,  the Company  entered into  employment  agreements  with
certain  officers and employees that provide for compensation and other benefits
upon change of control of the Company.  The  aggregate  compensation  to be paid
under existing employment  agreements is $393,000,  and such future compensation
has not been reflected in the accompanying  consolidated  financial  statements.
These agreements have an expiration date of January 1999.

(d) Management restructuring plan

On  January  31,  1998,  the  Company  established  a plan  to  restructure  its
operations.  The plans  include  consolidation  of office  space in New York and
London and the  centralization  of  administrative  functions  of the  Company's
United States service operations into its New York operation.  In addition,  the
Company has reassigned several marketing and administrative staff to field sales
support functions as a further effort to enhance  revenues.  As a result of this
plan, the Company  reduced the number of its employees from the October 31, 1997
level of 186 to 170 by the end of January  1998.  The Company  believes that the
implementation  of this plan will result in the inclusion of a $1 million charge
in its results of operations for the first quarter of fiscal 1998.

Note 7:  Stock options

The Company has stock option plans that provide for the granting of options,  at
fair market value,  to certain key  employees  and  directors to acquire  common
stock of the Company.
<PAGE>
The following is a summary of stock option transactions for the two years in the
period ended October 31, 1997:
<TABLE>
<CAPTION>

                                              Shares         Exercise Prices
                                              ------         ---------------
<S>                                          <C>          <C>
Shares under option - November 1, 1995        687,194     $ 2.00   to    $ 6.88
    Options granted                           358,700       1.88   to      2.63
    Options cancelled                        (169,637)      1.88   to      6.88
                                             --------
Shares under option - October 31, 1996        876,257       1.88   to      6.00
                                             --------
    Options granted                           180,000       1.44   to      1.75
    Options cancelled                        (117,506)      1.44   to      5.00
                                             --------
Shares under option - October 31, 1997        938,751       1.44   to      6.00
                                             ========

Options exercisable at:
    October 31, 1996                          634,393       1.88   to      6.00
                                             ========
    October 31, 1997                          648,151       1.88   to      6.00
                                             ========                                                  
</TABLE>
The following table summarizes  information  about stock options  outstanding at
October 31, 1997:
<TABLE>
<CAPTION>
                                      Options Granted              Options Exercisable
                         --------------------------------------  ----------------------
                                          Weighted    Weighted                 Weighted
Year         Range of       Number         Average     Average      Number     Average
 of         Exercise     Outstanding      Remaining   Exercise   Exercisable  Exercise
Grant        Prices       10/31/97      Life (Years)    Price      10/31/97      Price
-----        ------       --------      ------------    -----      --------      -----       
<S>      <C>              <C>                <C>        <C>        <C>         <C> 
 1989    $5.75 - $5.75     20,000            1.92       $ 5.75      20,000     $ 5.75
 1990    $2.50 - $4.88     58,369            2.59         3.88      58,369       3.88
 1991    $3.38 - $3.88     77,833            3.71         3.51      77.833       3.51
 1992    $4.00 - $6.00     92.900            4.82         4.38      92,900       4.38
 1993    $3.88 - $5.50     22,000            5.29         4.73      22,000       4.73
 1994    $4.33 - $5.63    134,867            6.15         4.83     134,867       4.83
 1995    $2.00 - $5.00     71,332            7.31         3.17      62,332       3.15
 1996    $1.88 - $2.63    303,450            8.43         1.98     179,850       1.98
 1997    $1.44 - $1.75    158,000            9.43         1.46          --         --
                          -------            ----       ------     -------     ------
                          938,751            6.86       $ 3.02     648,151     $ 3.59
                          =======            ====       ======     =======     ======
</TABLE>
The estimated  fair value of options  granted  during 1997 and 1996 was 1.75 per
share  and  1.88  per  share,  respectively.   The  Company  applies  Accounting
Principles  Board Opinion No. 25 and related  interpretations  in accounting for
its stock option and purchase plans.  No  compensation  cost has been recognized
for the  Company's  fixed  stock  option  plans and  stock  purchase  plan.  Had
<PAGE>
compensation  costs for the Company's stock option plans and stock purchase plan
been  determined  based on the fair value, at the option grant dates for awards,
in  accordance  with  the  accounting   provisions  of  Statement  of  Financial
Accounting   Standards  No.  123  ("SFAS  123")   "Accounting   for  Stock-Based
Compensation",  the  Company's net income (loss) and net income (loss) per share
for the years ended  October 31, 1997 and 1996,  would have been  reduced to the
pro forma amounts indicated in the following table:

Net income (loss) applicable to common shareholders:     1997             1996
                                                         ----             ----

                  As reported                          $ (8,512)         $  27

                  Pro forma                              (8,655)          (317)

Net income (loss) per common share and common share equivalent

                  As reported                          $  (1.58)         $  .01

                  Pro forma                               (1.60)           (.06)


The fair value of options  granted under the Company's  fixed stock option plans
during 1997 and 1996 was estimated on the dates of grant using the Black-Scholes
options-pricing  model with the  following  weighted-average  assumptions  used:
dividend  yield of zero,  expected  volatility of  approximately  42%, risk free
interest  rate of  approximately  5.9%,  and expected  lives of option grants of
approximately 8.6 years. Pro forma compensation cost related to shares purchased
under the 1995  Incentive  Stock  Option Plan is measured  based on the discount
from market value. The effects of applying SFAS 123 in this pro forma disclosure
are not  indicative  of  future  pro forma  effects,  SFAS 123 does not apply to
awards prior to 1996, and additional awards in future years are anticipated.

Note 8:  Income taxes

The Company  accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"),  "Accounting for Income Taxes." Under
SFAS109,  deferred income taxes reflect the tax  consequences on future years of
differences  between the tax basis of assets and liabilities and their financial
reporting amounts. The valuation allowance reduces the deferred tax asset to the
amount that management believes will ultimately be realized.  Realization of the
deferred tax asset is dependent upon sufficient future taxable income during the
period that temporary differences and carryforwards are expected to be available
to reduce taxable income.

As  of  October  31,  1997,   the  Company  had  available  net  operating  loss
carryforwards for tax return purposes of approximately $11,297,000 that begin to
expire in 2011.
<PAGE>
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>

                                  1997                  1996                   1995
                                  ----                  ----                   ----
<S>                         <C>                   <C>                    <C>
Current
    Federal                                       $                      $ (250,000)
    State and local                                      5,000
                                                  ------------           ----------                          
                                                         5,000             (250,000)
                                                  ------------           ----------
Deferred
    Federal                 $    658,000                                    520,000
    State and local               42,000                                     31,000
                            ------------          ------------           ----------                           
                                 700,000                                    551,000
                            ------------          ------------           ----------                           
                            $    700,000          $      5,000           $  301,000
                            ============          ============           ==========
</TABLE>


The  difference  between the recorded  income tax  provision  (benefit)  and the
income taxes computed by applying the statutory  Federal income tax rate was the
following:
<TABLE>
<CAPTION>

                                                           1997               1996               1995
                                                       -----------        -----------        -----------
<S>                                                    <C>                <C>                <C>
U.S. statutory rate applied to pretax
    income (loss) ..............................       $(2,657,000)       $    11,000        $(3,840,000)
Dividends received deduction and
    tax-exempt interest ........................                                                 (15,000)
Goodwill amortization ..........................           350,000            127,000            127,000
State and local taxes, net of federal
    tax benefit ................................          (385,000)             3,000           (641,000)
Increase(decrease) in valuation allowance
                                                         3,359,000           (208,000)         4,876,000
Reversal of current liability for taxes ........                                                (250,000)
Other, net .....................................            33,000             72,000             44,000
                                                       -----------        -----------        -----------
                                                       $   700,000        $     5,000        $   301,000
                                                       ===========        ===========        ===========

</TABLE>
<PAGE>
The net deferred  income tax asset at October 31, 1997 and 1996  consists of the
following:
<TABLE>
<CAPTION>

Deferred tax assets(liabilities)                                            1997                   1996
                                                                        -----------          -----------       
<S>                                                                     <C>                  <C>
Capitalization of software development cost ...................         $                    $   (48,000)
Depreciation ..................................................             280,000              318,000
Amortization ..................................................             624,000              130,000
Inventory reserves ............................................           2,237,000              715,000
Accrued expenses ..............................................             190,000              321,000
Bad debt reserve ..............................................             169,000              177,000
State and local taxes, net of federal tax benefit .............           1,282,000              781,000
Net operating loss carry forwards .............................           3,841,000            3,027,000
Tax credits ...................................................                                   97,000
                                                                        -----------          -----------
                                                                          8,623,000            5,518,000
Valuation allowance ...........................................          (8,623,000)          (4,818,000)
                                                                        -----------          -----------
                                                                        $      --            $   700,000
                                                                        ===========          ===========
</TABLE>

Note 9:  Segment information

(a) Significant customers

Morgan  Guaranty  Trust  Company  of New York and  affiliates  (including  sales
through  its  vendor,  AT&T  Solutions)  accounted  for  6%,  10% and 14% of the
Company's  sales in 1997,  1996 and 1995,  respectively.  During 1997,  1996 and
1995, the Chicago Board of Trade and its general  contractor  accounted for 10%,
21% and 13%,  respectively,  of the  Company's  sales.  During 1997 The New York
Mercantile Exchange accounted for 16% of the Company's sales.

(b) Foreign sales

In 1997, 1996 and 1995, foreign sales represent 37%, 29% and 36%,  respectively,
of consolidated sales and include the following geographical areas:
<TABLE>
<CAPTION>


                                    1997                 1996                 1995
                                -----------          -----------         ------------
<S>                             <C>                  <C>                 <C>
Pacific Rim                     $ 2,600,000          $ 1,900,000         $  1,900,000
Europe (including UK)             6,300,000            6,900,000            7,200,000
All others                        2,500,000              900,000            1,400,000
                                -----------          -----------         ------------
                                $11,400,000          $ 9,700,000         $ 10,500,000
                                ===========          ===========         ============
</TABLE>
<PAGE>
Note 10:  Capital transactions

(a) Stock rights plan

On February  20, 1989,  the Board of  Directors of the Company  adopted a common
share purchase  rights plan and declared a dividend  distribution  of one common
share purchase right (the "Right") on each of its common shares to  shareholders
of record on March 7, 1989.  Each Right will  entitle the  registered  holder to
purchase  from the  Company one  outstanding  common  share,  par value $.01 per
share,  at a  purchase  price of $45.00  per  share,  subject  to  anti-dilutive
adjustments (the "Purchase Price"). The Rights generally become exercisable if a
person or group  acquires,  or tenders for, 20% or more of the Company's  common
shares.  In such  event,  the holder of a Right will have the right to  receive,
upon  exercise  of the Right at the then  current  Purchase  Price,  a number of
common  shares with a total market value of two times the  Purchase  Price.  The
Rights will expire on February 19, 1999, unless they become  exercisable  before
then, but may be redeemed by the Company for $.01 per Right.

(b) Employee stock purchase plan

Under the Company's 1986 Stock Purchase Plan (the "Purchase Plan"), all eligible
employees may authorize payroll  deductions of up to 10% of their base salary to
purchase shares of the Company's Common Stock at 85% of the market price.  There
are no charges or credits to income in connection  with the Purchase  Plan.  The
Company may terminate the Purchase Plan at any time.

Note 11:  Fourth quarter results

During the fourth quarters of 1997 and 1995, the Company  recorded the following
expense adjustments:
<TABLE>
<CAPTION>

                                                   1997                   1995
                                              -----------            -----------
<S>                                           <C>                    <C>     
Inventory reserves and write-offs             $ 1,300,000            $ 2,300,000
Intangible asset write-off                      2,300,000                900,000
Cost of goods sold                                800,000
Deferred tax asset valuation allowance            700,000                600,000
Warranty reserves                                 200,000                300,000
Severance and other                               200,000                800,000
Allowance for doubtful accounts                   200,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                                            Schedule VIII
                                           V BAND CORPORATION AND SUBSIDIARIES
                                            VALUATION AND QUALIFYING ACCOUNTS
                                   FOR THE YEARS ENDED OCTOBER 31, 1997, 1996, AND 1995


Column A                                Column B          Column C - Additions              Column D           Column E
--------                                --------          --------------------              --------           --------
                                                            (1)             (2)
                                       Balance at       Charged to       Charged to                             Balance at
                                       Beginning of      costs and         other                                  End of
Description                              Period          expenses         accounts           Deductions           Period
                                      --------------  --------------  --------------      -------------     ---------------
<S>                                    <C>             <C>             <C>                  <C>                 <C<
Allowance for doubtful accounts

      October 31, 1997                 $  381,000      $   117,000                                              $   498,000

      October 31, 1996                 $  456,000      $   (53,000)                         $  22,000(a)        $   381,000

      October 31, 1995                 $  263,000      $   237,000                          $  44,000(a)        $   456,000


Inventory reserve

      October 31, 1997                 $2,103,000      $    473,000                                             $ 2,576,000

      October 31, 1996                 $2,144,000                                           $  41,000(c)        $ 2,103,000

      October 31, 1995                 $1,938,000      $   206,000                                              $ 2,144,000


Warranty reserve

      October 31, 1997                 $  343,000      $   589,000                          $ 659,000(d)        $   273,000

      October 31, 1996                 $  415,000      $   289,000                          $ 361,000(d)        $   343,000

      October 31, 1995                 $  189,000      $   607,000                          $ 381,000(d)        $   415,000


Reserve for Notes Receivable

      October 31, 1997                 $  110,000                                           $ 110,000(e)        $         0

      October 31, 1996                 $  110,000                                                               $   110,000

      October 31, 1995                 $  110,000                                                               $   110,000

Valuation allowance for deferred
income tax asset

      October 31, 1997                 $4,818,000      $ 3,805,000                                              $ 8,623,000

      October 31, 1996                 $5,026,000                                           $ 208,000           $ 4,818,000

      October 31, 1995                 $  150,000      $ 4,876,000                                              $ 5,026,000
</TABLE>
<PAGE>
(a)  Doubtful accounts written-off, net of cash recovered.

(b)  Reserve  balances  acquired in connection  with the  acquisition of Mercury
     Dealing Systems at July 28, 1994.

(c)  Consumption of obsolete or slow moving inventory, which was reserved for in

     the prior year.

(d)  Warranty  labor  charges  combined  with  actual  cash  payments. 

(e)  Note receivable written-off, net of cash received.