Comdial Corp – ‘10-K405’ for 12/31/94

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Annual Report — [x] Reg. S-K Item 405   —   Form 10-K
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Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Form 10-K                                             43±   189K 
 2: EX-11       Computations of Earnings Per Share                     1      8K 
 3: EX-23       Consent of Deloitte & Touche LLP                       1      6K 
 4: EX-24       Powers of Attorney                                     4      9K 
 5: EX-27       Financial Data Schedule                                1      6K 

10-K405   —   Form 10-K
Document Table of Contents

10-K405
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549 

FORM 10-K 

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

For the fiscal year ended December 31, 1994                       
OR

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

For the transition period from                 to               

Commission file number:  0-9023 

COMDIAL CORPORATION 
(Exact name of Registrant as specified in its charter)

       Delaware                                       94-2443673
   (State or other jurisdiction of                    (I.R.S. Employer
      incorporation or organization)                  identification Number)

P. O. Box 7266                                                  
   1180 Seminole Trail; Charlottesville, Virginia           22906-7266
   (Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code: (804) 978-2200              

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

Title of class
COMMON STOCK (Par Value $0.01 each) 

Indicate by check mark whether the registrant (1) has filed all reports         
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of   
1934 during the preceding 12 months (or for such shorter period that the        
registrant was required to file such reports), and (2) has been subject to      
such filing requirements for the past 90 days.  Yes  X    No                    

Indicate by check mark if disclosure of delinquent filers pursuant to Item      
405 of Regulation S-K is not contained herein, and will not be contained, to    
the best of registrant's knowledge, in definitive proxy or information          
statements incorporated by reference in Part III of this Form 10-K or any       
amendment to this Form 10-K. [X]                                                

Aggregate market value of voting stock held by non-affiliates of the            
registrant as of March 14, 1995 was approximately $25,431,000 (see Item 5).     

Indicate the number of shares of Common Stock outstanding as of March 14,       
1995: 21,116,842.                                                               

DOCUMENTS INCORPORATED BY REFERENCE:

Comdial's 1994 Annual Report to the Stockholders is incorporated by reference   
under Part II and portions of Comdial's Definitive Proxy Statement for its      
1995 Annual Meeting of Stockholders, which will be filed with the Securities    
and Exchange Commission within 120 days after December 31, 1994, are            
incorporated by reference under Part III of this Form 10-K.                     

TABLE OF CONTENTS                                                               

Part I                                                                          

 Item 1.      Business                                                     4
      (a)     General Development of Business                              4
      (b)     Financial Information About Industry Segment                 6
                Product Sales Information                                  6
      (c)     Narrative Description of Business                            7
                Products and Services                                      7
                Business Systems                                           7
                Proprietary and Specialty Phones                           9
                Standard Electromechanical Phones                         10
                Custom Manufacturing                                      10
                Strategic Alliances                                       10
                Distribution                                              10
                Competition                                               11
                Backlog                                                   11
                Research and Development Costs                            11
                Manufacturing                                             11
                Patents, Trademarks, and Licenses                         12
                Environment                                               12
                Employees                                                 13

 Item 2.      Properties                                                  13

 Item 3.      Legal Proceedings                                           13

 Item 4.      Submission of Matters to a Vote of Security Holders         13

Part II                                                                         

Item 5.      Market for the Registrant's Common Equity                    
                and Related Stockholder Matters                           14

 Item 6.      Selected Financial Data                                     14

Item 7.      Management's Discussion and Analysis of Financial            
                Condition and Results of Operations                       14

 Item 8.      Financial Statements and Supplementary Data                 14

Item 9.      Changes in and Disagreements with Accountants on             
                Accounting and Financial Disclosure                       14

Part III                                                                        

 Item 10.     Directors and Executive Officers of the Registrant          15

 Item 11.     Executive Compensation                                      15

Item 12.     Security Ownership of Certain Beneficial Owners and          
                Management                                                15

 Item 13.     Certain Relationships and Related Transactions              15

Part IV                                                                         

Item 14.     Exhibits, Financial Statement Schedules, and Reports         
                on Form 8-K                                               16

PART I        
ITEM 1.  Business                                                               

(a) GENERAL DEVELOPMENT OF BUSINESS                                       

Comdial Corporation ("Comdial") is a Delaware corporation based in        
Charlottesville, Virginia.  Comdial is engaged in the design, development,      
manufacture, distribution, and sale of advanced telecommunications products     
and system solutions.  Comdial was originally incorporated in Oregon in 1977.   
In 1982, Comdial reincorporated in Delaware, and acquired substantially all     
of the assets, and assumed substantially all of the liabilities, of General     
Dynamics Telephone Systems Center, Inc., formerly known as Stromberg-Carlson    
Telephone Systems, Inc. ("Stromberg-Carlson"), a wholly-owned subsidiary of     
General Dynamics Corporation.  Stromberg-Carlson's facilities, located in       
Charlottesville, Virginia since 1955, had engaged in the manufacture of         
telephones since 1894.                                                          

Comdial's core business is designing, manufacturing, and marketing a  
broad line of voice communications systems to small and medium sized            
organizations.  These products are sold through a network of approximately      
700 Preferred Dealers, 700 Associate Dealers, and several thousand              
independent interconnects and contractors, who purchase Comdial products from   
authorized wholesale distributors.  End users served through this channel are   
typically small businesses (under 100 employees), but may also include large    
businesses, government agencies and such as universities who are served by a    
host PBX or telephone company supplied Centrex system.  When a Comdial system   
is installed behind the host system, and it is commonly configured to serve     
specific departments or call centers.                                           

 In the early 1980's Comdial was known as a manufacturer and supplier of
industry standard and decorative residential telephones.  In the mid-1980's,    
Comdial redirected its strategic focus to the small business market.  In        
1992, the industry standard telephone business was sold to International        
Telecommunications Asia PTE LTD., a Singapore corporation ("IT Asia").  At      
that time, the sales volume of these industry standard telephones was           
approximately $12 million.                                                      

Since 1993, Comdial has pursued growth opportunities through expansion
into selected international markets, and by becoming an aggressive              
participant in the emerging market for system solutions based on computer-      
telephony integration  ("CTI") technologies.  International expansion is        
directed by a wholly owned subsidiary, Comdial Telecommunications               
International Inc. ("CTii").  The design, development, and marketing of         
computer-telephony products is directed by a wholly owned subsidiary, Comdial   
Enterprise Systems, Inc. ("CES").                                               

Starting in 1985, Comdial introduced and manufactured its first       
electronic key telephone system ("ExecuTech").  In 1986, Comdial introduced     
additional models of ExecuTech to broaden market coverage.  Between 1987 and    
1990, six new models of electronic key systems were introduced.  In 1991,       
Comdial began shipping DigiTech, its first digital telephone system, and        
ExecuMail, its first voice processing system.  The latter was a joint           
development with Active Voice Corporation.  In 1992, Comdial began volume       
shipments of the Digital Expandable system ("DXP"), a telephone system which    
could be configured as a key system, hybrid key system or private branch        
exchange ("PBX").  With the DXP, Comdial could serve businesses requiring up    
to 192 telephone ports, or four times the market coverage of the original       
DigiTech.  In 1993, Comdial commenced shipping Impact digital key telephones.   
Impact instruments are stylish and functional, featuring interactive "soft"     
keys, which simplify user operation.  In addition, they can be used on all      
Comdial digital platforms.  Digital instruments now comprise nearly half of     
annual telephone production.  The DXP was the first Comdial telephone system    
designed with an Open Application Interface ("OAI").                            

This OAI link permitted Comdial to become an early participant in CTI.          

  CTI merges the power of advanced digital telephone systems and computers
to provide integrated solutions to common communications needs (such as call    
centers) and specific vertical market applications (such as real estate).       
The first turnkey CTI product marketed by Comdial was an enhanced E-911         
emergency telephone system.  These systems are custom engineered for each       
community and a Comdial DXP is at the heart of each system.  Sales and          
installation of E-911 systems by Comdial began in 1994.                         

Comdial also introduced three new products in 1994 designed around the  
OAI capability of the DXP.  The QuickQ Automatic Call Distributor ("ACD")       
automatically answers and directs incoming calls, based on a variety of         
criteria such as activity level or expertise.  Detailed reports assist          
management in measuring productivity and scheduling agent coverage.  Common     
applications are telemarketing, customer service, and credit and collections.   
The InnTouch DXP includes software specifically required by hotel/motel         
establishments, such as costing customer telephone calls and automatically      
placing wake up calls.  Tracker is Comdial's name for a premises-based paging   
and telecommunications system which assures call completion.  Users carry       
small pagers which are data linked to Comdial's DXP.  The Tracker pagers        
alert users to incoming calls, and instruct, via a liquid crystal display,      
how to retrieve the call from the nearest telephone.  The Tracker system can    
also deliver detailed messages over the pager display.  The Tracker was the     
result of a strategic alliance between Comdial and Motorola, Inc.               

During the fourth quarter of 1994, Comdial announced two new products   
which extend the power of CTI to local area network ("LAN") environments and    
desktop personal computers.   Enterprise for Telephony Services is a            
documentation and software package for linking Comdial DXPs to Novell NetWare   
(trademark of Novell Corporation) local area networks, and is now being         
shipped to customers.  The other new CTI product is designed for  users of      
desktop personal computers ("PCs") who are not on a LAN, and are typically      
smaller companies.  Comdial partnered with Voice Technologies Group to design   
a special telephony card which can be installed in PCs using Microsoft          
Windows (trademark of Microsoft Corporation) operating systems.   This          
product will begin shipping during 1995.  These two products will enable        
users to add off-the-shelf applications software to enhance productivity and    
improve customer service using computer enhanced telephony services.            

In October of 1994, Comdial was awarded the International Organization for
Standardization ("ISO") 9001 Certification, the highest and most                
comprehensive certification of its kind.  This was a significant                
accomplishment for Comdial in 1994.  ISO 9000 is the most recognized series     
of Quality Management System standards and is now used in 74 countries.  ISO    
9001 is the highest level of the standards and includes manufacturing,          
customer support, technical service, and product design.  The certification     
process concluded approximately two years of intensive efforts of analyzing     
and documenting quality system procedures and company-wide personnel            
training.                                                                       

 Comdial believes the ISO 9001 Certification will help Comdial maintain or
improve its place in the telecommunications and services marketplace, as well   
as improve efficiency, productivity, and effectiveness of the business and      
possibly give Comdial an important marketing edge in selling its products.      

Achieving ISO 9001 Certification demonstrates Comdial's company-wide  
commitment to quality.                                                          

In marketing its telephone systems, Comdial emphasizes quality backed by
the ISO-9001 certification, state-of-the-art features, competitive pricing,     
commitment to customer and  dealer support, and a "Made right in the USA"       
theme (see Narrative Description of Business; Distribution).                    

Comdial's telecommunications instruments are registered with the Federal    
Communications Commission ("FCC") and an Occupational Safety and Health Act     
Commission ("OSHA") approved National Recognized Test Laboratory in the         
normal course of Comdial's business.  Selected products are also registered     
with the Canadian Department of Communications and are Canadian safety          
certified.  Comdial has, or is in the process of, registering its products in   
other countries.                                                                

Comdial's Common Stock is traded over-the-counter and is quoted on the
National Association of Security Dealers Automated Quotation System             
("Nasdaq") under the symbol: CMDL.                                              

(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENT                                

During the fiscal years ended December 31, 1994, 1993 and 1992,       
substantially all of Comdial's sales, net income, and identifiable net assets   
were attributable to the telecommunications industry.  Any additional           
information other than sales is incorporated by reference to the Registrant's   
1994 Annual Report to Stockholders.                                             

Comdial has restated prior years' sales to conform with the 1994      
presentation.  Comdial is currently reporting sales as a net number after       
deductions for volume discounts, returns, and allowances.  Comdial              
reclassified for 1994 and comparable prior periods, freight expense and the     
cost of certain promotional programs resulting in a reduction in sales and      
increases in cost of sales, and selling, general and administrative expense,    
respectively.  Promotional programs include various sales incentive rebates     
claimed by dealers and specific end users who buy Comdial's products direct     
from distributors.  Management considers these reclassifications as more        
consistent with the nature of the sales costs incurred and the manner in        
which such costs are managed by Comdial.  For years 1994, 1993 and 1992,        
reclassified freight expense was $552,000, $478,000, and $677,000, and          
reclassified promotional program expense was $4,492,000, $3,538,000, and        
$4,751,000, respectively.  These reclassifications did not have any effect on   
net income or stockholders' equity.                                             

Prior to 1994, Comdial formed two subsidiaries, CTii and CES.       
Management plans for these subsidiaries to play a major role in the future      
growth of Comdial.  CTii, incorporated in 1992, was formed to concentrate on    
identifying and developing opportunities for international business.  As of     
December 31, 1994, CTii has established agreements with seventeen               
distributors serving twenty-six countries.  CTii sales have grown each year     
from $378,000 in 1992, to $990,000 in 1993, and to $2,482,000 in 1994.          

CES, incorporated in late 1993, focuses on designing, deploying, and  
marketing CTI applications and software for the rapidly growing markets for     
CTI products and services.  Sales in the first year (1994) were $558,000.       

Product Sales Information                                                       

The following table presents certain relevant information             
concerning Comdial's principal product lines for the periods indicated:         

                           Year Ended December 31,
(Millions of Dollars)                   1994       1993       1992              
Sales                                                                           
Business Systems                       $68.0      $61.0      $54.1              
Proprietary and Specialty Phones         5.8        6.5        8.3              
Standard Electromechanical Phones*         -          -        6.5              
Custom Manufacturing                     3.3        1.6        2.0              
TOTAL                                $77.1      $69.1      $70.9            

* On July 21, 1992, Comdial sold its standard electromechanical product line    
to IT Asia.                                                                 

(c) NARRATIVE DESCRIPTION OF BUSINESS                                       

Products and Services                                                           

Comdial manufactures a full line of telephone sets and systems for the  
business and hospitality markets.  In 1994, over 88 percent of Comdial's        
revenues resulted from the sale of business systems compared with 88 percent    
and 76 percent in 1993 and 1992, respectively.  Telephone systems consist of    
two basic hardware components: a key service unit ("KSU") and telephones.  In   
addition, voice mail and other peri-pheral products can be added to the         
system.  The KSU contains the common control intelligence and power supply      
required to process calls and to operate all of the system's features.          
During 1994, Comdial supplied a variety of business systems, ranging in         
capacity from three central office lines and eight stations to a 224 port       
system capable of supporting up to 192 stations for business and hospitality    
applications.                                                                   

Business Systems                                                                

1.  Impact was introduced in November 1992 and is designed to work on Comdial   
digital service units ("DSU") and DXP.  Impact provides a variety of    
features: keys which are interactive with a liquid crystal display      
("LCD"), three color LED status indicators, and subdued off hook voice  
announce for receiving intercom calls while on a phone call.  These     
features, along with others, make the telephone easier to use.          

2.  DXP began shipping in 1992, and allows Comdial and its dealers to           
target larger end users while using the same telephones as Comdial's    
smaller systems.  This provides customers with an affordable system     
which can be up-graded to support up to 192 business telephones.        
The DXP has more features than the smaller systems, such as             
automatic route selection and a an optional PC-based attendant          
position.  The DXP, sold to Comdial dealers and telephone companies     
through supply houses, also offers a link to CTI using the              
Enterprise software package.  This allows external PC-based software    
packages to manage the DXP for any number of specialized                
applications.                                                           

3.  InnTouch DXP is a digital telephone system designed for hospitality         
applications.  The system consists of a DXP common control unit,        
Impact model multil-line administration phones, single line guest       
phones, and special hospitality software.  The guest phones may be      
industry standard message waiting models or Comdial's own               
HoTelephones. HoTelephones provide added functionality including        
programmable keys and an auxiliary jack for modem connection.           
Standard system features include check-in/check-out, automatic          
wake-up calls, message waiting indication, call costing, maid           
status, and many other valuable hotel management features.  The         
optional InnTouch processing monitor is linked to the DXP via           
Comdial's proprietary Enterprise CTI link, and provides full screen     
display of room, telephone, and maid status.  InnTouch serves hotel     
properties requiring up to 192 telephones.  InnTouch was designed in    
partnership with an independent software developer.                     

4.  DigiTech systems are digital KSU's and telephones designed for the          
business market with up to 48 stations.  DigiTech offers automatic      
set relocation, remote programming, a replaceable software              
cartridge, and other sophisticated features.  DigiTech was              
introduced in January 1991 and is sold to telecommunication dealers     
through supply houses.                                                  

5.  Enterprise is an OAI software tool kit used with the DXP system.            
Enterprise allows software developers to access the DXP system          
software using more than 100 commands to create unique applications     
for specific vertical markets, such as telemarketing groups,            
emergency services, call centers, taxi services, and multimedia         
centers.  One of the initial OAI applications developed using           
Enterprise is an Enhanced 911 ("E911") emergency telephone system,      
developed by 911 Systems, Inc., of Perry, Florida.  In addition, CES    
plans to utilize Enterprise to support Novell's Telephony Services      
Application Programming Interface for NetWare.  This is a platform      
for the development of applications, based upon the merging of          
computer and telephony technologies.                                    

6.  ExecuMail is an integrated voice processing system for use with             
selected Comdial telephone systems.  ExecuMail is offered in a range    
of port and voice storage capacities, and provides both voice mail      
and automated attendant service.                                        

7.  Unisyn is an electronic key system designed to offer advanced               
features to small organizations.  Two models are offered, a three       
line/eight telephone version and a six line/sixteen telephone           
version.  Display model telephones offer interactive "soft" keys to     
simplify feature access.  Another capability of Unisyn is its           
optional compatibility with standard interface analog devices, such     
as single line telephones, fax machines, and modems.                    

8.  QuickQ ACD  is a digital telephone system designed for call center          
use. The system consists of a DXP common control unit, Impact model     
telephones, voice announcing equipment, special ACD software, and a     
personal computer.  The QuickQ answers and distributes incoming         
calls rapidly and efficiently, helping to assure maximum call center    
productivity and superior customer response levels.  Up to 96           
reports are provided, detailing call volume and call center             
performance.  The QuickQ ACD has a maximum capacity of 64 outside       
lines and 48 agents. Like the InnTouch DXP, the QuickQ is a product     
of computer/telephony integration, based on Comdial's Enterprise        
link to the DXP operating system.  QuickQ was designed in               
partnership with an independent software developer.                     

9.  E911 Systems are specially engineered telephone systems for handling        
emergency (911) telephone calls.  Comdial's systems deliver valuable    
information to call takers, such as the street address and profile      
of the emergency caller.  Operators can swiftly dispatch help to the    
correct address, and provide the information needed to respond          
appropriately to the situation.  All calls are recorded for future      
reference, and operators can handle multiple calls without losing       
valuable information. Comdial's E911 makes extensive use of             
computer-telephony integration.  Comdial, through CES, contracts        
with municipal authorities for the purchase of the equipment.  Local    
dealers assist with installation and provide ongoing maintenance        
support.                                                                

10. Scout is Comdial's first wireless key system telephone.  Scout              
telephones can be installed on DXP and DSU digital telephone            
systems. These instruments allow users to roam freely within their      
business environments, and still receive or place calls.  Scout is a    
digital phone, using 900 MHz spread-spectrum technology.  This helps    
assure clear and secure communications.  Scout phones offer             
virtually all of the features of Impact desk phones, including a        
liquid crystal display, multiline access, programmable keys,            
intercom, and head-set convenience.  The instrument weighs only 8.5     
ounces.  Scout was developed in partnership with Uniden America         
Corporation ("Uniden") a major supplier of wireless communications      
products.                                                               

11. Tracker is a premises-based call completion system.  The purpose of         
the product is to help assure that calls are quickly and efficiently    
completed to individuals who are at work, but not always by their       
phones.  Tracker consists of a Comdial digital telephone system, a      
Tracker base station, and personal pagers equipped with an LCD.  The    
personal pagers sound an alert or vibrate to notify users of            
incoming calls or important messages.  A user can retrieve calls by     
going to the nearest Comdial Impact and dialing a special code,         
which is displayed on the LCD.  A valuable feature of Tracker is its    
integration with related Comdial products.  Tracker was developed in    
cooperation with Motorola, Inc.                                         

12. ExecuTech 2000 Unitized Expandable Hybrid Systems include KSU's with        
capacities of 612 (six lines/12 stations), 820, and 1632.  Expansion    
modules allow users to increase capacity in increments of four lines    
and 12 phones or by 16 phones with no additional lines.  These          
systems provide subdued off-hook voice announce, built-in battery       
backup interface, integrated call costing, and many other features.     

13. ExecuTech XE Key Systems include the 308 (three lines/eight                 
stations), 616, and 1024 models with all systems supporting the same    
family of full-featured telephones.  The KSU is unitized, which         
makes the ExecuTech XE system economical to manufacture, easy to        
install, and beneficial to end users who do not have to buy             
additional components or "extras" to add features.                      

14. ExecuTech II Hybrid products consist of models 1432 (14 lines/32            
stations), 2232, 2264, and 2296.  This line of systems supports         
economical ExecuTech single-line telephones and a variety of            
multi-line terminals including an LCD model.                            

15. InnTouch KSU Systems include four hospitality systems, which have a         
built-in capacity for 22 lines and 32, 64, 96, or 128 telephones.       
These systems feature a front desk video display terminal,              
integrated call costing, and multi-featured room phones.                

16. Solo II small business systems provide full featured key system             
service, including intercom, without the use of a KSU.  The Solo II     
is offered in three and four line models and provides a                 
sophisticated set of features which are easy to program and are cost    
effective.                                                              

Proprietary and Specialty Phones                                                

1.  HoTelephone comes in a variety of models.  In 1990, Comdial added           
models with programmable soft keys and the "Take II" model which        
simulates two line service. Specially designed for business             
travelers, the HoTelephone for motel/hotel guest rooms offers memory    
keys for one-button dialing of various services, plus a message         
waiting lamp, hold button, and built-in data jack for connecting        
portable computers and fax machines.                                    

2.  Voice Express is a fully featured multi-function display telephone          
with integrated speaker-phone/autodial and many standard features       
for use behind Centrex or PBX.  Voice Express may be optionally         
equipped with a two line module or the user can add special six and     
ten button modules for use as electromechanical 1A2 key telephone       
equipment.                                                              

3.  MaxPlus desk/wall convertible telephones range from a basic model           
with message waiting to a fully featured speakerphone model with        
programmable soft keys for often-used PBX and Centrex features.         

4.  MaxPlus II two line telephones offer line status indicators,                
electronic hold, dataport as a basic feature, and additional models     
with features such as message waiting, tap, a speakerphone, and         
programmable soft keys.                                                 

Standard Electromechanical Phones                                               

Before July 21, 1992, Comdial manufactured standard electromechanical   
telephones which included the standard desk and wall telephones, standard       
desk telephones with tap, and electromechanical 1A2 key telephones.  In July    
of 1992, Comdial sold this product line to IT Asia.                             

Custom Manufacturing                                                            

Custom manufacturing consists primarily of contract work performed for  
various original equipment manufacturers.                                       

Strategic Alliances                                                             

During 1993 and 1994, Comdial entered into several strategic alliances  
with other manufacturers such as Motorola, Inc. and Uniden.  These              
manufacturers have developed products (1) for specific markets or (2) when      
combined with existing Comdial products provide increased capabilities that     
will enhance Comdial's position among its competitors.                          

Distribution                                                                    

Comdial sells its products primarily through distributors who warehouse 
and distribute a wide range of telecommunication products to dealers,           
interconnects, telephone companies, and large end users.  During 1994, ALLTEL   
Supply, Inc. a subsidiary of ALLTEL Corporation, a shareholder of Comdial,      
Graybar Electric Company, Inc., and North Supply Company, Inc. a subsidiary     
of Sprint, each accounted for more than ten percent of Comdial's sales.  In     
the aggregate, these three customers accounted for approximately 78 percent     
of Comdial's sales.  For 1994, sales to ALLTEL, Graybar, and North Supply       
amounted to approximately $12,370,000 or 16 percent, $31,298,000 or 41          
percent, and $16,305,000 or 21 percent, respectively.                           

Comdial also sells its products directly to manufacturers of PBX        
equipment, the U.S. Government, international distributors, the Regional Bell   
Operating companies  ("RBOCs"), and other major independent telephone           
companies.                                                                      

Competition                                                                     

Approximately 25 companies compete with Comdial for a share of the      
business communications market of telephone systems serving 200 or fewer        
telephones.  The top ten competitors have approximately 85 percent of the       
market with Comdial's share at approximately seven percent.  Comdial is one     
of two United States based key system manufacturers.  In marketing its          
telephone systems, Comdial emphasizes quality (ISO 9001 certification), high    
tech features, commitment to the customer, price effectiveness, dealer          
support, and a "Made right in the USA" theme.                                   

Comdial is price competitive in the marketplace.  A major factor that   
confronts Comdial is the rapidly changing technology in the communications      
industry.                                                                       

Backlog                                                                         

  Comdial's sales are made under short-term sales orders issued by customers
on a month-to-month basis, rather than under long-term supply contracts.        
Consequently, backlog is not material to an understanding of Comdial's          
business.                                                                       

Research and Development Costs                                                  

Engineering, research, and development costs ("engineering") consist of 
research and development costs less capitalized software development costs,     
and sustaining engineering cost.  Research and development make up the          
majority of the engineering cost.  Early in 1993, management changed the        
engineering effort to provide responsibility for a product throughout its       
entire life cycle.  This requires engineers to be multi-tasked; and, as a       
result, it is impractical to segregate the various elements of their efforts.   
Some of the research and development costs associated with the development of   
product software have been capitalized as they were incurred.  The accounting   
for such software capitalization is in accordance with the provisions of        
Statement of Financial Accounting Standards ("SFAS") No. 86.  The amounts       
capitalized in 1994, 1993, and 1992 were $717,000, $721,000, and $829,000,      
respectively.  The amounts amortized for software development cost in 1994,     
1993, and 1992 were approximately $858,000, $705,000, and $591,000,             
respectively.  Comdial is committed to improving its existing products and      
developing new telecommunications equipment in order to maintain or increase    
its market share.                                                               

Manufacturing                                                                   

Comdial's manufacturing process is vertically integrated.  Comdial has  
invested heavily in advanced automated assembly and test equipment.  Computer   
controlled sequencing machines, programmed from data generated by CAD/CAM       
computers, automatically arrange electronic components on tape reels.  These    
reels are then loaded onto automated insertion machines, which insert the       
electronic components into predrilled printed wire boards ("PWB"), performing   
thousands of insertions per hour.  Starting in 1991, Comdial made further       
productivity improvements by employing surface mount technology ("SMT") in      
the production of PWBs.  Comdial has made significant investments in 1992       
through 1994 expanding SMT productivity.  Components designed for SMT           
production are smaller which allows placement of more components in the same    
surface area.  In addition, the components are placed on the surface rather     
than through the surface which allows placement of components on both sides     
of the PWB.  In most cases, this reduces the required number of PWB's and       
connectors thereby providing (1) a major improvement in quality and product     
reliability, (2) a reduction in product cost, and (3) an improvement in         
profit margins.                                                                 

Comdial also manufactures injection molded plastic parts, fabricated    
metal parts, and other devices.  Comdial employees assemble completed           
PWB's, components, plastics, and other purchased or manufactured                
subassemblies into completed products.                                          

  Comdial is dedicated to customer satisfaction.  Comdial has taken this one
step further in 1994 by receiving the ISO 9001 certification which              
exemplifies Comdial's dedication to excellence.  This is accomplished by        
manufacturing quality products and backing them with professional technicians   
who provide customer support and service.  Quality starts with superior         
design, quality materials, and monitoring of the production process.            
Individual assemblers and machine operators are trained to inspect              
subassemblies as the work passes through their respective areas.  In            
addition, some automated production machines perform quality tests              
concurrently with assembly operations.  Comdial believes that this high level   
of automation and vertical integration improves quality, cost, and customer     
satisfaction.                                                                   

Patents, Trademarks, and Licenses                                               

Comdial owns patents and trademarks in connection with its telephone    
equipment.  Comdial believes that its success will not depend upon ownership    
of patents or trademarks, but rather on the experience and creative skills of   
its technical and management personnel.                                         

Environment                                                                     

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

 In 1988, Comdial voluntarily terminated the use of a concrete underground
storage tank for draining hydraulic oil and chlorinated solvents from machine   
parts, and removed the pit.  The consulting engineers engaged by Comdial        
prepared an environmental site characterization report showing hydraulic oil    
and chlorinated solvents contamination of the soil, and hydraulic oil           
contamination of the groundwater.  The soil was not tested for chlorinated      
solvents.  In a subsequent test, some chlorinated solvents were detected in     
the ground water.  A remediation plan was recommended to Comdial, which was     
approved by the State of Virginia Water Control Board on January 31, 1989.      
The remediation plan was expected to extend for approximately ten years.        
Comdial believes that it has been, and is now, in compliance with the           
approved 1989 remediation plan.                                                 

  In November 1993, Comdial engaged Froehling and Robertson, Inc. ("F & R"),
an environmental engineering firm, to collect additional samples of soil and    
groundwater for assessing the effect of the hydraulic oil remediation plan,     
and to determine whether the chlorinated solvents had dissipated.  Comdial      
also requested the State of Virginia Department of Environmental Quality        
("DEQ") to review the site characterization plan report for adequacy under      
current environmental regulations. As a result, DEQ sent Comdial a letter on    
November 30, 1993, citing certain deficiencies and requesting a site            
characterization report addendum and a corrective action plan.  On January      
14, 1994, Comdial submitted a corrective action plan to the DEQ, which was      
approved by the DEQ on July 8, 1994.  F & R has advised Comdial that the cost   
estimate for the remediation strategy proposed in the corrective action plan    
is approximately $35,000 to $45,000.  In 1993, Comdial provided a reserve in    
the amount of $45,000 to cover such cost.                                       

In October 1994, Comdial installed all the required equipment in      
accordance with the remediation plan and has started the process of pumping     
hydraulic oil residue from the underground water.  The oil will be deposited    
into approved containers and taken to a hazardous waste site in accordance      
with the corrective action plan.                                                

Employees                                                                       

At December 31, 1994, Comdial had 795 full-time employees, of which 592 
were engaged in manufacturing, 54 in engineering,  99 in sales, and 50 in       
general management and administration.  None of Comdial's employees are         
represented by a labor union.  Comdial has experienced no work stoppages and    
believes that its employee relations are satisfactory.                          

ITEM 2.     Properties                                                          

Comdial designs, manufactures, and markets all of its products from a   
modern, fully-integrated 500,000 square foot manufacturing facility on a 25     
acre site located in Charlottesville, Virginia.  All of Comdial's operations    
and development efforts are located at the Charlottesville facility, which      
Comdial owns.  Comdial believes that its facilities are adequate for the        
operation of its business as presently conducted.                               

ITEM 3.     Legal Proceedings                                                   

Comdial is from time to time involved in routine litigation.  Comdial   
believes that none of the litigation in which it is currently involved is       
material to its financial condition or results of operations.                   

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

No matter was submitted during the fourth quarter of 1994 to a vote of  
Comdial's security holders.                                                     

PART II                                                                         

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

Information is incorporated by reference to page 40 of the Registrant's 
1994 Annual Report to stockholders under the caption "Related Stockholder       
Matters".  As of March 14, 1995 there were 2,140 record holders of Comdial's    
Common Stock.                                                                   

ITEM 6.     Selected Financial Data.                                            

Information is incorporated by reference to page 39 of the Registrant's 
1994 Annual Report to stockholders under the caption "Five Year Financial       
Data".                                                                          

ITEM 7.     Management's Discussion and Analysis of Financial Condition and     
Results of Operations.                                  

Information is incorporated by reference to pages 18 through 21 of the  
Registrant's 1994 Annual Report to stockholders under the caption               
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations".                                                                    

ITEM 8.     Financial Statements and Supplementary Data.                        

Information is incorporated by reference to pages 23 through 38 of the  
Registrant's 1994 Annual Report to stockholders or filed with this Report as    
listed in Item 14 hereof.                                                       

ITEM 9.     Changes In and Disagreements With Accountants on Accounting and     
Financial Disclosure.                                   

No information is required to be reported pursuant to this item.        

Part III                                                                        

ITEM 10. Directors and  Executive Officers of the Registrant.                   

 Information concerning Directors and Executive Officers of the Registrant
is incorporated by reference under the caption "Election of Directors" and      
"Executive Officers of Comdial" on pages 6 through 8 and 11 through 12 of       
Comdial's definitive proxy statement for the annual meeting of stockholders     
to be held on April 27, 1995.                                                   

ITEM 11. Executive Compensation.                                                

Executive compensation and management transactions information is       
incorporated by reference under the caption "Executive Compensation" on pages   
13 through 21 of Comdial's definitive proxy statement for the annual meeting    
of stockholders to be held on April 27, 1995.                                   

ITEM 12. Security Ownership of Certain Beneficial Owners and                    
Management.                                                   

Information is incorporated by reference under the captions "Security   
Ownership of Certain Beneficial Owners and Management" on pages 3 through 5     
of Comdial's definitive proxy statement for the annual meeting of               
stockholders to be held on April 27, 1995.                                      

ITEM 13. Certain Relationships and Related Transactions.                        

Information is incorporated by reference under the caption "Family      
Relationships", "Indebtedness of Management" and "Certain Relationships and     
Related Transactions" on pages 20 through 21 and 21 through 22 of Comdial's     
definitive proxy statement for the annual meeting of stockholders to be held    
on April 27, 1995.                                                              

Part IV                                                                         

ITEM 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K    

(a) (1) The following consolidated financial statements of Comdial Corporation  
and Subsidiaries are incorporated in Part II, Item 8 by reference to the        
Comdial 1994 Annual Report to stockholders (page references are to page         
numbers in Comdial's Annual Report):                                            

                                                  Page
Independent Auditors' Report                                  22            
Report of Management                                          22            

Financial Statements:                                                           
Consolidated Balance Sheets -                                               
December 31, 1994 and 1993                                  23          
Consolidated Statements of Operations-                                      
Years ended December 31, 1994, 1993, and 1992               24          
Consolidated Statements of Stockholders' Equity                             
Years ended December 31, 1994, 1993, and 1992               25          
Consolidated Statements of Cash Flows-                                      
Years ended December 31, 1994, 1993, and 1992               26          
Notes to Consolidated Financial Statements-                                 
Years ended December 31, 1994, 1993, and 1992            27-38          

2. Financial Statements - Supplemental Schedules:                           

All of the schedules are omitted because they are not applicable,       
not required, or because the required information is included in the    
consolidated financial statements or notes.                             

3. Exhibits Included herein:                                                

(3) Articles of Incorporation and bylaws:                               

3.1   Certificate of Incorporation of Comdial Corporation       
      (Exhibits (a) 3 to Item 6 of Registrant's Quarterly Report
on Form 10-Q for the period ended July 1, 1988.)*   

3.2   Certificate of Amendment to the Certificate of            
  Incorporation of Comdial Corporation as filed with the
      Secretary of State of the State of Delaware on February 1,
     1994. (Exhibit 3.2 to Registrant's Form 10-K for the year
ended December 31, 1993.)*                          

 3.3   Bylaws of Comdial Corporation. (Exhibit 3.3 to Registrant's
Form 10-K for the year ended December 31, 1993.)*   

(10) Material contracts:                                                    

10.1   Registrant's 1979 Long Term Incentive Plan and 1982        
    Incentive Plan.  (Exhibits 4(a) and 4(b) of Registrant's
Form S-8 dated February 7, 1984.)*                  

10.2   Registrant's 1992 Stock Incentive Plan and 1992            
   Non-employee Directors Stock Incentive Plan.  (Exhibits
    28.1 and 28.2 of Registrant's Form S-8 dated October 21,
1992.)                                              

10.3   Agreement dated February 20, 1990 among Registrant and     
    Estech Systems  Inc. (Exhibit 10.11 to Registrant's Form
10-K for the year ended December 31, 1990.)*        

10.4   Loan Restructuring dated October 31, 1991 among Registrant 
   and Inner PacifiCorp, Inc. (Exhibit 4.1 to Registrant's
 Form 10-Q for the quarter ended September 27, 1991.)*

10.5   Stock Purchase Warrant dated November 1, 1991 among        
  Registrant and Inner PacifiCorp, Inc.  (Exhibit 4.2 to
      Registrant's Form 10-Q for the quarter ended September 27,
1991.)*                                             

10.6   Amendment  No. 1 to the Loan Restructuring Agreement dated 
   July 31, 1992 among Registrant and PacifiCorp Holdings,
     Inc. (Exhibit 10.8 to Registrant's Form 10-K for the year
ended December 31, 1992.)*                          

10.7   Asset Purchase Agreement dated July 21, 1992 among the     
    Registrant and International Telecommunication Asia PTE.
     LTD. (Exhibit 10.9 to Registrant's Form 10-K for the year
ended December 31, 1992.)*                          

10.8   Amendment  No. 2 to the Loan Restructuring Agreement dated 
   April 1, 1993 among Registrant and PacifiCorp Holdings,
Inc. (Exhibit 10.1 to Registrant's Form 10-Q for the
period ended March 28, 1993.)*                      

10.9   Amendment  No. 3 to the Loan Restructuring Agreement dated 
    August 6, 1993 among Registrant and PacifiCorp Holdings,
Inc. (Exhibit 10.1 to Registrant's Form 10-Q for the
period ended September 26, 1993.)*                  

10.10   Modification Agreement dated August 23, 1993 among the      
     Registrant and Cortelco International, Inc. (Exhibit 10.2
    to Registrant's Form 10-Q for the period ended September
26, 1993.)*                                         

10.11   Amendment  No. 4 to the Loan Restructuring Agreement dated  
      October 31, 1993 among Registrant and PacifiCorp Holdings,
      Inc. (Exhibit 10.12 to Registrant's Form 10-K for the year
ended December 31, 1993.)*                          

10.12   Loan And Security Agreement dated February 1, 1994 among    
  Registrant and Barclays Business Credit, Inc. (Exhibit
10.13 to Registrant's Form 10-K for the year ended  
December 31, 1993.)*                                

10.13   Equity Agreement dated December 23, 1993 among Registrant   
      and PacifiCorp Credit, Inc. (Exhibit 10.14 to Registrant's
Form 10-K for the year ended December 31, 1993.)*   

10.14   Warrant Exchange Agreement dated October 31, 1991 among     
   Registrant and Inner PacifiCorp, Inc. (Exhibit 10.15 to
  Registrant's Form 10-K for the year ended December 31,
1993.)*                                             

10.15   Development Agreement dated December 2, 1993 among          
Registrant and Motorola Inc. (Exhibit 10.16 to      
  Registrant's Form 10-K for the year ended December 31,
1993.)*                                             

10.16   Stock Purchase Agreement dated April 2, 1985 among          
Registrant and ALLTEL Corporation. (Exhibit 10.17 to
  Registrant's Form 10-K for the year ended December 31,
1993.)*                                             

10.17   Amendment No. 1 to the Loan And Security Agreement dated    
     April 29, 1994 among the Registrant and Barclays Business
    Credit, Inc. (Exhibit 10.1 to Registrant's Form 10-Q for
the quarter ended April 3, 1994.)*                  

(11) Schedule of Computation of Earnings Per Common Share. (See page 20.)   

(13) Registrant's 1994 Annual Report to Stockholders. (see pages 21         
through 45.)                                                      

(21) Subsidiaries of the Registrant.                                        

The following are the subsidiaries of the Registrant and all are
incorporated in the state of Delaware.                          

American Phone Centers, Inc.                      
American Telecommunications Corporation           
Comdial Business Communications Corporation       
Comdial Consumer Communications Corporation       
Comdial Enterprise Systems, Inc.                  
Comdial Telecommunications, Inc.                  
Comdial Telecommunications International, Inc.    
Scott Technologies Corporation                    

(23) Independent Auditors' Consent.  (See page 46.)                         

    Accountants consent to the incorporation by reference of the
consolidated financial statements, notes, and schedules 
   thereto for the year ended December 31, 1994, and Comdial's
Form S-8 dated February 7, 1984.                        

(24) Power of Attorney.  (See pages 47 through 50.)                         

(27) Financial Data Schedule.  (See page 51.)                               

(b)    Reports on Form 8-K:                                                   

    The Registrant has not filed any reports on Form 8-K during the last
quarter of 1994.                                                

*  Incorporated by reference herein.                                            

SIGNATURES        

Pursuant to the requirements of Section 13 or 15(d) of the Securities   
Exchange Act of 1934, the registrant has duly caused this report to be signed   
on its behalf by the undersigned, thereunto duly authorized on the 27th day     
of March, 1995.                                                                 

             COMDIAL CORPORATION

                    By: /s/ William G. Mustain
                    William G. Mustain
               President and
                         Chief Executive Officer

 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the          
registrant and in the capacities and on the dates indicated.                    

Signature                      Title                            Date            

         *                   Director                         March 28, 1995
A. M. Gleason                                                             

         *                   Director                         March 28, 1995
William E. Porter                                                         

         *                   Director                         March 28, 1995
John W. Rosenblum                                                         

         *                   Director                         March 28, 1995
Dianne C. Walker                                                          

  /s/ William G. Mustain    President, Director, and          March 28, 1995
William G. Mustain         Chief Executive Officer                        

/s/ Wayne R. Wilver       Senior Vice President,                        
Wayne R. Wilver            Chief Financial Officer,                       
    Treasurer, and Secretary

* By: /s/ Wayne R. Wilver                                                       
Wayne R. Wilver, Attorney-In-Fact                                   

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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 1994           
reporting basis   (see Note 1: Reclassification to the Consolidated             
Financial Statements).                                                          

RESULTS OF OPERATIONS                                                           

Selected consolidated statements of operations data for the last three      
years are as follows:                                                           

December 31,                                                                    
In thousands                     1994           1993           1992           
Net sales:  (1)                                                                 
As reported                   $77,145        $69,099        $70,897       
Current product lines (2)      77,145         69,099         64,423       
Gross profit (1)                 24,406         21,313         20,360         
Operating expenses (1)           18,739         15,928         17,288         
Other expense (income)            1,937          2,840          2,175         
Extraordinary item, write-off                                                 
of debt issuance cost             389              -              -       
Income tax expense                  116            129             13         
Net income                        3,225          2,416            884         

(1) Numbers for prior years have been restated to conform to 1994 basis.      
(2) Excludes sales of electromechanical product line.                         

1994 Compared with 1993                                                         

For 1994 the Company reported net income before income tax expense and      
extraordinary items of $3,730,000 compared with $2,545,000 for 1993.  The       
profit for 1994 is primarily attributable to (1) a stronger economy, (2)        
the increase in sales of business systems that have a higher profit margin,     
(3) the restructuring of the Company's indebtedness in February 1994, and       
(4) the continuing implementation of production and expense controls.           

Net sales as reported for 1994 compared with last year increased by 12%,    
or $8,046,000.  This increase was primarily due to the increase in sales of     
business system products of $6,974,000, or 11%, that have a higher margin.      
The continual increase in business systems is primarily due to the demand       
for the Company's newer digital product, Digital Expandable Systems ("DXP")     
and Impact.  Custom manufacturing also increased by $1,797,000 or 214% when     
compared with 1993.  Sales of the proprietary stand-alone terminals             
decreased by $725,000, or 11% when compared with 1993.  Management expects      
sales of business systems to continue to grow in 1995, primarily due to the     
development of new products, strategic alliances, and the development of        
additional international distribution channels.  The Company's penetration      
into the international marketplace has been, and is expected to continue,       
to be a deliberate process, but as the Company's quality, high-tech             
products gain more exposure, sales will increase.  Management feels that        
custom manufacturing sales will increase by offering other companies the        
ability to have their products manufactured by an efficient and technology      
advanced USA manufacturer.  Sales of the proprietary stand-alone terminals      
will continue to decline primarily due to competition and newer product         
technology.                                                                     

Gross profit as a percentage of sales for 1994 was approximately 32%        
compared with 31% for 1993.  The gross profit increased in 1994 by              
$3,093,000, or 15% compared with 1993.  This was primarily attributable to      
the increased sales of higher margin business system products, such as the      
DXP and Impact products.                                                        

Operating expense increased in 1994 by $2,811,000, or 18%.  The primary     
reasons for the increase were higher promotional costs, additional              
investment in sales and engineering activities, and the emphasis on market      
exposure through advertising.  Because of the Company's commitment to           
expand and introduce new technological products, the Company formed Comdial     
Enterprise Systems, Inc. ("CES").  CES was formed to manage the Company's       
computer-telephony integration business; costs relating to that segment of      
the business were higher by $546,000.                                           

Other expense (income) decreased by $903,000, or 32% primarily due to the   
reduction in interest expense of $1,153,000.  Interest expense was              
primarily affected by the restructuring of the Company's indebtedness in        
February 1994.                                                                  

Extraordinary item represents write-off of prior debt issuance costs        
during the first quarter for debt restructuring in connection with the          
refinancing of the Company's indebtedness to PacifiCorp Credit, Inc.            
("PCI"), an affiliate of the Company.                                           

Dividends on preferred stock represent quarterly dividends payable to the   
holder of Series A 7 1/2% Cumulative Convertible Redeemable Preferred Stock     
("Series A Preferred Stock").  The Company issued 850,000 shares of Series      
A Preferred Stock to PCI on February 1, 1994, in exchange for the               
cancellation of $8,500,000 of the Company's indebtedness to PCI.                

1993 Compared with 1992                                                         

For 1993, the Company reported net income before income tax expense of      
$2,545,000 compared with $897,000 for 1992.  The 1992 profit resulted           
primarily from the $791,000 gain on the sale of the electromechanical           
product line in July 1992 to International Telecommunications Asia PTE.         
LTD., a Singapore corporation ("IT Asia"), an affiliate of Cortelco USA.        
The profit for 1993 is primarily attributable to (1) the increase in            
current product line sales of $6,925,000, or 13%, (2) favorable product         
mix, and (3) continuing expense control.                                        

Net sales as reported compared with last year decreased by less than 1%,    
or $1,798,000 in 1993.  This decrease was primarily due to the sale of the      
electromechanical product line which accounted for $6,475,000, or 9% of         
1992 sales.  Sales of the proprietary stand-alone terminals also decreased      
compared with 1992 by $1,809,000, or 22%.  This was offset by increased         
sales of business system products of $6,926,000, or 13%, which have a           
higher margin.  This increase was primarily due to the introduction of the      
Company's new Impact product in the fourth quarter of 1992.                     

Gross profit as a percentage of sales for 1993 was approximately 31%        
compared with 29% for 1992.  The gross profit increased in 1993 by              
$953,000, or 5% compared with 1992.  This was primarily attributable to the     
increased sales of higher margin business system products, such as the          
Impact product.                                                                 

Operating expense decreased in 1993 by $1,360,000, or approximately 8%.     
The reduction in operating expense costs is principally due to the              
favorable Impact in 1993 of the 1992 reduction in the work force, primarily     
in middle management.  Because of the Company's commitment to expanding its     
international business, costs relating to that segment of the business were     
higher by $256,000.                                                             

Other expense (income) increased by $665,000, or 31% because 1992           
includes the realized net gain of $791,000 from the sale of the                 
electromechanical product line.  Interest expense decreased by $144,000         
primarily due to the additional reduction of the Company's indebtedness.        

LIQUIDITY AND FINANCIAL SOURCES                                                 

Prior to February 1, 1994, the Company was indebted to PacifiCorp           
Holdings, Inc. ("PHI"), then known as Inner PacifiCorp, Inc.  On December       
1, 1993, PHI transferred the entirety of its holdings in the Company to its     
wholly-owned subsidiary, PacifiCorp Financial Services, Inc., which in turn     
transferred such holdings to its wholly-owned subsidiary PCI.  References       
herein to PCI shall be deemed to include references to PHI, its predecessor     
in interest to the indebtedness of the Company, where such references are       
appropriate. (See Note 5 to Consolidated Financial Statements.)                 

On December 23, 1993, the Company and PCI agreed to the preliminary terms   
of an 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.  The exchange      
was conditioned upon, among other things, payment in full by the Company of     
the balance of the indebtedness held by PCI.                                    

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 Shawmut Capital              
Corporation ("Shawmut") formerly known as Barclays Business Credit, Inc.,       
entered into a loan and security agreement ("Loan Agreement") pursuant to       
which Shawmut agreed to provide the Company with a $6,000,000 term loan 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 Shawmut of $6,709,453 and the cancellation of the remaining       
debt of $8,500,000 with the issuance of Series A Preferred Stock.               

The Shawmut term loan of $6,000,000 carries an interest rate 1 1/2% over    
Shawmut's prime rate and is payable in 24 equal monthly principal               
installments of $125,000, and 23 equal monthly principal installments of        
$83,334, with the balance due on February 1, 1998.   The Shawmut revolving      
credit facility carries an interest rate of 1% over Shawmut's prime rate.       
As of February 1, 1994, the Company had borrowed $985,042 under the             
revolving credit facility and had approximately $3,401,000 of additional        
borrowing capacity (see Note 5 to Consolidated Financial Statements).           

The Impact of the recapitalization 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.       
This arrangement also eliminated the 1996 balloon payment otherwise due         
under the existing PCI indebtedness.                                            

The Company's indebtedness to Shawmut is secured by liens on the            
Company's accounts receivable, inventories, intangibles, land, and all          
other assets.  The Loan Agreement with Shawmut also contains certain            
financial covenants that relate to specified levels of consolidated             
tangible net worth, profitability, debt service ratio, and current ratio.       
Among other restrictions, the Loan Agreement limits additional borrowings       
and payment of dividends, except for dividend payments to PCI for their         
Series A Preferred Stock.  At December 31, 1994, the Company was in             
compliance with all the covenants.                                              

On April 29, 1994, the Company and Shawmut 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.       
The Company will repay the additional advance in 44 consecutive monthly         
payments of $25,000 beginning on June 1, 1994 with the balance due on           
February 1, 1998.                                                               

In December 1994, the Company purchased from PCI 100,000 shares of Series   
A Redeemable Preferred Stock at the same time the Company received the          
proceeds of $1,000,000 from Cortelco International Inc. ("Cortelco"), for       
the sale of the electromechanical product line in 1992. The following table     
sets forth the Company's cash and cash equivalents, current maturities on       
debt and working capital at the dates indicated:                                

December 31,                                                                    
In thousands                             1994        1993         1992          
Cash and cash equivalents              $1,679      $5,474         $399          
Current maturities on debt              2,466       4,252        2,904          
Working capital                        11,631      14,943       12,404          

Cash and cash equivalents is lower by $3,795,000 in 1994 compared with      
1993 due primarily to (1) the first quarter 1994 payment of $6,000,000 to       
reduce the PCI debt, and (2) the Company currently uses the Shawmut             
revolver to fund operations.  At December 31, 1994, the revolver was zero       
and the Company had additional cash generated by sales.  Current maturities     
on debt is lower by $1,786,000 primarily due to the restructuring of the        
Company's indebtedness.  Working capital decreased, primarily due to the        
reduction in cash on hand at December 31, 1994.                                 

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, 1994, the revolver balance was zero.               

Inventory increased by $2,025,000 primarily due to additional inventory     
required to support the higher production line rates for the Impact product     
and custom manufacturing.  Prepaid expenses and other current assets,           
decreased in total by $785,000 due primarily to the payment on the notes        
receivable of $1,000,000 from Cortelco for the sale of the electro-             
mechanical product line.                                                        

Accounts payable increased primarily due to the increased demand on         
production to meet existing sales. Current and long-term debt dropped           
primarily due to the restructuring of the Company's indebtedness on             
February 1, 1994.  The required debt payment to Shawmut of $1,824,000 and       
capital lease payments of approximately $807,000 for 1995 will be funded by     
cash generated from operations.  Other accrued current liabilities              
increased by $505,000, primarily due to additional accruals relating to         
pension costs.  Accrued promotional allowances increased primarily due to       
the increase in sales to distributors (see Note 12 to Consolidated              
Financial Statements).                                                          

Capital additions for 1994 amounted to approximately $2,367,000.  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 for 1994 were provided by funding     
from operations, capital leasing, and borrowing from Shawmut.  Cash             
expenditures for capital additions for 1994, 1993, and 1992 amounted to         
$2,116,000, $848,000, and $1,776,000, respectively.  Management anticipates     
that approximately $3,000,000 will be spent on capital additions during         
1995.  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.                     

In November 1992, the Financial Accounting Standards Board ("FASB")         
issued Statement of Financial Accounting Standards ("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.                                                        

During the fiscal years ended 1994, 1993, and 1992, all of the Company's    
sales, net income, and identifiable net assets were attributable to the         
telecommunications industry.                                                    

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INDEPENDENT AUDITOR'S 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, 1994 and 1993, and the          
related consolidated statements of operations, stockholders' equity and         
cash flows for each of the three years in the period ended December 31,         
1994.  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, 1994 and 1993, and the results of their            
operations and their cash flows for each of the three years in the period       
ended December 31, 1994, in conformity with generally accepted accounting       
principles.                                                                     

DELOITTE & TOUCHE LLP                                                           
Richmond, Virginia                                                              
January 30, 1995                                                                

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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                    
President and                                Senior Vice President and          
Chief Executive Officer                      Chief Financial Officer            

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                                                        [Enlarge/Download Table]
Consolidated Balance Sheets                                                               
                                                                    December 31,          
In thousands except par value                                             1994       1993 
                                                                                          
Assets                                                                                    
 Current assets                                                                           
  Cash and cash equivalents                                             $1,679     $5,474 
  Accounts receivable - net                                              6,637      6,184 
  Inventories                                                           16,869     14,844 
  Prepaid expenses and other current assets                              1,014      1,799 
   Total current assets                                                 26,199     28,301 

 Property - net                                                         13,668     14,187 
 Other assets                                                            2,393      2,315 
   Total assets                                                        $42,260    $44,803 

Liabilities and Stockholders' Equity                                                      
 Current liabilities                                                                      
  Accounts payable                                                      $6,977     $5,059 
  Accrued payroll and related expenses                                   1,373      1,222 
  Accrued promotional allowances                                         1,592      1,170 
  Other accrued liabilities                                              2,160      1,655 
  Current maturities of debt                                             2,466      4,252 
   Total current liabilities                                            14,568     13,358 

 Long-term debt                                                          4,737     18,943 
 Long-term employee benefit obligations                                  1,912      1,700 
 Other long-term liabilities                                                 0         52 

 Commitments and contingent liabilities (see Note 13)                                     
   Total liabilities                                                    21,217     34,053 

 Stockholders' equity                                                                     
  Series A 7-1/2% preferred stock ($10.00 par value),  (Authorized                        
   shares 2,000; issued 750 shares)                                      7,500          0 
  Common stock ($0.01 par value) and paid-in capital (Authorized                          
   30,000 shares; issued shares: 1994 = 20,953; 1993 = 20,577)         100,320    100,047 
  Other                                                                   (942)      (814)
  Accumulated deficit                                                  (85,835)   (88,483)
   Total stockholders' equity                                           21,043     10,750 
   Total liabilities and stockholders' equity                          $42,260    $44,803 

The accompanying notes are an integral part of these financial statements.                
                                                        [Enlarge/Download Table]
Consolidated Statements of Operations                                                        

                                                                Years Ended December 31,     
In thousands except per share amounts                                1994     1993      1992 

                                                                                             
Net sales                                                         $77,145  $69,099   $70,897 
Cost of goods sold                                                 52,739   47,786    50,537 
  Gross profit                                                     24,406   21,313    20,360 

Operating expenses                                                                           
 Selling, general & administrative                                 14,807   12,504    13,504 
 Engineering, research & development                                3,932    3,424     3,784 
  Operating income                                                  5,667    5,385     3,072 

Other expense (income)                                                                       
 Interest expense                                                   1,267    2,420     2,564 
 Miscellaneous expense                                                670      420       402 
 Gain on the sale of product line                                       0        0      (791)
Income before income taxes and extraordinary item                   3,730    2,545       897 
Income tax expense                                                    116      129        13 
Income before extraordinary item                                    3,614    2,416       884 
Extraordinary item, write-off of debt issuance cost                   389        0         0 
  Net income                                                        3,225    2,416       884 
Dividends on preferred stock                                          577        0         0 
  Net income applicable to common stock                            $2,648   $2,416      $884 

Earnings per common share and common                                                         
 equivalent share:                                                                           
  Primary:                                                                                   
    Income before extraordinary item                                $0.14    $0.12     $0.04 
    Extraordinary item                                              (0.02)    0.00      0.00 
      Net income per common share                                   $0.12    $0.12     $0.04 

  Fully diluted                                                     $0.12    $0.11     $0.04 

Weighted average common shares outstanding:                                                  
  Primary                                                          21,706   20,817    20,225 
  Fully diluted                                                    21,706   21,486    20,225 

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

                                                        [Enlarge/Download Table]
Consolidated Statements of Stockholders' Equity                                                                                  

                                                                                                      Notes                      
                                                                                                    Receivable                   
                                          Common Stock  Preferred Stock  Paid-in   Treasury Stock    on Sale   Retained          
In thousands                              Shares Amount Shares  Amount   Capital   Shares   Amount   of Stock  Earnings   Total  
                                                                                                                                 
Balance at January 1, 1992                18,055   $181   0.00       $0   $99,151    (150)    ($583)    ($623) ($91,783)  $6,343 
 Proceeds from sale of                                                                                                           
  Common Stock:                                                                                                                  
  Incentive plans                                                             (36)                                           (36)
  Notes receivable                                                                                          4                  4 
 Reclassification of notes receivable                                                                     316                316 
Net Income                                                                                                          884      884 

Balance at December 31, 1992              18,055    181      0        0    99,115    (150)     (583)     (303)  (90,899)   7,511 
 Proceeds from sale of                                                                                                           
  Common Stock:                                                                                                                  
  Incentive plans                                                             (20)                                           (20)
  Notes receivable                                                                                         74                 74 
  Stock options exercised                    133      1                        95                                             96 
  Warrants exercised                       2,500     25                       620                                            645 
 Incentive stock issued                       40                               30                                             30 
 Treasury stock purchased                                                              (1)       (2)                          (2)
Net income                                                                                                        2,416    2,416 

Balance at December 31, 1993              20,728    207      0        0    99,840    (151)     (585)     (229)  (88,483)  10,750 
 Proceeds from sale of                                                                                                           
  Common Stock:                                                                                                                  
  Notes receivable                                                           (146)                         47                (99)
  Stock options exercised                    439      4                       285                                            289 
 Incentive stock issued                       40                              130                                            130 
 Preferred stock issued                                    850    8,500                                                    8,500 
 Redeemed preferred stock                                 (100)  (1,000)                                                  (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              21,207   $211    750   $7,500  $100,109    (254)    ($760)    ($182) ($85,835) $21,043 

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

                                                        [Enlarge/Download Table]
Consolidated Statements of Cash Flows                                                                      

                                                                            Years Ended December 31,       
                                                                                                           
In thousands                                                                      1994      1993      1992 
Cash flows from operating activities:                                                                      
 Cash received from customers                                                  $81,298   $74,265   $72,525 
 Other cash received                                                             2,305     1,236     1,083 
 Interest received                                                                  56        65        89 
 Cash paid to suppliers and employees                                          (75,888)  (66,725)  (68,994)
 Interest paid on debt                                                            (924)   (1,981)   (2,161)
 Interest paid under capital lease obligations                                    (284)     (256)     (354)
 Income taxes paid                                                                (200)      (44)      (13)
  Net cash provided by operating activities                                      6,363     6,560     2,175 
Cash flows from investing activities:                                                                      
 Proceeds from the sale of equipment                                               206        56     1,010 
 Proceeds received on note from Cortelco International, Inc.                     1,000     1,000         0 
 Capital expenditures                                                           (2,116)     (848)   (1,776)
  Net cash provided (used) by investing activities                                (910)      208      (766)
Cash flows from financing activities:                                                                      
 Proceeds from borrowings                                                        7,300     2,660     1,972 
 Proceeds from issuance of common stock                                            203       739         0 
 Principal payments on debt                                                    (14,365)   (3,859)   (3,800)
 Principal payments under capital lease obligations                               (809)   (1,233)   (1,978)
 Preferred stock redemption                                                     (1,000)        0         0 
 Preferred dividends paid                                                         (577)        0           
  Net cash used in financing activities                                         (9,248)   (1,693)   (3,806)
Net increase (decrease) in cash and cash equivalents                            (3,795)    5,075    (2,397)
Cash and cash equivalents at beginning of year                                   5,474       399     2,796 
Cash and cash equivalents at end of year                                        $1,679    $5,474      $399 
Reconciliation of net income to net cash provided by operating activities:                                 
Net Income                                                                      $3,225    $2,416      $884 
 Depreciation and amortization                                                   4,138     3,138     2,974 
 Decrease (increase) in accounts receivable                                       (453)      689    (1,462)
 Inventory provision                                                               964       900     1,497 
 Decrease (increase) in inventory                                               (2,989)     (307)      170 
 Increase in other assets                                                       (1,620)     (958)   (3,982)
 Increase (decrease) in accounts payable and bank overdrafts                     1,918      (639)    1,889 
 Increase (decrease) in other liabilities                                        1,238     1,237       (79)
 Increase (decrease) in paid-in capital and other equity                           (58)       84       284 
  Total adjustments                                                              3,138     4,144     1,291 
Net cash provided by operating activities                                       $6,363    $6,560    $2,175 

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

Notes to Consolidated Financial Statements                                      
For the Years Ended December 31, 1994, 1993, 1992                               

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.                    

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 $1,099,000 are included in Accounts        
Payable at December 31, 1994, which 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             
business lives.  The effect of this change in accounting estimate was to        
increase depreciation expense and decrease income from continuing               
operations by $239,000 or $0.01 per share.  Management believes this change     
is warranted due to the continuing advances in computer technology.             
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 (Loss) per Common Share and Common Equivalent Share          

For 1994, 1993, and 1992, 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 1994, 1993, and 1992, the Company incurred costs associated with             
development of software related to the Company's various products.  The         
accounting for such software costs is in accordance with Generally Accepted     
Accounting Principles ("GAAP") and Statement of Financial Accounting            
Standards ("SFAS") No. 86.  The Company's estimate of useful life is three      
years.  The total amount of unamortized software development cost included      
in other assets is $1,392,000 at December 31, 1994.  The amounts                
capitalized for 1994, 1993, and 1992 were $717,000, $721,000, and $829,000,     
respectively, of which $858,000, $705,000, and $591,000 were amortized in       
1994, 1993, and 1992, respectively.                                             

Postretirement Benefits Other Than Pension                                      

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

Income Taxes                                                                    

The Company adopted SFAS No. 109, "Accounting for Income Taxes", in 1993,       
which specifies the asset and liability approach.  Under SFAS 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 benenfits where, based on available            
evidence, the likelihood of realization cannot be established.  The Company     
has incurred prior cumulative operating losses through 1991 for financial       
statement and tax reporting purposes (see Note 6).  Tax credits will be         
utilized to reduce current and future income taxes.                             

Reclassifications                                                               

Amounts in the 1993 and 1992 consolidated financial statements have been        
reclassified to conform to the 1994 presentation.  The Company is currently     
reporting sales as a net number that includes deductions for volume             
discounts, returns, and allowances.  The Company has reclassified freight       
expense and the cost of certain promotional programs resulting in a             
reduction in sales, and an increase in cost of sales and selling, general       
and administrative expense, respectively, for 1994 and the comparable prior     
periods.  Promotional programs include various sales incentive rebates          
claimed by dealers and specific end users who buy the Company's products        
direct from distributors.  Management considers these reclassifications as      
more consistent with the nature of the sales costs incurred, and the manner     
in which such costs are managed by the Company.  For the years 1994, 1993,      
and 1992, reclassified freight expense was $552,000, $478,000, and              
$677,000, and reclassified promotional program expense was $4,492,000,          
$3,538,000, and $4,751,000, respectively.  These reclassifications had no       
effect on previously reported consolidated net income.                          
NOTE 2.  INVENTORIES                                                            

Inventories consist of the following:                                           

December 31,                                                                    
In thousands                                  1994        1993                  
Finished goods                              $2,936      $3,972                
Work-in-process                              4,455       2,485                
Materials and supplies                       9,478       8,387                
Total                                    $16,869     $14,844              

NOTE 3.  PROPERTY                                                               

Property consists of the following:                                             

December 31,                                                                    
In thousands                                  1994       1993                   
Land                                          $396       $396                 
Buildings and improvements                  11,540     11,864                 
Machinery and equipment                     26,551     25,126                 
Less accumulated depreciation              (24,819)   (23,199)                
Property - Net                           $13,668    $14,187               

Depreciation expense charged to operations for the years 1994, 1993,  
and 1992, was $2,601,000, $2,164,000, and $1,970,000, respectively.             

NOTE 4.  LEASE OBLIGATIONS                                                      

The Company and its subsidiaries have various capital and operating lease       
obliga-tions.  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                 
1995                                           $807     $1,218                
1996                                            565      1,182                
1997                                            131      1,165                
1998                                            104      1,131                
1999                                             -       1,021                
Total minimum lease commitments             1,607     $5,717              
Less amounts representing interest and                                        
other cost                                  (260)                         
Principal portion of minimum lease                                            
commitments at December 31, 1994           $1,347                         

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

December 31,                                                                    
In thousands                                    1994     1993                   
Machinery and equipment                     $2,269     $3,430               
Less accumulated depreciation                 (570)      (706)              
Property - Net                            $1,699     $2,724             

During 1994, 1993, and 1992, the Company entered into new capital     
lease obligations which amounted to approximately $228,000, $1,597,000, and     
$692,000, respectively.                                                         
Operating leases and rentals are for buildings, and 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,     
1994, 1993, and 1992 was $1,023,000, $1,025,000, and $1,149,000,                
respectively.                                                                   

NOTE 5.  DEBT                                                                   

As of February 1, 1994, Shawmut Capital Corporation ("Shawmut"), formerly       
known 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. Before December 1993, substantially all      
the Company's indebtedness was held by PacifiCorp Holdings, Inc. ("PHI"),       
formerly known as Inner PacifiCorp, Inc.  On December 1, 1993, PHI              
transferred the entirety of its holdings in the Company to its wholly-owned     
subsidiary, PacifiCorp Financial Services, Inc., which in turn transferred      
such holdings to its wholly-owned subsidiary, PCI.  References herein to        
PCI shall be deemed to include references to PHI, its predecessor in            
interest to the indebtedness of the Company, where such references are          
appropriate.                                                                    

Long-term Debt                                                                  

Long-term debt consisted of the following:                                      

December 31,                                                                    
In thousands                                  1994         1993                 
Notes payable to PCI (1)                                                    
Term note                                     $-      $19,191             
Optional advance note                          -        2,074             
Notes payable to Shawmut                                                      
Term notes I and II (2)                    5,854            -             
Revolving credit (3)                             -            -               
Capitalized leases (see Note 4)            1,349        1,930             
Total debt                                 7,203       23,195             
Less current maturities on debt            2,466        4,252             
Total long-term debt                      $4,737      $18,943             

(1) The term note was payable in fifty-nine equal monthly principal   
installments of $150,000 with the balance due on November 1, 1996.  The         
optional advance note was payable in thirty-six equal monthly principal         
installments of $59,000 beginning on December 1, 1993.  Interest was            
payable monthly on both notes.                                                  
In July 1992, the Company sold its standard electromechanical product 
line to International Telecommunication Asia PTE. LTD., a Singapore             
corporation ("IT Asia"), which was assigned to Cortelco International, Inc.     
("CII"), an affiliate of IT Asia, in August 1993.  In connection with the       
sale, IT Asia delivered to the Company its non-interest bearing promissory      
note in the principal amount of $2,000,000 (the "IT Asia Note"). The            
Company agreed to apply the proceeds received from CII to the outstanding       
balance of the PCI term note. In August 1993, CII made the $1,000,000           
principal payment to the Company on the IT Asia Note.  The Company used the     
proceeds from CII to repay a portion of the term note held by PCI.              
The Company's indebtedness was secured by liens on the Company's      
accounts receivable, inventories, intangibles, land, and other property.        
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 Shawmut entered into a       
loan and security agreement  ("Loan Agreement") pursuant to which Shawmut       
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 Shawmut 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 in           
December 1994 relating to the sale of the electromechanical product line in     
1992.                                                                           
On April 29, 1994, the Company and Shawmut 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 Company will repay the additional advance in 44      
consecutive monthly payments of $27,000 beginning on June 1, 1994 with the      
balance due on February 1, 1998.                                                
(2) The Shawmut Term Notes I and II of $7,300,000 carry interest rates
of 1 1/2% over the Shawmut's prime rate and are payable in equal monthly        
principal installments of $152,000 for the next 14 months, and 23 equal         
monthly principal installments of $110,334, with the balance due on             
February 1, 1998.                                                               
(3) The Shawmut revolving credit facility carries an interest rate of 
1% over Shawmuts' 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 Shawmut (term notes      
plus revolving credit facility) may not exceed $14,000,000.                     
Scheduled maturities of Shawmut 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           1995             $1,824                        
     1996              1,407
     1997              1,324
     1998              1,299

Debt Covenants                                                                  

The Company's indebtedness to Shawmut is secured by liens on the      
Company's accounts receivable, inventories, intangibles, land, and other        
property.  Among other restrictions, the Loan Agreement with Shawmut 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 to PCI for their Series A             
Preferred Stock. As of December 31, 1994, 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' finan-cial statements have not been restated. The           
components of the income tax expense for the years ended December 31, are       
as follows:                                                                     

                                 Liability    Deferred
                               Method       Method
In thousands                               1994    1993    1992                 
Current - Federal                         $88     $89     $10               
State                            28      40       3     
Deferred                                    -       -       -               
Total provision                       $116    $129     $13            

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

In thousands                                1994     1993    1992               
Federal tax (benefit) at statutory rate                                     
(35% in 1994 and 1993, 34% in 1992)   $1,306    $891    $295          
State income taxes (net of federal tax                                      
benefit)                                 18      27      30         
Nondeductible charges                        34      20      19             
Alternative minimum tax                      84      89      13             
Utilization of operating loss carryover  (1,326)   (898)   (344)            
Income tax provision                      $116    $129     $13            

There is no tax benefit of the extraordinary item due to the presence of        
tax operating loss carryovers.                                                  
No deferred taxes have been recognized in the accompanying            
Consolidated Balance Sheet at December 31, 1994 and 1993.  The components       
are as follows:                                                                 

In thousands                           1994           1993                      
Total deferred tax liabilities     $(1,981)       $(2,137)                  
Total deferred tax assets           29,852         30,631                   
Total valuation allowance          (27,871)       (28,494)                  
               $    -         $    -

The valuation allowance decreased $623,000 during the year ended      
December 31, 1994 and was primarily related to benefits arising from the        
utilization of operating loss carryforwards.  The Company periodically          
reviews the requirements for a valuation allowance and makes adjustments to     
such allowance when changes in circumstances result in changes in judgement     
about the future realization of deferred tax assets.                            
The Company has net operating loss and credit carryovers of           
approximately $72,336,000 and $3,027,000, respectively, which, if not           
utilized, will expire as follows:                                               

In thousands                  Net Operating                                     
Expiration Dates                Losses         Tax Credits                  
1996 - 1997                     $ -               $412                    
1998                              -              1,846                    
1999                         25,454                504                    
2000                         31,129                 66                    
2001                          5,260                  -                    
After 2001                    10,493                199                     
        $72,336             $3,027

Certain provisions of the tax law may limit the net operating loss and
credit carryforwards available for use in any given year in the event of a      
significant change in ownership interest.  If changes in the Company's          
stock ownership exceed 50% of the value of the Company's stock during any       
three year period, the utilization of the tax net operating loss and tax        
credit carryforwards would be severely limited beginning with the year of       
ownership change.                                                               
The components of the net deferred tax asset (liabilities) at December
31, 1994 and 1993 are as follows:                                               

Deferred Asset/(Liability)                                                      
In thousands                                  1994       1993                   
Net loss carryovers                       $24,595    $26,111                  
Tax credit carryovers                       3,027      2,830                  
Inventory write downs and capitalization    1,028        876                  
Pension                                       461        177                  
Postretirement                                189         98                  
Compensation and benefits                     169        164                  
Capitalized software development costs        256        174                  
Contingencies                                  28         49                  
Other deferred tax assets                      11         64                  
Note receivable reserve                        84         88                  
Fixed asset depreciation                   (1,977)    (1,981)                 
Income reported in different periods for                                      
financial reporting and tax purposes          -       (104)               
Other deferred tax liabilities                  -        (52)                 
Net deferred tax asset                    27,871     28,494                 
Less:  Valuation allowance                (27,871)   (28,494)                 
Total                                    $    -    $     -                  

NOTE 7.  PENSION AND SAVINGS PLANS                                              

The Company formerly sponsored two non-contributory pension plans that          
together covered all employees.  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.            
Effective January 1, 1992, the Company merged the two pension plans into a      
single plan which provides benefits based on years of service and               
employee's compensation during the employment period.  The calculation of       
pension benefits prior to 1992 will be based on the provisions of the old       
plans.  The funding policy for both plans was to make the minimum annual        
contributions required by applicable regulations.  Assets of the plans were     
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, 1994 and 1993.                                                              

In thousands                                                 1994      1993     
Actuarial present value of benefit obligation:                              
Accumulated benefit obligation (including vested                            
  benefits of $8,431 and $8,320, respectively)         $(9,225)   $(9,226)

Projected benefit obligation for service to date        $(9,583)   $(9,557) 
Plan assets at fair value                                 9,041      9,230  
Plan assets less than projected benefit obligation         (542)      (327) 
Unrecognized net (gain) or loss from past experience     (1,007)      (556) 
Unrecognized net (gain) or loss from prior service cost    (322)      (354) 
Unrecognized net asset at date of implementation of                         
   SFAS No. 87 amortized over 15 years                    (144)      (172)
Accrued liabilities for benefit plans at December 31   $(2,015)   $(1,409)

Net periodic pension cost for 1994, 1993, and 1992 included the following       
components:                                                                   

In thousands                                       1994    1993    1992         
Service cost-benefits earned during the period   $982    $803    $785       
Interest cost on projected benefit obligation     657     548     495       
Actual return on plan assets                      106  (1,438) (1,282)      
Net amortization and deferral of other items     (919)    608     630       
Net periodic pension cost                         $826    $521    $628        

Assumptions used in accounting for the plans were as follows:                   

                                         1994    1993   1992
Discount rate                                     8.00%   7.00%  8.50%        
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 1994, 1993, and 1992 was $261,000, $225,000,     
and $178,000, respectively.                                                     

NOTE 8.  POSTRETIREMENT BENEFITS OTHER THAN PENSION                             

As of January 1, 1993, the Company adopted SFAS No. 106.  The effect of         
adopting SFAS No. 106 on income from continuing operations for 1994 and         
1993 was an expense of $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.  In 1992, the                                                        
Company recognized $160,000 as an expense for postretirement health care        
and life insurance benefits.  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, 1994 and  
1993:                                                                           

In thousands                                          1994     1993             
Retirees                                            $398    $222            
Actives eligible to retire                           628     435            
Other active participants ineligible to retire       972     676            
Total                                           $1,998  $1,333          

Net postretirement benefit cost for years ended December 31, consisted
of the following components:                                                    

In thousands                                                1994     1993       
Service cost                                               $59      $46     
Interest cost                                              139      151     
Actual return on assets                                       -        -      
Amortization of the unrecognized transition obligation      91       91     
Amortization of (gain) or loss                               -        -     
Amortization of prior service cost                           -        -     
Total                                                   $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, 1994     
and 1993.                                                                       

In thousands                                                  1994     1993     
Plan assets at fair value                                   $ -      $ -    
Accumulated postretirement benefit obligation                               
Retirees                                                   (394)    (639) 
Fully eligible participants                                (604)    (523) 
Other active participants                                  (874)    (874) 
Unrecognized prior service cost                                -       -    
Unrecognized net (gain) or loss                             (316)      26   
Unrecognized transition obligation                         1,631    1,722   
 Accrued liabilities for benefit plans at December 31    $(557)   $(288)

The assumed health care cost trend rate used in measuring the           
accumulated postretirement benefit obligation as of January 1, 1994 was 13%     
for 1994, the trend rate decreasing each successive year until it reaches 5     
1/4% in 2005 after which it remains constant.  The discount rate used in        
determining the accumulated postretire-ment benefit obligation cost was 7%.     
A 1-percentage-point increase in the assumed health care cost trend rate        
for each year would increase the accumulated postretire-ment benefit            
obligation as of January 1, 1994 and net postretirement health care cost by     
approximately $140,000 and service cost plus interest cost by approximately     
$18,000.  The postretirement benefit obligation is not funded and does not      
include any provisions for securities, settlement, curtailment, or special      
termination benefits.                                                           

NOTE 9.  WARRANTS                                                               

A summary of warrants issued and outstanding is as follows:                     

                            1994           1993           1992
Warrants outstanding, January 1;         -      2,500,000        2,500,000      
Issued                                 -              -                -    
Exercised                              -     (2,500,000)               -    
Canceled                               -              -                -    
Warrants outstanding, December 31;       -              -        2,500,000      
Price per share ranges of warrants                                              
outstanding at December 31             -              -       $0.01-$1.2    
Dates through which warrants                                                    
outstanding at December 31                                                  
were exercisable                     (*)            (*)              (*)    

(*)  The 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 500,000         
shares of the Company's Common Stock, at an exercise price of $1.25 per         
share.  On December 9, 1993, PCI exercised its Replacement Warrant and          
acquired 2,000,000 shares of the Company's Common Stock, at an exercise         
price of $0.01 per share.                                                       

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 are paid each quarter at an annual rate of     
return of 7 1/2% which totaled $577,000 for 1994.                               
Each share of Series A Preferred Stock is convertible at the option of
PCI into fully paid and nonassessable 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 CII, relating 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 CII, which was used to redeem the 100,000           
shares (par value $10.00) of Series A Preferred Stock.  The Series A            
Preferred Stock is redeemable at the option of the Company.  In the event       
that four consecutive quarterly dividend payments on Series A Preferred         
Stock are in arrears and unpaid, PCI shall have 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 at all times thereafter.      

NOTE 11.  STOCK OPTIONS AND AWARDS                                              

The Company's plans include stock options to purchase Common Stock and may      
be granted to officers, directors, consultants, 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 10,000 shares of the Company's Common Stock for each           
fiscal year the Company reports income.  The Company's incentive plans are      
administered by the Compensation Committee of the Company's Board of            
Directors.                                                                      
The Company's incentive plans reserve 3,000,000 shares of the         
Company's Common Stock for issuance at December 31, 1994, 1993, and 1992.       
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 $182,000, $229,000, and           
$303,000 at December 31, 1994, 1993, and 1992, respectively, have been          
deducted from Stockholders' equity.                                             
Information regarding stock options is summarized below:              

                                      1994           1993           1992
Options outstanding, January 1;         1,354,131      1,748,000      1,229,908 
 Granted                                 276,000         43,000      1,021,532
 Exercised                              (439,673)      (132,869)             -
  Terminated                             (100,941)      (304,000)      (503,440)
Options outstanding, December 31;       1,089,517      1,354,131      1,748,000 
Per share ranges of options                                                     
 outstanding at December 31           $.47-$3.53     $.47-$2.06     $.47-$1.00
Dates through which options                                                     
outstanding at December 31,                                                 
 were exercisable                   1/95-10/2004   1/94-10/2003   1/93-10/2002
Options exercisable, December 31;         523,798        534,451        684,414 

NOTE 12.  SEGMENT INFORMATION                                                   

During 1994, 1993, and 1992, 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:                                                                     

In thousands                                    1994    1993      1992          
Sales:                                                                      
                 ALLTEL Supply, Inc.  $12,370 $15,908    $12,695
      Graybar Electric Company, Inc.   31,298  24,494     26,217
          North Supply Company, Inc.   16,305  14,984     13,598

Percentage of net sales:                                                    
                 ALLTEL Supply, Inc.      16%     23%        18%
      Graybar Electric Company, Inc.      41%     35%        37%
          North Supply Company, Inc.      21%     22%        19%

ALLTEL Supply, Inc.,a subsidiary of ALLTEL Corporation, a share holder of       
the Company, has accounts receivable with the Company of $588,000 and           
$808,000 for the periods ending December 31, 1994 and 1993, respectively.       

NOTE 13.  COMMITMENTS AND CONTINGENT LIABILITIES                                

The Company 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        
affect 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 terminated the use of a concrete     
underground storage tank for draining hydraulic oil and chlorinated             
solvents from machine parts, and removed the tank.  The consulting              
engineers engaged by the Company prepared an environmental site                 
characterization report showing hydraulic oil and chlorinated solvents          
contamination of the soil, and hydraulic oil contamination of the               
groundwater.  A remediation plan was recommended to the Company, which was      
approved by the State of Virginia Water Control Board on January 31, 1989.      
The remediation plan was expected to extend for approximately 10 years.         
The Company believes that it has been, and is now, in compliance with the       
1989 remediation plan.                                                          
In November 1993, the Company engaged Froehling and Robertson, Inc.   
("F & R"), an environmental engineering firm, to collect additional samples     
of soil and groundwater for assessing the effect of the hydraulic oil           
remediation plan, and to determine whether the chlorinated solvents had         
dissipated.  The Company also requested the State of Virginia Department of     
Environmental Quality ("DEQ") to review the site characterization plan          
report for adequacy under current environmental regulations.  As a result,      
DEQ sent the Company a letter on November 30, 1993, citing certain              
deficiencies and requesting a site characterization report addendum and a       
corrective action plan.  On January 14, 1994, the Company submitted a           
corrective action plan to the DEQ, which was approved by the DEQ on July 8,     
1994.  F & R has advised the Company that the cost estimate for the             
remediation strategy proposed in the corrective action plan is                  
approximately $35,000 to $45,000.  In 1993, the Company provided a reserve      
in the amount of $45,000 to cover such cost.                                    
In October 1994, the Company installed all the required equipment in  
accordance with the remediation plan and has started the process of pumping     
hydraulic oil residue from the underground water.  The oil will be              
deposited into approved containers and taken to a hazardous waste site in       
accordance with the corrective action plan.                                     

NOTE 14.  QUARTERLY FINANCIAL DATA (UNAUDITED)                                  

                                          First    Second    Third    Fourth
In thousands except share data             Quarter   Quarter  Quarter   Quarter 

1994                                                                            
 Sales                                    $17,639   $19,019  $20,660   $19,827
 Gross profit                               5,791     6,045    6,297     6,273
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      0.01      0.04     0.05      0.02

                                                        [Enlarge/Download Table]
                                                                                     
1993                                                                                 
  Sales                                   $14,435  $14,010  $19,192  $21,462  $69,099
  Gross profit                              4,108    3,813    5,950    7,442   21,313
  Interest expense                            589      615      619      597    2,420
  Net income (loss)                           237     (486)   1,014    1,651    2,416
  Net earnings per common share: Primary     0.01    (0.03)    0.05     0.09      .12

Previously reported quarterly information has been revised to reflect 
certain reclassifications.  These reclassifications had no effect on            
previously reported consolidated net income (see Note 1 -                       
Reclassifications).                                                             
In the first quarter of 1994 (February 1, 1994), the Company          
restructured its indebtedness to PCI by using cash generated from               
operations and cash borrowed from Shawmut (see Note 5).  The major impact       
on operations was the reduction of interest expense for 1994 and the write-     
off of prior debt issuance cost of $389,000.                                    
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 $224,000 of additional income, which is reflected in the          
fourth quarter of 1994.                                                         

FIVE YEAR FINANCIAL DATA                                                        

Selected Consolidated Statements of Operations                                  
Data                                                                            
In thousands except                                                             
per share amounts                   1994    1993     1992     1991     1990 
Net sales:                                                                      
As reported (1)                    $77,145  $69,099  $70,897  $66,914  $83,957
Current product lines (2)           77,145   69,099   64,423   55,731   70,167
Income (loss) before income taxes                                               
and extraordinary item               3,730    2,545      897    (871)    1,331
Net income (loss)                     3,225    2,416      884    (871)    1,014 
Earnings (loss) per common share                                                
and common equivalent share:                                                  
  Primary:                            0.12     0.12     0.04    (0.05)    0.05

(1)  Prior years have been reclassified to conform to 1994 presentation.        
(2)  Excludes sales of the electromechanical product line                       

Selected Consolidated Balance Sheet                                             
Data                                                                            
In thousands                   1994    1993    1992     1991     1990           

Current assets              $26,199  $28,301  $24,389  $25,779  $28,519         
Total assets                 42,260   44,803   41,747   41,412   44,163         
Current liabilities          14,568   13,358   11,985   11,852   20,020         
Long term debt and other                                                        
long term liabilities       6,649   20,695   22,251   23,217   17,149       
Stockholders' equity         21,043   10,750    7,511    6,343    6,994         

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      
qualified to trade as a Nasdaq/National Market System Tier 1 Stock in 1982.     

           1994                     1993
Fiscal Quarters           High       Low           High       Low               
First Quarter          4  1/8   2  9/16         1 1/16       1/2              
Second Quarter         3  3/8   1   7/8         1  1/8     13/16              
Third Quarter          3  1/8   1 15/16              1       3/4              
Fourth Quarter         3 7/16   1 13/16         3  5/8       3/4              

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 Shawmut         
except on Series A Preferred Stock.  (see Note 5 to Consolidated Financial      
Statements).                                                                    
The Company's Common Stock trades on the The Nasdaq Stock Market under
the symbol: CMDL.                                                               

OFFICERS &                                                                      
DIRECTORS                                                                       

Corporate Officers             Directors                                        

William G. Mustain             William G. Mustain                               
President and                                                               
Chief Executive Officer      A. M. Gleason   Vice Chairman of PacifiCorp    

Wayne R. Wilver                William E. Porter  Vice President, Project Future
Senior Vice President,                      of Trigon Blue Cross Blue Shield
Chief Financial Officer,                                                        
Treasurer, and Secretary                                                        
                           John W. Rosenblum  Tayloe Murphy Professor of
                                             Business Adminitration,
Stephen C. Ayers                                   Darden Graduate School of    
Vice President, Sales and                        Business Administration,   
Marketing                                       University of Virginia    

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

Larry K. Tate                                                                   
Vice President, Quality                                                     

Ove Villadsen                                                                   
Vice President, Engineering                                                 

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       

Dates Referenced Herein   and   Documents Incorporated by Reference

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Filed on:		3/28/95		1
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For Period End:		12/31/94		1		5
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		12/31/92		1		5
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