SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

(MARK ONE)

       |X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
             EXCHANGE ACT OF 1934

              For the quarterly period ended June 30, 1997

                                    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                                    13-3838908
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

                             3191 Broadbridge Avenue
                               Stratford, CT 06497
                                 (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)

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, outstanding as of 
August 11, 1997:   9,452,000

The Common Stock of the registrant is not publicly traded.


<PAGE>

                             DICTAPHONE CORPORATION

                                      INDEX


<TABLE>
<CAPTION>

                                                                                                       PAGE NO.

PART I.  FINANCIAL INFORMATION

ITEM 1.      Condensed Consolidated Financial Statements

<S>                 <C>                                                                             <C>
                    Unaudited Condensed Consolidated Statements of Operations for the
                     Three and Six Months Ended June 30, 1997                                             2

                    Unaudited Condensed Consolidated Statements of Operations for the
                     Three and Six Months Ended June 30, 1996                                             3

                    Condensed Consolidated Balance Sheets as of  June 30, 1997
                     (Unaudited) and December 31, 1996                                                    4

                    Unaudited Condensed Consolidated Statements of Cash Flow for the
                     Six Months Ended June 30, 1997 and June 30, 1996                                     5

                    Notes to Unaudited Consolidated Financial Statements                             6 - 16

ITEM 2.      Management's Discussion and Analysis of Financial
              Condition and Results of Operations                                                   17 - 22

ITEM 3.      Quantitative and Qualitative Disclosures About Market Risk                                  23

PART II.  OTHER INFORMATION

ITEM 1.      Legal Proceedings                                                                           23

ITEM 6.      Exhibits and Reports on Form 8-K                                                            23

</TABLE>

<PAGE>


                         PART I - FINANCIAL INFORMATION


ITEM 1.      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                             DICTAPHONE CORPORATION

           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                 (Dollars in thousands, except per share amount)


                                                 THREE MONTHS    SIX MONTHS
                                                     ENDED          ENDED
                                                 JUNE 30, 1997  JUNE 30, 1997
                                                 -------------  -------------
Revenues:
     Sales and rentals                            $  57,336      $ 115,584
     Support services                                22,605         45,524
                                                  ---------      ---------

         Total revenue                               79,941        161,108
                                                  ---------      ---------

Costs and expenses:

     Cost of sales and rentals                       41,803         71,399

     Selling, service and administrative             45,238         84,812

     Amortization of intangibles                      9,170         18,548

     Research and development                         3,599          7,333
                                                  ---------      ---------

Operating loss                                      (19,869)       (20,984)

Interest expense                                     10,232         20,677

Other (income) expense - net                           (137)           236
                                                  ---------      ---------

Loss before income taxes                            (29,964)       (41,897)

Income tax benefit                                   10,884         14,983
                                                  ---------      ---------

     Net loss                                       (19,080)       (26,914)

     Stock dividends on PIK Preferred Stock             678          1,313
                                                  ---------      ---------

     Net loss applicable to Common Stock          $ (19,758)     $ (28,227)
                                                  =========      =========

     Net loss per share of Common Stock           $   (2.09)     $   (2.99)
                                                  =========      ==========



     See accompanying notes to condensed consolidated financial statements.

                                       2

<PAGE>


                             DICTAPHONE CORPORATION

           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                 (Dollars in thousands, except per share amount)



                                              THREE MONTHS     SIX MONTHS
                                                  ENDED           ENDED
                                              JUNE 30, 1996   JUNE 30, 1996
                                              -------------   -------------
Revenues:
     Sales and rentals                         $  62,241       $ 120,225
     Support services                             23,011          45,486
                                               ---------       ---------

         Total revenue                            85,252         165,711
                                               ---------       ---------

Costs and expenses:

     Cost of sales and rentals                    31,712          65,194

     Selling, service and administrative          40,868          80,466

     Amortization of intangibles                  10,986          21,914

     Research and development                      3,996           7,583
                                               ---------       ---------

Operating loss                                    (2,310)         (9,446)

Interest expense                                  10,454          21,459

Other (income) expense - net                         (77)            (64)
                                               ---------       ---------

Loss before income taxes                         (12,687)        (30,841)

Income tax benefit                                 4,797          11,521
                                               ---------       ---------

     Net loss                                     (7,890)        (19,320)

     Stock dividends on PIK Preferred Stock          607           1,132
                                               ---------       ---------

     Net loss applicable to Common Stock       $  (8,497)      $ (20,452)
                                               =========       =========

     Net loss per share of Common Stock        $   (0.90)      $   (2.16)
                                               =========       ==========




     See accompanying notes to condensed consolidated financial statements.

                                       3

<PAGE>


                             DICTAPHONE CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                  (Dollars in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31, 1996     JUNE 30, 1997
                                                                                     -----------------     -------------
                                                                                                             (UNAUDITED)
ASSETS

Current assets:
<S>                                                                                       <C>               <C>      
    Cash                                                                                  $   7,927         $   5,821
    Accounts receivable, less allowances of $1,339 and $757, respectively                    53,701            53,551
    Inventories                                                                              56,840            42,795
    Other current assets                                                                      9,833            12,663
                                                                                          ---------         ---------
         Total current assets                                                               128,301           114,830

Property, plant and equipment, net                                                           37,008            35,761
Deferred financing costs, net of accumulated amortization of $6,235
 and $6,946, respectively                                                                    14,255            12,978
Intangibles, net of accumulated amortization of $58,177 and $76,725, respectively           271,022           251,334
Prepaid repurchases, leased equipment                                                         5,163             4,256
Other assets                                                                                 49,086            64,836
                                                                                          ---------         ---------
         Total assets                                                                     $ 504,835         $ 483,995
                                                                                          =========         =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                                      $   7,634         $   8,270
    Interest payable                                                                         10,342            10,224
    Accrued liabilities                                                                      29,961            27,692
    Advance billings                                                                         34,808            31,932
    Current portion of long-term debt                                                        12,512            13,914
                                                                                          ---------         ---------
         Total current liabilities                                                           95,257            92,032

Long-term debt                                                                              340,086           349,507
Other liabilities                                                                            10,114            10,800
                                                                                          ---------         ---------
         Total liabilities                                                                $ 445,457         $ 452,339
                                                                                          ---------         ---------

Commitments and contingencies (Note 6)

Stockholders' equity:
    Preferred stock ($.01 par value;  10,000,000  shares  authorized;  
      1,500,000 shares of 14% PIK perpetual preferred stock
      issued and outstanding, liquidation value at June 30, 1997, $19,455)                   18,142            19,455
    Common stock ($.01 par value; 20,000,000 shares authorized;
      9,452,000 shares outstanding)                                                              95                95
    Notes receivable from stockholders                                                       (1,052)            (831)
    Additional paid-in capital                                                               94,905            94,905
    Treasury stock, at cost                                                                    (200)            (480)
    Accumulated deficit                                                                     (51,676)         (79,903)
    Accumulated translation adjustment                                                         (836)          (1,585)
                                                                                          ---------         --------
         Total stockholders' equity                                                          59,378            31,656
                                                                                          ---------         ---------
         Total liabilities and stockholders' equity                                       $ 504,835         $ 483,995
                                                                                          =========         =========


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

                                                          4

<PAGE>


                             DICTAPHONE CORPORATION

           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                                   SIX MONTHS              SIX MONTHS
                                                                                      ENDED                   ENDED
                                                                                  JUNE 30, 1996           JUNE 30, 1997
                                                                                  -------------           -------------
       <S>                                                                          <C>                     <C>
       Operating activities:
          Net loss                                                                  $ (19,320)              $ (26,914)
          Adjustments to reconcile net loss to net cash
           provided by (used in) operating activities:
             Depreciation and amortization (including $4,384
             and $1,389, respectively, of nonrecurring charges)                        38,110                  29,764
             Provision for deferred income taxes                                      (12,758)                (14,770)
             Non-cash provision for inventory obsolescence (Note 3)                       ---                  10,491
             Changes in assets and liabilities:
                 Accounts receivable                                                    3,649                    (408)
                 Inventories                                                              491                   1,837
                 Other current assets                                                    (692)                 (2,878)
                 Accounts payable and accrued liabilities                              (4,601)                 (1,309)
                 Advance billings                                                      (1,701)                 (2,780)
                 Other assets and other                                                (6,547)                 (2,231)
                                                                                    ---------               ---------
                    Net cash used in operating activities                              (3,369)                 (9,198)
                                                                                    ---------               ---------

       Investing activities:
          Payment for acquisition                                                      (8,000)                    ---
          Net investment in fixed assets                                               (2,259)                 (3,023)
                                                                                    ---------               ---------
                 Net cash used in investing activities                                (10,259)                 (3,023)
                                                                                    ---------               ---------

       Financing activities:
          Repayment under term loan facility                                           (3,500)                 (5,500)
          Borrowings under revolving credit facility                                   11,000                  37,500
          Repayment under revolving credit facility                                    (4,000)                (20,500)
          Other                                                                           132                  (1,299)
                                                                                    ---------               ---------
             Net cash provided by financing activities                                  3,632                  10,201
                                                                                    ---------               ---------

       Effect of exchange rate changes on cash                                            (36)                    (86)
                                                                                    ---------               ---------

       Decrease in cash                                                               (10,032)                 (2,106)

       Cash, beginning of period                                                       14,279                   7,927
                                                                                    ---------               ---------

       Cash, end of period                                                          $   4,247               $   5,821
                                                                                    =========               =========

       SUPPLEMENTAL CASH FLOW INFORMATION:

       Interest paid                                                                $  18,065               $  18,975
                                                                                    =========               =========
       Income taxes paid                                                            $   1,041               $     349
                                                                                    =========               =========


                               See accompanying notes to condensed consolidated financial statements.

</TABLE>

                                                                5

<PAGE>


                             DICTAPHONE CORPORATION

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                  (Dollars in thousands, except share amounts)


1.     THE ACQUISITION

             On April 25, 1995,  Dictaphone  Corporation (the "Company") entered
       into a Stock and Asset  Purchase  Agreement,  as amended  August 11, 1995
       (the "Acquisition Agreement") with Pitney Bowes Inc. ("Pitney Bowes") for
       the purpose of acquiring (the "Acquisition") Dictaphone Corporation,  the
       United States  Dictaphone  Subsidiary of Pitney Bowes  ("Dictaphone  U.S.
       (Predecessor  Company)")  and  certain  foreign  affiliates  ("Dictaphone
       Non-U.S.   (Predecessor  Company)")  as  set  forth  in  the  Acquisition
       Agreement.  On August 11,  1995,  the Company  acquired  the  Predecessor
       Company for $450.0  million,  which was  subject to certain  post-closing
       adjustments as defined in the  Acquisition  Agreement.  On March 6, 1996,
       the Company and Pitney Bowes reached  agreement as to the final  purchase
       adjustment.  Total purchase  adjustments amounted to $12.2 million for an
       aggregate purchase price of $462.2 million.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

             The condensed  consolidated financial statements of the Company are
       unaudited,  as of and for the three and six month  periods ended June 30,
       1997 and June 30,  1996,  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, 1996.

             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.

             COSTS AND EXPENSES.  Operating  expenses of field sales and service
       offices  are  included in selling,  service and  administrative  expenses
       because no  meaningful  allocation  of such  expenses to cost of sales or
       support services is practicable.

             LOSS PER SHARE.  The  weighted  average  number of shares of common
       stock outstanding used in the computation of loss per share for the three
       months ended June 30, 1997 was 9,452,000.

             DERIVATIVE  FINANCIAL  INSTRUMENTS.  The Company  has only  limited
       involvement with derivative  financial  instruments and does not use them
       for  trading  purposes.  The  Company  enters  into  interest  rate  swap
       agreements to reduce its exposure to interest rate fluctuations.  The net
       gain or loss from  exchange of interest  payments is included in interest
       expense in the consolidated financial statements and interest paid in the
       condensed consolidated statements of cash flow.

                                       6

<PAGE>


3.     INVENTORIES

             Inventories consist of the following:

                                                   DECEMBER 31,      JUNE 30,
                                                       1996            1997
                                                   ------------     ---------

             Raw materials and work in process      $  14,881       $  16,434
             Supplies and service parts                19,946          12,226
             Finished products                         22,013          14,135
                                                    ---------       ---------
             Total inventories                      $  56,840       $  42,795
                                                    =========       =========

             During the three months ended June 30, 1997, the Company recorded a
       one  time  non-cash  charge  of  $10.5   million   associated   with  the
       provision for excess field service parts and  inventory  related  to  the
       Company's Digital  Express(TM)  and Records  Express(TM)  products.  With
       the  production of  Enterprise  Express (TM) in  June  1997,  the Company
       provided for  excess  inventory  associated   with  those  products  that
       the Enterprise Express (TM) product would replace, recording  this charge
       as an inventory provision.

4.     INTANGIBLES

             The following  summarizes  intangible  assets,  net of  accumulated
       amortization  of $58,177 and  $76,725 at  December  31, 1996 and June 30,
       1997,  respectively.  Amortization  expense  for the three and six months
       ended June 30, 1997 was $9,170 and $18,548, respectively.

                                             DECEMBER 31,           JUNE 30,
                                                 1996                 1997
                                             ------------           ---------

             Goodwill                         $ 139,687             $137,483
             Tradenames                          75,158               74,184
             Service contracts                   18,951               13,251
             Non-compete agreement               30,057               20,239
             Patents                              7,169                6,177
                                              ---------             ---------
                                              $ 271,022             $ 251,334
                                              =========             =========

5.     INCOME TAXES

             The benefit  for income  taxes for  the three and six months  ended
       June 30, 1997 is $10,884 and  $14,983, respectively.

             The  Company  has  recorded a deferred  tax asset of $58.6  million
       included in other assets  reflecting  the benefit of net  operating  loss
       carryforwards  and  various  book  tax  temporary  differences.  The  net
       operating loss  carryforward as of June 30, 1997 is  approximately  $58.5
       million  which will expire  beginning  in the year 2010.  Realization  is
       dependent on generating  sufficient taxable income prior to expiration of
       the  net  operating  loss  carryforwards.  Although  realization  is  not
       assured,  management  believes it is more likely than not that all of the
       deferred tax asset will be realized.  Accordingly, no valuation allowance
       has been  established as of June 30, 1997.  This conclusion is based upon
       (i) the impact of purchase accounting adjustments which contribute to the
       current taxable loss and will be substantially amortized by 1998, thereby
       returning the Company to a taxable  position,  (ii) the long carryforward
       period  available  for net  operating  loss  utilization,  and  (iii) the
       Company's expected future  profitability.  The amount of the deferred tax
       asset  considered  realizable  could be  reduced if  estimates  of future
       taxable  income during the net  operating  loss  carryforward  period are
       reduced.

                                       7

<PAGE>


6.     COMMITMENTS AND CONTINGENCIES

              On February  14,  1995,  Pitney  Bowes  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.  The  third-party  complaint  filed by  Sudbury  did not
       quantify the amount of damages sought. The litigation is in the discovery
       stage and the Company cannot currently make a reasonable  estimate of the
       amount of damages that will be sought by Sudbury. 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 at a preliminary  stage, for which it is 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  $10,000  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  Acquisition
       Agreement, 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.

7.     SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
       INFORMATION

             Dictaphone U.S. (Predecessor Company) has fully and unconditionally
       guaranteed  the repayment of $200,000 of senior  subordinated  notes (the
       "Notes") issued to finance the Acquisition.  The Notes are subordinate to
       financing of the Credit  Agreement,  dated August 7, 1995, as modified by
       amendments  to  Credit Agreement, dated June 28, 1996, June 27, 1997  and
       July 21, 1997  (collectively,  the "Credit  Agreement"), and other senior
       indebtedness as  defined  in  the  indenture  pursuant to which the Notes

                                       8


<PAGE>


       were issued (the  "Note  Indenture").  Dictaphone  Non-U.S.  (Predecessor
       Company)  is   not  a  guarantor  of  the   Notes.   Separate   financial
       statements of  Dictaphone  U.S.  (Predecessor Company) are  not presented
       because management has determined that they would  not  be  meaningful to
       investors in the Notes.

7.     SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
       INFORMATION  (CONTINUED)

             The  following  are the  supplemental  consolidating  statements of
       operations  for the three and six month  periods  ended June 30, 1997 and
       1996,  the  supplemental  consolidating  balance sheet  information as of
       December 31, 1996 and June 30, 1997,  and cash flow  information  for the
       six month periods ended June 30, 1996 and 1997.


                             DICTAPHONE CORPORATION
         SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                        THREE MONTHS ENDED JUNE 30, 1997

<TABLE>
<CAPTION>

                                             DICTAPHONE       DICTAPHONE    DICTAPHONE      CONSOLIDATING
                                             CORPORATION          U.S.        NON-U.S.      ADJUSTMENTS     CONSOLIDATED
                                             -----------      ----------    ----------      -------------   ------------

       <S>                                    <C>             <C>           <C>             <C>             <C>
       Revenue from:
         Sales and rentals                    $      ---      $   51,955    $    8,337      $  (2,956)      $   57,336
         Support services                            ---          19,750         2,855            ---           22,605
                                              ----------      ----------    ----------      ---------       ----------
             Total revenues                          ---          71,705        11,192         (2,956)          79,941
                                              ----------      ----------    ----------      ---------       ----------

       Costs and expenses:
         Cost of sales and rentals                   ---          38,187         6,648         (3,032)          41,803
         Selling, service and administrative          70          49,501         4,837            ---           54,408
         Research and development                    ---           3,599           ---            ---            3,599
         Interest expense - net and other            365           9,285           445            ---           10,095
                                              ----------      ----------    ----------      ---------       ----------
             Total costs and expenses                435         100,572        11,930         (3,032)         109,905
                                              ----------      ----------    ----------      ---------       ----------

       Equity (loss) earnings                    (12,401)            ---           ---         12,401              ---
                                              ----------      ----------    ----------      ---------       ----------

       (Loss) income before income taxes         (12,836)        (28,867)         (738)        12,477          (29,964)

       Income tax benefit (expense)                 (177)         10,788           304            (31)          10,884
                                              ----------      ----------    ----------      ---------       ----------

       Net (loss) income                      $  (13,013)     $  (18,079)   $     (434)     $  12,446       $  (19,080)
                                              ==========      ==========    ==========      =========       ==========

</TABLE>

                                                       9

<PAGE>


7.     SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
       INFORMATION  (CONTINUED)


                             DICTAPHONE CORPORATION
         SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                         SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>


                                              DICTAPHONE      DICTAPHONE    DICTAPHONE      CONSOLIDATING
                                              CORPORATION         U.S.        NON-U.S.      ADJUSTMENTS     CONSOLIDATED
                                              -----------     ----------    ----------      -------------   ------------

       <S>                                    <C>             <C>           <C>             <C>             <C>
       Revenue from:
         Sales and rentals                    $      ---      $  103,997    $   17,211      $  (5,624)      $  115,584
         Support services                            ---          39,985         5,539            ---           45,524
                                              ----------      ----------    ----------      ---------       ----------
             Total revenues                          ---         143,982        22,750         (5,624)         161,108
                                              ----------      ----------    ----------      ----------      ----------

       Costs and expenses:
         Cost of sales and rentals                   ---          65,608        11,544         (5,753)          71,399
         Selling, service and administrative         289          91,854        11,217            ---          103,360
         Research and development                    ---           7,333           ---            ---            7,333
         Interest expense - net and other          1,240          18,259         1,414            ---           20,913
                                              ----------      ----------    ----------      ---------       ----------
             Total costs and expenses              1,529         183,054        24,175         (5,753)         203,005
                                              ----------      ----------    ----------      ---------       ----------

       Equity (loss) earnings                    (13,317)            ---           ---         13,317              ---
                                              ----------      ----------    ----------      ---------       ----------

       (Loss) income before income taxes         (14,846)        (39,072)       (1,425)        13,446          (41,897)

       Income tax benefit (expense)                  117          14,554           365            (53)          14,983
                                              ----------      ----------    ----------      ----------      ----------

       Net (loss) income                      $  (14,729)     $  (24,518)   $   (1,060)     $  13,393       $  (26,914)
                                              ==========      ==========    ==========      =========       ==========
</TABLE>

                                       10

<PAGE>


7.     SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
       INFORMATION  (CONTINUED)


                             DICTAPHONE CORPORATION
         SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                        THREE MONTHS ENDED JUNE 30, 1996


<TABLE>
<CAPTION>


                                              DICTAPHONE      DICTAPHONE    DICTAPHONE      CONSOLIDATING
                                              CORPORATION         U.S.        NON-U.S.      ADJUSTMENTS     CONSOLIDATED
                                              -----------     ----------    ----------      -------------   ------------

       <S>                                    <C>             <C>           <C>             <C>             <C>
       Revenue from:
         Sales and rentals                    $      ---      $   56,635    $    8,784      $  (3,178)      $   62,241
         Support services                            ---          20,060         2,951            ---           23,011
                                              ----------      ----------    ----------      ---------       ----------
             Total revenues                          ---          76,695        11,735         (3,178)          85,252
                                              ----------      ----------    ----------      ---------       ----------

       Costs and expenses:
         Cost of sales and rentals                   ---          29,765         4,876         (2,929)          31,712
         Selling, service and administrative          69          43,959         7,841            (15)          51,854
         Research and development                    ---           3,996           ---            ---            3,996
         Interest expense - net and other            404           9,428           530             15           10,377
                                              ----------      ----------    ----------      ---------       ----------
             Total costs and expenses                473          87,148        13,247         (2,929)          97,939
                                              ----------      ----------    ----------      ---------       ----------

       Equity (loss) earnings                     (1,310)            ---           ---          1,310              ---
                                              ----------      ----------    ----------      ---------       ----------

       (Loss) income before income taxes          (1,783)        (10,453)       (1,512)         1,061          (12,687)

       Income tax benefit                            113           3,896           685            103            4,797
                                              ----------      ----------    ----------      ---------       ----------

       Net (loss) income                      $   (1,670)     $   (6,557)   $     (827)     $   1,164       $   (7,890)
                                              ==========      ==========    ==========      =========       ==========


</TABLE>

                                       11

<PAGE>


7.     SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
       INFORMATION  (CONTINUED)


                             DICTAPHONE CORPORATION
         SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                         SIX MONTHS ENDED JUNE 30, 1996


<TABLE>
<CAPTION>


                                              DICTAPHONE      DICTAPHONE    DICTAPHONE      CONSOLIDATING
                                              CORPORATION         U.S.        NON-U.S.      ADJUSTMENTS     CONSOLIDATED
                                              -----------     ----------    ----------      -------------   ------------

       <S>                                    <C>             <C>           <C>             <C>             <C>
       Revenue from:
         Sales and rentals                    $      ---      $  107,027    $   19,800      $  (6,602)      $  120,225
         Support services                            ---          39,710         5,776            ---           45,486
                                              ----------      ----------    ----------      ---------       ----------
             Total revenues                          ---         146,737        25,576         (6,602)         165,711
                                              ----------      ----------    ----------      ---------       ----------

       Costs and expenses:
         Cost of sales and rentals                   ---          60,357        11,082         (6,245)          65,194
         Selling, service and administrative         107          86,855        15,418            ---          102,380
         Research and development                    ---           7,583           ---            ---            7,583
         Interest expense - net and other          1,257          18,909         1,215             14           21,395
                                              ----------      ----------    ----------      ---------       ----------
             Total costs and expenses              1,364         173,704        27,715         (6,231)         196,552
                                              ----------      ----------    ----------      ---------       ----------

       Equity (loss) earnings                     (5,725)            ---           ---          5,725              ---
                                              ----------      ----------    ----------      ---------       ----------

       (Loss) income before income taxes          (7,089)        (26,967)       (2,139)         5,354          (30,841)

       Income tax benefit                            372          10,303           695            151           11,521
                                              ----------      ----------    ----------      ---------       ----------

       Net (loss) income                      $   (6,717)     $  (16,664)   $   (1,444)     $   5,505       $  (19,320)
                                              ==========      ==========    ==========      =========       ==========

</TABLE>

                                       12


<PAGE>


7.     SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
       INFORMATION  (CONTINUED)


                             DICTAPHONE CORPORATION
              SUPPLEMENTAL CONSOLIDATING BALANCE SHEET INFORMATION
                                DECEMBER 31, 1996


<TABLE>
<CAPTION>

                                              DICTAPHONE      DICTAPHONE      DICTAPHONE    CONSOLIDATING
                                              CORPORATION         U.S.          NON-U.S.    ADJUSTMENTS     CONSOLIDATED
                                              -----------     ----------      ----------    -------------   ------------

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

       Current assets:
         Cash                                 $      ---      $    6,569      $    1,358    $      ---      $    7,927
         Accounts receivable                       9,896          49,259           8,165       (13,619)         53,701
         Inventories                                 ---          48,220           9,919        (1,299)         56,840
         Other current assets                        517           5,445           3,871           ---           9,833
                                              ----------      ----------      ----------    ----------      ----------
           Total current assets                   10,413         109,493          23,313       (14,918)        128,301

       Note receivable                               ---          17,491             ---       (17,491)            ---
       Investments in subsidiaries               440,601             ---             ---      (440,601)            ---
       Fixed assets, net                             ---          33,833           3,175           ---          37,008
       Intangibles, net                            2,131         250,872          18,019           ---         271,022
       Deferred financing costs, net              14,255             ---             ---           ---          14,255
       Other assets                                3,246          48,571           1,919           513          54,249
                                              ----------      ----------      ----------    ----------      ----------
       Total assets                           $  470,646      $  460,260      $   46,426    $ (472,497)     $  504,835
                                              ==========      ==========      ==========    ==========      ==========


       LIABILITIES AND STOCKHOLDERS'
       EQUITY

       Current liabilities:
         Accounts payable, interest payable
          and accrued liabilities             $   10,660      $   40,250      $   10,793    $  (13,766)     $   47,937
       Advance billings                              ---          31,246           3,562           ---          34,808
       Current portion of long-term debt          11,750             ---             762           ---          12,512
                                              ----------      ----------      ----------    ----------      ----------
             Total current liabilities            22,410          71,496          15,117       (13,766)         95,257
       Long-term debt                            357,005         333,745          18,077      (368,741)        340,086
       Other liabilities                             ---           9,790             324           ---          10,114
       Stockholders' equity                       91,231          45,229          12,908       (89,990)         59,378
                                              ----------      ----------      ----------    ----------      ----------
       Total liabilities
         and stockholders' equity             $  470,646      $  460,260      $   46,426    $ (472,497)     $  504,835
                                              ==========      ==========      ==========    ==========      ==========

</TABLE>

                                       13


<PAGE>


7.     SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
       INFORMATION  (CONTINUED)


                             DICTAPHONE CORPORATION
              SUPPLEMENTAL CONSOLIDATING BALANCE SHEET INFORMATION
                                  JUNE 30, 1997


<TABLE>
<CAPTION>

                                              DICTAPHONE    DICTAPHONE      DICTAPHONE    CONSOLIDATING
                                              CORPORATION       U.S.          NON-U.S.    ADJUSTMENTS     CONSOLIDATED
                                              -----------   ----------      ----------    -------------   ------------

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

       Current assets:
         Cash                                 $      ---    $    5,307      $      514    $      ---     $    5,821
         Accounts receivable                      10,511        45,898           8,754       (11,612)        53,551
         Inventories                                 ---        39,114           4,851        (1,170)        42,795
         Other current assets                         27         7,000           5,636           ---         12,663
                                              ----------    ----------      ----------    ----------     ----------
           Total current assets                   10,538        97,319          19,755       (12,782)       114,830

       Note receivable                               ---        18,179             ---       (18,179)           ---
       Investments in subsidiaries               438,517           ---             ---      (438,517)           ---
       Fixed assets, net                             ---        33,013           2,748           ---         35,761
       Intangibles, net                            2,104       232,893          16,337           ---        251,334
       Deferred financing costs, net              12,978           ---             ---           ---         12,978
       Other assets                                3,488        63,241           1,903           460         69,092
                                              ----------    ----------      ----------    ----------     ----------
       Total assets                           $  467,625    $  444,645      $   40,743    $ (469,018)    $  483,995
                                              ==========    ==========      ==========    ==========     ==========


       LIABILITIES AND STOCKHOLDERS'
       EQUITY

       Current liabilities:
         Accounts payable, interest payable
          and accrued liabilities             $   10,239    $   39,827      $    7,732    $  (11,612)    $   46,186
       Advance billings                              ---        28,360           3,572           ---         31,932
       Current portion of long-term debt          13,750           ---             164           ---         13,914
                                              ----------    ----------      ----------    ----------     ----------
             Total current liabilities            23,989        68,187          11,468       (11,612)        92,032
       Long-term debt                            367,193       345,245          17,998      (380,929)       349,507
       Other liabilities                             ---        10,502             298           ---         10,800
       Stockholders' equity                       76,443        20,711          10,979       (76,477)        31,656
                                              ----------    ----------      ----------    -----------    ----------
       Total liabilities
         and stockholders' equity             $  467,625    $  444,645      $   40,743    $ (469,018)    $  483,995
                                              ==========    ==========      ==========    ==========     ==========

</TABLE>

                                       14

<PAGE>


7.     SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
       INFORMATION  (CONTINUED)


                             DICTAPHONE CORPORATION
         SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
                         SIX MONTHS ENDED JUNE 30, 1996

<TABLE>
<CAPTION>

                                                 DICTAPHONE     DICTAPHONE    DICTAPHONE       CONSOLIDATING
                                                 CORPORATION        U.S.        NON-U.S.       ADJUSTMENTS    CONSOLIDATED
                                                 -----------    ----------    ----------       -------------  ------------

     <S>                                         <C>            <C>           <C>              <C>            <C>
     Operating activities:
       Net loss                                  $   (6,717)    $  (16,664)   $   (1,444)      $    5,505     $  (19,320)
       Adjustments to reconcile net
        loss to net cash provided by
        (used in) operating activities:
         Depreciation and amortization                2,853         32,924         2,333              ---         38,110
         Provision for deferred income taxes           (415)       (11,460)         (410)            (473)       (12,758)
         Change in assets and liabilities:
           Accounts receivable                       (2,876)         4,977        (1,018)           2,566          3,649
           Inventories                                  ---           (891)        1,011              371            491
           Other current assets                         ---          1,316        (1,961)             (47)          (692)
           Accounts payable and
            accrued liabilities                         530         (2,365)         (379)          (2,387)        (4,601)
           Advance billings                             ---         (1,864)          163              ---         (1,701)
           Other assets and other                     8,335         (8,850)         (497)          (5,535)        (6,547)
                                                 ----------     ----------    ----------       ----------     ----------
     Cash used in operating activities                1,710         (2,877)       (2,202)             ---         (3,369)
                                                 ----------     ----------    ----------       ----------     ----------

     Investing activities:
       Payment for acquisition                       (8,000)           ---           ---              ---         (8,000)
       Net investment in fixed assets                   ---         (2,068)         (191)             ---         (2,259)
                                                 ----------     ----------    ----------       ----------     ----------
     Cash used in investing activities               (8,000)        (2,068)         (191)             ---        (10,259)
                                                 ----------     ----------    ----------       ----------     ----------

     Financing activities:
       Repayment under term loan facility            (3,500)           ---           ---              ---         (3,500)
       Borrowing from promissory notes               (6,345)         6,345           ---              ---            ---
       Borrowing from subsidiary                      9,124         (9,124)          ---              ---            ---
       Borrowing from revolving credit facility      11,000            ---           ---              ---         11,000
       Repayment under revolving credit facility     (4,000)           ---           ---              ---         (4,000)
       Other                                             11            ---           121              ---            132
                                                 ----------     ----------    ----------       ----------     ----------
     Cash provided by (used in) financing
      activities                                      6,290         (2,779)          121              ---          3,632
                                                 ----------     ----------    ----------       ----------     ----------

     Effect of exchange rate changes on cash            ---            ---           (36)             ---            (36)
                                                 ----------     ----------    ----------       ----------     ----------

     Decrease in cash                                   ---         (7,724)       (2,308)             ---        (10,032)

     Cash, beginning of period                          ---         11,591         2,688              ---         14,279
                                                 ----------     ----------    ----------       ----------     ----------

     Cash, end of period                         $      ---     $    3,867    $      380       $      ---     $    4,247
                                                 ==========     ==========    ==========       ==========     ==========
</TABLE>

                                       15


<PAGE>


7.     SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
       INFORMATION  (CONTINUED)


                             DICTAPHONE CORPORATION
         SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
                         SIX MONTHS ENDED JUNE 30, 1997

<TABLE>
<CAPTION>

                                                 DICTAPHONE     DICTAPHONE    DICTAPHONE       CONSOLIDATING
                                                 CORPORATION        U.S.        NON-U.S.       ADJUSTMENTS    CONSOLIDATED
                                                 -----------    ----------    ----------       -------------  ------------

<S>                                              <C>            <C>           <C>              <C>            <C>
Operating activities:
   Net loss                                      $  (14,729)    $  (24,518)   $   (1,060)      $   13,393     $  (26,914)
   Adjustments to reconcile net
    loss to net cash provided by
    (used in) operating activities:
     Depreciation and amortization                    1,858         26,152         1,754              ---         29,764
     Provision for deferred income taxes               (242)       (14,555)          (26)              53        (14,770)
     Non-cash provision for inventory obsolescence      ---          8,875         1,616              ---         10,491
     Change in assets and liabilities:
       Accounts receivable                             (615)         3,361        (1,147)          (2,007)          (408)
       Inventories                                      ---         (1,144)        3,110             (129)         1,837
       Other current assets                             490         (1,555)       (1,813)             ---         (2,878)
       Accounts payable and
        accrued liabilities                            (421)          (423)       (2,619)           2,154         (1,309)
       Advance billings                                 ---         (2,886)          106              ---         (2,780)
       Other assets and other                        13,583         (2,486)          256          (13,584)        (2,231)
                                                 ----------     ----------    ----------       ----------     ----------
Cash used in operating activities                       (76)        (9,179)          177             (120)        (9,198)
                                                 ----------     ----------    ----------       ----------     ----------

Investing activities:
   Net investment in fixed assets                                   (2,895)         (128)             ---         (3,023)
                                                 ----------     ----------    ----------       ----------     ----------
Cash used in investing activities                       ---         (2,895)         (128)             ---         (3,023)
                                                 ----------     ----------    ----------       ----------     ----------

Financing activities:
   Repayment under term loan facility                (5,500)           ---           ---              ---         (5,500)
   Borrowing from promissory notes                  (11,500)        11,500           ---              ---            ---
   Borrowing from subsidiary                            688           (688)          ---              ---            ---
   Borrowing from revolving credit facility          37,500            ---           ---              ---         37,500
   Repayment under revolving credit facility        (20,500)           ---           ---              ---        (20,500)
   Other                                               (612)           ---          (807)             120         (1,299)
                                                 ----------     ----------    ----------       ----------     ----------
Cash provided by (used in) financing
 activities                                              76         10,812          (807)             120         10,201
                                                 ----------     ----------    ----------       ----------     ----------

Effect of exchange rate changes on cash                 ---            ---           (86)             ---            (86)
                                                 ----------     ----------    ----------       ----------     ----------

Decrease in cash                                        ---         (1,262)         (844)             ---         (2,106)

Cash, beginning of period                               ---          6,569         1,358              ---          7,927
                                                 ----------     ----------    ----------       ----------     ----------

Cash, end of period                              $      ---     $    5,307    $      514       $      ---     $    5,821
                                                 ==========     ==========    ==========       ==========     ==========


</TABLE>

                                       16
<PAGE>


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

OVERVIEW

<TABLE>
<CAPTION>

                                                            THREE MONTHS ENDED                    SIX MONTHS ENDED
                                                                 JUNE 30,                             JUNE 30,
                                                      ----------------------------           ----------------------------
                                                         1996               1997              1996                 1997
                                                       --------           --------            ------             ------
                                                                                 (IN MILLIONS)
                                                                                  (UNAUDITED)

<S>                                                   <C>                 <C>                 <C>                 <C>    
Total revenue                                         $   85.3            $   79.9            $ 165.7             $ 161.1

Cost of sales and rentals (1)                             31.7                41.8               65.2                71.4
Selling, service and administrative expense               51.9                54.4              102.3               103.4
Research and development                                   4.0                 3.6                7.6                 7.3
                                                      --------            --------            -------             -------
     Operating loss                                       (2.3)              (19.9)              (9.4)              (21.0)
                                                      --------            --------            -------             -------

Interest expense and other expense, net                   10.4                10.1               21.4                20.9
Income tax benefit                                        (4.8)              (10.9)             (11.5)              (15.0)
                                                      --------            --------            -------             -------

Net loss                                              $   (7.9)           $  (19.1)           $ (19.3)            $ (26.9)
                                                      ========            ========            =======             =======

EBITDA (2)                                            $   13.8            $    4.3            $  26.0             $  17.4
                                                      ========            ========            =======             =======
</TABLE>

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

       (1) Cost of sales and rentals do not include operating  expenses of field
           sales and service  offices  because no meaningful  allocation of such
           expenses to this line item is practicable. Accordingly, such expenses
           are included in selling, service and administrative expenses.

       (2) EBITDA is defined as income  before  effect of changes in  accounting
           plus interest,  income taxes, depreciation and amortization and other
           non-cash charges. EBITDA is presented because it is a widely accepted
           financial indicator of a company's ability to incur and service debt.
           However,  EBITDA  should  not  be  considered  in  isolation  or as a
           substitute  for net income or cash flow data  prepared in  accordance
           with generally  accepted  accounting  principles or as a measure of a
           company's profitability or liquidity.

                                       17

<PAGE>

<TABLE>
<CAPTION>

                                                            THREE MONTHS ENDED                    SIX MONTHS ENDED
                                                                 JUNE 30,                             JUNE 30,
                                                      ----------------------------           ---------------------------
                                                         1996               1997               1996               1997
                                                       --------           --------            ------             ------
                                                                                 (IN MILLIONS)
                                                                                  (UNAUDITED)
<S>                                                   <C>                 <C>                 <C>                 <C>
Revenue from:
    Sales:
    U.S. Integrated Voice Systems                     $   13.0            $   11.0            $  25.1             $  22.6
    U.S. Integrated Health Systems                         9.1                 7.3               15.2                16.7
    U.S. Application & Training Specialists                0.2                 0.5                0.2                 1.0
                                                      --------            --------            -------             -------
       Total U.S. Voice Systems                           22.3                18.8               40.5                40.3
    U.S. Communication Recording Systems                  14.3                13.7               26.8                25.6
    U.S. Customer Service Parts                            4.5                 4.0                8.9                 8.0
    Contract Manufacturing
       (including sales to Pitney Bowes)                  10.8                10.5               20.9                19.6
    U.S. Dealer Operations                                 1.1                 1.6                2.3                 3.9
    International Operations                               8.6                 8.3               19.6                17.2
                                                      --------            --------            -------             -------
         Total sales                                      61.6                56.9              119.0               114.6
                                                      --------            --------            -------             -------

    Rentals                                                0.7                 0.5                1.2                 1.0
                                                      --------            --------            -------             -------
         Total sales and rentals                          62.3                57.4              120.2               115.6
                                                      --------            --------            -------             -------

    Service:
    U.S. Customer Service                                 20.0                19.7               39.7                40.0
    International Operations                               3.0                 2.8                5.8                 5.5
                                                      --------            --------            -------             -------
         Total support service                            23.0                22.5               45.5                45.5
                                                      --------            --------            -------             -------

Total revenue                                         $   85.3            $   79.9            $ 165.7             $ 161.1
                                                      ========            ========            =======             =======

</TABLE>

RESULTS OF OPERATIONS - SECOND QUARTER 1997 VS. SECOND QUARTER 1996

     Total revenue for the second quarter of 1997 declined 6.2% to $79.9 million
from $85.3 million during the second quarter of 1996. This decline in revenue is
attributable to lower sales revenue from U.S. Voice Systems  ("U.S.V.S."),  U.S.
Communications Recording Systems ("U.S.C.R.S."), and Contract Manufacturing, and
lower revenue from U.S. Customer Service and International  Operations offset in
part by increased sales revenue from U.S. Dealer Operations.

     U.S.V.S.  revenue declined 15.7% to $18.8 million from $22.3 million due to
lower U.S.  Integrated Voice Systems  ("U.S.I.V.S.") and U.S.  Integrated Health
Systems  ("U.S.I.H.S.")  revenue.  U.S.I.V.S.  revenue  declined  15.4% to $11.0
million from $13.0 million due to lower billings of desktops,  Straight Talk(TM)
and  accessories.  U.S.I.H.S.  revenue  declined 19.8% to $7.3 million from $9.1
million due to lower systems billings. U.S.C.R.S. revenue declined 4.2% to $13.7
million  from  $14.3   million  due  to  lower   Prolog(TM)   and   Sentinel(TM)
installations. U.S. Customer Service revenue (including sales of parts) declined
3.5% to $23.7  million  from  $24.5  million  due to lower  proprietary  product
service  contract and parts revenue  partially  offset by increased  third party
maintenance  revenue.  Revenue from  International  Operations  declined 4.3% to
$11.1 million from $11.6  million due to lower  service  revenue as well as $0.2
million of unfavorable currency exchange.


                                       18
<PAGE>


     Cost of sales and rentals  increased 31.9% to $41.8 million (52.3% of total
revenue)  during the three months ended June 30, 1997 from $31.7 million  (37.2%
of total  revenue) for the three  months ended June 30, 1996.  Cost of sales and
rentals as a percentage of revenue  increased during the three months ended June
30, 1997 due primarily to a one time non-cash charge of $10.5 million associated
with the  provision  for excess  field  service  parts and stock  related to the
Company's  Digital  Express(TM)  and  Records  Express(TM)  products.  With  the
production  of Enterprise  Express(TM)  in June 1997,  the Company  provided for
excess  service parts and field stock  associated  with those  products that the
Enterprise  Express(TM) product would replace.  The Company recorded this charge
as an inventory provision.

     Selling,  service and administrative  expenses  (including  amortization of
intangibles)  for the second  quarter of 1997  increased  4.8% to $54.4  million
(68.0% of total  revenue)  from $51.9 million  (60.8% of total  revenue) for the
comparable period in 1996.  Excluding  additional  depreciation and amortization
expense  associated  with  purchase   accounting   adjustments  related  to  the
Acquisition  of $9.3  million and $12.1  million,  respectively,  from the three
months  ended  June 30,  1997 and  1996,  selling,  service  and  administrative
expenses  would have  represented  56.4% of total  revenue for the three  months
ended June 30, 1997 versus 46.6% of total revenue for the  comparable  period of
1996.  Keeping  with the  Company's  efforts to reduce its cost  structure,  the
Company  identified  and eliminated  over 90 full-time  positions and recorded a
$2.3 million severance provision associated with this reduction. The increase in
selling,  service and  administrative  expenses is attributable to the provision
for severance,  as well as increases in U.S.C.R.S.  selling expense,  trade show
and marketing expenses, management compensation and higher repair costs for U.S.
Customer Service, partially offset by lower U.S.I.V.S. selling expenses.

     Research  and  development  expenses of $3.6  million for the three  months
ended June 30, 1997 were 10.0% lower than the comparable period in 1996.

     The Company  recorded an operating  loss of $19.9 million during the second
quarter of 1997  compared to an  operating  loss of $2.3  million for the second
quarter of 1996. Excluding purchase accounting  adjustments  associated with the
Acquisition  of $10.2 million and $13.5 million from the second  quarter of 1997
and 1996,  respectively,  operating  profit would have declined by $20.9 million
due to lower  revenue,  higher  costs  associated  with the one time  charge for
inventory  obsolescence  and  higher  expenses  associated  with  the  severance
provision and increased marketing costs.

     The Company has recorded a deferred tax asset of $58.6 million  included in
other assets  reflecting  the benefit of net operating  loss  carryforwards  and
various book tax temporary  differences.  The net operating loss carryforward as
of June 30, 1997 is  approximately  $58.5 million which will expire beginning in
the year 2010.  Realization is dependent on generating sufficient taxable income
prior  to  expiration  of  the  net  operating  loss   carryforwards.   Although
realization is not assured,  management believes it is more likely than not that
all of the  deferred  tax asset  will be  realized.  Accordingly,  no  valuation
allowance has been  established  as of June 30, 1997.  This  conclusion is based
upon (i) the impact of purchase  accounting  adjustments which contribute to the
current  taxable  loss  and will be  substantially  amortized  by 1998,  thereby
returning the Company to a taxable position,  (ii) the long carryforward  period
available for net operating loss utilization,  and (iii) the Company's  expected
future profitability. The amount of the deferred tax asset considered realizable
could be reduced if estimates of future  taxable income during the net operating
loss carryforward period are reduced.

                                       19

<PAGE>


RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 VS. SIX MONTHS ENDED JUNE
30, 1996

     Total  revenue  for the first six months of 1997  decreased  2.8% to $161.1
million from $165.7  million for the first six months ended June 30, 1996.  This
decline  in  revenue is  attributable  to lower  sales  revenue  from  U.S.V.S.,
U.S.C.R.S.,  Contract Manufacturing and lower revenue from U.S. Customer Service
and International Operations offset in part by increased sales revenue from U.S.
Dealer  Operations.  U.S.V.S.  revenue declined 0.5% to $40.3 million from $40.5
million due to lower U.S.I.V.S. revenue partially offset by increased U.S.I.H.S.
and U.S. Application and Training Specialists ("U.S.A.T.S.") revenue. U.S.I.V.S.
revenue declined 10.0% to $22.6 million from $25.1 million due to lower billings
for desktops,  Straight Talk(TM) and small digital systems.  U.S.I.H.S.  revenue
increased  9.9% to  $16.7  million  from  $15.2  million  due to  higher  system
installations  which  included  $1.5  million  of  Enterprise  Express  revenue.
U.S.C.R.S.  revenue  declined  4.5% to $25.6  million from $26.8  million due to
lower Prolog(TM) and Sentinel(TM)  installations.  U.S. Customer Service revenue
(including  sale of parts) declined 1.3% to $48.0 million from $48.6 million due
to lower proprietary product service contract and parts revenue partially offset
by increased  installation,  third party  maintenance and  integration  revenue.
Revenue from International Operations declined 11.0% to $22.8 million from $25.6
million due to lower  Communications  Recording System,  service and desktop and
portable  revenue as well as $0.5  million  of  unfavorable  currency  exchange.
Contract  Manufacturing  revenue for the first six months of 1997 was 5.9% lower
than the corresponding period of 1996.

     Order  backlog at June 30, 1997  totalled  $29.0  million  representing  an
increase of $4.4  million,  or 17.9%,  over order  backlog at December 31, 1996.
Order backlog at June 30, 1996 totalled $28.4 million.

     Cost of sales and rentals  increased  9.5% to $71.4 million (44.3% of total
revenue)  during the first six months  ended  June 30,  1997 from $65.2  million
(39.3% of total revenue) for the first six months ended June 30, 1996. Excluding
additional  depreciation and amortization expense related to purchase accounting
adjustments associated with the Acquisition of $1.8 million and $5.8 million for
the six months  ended June 30,  1997 and 1996,  respectively,  cost of sales and
rentals would have increased as a percent of revenue to 43.2% for the six months
ended June 30, 1997 from 35.8% for the six months ended June 30,  1996.  Cost of
sales and rentals as a percent of revenue  increased during the six months ended
June 30, 1997 due to a one time non-cash charge of $10.5 million associated with
the  provision  for  excess  field  service  parts and stock  related to Digital
Express(TM) and Records Express(TM) products.

     Selling,  service and administrative  expenses  (including  amortization of
intangibles)  for the first six months of 1997  increased 1.0% to $103.4 million
(64.2% of total  revenue) from $102.3  million  (61.7% of total revenue) for the
comparable period in 1996.  Excluding  additional  depreciation and amortization
expense  associated  with  purchase   accounting   adjustments  related  to  the
Acquisition  of $18.9  million  and $24.2  million,  respectively,  from the six
months  ended  June 30,  1997 and  1996,  selling,  service  and  administrative
expenses would have represented  52.4% of total revenue for the six months ended
June 30, 1997 versus 47.1% of total revenue for the  comparable  period of 1996.
The increase in selling,  service and administrative expenses is attributable to
the $2.3 million provision for severance, as well as increases in sales support,
trade show and marketing  expense,  U.S.A.T.S.  training costs,  increased legal
expense and management  compensation.  Partially  offsetting  this increase were
lower   U.S.I.V.S.   selling   expense   and  lower   International   Operations
administrative and service expenses.

     Research and development  expenses of $7.3 million for the six months ended
June 30, 1997 were 3.3% lower than the comparable period in 1996.

                                       20

<PAGE>


     The Company  recorded an operating  loss of $21.0 million  during the first
six months of 1997  compared to an operating  loss of $9.4 million for the first
six months of 1996.  Excluding purchase accounting  adjustments  associated with
the Acquisition of $20.7 million and $30.0 million,  respectively, for the first
six  months  of  1997  and  1996,  operating profit would have declined by $20.9
million  due to lower  revenue,  higher  costs  associated  with the  charge for
inventory  obsolescence,  the provision  for  severance and increased  operating
expenses.

LIQUIDITY AND CAPITAL RESOURCES

     The  Company's  liquidity  requirements  consists  primarily  of  scheduled
payments of principal and interest on its  indebtedness,  working  capital needs
and capital  expenditures.  At June 30, 1997, the Company had  outstanding  term
loans of $136.75 million (the "Term Loans") and a $26.0 million loan outstanding
under the  $40.0  million  revolving  credit  facility  (the  "Revolving  Credit
Facility").  Availability  under the Revolving  Credit Facility at June 30, 1997
was $14.0 million.  Borrowings  under the Revolving Credit Facility are expected
to increase in the third and fourth quarters of 1997 as a result of, among other
factors,  the scheduled interest payment of $11.75 million made under the Notes,
which payment was made on August 1, 1997. Scheduled annual principal payments on
the term loans will be $11.75  million in 1997,  $15.75 million in 1998 and 1999
and $19.75 million in 2000.  There are no scheduled  reductions in the Revolving
Credit  Facility over the next five years;  however,  the Company is required to
reduce loans  outstanding  under the Revolving  Credit Facility to $15.0 million
for a period  of not less  than 30  consecutive  days  during  each  consecutive
12-month  period,  as modified  by the  amendment  to the Bank Credit  Agreement
described below.

     As a result of the need for  additional  liquidity  during the remainder of
1997,  the Company  entered into an agreement on August 1, 1997 with a lender to
provide a facility (the "New Facility") with a $10 million line of credit, under
which the  Company  drew $1.5  million on that date.  Loans  incurred  under the
facility mature, and the facility terminates, on January 30, 1998 and such loans
bear  interest  at the  election of the Company at either (i) 2.5% over the base
rate set forth in the Bank Credit  Agreement or (ii) 3.5% over a rate related to
the Eurodollar rate quoted by the lender under the facility.  Under the terms of
the New Facility,  various entities related to Stonington  Capital  Appreciation
1994 Fund  (L.P.),  the Company's  principal  stockholder  ("Stonington"),  have
agreed to assume  loans under the  facility if the  Company  defaults  under its
obligations  under such facility.  The New Facility  provides that if Stonington
assumes  the loans  pursuant  to such  provisions,  it will  have the  option to
convert all of the  principal  and  interest  due under the  assumed  loans into
shares of Common Stock of the Company at a conversion  rate of $10.00 per share,
which is equal to the price paid by management investors upon the closing of the
acquisition of the Company. The Company repaid all outstanding  borrowings under
the New Facility on August 6, 1997.

     In connection with the terms of the Credit  Agreement,  the Company entered
into interest  rate swap  agreements in November  1995,  effective  February 16,
1996,  with an aggregate  notional  principal  amount  equivalent to $75 million
maturing on February 16, 1999. The swap will effectively convert that portion of
the Company's Term Loans to a fixed rate component of 5.8%;  thus,  reducing the
impact of changes in interest  rates,  converting the total  effective  interest
rate on fifty  percent of the initial  outstanding  Term Loans to 8.8%. No funds
under the swap agreements are actually borrowed or are to be repaid. Amounts due
to or from the  counterparties  will be  reflected  in  interest  expense in the
periods in which they accrue.

     In addition,  the Credit Agreement  contains  covenants that  significantly
limit or prohibit, among other things, the ability of the Company and Dictaphone
Corporation   (U.S.)  to  incur   indebtedness,   make  prepayments  of  certain
indebtedness,  pay  dividends  on  Common  Stock,  make  investments,  engage in
transactions  with  stockholders and affiliates,  create liens,  sell assets and
engage in mergers and  consolidations  and  requires  that the Company  maintain
certain financial ratios.

  
                                     21

<PAGE>

     On June 30, 1997,  the Company and the lenders  under its Credit  Agreement
executed a further  amendment  to such  credit  agreement,  dated as of June 27,
1997,  modifying  certain of the  covenants  contained  therein.  The  amendment
revised the financial covenants for maximum leverage ratio, minimum consolidated
EBITDA, and minimum interest coverage ratio,  suspended the outstanding revolver
limitation to reduce loans under the Revolving  Credit Facility to $15.0 million
for a period  of not less  than 30  consecutive  days  during  each  consecutive
12-month   period  until  January  1,  1999,  and  increased   allowable   Other
Indebtedness  (as defined  therein) from $1.5 million to $10.0 million.  On July
21, 1997,  the Company and the lenders  under  its Credit  Agreement  executed a
clarifying amendment  to  such  Credit  Agreement  which  permits  cash proceeds
obtained  through  increased  Other  Indebtedness to be used for working capital
purposes.

     The Company had $200.0  million of Notes  outstanding  as of June 30, 1997.
The Notes are subordinated to the Credit  Agreement  financings and other senior
indebtedness,  as defined in the Note  Indenture.  The Notes  contain  covenants
similar to the Credit  Agreement  and  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 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.  At June 30, 1997,  the fair value
of the Notes was favorable $16 million based on dealer quotes.

     Capital  expenditures for the first half of 1997 totaled $3.0 million.  The
Company does not expect the  limitation  on capital  expenditures  in the Credit
Agreement to restrict capital expenditures in a material manner.

     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,
significant  damage to or prolonged  delay in operations  at the Company's  sole
manufacturing facility, and interest rate and foreign exchange fluctuations. The
Company is  currently  planning  to  introduce  a number of new  products in its
target  markets in the second half of 1997 which are expected to enhance  future
revenues and liquidity of the Company.  However,  there can be no assurance that
the Company will be able to implement its plans to introduce  such products in a
timely fashion,  or that such products will meet the expectations of the Company
for either revenues or profitability.  The Company believes that cash flows from
operating activities,  assuming the successful introduction of its new products,
and its  ability  to borrow  under the  Revolving  Credit  Facility  and the New
Facility,  will be  adequate to meet the  Company's  debt  service  obligations,
including the repayment of the New Facility,  working  capital needs and planned
capital expenditures for the foreseeable future.

     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 listed in the prior
paragraph.


                                       22

<PAGE>


ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
             RISK

       Not currently applicable to the Company.


                           PART II - OTHER INFORMATION


ITEM 1.      LEGAL PROCEEDINGS

       See  Note  6 to  the  Condensed  Consolidated  Statements  of  Operations
(Unaudited) of Dictaphone Corporation which is incorporated herein by reference.

ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

       (a)   EXHIBITS

             10.16     --  Letter Agreement, dated April 11, 1997, between 
                           Dictaphone Corporation and Mr. Peter Tong.+

             10.17     --  Letter Agreement, dated July 9, 1997, between 
                           Dictaphone Corporation and Mr. Joseph D. Skrzypczak.+

             10.18     --  Amendment No. 2 to the Dictaphone Corporation 
                           Management Stock Option Plan.+

             10.19     --  Third Amendment (Technical Correction) to Credit
                           Agreement, dated as of July 21, 1997, by and among
                           Dictaphone Corporation and the Lenders party
                           thereto.

             27        --  Financial Data Schedule.

-----------------------------------
+   Management contract or compensatory arrangement

    UNDERTAKING:

       The undersigned,  Dictaphone Corporation,  hereby undertakes, pursuant to
Regulation  S-K, Item 601(b),  paragraph (4) (iii), to furnish to the Securities
and Exchange  Commission upon request all constituent  instruments  defining the
rights  of  holders  of  long-term  debt  of  Dictaphone   Corporation  and  its
consolidated  subsidiaries  not filed  herewith  for the  reason  that the total
amount of securities authorized under any of such instruments does not exceed 10
percent  of the total  consolidated  assets of  Dictaphone  Corporation  and its
consolidated subsidiaries.

       (b)   REPORTS ON FORM 8-K

                    On July 8, 1997,  the Company filed a Current Report on Form
              8-K,  reporting,  under Item 5 thereof,  the  amendment of certain
              covenants contained in the Company's senior Bank Credit Agreement,
              dated as of August 7, 1995,  as amended.  No other reports on Form
              8-K were filed by the Company during the quarter.

                                       23

<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:  August 13, 1997                        DICTAPHONE CORPORATION
                                            ----------------------------
                                                    (Registrant)




                        By:   /S/ JOHN H. DUERDEN
                             ---------------------------------
                        Name:     John H. Duerden
                        Title:   Chairman, Chief Executive Officer and President
                                 (Principal Executive Officer)




                        By:   /S/ JOSEPH D. SKRZYPCZAK
                             ---------------------------------
                        Name:     Joseph D. Skrzypczak
                        Title:  Vice President, Chief Financial Officer 
                                and Director
                                (Principal Financial and Accounting Officer)

                                       24

<PAGE>


                                  EXHIBIT INDEX


                                                                   SEQUENTIALLY
EXHIBITS                     DESCRIPTION                           NUMBERED PAGE
--------                     -----------                           -------------

10.16    --  Letter Agreement, dated April 11, 1997, between 
             Dictaphone Corporation and Mr. Peter Tong.+

10.17    --  Letter Agreement, dated July 9, 1997, between 
             Dictaphone Corporation and Mr. Joseph D.
             Skrzypczak.+

10.18    --  Amendment No. 2 to the Dictaphone Corporation
             Management Stock Option Plan.+

10.19    --  Third Amendment (Technical Correction) to Credit
             Agreement, dated as of July 21, 1997, by and among
             Dictaphone Corporation and the Lenders party thereto.

27       --  Financial Data Schedule

-----------------------------------
+   Management contract or compensatory arrangement