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 March 31, 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 May 8, 1997:
9,462,000

The Common Stock of the registrant is not publicly traded.


<PAGE>

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

                                      INDEX
                                      -----

                                                                       PAGE NO.

PART I.  FINANCIAL INFORMATION
------------------------------

ITEM 1.      Condensed Consolidated Financial Statements

                Unaudited Condensed Consolidated Statements
                of Operations for the Three Months Ended 
                March 31, 1997 and March 31, 1996                          2

                Condensed Consolidated Balance Sheets as of
                March 31, 1997 (Unaudited) and December 31, 1996           3

                Unaudited Condensed Consolidated Statements
                of Cash Flow for the Three Months Ended 
                March 31, 1997 and March 31, 1996                          4

                Notes to Unaudited  Consolidated Financial
                Statements                                            5 - 13

ITEM 2.      Management's Discussion and Analysis of Financial
              Condition and Results of Operations                    14 - 18

PART II.  OTHER INFORMATION
---------------------------

ITEM 1.      Legal Proceedings                                            18

ITEM 6.      Exhibits and Reports on Form 8-K                             18


<PAGE>


                         PART I - FINANCIAL INFORMATION


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

<TABLE>
<CAPTION>

                             DICTAPHONE CORPORATION

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


                                                                            THREE MONTHS            THREE MONTHS
                                                                                ENDED                   ENDED
                                                                           MARCH 31, 1996          MARCH 31, 1997
                                                                           --------------          --------------
            <S>                                                             <C>                     <C>    
             Revenues:
                  Sales and rentals                                          $    57,984             $    58,248
                  Support services                                                22,475                  22,919
                                                                             -----------             -----------

                      Total revenue                                               80,459                  81,167
                                                                             -----------             -----------

             Costs and expenses:

                  Cost of sales and rentals                                       33,482                  29,596

                  Selling, service and administrative                             39,598                  39,574

                  Amortization of intangibles                                     10,928                   9,378

                  Research and development                                         3,587                   3,734
                                                                             -----------             -----------

             Operating loss                                                       (7,136)                 (1,115)

             Interest expense                                                     11,005                  10,445

             Other expense - net                                                      13                     373
                                                                             -----------             -----------

             Loss before income taxes                                            (18,154)                (11,933)

             Income tax benefit                                                    6,724                   4,099
                                                                             -----------             -----------

                  Net loss                                                       (11,430)                 (7,834)

                  Stock dividends on PIK Preferred Stock                             525                     635
                                                                             -----------             -----------

                  Net loss applicable to Common Stock                        $   (11,955)            $    (8,469)
                                                                             ===========             ===========

                  Net loss per share of Common Stock                         $     (1.26)            $     (0.90)
                                                                             ===========             ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       2

<PAGE>

<TABLE>
<CAPTION>

                             DICTAPHONE CORPORATION

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

                                                                                      DECEMBER 31, 1996    MARCH 31, 1997
                                                                                      -----------------    --------------
                                                                                                             (UNAUDITED)
ASSETS

<S>                                                                                     <C>               <C>    
Current assets:
    Cash                                                                                 $     7,927       $    4,756
    Accounts receivable, less allowances of $1,339 and $762, respectively                     53,701           57,074
    Inventories                                                                               56,840           54,319
    Other current assets                                                                       9,833           10,528
                                                                                         -----------        ---------
         Total current assets                                                                128,301          126,677

Property, plant and equipment, net                                                            37,008           35,829
Deferred financing costs, net of accumulated amortization of $6,235 
 and $7,290, respectively                                                                     14,255           13,200
Intangibles, net of accumulated amortization of $58,177 and $67,555, respectively            271,022          261,018
Prepaid repurchases, leased equipment                                                          5,163            4,747
Other assets                                                                                  49,086           53,190
                                                                                         -----------        ---------
         Total assets                                                                    $   504,835        $ 494,661
                                                                                         ===========        =========

LIABILITIES AND STOCKHOLDERS' EQUITY 
  Current liabilities:
    Accounts payable                                                                     $     7,634        $   7,179
    Interest payable                                                                          10,342            4,438
    Accrued liabilities                                                                       29,961           23,759
    Advance billings                                                                          34,808           35,827
    Current portion of long-term debt                                                         12,512           20,161
                                                                                         -----------        ---------
         Total current liabilities                                                            95,257           91,364

Long-term debt                                                                               340,086          342,294
Other liabilities                                                                             10,114           10,436
                                                                                         -----------        ---------
         Total liabilities                                                               $   445,457        $ 444,094
                                                                                         -----------        ---------

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 March 31, 1997, $18,777)                   18,142           18,777
    Common stock ($.01 par value; 20,000,000 shares authorized;
      9,462,000 shares outstanding)                                                               95               95
    Notes receivable from stockholders                                                        (1,052)            (899)
    Additional paid-in capital                                                                94,905           94,905
    Treasury stock, at cost                                                                     (200)            (380)
    Accumulated deficit                                                                      (51,676)         (60,145)
    Accumulated translation adjustment                                                          (836)          (1,786)
                                                                                         -----------        ---------
         Total stockholders' equity                                                           59,378           50,567
                                                                                         -----------        ---------
         Total liabilities and stockholders' equity                                      $   504,835        $ 494,661
                                                                                         ===========        =========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>

<TABLE>
<CAPTION>

                             DICTAPHONE CORPORATION

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


                                                                                  THREE MONTHS            THREE MONTHS
                                                                                      ENDED                   ENDED
                                                                                 MARCH 31, 1996          MARCH 31, 1997
                                                                                 --------------          --------------
      <S>                                                                        <C>                      <C>    
       Operating activities:
          Net loss                                                                $   (11,430)            $    (7,834)
          Adjustments to reconcile net loss to net cash
           provided by (used in) operating activities:
             Depreciation and amortization (including $3,689
             and $694, respectively, of nonrecurring charges)                          20,888                  15,287
             Provision for deferred income taxes                                       (6,791)                 (4,015)
             Changes in assets and liabilities:
                 Accounts receivable                                                    5,796                  (4,160)
                 Inventories                                                              (32)                  1,450
                 Other current assets                                                     901                    (813)
                 Accounts payable and accrued liabilities                             (10,247)                (12,010)
                 Advance billings                                                        (415)                  1,152
                 Other assets and other                                                (1,837)                   (833)
                                                                                  -----------             -----------
                    Net cash used in operating activities                              (3,167)                (11,776)
                                                                                  -----------             -----------

       Investing activities:
          Payment for acquisition                                                      (8,000)                    ---
          Net investment in fixed assets                                                 (883)                 (1,076)
                                                                                  -----------             -----------
                 Net cash used in investing activities                                 (8,883)                 (1,076)
                                                                                  -----------             -----------

       Financing activities:
          International repayment                                                         ---                    (621)
          Repayment under term loan facility                                           (1,750)                 (2,750)
          Borrowings under revolving credit facility                                    8,000                  21,750
          Repayment under revolving credit facility                                       ---                  (8,500)
          Other                                                                            97                    (105)
                                                                                  -----------             -----------
             Net cash provided by financing activities                                  6,347                   9,774
                                                                                  -----------             -----------

       Effect of exchange rate changes on cash                                            (22)                    (93)
                                                                                  -----------             -----------

       Decrease in cash                                                                (5,725)                 (3,171)

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

       Cash, end of period                                                        $     8,554             $     4,756
                                                                                  ===========             ===========

       SUPPLEMENTAL CASH FLOW INFORMATION:

       Interest paid                                                              $    14,623             $    15,233
                                                                                  ===========             ===========
       Income taxes paid                                                          $       678             $        10
                                                                                  ===========             ===========

</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>


                             DICTAPHONE CORPORATION

             NOTES TO 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 month periods ended March 31, 1997 and
       March 31, 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.

             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 March 31, 1997 was 9,462,000.

3.     INVENTORIES

             Inventories consist of the following:

                                                   DECEMBER 31,       MARCH 31,
                                                       1996             1997
                                                   ------------       ----------

             Raw materials and work in process      $    14,881      $    15,294
             Supplies and service parts                  19,946           18,326
             Finished products                           22,013           20,699
                                                    -----------      -----------
             Total inventories                      $    56,840      $    54,319
 
                                                   ===========      ===========

                                       5

<PAGE>


4.     INTANGIBLES

             The following  summarizes  intangible  assets,  net of  accumulated
       amortization  of $58,177 and  $67,555 at December  31, 1996 and March 31,
       1997, respectively. Amortization expense for the three months ended March
       31, 1997 was $9,378.

                                                    DECEMBER 31,      MARCH 31,
                                                        1996            1997   
                                                    ------------      ----------
                                                                                
             Goodwill                                $   139,687     $   138,246
             Tradenames                                   75,158          74,671
             Service contracts                            18,951          16,086
             Non-compete agreement                        30,057          25,342
             Patents                                       7,169           6,673
                                                     -----------     -----------
                                                     $   271,022     $   261,018
                                                     ===========     ===========
                                                    
5.     INCOME TAXES

             The benefit for income  taxes for the three  months ended March 31,
       1997 is $4,099.

             The  Company  has  recorded a deferred  tax asset of $48.0  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 March 31, 1997 is approximately  $48.0
       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 March 31, 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.

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.

                                       6

<PAGE>


6.     COMMITMENTS AND CONTINGENCIES  (CONTINUED)

              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 amended by
       the First Amendment to Credit Agreement, dated June 28, 1996, on July 17,
       1996   (collectively,   the  "Credit   Agreement"),  and   other   senior
       indebtedness as defined in the indenture pursuant to which the Notes 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

<PAGE>


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

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

<TABLE>
<CAPTION>

                             DICTAPHONE CORPORATION
         SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                        THREE MONTHS ENDED MARCH 31, 1996


                                              DICTAPHONE     DICTAPHONE     DICTAPHONE     CONSOLIDATING
                                              CORPORATION       U.S.          NON-U.S.      ADJUSTMENTS     CONSOLIDATED
                                              ------------   -----------    ----------     -------------    ------------
      
<S>                                           <C>             <C>           <C>             <C>             <C>       
 Revenue from:                                $      ---      $   50,392    $   11,016      $  (3,424)      $   57,984
   Sales and rentals                                 ---          19,650         2,825            ---           22,475
   Support services                           ----------      ----------    ----------      ---------       ----------
                                                     ---          70,042        13,841         (3,424)          80,459
       Total revenues                         ----------      ----------    ----------      ---------       ----------
                                      
                                            
 Costs and expenses:
   Cost of sales and rentals                         ---          30,592         6,206         (3,316)          33,482
   Selling, service and administrative                38          42,896         7,577             15           50,526
   Research and development                          ---           3,587           ---            ---            3,587
   Interest expense - net and other                  853           9,481           685             (1)          11,018
                                              ----------      ----------    ----------      ---------       ----------
       Total costs and expenses                      891          86,556        14,468         (3,302)          98,613
                                              ----------      ----------    ----------      ---------       ----------
 Equity (loss) earnings                           (4,415)            ---           ---          4,415              ---
                                              ----------      ----------    ----------      ---------       ----------
 (Loss) income before income taxes                (5,306)        (16,514)         (627)         4,293          (18,154)
 Income tax benefit                                  259           6,407            10             48            6,724
                                              ----------      ----------    ----------      ---------       ----------
 Net (loss) income                            $   (5,047)     $  (10,107)   $     (617)     $   4,341       $  (11,430)
                                              ==========      ==========    ==========      =========       ==========
</TABLE>

                                       8

<PAGE>


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

<TABLE>
<CAPTION>

                             DICTAPHONE CORPORATION
         SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                        THREE MONTHS ENDED MARCH 31, 1997

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

Revenue from:
   Sales and rentals                          $      ---      $   52,042    $    8,874      $  (2,668)      $   58,248
   Support services                                  ---          20,235         2,684            ---           22,919
                                              ----------      ----------    ----------      ---------       ----------
       Total revenues                                ---          72,277        11,558         (2,668)          81,167
                                              ----------      ----------    ----------      ---------       ----------
                                      
Costs and expenses:                        
   Cost of sales and rentals                         ---          27,421         4,896         (2,721)          29,596
   Selling, service and administrative               219          42,353         6,380            ---           48,952
   Research and development                          ---           3,734           ---            ---            3,734
   Interest expense - net and other                  875           8,974           969            ---           10,818
                                              ----------      ----------    ----------      ---------       ----------
       Total costs and expenses                    1,094          82,482        12,245         (2,721)          93,100
                                              ----------      ----------    ----------      ---------       ----------
                                      
Equity (loss) earnings                              (916)            ---           ---            916              ---
                                              ----------      ----------    ----------      ---------       ----------
                                      
(Loss) income before income taxes                 (2,010)        (10,205)         (687)           969          (11,933)
                                      
Income tax benefit                                   294           3,766            61            (22)           4,099
                                              ----------      ----------    ----------      ---------       ----------
                                      
 Net (loss) income                            $   (1,716)     $   (6,439)   $     (626)     $     947       $   (7,834)
                                              ==========      ==========    ==========      =========       ==========

</TABLE>


                                       9




<PAGE>


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

<TABLE>
<CAPTION>

                             DICTAPHONE CORPORATION
              SUPPLEMENTAL CONSOLIDATING BALANCE SHEET INFORMATION
                                DECEMBER 31, 1996


                                              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                   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 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>

                                       10


<PAGE>


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

<TABLE>
<CAPTION>

                             DICTAPHONE CORPORATION
              SUPPLEMENTAL CONSOLIDATING BALANCE SHEET INFORMATION
                                 MARCH 31, 1997

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

       Current assets:
         Cash                                 $      ---    $    3,552     $     1,157    $       47         $    4,756 
         Accounts receivable                       4,492        51,405           9,776        (8,599)            57,074 
         Inventories                                 ---        47,403           8,162        (1,246)            54,319 
         Other current assets                         92         6,079           4,357           ---             10,528 
                                              ----------    ----------      ----------    ----------         ---------- 
           Total current assets                    4,584       108,439          23,452        (9,798)           126,677 
                                                                                                                        
       Note receivable                               ---        17,921             ---       (17,921)               --- 
       Investments in subsidiaries               450,185           ---             ---      (450,185)               --- 
       Fixed assets, net                             ---        32,970           2,859           ---             35,829 
       Intangibles, net                            2,117       242,119          16,782           ---            261,018 
       Deferred financing costs                   13,200           ---             ---           ---             13,200 
       Other assets                                3,562        52,053           1,831           491             57,937 
                                              ----------    ----------      ----------    ----------         ---------- 
       Total assets                           $  473,648    $  453,502      $   44,924    $ (477,413)        $  494,661 
                                              ==========    ==========      ==========    ==========         ========== 
                                                                                                                        
                                                                                                                        
       LIABILITIES AND STOCKHOLDERS'                                                                                    
       EQUITY                                                                                                           
                                                                                                                        
       Current liabilities:                                                                                             
         Accounts payable and                                                                                           
           accrued liabilities                $    4,475    $   28,716      $   10,884    $   (8,699)        $   35,376 
       Advance billings                              ---        31,607           4,220           ---             35,827 
       Current portion of long-term debt          20,000           ---             161           ---             20,161 
                                              ----------    ----------      ----------    ----------         ---------- 
             Total current liabilities            24,475        60,323          15,265        (8,699)            91,364 
       Long-term debt                            359,685       344,245          18,035      (379,671)           342,294 
       Other liabilities                             ---        10,144             292           ---             10,436 
       Stockholders' equity                       89,488        38,790          11,332       (89,043)            50,567 
                                              ----------    ----------      ----------    ----------         ---------- 
       Total liabilities                                                                                                
         and stockholders' equity             $  473,648    $  453,502      $   44,924    $ (477,413)        $  494,661 
                                              ==========    ==========      ==========    ==========         ========== 
                                                                                                             
</TABLE>

                                       11


<PAGE>


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

<TABLE>
<CAPTION>

                             DICTAPHONE CORPORATION
         SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
                        THREE MONTHS ENDED MARCH 31, 1996


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

  Operating activities:                        
    Net loss                                   $   (5,047)    $  (10,107)   $     (617)      $    4,341     $  (11,430)
    Adjustments to reconcile net               
     loss to net cash provided by              
     (used in) operating activities:           
      Depreciation and amortization                 1,679         17,956         1,253              ---         20,888 
      Provision for deferred income taxes            (301)        (6,407)          (83)             ---         (6,791)  
      Change in assets and liabilities:                                                                                  
        Accounts receivable                         3,475          7,665        (2,342)          (3,002)         5,796   
        Inventories                                   ---         (1,420)        1,266              122            (32)  
        Other current assets                          ---          1,390          (458)             (31)           901   
        Accounts payable and                                                                                             
         accrued liabilities                       (5,347)        (8,012)          127            2,985        (10,247)  
        Advance billings                              ---           (775)          360              ---           (415)  
        Other assets and other                      4,415         (1,595)         (242)          (4,415)        (1,837)  
                                               ----------     ----------    ----------       ----------     ----------   
  Cash used in operating activities                (1,126)        (1,305)         (736)             ---         (3,167)  
                                               ----------     ----------    ----------       ----------     ----------   
                                                                                                                       
  Investing activities:                                                                                                  
    Payment for acquisition                        (8,000)           ---           ---              ---         (8,000)  
    Net investment in fixed assets                    ---           (807)          (76)             ---           (883)  
                                               ----------     ----------    ----------       ----------     ----------   
  Cash used in investing activities                (8,000)          (807)          (76)             ---         (8,883)  
                                               ----------     ----------    ----------       ----------     ----------   
                                                                                                                       
  Financing activities:                                                                                                  
    Repayment under term loan facility             (1,750)           ---           ---              ---         (1,750)  
    Borrowing from promissory notes                (6,250)         6,250           ---              ---            ---   
    Borrowing from subsidiary                       9,029         (9,029)          ---              ---            ---   
    Borrowing from revolving credit facility        8,000            ---           ---              ---          8,000   
    Other                                              97            ---           ---              ---             97   
                                               ----------     ----------    ----------       ----------     ----------   
  Cash provided by (used in) financing                                                                                   
   activities                                       9,126         (2,779)          ---              ---          6,347   
                                               ----------     ----------    ----------       ----------     ----------   
                                                                                                                       
  Effect of exchange rate changes on cash             ---            ---           (22)             ---            (22)  
                                               ----------     ----------    ----------       ----------     ----------   
                                                                                                                       
  Decrease in cash                                    ---         (4,891)         (834)             ---         (5,725)  
                                                                                                                       
  Cash, beginning of period                           ---         11,591         2,688              ---         14,279   
                                               ----------     ----------    ----------       ----------     ----------   
                                                                                                                       
  Cash, end of period                          $      ---     $    6,700    $    1,854       $      ---     $    8,554   
                                               ==========     ==========    ==========       ==========     ==========   
</TABLE>
                                  
                                       12

<PAGE>


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

<TABLE>
<CAPTION>

                             DICTAPHONE CORPORATION
         SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
                        THREE MONTHS ENDED MARCH 31, 1997

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

Operating activities:                         
  Net loss                                    $   (1,716)    $   (6,439)    $    (626)      $      947     $   (7,834)
  Adjustments to reconcile net                
   loss to net cash provided by               
   (used in) operating activities:            
    Depreciation and amortization                  1,133         13,260           894              ---         15,287 
    Provision for deferred income taxes             (316)        (3,765)           44               22         (4,015)   
    Change in assets and liabilities:                                                                                    
      Accounts receivable                          5,404         (2,146)       (2,398)          (5,020)        (4,160)   
      Inventories                                    ---            130         1,373              (53)         1,450    
      Other current assets                           425           (634)         (604)             ---           (813)   
      Accounts payable and                                                                                               
       accrued liabilities                        (6,185)       (11,534)          689            5,020        (12,010)   
      Advance billings                               ---            361           791              ---          1,152    
      Other assets and other                         916         (1,271)          438             (916)          (833)   
                                              ----------     ----------    ----------       ----------     ----------    
Cash used in operating activities                   (339)       (12,038)          601              ---        (11,776)   
                                              ----------     ----------    ----------       ----------     ----------    
                                                                                                                      
Investing activities:                                                                                                    
  Net investment in fixed assets                     ---         (1,049)          (27)             ---         (1,076)   
                                              ----------     ----------    ----------       ----------     ----------    
Cash used in investing activities                    ---         (1,049)          (27)             ---         (1,076)   
                                              ----------     ----------    ----------       ----------     ----------    
                                                                                                                      
Financing activities:                                                                                                    
  Repayment under term loan facility              (2,750)           ---           ---              ---         (2,750)   
  Borrowing from promissory notes                (10,500)        10,500           (47)              47            ---    
  Borrowing from subsidiary                          430           (430)          ---              ---            ---    
  Borrowing from revolving credit facility        21,750            ---           ---              ---         21,750    
  Repayment under revolving credit facility       (8,500)           ---           ---              ---         (8,500)   
  Other                                              (91)           ---          (635)             ---           (726)   
                                              ----------     ----------    ----------       ----------     ----------    
Cash provided by (used in) financing                                                                                     
 activities                                          339         10,070          (682)              47          9,774    
                                              ----------     ----------    ----------       ----------     ----------    
                                                                                                                      
Effect of exchange rate changes on cash              ---            ---           (93)             ---            (93)   
                                              ----------     ----------    ----------       ----------     ----------    
                                                                                                                      
Increase (decrease) in cash                          ---         (3,017)         (201)              47         (3,171)   
                                                                                                                      
Cash, beginning of period                            ---          6,569         1,358              ---          7,927    
                                              ----------     ----------    ----------       ----------     ----------    
                                                                                                                      
Cash, end of period                           $      ---     $    3,552    $    1,157       $       47     $    4,756    
                                              ==========     ==========    ==========       ==========     ==========    
</TABLE>
                      
                                       13
<PAGE>


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

OVERVIEW

                                                THREE MONTHS ENDED
                                                     MARCH 31,
                                              -----------------------
                                              1996               1997
                                              ----               ----
                                                   (IN MILLIONS)
                                                    (unaudited)

Total revenue                               $    80.5           $   81.2

Cost of sales and rentals (1)                    33.5               29.6
Selling, service and administrative expense      50.5               49.0
Research and development                          3.6                3.7
                                            ---------           --------
  Operating loss                                 (7.1)              (1.1)
                                            ---------           --------

Net interest expense and other                   11.0               10.8
Income tax benefit                               (6.7)              (4.1)
                                            ---------           --------

Net loss                                    $   (11.4)          $   (7.8)
                                            =========           ========

EBITDA (2)                                  $    12.1           $   13.1
                                            =========           ========

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

(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.   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.

                                       14

<PAGE>

                                                     THREE MONTHS ENDED
                                                         MARCH 31,
                                                  ------------------------
                                                   1996              1997
                                                  ------            ------
                                                       (IN MILLIONS)
                                                        (unaudited)

  Revenue from:
    Sales:
    U.S. Integrated Voice Systems                 $    12.1      $   11.6
    U.S. Integrated Health Systems                      6.2           9.4
    U.S. Application & Training Specialists             ---           0.5
                                                  ---------      --------
       Total  U.S. Voice Systems                       18.3          21.5
    U.S. Communication Recording Systems               12.5          11.9
    U.S. Customer Service Parts                         4.4           4.0
    Contract Manufacturing
      (including sales to Pitney Bowes)                10.1           9.1
    U.S. Dealer Operations                              1.2           2.3
    International Operations                           11.0           8.9
                                                  ---------      --------
         Total sales                                   57.5          57.7
                                                  ---------      --------

    Rentals                                             0.5           0.5
                                                  ---------      --------
         Total sales and rentals                       58.0          58.2
                                                  ---------      --------

    Service:
    U.S. Customer Service                              19.7          20.3
    International Operations                            2.8           2.7
                                                  ---------      --------
         Total support service                         22.5          23.0
                                                  ---------      --------

         Total revenue                            $    80.5      $   81.2
                                                  =========      ========


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

       Total revenue for the first three months of 1997  increased 0.9% to $81.2
million from $80.5 million during the first three months of 1996.  This increase
in revenue is  attributable  to higher  sales  revenue from U.S.  Voice  Systems
("U.S.V.S.")  and U.S.  Dealer  Operations and increased U.S.  Customer  Service
revenue offset in part by lower sales revenue from U.S. Communications Recording
Systems  ("U.S.C.R.S.") and  Contract  Manufacturing  and   lower  International
Operations revenue.

       U.S.V.S. revenue increased 17.1% to $21.5 million from $18.3 million as a
result  of  a   significant   increase  in  U.S.   Integrated   Health   Systems
("U.S.I.H.S.") revenue. U.S.I.H.S.  revenue increased 51.4% to $9.4 million from
$6.2  million due to higher  systems  billings  which  included  $1.0 million of
revenue  associated  with the Company's new digital system  product,  Enterprise
ExpressTM.  U.S.I.H.S.  orders  increased 17.9% to $9.6 million during the first
quarter of 1997 from $8.1 million in the first quarter of 1996. U.S.  Integrated
Voice Systems  ("U.S.I.V.S.")  revenue declined 4.6% to $11.6 million from $12.1
million due to lower  billings for desktops,  Straight  TalkTM and small digital
systems.  U.S. Customer Service revenue (including sale of parts) increased 0.9%
to $24.3  million from $24.1 million due to higher  hourly  service  revenue (up
10.0%),  installation  revenue (up 4.5%),  and  integration  revenue (up 24.9%).
U.S.C.R.S. revenue

                                       15

<PAGE>

declined 4.5% to $11.9 million from $12.5 million due to lower analog logger and
Call Check revenue and fewer PrologTM installations. U.S.C.R.S. orders increased
20.7% to $13.8  million  during the first  quarter of 1997 from $11.4 million in
the first quarter of 1996. Revenue from International  Operations declined 16.3%
to  $11.6  million  from  $13.8  million  due  to  lower  desktop  and  portable
Communications  Recording  System and  service  revenue as well as the result of
$0.2 million of unfavorable  currency  exchange.  International  orders declined
7.9% to $10.8 million  during the first quarter of 1997 versus $11.7 million for
the  comparable  period in 1996.  Contract  Manufacturing  revenue for the first
quarter of 1997 was 11.0% lower than the corresponding period of 1996.

       Cost of sales and rentals declined 11.6% to $29.6 million (36.5% of total
revenue)  during the three months ended March 31, 1997 from $33.5 million (41.6%
of  total  revenue)  for the  three  months  ended  March  31,  1996.  Excluding
additional  depreciation and amortization expense related to purchase accounting
adjustments  associated  with the  Acquisition  of $0.9 million and $4.4 million
for  the first  three  months of 1997 and 1996, respectively,  cost of sales and
rentals  would  have  declined  as a percent  of  revenue to 35.4% for the three
months  ended  March 31,  1997 from 36.1% for the three  months  ended March 31,
1996. Cost of sales and rentals as a percentage of total revenue declined during
the three months ended March 31, 1997 due to lower  inventory  adjustments and a
reduced content of low margin Contract Manufacturing  revenue,  partially offset
by lower U.S.C.R.S. price realization.

       Selling,  service and administrative  expenses (including amortization of
intangibles)  for the first  quarter  of 1997  decreased  3.1% to $49.0  million
(60.3% of total  revenue)  from $50.5 million  (62.8% 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 $9.6  million and $12.1  million,  respectively,  from the three
months  ended  March  31,  1997 and 1996, selling,  service  and  administrative
expenses  would have  represented  48.5% of total  revenue for the three  months
ended March 31, 1997 versus 47.8% of total revenue for the comparable  period of
1996.  This increase is  attributable  to increases in trade show related costs,
higher management  compensation,  legal expenses, and training costs, and higher
U.S.I.H.S. and U.S.C.R.S.  selling expenses partially offset by lower U.S.I.V.S.
field  compensation  and  employee-related   expenses  associated  with  reduced
staffing, and lower international selling and service expenses.

       Research  and  development  expenses of $3.7 million for the three months
ended March 31, 1997 were 4.1% higher than the comparable  period in 1996 due to
increased staffing.

       The Company  recorded an operating  loss of $1.1 million during the first
quarter of 1997  compared  to an  operating  loss of $7.1  million for the first
quarter of 1996. Excluding purchase accounting  adjustments  associated with the
Acquisition  of $10.5  million and $16.5  million,  respectively,  for the first
quarter of 1997 and 1996, operating profit would have been flat versus the prior
year period as the impact of higher  revenue and improved  margins was offset by
higher operating expenses.

       The Company has recorded a deferred tax asset of $48.0  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 March 31, 1997 is approximately  $48.0 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 March 31, 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. 

                                       16

<PAGE>


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.  In addition,  Dictaphone made its final required cash
payment  ($8.0  million)  to Pitney  Bowes in the first  quarter  of 1996  which
related  to  certain  post-closing  adjustments  to the  purchase  price for the
Company.

       At March 31,  1997,  the  Company  had  outstanding  term loans of $139.5
million (the "Term Loans") and a $22.25 million loan outstanding under the $40.0
million   revolving   credit   facility  (the  "Revolving   Credit   Facility").
Availability  under the Revolving  Credit  Facility at March 31, 1997 was $17.75
million.  Borrowings  under the Revolving  Credit  Facility  increased by $13.25
million  during the first quarter of 1997 due to the scheduled  February 1, 1997
interest payment associated with the Notes.  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.

       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.

       The Company had $200.0 million of Notes outstanding as of March 31, 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 March 31, 1997,  the fair value
of the Notes was a favorable $15.0 million based on dealer quotes.

       First quarter capital expenditures totaled $1.1 million. The Company does
not expect the  limitation on capital  expenditures  in the Credit  Agreement to
restrict capital expenditures in a material manner.

                                       17

<PAGE>

       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.
Primarily  as a result of the  Company's  strategy  and  recent  trends  towards
investing more funds in research and development and new product  delivery,  the
Company at this time is  uncertain as to whether,  in the near term,  it will be
able to meet  certain  existing  financial  covenants  contained  in the  Credit
Facility.  Although the Company is in compliance  with all aspects of the Credit
Facility,  its  management  has  initiated  preliminary   discussions  with  its
administrative  agent to seek  certain  amendments  to the  covenants  contained
therein. There can be no assurance,  however, that such amendments,  if any, can
be obtained. Subject to the foregoing, the Company believes that cash flows from
operating  activities  and its  ability  to borrow  under the  Revolving  Credit
Facility  will be  adequate  to meet the  Company's  debt  service  obligations,
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.


                           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
             --------

                    27       Financial Data Schedule

       (b)   REPORTS ON FORM 8-K
             -------------------

                    There  were no  Reports  on Form 8-K filed  during the three
months ended March 31, 1997.

                                       18

<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:  May 14, 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)  
  
                                     19

<PAGE>


                                  EXHIBIT INDEX
                                  -------------


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

    *27.     --    Financial Data Schedule

----------------------
* Filed herewith.






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