EXHIBIT 13

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following  discussion is intended to assist the reader in understanding  and
evaluating  the  financial  condition  and results of operations of the Company.
This review  should be read in  conjunction  with the financial  statements  and
accompanying  notes.  This  analysis  attempts to identify  trends and  material
changes  which  occurred  during the  periods  presented.  Prior years have been
reclassified  to  conform  to  the  1995  reporting  basis  (see  Note  1 to the
Consolidated Financial Statements).

RESULTS OF OPERATIONS

Selected consolidated statements of operations data for the last three years are
as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
December 31,
 In thousands                                                      1995             1994              1993
-----------------------------------------------------------------------------------------------------------
    <S>                                                         <C>              <C>               <C>
    Net sales                                                   $94,802          $77,145           $69,099
    Gross profit                                                 30,775           24,727            21,614
    Selling, general & administrative                            19,298           15,161            12,805
    Engineering, research & development                           4,186            3,932             3,424
    Interest expense                                                996            1,267             2,420
    Miscellaneous expense                                           760              637               420
    Income tax expense/(benefit)                                 (4,334)             116               129
    Extraordinary item, write-off
       of debt issuance cost                                          -              389                 -
    Net income                                                    9,869            3,225             2,416
    Preferred dividends                                             350              577                 -
    Net income applicable to common stock                         9,519            2,648             2,416
-----------------------------------------------------------------------------------------------------------
</TABLE>

1995 COMPARED WITH 1994

NET SALES as reported for 1995  increased by 23% to  $94,802,000,  compared with
$77,145,000  in 1994.  The continued  increase in sales was primarily due to (1)
the  demand for the  Company's  Digital  Expandable  System  ("DXP")  and Impact
products,  and (2) the enhancement of the Computer Telephony Integration ("CTI")
products.  Sales of digital products increased 42% to $51,693,000  compared with
$36,366,000 for 1994. Sales of CTI product increased 33% to $6,889,000  compared
with $5,179,000 for 1994. Custom manufacturing  increased to $6,125,000 compared
with  $2,578,000  for  1994 as a  result  of a  one-time  contract  from a major
manufacturer.  Sales  of  analog  and  proprietary  terminals  decreased  11% to
$22,136,000  and 7% to $5,110,000  compared with  $24,938,000 and $5,495,000 for
1994,  respectively.  Management  expects sales of digital  business  systems to
continue  to grow in 1996,  primarily  due to (1) the  continued  growth  in DXP
system sales driven by new CTI applications, (2) the development of new products
such as the DXP Plus, (3) the  development of new strategic  alliances,  and (4)
the acceptance of the DXP in international markets.  Management expects sales of
analog and proprietary  terminals to continue to decrease in 1996.  Sales in the
international  market have  increased by $184,000 or 7% compared with 1994,  but
were lower than  expected  due to  economic  conditions  in Latin  America.  The
Company's  penetration into the international  marketplace has been a deliberate
process. As the Company's products gain more exposure internationally,  and more
international  distributors are recruited,  sales in this market are expected to
show accelerated growth.

GROSS PROFIT as a percentage of sales for 1995 was approximately  32.5% compared
with  32.1% for  1994.  Gross  profit  increased  in 1995 by 24% to  $30,775,000
compared  with  $24,727,000  for 1994.  This was primarily  attributable  to the
increased sales of higher margin business system  products,  such as the DXP and
Impact products.

SELLING,  GENERAL  AND  ADMINISTRATION  EXPENSES  increased  in  1995  by 27% to
$19,298,000  compared with  $15,161,000  for 1994.  The primary  reasons for the
increase were (1) higher  promotional  allowance costs associated with increased
sales volume and the increase in the number of dealers, (2) an increase in sales
personnel to support the growth of the CTI and international markets, and (3) an
increase in advertising due to the emphasis on market  recognition.  Advertising
expenses as a percentage of net sales were  approximately  20% for both 1995 and
1994. The Company formed Comdial  Enterprise  Systems,  Inc.  ("CES") in 1993 to
manage the  Company's CTI  business.  Costs  relating to CES increased by 55% to
$1,255,000 compared with $811,000 in 1994, due largely to additional personnel.

ENGINEERING,  RESEARCH  AND  DEVELOPMENT  EXPENSES  increased  in  1995 by 6% to
$4,186,000 compared with $3,932,000 for 1994. This increase was primarily due to
an increase in software development and support personnel.

INTEREST EXPENSE  decreased in 1995 by 21% to $996,000  compared with $1,267,000
for 1994. This decrease was primarily due to (1) the continued  reduction of the
Company's  indebtedness  and (2) the  Company's  ability  to  generate  funds to
minimize its use of the revolving credit facility with Fleet Capital Corporation
("Fleet"),  formerly known as Shawmut  Capital  Corporation and prior to that as
Barclays Business Credit, Inc.

MISCELLANEOUS  EXPENSE  increased by 19% to $760,000  compared  with $637,000 in
1994.  The increase was  primarily  due to cash  discounts  associated  with the
increased sales in 1995.

INCOME TAX  EXPENSE/(BENEFIT)  reflects a benefit of $4,334,000 in 1995 compared
with an expense of  $116,000  for 1994.  This  change was  primarily  due to the
recognition  of a  deferred  tax asset  through  a  reduction  of the  valuation
allowance. As of July 2, 1995, the valuation allowance was reduced by $4,503,000
based on  management's  assessment  of future  taxable  income and  management's
belief that it is "more  likely than not" that the Company will realize this tax
benefit.

EXTRAORDINARY  ITEM,  WRITE-OFF OF DEBT ISSUANCE COST,  represents debt issuance
costs that were written off during the first quarter of 1994 in connection  with
the  refinancing  of the  Company's  indebtedness  to  PacifiCorp  Credit,  Inc,
("PCI").

DIVIDENDS ON PREFERRED STOCK for 1995 represent  quarterly  dividends payable to
the holder of the Company's  Series A 7-1/2  Cumulative  Convertible  Redeemable
Preferred  Stock ("Series A Preferred  Stock").  The Company  originally  issued
850,000 shares of Series A Preferred  Stock to PCI in February 1994, in exchange
for the  cancellation  of $8,500,000 of the  Company's  indebtedness  to PCI. In
December  1994,  the Company  redeemed  100,000 shares of the Series A Preferred
Stock.

Dividends in 1995 decreased by 39% to $350,000  compared with $577,000 for 1994.
In August 1995, the Company  redeemed the 750,000 shares with proceeds  received
from a public  offering of the  Company's  Common  Stock and paid all  dividends
associated with the Serires A Preferred  Stock (see Note 11 to the  Consolidated
Financial Statements).

NET  INCOME  BEFORE  INCOME  TAXES AND  EXTRAORDINARY  ITEM,  as a result of the
foregoing,  increased  48% to $5,535,000  in 1995,  compared with  $3,730,000 in
1994. Net income before income taxes and extraordinary  item also increased as a
percentage  of net  sales to 6% in 1995  compared  with 5% in  1994.  Management
anticipates,  assuming continued strength in the economy, that the factors which
have led to  significant  increases in sales,  net income and earnings per share
for 1995 will continue to have positive  influence on the Company's  performance
in 1996. The Company plans to continue to improve sales by (1)  introducing  and
shipping new  products  and product  enhancements;  (2)  introducing  additional
applications  of DXP,  Impact,  digital,  and CTI products;  (3) introducing new
products of the Company's in new countries; (4) expanding the sales organization
to help increase the number of dealers who sell the Company's products;  and (5)
also through the acquisition of various companies.

1994 COMPARED WITH 1993

NET SALES in 1994  increased 12% to  $77,145,000  compared with  $69,099,000  in
1993.  This  increase  was  primarily  due to the  increase in sales of business
systems.  Digital  products  sales  increased 18% to  $36,366,000  compared with
$30,901,000  for 1993.  CTI product sales  increased 88% to $5,179,000  compared
with $2,761,000 for 1993. Custom manufacturing also increased 188% to $2,578,000
compared with  $894,000 for 1993.  Sales of analog and  proprietary  stand-alone
terminals  decreased  4% to  $24,938,000  and 11% to  $5,495,000  compared  with
$25,990,000 and $6,163,000 for 1993, respectively.

GROSS PROFIT  increased 14% to $24,727,000,  compared with  $21,614,000 in 1993.
Similarly,  gross margin  increased to 32% in 1994,  compared  with 31% in 1993.
This increase in gross margin was primarily  attributable  to increased sales of
higher margin products, such as DXP and Impact.

SELLING,   GENERAL  AND  ADMINISTRATIVE   EXPENSES  in  1994  increased  18%  to
$15,161,000,  compared with  $12,805,000  in 1993.  The primary  reasons for the
increase were (1) additional sales  promotional costs associated with the higher
sales volume in 1994, (2) increased sales  allowances  attributed to an increase
in the number of dealers,  (3) increased  personnel and associated  expenses for
customer support and training, and (4) a full year of operation of the Company's
CES business.  Costs relating to CES were $546,000  higher in 1994 compared with
1993.

ENGINEERING,  RESEARCH AND  DEVELOPMENT  EXPENSES  increased  15% to  $3,932,000
compared with $3,424,000 in 1993. The increase was due primarily to expenditures
to support development of the larger version of the DXP digital system.

INTEREST  EXPENSE in 1994 decreased 48% to $1,267,000,  compared with $2,420,000
in 1993.  The decrease in interest  expense was due to lower debt resulting from
the recapitalization, effective on February 1, 1994.

MISCELLANEOUS EXPENSE in 1994 increased 52% to $637,000,  compared with $420,000
in 1993.  The increase was  primarily  due to higher cash  discounts  which is a
direct  result of higher sales,  and the  reduction of interest  income which is
primarily due to the Company  depositing  all cash receipts to the revolver bank
account.

EXTRAORDINARY ITEM, WRITE-OFF OF DEBT ISSUANCE COSTS in 1994 was $389,000, which
represents   costs  in  connection   with  the   refinancing  of  the  Company's
indebtedness to PCI.

DIVIDENDS ON PREFERRED STOCK represent quarterly dividends payable to the holder
of Series A Preferred  Stock.  The  Company  issued  850,000  shares of Series A
Preferred  Stock to PCI in February  1994, in exchange for the  cancellation  of
$8,500,000 of the Company's indebtedness. The Company redeemed 100,000 shares of
Series A Preferred  Stock from PCI in December  1994.  Dividends in 1994 totaled
$577,000.

NET  INCOME  BEFORE  INCOME  TAXES AND  EXTRAORDINARY  ITEM,  as a result of the
foregoing,  increased  47% to $3,730,000  in 1994,  compared with  $2,545,000 in
1993.

LIQUIDITY AND CAPITAL SOURCES

Prior to February  1994,  the Company was indebted to an affiliate of PCI in the
amount of $21,209,453.  In connection with the refinancing  effected in February
1994, the Company issued 850,000 shares of a newly designated Series A Preferred
Stock of the Company in  exchange  for the  cancellation  of  $8,500,000  of the
Company's  indebtedness  to PCI. The remainder of the Company's  indebtedness to
PCI was paid using  $6,000,000 of cash generated from  operations and $6,709,453
of cash  borrowed  from Fleet,  pursuant to a loan and security  agreement  (the
"Loan  Agreement")  between Fleet and the Company,  under which Fleet provided a
$6,000,000 term loan and a $9,000,000 revolving credit facility to the Company.

In April 1994,  the Company and Fleet  amended the Loan  Agreement to permit the
Company to borrow an  additional  $1,300,000  under the Term Note to finance the
purchase of additional surface mount technology equipment.

Pursuant to the terms of the Loan  Agreement,  the $6,000,000  term note and the
$1,300,000  term note have an interest  rate equal to 1-1/2% above Fleet's prime
rate.  The  $6,000,000  term  note is  payable  in 24  equal  monthly  principal
installments  of  $125,000,  and 23  equal  monthly  principal  installments  of
$83,334,  with the balance due in February  1998.  The  $1,300,000  term note is
payable in 44 equal  monthly  installments  of $27,000,  with the balance due in
February  1998. The revolving  credit  facility has an interest rate of 1% above
Fleet's  prime rate.  As of December 31, 1995,  the Company had not borrowed any
funds under the revolving  credit facility and had  approximately  $8,311,700 of
borrowing  capacity  (see  Note 5 to  Consolidated  Financial  Statements).  The
Company expects to fund its 1996 total debt payments of $1,407,340 owed to Fleet
with cash generated from operations.

The Company's  indebtedness  under the Loan Agreement is secured by liens on the
Company's accounts  receivable,  inventories,  intangibles,  land, and all other
assets.  The Loan  Agreement  also contains  financial  covenants  requiring the
Company  to  maintain  specified  levels of  consolidated  tangible  net  worth,
profitability,  debt service  ratio,  and current ratio.  In addition,  the Loan
Agreement limits the Company's ability to make additional borrowings and payment
of dividends except those permitted on the Series A Preferred Stock. At December
31, 1995, the Company was in compliance with all of its debt covenants.

The impact of the  refinancing in 1994 has improved (1) net income through lower
interest expense,  (2) cash flow through lower principal and interest  payments,
and (3) the Company's  balance sheet through lower term debt and a higher equity
position. The total favorable impact was, to some extent, offset by the dividend
payments  required  on the  Series  A  Preferred  Stock.  The  refinancing  also
eliminated  the 1996  balloon  payment  otherwise  due  under the  existing  PCI
indebtedness.

In December  1994,  the Company  purchased  from PCI 100,000  shares of Series A
Redeemable  Preferred  Stock at the same time the Company  received  proceeds of
$1,000,000 from Cortelco  International Inc.  ("Cortelco"),  for the sale of the
electromechanical product line in 1992.

In July 1995, the Company's  stockholders approved an amendment to the Company's
Restated Certificate of Incorporation effecting a one-for-three reverse split of
the  Company's  Common  Stock.  In August 1995,  the Company  completed a public
offering of 3,000,000 shares (post-split) of Common Stock,  2,000,000 which were
owned by PCI and  1,000,000  which  were new  shares  sold by the  Company.  The
Company used the net proceeds to (1) redeem the 750,000  shares of the remaining
Series A Preferred Stock held by PCI, (2) pay accumulated dividends, (3) pay the
offering  costs,  and (4) provide for future working  capital needs.  Management
believes that this has improved not only the Company's financial  position,  but
also  increased  the  stockholders'  value.  The  Company has  benefited  in the
following ways: (1) dividends on Series A Preferred Stock were  eliminated,  (2)
Stockholders'  Equity has increased by the additional proceeds received from the
offering,  (3) the  reverse  stock  split has  increased  earnings  per share by
lowering the common  outstanding  shares, (4) PCI's ability to dilute the Common
Stock by converting  shares of the Preferred Stock to shares of Common Stock was
eliminated,  and (5) the  Company's  shares are of  sufficient  value to support
higher institutional  ownership and attract analyst coverage (see Note 11 to the
Consolidated Financial Statements).

The following table sets forth the Company's cash and cash equivalents,  current
maturities on debt, and working capital at the dates indicated:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
December 31,
In thousands                                                       1995             1994             1993
----------------------------------------------------------------------------------------------------------
     <S>                                                        <C>              <C>              <C>
     Cash and cash equivalents                                  $ 4,144          $ 1,679          $ 5,474
     Current maturities on debt                                   1,903            2,466            4,252
     Working capital                                             18,271           11,631           14,943
----------------------------------------------------------------------------------------------------------
</TABLE>

Cash and cash equivalents is higher by $2,465,000 in 1995 compared with 1994 due
primarily to (1) cash  generated  from sales and (2) the proceeds  received from
the  stock  offering  in August  1995.  Current  maturities  on debt is lower by
$563,000  primarily due to the continued  diminishment of the Company's existing
debt with Fleet.  Working  capital  increased,  primarily due to the increase in
cash, accounts receivable, and inventory at December 31, 1995.

The  Company  considers  outstanding  checks to be a bank  overdraft.  Under the
Company's current cash management  policy,  receipts are deposited to reduce the
revolving  credit  balance  and  operations  are  funded by  borrowing  from the
revolving  credit  facility.  The Company reports the revolving  credit facility
activity  on a net  basis  on the  Consolidated  Statements  of Cash  Flows.  At
December 31, 1995, the revolver balance was zero.

Accounts receivable  increased by $2,339,000  primarily due to shipments made in
the last three  weeks of  December  1995.  Prepaid  expenses  and other  current
assets, increased in total by $1,681,000 due primarily to higher prepaid royalty
expense,  prepaid rental expense,  and a  miscellaneous  receivable for returned
inventory.

Deferred  tax asset and  liability  relates to the  Company  recognizing  in the
second  quarter  of 1995,  the  expected  utilization  of net  operating  losses
("NOLs")  for  future  periods  (reference  Statement  of  Financial  Accounting
Standards  ("SFAS") No. 109  "Accounting  for Income  Taxes").  Prior to July 2,
1995, the Company did not recognize any reduction in the valuation allowance due
to the uncertainty as to whether the Company would continually  generate taxable
income during the carryforward period.

Stockholders' equity at December 31, 1995, increased 63% to $34,294,000 compared
with  $21,043,000  for December 31, 1994. This increase was primarily due to (1)
net  income  applicable  to  common  stock of  $9,519,000  and (2) the  proceeds
received  from the public  stock  offering  of  $11,200,000  (see Note 11 to the
Consolidated Financial Statements).

Capital  additions for 1995 amounted to  approximately  $2,728,000.  The capital
additions  help  provide  the Company  with new  products  to  introduce  to the
marketplace as well as for quality and cost reduction  improvements for existing
products.  Capital  additions were provided by funding from operations,  capital
leasing,  and borrowing from Fleet.  Cash expenditures for capital additions for
1995,  1994,  and  1993  amounted  to  $2,155,000,   $2,116,000,  and  $848,000,
respectively. Management anticipates that approximately $4,000,000 will be spent
on capital additions during 1996. These additions will help the Company meet its
commitment  to its  customers by  developing  new  products for the future.  The
Company plans to fund all additions through operations and long-term leases.

The  Company  believes  that  as a  result  of the  improved  capital  structure
resulting from the  repurchase of the Series A Preferred  Stock from PCI and the
elimination of the related dividend  payments,  income from operations  combined
with amounts  available from the Company's  current credit  facilities,  will be
sufficient to meet the Company's needs for the foreseeable future.

The Company has a  commitment  from  Crestar Bank for the issuance of letters of
credit in amounts not to exceed  $750,000 at any one time. At December 31, 1995,
the amount of available  commitments  under the letter of credit  facility  with
Crestar Bank was $697,000.

In November 1992, the Financial  Accounting Standards Board ("FASB") issued SFAS
No.  112,  "Employers  Accounting  for  Postemployment  Benefits."  The  Company
implemented  this  standard in 1994.  This standard had no effect on earnings or
financial   position   primarily  due  to  the  Company's   policies   regarding
postemployment benefits.

In  October  1995,  FASB  issued  SFAS  No.  123,  "Accounting  for  Stock-Based
Compensation."  The new standard  defines a fair value method of accounting  for
stock  options and similar  equity  instruments.  Pursuant to the new  standard,
companies  can  either  adopt the  standard  or  continue  to  account  for such
transactions  under  Accounting   Principles  Board  Opinion  ("APBO")  No.  25,
"Accounting  for Stock Issued to Employees." The Company has elected to continue
to account for such transactions under APBO No. 25. The Company will be required
to  disclose  in a note to the  financial  statements,  pro forma net income and
earnings per share,  as if the company had applied the new method of accounting.
Complying with the new standard will have no effect on earnings or the Company's
cash flow.

During the fiscal years ended 1995,  1994, and 1993, all of the Company's sales,
net   income,   and   identifiable   net  assets   were   attributable   to  the
telecommunications industry.

During the month of March 1996,  the Company  signed  definitive  agreements  to
purchase  Key  Voice  Technologies,   Inc.  ("KVT")  and  Aurora  Systems,  Inc.
("Aurora").  The acquisitions of KVT and Aurora are planned to be completed near
the end of March, 1996. The acquisition cost will be funded by cash,  promissory
note, and the Company's Common Stock (see Note 15 to the Consolidated  Financial
Statements).
______________________________________________________________________________
INDEPENDENT AUDITORS' REPORT

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



Board of Directors and Stockholders
Comdial Corporation
Charlottesville, Virginia


We  have  audited  the  accompanying  consolidated  balance  sheets  of  Comdial
Corporation  and  subsidiaries as of December 31, 1995 and 1994, and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material   respects,   the  financial   position  of  Comdial   Corporation  and
subsidiaries at December 31, 1995 and 1994, and the results of their  operations
and their cash flows for each of the three  years in the period  ended  December
31, 1995 in conformity with generally accepted accounting principles.




DELOITTE & TOUCHE LLP
Richmond, Virginia
January 29, 1996



------------------------------------------------------------------------------
REPORT OF MANAGEMENT
------------------------------------------------------------------------------

Comdial   Corporation's   management  is  responsible   for  the  integrity  and
objectivity  of  all  financial  data  included  in  this  Annual  Report.   The
consolidated   financial  statements  have  been  prepared  in  accordance  with
generally accepted accounting principles.  Such principles are consistent in all
material  respects  with  accounting   principles   prescribed  by  the  various
regulatory  commissions.  The financial data includes  amounts that are based on
the best estimates and judgments of management.

The Company  maintains  an  accounting  system and related  internal  accounting
controls  designed to provide  reasonable  assurance that assets are safeguarded
against loss or unauthorized use and that the financial records are adequate and
can be relied upon to produce financial  statements in accordance with generally
accepted  accounting  principles.   Deloitte  &  Touche  LLP,  Certified  Public
Accountants ("Independent Auditors"),  have audited these consolidated financial
statements, and have expressed herein their unqualified opinion.

The Company diligently strives to select qualified managers, provide appropriate
division of  responsibility,  and assure that its  policies  and  standards  are
understood throughout the organization.  The Company's Code of Conduct serves as
a guide for all  employees  with  respect to business  conduct and  conflicts of
interest.

The Audit  Committee of the Board of  Directors,  comprised of Directors who are
not employees,  meets periodically with management and the Independent  Auditors
to  review  matters  relating  to the  Company's  annual  financial  statements,
internal  accounting  controls,  and other accounting  services  provided by the
Independent Auditors.



WILLIAM G. MUSTAIN                                WAYNE R. WILVER
Chairman, President and                           Senior Vice President and
Chief Executive Officer                           Chief Financial Officer


CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------
                                                                                           December 31,
In thousands except par value                                                          1995            1994
-------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>            <C>
ASSETS
     Current assets
        Cash and cash equivalents                                                    $  4,144       $  1,679
        Accounts receivable - net                                                       8,976          6,637
        Inventories                                                                    17,925         16,869
        Prepaid expenses and other current assets                                       2,695          1,014
-------------------------------------------------------------------------------------------------------------
           Total current assets                                                        33,740         26,199
-------------------------------------------------------------------------------------------------------------

     Property - net                                                                    13,943         13,668
     Net deferred tax asset                                                             6,694              -
     Other assets                                                                       2,315          2,393
-------------------------------------------------------------------------------------------------------------
           Total assets                                                              $ 56,692       $ 42,260
=============================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
     Current liabilities
        Accounts payable                                                             $  7,988       $  6,977
        Accrued payroll and related expenses                                            1,518          1,373
        Accrued promotional allowances                                                  1,851          1,592
        Other accrued liabilities                                                       2,209          2,160
        Current maturities of debt                                                      1,903          2,466
-------------------------------------------------------------------------------------------------------------
           Total current liabilities                                                   15,469         14,568
-------------------------------------------------------------------------------------------------------------

     Long-term debt                                                                     2,844          4,737
     Net deferred tax liability                                                         2,191              -
     Long-term employee benefit obligations                                             1,894          1,912
     Commitments and contingent liabilities (see Note 14)
-------------------------------------------------------------------------------------------------------------
           Total liabilities                                                           22,398         21,217
-------------------------------------------------------------------------------------------------------------

     Stockholders' equity
        Series A 7-1/2% preferred stock ($10.00 par value),
           (Authorized shares 2,000; issued 0 shares)                                       -          7,500
        Common stock ($0.01 par value) and paid-in capital
           (Authorized 30,000 shares; issued shares:
            1995 = 8,132; 1994 = 6,984)                                               111,625        100,320
        Other                                                                          (1,014)          (942)
        Accumulated deficit                                                           (76,317)       (85,835)
-------------------------------------------------------------------------------------------------------------
           Total stockholders' equity                                                  34,294         21,043
-------------------------------------------------------------------------------------------------------------
           Total liabilities and stockholders' equity                                $ 56,692       $ 42,260
=============================================================================================================
</TABLE>

The accompanying notes are an integral part of these financial statements.



CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                                                                Years Ended December 31,
In thousands except per share amounts                                      1995           1994          1993
--------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>           <C>           <C>
Net sales                                                                 $94,802       $77,145       $69,099
Cost of goods sold                                                         64,027        52,418        47,485
--------------------------------------------------------------------------------------------------------------
        Gross profit                                                       30,775        24,727        21,614
--------------------------------------------------------------------------------------------------------------

Operating expenses
    Selling, general & administrative                                      19,298        15,161        12,805
    Engineering, research & development                                     4,186         3,932         3,424
--------------------------------------------------------------------------------------------------------------
        Operating income                                                    7,291         5,634         5,385
--------------------------------------------------------------------------------------------------------------

Other expense (income)
    Interest expense                                                          996         1,267         2,420
    Miscellaneous expense                                                     760           637           420
--------------------------------------------------------------------------------------------------------------
Income before income taxes and                                              5,535         3,730         2,545
    extraordinary item
Income tax expense/(benefit)                                              (4,334)           116           129
--------------------------------------------------------------------------------------------------------------
Income before extraordinary item                                            9,869         3,614         2,416
Extraordinary item, write-off of
    debt issuance cost                                                          -           389             -
--------------------------------------------------------------------------------------------------------------
        Net income                                                          9,869         3,225         2,416
Dividends on preferred stock                                                  350           577             -
--------------------------------------------------------------------------------------------------------------
        Net income applicable to common stock                             $ 9,519       $ 2,648       $ 2,416
==============================================================================================================

Earnings per common share and common equivalent share:
        Primary:
          Income before extraordinary item                                  $1.24         $0.42         $0.35
          Extraordinary item                                                    -         (0.05)            -
--------------------------------------------------------------------------------------------------------------
            Net income per common share                                     $1.24         $0.37         $0.35
==============================================================================================================

        Fully diluted                                                       $1.20         $0.37         $0.34
==============================================================================================================

Weighted average common shares outstanding:
        Primary                                                             7,697         7,235         6,939
        Fully diluted                                                       8,226         7,235         7,162
</TABLE>

The accompanying notes are an integral part of these financial statements.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

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


                                                   Common Stock             Preferred Stock
                                            ----------------------------------------------------   Paid-in
In thousands                                   Shares        Amount      Shares      Amount        Capital
---------------------------------------------------------------------------------------------------------------
 <S>                                           <C>            <C>         <C>        <C>           <C>
 Balance at January 1, 1993                    18,055         $181           -       $    -        $ 99,115
     Proceeds from sale of
        Common Stock:
        Incentive plans                                                                                 (20)
        Notes receivable
        Stock options exercised                   133            1                                       95
        Warrants exercised                      2,500           25                                      620
     Incentive stock issued                        40                                                    30
     Treasury stock purchased
 Net income
---------------------------------------------------------------------------------------------------------------
 Balance at December 31, 1993                  20,728          207           -            -          99,840
     Proceeds from sale of
        Common Stock:
        Notes receivable                                                                               (146)
        Stock options exercised                   439            4                                      285
     Incentive stock issued                        40                                                   130
     Preferred stock issued                                                850        8,500
     Redeemed preferred stock                                             (100)      (1,000)
     Treasury stock purchased
     Dividend paid on preferred stock
 Net income
---------------------------------------------------------------------------------------------------------------
 Balance at December 31, 1994                  21,207          211         750        7,500         100,109
     Reverse stock-split 1 for 3
         (August 8, 1995)                     (14,138)        (141)                                     141
     Proceeds from sale of
        Common Stock:
        Stock offering                          1,000           10                                   11,200
        Notes receivable
        Stock options exercised                   144            2                                      250
     Stock offering cost                                                                               (273)
     Incentive stock issued                        13                                                   116
     Redeemed preferred stock                                             (750)      (7,500)
     Treasury stock purchased
     Dividend paid on preferred stock
 Net income
---------------------------------------------------------------------------------------------------------------
 Balance at December 31, 1995                    8,226       $  82           -            -        $111,543
===============================================================================================================
</TABLE>


<TABLE>
<CAPTION>


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

                                                                     Notes
                                             Treasury Stock        Receivable
                                         ------------------------    on Sale        Retained
In thousands                                Shares      Amount      of Stock        Earnings         Total
---------------------------------------------------------------------------------------------------------------
<S>                                         <C>         <C>           <C>           <C>             <C>
 Balance at January 1, 1993                 (150)       $(583)        $(303)        $(90,899)        $7,511
        Common Stock:
        Incentive plans                                                                                 (20)
        Notes receivable                                                 74                              74
        Stock options exercised                                                                          96
        Warrants exercised                                                                              645
     Incentive stock issued                                                                              30
     Treasury stock purchased                 (1)          (2)                                           (2)
 Net income                                                                            2,416          2,416
---------------------------------------------------------------------------------------------------------------
 Balance at December 31, 1993               (151)        (585)         (229)         (88,483)        10,750
     Proceeds from sale of
        Common Stock:
        Notes receivable                                                 47                             (99)
        Stock options exercised                                                                         289
     Incentive stock issued                                                                             130
     Preferred stock issued                                                                           8,500
     Redeemed preferred stock                                                                        (1,000)
     Treasury stock purchased             (103)        (175)                                           (175)
     Dividend paid on preferred stock                                                   (577)          (577)
 Net income                                                                            3,225          3,225
---------------------------------------------------------------------------------------------------------------
 Balance at December 31, 1994             (254)        (760)           (182)         (85,835)        21,043
     Reverse stock-split 1 for 3
         (August 8, 1995)                  169                                                            -
     Proceeds from sale of
        Common Stock:
        Stock offering                                                                               11,210
        Notes receivable                                                  6                               6
        Stock options exercised                                                                         252
     Stock offering cost                                                                               (273)
     Incentive stock issued                                                               (1)           115
     Redeemed preferred stock                                                                        (7,500)
     Treasury stock purchased               (9)         (78)                                            (78)
     Dividend paid on preferred stock                                                   (350)          (350)
 Net income                                                                            9,869          9,869
---------------------------------------------------------------------------------------------------------------
 Balance at December 31, 1995              (94)       $(838)          $(176)        $(76,317)       $34,294
===============================================================================================================
</TABLE>

The accompanying notes are an integral part of these financial statements.


CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
                                                                                                Years Ended December 31,
In thousands                                                                             1995            1994             1993
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>             <C>              <C>    
Cash flows from operating activities:
    Cash received from customers                                                        $97,156         $81,298          $74,265
    Other cash received                                                                   1,355           2,305            1,236
    Interest received                                                                        60              56               65
    Cash paid to suppliers and employees                                                (93,990)        (75,888)         (66,725)
    Interest paid on debt                                                                  (676)           (924)          (1,981)
    Interest paid under capital lease obligations                                          (174)           (284)            (256)
    Income taxes paid                                                                      (186)           (200)             (44)
---------------------------------------------------------------------------------------------------------------------------------
       Net cash provided by operating activities                                          3,545           6,363            6,560
---------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
    Proceeds from the sale of equipment                                                       6             206               56
    Proceeds received on note from Cortelco
      International, Inc.                                                                     -           1,000            1,000
    Capital expenditures                                                                 (2,155)         (2,116)            (848)
---------------------------------------------------------------------------------------------------------------------------------
       Net cash provided (used) by investing activities                                  (2,149)           (910)             208
---------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
    Proceeds from borrowings                                                                  -           7,300            2,660
    Proceeds from issuance of common stock                                               11,384             203              739
    Principal payments on debt                                                           (1,824)        (14,365)          (3,859)
    Principal payments under capital lease obligations                                     (641)           (809)          (1,233)
    Preferred stock redemption                                                           (7,500)         (1,000)                -
    Preferred dividends paid                                                               (350)           (577)                -
---------------------------------------------------------------------------------------------------------------------------------
       Net cash provided (used) by financing activities                                   1,069          (9,248)          (1,693)
---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                      2,465          (3,795)           5,075
---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year                                            1,679           5,474              399
---------------------------------------------------------------------------------------------------------------------------------
 Cash and cash equivalents at end of year                                               $ 4,144         $ 1,679          $ 5,474
=================================================================================================================================
Reconciliation of net income to net cash provided by operating activities:
 Net Income                                                                             $ 9,869         $ 3,225          $ 2,416
    Depreciation and amortization                                                         3,557           4,138            3,138
    Decrease (increase) in accounts receivable                                           (2,339)           (453)             689
    Inventory provision                                                                   1,309             964              900
    Increase in inventory                                                                (2,365)         (2,989)            (307)
    Increase in other assets                                                             (3,277)         (1,620)            (958)
    Increase in net deferred tax assets                                                  (4,503)              -                -
    Increase (decrease) in accounts payable and bank
      overdrafts                                                                          1,011           1,918             (639)
    Increase in other liabilities                                                           435           1,238            1,237
    Increase (decrease) in other equity                                                    (152)            (58)              84
---------------------------------------------------------------------------------------------------------------------------------
       Total adjustments                                                                 (6,324)          3,138            4,144
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                               $ 3,545         $ 6,363          $ 6,560
=================================================================================================================================
</TABLE>

The accompanying notes are an integral part of these financial statements.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994, 1993

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The  consolidated   financial   statements   include  the  accounts  of  Comdial
Corporation and its subsidiaries (the "Company").  All significant  intercompany
accounts and transactions have been eliminated.

NATURE OF OPERATIONS

Comdial is a United States ("U.S.") based manufacturer of business communication
systems.  The Company's principle customers are small to medium sized businesses
throughout the U.S. and other international  markets.  The distribution  network
consists of three major  distributors,  approximately  1500  dealers and several
thousand  independent  interconnects.  The dynamic,  high technology industry in
which the Company participates is very competitive. There is an increasing shift
from  analog  to  digital  product  lines as well as other  rapid  technological
changes creating the potential for product obsolescence.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial  statements in conformity  with Generally  Accepted
Accounting Principles ("GAAP") requires management to make certain estimates and
assumptions that affect the reported amounts of assets,  liabilities,  revenues,
and  expenses;  and the  disclosure  of  contingent  assets and  liabilities  at
December 31, 1995. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

Cash  equivalents are defined as short-term  liquid  investments with maturities
when  purchased  of less than 90 days that are  readily  convertible  into cash.
Under  the  Company's  current  cash  management  policy,  borrowings  from  the
revolving credit facility are used for normal operating purposes.  The revolving
credit  facility is reduced by cash  receipts  that are  deposited  daily.  Bank
overdrafts  of $1,594,000  and  $1,099,000  are included in accounts  payable at
December 31, 1995 and 1994, respectively. Bank overdrafts are outstanding checks
that have not (1) cleared the bank and (2) been funded by the  revolving  credit
facility (see Note 5). The Company considers the outstanding checks to be a bank
overdraft.  The Company is reporting the revolving credit facility activity on a
net basis on the Consolidated Statements of Cash Flows.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market.

PROPERTY/DEPRECIATION

Depreciation is computed using the straight-line method for all buildings,  land
improvements, machinery and equipment, and capitalized lease property over their
estimated  useful  lives.  Effective  January 1, 1994 the  Company  revised  the
estimated useful lives of certain computer hardware equipment from seven to five
years to more closely reflect  expected  remaining  useful lives.


The effect of this change in  accounting  estimate was to increase  depreciation
expense and decrease  income from  continuing  operations in 1994 by $239,000 or
$0.03 per share.  Expenditures  for  maintenance  and  repairs of  property  are
charged to expense.  Improvements  and renewals which extend  economic lives are
capitalized.

The estimated useful lives are as follows:
       Buildings                                              30 years
       Land Improvements                                      15 years
       Machinery and Equipment                                 7 years
       Computer Hardware Equipment and Tooling                 5 years

EXPENSING OF COSTS

All production  start-up,  research and development,  and engineering  costs are
charged to expense,  except for that  portion of costs  which  relate to product
software development (see "Capitalized Software Development Costs").

EARNINGS PER COMMON SHARE AND COMMON EQUIVALENT SHARE

For 1995,  1994,  and 1993,  earnings per common share were computed by dividing
net income  applicable to common shares by the weighted average number of common
shares  outstanding and common  equivalent  shares.  Fully diluted  earnings per
share  assumes the  conversion  of preferred  stock and adds back the  preferred
stock dividends paid to net income. The effect of the preferred stock conversion
was antidilutive for the year ended 1994.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS

In 1995,  1994,  and  1993,  the  Company  incurred  costs  associated  with the
development  of  software  related  to  the  Company's  various  products.   The
accounting for such software costs is in accordance  with Statement of Financial
Accounting  Standards ("SFAS") No. 86. The Company's estimate of product life is
approximately  three years or more.  The total  amount of  unamortized  software
development  cost  included in other  assets is  $1,475,000  and  $1,392,000  at
December 31, 1995 and 1994, respectively. The amounts capitalized were $840,000,
$717,000, and $721,000, of which $757,000, $858,000, and $705,000 were amortized
in 1995, 1994, and 1993, respectively.

POSTRETIREMENT BENEFITS OTHER THAN PENSION

The  Company  adopted  in  1993,  SFAS  No.  106,  "Employers'   Accounting  for
Postretirement Benefits Other Than Pensions".  SFAS No. 106 requires the Company
to accrue  estimated costs relating to health care and life insurance  benefits.
In 1995, 1994, and 1993, the Company recognized $311,000, $289,000 and $288,000,
respectively.

INCOME TAXES

The Company adopted SFAS No. 109,  "Accounting for Income Taxes", in 1993, which
specifies the asset and liability approach. Under SFAS No. 109, the deferred tax
liability or asset is determined  based on the difference  between the financial
statement and tax bases of assets and liabilities as measured by the enacted tax
rates which will be in effect when the differences reverse. Deferred tax expense
is the result of changes in the liability for deferred taxes. The measurement of
deferred tax assets is reduced by the amount of any tax benefits where, based on
available  evidence,  the  likelihood of  realization  can be  established.  The
Company  has  incurred  prior  cumulative  operating  losses  through  1991  for
financial  statement and tax  reporting  purposes and has adjusted its valuation
allowance  account  to  recognize  a portion of the net  deferred  tax asset for
future  periods (see Note 6). Tax credits will be utilized to reduce current and
future income tax expense and payments.

RECLASSIFICATIONS

Amounts  in the  1994 and  1993  consolidated  financial  statements  have  been
reclassified to conform to the 1995 presentation. These reclassifications had no
effect on previously reported consolidated net income.

NOTE 2.  INVENTORIES

Inventory consists of the following:
-------------------------------------------------------------------------------
December 31,
In thousands                                             1995             1994
-------------------------------------------------------------------------------

   Finished goods                                       $3,808           $2,936
   Work-in-process                                       4,202            4,455
   Materials and supplies                                9,915            9,478
                                                         -----            -----
       Total                                           $17,925          $16,869
                                                       =======          =======
-------------------------------------------------------------------------------

NOTE 3.  PROPERTY

Property consists of the following:

-------------------------------------------------------------------------------
December 31,
In thousands                                          1995              1994
-------------------------------------------------------------------------------
   Land                                               $396              $396
   Buildings and improvements                       11,763            11,540
   Machinery and equipment                          27,547            26,551
   Less accumulated depreciation                   (25,763)          (24,819)
                                                   -------           -------
       Property - Net                              $13,943           $13,668
                                                   =======           =======
------------------------------------------------------------------------------

Depreciation  expense charged to operations for the years 1995,  1994, and 1993,
was $2,422,000, $2,601,000, and $2,164,000, respectively.

NOTE 4.  LEASE OBLIGATIONS

The Company and its  subsidiaries  have  various  capital  and  operating  lease
obligations.  Future  minimum  lease  commitments  for  capitalized  leases  and
aggregate minimum rental  commitments under operating lease agreements that have
initial non-cancelable lease terms in excess of one year are as follows:

------------------------------------------------------------------------------
Year Ending December 31,                               Capital       Operating
In thousands                                           Leases           Leases
------------------------------------------------------------------------------
   1996                                                 $584             $1,413
   1997                                                  135              1,396
   1998                                                  107              1,338
   1999                                                    -                988
   2000                                                    -                  2
                                                        ----              -----
   Total minimum lease commitments                       826             $5,137
                                                                         ======
   Less amounts representing interest
     and other costs                                    (109)
                                                       ------ 
   Principal portion of minimum lease
     commitments at December 31, 1995                   $717
                                                        ====
------------------------------------------------------------------------------

Assets recorded under capital leases  (included in property in the  accompanying
Consolidated Balance Sheets) are as follows:

-------------------------------------------------------------------------------
December 31,
In thousands                                          1995             1994
-------------------------------------------------------------------------------
    Machinery and equipment                         $1,843            $2,269
    Less accumulated depreciation                     (690)             (570)
                                                    ------             -----
        Property - Net                              $1,153            $1,699
                                                    ======            ======
-------------------------------------------------------------------------------

During  1995,  1994,  and 1993,  the  Company  entered  into new  capital  lease
obligations which amounted to approximately  $9,000,  $228,000,  and $1,597,000,
respectively.

Operating leases and rentals are for buildings,  factory,  and office equipment.
The total  rent  expense  for  operating  leases,  including  rentals  which are
cancelable on short-term  notice,  for the years ended December 31, 1995,  1994,
and 1993 was $1,262,000, $1,023,000, and $1,025,000, respectively.

NOTE 5.  DEBT

As of February 1, 1994, Fleet Capital Corporation  ("Fleet"),  formerly known as
Shawmut Capital Corporation and prior to that as Barclays Business Credit, Inc.,
held substantially all of the Company's indebtedness. Prior to February 1, 1994,
PacifiCorp,  through its indirect  subsidiary,  PacifiCorp Credit, Inc. ("PCI"),
held substantially all of the Company's indebtedness.

LONG-TERM DEBT
------------------------------------------------------------------------------
December 31,
In thousands                                               1995          1994
-------------------------------------------------------------------------------
Notes payable to Fleet
   Term notes I and II (1)                                4,030        $5,854
   Revolving credit (2)                                      -             -
   Capitalized leases (see Note 4)                          717         1,349
                                                          -----         -----
Total debt                                                4,747         7,203
   Less current maturities on debt                        1,903         2,466
Total long-term debt                                     $2,844        $4,737
                                                         ======        ======
------------------------------------------------------------------------------

(1) The Fleet Term Notes I and II of $7,300,000  carry  interest rates of 1-1/2%
over Fleet's prime rate and are payable in equal monthly principal  installments
of $152,000 for the next 2 months,  and 23 equal monthly principal  installments
of $110,334, with the balance due on February 1, 1998.

(2) The Fleet  revolving  credit  facility  carries an interest  rate of 1% over
Fleet's prime rate. Availability under the revolving credit facility is based on
eligible accounts  receivable and inventory,  less funds already  borrowed.  The
Company's  total  indebtedness  to  Fleet  (term  notes  plus  revolving  credit
facility) may not exceed $14,000,000.

The  Company's  indebtedness  with PCI was  secured  by  liens on the  Company's
accounts receivable, inventories,  intangibles, land, and other assets. Prior to
February 1, 1994, these loans accrued interest at an annual rate equal to 3 1/2%
above the prime rate of interest  established  by Morgan  Guaranty Trust Company
(the "Morgan Guaranty Prime Rate"). The Morgan Guaranty Prime Rate was 5 1/2% at
February 1, 1994 and December 31, 1993, respectively.

On December 23, 1993, the Company and PCI entered into an agreement (the "Equity
Agreement"), pursuant to which, among other things, PCI agreed to accept 850,000
shares of a newly designated Series A 7 1/2% Cumulative  Convertible  Redeemable
Preferred Stock ("Series A Preferred  Stock") of the Company in exchange for the
cancellation of $8,500,000 of the Company's existing  indebtedness to PCI (which
was a non-cash transaction).

At a special  meeting held on February 1, 1994, the  Stockholders of the Company
approved  the  exchange  and   amendments  to  the  Company's   Certificate   of
Incorporation   permitting  the  issuance  of  the  Series  A  Preferred  Stock.
Immediately following the meeting, the Company and Fleet entered into a loan and
security agreement ("Loan Agreement")  pursuant to which Fleet agreed to provide
the  Company  with a  $6,000,000  term  loan  ("Term  Note I") and a  $9,000,000
revolving  credit  loan  facility.   The  Company's  principal  balance  of  its
indebtedness on February 1, 1994 to PCI was $21,209,453, which was paid by using
cash  generated  from  operations  of  $6,000,000,  cash  borrowed from Fleet of
$6,709,453,  and the  cancellation  of the remaining debt of $8,500,000 with the
issuance of Preferred  Stock.  The Company  purchased from PCI 100,000 shares of
the Redeemable  Preferred Stock at the time the Company received the proceeds of
$1,000,000  from  Cortelco  International,  Inc.  ("Cortelco")  in December 1994
relating to the sale of the electromechanical product line in 1992.

On April 29, 1994,  the Company and Fleet  amended the Loan  Agreement to permit
the Company to borrow an additional  $1,300,000  under the Term Note ("Term Note
II") to finance the purchase of additional  surface mount technology  equipment.
The $1,300,000 term note is payable in 44 equal monthly payments of $27,000 with
the balance due on February 1, 1998.

Scheduled maturities of Fleet Term Notes (current and long-term debt) as defined
in the Loan Agreement are as follows:
------------------------------------------------------------------------------
                                                                 Principal
In thousands                         Fiscal Years               Installments
------------------------------------------------------------------------------
    Term Notes payable                  1996                      $1,407
                                        1997                       1,324
                                        1998                       1,299
------------------------------------------------------------------------------

DEBT COVENANTS

The  Company's  indebtedness  to Fleet  is  secured  by  liens on the  Company's
accounts receivable,  inventories,  intangibles, land, and other property. Among
other  restrictions,  the  Loan  Agreement  with  Fleet  also  contains  certain
financial covenants that relate to specified levels of consolidated tangible net
worth, profitability,  debt service ratio, and current ratio. The Loan Agreement
also limits additional borrowings and payment of dividends,  except for payments
made to PCI for their Series A Preferred  Stock.  As of December  31, 1995,  the
Company was in compliance  with the Loan Agreement  terms as defined in the Loan
Agreement.

NOTE 6.  INCOME TAXES

Effective  January 1, 1993,  the Company  changed its method of  accounting  for
income taxes from the  deferred  method to the  liability  method as required by
SFAS No. 109, "Accounting for Income Taxes". As permitted under the rules, prior
years' financial statements have not been restated. The components of the income
tax expense for the years ended December 31, are as follows:

------------------------------------------------------------------------------
                                                      Liability Method
In thousands                                       1995      1994     1993
------------------------------------------------------------------------------
    Current -  Federal                             $142      $88      $89
               State                                 27       28       40
    Deferred - Federal                           (4,374)       -        -
               State                               (129)       -        -
                                                  -----      ---       --
       Total provision/(benefit)                $(4,334)    $116     $129
                                                =======     ====     ====
------------------------------------------------------------------------------

The income tax provision  reconciled to the tax computed at statutory  rates for
the years ended December 31, is summarized as follows:

------------------------------------------------------------------------------
In thousands                                        1995     1994    1993
------------------------------------------------------------------------------
    Federal tax at statutory rate
     (35% in 1995, 1994, and 1993)                $1,937   $1,306    $891
    State income taxes (net of federal tax
      benefit)                                        18       18      27
    Nondeductible charges                             46       34      20
    Alternative minimum tax                          139       84      89
    Utilization of operating loss carryover       (1,971)  (1,326)   (898)
      Adjustment of valuation allowance           (4,503)       -       -
                                                   ------  ------    ----
       Income tax provision/(benefit)            $(4,334)    $116    $129
                                                 =======     ====    ====
------------------------------------------------------------------------------

Net  deferred  tax  assets  of  $4,503,000  and $0 have been  recognized  in the
accompanying  Consolidated  Balance  Sheet at December  31,  1995 and 1994.  The
components of the net deferred tax assets are as follows:

------------------------------------------------------------------------------
In thousands                                           1995             1994
------------------------------------------------------------------------------
    Total deferred tax assets                        $28,091          $29,852
    Total valuation allowance                        (21,397)         (27,871)
                                                     -------          --------
       Total deferred tax assets - net                 6,694            1,981
   Total deferred tax liabilities                     (2,191)          (1,981)
                                                      ------           ------
   Total                                              $4,503            $   -
                                                      ======           ======
------------------------------------------------------------------------------

The valuation allowance decreased  $6,474,000 during the year ended December 31,
1995. The decrease was primarily related to: (1) the re-evaluation of the future
utilization  of net  operating  losses  ("NOLs")  of  $4,503,000,  and  (2)  the
utilization  of  operating  loss   carryforwards  of  $1,971,000.   The  Company
periodically  reviews  the  requirements  for a  valuation  allowance  and makes
adjustments to such allowance when changes in circumstances result in changes in
judgment  about the  future  realization  of  deferred  tax  assets.  Based on a
re-evaluation  of the  realizability  of the deferred tax assets,  the valuation
allowance  was reduced and a tax benefit of  $4,503,000  was  recognized  in the
quarter ended July 2, 1995.  Management  believes,  although  realization is not
assured,  that it is more likely than not that the Company will realize this tax
benefit.  The amount of the deferred tax asset considered  realizable,  however,
could be reduced in the near term if estimates of future  taxable  income during
the carryforward periods are reduced.

The  Company  has net  operating  loss and credit  carryovers  of  approximately
$66,883,000 and $3,153,000, respectively, which, if not utilized, will expire as
follows:


------------------------------------------------------------------------------
In thousands                            Net Operating
  Expiration Dates                         Losses             Tax Credits
------------------------------------------------------------------------------
    1996 - 1997                             $14                    $412
    1998                                     69                   1,846
    1999                                 19,931                     504
    2000                                 31,129                      66
    2001                                  5,260                       -
    AFTER 2001                           10,480                   _ 325
                                         ------                   -----
   TOTAL                                $66,883                  $3,153
                                        =======                  ======
------------------------------------------------------------------------------

Based on the  Company's  interpretation  of Section 382 of the Internal  Revenue
Code,  the reduction of the valuation  allowance was  calculated  assuming a 50%
ownership  change,  which could limit the  utilization  of the tax net operating
loss and tax credit  carryforwards in future periods starting at the time of the
change.  An  ownership  change  could  occur if changes in the  Company's  stock
ownership  exceeds 50% of the value of the Company's stock during any three year
period.

The components of the net deferred tax assets (liabilities) at December 31, 1995
and 1994 are as follows:

------------------------------------------------------------------------------
Deferred Assets/(Liabilities)
In thousands                                              1995            1994
------------------------------------------------------------------------------
    Net loss carryovers                                  $22,740        $24,595
    Tax credit carryovers                                  3,153          3,027
    Inventory write downs and capitalization               1,057          1,028
    Pension                                                  354            461
    Postretirement                                           290            189
    Compensation and benefits                                169            169
    Capitalized software development costs                   277            256
    Contingencies                                             21             28
    Other deferred tax assets                                 18             11
    Note receivable reserve                                    -             84
    Fixed asset depreciation                              (2,179)        (1,977)
    Income reported in different periods for
      financial reporting and tax purposes                     -              -
    Other deferred tax liabilities                             -              -
                                                         -------         ------
      Net deferred tax asset                              25,900         27,871
    Less:  Valuation allowance                           (21,397)       (27,871)
                                                          ------        -------
      Total                                               $4,503        $     -
                                                          ======        =======
------------------------------------------------------------------------------

NOTE 7.  PENSION AND SAVINGS PLANS

The Company  currently  has one pension plan which  provides  benefits  based on
years of service and employee's  compensation  during the employment period. The
calculation of pension benefits prior to 1993 will be based on the provisions of
the two previous  pension  plans.  One plan provided  pension  benefits based on
years of service and employee's  compensation  during the employment period. The
other plan provided  benefits based on years of service.  The funding policy for
the plans was to make the minimum  annual  contributions  required by applicable
regulations.  Assets of the plans are  generally  invested in equities and fixed
income instruments.

The  following  table  sets  forth the  funded  status of the plans and  amounts
recognized in the Company's Consolidated Balance Sheets at December 31, 1995 and
1994.


In thousands                                                   1995        1994
------------------------------------------------------------------------------

 Actuarial present value of benefit obligation:
 Accumulated benefit obligation (including vested
   benefits of $10,499 and $8,431, respectively)            $(11,473)   $(9,225)
                                                            ========    =======

 Projected benefit obligation for service to date           $(12,102)   $(9,583)
 Plan assets at fair value                                    12,345      9,041
                                                             -------     ------
 Plan assets more (less) than projected benefit obligation       243       (542)
 Unrecognized net (gain) or loss from past experience         (1,064)    (1,007)
 Unrecognized net (gain) or loss from prior service cost        (288)      (322)
 Unrecognized net asset at date of implementation of
   SFAS No. 87 amortized over 14 years                          (115)      (144)
                                                                ----       ----
   Accrued liabilities for benefit plans at December 31      $(1,224)   $(2,015)
                                                             =======    =======
------------------------------------------------------------------------------

Net  periodic  pension cost for 1995,  1994,  and 1993  included  the  following
components:

------------------------------------------------------------------------------
In thousands                                          1995    1994    1993
------------------------------------------------------------------------------
  Service cost-benefits earned during the period      $931    $982    $803
  Interest cost on projected benefit obligation        751     657     548
  Actual return on plan assets                      (2,122)    106  (1,438)
  Net amortization and deferral of other items       1,199    (919)    608
                                                     -----    ----     ---
     Net periodic pension cost                        $759    $826    $521
                                                      ====    ====    ====
------------------------------------------------------------------------------

Assumptions used in accounting for the plans were as follows:
------------------------------------------------------------------------------
                                                      1995     1994     1993
------------------------------------------------------------------------------
    Discount rate                                     7.50%    8.00%    7.00%
    Rate of increase in future compensation levels    4.00%    4.00%    4.00%
    Expected long-term rate of return on assets       9.00%    9.00%    9.00%
------------------------------------------------------------------------------

In addition to providing pension benefits,  the Company  contributes to a 401(k)
plan, based on the employee's contributions. Participants can contribute from 2%
to 10% of their  salary as defined in the terms of the plan.  The Company  makes
matching  contributions  equal  to 25%  of a  participant's  contributions.  The
Company's  total  expense for the matching  portion to the 401(k) plan for 1995,
1994, and 1993 was $278,000, $261,000, and $225,000, respectively.

NOTE 8.  POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

As of January 1, 1993, the Company  adopted SFAS No. 106. The effect of adopting
SFAS No. 106 on income from continuing  operations for 1995,  1994, and 1993 was
an expense of $311,000, $289,000, and $288,000, respectively.

The  Company  provides  certain  health  care  coverage  (until age 65) which is
subsidized by the retiree through  insurance  premiums paid to the Company,  and
life insurance  benefits for  substantially  all of its retired  employees.  The
Company's  postretirement  health care  benefits are not currently  funded.  The
status of the postretirement benefits are as follows:

Accumulated  postretirement  benefit  obligation at January 1, 1995,  1994,  and
1993:



-------------------------------------------------------------------------------
In thousands                                        1995       1994      1993
------------------------------------------------------------------------------
 Retirees                                           $354       $398       $222
 Actives eligible to retire                          653        628        435
 Other active participants ineligible to retire      922        972        676
                                                     ---      -----      -----
    Total                                         $1,929     $1,998     $1,333
                                                  ======     ======      =====
------------------------------------------------------------------------------

Net  postretirement  benefit cost for years ended December 31,  consisted of the
following components:
------------------------------------------------------------------------------
In thousands                                        1995       1994      1993
------------------------------------------------------------------------------
    Service cost                                    $75        $59       $46
    Interest cost                                   156        139       151
    Actual return on assets                           -          -         -
    Amortization of the unrecognized transition
     obligation                                      91         91        91
    Amortization of (gain) or loss                  (11)         -         -
    Amortization of prior service cost                -          -         -
                                                   ----       ----      ----
        Total                                      $311       $289      $288
                                                   ====       ====      ====
------------------------------------------------------------------------------

The following table sets forth funded status of the plans and amounts recognized
in the Company's Consolidated Balance Sheet at December 31, 1995 and 1994.

------------------------------------------------------------------------------
In thousands                                                   1995       1994
------------------------------------------------------------------------------
  Plan assets at fair value                                  $    -     $   -
  Accumulated postretirement benefit obligation
     Retirees                                                  (379)     (394)
     Fully eligible participants                               (699)     (604)
     Other active participants                                 (996)     (874)
  Unrecognized prior service cost                                 -         -
  Unrecognized net (gain) or loss                              (320)     (316)
  Unrecognized transition obligation                          1,540     1,631
                                                              -----     -----
    Accrued liabilities for benefit plans at December 31     $ (854)   $ (557)
                                                              =====    ======
------------------------------------------------------------------------------

The  assumed  health  care cost trend  rate used in  measuring  the  accumulated
postretirement  benefit  obligation  as of January 1, 1995 was 8% for 1995,  the
trend rate  decreasing  each successive year until it reaches 5.3% in 2005 after
which it remains constant. The discount rate used in determining the accumulated
postretirement  benefit  obligation  cost  was  7.75%.  A  one  percentage-point
increase in the assumed health care cost trend rate for each year would increase
the accumulated  postretirement benefit obligation as of January 1, 1995 and net
postretirement health care cost by approximately  $147,000 and service cost plus
interest cost by approximately $19,000. The postretirement benefit obligation is
not funded and does not  include  any  provisions  for  securities,  settlement,
curtailment, or special termination benefits.

NOTE 9.  WARRANTS

Warrants  were  held by PCI and a bank  group  which  held the  majority  of the
Company's  indebtedness  prior to October  1991.  On November 1, 1993,  the bank
group  exercised  warrants and acquired in the aggregate  166,667  shares of the
Company's  Common Stock, at an exercise price of $3.75 per share. On December 9,
1993, PCI exercised its Replacement  Warrant and acquired  666,667 shares of the
Company's  Common  Stock,  at an  exercise  price of $0.03 per  share.  No other
warrants have been issued by the Company.

NOTE 10.  PREFERRED STOCK

On December  23, 1993,  the Company and PCI entered  into the Equity  Agreement,
pursuant to which,  among other things, PCI agreed to accept 850,000 shares of a
newly designated  Series A 7 1/2% Cumulative  Convertible  Redeemable  Preferred
Stock of the Company in  exchange  for the  cancellation  of  $8,500,000  of the
Company's  existing  indebtedness  to PCI (which  was a  non-cash  transaction).
Dividends  were paid each  quarter  at an annual  rate of return of 7 1/2% which
totaled for 1995 and 1994, $350,000 and $577,000, respectively.

Each share of Series A Preferred Stock was convertible at the option of PCI into
fully paid and  non-assessable  shares of Common  Stock.  Under the terms of the
Equity  Agreement,  the Company was  required  to redeem  100,000  shares of the
Series A Preferred  Stock at the time the Company  received  $1,000,000  in 1994
from Cortelco,  which related to the sale of the electromechanical  product line
in 1992 (see Note 5). In December  1994,  the Company  received  the  $1,000,000
payment from  Cortelco,  which was used to redeem the 100,000  shares (par value
$10.00)  of the Series A  Preferred  Stock.  In the event that four  consecutive
quarterly  dividend payments on Series A Preferred Stock had been in arrears and
unpaid, PCI had the exclusive right,  voting separately as a class, to elect two
members  of the Board of  Directors  or such  greater  number of  members  as is
necessary  to equal at least 40% of the total  number of members of the Board of
Directors.  The  remaining  750,000  shares of  Series A  Preferred  Stock  were
redeemed in August 1995 (see Note 11).

NOTE 11.  PUBLIC STOCK OFFERING

In August 1995, the Company  completed a public offering of 3,000,000  shares of
Common Stock (the  "Offering") at $12.00 per share.  Of the 3,000,000  shares of
Common  Stock,  2,000,000  were offered by PCI and  1,000,000  were newly issued
shares by the Company.

The net proceeds to the Company from the Offering were $11,200,000. A portion of
the  proceeds  were used to redeem  all of the  Series A  Preferred  Stock,  pay
accumulated dividends, and pay the costs of the offering. The remaining proceeds
were used for general corporate and working capital purposes.

Concurrent with the Offering, the Company declared a one-for-three reverse stock
split of the Company's  Common Stock. The effect of the Offering and the reverse
stock split decreased the number of outstanding  shares from  approximately 21.3
million to 8.1 million.  All references in the financial statements to number of
shares,  per share amounts and market prices of the Company's  Common Stock have
been retroactively restated to reflect the one-for-three reverse stock split.

NOTE 12.  STOCK OPTIONS AND AWARDS

The Company's  plans  include stock options to purchase  Common Stock and may be
granted  to  officers,  directors,  and  certain  key  employees  as  additional
compensation.  The plans are composed of both stock options,  restricted  stock,
nonstatutory  stock, and incentive stock. The plan awards to each director 1,666
shares of the  Company's  Common Stock for each fiscal year the Company  reports
income. In 1995, each Director was awarded 3,334 shares. The Company's incentive
plans are administered by the  Compensation  Committee of the Company's Board of
Directors.


The  Company's  incentive  plans,  adjusted for the  one-for-three  stock split,
reserve  1,000,000 shares of the Company's Common Stock for issuance at December
31, 1995, 1994, and 1993. The Company has previously  accepted notes relating to
the non-qualified stock options exercised by officers and employees. These notes
receivable relating to the stock purchases, amounting to $176,000, $182,000, and
$229,000 at December 31, 1995, 1994, and 1993, respectively,  have been deducted
from Stockholders' Equity.

Information regarding stock options is summarized below:
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________________
                                                                 1995                 1994                1993
---------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                  <C>                <C>
Options outstanding, January 1;                                 363,172              451,377            582,667
    Granted                                                     268,073               92,000             14,333
    Exercised                                                  (157,044)            (146,558)           (44,290)
    Terminated                                                  (24,960)             (33,647)          (101,333)
                                                                -------              -------           --------
Options outstanding, December 31;                               449,241              363,172            451,377
                                                                =======              =======            =======
Per share ranges of options
    outstanding at December 31                             $1.47-$11.75         $1.41-$10.59        $1.41-$6.18
Dates through which options
    outstanding at December 31,
    were exercisable                                       1/96-11/2005         1/95-10/2004       1/94-10/2003
Options exercisable, December 31;                               160,403              174,599            178,150

 Years prior to 1995 have been restated to reflect the one-for-three reverse
 stock split.
_______________________________________________________________________________________________________________
</TABLE>

NOTE 13.  SEGMENT INFORMATION

During 1995,  1994,  and 1993,  substantially  all of the Company's  sales,  net
income, and identifiable net assets were attributable to the  telecommunications
industry.

The  Company  had  sales in excess  of 10% of net  sales to three  customers  as
follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
In thousands                                                            1995            1994          1993
------------------------------------------------------------------------------------------------------------
    <S>                                                                <C>             <C>           <C>
    Sales:
       ALLTEL Supply, Inc.                                             $20,575         $12,370       $15,908
       Graybar Electric Company, Inc.                                   30,857          31,298        24,494
       North Supply Company, Inc.                                       18,357          16,305        14,984

    Percentage of net sales:
       ALLTEL Supply, Inc.                                                  22%             16%           23%
       Graybar Electric Company, Inc.                                       33%             41%           35%
       North Supply Company, Inc.                                           19%             21%           22%
____________________________________________________________________________________________________________
</TABLE>

ALLTEL Supply,  Inc., a subsidiary of ALLTEL  Corporation,  a shareholder of the
Company, has accounts receivable with the Company of $1,415,000 and $588,000 for
the periods ending December 31, 1995 and 1994, respectively.

NOTE 14.  COMMITMENTS AND CONTINGENT LIABILITIES

The Company's  facilities are subject to a variety of federal,  state, and local
environmental protection laws and regulations,  including provisions relating to
the discharge of materials  into the  environment.  The cost of compliance  with
such  laws  and  regulations  has not had a  material  adverse  effect  upon the


Company's capital expenditures,  earnings or competitive position, and it is not
anticipated to have a material adverse effect in the future.

In 1988, the Company voluntarily  discontinued its use of a concrete underground
hydraulic oil and chlorinated  solvent  storage tank. In conjunction  therewith,
nearby soil and groundwater  contamination  was noted. As a result,  the Company
developed a plan of remediation  that was approved by the Virginia Water Control
Board in January  1989.  The plan was later amended and approved by the Virginia
Department  of  Environmental  Quality,  after which the Company  commenced  the
remediation efforts required thereunder. In 1993, the Company provided a $45,000
reserve for the estimated cost to implement the remediation plan.

       In October  1994,  the Company  installed  all the required  equipment in
accordance  with the  remediation  plan  and  started  the  process  of  pumping
hydraulic  oil residue from the  underground  water.  The oil is deposited  into
approved  containers and taken to a hazardous  waste site in accordance with the
corrective  action plan. As of December 31, 1995,  Comdial has incurred costs of
approximately  $25,000 and expects the pumping  process to be completed by early
1998.



NOTE 15.  SUSEQUENT EVENTS

Subsequent  to its year end,  the Company  entered  into  definitive  agreements
regarding  acquisition  of Key  Voice  Technologies,  Inc.  ("KVT")  and  Aurora
Systems, Inc. ("Aurora").  Both acquisitions are expected to be completed by the
end of March, 1995.

The  consideration  for the  acquisition of KVT aggregates  approximately  $18.3
million plus the net book value of certain KVT accounts as of the closing  date.
The  consideration  will consist of $7.0 million in cash, $7.0 million evidenced
by a promissory  note, and  approximately  $2.3 million in the Company's  Common
Stock. The remaining $2.0 million of the  consideration is contingent upon KVT's
performance  after the  acquisition,  and may be paid at the Company's option in
either cash or the Company's Common Stock.

The consideration for the Aurora acquisition is approximately $2.8 million. This
consideration  will  consist of $1.5  million in cash,  and $1.3  million of the
Company's Common Stock.

In order for the  Company to acquire KVT and  Aurora,  the Company  will need to
obtain  additional  funds from its credit  facility.  The Company and Fleet have
agreed to amend the Loan  Agreement  to permit the Company to borrow  additional
funds  as well as to  modify  some of the  existing  terms  and  covenants.  The
amendment to the Loan  Agreement  will provide an increased  borrowing  capacity
under a $13.5  million  term note,  and a  revolving  credit  facility  of $12.5
million.

NOTE 16.  QUARTERLY FINANCIAL DATA (UNAUDITED)

Net earnings per share for quarters prior to the third quarter of 1995 have been
restated to reflect the one for three reverse stock split.

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------
                                                               First       Second        Third       Fourth
In thousands except per share amounts                         Quarter      Quarter      Quarter      Quarter
------------------------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>          <C>          <C>
1995
    Sales                                                     $22,316      $25,442      $25,235      $21,809
    Gross profit                                                7,124        8,254        8,054        7,343
    Interest expense                                              273          282          242          199
    Net income                                                  1,230        6,349        1,804          486
    Dividends on preferred stock                                  143          142           65            -
    Net earnings per common share: Primary                       0.15         0.85         0.22         0.06

------------------------------------------------------------------------------------------------------------
1994
    Sales                                                     $17,639      $19,019      $20,660      $19,827
    Gross profit                                                5,866        6,122        6,383        6,356
    Interest expense                                              392          319          301          255
    Income before extraordinary item                              615          942        1,245          812
    Net income                                                    226          942        1,245          812
    Dividends on preferred stock                                  106          161          162          148
    Net earnings per common share: Primary                       0.02         0.11         0.15         0.09
------------------------------------------------------------------------------------------------------------
</TABLE>

Previously  reported  quarterly  information has been revised to reflect certain
reclassifications.  These reclassifications had no effect on previously reported
consolidated net income.

In the first quarter of 1994, the Company  restructured  its indebtedness to PCI
by using cash generated  from  operations and cash borrowed from Fleet (see Note
5). The major impact on  operations  was the  reduction of interest  expense for
1994 and 1995,  and the  write-off  of prior debt  issuance  cost of $389,000 in
1994.

In the second quarter of 1995, the Company reevaluated the future utilization of
its deferred tax assets and decided it was more likely than not that the Company
will realize a tax benefit.  Based on the  reevaluation of the  realizability of
the deferred tax assets,  the valuation  allowance was reduced and a tax benefit
of $4,503,000 was recognized (see Note 6).

In the third quarter of 1995, the Company completed a public stock offering with
a concurrent one-for-three reverse stock split (see Note 11).

For the fourth quarter of 1995, the earnings per share was  antidilutive but the
net  earnings  per common  shares and  equivalent  shares were the same for both
antidilutive and primary earnings per share. Certain interim inventory estimates
are recognized  throughout the fiscal year relating to shrinkage,  obsolescence,
and product mix. The results of the physical  inventory and the fiscal  year-end
close reflected a favorable adjustment with respect to such estimates, resulting
in approximately $295,000 of additional income, which is reflected in the fourth
quarter of 1995.


FIVE YEAR FINANCIAL DATA

SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------
In thousands except
     per share amounts                                1995         1994         1993         1992         1991
-----------------------------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>          <C>          <C>          <C>
Net sales:
    As reported (1)                                  $94,802      $77,145      $69,099      $70,897      $66,914
    Current product lines (2)                         94,802       77,145       69,099       64,423       55,731
Income (loss) before income taxes
    and extraordinary item                             5,535        3,730        2,545          897         (871)
Net income (loss)                                      9,869        3,225        2,416          884         (871)
Earnings (loss) per common share
    and common equivalent share:
      Primary: (3)                                      1.24         0.37         0.35         0.13        (0.15)
-----------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Prior years have been reclassified to conform to 1995 presentation.
(2)  Excludes sales of the electromechanical product line.
(3)  Earnings per share have been restated to reflect the one-for-three
     reverse stock split.


SELECTED CONSOLIDATED BALANCE SHEET DATA

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------
In thousands                                          1995         1994         1993         1992         1991
-----------------------------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>          <C>          <C>          <C>
Current assets                                       $33,740      $26,199      $28,301      $24,389      $25,779
Total assets                                          56,692       42,260       44,803       41,747       41,412
Current liabilities                                   15,469       14,568       13,358       11,985       11,852
Long term debt and other
    long term liabilities                              6,929        6,649       20,695       22,251       23,217
Stockholders' equity                                  34,294       21,043       10,750        7,511        6,343
=================================================================================================================
</TABLE>

RELATED STOCKHOLDERS MATTERS

QUARTERLY COMMON STOCK INFORMATION

The  following  table  sets  forth,  for the  periods  shown,  the  high and low
quarterly closing sales prices in the over-the-counter  market for the Company's
Common Stock, as reported by National  Association of Security Dealers Automated
Quotation  System  ("Nasdaq").  The  Company's  Common  Stock is  traded  in the
National Market System of the Nasdaq Stock Market in which the Company's  symbol
is CMDL. The following common stock information has been restated to reflect the
one-for-three reverse stock split.

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------
                                                          1995                                      1994
Fiscal Quarters                                HIGH               LOW                      High            Low
-----------------------------------------------------------------------------------------------------------------
    <S>                                      <C>               <C>                        <C>            <C>
    First Quarter                             9     -           6   3/4                   12  3/8        7 11/16
    Second Quarter                           15   3/8           7   7/8                   10  1/8        5   5/8
    Third Quarter                            14 13/16          11   1/4                    9  3/8        5 13/16
    Fourth Quarter                           13   7/8           7   3/4                   10 5/16        5  7/16
-----------------------------------------------------------------------------------------------------------------
</TABLE>

The  Company  has never  paid a dividend  on its  Common  Stock and its Board of
Directors currently intends to continue for the foreseeable future the policy of
not paying cash dividends on Common Stock. The Company is prohibited from paying
dividends  due to the Loan  Agreement  with Fleet  except on Series A  Preferred
Stock (see Note 5 to Consolidated Financial Statements).


The  Company's  Common Stock trades on The Nasdaq Stock Market under the symbol:
CMDL.

OFFICERS & DIRECTORS

<TABLE>
<CAPTION>

CORPORATE OFFICERS                           DIRECTORS
<S>                                          <C>                            <C>
William G. Mustain                           William G. Mustain             Chairman
  President and
  Chief Executive Officer                    A. M. Gleason                  President of Port of
                                                                            Portland

                                             Michael C. Henderson           Vice Chariman, President
Wayne R. Wilver                                                             of PacifiCorp
  Senior Vice President,                                                    Financial Services, Inc.
  Chief Financial Officer,
  Treasurer, and Secretary                   William E. Porter              Senior Vice President of
                                                                            Strategic Planning-Trigon
Joe Ford                                                                    Blue Cross Blue Shield
  Vice President, Human
  Resources                                  John W. Rosenblum              Tayloe Murphy Professor of
                                                                            Business Administration,
William C. Grover                                                           Darden Graduate School of
  Vice President, Sales and                                                 Business Administration,
  Marketing                                                                 University of Virginia

Keith J. Johnstone                           Dianne C. Walker               Consultant
  Vice President, Manufacturing

Lawrence K. Tate
  Vice President, Quality

Ove Villadsen
  Vice President, Engineering

</TABLE>


TRANSFER AGENT AND REGISTRAR         FORM 10-K
 Chemical Bank                       On written request, Comdial Corporation
 New York, New York                  will furnish to stockholders a copy of
                                     its Form 10-K for the most recent year.
INDEPENDENT AUDITORS                 Address your request to Linda Falconer,
 Deloitte & Touche LLP               Comdial Corporation, P.O. Box 7266,
 Richmond, Virginia                  Charlottesville, Virginia  22906-7266

INVESTOR RELATIONS                   WORLD WIDE WEBB
Dick Bucci - Director,               http://www.comdial.com
             Investor Relations
Phone:  (804) 978-2525
Fax:    (804) 978-2512