<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

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

                                   FORM 10-Q
(MARK ONE)
       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
       For the quarterly period ended September 30, 2000
                    or
       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

       For the transition period from            to            .


                      Commission File Number:    33-93464

                             DICTAPHONE CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

              DELAWARE                                            04-3506655
     (STATE OR OTHER JURISDICTION OF                         (I.R.S. EMPLOYER
     INCORPORATION OR ORGANIZATION)                         IDENTIFICATION NO.)


                            3191 Broadbridge Avenue
                              Stratford, CT 06614
                                 (203) 381-7000
          (Address of principal executive offices, including zip code,
                   AND TELEPHONE NUMBER, INCLUDING AREA CODE)

--------------------------------------------------------------------------------
                   (Former name, former address and former
                  fiscal year, if changed since last report)


The registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.

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

Number of shares of Common Stock, par value $.01 per share, outstanding as of
August 12, 2000:  100

The Common Stock of the registrant is not publicly traded.
<PAGE>

EXPLANATORY NOTE:
-----------------

   On May 5, 2000, Lernout & Hauspie Speech Products N.V. ("Lernout & Hauspie")
acquired all of the outstanding capital stock of Dictaphone Corporation
("Dictaphone" or the "Company") through a merger of the Company into a wholly-
owned subsidiary of Lernout & Hauspie (the "Acquisition").  The Condensed
Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly
Report on Form 10-Q are divided into Condensed Consolidated Financial Statements
for Dictaphone Corporation, the Successor Company, for the Three and Five Months
ended and as of September 30, 2000 and Dictaphone Corporation, the Predecessor
Company, for the Four Months ended April 30, 2000 and the Three and Nine Months
ended September 30, 1999, and as of December 31, 1999.  The Condensed
Consolidated Financial Statements for Dictaphone Corporation, the Successor
Company, include the results of operations of Dictaphone Corporation from May 1,
2000.  The results of operations for the period from May 1, 2000 through May 4,
2000 are immaterial.

   In connection with the Acquisition, Lernout & Hauspie Speech Products N.V.
announced its intent to dispose of Dictaphone's contract manufacturing business
in Florida. Dictaphone is currently pursuing various alternatives regarding the
sale of that business. The expected net proceeds of the sale and cash flows of
this business until it is sold, less an allocation of interest expense for the
holding period, were allocated to net assets held for sale in the allocation of
the Dictaphone purchase price. Any difference between the actual and expected
amounts will result in an adjustment to goodwill. The business held for sale had
net income of $1.8 million from the date of Acquisition to September 30, 2000.

   Dictaphone Corporation has a continuing reporting obligation under Section
15(d) of the Securities Exchange Act of 1934 due to contractual obligations
entered into in connection with the outstanding Senior Subordinated Notes.

                                       1
<PAGE>

                             DICTAPHONE CORPORATION
                             ----------------------

                                     INDEX
                                     -----




PART I.  FINANCIAL INFORMATION
------------------------------
<TABLE>
<CAPTION>
                                                                                             Page No.

<S>                                                                                        <C>
ITEM 1.       Condensed Consolidated Financial Statements                                      3

              Dictaphone Corporation (Successor Company)
              ------------------------------------------

                     Condensed Consolidated Statement of Operations for the
                      Three Months and Five Months Ended September 30, 2000
                       (Unaudited)                                                             3

                     Condensed Consolidated Balance Sheet as of September 30,
                      2000 (Unaudited)                                                         4


                     Condensed Consolidated Statement of Cash Flow for the
                      Five Months Ended September 30, 2000 (Unaudited)                         5

                     Notes to Unaudited Condensed Consolidated Financial
                      Statements                                                               6

              Dictaphone Corporation (Predecessor Company)
              ---------------------------------------------

                     Condensed Consolidated Statements of Operations for the
                      Four Months Ended April 30, 2000 and the Three and Nine
                       Months Ended September 30, 1999 (Unaudited)                           20

                     Condensed Consolidated Balance Sheet as of December 31,
                      1999                                                                   21

                     Condensed Consolidated Statements of Cash Flows for the
                      Four Months Ended April 30, 2000 and the Nine Months Ended
                       September 30, 1999 (Unaudited)                                        22

                     Notes to Unaudited Condensed Consolidated Financial
                      Statements                                                             23

ITEM 2.             Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                                      35

PART II.  OTHER INFORMATION

ITEM 1.  Legal Proceedings                                                                   41

ITEM 6.  Exhibits and Reports on Form 8-K                                                    41

</TABLE>

                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION


ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
         -------------------------------------------


                   DICTAPHONE CORPORATION (Successor Company)
           CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>


                                                    THREE MONTHS          FIVE MONTHS
                                                        ENDED                ENDED
                                                 SEPTEMBER 30, 2000   SEPTEMBER 30, 2000
                                                 -------------------  -------------------
<S>                                              <C>                  <C>
       Revenues:
          Product sales and rentals                        $ 34,643             $ 50,107
            Support services                                 23,727               35,913
                                                           --------             --------
            Total revenue                                    58,370               86,020
                                                           --------             --------

       Costs and expenses:

          Cost of:
            Product sales and rentals                      $ 18,485             $ 24,967
            Support services                                 15,390               26,214
                                                           --------             --------
               Total cost                                    33,875               51,181
                                                           --------             --------

          Selling and administrative                         29,182               47,521

          Amortization of intangibles                        24,806               41,306

          Research and development                            3,340                5,499
                                                           --------             --------

       Operating loss                                       (32,833)             (59,487)

       Interest expense                                       9,461               15,874

       Other (income) expense - net                            (730)                 152
                                                           --------             --------

       Loss before income taxes                             (41,564)             (75,513)

       Income tax benefit                                       241                  468
                                                           --------             --------

          Net loss                                         $(41,323)            $(75,045)
                                                           ========             ========

</TABLE>


See accompanying notes to unaudited condensed consolidated financial statements.

                                       3
<PAGE>

                   DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
                CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>


                                                           SEPTEMBER 30, 2000
                                                           -------------------
<S>                                                        <C>

ASSETS
Current assets:
  Cash and cash equivalents                                          $  1,572
  Accounts receivable, less allowances of $5,939                       77,991
  Receivable due from affiliate                                         1,341
  Inventories                                                          14,235
  Assets to be disposed of                                             35,349
  Other current assets                                                  4,391
                                                                     --------
    Total current assets                                              134,879
Property, plant and equipment, net                                     32,706
Intangibles, net                                                      817,924
Other assets                                                            5,599
                                                                     --------
    Total assets                                                     $991,108
                                                                     ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Accounts payable                                                   $  5,307
  Payable due to affiliates                                            19,018
  Interest payable                                                      3,082
  Accrued liabilities                                                  16,784
  Advance billings                                                     67,195
  Current portion of long-term debt                                    10,123
                                                                     --------
    Total current liabilities                                         121,509
Long-term debt                                                        315,416
Due to Parent Company                                                  16,000
Accrued pension liability                                               5,950
Deferred tax liability                                                  2,600
Other liabilities                                                      11,231
                                                                     --------
    Total liabilities                                                 472,706
                                                                     --------
Contingencies (Note 7)
Stockholder's equity:
  Common stock ($.01 par value; 100 shares outstanding)                     1
  Additional paid-in capital                                          593,444
  Accumulated deficit                                                 (75,045)
  Accumulated other comprehensive income                                    2
                                                                     --------
    Total stockholder's equity                                        518,402
                                                                     --------
    Total liabilities and stockholder's equity                       $991,108
                                                                     ========

</TABLE>



See accompanying notes to unaudited condensed consolidated financial statements.

                                       4
<PAGE>

                   DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
           CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited)
                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                                                FIVE MONTHS
                                                                   ENDED
                                                            SEPTEMBER 30, 2000
                                                            -------------------
<S>                                                         <C>
   Operating activities:
     Net loss                                                         $(75,045)
     Adjustments to reconcile net loss to net cash
      used in operating activities:
       Depreciation and amortization                                    44,703
       Changes in operating assets and liabilities:
         Accounts receivable                                            (9,938)
         Inventories                                                      (853)
         Other current assets                                           (4,933)
         Accounts payable and accrued liabilities                        1,942
         Advance billings                                               22,126
         Other liabilities                                               1,899
                                                                      --------
           Net cash used in operating activities                       (20,099)
                                                                      --------

   Investing activities:
     Net investment in fixed assets                                     (2,068)
     Licenses and software development costs capitalized                (3,750)
                                                                      --------
       Net cash used in investing activities                            (5,818)
                                                                      --------

   Financing activities:
     Redemption of notes                                               (41,584)
     Borrowings under revolving credit facility                         17,700
     Repayments under revolving credit facility                         (7,700)
     Capital Contribution from Parent Company                           54,000
     Other                                                                (557)
                                                                      --------
       Net cash provided by financing activities                        21,859
                                                                      --------

   Effect of exchange rate changes on cash                                 (30)
                                                                      --------

   Decrease in cash                                                     (4,088)
                                                                      --------

   Cash and cash equivalents, beginning of period                        5,660
                                                                      --------
   Cash and cash equivalents, end of period                           $  1,572
                                                                      ========

   SUPPLEMENTAL CASH FLOW INFORMATION:

   Interest paid                                                      $ 12,211
                                                                      ========
   Income taxes paid                                                  $    480
                                                                      ========

</TABLE>



     See accompanying notes to unaudited condensed consolidated financial
                                  statements.

                                       5
<PAGE>

                   DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
               (Dollars in thousands, or as otherwise indicated)


1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

       On March 7, 2000, the Company entered into a definitive agreement to be
   acquired by Lernout & Hauspie Speech Products, N.V.  On May 5, 2000 Lernout &
   Hauspie acquired all of the outstanding stock of the Company for
   approximately 9.4 million shares of Lernout & Hauspie Common Stock, taking
   into account the two-for-one stock split (of Lernout & Hauspie) effected as
   of May 12, 2000, through the merger of the Company with a wholly owned
   subsidiary of Lernout & Hauspie.  In connection with the Acquisition, a
   portion of the Company's approximately $430 million of debt and other
   obligations were paid off or refinanced by an advance made to the Company by
   Lernout & Hauspie.

       The capital structure and accounting basis of the assets and liabilities
   of the Company as of May 1, 2000 and thereafter differ from those of the
   Company prior to its acquisition (the "Predecessor Company") as a result of
   the application of purchase accounting.  The Acquisition is being accounted
   for under the purchase method of accounting in accordance with Accounting
   Principles Board Opinion No. 16, Accounting for Business Combinations.  The
   total purchase price has been allocated to tangible and intangible assets and
   liabilities of the Company based on their estimated fair values.

       The condensed consolidated financial statements of Dictaphone Corporation
   have been prepared assuming that the Company will continue as a going
   concern. As discussed in Note 11, as a result of the concerns raised by
   recent events, the Company and Lernout & Hauspie have been in discussions
   with their lenders under the L&H Revolving Credit Facility, Dictaphone's
   limited guaranty of that facility (the "Dictaphone Guaranty"), the Line of
   Credit and Lernout & Hauspie's guaranty of the Line of Credit ("L&H
   Guaranty").

       Lernout & Hauspie's lenders under the L&H Revolving Credit Facility have
   asserted that an event of default may exist under that facility and the
   associated Dictaphone Guaranty, however, they have not declared an event of
   default. Deutsche Bank, Dictaphone's lender under the Line of Credit, also
   has asserted that an event of default exists under the Line of Credit, but
   similarly has not yet declared an event of default. The Company has not
   admitted that an event of default exists under the Line of Credit. Deutsche
   Bank has, however, declared an event of default under the L&H Guaranty.
   Lernout & Hauspie and the Company are in discussions with their lenders
   regarding the alleged defaults and the restructuring of the underlying loans
   and guarantees.

       Based upon the status of the Company's and Lernout & Hauspie's
   discussions with the banks and the alleged events of default, as to which the
   Company's lenders have not yet formally declared an event of default, the
   Company cannot reach a definitive conclusion as to the likelihood that the
   banks will, in fact, formally declare an event of default under the Line of
   Credit or the Dictaphone Guaranty. Accordingly, the Company's balance sheet
   has not been adjusted to reflect the effect of a determination that the
   likelihood is probable. If it were determined to be probable that the banks
   would formally declare an event of default under the Dictaphone Guaranty, the
   Company would be required to make the following adjustments: (i) the
   intercompany payable (approximately $173 million at September 30, 2000) would
   be reclassified as a current liability; (ii) the Dictaphone Guaranty, to the
   extent of the excess of the guaranteed obligation over the intercompany loan
   balance, would be recorded as a current liability (through a corresponding
   reduction to additional paid-in capital) rather than being reported solely as
   a contingent obligation--resulting in an additional current liability of
   approximately $35.6 million; and (iii) the Notes (approximately $159 million
   outstanding as of September 30, 2000) would be reclassified as a current
   liability in light of the cross default provisions under the Indenture.

       The financial statements are unaudited as of and for the three and five
   month periods ended September 30, 2000, but in the opinion of management
   contain all adjustments which are of a normal and recurring nature necessary
   to present fairly the financial position and results of operations and cash
   flows for the period presented. These financial statements should be read in
   conjunction with the financial statements and notes thereto included in the
   Company's Annual Report on Form 10-K for the year ended December 31, 1999.

       The preparation of financial statements in conformity with generally
   accepted accounting principles requires management to make estimates and
   assumptions that affect the reported amount of assets and liabilities and
   disclosure of contingent assets and liabilities at the date of the financial
   statements and reported amounts of revenues and expenses during the reporting
   period.  Actual results could differ from those estimates.  Results of
   operations for the three and five month periods ended September 30, 2000 are
   not necessarily indicative of the results to be expected for the remainder of
   the year.

       The accounting policies of the Successor Company are consistent with
   those of the Predecessor Company as set forth in the Company's Annual Report
   on Form 10-K, except for revenue recognition and intangibles which are
   disclosed below.


                                       6
<PAGE>

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       Revenue.  For voice processing systems and communications recording
   equipment that have installation requirements, the Company recognizes revenue
   upon installation, which is when contractual obligations have been satisfied.
   All revenue on maintenance contracts is recognized ratably over the contract
   period.  Revenue for all other products is recognized upon shipment.  The
   Company may grant sales discounts to customers.  Such sales discounts are
   reflected as a reduction in the associated revenue from product sales and
   rentals.

       In connection with the Acquisition of the Company by Lernout & Hauspie
   Speech Products, N.V., management has made certain strategic decisions with
   regard to the incorporation of Lernout & Hauspie technologies into the
   Company's products.  This new strategic direction will result in increased
   software content in the majority of the Company's products combined with an
   increased level of customization of the Company's products at customer sites
   upon installation.  This business directive represents a distinct shift from
   the Company's current business model of typically modular installation with
   relatively little customization at customer sites.  It is this combination of
   increased software content and heightened customization upon installation
   which resulted in the change to recognize revenue for the affected products
   upon installation.

       Intangibles.  Intangible assets are stated at cost less accumulated
   amortization as provided over the estimated useful lives of the assets.
   Assembled workforce and capitalized technology are amortized on a straight-
   line basis over five years.  Customer lists are amortized on a straight-line
   basis over eight years.  All goodwill and tradenames are being amortized on a
   straight-line basis over 10 years.  The Company periodically evaluates the
   recoverability of goodwill and other intangible assets by assessing whether
   the unamortized intangible asset can be recovered over its remaining useful
   life through future operating cash flows on an undiscounted basis.

2. INVENTORIES


        Inventories consist of the following:

<TABLE>
<CAPTION>

                                                     September 30, 2000
                                                     ------------------
<S>                                         <C>

       Raw materials and work in process                    $ 1,236
       Supplies and service parts                             7,995
       Finished products                                      5,004
                                                            -------
                                                            $14,235
                                                            =======
</TABLE>
3. INTANGIBLES

           The following summarizes intangible assets at September 30, 2000.
   Amortization expense for the three and five months ended September 30, 2000
   was $24,806 and $41,306, respectively.
<TABLE>
<CAPTION>

                                   September 30, 2000
                                   -------------------
<S>                                <C>
       Goodwill                         $599,330
       Tradenames                         29,500
       Customer lists                    132,100
       Assembled workforce                21,500
       Capitalized technology             76,800
                                        --------
                                         859,230
       Accumulated amortization          (41,306)
                                        --------
                                        $817,924
                                        ========
</TABLE>

                                       7
<PAGE>

4. LONG-TERM DEBT

       Long-term debt consists of the following:
<TABLE>
<CAPTION>

                                                    SEPTEMBER 30, 2000
                                                    -------------------
<S>                                                 <C>

       Revolving line of credit                               $ 10,000
       Due to Lernout & Hauspie (Parent Company)               173,000
       Senior Subordinated Notes                               142,416
       Due to Parent Company                                    16,000
       Other                                                       123
                                                              --------
                                                               341,539
         Less current portion                                  (10,123)
                                                              --------
                                                              $331,416
                                                              ========
</TABLE>

       The amount due to Lernout & Hauspie is for a term of two years as from
   May 5, 2000 at a fixed interest rate of 8% per annum, with interest payable
   at the end of each six month period during the term. The interest payment
   otherwise due on November 5, 2000 has been deferred for a period of six
   months.

       The Senior Subordinated Notes ("Notes") bear interest at a rate of 11
   3/4% per annum, payable semi-annually on each February 1 and August 1. The
   Notes mature on August 1, 2005. In September 2000, an affiliate of Lernout
   and Hauspie purchased Notes in the amount of $16 million in the open market.
   The aggregate principal amount available under the revolving line of credit
   is $20 million. Loans under the revolving line of credit bear interest at a
   per annum interest rate equal to Deutsche Bank's floating base rate (6.93% at
   September 30, 2000). Other debt matures in 2001 and bears interest at a per
   annum rate of 7.25%.

5. RECENT ACCOUNTING PRONOUNCEMENTS

       In June 1998, the Financial Accounting Standards Board (the "FASB")
   issued Statement of Financial Accounting Standards No. 133, Accounting for
   Derivative Instruments and Hedging Activities ("SFAS 133").  SFAS 133
   requires that derivative instruments be recognized as either assets or
   liabilities in the consolidated balance sheet based on their fair values.
   Changes in the fair values of such derivative instruments will be recorded
   either in results of operations or in other comprehensive income, depending
   on the intended use of the derivative instrument.  The initial application of
   SFAS 133 will be reported as the effect of a change in accounting principle.
   SFAS 133, as amended, is effective for all fiscal quarters of fiscal years
   beginning after June 15, 2000.  The Company will adopt the requirements of
   SFAS 133 in its financial statements for the year ending December 31, 2001.
   The Company does not believe that the adoption of SFAS 133 will have a
   material impact on its financial position, results of operations or
   liquidity.

       On March 31, 2000, the FASB issued FASB Interpretation No. 44, Accounting
   for Certain Transactions Involving Stock Compensation - An Interpretation of
   APB Opinion No. 25 ("FIN 44").  FIN 44 provides guidance for issues that have
   arisen in applying APB Opinion No. 25, Accounting for Stock Issued to
   Employees.  FIN 44 applies prospectively to new awards, exchanges of awards
   in a business combination, modifications to outstanding awards, and changes
   in grantee status that occur on or after July 1, 2000.  The Company does not
   believe the provisions of FIN 44 will have a material impact on the Company's
   financial position, results of operations or liquidity.


                                       8
<PAGE>

5. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

       The Securities and Exchange Commission (SEC) released Staff Accounting
   Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements," on
   December 3, 1999, SAB No. 101A on March 24, 2000, SAB No. 101B on June 26,
   2000 and a document issued on October 12, 2000 responding to frequently asked
   questions (FAQ) regarding accounting standards related to revenue recognition
   and SAB No. 101.  SAB No. 101 sets forth the views of the staff of the SEC on
   revenue recognition issues, including conceptual issues as well as certain
   industry-specific guidance.  We are required to report the impact of SAB No.
   101, as amended by SAB No. 101A and SAB No. 101B, no later than the fourth
   fiscal quarter of the fiscal year 2000.  The effect of the change would be
   recognized as a cumulative effect of a change in accounting principle as of
   January 1, 2000.  Prior year financial statements will not be restated.  We
   have not yet made a determination of the impact of this accounting guidance
   on our financial position or results from operations, and are considering
   guidance from the SEC's recently issued FAQ on SAB No. 101.

                                       9
<PAGE>

6. PROFORMA COMBINED STATEMENTS OF OPERATIONS DATA

       The following summary proforma financial information reflects the
   Acquisition of Dictaphone as if it occurred on January 1, 2000 and January 1,
   1999 for purposes of the statement of operations, and does not, nor is it
   intended, to present the results of operations of the Company, in accordance
   with accounting principles generally accepted in the United States. The
   summary proforma information is intended for informational purposes only and
   is not necessarily representative of what the Company's results of operations
   would have been had this Acquisition in fact occurred on January 1, 2000 and
   January 1, 1999, respectively, and is not intended to project the Company's
   results of operations for any future period or date.

       Proforma financial information (in thousands):
<TABLE>
<CAPTION>


                                 NINE MONTHS ENDED                                           NINE MONTHS ENDED
                                 SEPTEMBER 30, 2000                                          SEPTEMBER 30, 1999
                 --------------------------------------------    ------------------------------------------------------------------
                 PREDECESSOR        SUCCESSOR
                  COMPANY           COMPANY
                FOUR MONTHS       FIVE MONTHS                         DICTAPHONE                                       DICTAPHONE
                   ENDED            ENDED             PROFORMA         CORPORATION   PREDECESSOR   PROFORMA            CORPORATION
                APRIL 30, 2000   SEPT. 30, 2000       ADJUSTMENTS      PROFORMA        COMPANY     ADJUSTMENTS          PROFORMA
                --------------   --------------       -----------      --------        -------     -----------          --------
<S>              <C>             <C>                 <C>              <C>            <C>          <C>                 <C>
Revenue           $ 96,416         $ 86,020           $(12,502) (a)    $169,934       $264,132     $(34,078)(a)        $230,054

Cost
 & Expenses:

Cost
 of sales           68,117           51,181            (10,849) (a)     108,449        141,257      (29,013)(a)         112,244

Selling & admini-
 strative           39,672           47,521             (4,124) (a)(b)   83,069         79,242       (3,836)(a)(b)       75,406

Amortization of
 intangibles         2,945           41,306             30,106  (a)(b)   74,357          9,158       65,206 (a)(b)       74,364

Research &
 development         2,492            5,499                ---            7,991          6,979          ---               6,979
                  --------          -------             ------          -------        -------       -------            -------

Operating
 (loss) profit     (16,810)         (59,487)           (27,635)        (103,932)        27,496      (66,435)            (38,939)

Interest
 expense
 (benefit)          14,025           15,874             (2,310)(a)       27,589         30,092       (3,374)(a)          26,718
                                                               (c)(d)                                       (c)(d)

Other expense           62              152                ---              214            332         ---                  332
                  --------          -------             ------          -------        -------       -------            -------

Loss
 before
 income
 taxes             (30,897)         (75,513)           (25,325)        (131,735)        (2,928)     (63,061)            (65,989)

Income
 tax
 (benefit)
 expense              (521)            (468)               ---             (989)         1,753          ---               1,753
                  --------          -------             ------          -------        -------      -------             -------
Net loss          $(30,376)        $(75,045)          $(25,325)       $(130,746)      $ (4,681)    $(63,061)          $ (67,742)
                  ========          =======             ======          =======         ======      =======           =========
</TABLE>

                                       10
<PAGE>

6. PROFORMA COMBINED STATEMENTS OF OPERATIONS DATA (CONTINUED)


Notes to Proforma Combined  Statements of Operations Data
----------------------------------------------------------
<TABLE>
<CAPTION>
                                                                 2000               1999
                                                                PROFORMA          PROFORMA
                                                               ADJUSTMENTS       ADJUSTMENTS
                                                               -----------       -----------
<S>                                                            <C>               <C>

a)  To reflect the planned disposal
    of the Company's Manufacturing Business
    Revenue                                                     (12,502)           $(34,078)
    Cost of sales                                               (10,849)            (29,013)
    Selling & administrative                                       (221)               (742)
    Amortization of intangibles                                    (768)             (1,700)
    Interest expense                                             (1,295)             (2,796)

b)  To reflect the elimination of the
    historical amortization of goodwill,
    other intangibles and capitalized
    software costs and record the
    amortization of goodwill, capitalized
    software and other intangibles in
    connection with the Acquisition of
    the Company by Lernout & Hauspie.

     Total historical goodwill and
      intangible amortization                                   (2,945)             (9,158)
       Less portion related to the
        Company's Manufacturing
        Business                                                   768               1,700
                                                              --------             --------
     Net historical intangible
      amortization                                              (2,177)             (7,458)
      Historical capitalized software
      amortization                                              (3,903)             (3,094)
     Acquisition related
      amortization of goodwill,
      intangibles & capitalized technology                      33,051               74,364

c)  To reflect the reduction in interest
     expense related to the Company's long
     term debt repaid on the date of
     the Acquisition and to reflect
     additional interest expense associated with
     amounts due to Parent Company
     recorded in connection with the
     Acquisition. Historical interest expense
     relating to repaid debt                                    (5,315)             (10,478)
      Less portion related to the
        Company's Manufacturing
        Business                                                   491                  979
                                                              --------             --------
    Net historical interest expense
      relating to repaid debt                                   (4,824)              (9,499)
    Interest expense on amounts due
      to Parent Company                                          4,614               10,380

d)  To reflect the reduction in the
    Company's historical amortization of deferred
    financing fees associated with
    long term debt repaid on the
    date of the Acquisition.                                      (805)              (1,459)

</TABLE>




                                       11
<PAGE>

7. CONTINGENCIES

   CONTINGENCIES

       On February 14, 1995, Pitney Bowes, Inc. ("Pitney Bowes"), the Company's
   former parent corporation, filed a complaint against Sudbury Systems, Inc.
   ("Sudbury") in the United States District Court for the District of
   Connecticut alleging intentional and wrongful interference with Pitney
   Bowes's plans to sell the Company.  The complaint seeks damages and a
   declaratory judgment relating to the validity of a patent owned by Sudbury
   entitled "Rapid Simultaneous Multiple Access Information Storage and
   Retrieval System" and the alleged infringement thereof by the Company.
   Sudbury responded by answering the complaint and filing a third-party
   complaint against the Company alleging patent infringement and seeking
   preliminary and permanent injunctive relief and treble damages.  Sudbury's
   patent expired in April 1998.  As a result, injunctive relief is no longer
   available to Sudbury.  Pre-trial proceedings, including claim construction
   and dispositive motions are continuing.  A trial date in 2001 is likely.

       Management believes the Company has meritorious defenses to the claims
   against it.  Consequently, the Company has not provided for any loss exposure
   in connection with this complaint.  Additionally, regardless of the outcome
   of this litigation, Pitney Bowes has agreed to defend this action and to
   indemnify the Company for any liabilities arising from such litigation.

       The Company is subject to federal, state and local laws and regulations
   concerning the environment and is currently participating in administrative
   proceedings as a participant in a group of potentially responsible parties in
   connection with two third party disposal sites.  These proceedings are in the
   preliminary stage, and it is currently impossible to reasonably estimate the
   potential costs of remediation, the timing and extent of remedial actions
   which may be required by governmental authorities, and the amount of the
   liability, if any, of the Company alone or in relation to that of any other
   responsible parties.  When it is possible to make a reasonable estimate of
   the Company's liability with respect to such a matter, a provision will be
   made as appropriate.  Additionally, the Company has settled and paid its
   liability at three other third party disposal sites.  At a fourth site, the
   Company has paid approximately $11 thousand for its share of the costs of the
   first phase of the clean up of the site and management believes that it has
   no continuing material liability for any later phases of the cleanup.
   Consequently, management believes that its future liability, if any, for
   these four sites is not material.  In addition, regardless of the outcome of
   such matters, Pitney Bowes has agreed to indemnify the Company in connection
   with retained environmental liabilities and for breaches of the environmental
   representations and warranties in the Stock and Asset Purchase Agreement,
   originally executed on April 25, 1995 and amended August 11, 1995 between
   Dictaphone Acquisition Corporation and Pitney Bowes subject to certain
   limitations.

       The Company is a defendant in a number of additional lawsuits and
   administrative proceedings, none of which will, in the opinion of management,
   have a material adverse effect on the Company's consolidated financial
   position or results of operations.

       The Company does not believe that the ultimate resolution of the
   litigation, administrative proceedings and environmental matters described
   above in the aggregate will have a material adverse effect on the Company's
   consolidated financial position or results of operations.

                                       12
<PAGE>

7. CONTINGENCIES (CONTINUED)

   CONTINGENCIES (CONT.)

       In May 2000, Lernout & Hauspie acquired the Company in a merger with a
   wholly owned subsidiary of Lernout & Hauspie.  As part of the Acquisition of
   the Company, Lernout & Hauspie obtained $430 million in credit facilities
   (the "L&H Revolving Credit Facility") from a syndicate of banks (the "Banks")
   to pay a portion of the purchase price, to repay certain Dictaphone
   liabilities and for general corporate purposes.  The L&H Revolving Credit
   Facility consists of a short-term facility due March 31, 2001 of $200 million
   at LIBOR plus 100 basis points (7.761% at September 30, 2000), and a five
   year declining balance facility of $230 million at LIBOR plus 175 basis
   points (8.511% at September 30, 2000).  Borrowings under the five-year
   declining balance facility are for renewable terms of up to six months and
   therefore will be accounted for as short-term debt by Lernout & Hauspie. In
   June 2000, Dictaphone delivered to the Banks a limited guaranty of Lernout &
   Hauspie's obligations under the L&H Revolving Credit Facility. The limited
   guaranty covers advances under the L&H Revolving Credit Facility used to
   repay certain Dictaphone liabilities. When initially delivered, the guarantee
   amount was $167 million, the amount advanced under the L&H Revolving Credit
   Facility used to satisfy Dictaphone's obligations under the Term Loans and
   Revolving Credit Facility with Dictaphone's senior secured lender. In July
   2000, the guaranteed amount was increased by $41.6 million, the amount
   advanced under the L&H Revolving Credit Facility used to redeem a portion of
   Dictaphone's Senior Subordinated Notes due 2005.

8. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
   INFORMATION

       The following consolidating financial statements include the Company and
   all majority-owned subsidiaries as follows: Dictaphone Canada Ltd/Ltee,
   Dictaphone Company Ltd., Dictaphone Deutschland GmbH and Dictaphone
   International A.G. (together "Dictaphone Non-U.S.").

       Dictaphone Corporation (U.S.), the Company's wholly owned U.S.
   subsidiary, fully and unconditionally guaranteed the repayment of $200.0
   million of 11-3/4% Senior Subordinated Notes Due 2005 (the "Notes") issued to
   finance the acquisition of the Company from Pitney Bowes.  In January 1998,
   Dictaphone Corporation was merged into Dictaphone Corporation (U.S.),
   whereupon the surviving corporation changed its name to "Dictaphone
   Corporation".  Dictaphone Non-U.S. is not a guarantor of the Notes.  As a
   result of the Acquisition, the Noteholders had the option to put the Notes to
   the Company.  In July 2000, holders of $41.6 million of the Notes exercised
   that right and those Notes were redeemed.  The Company had $158.4 million of
   Notes outstanding as of September 30, 2000.

                                       13
<PAGE>

8. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
   INFORMATION (Continued)

       The following are the supplemental consolidating statement of operations
   for the three and five month periods ended September 30, 2000, the
   supplemental consolidating balance sheet information as of September 30,
   2000, and cash flow information for the five month period ended September 30,
   2000.


                   DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                     THREE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>


                                                 DICTAPHONE   DICTAPHONE   CONSOLIDATING
                                                CORPORATION    NON-U.S.     ADJUSTMENTS    CONSOLIDATED
                                                ------------  -----------  --------------  -------------
<S>                                             <C>           <C>          <C>             <C>

   Revenue from:
    Product sales and rentals                      $ 31,876       $3,896     $(1,129)      $ 34,643
    Support services                                 21,948        1,779         ---         23,727
                                                   --------       ------     -------       --------
       Total revenues                                53,824        5,675      (1,129)        58,370
                                                   --------       ------     -------       --------

   Costs and expenses:
    Cost of :
      Product sales and rentals                      16,643        2,539        (697)        18,485
      Support services                               13,953        1,437         ---         15,390
                                                   --------       ------     -------       --------
       Total cost                                    30,596        3,976        (697)        33,875
                                                   --------       ------     -------       --------
    Selling and administrative, including
     amortization of intangibles                     51,435        2,553         ---         53,988
    Research and development                          3,340          ---         ---          3,340
    Interest expense (net) and other expense          8,917         (186)        ---          8,731
                                                   --------       ------     -------       --------
       Total costs and expenses                      94,288        6,343        (697)        99,934
                                                   --------       ------     -------       --------

   Loss before income taxes                         (40,464)        (668)       (432)       (41,564)

   Income tax expense (benefit)                          19          (85)       (175)          (241)
                                                   --------       ------     -------       --------

   Net loss                                        $(40,483)      $ (583)    $  (257)      $(41,323)
                                                   ========       ======     =======       ========

</TABLE>

                                       14
<PAGE>

8. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
   INFORMATION (Continued)


                   DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                      FIVE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>


                                                 DICTAPHONE   DICTAPHONE   CONSOLIDATING
                                                CORPORATION    NON-U.S.     ADJUSTMENTS    CONSOLIDATED
                                                ------------  -----------  --------------  -------------
<S>                                             <C>           <C>          <C>             <C>

   Revenue from:
    Product sales and rentals                      $ 48,259      $ 6,333         $(4,485)      $ 50,107
    Support services                                 32,967        2,946             ---         35,913
                                                   --------      -------         -------       --------
       Total revenues                                81,226        9,279          (4,485)        86,020
                                                   --------      -------         -------       --------

   Costs and expenses:
    Cost of:
      Product sales and rentals                      24,429        4,591          (4,053)        24,967
      Support services                               23,731        2,483             ---         26,214
                                                   --------      -------         -------       --------
       Total cost                                    48,160        7,074          (4,053)        51,181
                                                   --------      -------         -------       --------
    Selling and administrative, including
     amortization of intangibles                     84,396        4,140             ---         88,827
    Research and development                          5,499          ---             ---          5,499
    Interest expense (net) and other expense         14,949        1,077             ---         16,026
                                                   --------      -------         -------       --------
       Total costs and expenses                     153,295       12,291          (4,053)       161,533
                                                   --------      -------         -------       --------

   Loss before income taxes                         (72,069)      (3,012)           (432)       (75,513)

   Income tax expense (benefit)                          32         (325)           (175)          (468)
                                                   --------      -------         -------       --------

   Net loss                                        $(72,101)     $(2,687)        $  (257)      $(75,045)
                                                   ========      =======         =======       ========

</TABLE>

                                       15
<PAGE>

8. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
   INFORMATION (Continued)


                   DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
         SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
                               SEPTEMBER 30, 2000
<TABLE>
<CAPTION>


                                                    DICTAPHONE   DICTAPHONE   CONSOLIDATING
                                                    CORPORATION   NON-U.S.     ADJUSTMENTS    CONSOLIDATED
                                                    -----------  -----------  --------------  ------------
<S>                                                 <C>          <C>          <C>             <C>

   ASSETS
   Current assets:
    Cash and cash equivalents                          $    (82)    $ 1,654        $    ---       $  1,572
    Accounts receivable, less allowances                 71,279       6,731             (19)        77,991
    Receivable due from affiliate                         5,010       1,949          (5,618)         1,341
    Inventories                                          11,895       2,759            (419)        14,235
    Assets to be disposed of                             35,349         ---             ---         35,349
    Other current assets                                  3,167       1,049             175          4,391
                                                       --------     -------        --------       --------
      Total current assets                              126,618      14,142          (5,881)       134,879

   Investments in subsidiaries                           16,751         ---         (16,751)           ---
   Property, plant and equipment, net                    30,393       2,313             ---         32,706
   Intangibles, net                                     805,451      12,473             ---        817,924
   Other assets                                           3,813       1,786             ---          5,599
                                                       --------     -------        --------       --------
      Total assets                                     $983,026     $30,714        $(22,632)      $991,108
                                                       ========     =======        ========       ========

   LIABILITIES AND STOCKHOLDER'S
   EQUITY
   Current liabilities:
    Accounts payable, interest payable
     and accrued liabilities                           $ 17,765     $13,292        $ (5,884)      $ 25,173
    Payable due to affiliates                            19,018         ---             ---         19,018
    Advance billings                                     64,030       3,165             ---         67,195
    Current portion of long-term debt                    10,000         123             ---         10,123
                                                       --------     -------        --------       --------
      Total current liabilities                         110,813      16,580          (5,884)       121,509
   Long-term debt                                       315,416      16,491         (16,491)       315,416
   Due to Parent Company                                 16,000         ---             ---         16,000
   Accrued pension liability                              5,950         ---             ---          5,950
   Deferred tax liability                                 2,600         ---             ---          2,600
   Other liabilities                                     10,903         328             ---         11,231
   Stockholder's equity (deficit)                       521,344      (2,685)           (257)       518,402
                                                       --------     -------        --------       --------
      Total liabilities and stockholder's equity       $983,026     $30,714        $(22,632)      $991,108
                                                       ========     =======        ========       ========

</TABLE>

                                       16
<PAGE>

8. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
   INFORMATION  (Continued)


                   Dictaphone Corporation (Successor Company)
    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
                      FIVE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>


                                       DICTAPHONE     DICTAPHONE   CONSOLIDATING
                                       CORPORATION     NON-U.S.     ADJUSTMENTS    CONSOLIDATED
                                       -----------    -----------  --------------  -------------
<S>                                  <C>          <C>             <C>            <C>

   Operating activities:
    Net loss                           $(72,101)        $(2,687)       $(257)        $(75,045)
    Adjustments to reconcile net
     loss
     to net cash used in operating
      activities:
      Depreciation and amortization      43,647           1,056          ---           44,703
      Change in assets and
       liabilities:
       Accounts receivable              (10,924)            982            4           (9,938)
       Inventories                          394          (1,679)         432             (853)
       Other current assets              (4,608)           (150)        (175)          (4,933)
       Accounts payable and accrued
       liabilities                         (287)          2,417         (188)           1,942
       Advance billings                  21,348             778          ---           22,126
       Other assets and other
        liabilities                       1,151             564          184            1,899
                                       --------         -------         ----         --------
Net cash (used in) provided
 by operating activities                (21,380)          1,281          ---          (20,099)
                                       --------         -------         ----         --------

   Investing activities:
    Net investment in fixed assets       (1,607)           (461)         ---           (2,068)
    Licenses and software
     development
     costs capitalized                   (3,750)            ---          ---           (3,750)
                                       --------         -------         ----         --------
   Net cash used in investing
    activities                           (5,357)           (461)         ---           (5,818)
                                       --------         -------         ----         --------

   Financing activities:
    Redemption of notes                 (41,584)            ---          ---          (41,584)
    Borrowings from revolving
     credit facility                     17,700             ---          ---           17,700
    Repayments under revolving
     credit facility                     (7,700)            ---          ---           (7,700)
    Capital from Parent Company          54,000             ---          ---           54,000
    Other                                  (472)            (85)         ---             (557)
                                       --------         -------         ----         --------
   Net cash provided by (used in)
    financing
    activities                           21,944             (85)         ---           21,859
                                       --------         -------         ----         --------

   Effect of exchange rate changes
    on cash                                 ---             (30)         ---              (30)
                                       --------         -------         ----         --------

   (Decrease) increase in cash           (4,793)            705          ---           (4,088)

   Cash and cash equivalents,
    beginning of period                   4,711             949          ---            5,660
                                       --------         -------         ----         --------

   Cash and cash equivalents,
    end of period                      $    (82)        $ 1,654         $---         $  1,572
                                       ========         =======         ====         ========
</TABLE>

                                       17
<PAGE>

9. COMPREHENSIVE LOSS

       Total comprehensive loss for the five months ended September 30, 2000
   consists of the following:
<TABLE>
<CAPTION>

                                    FIVE MONTHS ENDED
                                   SEPTEMBER 30, 2000
                                   -------------------
<S>                                <C>

   Net loss                             $(75,045)
   Foreign currency translation
    adjustments                                2
                                        --------
   Total comprehensive loss             $(75,045)
                                        ========
</TABLE>
10. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
   INFORMATION

       As a result of the Company's announcement of its intention to dispose of
   its manufacturing business, Dictaphone has one reportable segment: System
   Products and Services.  The System Products and Services segment consists of
   the sale and service of system-related products to dictation and voice
   management and communications recording system customers in selected vertical
   markets.

                   DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
                       SEGMENT PROFIT AND LOSS AND ASSETS


<TABLE>
<CAPTION>
                                                           SYSTEM
                                                          PRODUCTS &
                                                           SERVICES
                                                           --------

<S>                                                       <C>
     Revenue from external customers
      Five months ended September 30, 2000                   $ 86,020

     Intersegment revenues
      Five months ended September 30, 2000                        ---

     Segment loss before income taxes
      Five months ended September 30, 2000                    (75,513)

     Total assets as of September 30, 2000                    991,108
     Manufacturing business assets to be disposed of          (35,349)
                                                             --------
     Segment assets                                          $955,759
</TABLE>

11. SUBSEQUENT EVENT

       On November 9, 2000, Lernout & Hauspie announced that it intends to
   restate its financial statements for the periods of 1998, 1999 and the first
   half of 2000.  Previously Lernout & Hauspie had announced that it was the
   subject of a U.S. SEC investigation and a defendant in a number of class
   action lawsuits, all of which primarily relate to Lernout & Hauspie's
   financial statements.  As of the date of this report, the Company does not
   believe that either the SEC investigation or the class action lawsuits
   involve any allegations regarding the Company's financial statements.

                                       18
<PAGE>

11. SUBSEQUENT EVENT (CONTINUED)

       As a result of the concerns raised by the recent events, the Company and
   Lernout & Hauspie have been in discussions with their lenders concerning the
   L&H Revolving Credit Facility, Dictaphone's limited guaranty of that facility
   (the "Dictaphone Guaranty"), the Line of Credit and Lernout & Hauspie's
   guaranty of the Line of Credit ("L&H Guaranty"). A substantial portion of the
   proceeds advanced under the L&H Revolving Credit Facility were re-advanced to
   the Company to refinance the Company's former revolving credit and term loan
   facilities, to pay interest on the Notes, and to meet working capital and
   other obligations of the Company.

       Lernout & Hauspie's lenders under the L&H Revolving Credit Facility have
   asserted that an event of default may exist under that facility and the
   associated Dictaphone Guaranty, however, they have not declared an event of
   default. Deutsche Bank, Dictaphone's lender under the Line of Credit, also
   has asserted that an event of default exists under the Line of Credit, but
   similarly has not yet accelerated the Line of Credit. Deutsche Bank has,
   however, declared an event of default under the L&H Guaranty. The Company has
   not admitted that an event of default exists under the Line of Credit.
   Lernout & Hauspie and the Company are in discussions with their lenders
   regarding the alleged defaults and the restructuring of the underlying loans
   and guarantees.

       The Company anticipates that in connection with their discussions with
   Deutsche Bank and the other lenders to Lernout & Hauspie, the Company and
   Lernout & Hauspie likely will need to obtain waivers or amendments with
   respect to the Line of Credit, the L&H Revolving Credit Facility and the
   associated guarantees. The Company cannot assure, however, that such waivers
   or amendments, if necessary, can be obtained. Moreover, even if the Company
   restructures its obligations under the Line of Credit, the Company does not
   anticipate that Deutsche Bank will permit any further draws under the Line of
   Credit. As of November 8, 2000, the balance under the Line of Credit was
   approximately $14.8 million and Deutsche Bank has indicated that the Company
   may have to pay down the Line of Credit to $12.6 million as a condition of
   any waivers of the events of default that Deutsche Bank has claimed exist.
   In addition, while L&H has requested that its lenders restore L&H's ability
   to borrow up to the full amount of the L&H Revolving Credit Facility, there
   is no assurance that any further advances will be permitted under such
   facility. Deutsche Bank and the lenders under the L&H Revolving Credit
   Facility have also indicated that they may seek to obtain liens on certain of
   L&H's and Dictaphone's assets as a condition of such a waiver.

       The Company has a $9.3 million payment due on February 1, 2001 to satisfy
   a semi-annual interest payment due on the Notes. The Company's $7 million
   interest payment due to Lernout & Hauspie on the intercompany debt,
   originally due November 5, 2000, has been deferred for six months.
   Notwithstanding whether any defaults exist under the L&H Revolving Credit
   Facility, unless such date is extended as part of restructuring, on March 31,
   2001, $200 million becomes due thereunder by its terms. Pursuant to the
   Dictaphone Guaranty, the Company, as well as Lernout & Hauspie as a direct
   obligor, will be liable for that $200 million obligation. While the Company's
   and Lernout & Hauspie's discussions with their lenders include a request to
   defer the March 31, 2001 payment, the Company does not anticipate that it
   will have sufficient resources to make the March 31, 2001 payment if called
   upon to do so under the Dictaphone Guaranty on such date. If the Company and
   Lernout & Hauspie are not successful in restructuring their obligations under
   the L&H Revolving Credit Facility and the lenders thereunder declare an event
   of default thereunder and demand payment under the Dictaphone Guaranty, a
   default would then exist under the Indenture concerning the Notes. In such
   circumstances, the Company will not have sufficient resources to pay its
   obligations in respect of the Dictaphone Guaranty of the L&H Revolving Credit
   Facility, the Deutsche Bank Line of Credit and its obligation to pay interest
   (and, if an event of default exists thereunder, principal) on the Notes and
   to fund its working capital obligations and planned capital expenditures.

       While the Company is cautiously optimistic that such financial
   accommodations can be reached, and that such accommodations could provide the
   Company with sufficient resources to make its February 1, 2001 interest
   payment, the Company cannot assure that it will be successful. The Company
   also is actively pursuing the sale of its manufacturing facility in
   Melbourne, Florida. The ability of the Company to complete this sale would
   further improve the Company's liquidity, but the sales proceeds, if realized,
   would be insufficient by themselves to allow the Company to meet all of its
   obligations if it and L&H are unsuccessful in restructuring the L&H Revolving
   Credit Facility.

                                       19
<PAGE>

                  DICTAPHONE CORPORATION (PREDECESSOR COMPANY)

          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>


                                                FOUR MONTHS       THREE MONTHS          NINE MONTHS
                                                   ENDED              ENDED                ENDED
                                              APRIL 30, 2000   SEPTEMBER 30, 1999   SEPTEMBER 30, 1999
                                              ---------------  -------------------  -------------------
<S>                                           <C>              <C>                  <C>

  Revenues:
    Product sales and rentals                       $ 48,617              $60,066             $156,833
    Contract manufacturing sales                      12,502               10,830               34,078
    Support services                                  35,297               24,965               73,221
                                                    --------              -------             --------
      Total revenues                                  96,416               95,861              264,132
                                                    --------              -------             --------

  Costs and expenses:

    Cost of:
      Product sales & rentals                         36,592               28,011               71,086
      Contract manufacturing sales                    10,745                9,133               28,853
      Support services                                20,780               14,361               41,318
                                                    --------              -------             --------
        Total cost                                    68,117               51,505              141,257
                                                    --------              -------             --------

    Selling and administrative                        39,672               27,877               79,242

    Amortization of intangibles                        2,945                2,681                9,158

    Research and development                           2,492                2,099                6,979
                                                    --------              -------             --------

  Operating (loss) profit                            (16,810)              11,699               27,496

  Interest expense                                    14,025               10,029               30,092

  Other expense (income) - net                            62                  (45)                 332
                                                    --------              -------             --------

  (Loss) income before income taxes                  (30,897)               1,715               (2,928)

  Income tax (benefit) expense                          (521)                 832                1,753
                                                    --------              -------             --------

    Net (loss) income                                (30,376)                 883               (4,681)

    Stock dividends on PIK Preferred Stock             2,210                1,527                4,237
                                                    --------              -------             --------

    Net loss applicable to Common Stock             $(32,586)             $  (644)            $ (8,918)
                                                    ========              =======             ========

</TABLE>





See accompanying notes to unaudited condensed consolidated financial statements.

                                       20
<PAGE>

                  DICTAPHONE CORPORATION (PREDECESSOR COMPANY)
                      CONDENSED CONSOLIDATED BALANCE SHEET
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                          DECEMBER 31,
                                                                              1999
                                                                          -------------
<S>                                                                        <C>

ASSETS
Current assets:
  Cash and cash equivalents                                                $   6,190
  Accounts receivable, less allowance of $1,801                              100,834
  Inventories                                                                 49,759
  Other current assets                                                         6,152
                                                                           ---------
    Total current assets                                                     162,935
Property, plant and equipment, net                                            37,489
Deferred financing costs, net of accumulated amortization of $16,145           8,141
Intangibles, net of accumulated amortization of $133,964                     194,865
Deferred tax asset                                                            39,934
Other assets                                                                  17,774
                                                                           ---------
    Total assets                                                           $ 461,138
                                                                           =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                         $  11,755
  Interest payable                                                             9,965
  Accrued liabilities                                                         30,928
  Advance billings                                                            49,100
  Current portion of long-term debt                                              790
                                                                           ---------
    Total current liabilities                                                102,538
Long-term debt                                                               353,443
Accrued pension liability                                                      9,953
Other liabilities                                                             12,806
                                                                           ---------
    Total liabilities                                                        478,740
                                                                           ---------
Contingencies (Note 7)
Stockholders' equity:
  Preferred stock ($.01 par value; 7,500,000 shares authorized; 2,742,400
   shares of 14% PIK perpetual preferred stock
   issued and outstanding, liquidation value of $27,424
   at December 31, 1999)                                                      27,424
  Preferred stock ($.01 par value; 10,000,000 shares authorized;
   2,000,000 shares of 12% Convertible PIK preferred stock issued and
   outstanding, liquidation value of $22,306 at December 31, 1999)            22,306
  Common stock ($.01 par value; 30,000,000 shares authorized;
   12,934,000 shares outstanding at December 31, 1999)                           130
  Notes receivable from stockholders                                            (741)
  Additional paid-in capital                                                 115,140
  Treasury stock, at cost (66,000 shares at December 31, 1999)                  (660)
  Accumulated deficit                                                       (179,360)
Accumulated other comprehensive loss                                          (1,841)
                                                                              ------
    Total stockholders' equity (deficit)                                     (17,602)
                                                                           ---------
    Total liabilities and stockholders' equity                             $ 461,138
                                                                           =========

</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.

                                       21
<PAGE>

                  DICTAPHONE CORPORATION (PREDECESSOR COMPANY)
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
                             (Dollars in thousands)
<TABLE>
<CAPTION>


                                                    FOUR MONTHS        NINE MONTHS
                                                       ENDED              ENDED
                                                  APRIL 30, 2000   SEPTEMBER 30, 1999
                                                  ---------------  -------------------
<S>                                               <C>              <C>
   Operating activities:
     Net loss                                           $(30,376)            $ (4,681)
     Adjustments to reconcile net loss to net
      cash
      provided by (used in) operating
       activities:
       Depreciation and amortization                      10,376               18,225
       Provision for deferred income taxes                    44                  453
       Non-cash provision for doubtful accounts
        (Note 2)                                           3,951                  ---
       Non-cash provision for inventory
        obsolescence (Note 3)                              9,206                  ---
       Changes in assets and liabilities:
         Accounts receivable                              20,321              (15,682)
         Inventories                                       1,025                8,126
         Other current assets                             (1,564)                 828
         Accounts payable and accrued
          liabilities                                    (14,343)              (1,066)
         Advance billings                                 (1,054)               5,664
         Other assets and other liabilities               (1,042)              (1,046)
                                                        --------             --------
           Net cash (used in) provided by
            operating activities                          (3,456)              10,821
                                                        --------             --------

   Investing activities:
     Net investment in fixed assets                       (5,315)              (8,457)
     Licenses and software development costs
      capitalized                                         (4,852)              (7,516)
                                                        --------             --------
       Net cash used in investing activities             (10,167)             (15,973)
                                                        --------             --------

   Financing activities:
     Sale of preferred stock                                 ---               20,000
     Borrowings under revolving credit facility           18,250               31,000
     Repayments under revolving credit facility           (4,250)             (47,500)
     Repayments under term loans                             439                  ---
     Other                                                (1,336)              (1,293)
                                                        --------             --------
       Net cash provided by financing activities          13,103                2,207
                                                        --------             --------

   Effect of exchange rate changes on cash                   (10)                 (40)
                                                        --------             --------

   Decrease in cash                                         (530)              (2,985)

   Cash and cash equivalents, beginning of
    period                                                 6,190               11,727
                                                        --------             --------
   Cash and cash equivalents, end of period             $  5,660             $  8,742
                                                        ========             ========

   SUPPLEMENTAL CASH FLOW INFORMATION:

   Interest paid                                        $ 17,254             $ 34,699
                                                        ========             ========
   Income taxes paid                                    $    993             $    201
                                                        ========             ========

</TABLE>


See accompanying notes to unaudited condensed consolidated financial statements.

                                       22
<PAGE>

                  DICTAPHONE CORPORATION (PREDECESSOR COMPANY)
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
               (Dollars in thousands, or as otherwise indicated)


1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

       On March 7, 2000, the Company entered into a definitive agreement to be
   acquired by Lernout & Hauspie Speech Products, N.V.  On May 5, 2000 Lernout &
   Hauspie acquired all of the outstanding stock of the Company for
   approximately 9.4 million shares of Lernout & Hauspie Common Stock, taking
   into account the two-for-one stock split (of Lernout & Hauspie) effected as
   of May 12, 2000, through the merger of the Company with a wholly owned
   subsidiary of Lernout & Hauspie.  In connection with the Acquisition, a
   portion of the Company's approximately $430 million of debt and other
   obligations were paid off or refinanced by an advance made to the Company by
   Lernout & Hauspie.

       The capital structure and accounting basis of the assets and liabilities
   of the Company as of May 1, 2000 and thereafter differ from those of the
   Company prior to its acquisition (the "Predecessor Company") as a result of
   the application of purchase accounting.  The Acquisition is being accounted
   for under the purchase method of accounting in accordance with Accounting
   Principles Board Opinion No. 16, Accounting for Business Combinations.  The
   total purchase price has been allocated to tangible and intangible assets and
   liabilities of the Company based on preliminary estimates of their respective
   fair values.  Accordingly, the allocation of the purchase price reflected in
   the accompanying condensed consolidated balance sheet will be adjusted upon
   final determination of the purchase price adjustments and upon the final
   results of gathering certain necessary information.  The final asset and
   liability values may differ from those set forth in such balance sheet,
   however, the changes are not expected to have a material effect on the
   results of operations or financial position of the Company.

       The condensed consolidated financial statements of Dictaphone Corporation
   are unaudited as of and for the four month period ended April 30, 2000 and
   the three and nine month periods ended September 30, 1999, but in the opinion
   of management contain all adjustments which are of a normal and recurring
   nature necessary to present fairly the financial position and results of
   operations and cash flows for the periods presented.  These financial
   statements should be read in conjunction with the financial statements and
   notes thereto included in the Company's Annual Report on Form 10-K for the
   year ended December 31, 1999.

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

2. ACCOUNTS RECEIVABLE

       It is the Company's policy to review its allowance for doubtful accounts
   and reserve for sales returns on a regular basis. As a result of such a
   review in the second quarter of 2000, the Company increased its allowance for
   doubtful accounts reserve to reflect a reduction in over 90 day account
   collections and specifically identified accounts receivable risks, and
   increased its sales returns reserve for an elevated sales returns and
   allowances profile associated with recently introduced product offerings.
   The effect of these changes in estimates was to record non-cash charges of
   $1.8 million and $2.2 million for bad debts and sales returns, respectively.

                                       23
<PAGE>

3. INVENTORIES

      Inventories consist of the following:


                                                 DECEMBER 31,
                                                    1999
                                                 -----------

       Raw materials and work in process           $23,376
       Supplies and service parts                   11,083
       Finished products                            15,300
                                                   -------
       Total inventories                           $49,759
                                                   =======

       During the three months ended March 31, 2000, the Company recorded a non-
   cash charge of $9.2 million associated with the provision for excess field
   service parts and inventory primarily related to products recently replaced
   by newly introduced products. With the production of Freedom(TM) in the first
   quarter of 2000, the Company provided for excess inventory associated with
   those products that the Freedom(TM) product would replace, recording this
   charge as an inventory provision.

4. INTANGIBLES

       The following summarizes intangible assets, net of accumulated
   amortization and writedowns of $133,964 at December 31, 1999.  Amortization
   expense for the four months ended April 30, 2000 and the three and nine
   months ended September 30, 1999 was  $2,945, $2,681 and $9,158, respectively.


                                                 DECEMBER 31,
                                                    1999
                                                 ------------

      Goodwill                                     $123,737
      Tradenames                                     69,318
      Non-compete agreement                           1,041
      Patents                                           769
                                                   --------
                                                   $194,865
                                                   ========

5. RECENT ACCOUNTING PRONOUNCEMENTS

       In June 1998, the Financial Accounting Standards Board (the "FASB")
   issued Statement of Financial Accounting Standards No. 133, Accounting for
   Derivative Instruments and Hedging Activities ("SFAS 133").  SFAS 133
   requires that derivative instruments be recognized as either assets or
   liabilities in the consolidated balance sheet based on their fair values.
   Changes in the fair values of such derivative instruments will be recorded
   either in results of operations or in other comprehensive income, depending
   on the intended use of the derivative instrument.  The initial application of
   SFAS 133 will be reported as the effect of a change in accounting principle.
   SFAS 133, as amended, is effective for all fiscal quarters of fiscal years
   beginning after June 15, 2000.  The Company will adopt the requirements of
   SFAS 133 in its financial statements for the year ending December 31, 2001.
   The Company does not believe that the adoption of SFAS 133 will have a
   material impact on its financial position, results of operations or
   liquidity.



                                       24
<PAGE>

6. CONTINGENCIES

   CONTINGENCIES

       On February 14, 1995, Pitney Bowes, Inc. ("Pitney Bowes"), the Company's
   former parent corporation, filed a complaint against Sudbury Systems, Inc.
   ("Sudbury") in the United States District Court for the District of
   Connecticut alleging intentional and wrongful interference with Pitney
   Bowes's plans to sell the Company.  The complaint seeks damages and a
   declaratory judgment relating to the validity of a patent owned by Sudbury
   entitled "Rapid Simultaneous Multiple Access Information Storage and
   Retrieval System" and the alleged infringement thereof by the Company.
   Sudbury responded by answering the complaint and filing a third-party
   complaint against the Company alleging patent infringement and seeking
   preliminary and permanent injunctive relief and treble damages.  Sudbury's
   patent expired in April 1998.  As a result, injunctive relief is no longer
   available to Sudbury.  Pretrial proceedings, including claim construction and
   dispositive motions are continuing.  A trial date in 2001 is likely.

       Management believes the Company has meritorious defenses to the claims
   against it.  Consequently, the Company has not provided for any loss exposure
   in connection with this complaint.  Additionally, regardless of the outcome
   of this litigation, Pitney Bowes has agreed to defend this action and to
   indemnify the Company for any liabilities arising from such litigation.

       The Company is subject to federal, state and local laws and regulations
   concerning the environment and is currently participating in administrative
   proceedings as a participant in a group of potentially responsible parties in
   connection with two third party disposal sites.  These proceedings are in the
   preliminary stage, and it is currently impossible to reasonably estimate the
   potential costs of remediation, the timing and extent of remedial actions
   which may be required by governmental authorities, and the amount of the
   liability, if any, of the Company alone or in relation to that of any other
   responsible parties.  When it is possible to make a reasonable estimate of
   the Company's liability with respect to such a matter, a provision will be
   made as appropriate.  Additionally, the Company has settled and paid its
   liability at three other third party disposal sites.  At a fourth site, the
   Company has paid approximately $11 thousand for its share of the costs of the
   first phase of the clean up of the site and management believes that it has
   no continuing material liability for any later phases of the cleanup.
   Consequently, management believes that its future liability, if any, for
   these four sites is not material.  In addition, regardless of the outcome of
   such matters, Pitney Bowes has agreed to indemnify the Company in connection
   with retained environmental liabilities and for breaches of the environmental
   representations and warranties in the Stock and Asset Purchase Agreement,
   originally executed on April 25, 1995 and amended August 11, 1995 between
   Dictaphone Acquisition Corporation and Pitney Bowes subject to certain
   limitations.

       The Company is a defendant in a number of additional lawsuits and
   administrative proceedings, none of which will, in the opinion of management,
   have a material adverse effect on the Company's consolidated financial
   position or results of operations.

       The Company does not believe that the ultimate resolution of the
   litigation, administrative proceedings and environmental matters described
   above in the aggregate will have a material adverse effect on the Company's
   consolidated financial position or results of operations.

                                       25
<PAGE>

7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
   INFORMATION

       The following consolidating financial statements include the Company and
   all majority-owned subsidiaries as follows: Dictaphone Canada Ltd/Ltee,
   Dictaphone Company Ltd., Dictaphone Deutschland GmbH and Dictaphone
   International A.G. (together "Dictaphone Non-U.S.").

       Dictaphone Corporation (U.S.), the Company's wholly owned U.S.
   subsidiary, has fully and unconditionally guaranteed the repayment of $200.0
   million of 11-3/4% Senior Subordinated Notes Due 2005 (the "Notes") issued to
   finance the acquisition of the Company from Pitney Bowes.  In January 1998,
   Dictaphone Corporation was merged into Dictaphone Corporation (U.S.),
   whereupon the surviving corporation changed its name to "Dictaphone
   Corporation".  Dictaphone Non-U.S. is not a guarantor of the Notes.  As a
   result of the Acquisition, the Noteholders had the option to put the Notes to
   the Company.  In July 2000, holders of $41.6 million of the Notes exercised
   that right and those Notes were redeemed.  The Company had $158.4 million of
   Notes outstanding as of September 30, 2000.


                                       26
<PAGE>

7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
   INFORMATION (Continued)

       The following are the supplemental consolidating statements of operations
   for the four month period ended April 30, 2000 and the three and nine month
   periods ended September 30, 1999, the supplemental consolidating balance
   sheet information as of December 31, 1999, and cash flows information for the
   four month period ended April 30, 2000 and nine month period ended September
   30, 1999.


                  DICTAPHONE CORPORATION (PREDECESSOR COMPANY)
    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                        FOUR MONTHS ENDED APRIL 30, 2000
<TABLE>
<CAPTION>


                                                 DICTAPHONE   DICTAPHONE   CONSOLIDATING
                                                CORPORATION    NON-U.S.     ADJUSTMENTS    CONSOLIDATED
                                                ------------  -----------  --------------  -------------
<S>                                             <C>           <C>          <C>             <C>

   Revenue from:
    Product sales and rentals                      $ 46,356      $ 6,957         $(4,696)      $ 48,617
    Contract manufacturing sales                     12,502          ---             ---         12,502
    Support services                                 32,846        2,451             ---         35,297
                                                   --------      -------         -------       --------
       Total revenues                                91,704        9,408          (4,696)        96,416
                                                   --------      -------         -------       --------

   Costs and expenses:
    Cost of:
      Product sales and rentals                      35,250        5,910          (4,568)        36,592
      Contract manufacturing sales                   10,745          ---             ---         10,745
      Support services                               18,690        2,090             ---         20,780
                                                   --------      -------         -------       --------
       Total cost                                    64,685        8,000          (4,568)        68,117
                                                   --------      -------         -------       --------
    Selling and administrative, including
     amortization of intangibles                     39,870        2,747             ---         42,617
    Research and development                          2,492          ---             ---          2,492
    Interest expense (net) and other expense         13,293          794             ---         14,087
                                                   --------      -------         -------       --------
       Total costs and expenses                     120,340       11,541          (4,568)       127,313
                                                   --------      -------         -------       --------

   Equity (loss) earnings                            (1,124)         ---           1,124            ---
                                                   --------      -------         -------       --------

   (Loss) income before income taxes                (29,760)      (2,133)            996        (30,897)

   Income tax expense (benefit)                          28         (497)            (52)          (521)
                                                   --------      -------         -------       --------

   Net (loss) income                               $(29,788)     $(1,636)        $ 1,048       $(30,376)
                                                   ========      =======         =======       ========
</TABLE>

                                       27
<PAGE>

7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
   INFORMATION (Continued)


                  DICTAPHONE CORPORATION (PREDECESSOR COMPANY)
    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                     THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>


                                                DICTAPHONE   DICTAPHONE  CONSOLIDATING
                                                CORPORATION   NON-U.S.    ADJUSTMENTS    CONSOLIDATED
                                                -----------  ----------  --------------  ------------
<S>                                             <C>          <C>         <C>             <C>

   Revenue from:
    Product sales and rentals                       $56,629     $ 7,967        $(4,530)       $60,066
    Contract manufacturing sales                     10,830         ---            ---         10,830
    Support services                                 22,495       2,470            ---         24,965
                                                    -------     -------        -------        -------
       Total revenues                                89,954      10,437         (4,530)        95,861
                                                    -------     -------        -------        -------

   Costs and expenses:
    Cost of:
      Product sales and rentals                      28,338       4,203         (4,530)        28,011
      Contract manufacturing sales                    9,133         ---            ---          9,133
      Support services                               12,957       1,404            ---         14,361
                                                    -------     -------        -------        -------
       Total cost                                    50,428       5,607         (4,530)        51,505
                                                    -------     -------        -------        -------
    Selling and administrative, including
     amortization of intangibles                     28,433       2,125            ---         30,558
    Research and development                          2,099         ---            ---          2,099
    Interest expense (net) and other expense          9,453         531            ---          9,984
                                                    -------     -------        -------        -------
       Total costs and expenses                      90,413       8,263         (4,530)        94,146
                                                    -------     -------        -------        -------

   Equity earnings (loss)                             1,801         ---         (1,801)           ---
                                                    -------     -------        -------        -------

   Income (loss) before income taxes                  1,342       2,174         (1,801)         1,715

   Income tax expense                                    21         811            ---            832
                                                    -------     -------        -------        -------

   Net income (loss)                                $ 1,321     $ 1,363        $(1,801)       $   883
                                                    =======     =======        =======        =======

</TABLE>

                                       28
<PAGE>

7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
   INFORMATION  (Continued)


                  Dictaphone Corporation (Predecessor Company)
    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                      NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>


                                                 DICTAPHONE   DICTAPHONE  CONSOLIDATING
                                                CORPORATION    NON-U.S.    ADJUSTMENTS    CONSOLIDATED
                                                ------------  ----------  --------------  -------------
<S>                                             <C>           <C>         <C>             <C>

   Revenue from:
    Product sales and rentals                      $146,159      $20,225        $(9,551)      $156,833
    Contract manufacturing sales                     34,078          ---            ---         34,078
    Support services                                 66,267        6,954            ---         73,221
                                                   --------      -------        -------       --------
       Total revenues                               246,504       27,179         (9,551)       264,132
                                                   --------      -------        -------       --------

   Costs and expenses:
    Cost of:
      Product sales and rentals                      69,723       11,018         (9,655)        71,086
      Contract manufacturing sales                   28,853          ---            ---         28,853
      Support services                               37,468        3,850            ---         41,318
                                                   --------      -------        -------       --------
       Total cost                                   136,044       14,868         (9,655)       141,257
                                                   --------      -------        -------       --------
    Selling and administrative, including
     amortization of intangibles                     81,836        6,564            ---         88,400
    Research and development                          6,979          ---            ---          6,979
    Interest expense (net) and other expense         28,292        2,132            ---         30,424
                                                   --------      -------        -------       --------
       Total costs and expenses                     253,151       23,564         (9,655)       267,060
                                                   --------      -------        -------       --------

   Equity earnings (loss)                             2,874          ---         (2,874)           ---
                                                   --------      -------        -------       --------

   (Loss) income before income taxes                 (3,773)       3,615         (2,770)        (2,928)

   Income tax expense                                    66        1,645             42          1,753
                                                   --------      -------        -------       --------

   Net (loss) income                               $ (3,839)     $ 1,970        $(2,812)      $ (4,681)
                                                   ========      =======        =======       ========
</TABLE>

                                       29
<PAGE>

7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
   INFORMATION  (Continued)


                  Dictaphone Corporation (Predecessor Company)
         SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
                               DECEMBER 31, 1999
<TABLE>
<CAPTION>


                                                  DICTAPHONE   DICTAPHONE  CONSOLIDATING
                                                 CORPORATION    NON-U.S.    ADJUSTMENTS    CONSOLIDATED
                                                 ------------  ----------  --------------  -------------
<S>                                              <C>           <C>         <C>             <C>

   ASSETS
   Current assets:
    Cash and cash equivalents                       $  4,595      $ 1,595       $    ---       $  6,190
    Accounts receivable, less allowances              92,608       10,822         (2,596)       100,834
    Inventories                                       47,765        2,199           (205)        49,759
    Other current assets                               3,351        2,718             83          6,152
                                                    --------      -------       --------       --------
      Total current assets                           148,319       17,334         (2,718)       162,935

   Investments in subsidiaries                        30,883          ---        (30,883)           ---
   Property, plant and equipment, net                 34,444        3,045            ---         37,489
   Deferred financing costs                            8,141          ---            ---          8,141
   Intangibles, net                                  182,241       12,624            ---        194,865
   Other assets                                       53,333        4,375            ---         57,708
                                                    --------      -------       --------       --------
   Total assets                                     $457,361      $37,378       $(33,601)      $461,138
                                                    ========      =======       ========       ========

   LIABILITIES AND STOCKHOLDERS'
   EQUITY
   Current liabilities:
    Accounts payable, interest payable
     and accrued liabilities                        $ 43,915      $11,329       $ (2,596)      $ 52,648
    Advance billings                                  46,571        2,529            ---         49,100
    Current portion of long-term debt                    628          162            ---            790
                                                    --------      -------       --------       --------
      Total current liabilities                       91,114       14,020         (2,596)       102,538
   Long-term debt                                    353,317       17,117        (16,991)       353,443
   Accrued pension expense                             9,953          ---            ---          9,953
   Other liabilities                                  12,270          536            ---         12,806
   Stockholders' equity (deficit)                     (9,293)       5,705        (14,014)       (17,602)
                                                    --------      -------       --------       --------
   Total liabilities and stockholders' equity       $457,361      $37,378       $(33,601)      $461,138
                                                    ========      =======       ========       ========

</TABLE>

                                       30
<PAGE>

7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
   INFORMATION  (Continued)


                  Dictaphone Corporation (Predecessor Company)
    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
                        FOUR MONTHS ENDED APRIL 30, 2000
<TABLE>
<CAPTION>


                                                   Dictaphone   Dictaphone   Consolidating
                                                  Corporation    NON-U.S.     ADJUSTMENTS    CONSOLIDATED
                                                  ------------  -----------  --------------  -------------
<S>                                               <C>           <C>          <C>             <C>

   Operating activities:
    Net loss                                         $(29,788)     $(1,636)     $ 1,048       $(30,376)
    Adjustments to reconcile net loss
     to net cash used in operating activities:
      Depreciation and amortization                     9,865          511          ---         10,376
      Provision for deferred income taxes                 ---           44          ---             44
      Non-cash provisions for doubtful accounts
       and sales returns                                3,951          ---          ---          3,951
      Non-cash provision for inventory
      obsolescence                                      7,919        1,287          ---          9,206
      Change in assets and liabilities:
       Accounts receivable                             16,563          734        3,024         20,321
       Inventories                                      1,331         (434)         128          1,025
       Other current assets                            (1,391)        (121)         (52)        (1,564)
       Accounts payable and accrued
       liabilities                                    (10,728)        (515)      (3,100)       (14,343)
       Advance billings                                  (999)         (55)         ---         (1,054)
       Other assets and other liabilities                 341         (335)      (1,048)        (1,042)
                                                     --------      -------      -------       --------
   Net cash used in operating activities               (2,936)        (520)         ---         (3,456)
                                                     --------      -------      -------       --------

   Investing activities:
    Net investment in fixed assets                     (5,305)         (10)         ---         (5,315)
    Licenses and software development costs
     capitalized                                       (4,852)         ---          ---         (4,852)
                                                     --------      -------      -------       --------
   Net cash used in investing activities              (10,157)         (10)         ---        (10,167)
                                                     --------      -------      -------       --------

   Financing activities:
    Sale of preferred stock                               ---          ---          ---            ---
    Borrowings from revolving credit facility          18,250          ---          ---         18,250
    Repayments under revolving credit facility         (4,250)         ---          ---         (4,250)
    Repayments under term loans                           439          ---          ---            439
    Other                                              (1,230)        (106)         ---         (1,336)
                                                     --------      -------      -------       --------
   Net cash provided by (used in) financing
    activities                                         13,209         (106)         ---         13,103
                                                     --------      -------      -------       --------

   Effect of exchange rate changes on cash                ---          (10)         ---            (10)
                                                     --------      -------      -------       --------

   Increase (decrease) in cash                            116         (646)         ---           (530)

   Cash and cash equivalents,
    beginning of period                                 4,595        1,595          ---          6,190
                                                     --------      -------      -------       --------

   Cash and cash equivalents,
    end of period                                    $  4,711      $   949      $   ---       $  5,660
                                                     ========      =======      =======       ========
</TABLE>
                                       31
<PAGE>


7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
   INFORMATION  (Continued)


                  DICTAPHONE CORPORATION (PREDECESSOR COMPANY)
    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
                      NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>


                                                   Dictaphone    Dictaphone   Consolidating
                                                  Corporation     NON-U.S.     ADJUSTMENTS    CONSOLIDATED
                                                  ------------  ------------  --------------  -------------
<S>                                               <C>           <C>           <C>             <C>

   Operating activities:
     Net (loss) income                               $ (3,839)      $ 1,970      $   (2,812)     $  (4,681)
     Adjustments to reconcile net loss
     to net cash provided by (used in)
     operating activities:
      Depreciation and amortization                    16,963         1,262             ---         18,225
      Provision for deferred income taxes                 ---           130             323            453
      Change in assets and liabilities:
       Accounts receivable                             (8,668)       (5,294)         (1,720)       (15,682)
       Inventories                                      7,084         1,146            (104)         8,126
       Other current assets                             1,167           (58)           (281)           828
       Accounts payable and accrued
        liabilities                                    (3,752)        1,266           1,420         (1,066)
       Advance billings                                 5,464           200             ---          5,664
       Other assets and other liabilities              (3,684)         (536)          3,174         (1,046)
                                                       ------       -------        --------        -------
   Cash provided by operating activities               10,735            86             ---         10,821
                                                       ------       -------        --------        -------

   Investing activities:
     Net investment in fixed assets                    (8,110)         (347)            ---         (8,457)
     Licenses and software development costs
     capitalized                                       (7,516)          ---             ---         (7,516)
                                                       ------       -------        --------        -------
   Cash used in investing activities                  (15,626)         (347)            ---        (15,973)
                                                       ------       -------        --------        -------

   Financing activities:
     Sale of Preferred Stock                           20,000           ---             ---         20,000
     Borrowing from revolving credit facility          31,000           ---             ---         31,000
     Repayment under revolving credit facility        (47,500)          ---             ---        (47,500)
     Other                                               (862)         (431)            ---         (1,293)
                                                       ------       -------        --------        -------
   Cash provided by (used in) financing
    activities                                          2,638          (431)            ---          2,207
                                                       ------       -------        --------        -------

   Effect of exchange rate changes on cash                ---           (40)            ---            (40)
                                                       ------       -------        --------        -------

   Decrease in cash                                    (2,253)         (732)            ---         (2,985)

   Cash and cash equivalents,
    beginning of period                                10,114         1,613             ---         11,727
                                                       ------       -------        --------        -------

   Cash and cash equivalents,
    end of period                                 $     7,861   $       881   $         ---   $      8,742
                                                      =======      ========       ==========        ======
</TABLE>


                                       32
<PAGE>


8. COMPREHENSIVE INCOME (LOSS)

       Total comprehensive loss for the four months ending April 30, 2000 and
   three and nine months ending September 30, 1999 consists of the following:
<TABLE>
<CAPTION>

                                             Four Months       THREE MONTHS          NINE MONTHS
                                                Ended              Ended                Ended
                                           April 30, 2000   SEPTEMBER 30, 1999   SEPTEMBER 30, 1999
                                           ---------------  -------------------  -------------------
<S>                                        <C>              <C>                  <C>

      Net (loss) income                          $(30,376)                $883              $(4,681)
      Foreign currency translation
      adjustments                                    (188)                 (20)                (189)
                                                 --------                 ----              -------
      Total comprehensive income (loss)          $(30,564)                $863              $(4,870)
                                                 ========                 ====              =======
</TABLE>


9. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
   INFORMATION

       Predecessor Company had two reportable segments: System Products and
   Services, and Contract Manufacturing.  The System Products and Services
   segment consists of  the sale and service of system-related products to
   dictation and voice management and communications recording system customers
   in selected vertical markets.  The Contract Manufacturing segment consists of
   the Manufacturing Operations of Dictaphone which provides outside electronics
   manufacturing services to original equipment manufacturers in the
   telecommunications, data management, computer and electronics industries.

                                       33
<PAGE>

9. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
   INFORMATION (CONTINUED)

          The accounting policies of the segments are the same as those
     described in the summary of significant accounting policies.  Dictaphone
     evaluates performance based on profit or loss from operations before income
     taxes, including nonrecurring gains and losses and foreign exchange gains
     and losses.

                  DICTAPHONE CORPORATION (PREDECESSOR COMPANY)
                       SEGMENT PROFIT AND LOSS AND ASSETS
<TABLE>
<CAPTION>

                                                  SYSTEM
                                                PRODUCTS &     CONTRACT
                                                 SERVICES    MANUFACTURING    TOTAL
                                                -----------  -------------  ---------
<S>                                       <C>   <C>          <C>            <C>

     Revenue from external customers
      Three months ended September 30,    1999      85,031          10,830    95,861

      Four months ended April 30,         2000      83,914          12,502    96,416
      Nine months ended September 30,     1999     230,054          34,078   264,132

     Intersegment revenues
      Three months ended September 30,    1999         ---           9,097     9,097

      Four months ended April 30,         2000         ---           9,428     9,428
      Nine months ended September 30,     1999         ---          28,984    28,984

     Segment profit (loss)
      Three months ended September 30,    1999         450           1,265     1,715

      Four months ended April 30,         2000     (31,271)            374   (30,897)
      Nine months ended September 30,     1999      (6,862)          3,934    (2,928)

     Segment assets
      As of December 31,                  1999    $416,523         $44,615  $461,138

</TABLE>

                                       34
<PAGE>

    ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             ---------------------------------------------------------------
       RESULTS OF OPERATIONS
       ---------------------

       The following financial information presents the combined historical
   results of operations of Predecessor Company and Successor Company for the
   three and nine month periods ended September  30, 1999 and 2000.  Results of
   operations of the Predecessor and Successor Company are not comparable
   because their assets are carried on a different basis of accounting,
   resulting mainly in the increase in amortization expense of intangibles as
   described below.  Accordingly, this presentation is not representative of
   either what the results of operations of the Company would have been had the
   Acquisition been consummated on January 1, 1999 and 2000 or the results of
   operations to be expected for the remainder of the year.


Overview

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED     NINE MONTHS ENDED
                                                      SEPTEMBER 30,        SEPTEMBER 30,
                                                      -------------        -------------
                                                   1999       2000      1999         2000
                                                   ----       ----      ----         ----
                                                            (in millions)

<S>                                               <C>         <C>       <C>       <C>
   Total revenue                                  $95.9       $ 58.4    $264.1    $ 182.4

   Cost of sales, rentals and support services     51.5         33.9     141.2      119.3
   Selling and administrative expense (1)          30.6         54.0      88.4      131.4
   Research and development                         2.1          3.3       7.0        8.0
                                                  -----       ------    ------    -------
      Operating profit (loss)                      11.7        (32.8)     27.5      (76.3)
                                                  -----       ------    ------    -------

   Net interest expense and other                  10.0          8.7      30.4       30.1
   Income tax (expense) benefit                    (0.8)         0.2      (1.8)       1.0
                                                  -----       ------    ------    -------

   Net income (loss)                              $ 0.9       $(41.3)   $ (4.7)   $(105.4)
                                                  =====       ======    ======    =======
</TABLE>

_____________________

   (1) Includes amortization of intangibles.

                                       35
<PAGE>

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED   NINE MONTHS ENDED
                                                 SEPTEMBER 30,       SEPTEMBER 30,
                                                    -------------  -----------------
                                              1999           2000      1999     2000
                                             -----          -----    ------   ------
                                                         (in millions)
<S>                                          <C>        <C>           <C>      <C>
   Revenue from:
      Sales:
      Integrated Voice Systems               $12.2       $ 4.4       $ 26.4   $ 13.8
      Integrated Health Systems               19.5         9.3         49.0     26.3
                                             -----       -----       ------   ------
         Total U.S. Voice Systems             31.7        13.7         75.4     40.1
                                             -----       -----       ------   ------
      Communication Recording Systems         12.5        10.5         37.2     24.9
      Customer Service Parts                   4.4         4.5         12.3     11.7
      International and Dealer Operations     11.3         6.0         31.0     21.4
      Rentals                                  0.3         ---          0.9      0.6
                                             -----       -----       ------   ------
         Product Sales and Rentals            60.1        34.7        156.8     98.7
                                             -----       -----       ------   ------
      Support Service:
      Customer Service                        21.0        20.8         62.5     61.6
      Applications & Training Specialists      1.5         1.1          3.7      4.2
      International and Dealer Operations      2.5         1.8          7.0      5.4
                                             -----       -----       ------   ------
         Total support service                25.0        23.7         73.2     71.2
                                             -----       -----       ------   ------
      Total System Products and Services      85.1        59.0        230.0    169.9
      Contract Manufacturing                  10.8         ---         34.1     12.5
                                             -----       -----       ------   ------
   Total Revenue                             $95.9       $59.0       $264.1   $182.4
                                             =====       =====       ======   ======

</TABLE>
RESULTS OF OPERATIONS - THIRD QUARTER 2000 VS. THIRD QUARTER 1999

    Total revenue declined 39.1% to $58.4 million in the third quarter of 2000
from $95.9 million for the third quarter of 1999. This decline in revenue is
attributable to certain strategic decisions made by management upon the
acquisition of the Company by Lernout & Hauspie with regard to the incorporation
of Lernout & Hauspie technologies into the Company's products. This new
strategic direction which will result in increased software content in the
majority of the Company's products combined with an increased level of
customization of the Company's products at customer sites upon installation
resulted in the change to recognize revenue for the affected products upon
installation (which reduced revenue by $4.2 million). Two other factors are the
absence of Contract Manufacturing revenue consistent with the decision to
dispose of Manufacturing Operations (which represented $10.8 million), as well
as lower revenue due to the impact the Acquisition had on the Company's
organizational structure and product development process caused by management's
focus on incorporating new Lernout & Hauspie technology into the Company's
products.

   Integrated Voice Systems ("I.V.S.") revenue declined 63.9% to $4.4 million
from $12.2 million due to lower Enterprise Express(TM) revenue.  The decline in
Integrated Health Systems ("I.H.S.") revenue which decreased 52.3% to $9.3
million from $19.5 million was also due to lower Enterprise Express(TM) sales.
Orders for I.H.S. products declined 53.6% to $12.0 million versus the third
quarter of 1999.  Communications Recording Systems ("C.R.S.") revenue declined
16.0% to $10.5 million due to lower call center and recording equipment revenue.
C.R.S. orders of $8.8 million were 34.9% lower than the third quarter of 1999.
Customer Service revenue (including sale of parts) was flat versus the third
quarter of 1999 as higher hourly revenue offset declines in proprietary product
contract and third party maintenance revenue.  Applications and Training
Specialists ("A.T.S.") revenue declined 26.7% to $1.1 million due to reduced
training provided in support of system products.  Sales and support service
revenue from International and Dealer Operations declined 43.5% on lower system
and C.R.S. revenue.

                                       36
<PAGE>

   Cost of sales, rentals and support services decreased 34.2% to $33.9 million
(58.0% of revenue) in the third quarter of 2000 from $51.5 million (53.7% of
revenue) in the third quarter of 1999.  The increase in cost of sales, rentals
and support services as a percentage of revenue is due primarily to lower price
realization from International and Dealer Operations.

   Selling and administrative expenses (including amortization of intangibles)
increased 76.5% to $54.0 million (92.5% of revenue) in the third quarter of 2000
from $30.6 million (31.9% of revenue) in the third quarter of 1999.  This
increase is attributable to higher amortization expense associated with goodwill
from the Acquisition ($22.1 million), higher C.R.S. selling expense and
corporate administrative expense.

   Research and development expenses of $3.3 million (9.6% of product sales and
rental revenue) increased 57.1% from $2.1 million (3.5% of product sales and
rental revenue), reflecting increased staffing and compensation consistent with
major project development efforts.

   The Company recorded an operating loss of $32.8 million (56.2% of revenue)
during the third quarter of 2000 compared to an operating profit of $11.7
million (12.2% of revenue) during the third quarter of 1999.  This decline in
operating profit is primarily attributable to the impact of lower revenue and
higher expense associated with the amortization of intangibles.

RESULTS OF OPERATIONS - NINE MONTHS 2000 VS. NINE MONTHS 1999

   Total revenue for the first nine months of 2000 of $182.4 million was 30.9%
lower than the first nine months of 1999. Similar to the third quarter of 2000,
the major portion of the revenue decline was attributable to certain strategic
decisions made by management upon the acquisition of the Company by Lernout &
Hauspie with regard to the incorporation of Lernout & Hauspie technologies into
the Company's products. This new strategic direction which will result in
increased software content in the majority of the Company's products combined
with an increased level of customization of the Company's products at customer
sites upon installation resulted in the change to recognize revenue for the
affected products upon installation (which reduced revenue by $15.0 million).
Two other factors are the absence of Contract Manufacturing revenue since April
2000 consistent with the decision to dispose of Manufacturing Operations (which
represented $21.6 million), as well as lower revenue due to the impact the
Acquisition had on the Company's organizational structure and product
development process caused by management's focus on incorporating new Lernout &
Hauspie technology into the Company's products.

   I.V.S. revenue declined 47.7% to $13.8 million due to lower billings of
desktops, portables, digital systems and Enterprise Express(TM).  I.H.S. revenue
decreased 46.3% to $26.3 million due to lower Enterprise Express(TM) revenue.
Orders for I.H.S. products decreased 48.0% to $32.2 million versus the first
nine months of 1999.  Order backlog for I.H.S. increased by $4.2 million to
$16.2 million during the first nine months of 2000.  C.R.S. revenue declined
33.1% to $24.9 million due to lower recording and call center equipment revenue.
C.R.S. orders of $29.6 million were 30.3% lower than the first nine months of
1999.  C.R.S. order backlog increased by $2.4 million to $12.2 million during
the first nine months of 2000.  Customer Service revenue (including sale of
parts) was 2.0% lower than the first nine months of 1999 due to lower third
party maintenance and warranty revenue.  A.T.S. revenue increased $0.5 million
to $4.2 million due to increased system product training.  Sales and support
service revenue from International and Dealer Operations declined 29.5% due to
lower C.R.S. and systems revenue.

   Cost of sales, rentals and support services decreased 15.5% to $119.3 million
(65.4% of revenue) from $141.2 million (53.5% of revenue) for the first nine
months of 1999. The increase in cost of sales, rentals and support services as a
percentage of revenue is attributable to the impact of a non-cash charge of $9.2
million recorded in the first quarter 2000 associated with the provision for
excess field service parts and inventory related to products recently replaced
by the newly introduced Freedom(TM) product. With the production of Freedom(TM)
in the first quarter of 2000, the Company provided for excess inventory
associated with those products that the Freedom(TM) product would replace,
recording this charge as an inventory provision. In addition, lower margins were
recorded for C.R.S. and I.H.S. sales.

                                       37
<PAGE>

   Selling and administrative expenses (including amortization of intangibles)
increased 48.6% to $131.4 million (72.0% of revenue) in the first nine months of
2000 from $88.4 million (33.5% of revenue) in the first nine months of 1999.
This increase is attributable to higher amortization expense associated with
goodwill from the Acquisition ($35.1 million), as well as higher I.H.S. and
C.R.S. selling expense and higher corporate administrative expense.

   Research and development expenses of $8.0 million (8.1% of product sales and
rental revenue) increased 14.3% from $7.0 million (4.5% of product sales and
rental revenue), reflecting increased staffing and compensation consistent with
major project development efforts.

   The Company recorded an operating loss of $76.3 million (41.8% of revenue)
during the first nine months of 2000 compared to an operating profit of $27.5
million (10.4% of revenue) during the first nine months of 1999.  This decline
in operating profit is primarily attributable to lower revenue and higher
amortization expense.

LIQUIDITY AND CAPITAL RESOURCES

   In May 2000, Lernout & Hauspie acquired the Company in a merger with a wholly
owned subsidiary of Lernout & Hauspie.    As part of the Acquisition of the
Company, Lernout & Hauspie obtained $430 million in credit facilities (the "L&H
Revolving Credit Facility") from a syndicate of banks (the "Banks") to pay a
portion of the purchase price, to repay certain Dictaphone liabilities and for
general corporate purposes.  The L&H Revolving Credit Facility consists of a
short-term facility due March 31, 2001, of $200 million at LIBOR plus 100 basis
points (7.761% at September 30, 2000) and a five-year declining balance facility
of $230 million at LIBOR plus 175 basis points (8.511% at September 30, 2000).
Borrowings under the five-year declining balance facility are for renewable
terms of up to six months and therefore will be accounted for as short-term
debt.

   In June 2000, Dictaphone delivered to the Banks a limited guaranty of Lernout
& Hauspie's obligations under the L&H Revolving Credit Facility.  The limited
guaranty covers only advances under the L&H Revolving Credit Facility used to
repay certain of Dictaphone's indebtedness.  As of June 30, 2000, the amount of
the Guaranty was $167 million.  In July the amount was increased by $41.6
million, as a result of an advance under the L&H Revolving Credit Facility used
to redeem a portion of the Notes as described below.

   On May 5, 2000, with funds advanced by Lernout & Hauspie in the amount of
approximately $223 million, the Company repaid the outstanding Term Loans and
the loan outstanding under the Revolving Credit Facility and retired all of the
outstanding 14% PIK Preferred Stock, made payments to holders of options to
acquire stock of the Company as required to close the Acquisition, and made
certain other closing payments.  Of the $223 million advance, $50 million was
treated as a capital contribution and $173 million was treated as an
intercompany loan.  In the third quarter, an additional $54.0 million was
advanced to the Company by Lernout & Hauspie and treated as capital contribution
as well.  The loan bears interest at 8% per annum, is due and payable on May 5,
2002, and is unsecured.  Pursuant to the terms of the intercompany loan, in the
event that Dictaphone makes a payment under its limited guaranty of the L&H
Revolving Credit Facility, Dictaphone's obligations under the intercompany loan
will be reduced by the amount of the payment.  In addition, in the event that
Dictaphone is required to make a payment on the intercompany loan, Dictaphone
will not be required to do so unless, at the same time, Dictaphone's obligations
under its limited guaranty of the L&H Revolving Credit Facility is reduced by
the amount Dictaphone pays on the intercompany loan.

                                       38
<PAGE>

   In connection with the Acquisition by Lernout & Hauspie, the Company
established a $20 million line of credit (the "Line of Credit") with Deutsche
Bank.  At September 30, 2000, availability under the Line of Credit was $10.0
million.

   As a result of the Acquisition, the Noteholders had the option to put the
Notes to the Company.  In July 2000, holders of $41.6 million of Notes exercised
that right and those Notes were redeemed.  The Notes provide for each noteholder
to have the right to require that the Company repurchase the Notes at 101% of
the principal amount upon a change of control (as defined in the Note
Indenture).  The L&H Revolving Credit Facility was used to fund the repurchase
of the Notes.  The Notes bear interest of 11-3/4% per annum, payable semi-
annually on each February 1 and August 1.  The Notes mature on August 1, 2005.
In September 2000, an affiliate of Lernout & Hauspie purchased Notes in the
amount of $16 million on the open market.  The Company had $158.4 million of
Notes outstanding as of September 30, 2000.

   In the first nine months of 2000, cash used in operating activities totalled
$23.5 million. Non-cash expenses during the period included depreciation and
amortization of $55.1 million, a $4.0 million provision for doubtful accounts
and a $9.2 million provision for inventory obsolescence. Other sources of cash
included a reduction in accounts receivable of $10.4 million and an increase in
Advance Billings of $21.0 million. Uses of cash included a decrease in accounts
payable and accrued liabilities of $12.3 million and an increase in other
current assets of $6.5 million. Investing activities during the first nine
months of 2000 reflects a use of cash of $16.0 million. Capital expenditures
totalled $7.4 million. Capitalized licenses and software development costs
totalled $8.6 million. The Company has at times relied upon the cash resources
of Lernout & Hauspie, the availability under the L&H Revolving Credit Facility,
and the availability under the Line of Credit to meet the Company's financing
needs. On November 9, 2000, Lernout & Hauspie announced that it expected to
restate its financial statements for the periods of 1998, 1999 and the first
half of 2000. Previously Lernout & Hauspie had announced that it was the subject
of a U.S. SEC investigation and a defendant in a number of several class action
lawsuits, all of which primarily relate to Lernout & Hauspie's financial
statements. As of the date of this report, the Company does not believe that
either the SEC investigation nor the class action lawsuits involve any
allegations regarding the Company's financial statements.

   As a result of the concerns raised by the recent events, the Company and
Lernout & Hauspie have been in discussions with their lenders concerning the L&H
Revolving Credit Facility, Dictaphone's limited guaranty of that facility (the
"Dictaphone Guaranty"), the Line of Credit and Lernout & Hauspie's guaranty of
the Line of Credit ("L&H Guaranty"). A substantial portion of the proceeds
advanced under the L&H Revolving Credit Facility were re-advanced to the Company
to refinance the Company's former revolving credit and term loan facilities, to
pay interest on the Notes, and to meet working capital and other obligations of
the Company.

   Lernout & Hauspie's lenders under the L&H Revolving Credit Facility have
asserted that an event of default may exist under that facility and the
associated Dictaphone Guaranty, however, they have not declared an event of
default. Deutsche Bank, Dictaphone's lender under the Line of Credit, also has
asserted that an event of default exists under the Line of Credit, but similarly
has not yet accelerated the Line of Credit. Deutsche Bank has, however, declared
an event of default under the L&H Guaranty. The Company has not admitted that an
event of default exists under the Line of Credit. Lernout & Hauspie and the
Company are in discussions with their lenders regarding the alleged defaults and
the restructuring of the underlying loans and guarantees.

   Based upon the status of the Company's and Lernout & Hauspie's discussions
with the banks and the alleged events of default, as to which the Company's
lenders have not yet formally declared an event of default, the Company cannot
reach a definitive conclusion as to the likelihood that the banks will, in fact,
formally declare an event of default under the Line of Credit or the Dictaphone
Guaranty. Accordingly, the Company's balance sheet has not been adjusted to
reflect the effect of a determination that the likelihood is probable. If it
were determined to be probable that the banks would formally declare an event of
default under the Dictaphone Guaranty, the Company would be required to make the
following adjustments: (i) the intercompany payable (approximately $173 million
at September 30, 2000) would be reclassified as a current liability; (ii) the
Dictaphone Guaranty, to the extent of the excess of the guaranteed obligation
over the intercompany loan balance, would be recorded as a current liability
(through a corresponding reduction to additional paid-in capital) rather than
being reported solely as a contingent obligation--resulting in an additional
current liability of approximately $35.6 million; and (iii) the Notes
(approximately $159 million outstanding as of September 30, 2000) would be
reclassified as a current liability in light of the cross default provisions
under the Indenture.

   The Company anticipates that in connection with their discussions with
Deutsche Bank and the other lenders to Lernout & Hauspie, the Company and
Lernout & Hauspie likely will need to obtain waivers or amendments with respect
to the Line of Credit, the L&H Revolving Credit Facility and the associated
guarantees. The Company cannot assure, however, that such waivers or amendments,
if necessary, can be obtained. Moreover, even if the Company restructures its
obligations under the Line of Credit, the Company does not anticipate that
Deutsche Bank will permit any further draws under the Line of Credit. As of
November 8, 2000, the balance under the Line

                                       39
<PAGE>

of Credit was approximately $14.8 million and Deutsche Bank has indicated that
the Company may have to pay down the Line of Credit to $12.6 million as a
condition of any waivers of the events of default that Deutsche Bank has claimed
exist. In addition, while L&H has requested that its lenders restore L&H's
ability to borrow up to the full amount of the L&H Revolving Credit Facility,
there is no assurance that any further advances will be permitted under such
facility. Deutsche Bank and the lenders under the L&H Revolving Credit Facility
have also indicated that they may seek to obtain liens on certain of L&H's and
Dictaphone's assets as a condition of such a waiver.

   The Company has a $9.3 million payment due on February 1, 2001 to satisfy a
semi-annual interest payment due on the Notes. The Company's $7 million interest
payment due to Lernout & Hauspie on the intercompany debt, originally due
November 5, 2000, has been deferred for six months. Notwithstanding whether any
defaults exist under the L&H Revolving Credit Facility, unless such date is
extended as part of a restructuring, on March 31, 2001, $200 million becomes due
thereunder by its terms. Pursuant to the Dictaphone Guaranty, the Company, as
well as Lernout & Hauspie as a direct obligor, will be liable for that $200
million obligation. While the Company's and Lernout & Hauspie's discussions with
their lenders include a request to defer the March 31, 2001 payment, the Company
does not anticipate that it will have sufficient resources to make the March 31,
2001 payment if called upon to do so under the Dictaphone Guaranty on such date.
If the Company and Lernout & Hauspie are not successful in restructuring their
obligations under the L&H Revolving Credit Facility and the lenders thereunder
declare an event of default thereunder and demand payment under the Dictaphone
Guaranty, a default would then exist under the Indenture concerning the Notes.
In such circumstances, the Company will not have sufficient resources to pay its
obligations in respect of the Dictaphone Guaranty of the L&H Revolving Credit
Facility, the Deutsche Bank Line of Credit and its obligation to pay interest
(and, if an event of default exists thereunder, principal) on the Notes and to
fund its working capital obligations and planned capital expenditures.

   While the Company is cautiously optimistic that such financial accommodations
can be reached, and that such accommodations could provide the Company with
sufficient resources to make its February 1, 2001 interest payment, the Company
cannot assure that it will be successful. The Company also is actively pursuing
the sale of its manufacturing facility in Melbourne, Florida. The ability of the
Company to complete this sale would further improve the Company's liquidity, but
the sales proceeds, if realized, would be insufficient by themselves to allow
the Company to meet all of its obligations if it and L&H are unsuccessful in
restructuring the L&H Revolving Credit Facility.

   The Company's quarterly revenues and other operating results have been and
will continue to be affected by a wide variety of factors that could have a
material adverse effect on the Company's financial performance during any
particular quarter.  Such factors include, but are not limited to, the level of
orders that are received and shipped by the Company in any given quarter, the
rescheduling and cancellation of orders by customers, availability and cost of
materials, the Company's ability to enhance its existing products and to
develop, manufacture and successfully introduce and market new products, new
product developments by the Company's competitors, market acceptance of products
of both the Company and its competitors, competitive pressures on prices, the
ability to attract and retain qualified technical personnel, significant damage
to or prolonged delay in operations at the Company's sole manufacturing
facility, and interest rate and foreign exchange fluctuations.  The Company
introduced a number of new products in its target markets in 1997, 1998 and 1999
which are expected to enhance future revenues and liquidity of the Company.
However, there can be no assurance that such products will meet the expectations
of the Company for either revenues or profitability.

   The Company may, from time to time, provide estimates as to future
performance.  Such estimates would be "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934.  Because such statements include risks and
uncertainties, actual results may differ materially from those estimates
provided.  The Company undertakes no duty to update such forward looking
statements.  Factors that could cause actual results to differ from these
forward looking statements include, but are not limited to, those previously
discussed herein.

                                       40
<PAGE>

                          PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS
         -----------------

     See Note 7 to the Company's Condensed Consolidated Statements of Operations
(Successor Company) (Unaudited) which is incorporated herein by reference.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
         --------------------------------

     (a)      Exhibits
              ---------

     10.01    - Amended and Restated Loan Agreement, dated as of November 20,
                2000, between the Registrant and L&H Coordination Centre
                C.V.B.A.

     10.02    - Limited Guaranty, dated as of May 30, 2000, by the
                Registrant.

     27       - Financial Data Schedule.

     (b)      Reports on Form 8-K
              -------------------

              There were no Reports on Form 8-K filed by the Company during the
              three months ended September 30, 2000.

                                       41
<PAGE>

                                   SIGNATURES


   Pursuant to the requirements 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.



Dated:  November 20, 2000                       Dictaphone Corporation
                                   ----------------------------------------
                                                  (Registrant)



                        By:                   /s/ John H. Duerden
                                    ------------------------------------------
                        Name:              John H. Duerden
                        Title:      President and Chief Executive Officer
                                        (Principal Executive Officer)




                        By:                   /s/ George M. Carpenter
                                  -----------------------------------------
                        Name:               George M. Carpenter
                        Title:    Assistant Secretary and Chief Accounting
                                       Officer (Principal Financial and
                                           Accounting Officer)

                                       42
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>

 EXHIBITS                                           DESCRIPTION
--------                                            -----------
<S>                <C>

      10.01          --  Amended and Restated Loan Agreement, dated as of
                         November 20, 2000, between the Registrant and L&H
                         Coordination Centre C.V.B.A.
      10.02          --  Limited Guaranty, dated as of May 30, 2000, by the
                         Registrant.
      27             --  Financial Data Schedule.

</TABLE>

                                       43