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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 OCTOBER 31, 1997

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to


COMMISSION FILE NUMBER 0-27022

OPTICAL CABLE CORPORATION
(Exact name of registrant as specified in it charter)

Virginia 54-1237042
(State of incorporation) (I.R.S. Employer Identification No.)


5290 Concourse Drive (540) 265-0690
Roanoke, Virginia 24019 (Telephone Number)
(Address of principal executive offices)


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

None

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

Common Stock, no par value


Indicate by checkmark 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. (1) Yes [X] No [ ] (2) Yes [X] No [ ]

Indicate by checkmark 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]

The aggregate market value of shares of common stock held by non-affiliated
at January 15, 1998 was $24,444,504.


As of January 15, 1998, 38,559,288 shares of the Registrant's Common Stock
were outstanding.


DOCUMENT INCORPORATED BY REFERENCE

Portions of Optical Cable Corporation's definitive Proxy Statement for its 1998
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934
(the "Proxy Statement") are incorporated by reference into Part III of this Form
10-K.

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PART I

ITEM 1. BUSINESS

GENERAL

The Company manufactures and markets a broad range of fiber optic cables
for "high bandwidth" transmission of data, video and audio communications over
moderate distances of up to approximately 10 miles. The Company's cables can be
used both indoors and outdoors, are easy and economical to install, and provide
a high degree of reliability. The Company believes that its products are widely
accepted for use in fiber optic local area networks ("LANs") and are
increasingly accepted in other communications applications. The Company's
products directly address the needs of the moderate distance market by utilizing
a tight-buffered coating that protects the optical fiber and a cable design that
achieves superior mechanical and environmental performance.


The Company was incorporated in Virginia in 1983. The Company's executive
offices are located at 5290 Concourse Drive, Roanoke, Virginia 24019, telephone
number (540) 265-0690.


INDUSTRY BACKGROUND AND MARKETS

Application of Fiber Optic Communications Technology

Fiber optic technology was developed in the mid-1970s as a communications
medium offering numerous technical advantages over metallic conductors such as
copper. Optical fiber is an ultrapure glass structure that has been pulled into
a hair thin strand. Optical fiber's advantages include its high bandwidth, which
permits reliable transmission of complex signals such as multiple high-quality
audio and video channels, high-speed data formats such as Fiber Distributed Data
Interface ("FDDI") and Asynchronous Transfer Mode ("ATM"), other LAN
transmissions, and high-definition television. Relative to copper, optical fiber
has thousands of times the information carrying capacity, occupies much less
space and operates more reliably over greater distances. Furthermore, it is
immune to the electromagnetic interference that causes static in copper wire
transmission, as well as to electrical surges. Because optical fiber does not
carry electricity, it is a safer choice in flammable environments. Additionally,
communicating through optical fiber is more secure than copper because tapping
into fiber optic cable without detection is very difficult. Optical fiber also
enjoys technical advantages over other communications media such as satellite
and microwave communications, particularly in applications over shorter
distances.

Because most of the world's information storage, reception and display
systems (such as computers, telephones and televisions) are electronically
based, various electro-optical hardware components must be attached to each end
of an optical fiber. For instance, a laser or light emitting diode converts
electrically encoded information into light signals, which travel over the
optical fiber to the terminal point of reception. At the terminal point a
photodetector converts the information back to its original form. Other passive
optical components such as optical connectors and splices facilitate the travel
of a light signal from one optical fiber to another or to another
electro-optical component, while couplers and splitters combine or divide
signals, thereby permitting simultaneous distribution of information to or from
multiple locations. Despite early and widespread appreciation of optical fiber's
superior technical characteristics, until the late 1970s the costs associated
with the necessary electro-optical transmitters and receivers rendered
commercial applications prohibitively expensive.

The Company believes there is a perception that fiber optic cable, because
it is different from copper cable, is difficult to install and maintain. This
perception is being overcome as fiber optic cable is more widely used. Also,
like copper cable, fiber optic cable is restricted to applications in which it
is possible to lay cable between the point of transmission and the point of
reception. Wireless communication media do not have this limitation.


2

The Long Distance Telephone Market

In the 1970s private industry began to develop optical fiber systems for
long distance commercial applications, particularly the U.S. telephone networks.
For this application, the expense of electro-optical components posed a lower
cost barrier because relatively few terminal components were required for long
distance transmissions. For the long distance telephone market, "single mode"
optical fiber was developed. To protect this early generation of fiber without
adversely affecting its optical performance, fiber optic cable producers chose a
high density (i.e., high fiber count) "loose tube" cable construction. This
cable design was developed to put minimal stress on the optical fibers, which
initially were particularly fragile, and to put many optical fibers in a small,
relatively inexpensive cable. When such cables proved vulnerable to water
penetration, manufacturers added a water-blocking but flammable gel, making them
unsuitable for indoor use.

Once fiber optic technology achieved cost parity with copper for the long
distance telephone application, U.S. long distance carriers aggressively
installed fiber optic routes across the United States. By the late 1980s,
optical fiber constituted nearly all of the long distance telephone network, as
well as the interoffice local exchange network connecting central telephone
offices in the same area.


The Moderate Distance Market

In the 1970s the U.S. government made available substantial funds for
research and development to determine the viability of optical fiber as a
solution to critical communications problems faced by the military and other
agencies. In the course of addressing these challenging, multiple termination
point applications, which were predominately over moderate distances, engineers
achieved significant technological advances. Such advances included the
introduction of "multimode" optical fiber and the development of an
easy-to-handle "tight-bound" cable structure that afforded the optical fiber
effective protection against mechanical shock, water, extreme temperatures and
other stresses likely to be encountered in a battlefield environment.

High levels of production of optical fiber, cable and components for the
long distance telephone market since the mid-1980s have resulted in cost
reductions that make fiber optic cable economically feasible for a growing
number of potential customers with moderate distance business application needs.
Such applications include data communications, LANs, telecommunications, video
transmission, including cable television, and military tactical communications.
Particularly in data communications, high performance, rugged, and survivable
fiber optic cable is well suited and has become economically attractive for
diverse and often unpredictable installation environments. The Company believes
that the LAN market is particularly attractive. LANs are often installed at
corporate offices, hospitals, utilities, academic campuses, factories and
transportation management facilities.

The increasing standardization of communications technology and the
increasing demand for high bandwidth (i.e., high data capacity or volume) are
expected to facilitate optical fiber's further penetration of the moderate
distance market presently served by copper cable. Fiber optic cable is better
able to maximize the utility of emerging LAN interface standards, such as FDDI
and ATM, and has therefore become a preferred data transmission medium. In
addition, high speed, high bandwidth applications, such as video conferencing,
imaging and Internet access, are growing and are driving increased demand for
fiber optic cable in moderate distance applications.

With the movement toward deregulation and competition, the large cable
television companies, often referred to as Multiple System Operators, the
Regional Bell Operating Companies ("RBOCs"), and other independent long distance
carriers are competing to provide enhanced cable television, data, and other
information highway services to homes and businesses. Many of these companies
are conducting field trials of optical fiber systems in the portion of the U.S.
telephone networks which lies between telephone companies' central offices and
subscribers' offices and homes (the "subscriber loop"). To date, the subscriber
loop remains overwhelmingly copper. Because the subscriber loop represents
approximately 90% of the U.S. telephone system (measured by total length of
cable), the potential demand for fiber optic cable in this application is very
large, provided that cost parity with copper cable systems can be achieved.


3

THE COMPANY'S SOLUTION

Fiber optic cables used for moderate distance applications may be subjected
to many different stress environments. Cables installed inside buildings may be
routed through cable trays, floor ducts, conduits and walls and may encounter
sharp corners or edges. They may be pulled without lubricant, resulting in
higher pull tensions, and stressed to the breaking point if care is not used. In
the outdoor and underground environments, cables are often subjected to
moisture, ultra-violet radiation and long pulling distances through conduits
with a variety of bends and corners, resulting in high pulling tensions. These
conditions can be aggravated if installers are not adequately trained in the
installation of fiber optic cable. The Company's founders recognized that, for
many applications, the stresses on the cables during installation are similar to
those in the military tactical environment, for which the Company's technology
was initially developed. The Company applied this technology to commercial
products serving a market that could not be adequately served by gel-filled,
loose tube cable manufactured for the long distance telephone market.

The Company believes that nearly one-half of the fiber optic cable sold in
the moderate distance market today is the gel-filled, loose tube type, which
requires careful installation and extensive preparation for termination with
connectors. While this cable design has served the long distance telephone
market reasonably well, it was not designed to withstand the stress that cables
undergo during installation in the LAN or subscriber loop environments.
Gel-filled, loose tube cables are difficult to terminate with connectors,
because they cannot be mechanically attached directly to the cable's optical
fibers. Designed for long, straight outdoor runs, the cables are stiff and
difficult to place in complex installations and are flammable and thus not
suited for indoor use. When used for indoor/outdoor installations, these cables
must be spliced near the building entrance to flame retardant cables suitable
for indoor use, adding cost and complexity and reducing reliability. Therefore,
the total installed cost of gel-filled, loose tube cables is high in moderate
distance applications.

In contrast, the Company's products address the needs of the moderate
distance market by utilizing a tight-buffered coating that protects the optical
fiber and a cable design that achieves superior mechanical and environmental
performance. The Company's products are derived from technology originally
developed for military applications requiring very rugged, flexible and compact
fiber optic cables. Unlike gel-filled cables, the Company's cables may be used
indoors and outdoors, are flame resistant, flexible, easy and economical to
install, and provide a high degree of reliability. The Company believes that
because of these features, its products are widely accepted for use in fiber
optic LANs and are increasingly accepted in other applications.


THE COMPANY'S STRATEGY

The Company's primary strategy is to capitalize on its proprietary cable
manufacturing processes and technologies to provide a comprehensive line of
versatile fiber optic cables with superior features and competitive pricing that
appeals to the large, diverse and growing market for high bandwidth
communications over moderate distances.

Focus on the Moderate Distance Market

Optical fiber has become an accepted medium for the transmission of data,
video and audio in moderate distance applications in cities, factories, high
rise buildings, and on campuses. High speed, high bandwidth applications
deployed in LAN environments are growing in both large and small corporations
and are driving increased demand for optical fiber. Increasing deployment of
multimedia systems on LANs that utilize protocols such as FDDI and ATM also
enhances the demand for bandwidth.

The Company's products address the needs of the moderate distance market by
utilizing a tightbuffered coating that protects the optical fiber and a cable
design that achieves superior mechanical and environmental performance. The
Company believes that because of the outstanding features of its fiber optic
cable, including suitability for indoor and outdoor use, easy and economical
installation and a high degree of reliability, the Company's products have
become well established for optical fiber LANs and are increasingly accepted for
other applications.


4

Develop High Performance Products and Offer a Broad Product Line

The Company believes that serving both the premium performance and the
price competitive parts of the moderate distance market best utilizes its
development and manufacturing capabilities. The Company's Ultra-FoxTM product
line provides optical fiber products that are competitively priced, with
features that the Company believes are superior to its competitors' offerings.
The Ultra-FoxTM plus product line shares many of the materials and features with
the Company's military tactical cable products and is marketed to customers who
want the most reliable installations for their critical communication or control
processes. Since March 1994, the Company's quality management system has been
certified to the internationally recognized ISO 9001 quality standard.


Leverage Existing Technologies and Knowledge

The Company has extensive expertise in optical fiber packaging and
applications design, which it utilizes for new products. The Company is
responsive to, and works to anticipate the requirements of, its customers. Its
expertise with tight-buffered cable technology facilitates development of new
products and variations of existing products. Products that are developed for a
special application also may be introduced to the broader market.


Capitalize on Proprietary, Flexible Manufacturing Processes

The Company believes that its customized, internally developed
manufacturing processes provide a competitive advantage. The Company has
developed proprietary process control systems to ensure consistency and
uniformity at high throughput rates and intends to continue the upgrade of its
manufacturing capability. Through construction completed in January 1997, the
Company expanded its facilities to increase its manufacturing capacity. Ample
capacity, versatile production processes and a broad range of products are
intended to enable the Company to be flexible and responsive to customer needs.


Offer Cost Effective Solutions to its Customers

The Company believes that its products are rugged, easy to install,
versatile and highly reliable, making them attractive to distributors,
installers, and most importantly, end users. Because the Company's cables are
multipurpose, distributors can stock fewer varieties and therefore less
quantities of cable. For installers and systems integrators, the multipurpose
feature can significantly reduce installation costs by eliminating the need to
transition from indoor cable to outdoor cable at a building entrance. This also
enhances reliability by eliminating splices and possible high stress on optical
fibers that could lead to breakage. This simplified installation, lower cost and
enhanced reliability are also valued by the end user, because a long lasting,
trouble-free cable is the basis for minimizing down time and maximizing system
availability.


Expand Distribution and Marketing Presence

The Company intends to increase its sales and marketing activities both
domestically and internationally. The Company distributes its products through
independent distributors to supplement the Company's existing distribution
channels and to provide the Company with access to a greater number of potential
customers in the United States. Revenues from international sales were
approximately 24%, 25% and 27% in fiscal 1995, 1996 and 1997, respectively. The
Company intends to hire more sales personnel to manage and expand its
international distribution network. However, there can be no assurance that the
Company will have the financial resources required to increase its sales and
marketing activities domestically or internationally, or to hire additional
sales personnel.


5


PRODUCTS AND TECHNOLOGY


Products

The Company manufactures and markets a broad range of fiber optic cables
that provide a high bandwidth transmission for data, video and audio
communications over moderate distances. The Company's products are derived from
technology originally developed for military applications requiring very rugged,
flexible and compact fiber optic cables. The Company's method of applying a
tight-buffered coating on each optical fiber before it is encased minimizes
microbending, the primary cause of signal loss in optical fibers.

The Company has pioneered a pressure-extrusion technique for applying a
cable jacket directly over the fiber optic cable core elements, resulting in
high cable tensile strength and lateral stress resistance. Such Core-LockedTM
jackets allow the cable to operate as a single mechanical unit, maximizing
resistance to tears during installation pulls through narrow spaces. The
Company's product line is deliberately diverse and flexible, in keeping with the
evolving application needs within the moderate distance market. Most of the
Company's cable designs are available in both the Ultra-FoxTM Plus premium
product and the Ultra-FoxTM highly featured but cost competitive commercial
product.






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6





PRODUCT TYPE FEATURES/DESCRIPTION APPLICATIONS
- ----------------------------- --------------------------------------- -------------------------------------

A-Series Simplex and Duplex o simplex (one optical fiber) and o short "patch cord" cables
"Assembly" Cables duplex (two optical fibers) cables o links between electronic
o tight-buffered coating on each equipment and main fiber optic
optical fiber cable
o aramid yarn strength members o routing connections in patching
o thermoplastic outer jacket systems
o flame retardant o indoor use

B-Series "Breakout" Cables o 2 to 156 optical fibers o direct termination with connectors
o tight-buffered coating on each on each optical fiber
optical fiber o short and moderate distance links
o elastomeric jacket encases each between buildings or within a
optical fiber and surrounding ara- building, where multiple termina-
mid yarn strength members (simi- tion points are needed
lar to an A-Series simplex cable) o installations where ease of termi-
o Core-LockedTM outer jacket nation and termination cost are
o rugged important factors
o flame retardant o indoor and outdoor use
o moisture and fungus resistant

D-Series "Distribution" o 2 to 156 optical fibers o longer distance runs where size
Cables o tight-buffered coating on each and cable cost are more significant
optical fiber o can be armored for additional pro-
o Core-LockedTM outer jacket tection in buried and overhead in-
encases the optical fibers and stallations
aramid yarn strength members o indoor and outdoor use
o smaller, lighter and less expensive
than the B-Series cable
o high strength to weight ratio
o compact size
o rugged
o flame retardant
o moisture and fungus resistant

G-Series "Subgrouping" o up to 864 optical fibers in various o high fiber count systems
Cables subgroup sizes o subgroups needed to facilitate
o multi-fiber subcables, each similar organization of large numbers of
to a D-Series cable optical fibers
o Core-LockedTM outer jacket o subcables routed to different
surrounds subcables locations
o high density "micro" construction o installations requiring several
o rugged different optical fiber types
o flame retardant o indoor and outdoor use
o moisture and fungus resistant


7

A-Series Simplex and Duplex "Assembly" Cables. Simplex and duplex cables
are round single fiber and "zip cord" two-fiber structures, respectively. Both
cables contain tight-buffered optical fibers, aramid yarn strength members and a
thermoplastic outer jacket for each fiber. They are used for "jumpers" (short
length patch cords) and for "pigtails" (short lengths of cable with a connector
on one end). Various outer jacket materials are offered to provide flammability
ratings and handling characteristics tailored to customers' needs. These cables
are often privately labeled and sold to original equipment manufacturers
("OEMs") who produce the cable assemblies.

B-Series "Breakout" Cables. The B-Series cables consist of a number of
subcables, each consisting of a single optical fiber and aramid yarn strength
members similar to an A-Series simplex cable. These subcables are tight-bound in
a pressure-extruded, high performance Core-LockedTM PVC outer jacket to form the
finished multi-fiber cable. Like the A-Series cables, the subcables are intended
to be terminated directly with connectors. This direct termination feature makes
this cable type particularly suited for shorter distance installations, where
there are many terminations and termination costs are more significant. The
materials and construction of the cable permit its use both indoors and
outdoors. These features make the cable cost effective for use in campus and
industrial complex installations, between and within buildings.

D-Series "Distribution" Cables. The Company's D-Series cables are made with
the same tight-buffered optical fiber and high performance Core-LockedTM PVC
outer jacket as the B-Series cable. Unlike the B-Series cable, however, each
tight-buffered optical fiber in a D-Series cable is not covered with a separate
subcable jacket. D-Series cable is intended for longer distance applications,
where termination considerations are less important and often traded off for
size, weight and cost. The tightbuffered optical fiber and Core-LockedTM PVC
outer jacket make D-Series cables rugged and survivable, with a small,
lightweight configuration. The high strength to weight ratio of these cables
makes them well suited for installations where long lengths of cables must be
pulled through duct systems. D-Series cable is used in relatively longer length
segments of installations.

G-Series "Subgrouping" Cables. This cable design combines a number of
multi-fiber subcables, each similar to a D-Series cable. Each multi-fiber
subcable is tight-bound with an elastomeric jacket, providing excellent
mechanical and environmental performance. These subcables are contained in a
pressure extruded, high performance Core-LockedTM PVC outer jacket to form the
finished cable. This design permits the construction of very high fiber count
cables. These cables may be used where groups of optical fibers are routed to
different locations. The Company has fabricated a developmental sub-group cable
containing over 1,000 fibers intended for high density, moderate length routes
such as urban telephone distribution systems.

Other Cable Types. The Company produces many variations on the basic cable
styles presented above for more specialized installations. For outdoor
applications, both the B-Series and D-Series cables may be armored with
corrugated steel tape for further protection in underground or overhead
installations. For overhead installations on utility poles, the Company offers
several self-supporting versions of the D-Series cables, with higher performance
outer jackets. One contains additional aramid yarn strength members, to support
its weight with wind and ice loading over long unsupported lengths. Another
style has a separate strength member, either metallic or non-metallic, in a
figure eight configuration, to reduce installation costs. The Company's cables
are available in several flammability ratings, including "plenum" for use in
moving air spaces in buildings, and "riser" for less critical flame retardant
requirements. "Zero halogen" versions of the B-Series and D-Series cables are
available for use in enclosed spaces where there is concern over release of
toxic gases during fire. Composite cables combining optical fiber and copper are
offered to facilitate the transition from copper-based to optical fiber-based
systems without further installation of cable.


Product Development

The Company continues to develop enhancements to its fully automated,
computer-controlled production processes that it believes increase product
quality and reduce costs. Many of the Company's technological advances are the
result of refinements and improvements made during production runs.
Occasionally, potential customers contact the Company to develop new products or
modified product


8

designs for them, which ultimately may appeal to other customers. The
development costs associated with new products and modified product designs
requested by the customer are included in the price charged to that customer. By
utilizing these new products and modified product designs, the Company continues
to improve its product line with minimal direct expenditures for research and
development.


MAJOR MARKET APPLICATIONS

The most common application of the Company's products is in LANs, where
optical fiber is widely used as the "backbone" or "trunk," connecting groups of
work stations and central file servers. In its typical implementation, the fiber
optic cable may be installed between wiring closets in a building, or installed
between buildings in a multi-building complex. Fiber optic cable runs between
electronic equipment that combines the signals of many workstations. Because the
combined signals may carry a large volume of critical information, fiber optic
cable, which is immune to electrical interference, is often desired. In
comparison, copper wires carry less information, or the same amount of
information for a shorter distance, in either case remaining susceptible to
electrical noise and interference. The following are typical applications for
the Company's fiber optic cable:

Office Facilities. Banks, stock trading companies, insurance companies, and
other businesses often have a need to distribute information among a large
number of work stations, have time-critical data and would incur severe costs as
a result of system failures. A LAN connected with fiber optic cable has in the
past several years been an increasingly common way of implementing management
information systems for these businesses.

Educational Institutions. Colleges and universities have been leaders in
implementing large fiber optic networks. More recently, many states have
undertaken large scale projects to install networks in high schools and even
grade schools. These systems link personal computers with central file servers.
As interactive learning systems require increased transmission speeds, optical
fiber becomes a logical medium.

Manufacturing and Mining Facilities. Manufacturing and mining facilities
are typically not air conditioned, are less clean and otherwise have a less
controlled environment than businesses generally. They often contain heavy
electrical equipment, which causes electromagnetic interference if conventional
copper cable is used. The advantages of fiber optic cable in this environment
include immunity to electrical noise, ruggedness, high information carrying
capacity and greater distance capability. The Company's products are installed
in automotive assembly plants, steel plants, chemical and drug facilities,
petroleum refineries, mines and other similar environments.

Health Care Facilities. Hospitals have extensive data transfer needs for
medical records, patient monitoring, inventory, billing and payroll functions.
More recently, the transfer of electronically stored images of x-rays, MRIs and
CAT scans has increased to facilitate analysis and diagnosis at multiple
locations. These applications require high data transfer rates. Optical fiber is
a preferred solution, especially in electromagnetic environments with heavy
electrical equipment such as x-ray machines.

Traffic Control Systems. Traffic system applications range from
surveillance and control of traffic flow in cities to installation of sensors,
automatic toll collection, video monitoring and control of signs in "smart"
highway programs. These applications often require transmission of high
bandwidth signals such as video monitoring, for which optical fiber is well
suited. The Company's cables offer ruggedness, reliability and cost savings for
termination in systems that are near the vibrations of traffic and require many
termination points.

Telephone Companies. The Company has worked with several RBOCs for their
business customers' requirements. As high bandwidth services of the information
highway are brought closer to more homes and businesses, the bandwidth of
optical fiber becomes more important.


SALES, MARKETING AND CUSTOMER SERVICE

The Company's products are sold to end users, electrical contractors,
system integrators, value-added resellers ("VARs"), OEMs and distributors.
Distribution methods are adapted to the particular needs of different types of
customers. The decision to purchase the Company's products may be made


9

by end users, distributors, electrical contractors, system integrators or
specialized installers. The Company attempts to reach these decision makers by
advertising in fiber optics trade journals and other communications magazines.
The Company also participates in numerous domestic and international trade shows
attended by customers and prospective customers. International sales are made
primarily through foreign distributors, system integrators and VARs.

The Company's field sales force consists of independent sales
representatives located in various geographic areas. The field sales force
provides sales support for distributors, system integrators and VARs and
communicates with the customer's purchase decision makers. The field sales force
is supported by inside sales personnel and supervised by regional sales
managers. The inside sales group provides quotations and customer service. The
regional sales managers provide on-site sales support with major customers and
are responsible for major customers and opportunities. For more in-depth
technical support, the sales group has access to engineering, quality control
and management personnel who have extensive fiber optic cable expertise and
industry experience.

Furthermore, the Company believes that it has a reputation for product
excellence based on its success with large projects for end users such as
Chrysler Corporation, 3M, Virginia Polytechnic Institute and State University,
Bankers Trust and Salomon Brothers Inc, and for integrators such as Ameritech
Information Systems and US WEST. The Company had no single customer that
accounted for more than 5% of its net sales in fiscal 1995, 1996 or 1997.
However, in fiscal 1997, 22% of net sales was attributable to two major domestic
distributors, and in fiscal 1996, 12% of net sales was attributable to one major
domestic distributor. Most of the Company's revenue in each quarter results from
orders received in that quarter. Accordingly, the Company does not believe that
its backlog at any particular point in time is indicative of future sales. The
Company believes that its customer base is diverse, crossing over many markets
and regions worldwide and believes that it is important to maintain that
diversity to avoid dependence on any particular segment of the economy or area
of the world.


MANUFACTURING AND SUPPLIERS

The Company's manufacturing operations consist of applying a variety of raw
plastic materials to optical fibers. The key raw material in the manufacture of
the Company's products is optical fiber, which the Company currently purchases
from four manufacturers. The Company works with its vendors in an effort to
ensure a continuous supply. The Company utilizes two sources for the cable's
aramid yarn strength member and several suppliers of coating materials. The
Company has not experienced difficulty in arranging alternate sources. All other
raw materials have at least one backup source.

The Company believes that by maintaining a consistent relationship with
suppliers, it can obtain better quality control and emergency deliveries. Being
able to deliver product on time has been an important factor in the Company's
success. To date, the Company has been able to obtain adequate supplies of its
raw materials in a timely manner from existing sources or, when necessary, from
alternate sources. However, any disruption in the supply of raw materials could
adversely affect the Company's cable production capability and its operating
results.

The Company believes that other fiber optic cable manufacturers generally
carry minimal amounts of raw materials and finished goods inventory. The Company
generally holds raw materials and finished goods inventory in amounts greater
than that of its competitors to ensure a quick response after receiving a
customer's order.

The Company believes its quality control procedures have been instrumental
in achieving the performance and reliability of its products. The Company
produces cable using the quality control procedures of MIL-I-45208 (the primary
standard applicable to most government purchasers of cable).

Since March 1994, the Company's quality management system has been
certified to the internationally recognized ISO 9001 quality standard. ISO 9000
is a series of standards agreed to by the International Organization for
Standardization (ISO). ISO 9001 is the highest level of accreditation and
includes an assessment of 20 elements covering various aspects of design
development, procurement, production,

10

installation and servicing. The Company's certification was obtained through an
audit by a qualified international certifying agency. In order to maintain its
certification, the Company must continue to comply with the standards.


PROPRIETARY RIGHTS

None of the Company's current manufacturing processes or products is
protected by patents. The Company relies on a combination of trade secret,
copyright and trademark law, nondisclosure agreements and technical measures to
establish and protect its rights pertaining to its production technology. Such
protection may not deter misappropriation or preclude competitors from
developing production techniques or equipment with features identical, similar
or superior to the Company's. The Company believes, however, that because of the
rapid pace of technological change in the data communications industry and
particularly in the fiber optic cable segment, legal protection for the
Company's products is less significant to the Company's prospects than the
knowledge, ability and expertise of its management and technical personnel with
respect to the timely development and production of new products and product
enhancements. The Company considers its proprietary knowledge with respect to
the development and manufacture of fiber optic cable to be a valuable asset.
This expertise enables the Company to formulate new cable compositions, develop
special coatings and coating methods, develop and implement manufacturing
improvements and quality control techniques, and design and construct
manufacturing and quality control equipment. The Company restricts access to its
manufacturing facility and engineering documentation to maintain security.
Employees are required to sign nondisclosure agreements.

The Company believes that none of its products, trademarks or other
proprietary rights infringes upon the proprietary rights of others. There can be
no assurance, however, that third parties will not assert infringement claims
against the Company in the future with respect to the Company's present or
future products which may require the Company to enter into license agreements
or result in protracted and costly litigation, regardless of the merits of such
claims.


COMPETITION

The market for fiber optic cable, including the moderate distance market in
which the Company's products are concentrated, is highly competitive. Siecor
Corp. (a joint venture of Siemens AG and Coming) and Lucent Technologies are the
leading manufacturers of fiber optic cable for both the long distance telephone
market and the moderate distance market. Although both manufacture gel-filled,
loose tube cables, a significant portion of Lucent Technologies and Siecor
Corp.'s fiber optic cable sales are tight-buffered fiber optic cable products in
the moderate distance market. Also, Coming and Lucent Technologies are principal
suppliers of optical fiber worldwide. The Company's competitors, including
Siecor Corp. and Lucent Technologies, are more established, having a large
business base in the long distance telephone, gel-filled, loose tube cable
market. Those companies can benefit from greater market recognition and have
greater financial, research and development, production and marketing resources
than the Company.

Additionally, fiber optic cable competes with copper wire cable on the
basis of cost and performance tradeoffs. The cost of the electro-optical
interfaces required for fiber optic systems and higher speed electronics
generally associated with high performance fiber optic systems can make them
uncompetitive in applications where the advantages of optical fiber are not
required. Fiber optic cable also competes with other alternative transmission
media including wireless and satellite communications.

The Company believes that it competes successfully against its competitors
on the basis of breadth of product features, quality, ability to meet delivery
schedules, technical support and service, breadth of distribution channels and
price. Maintaining such competitive advantages will require continued investment
by the Company in product development, sales and marketing. There can be no
assurance that the Company will have sufficient resources to make such
investments or that the Company will be able to make the technological advances
necessary to maintain its competitive position. An increase in compe-


11

tition could have a material adverse effect on the Company's business and
operating results because of price reductions and loss of market share.
Competition could increase if new companies enter the market or if existing
competitors expand their product lines.


EMPLOYEES

As of October 31, 1997, the Company employed a total of 145 persons,
including 55 in sales, marketing and customer service, 12 in engineering,
product development and quality control, 68 in manufacturing, and 10 in finance
and administration. None of the Company's employees is represented by a labor
union. The Company has experienced no work stoppage and believes its employee
relations are excellent. The Company has a monthly bonus plan for all employees
along with an end of year profit sharing plan.


ITEM 2. PROPERTIES

The Company's principal administration, marketing, manufacturing, and
product development facilities are located in a 148,000 square foot building
located adjacent to the Roanoke, Virginia airport and major trucking company
facilitates. These facilities were expanded from 74,000 to 148,000 square feet
through construction which was completed in January 1997 on land purchased by
the Company in 1994 adjacent to the Company's existing facility. The Company
believes that its production equipment is presently operating at approximately
50% of its capacity.


ITEM 3. LEGAL PROCEEDINGS

In the opinion of the Company's management, there are no legal proceedings
pending to which the Company is a party or to which any of its properties is
subject, other than ordinary, routine litigation incidental to the business
which is not expected to have a material adverse effect on the results of
operations, financial condition or cash flows of the Company.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no issues or matters submitted to a vote of security holders
during the fourth quarter of the fiscal year ended October 31, 1997.


12


PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "OCCF" and began trading on April 2, 1996. The following table sets
forth for the fiscal periods indicated the high and low sales prices of the
Common Stock, as reported on the Nasdaq National Market, during the two most
recent fiscal years.








FISCAL YEAR ENDED OCTOBER 31, 1997 HIGH LOW
---------------------------------- ------- ------

First Quarter (November 1, 1996 to January 31, 1997) ...... 14 3/4 10 3/8
Second Quarter (February 1 to April 30, 1997) ............ 17 3/4 9 7/8
Third Quarter (May 1 to July 31, 1997) ..................... 13 1/8 7 1/8
Fourth Quarter (August 1 to October 31, 1997) ............ 16 1/4 7 7/8


FISCAL YEAR ENDED OCTOBER 31, 1996
------------------------------------
Second Quarter (April 2 to April 30, 1996)(1) ............ 4 5/8 2 3/8
Third Quarter (May 1 to July 31, 1996)(1) .................. 34 4 1/4
Fourth Quarter (August 1 to October 31, 1996) ............ 20 8 1/4


- ----------
(1) The Company's stock split 2 for 1 on May 31, 1996 and 2 for 1 on June 21,
1996. All per share amounts reported have need adjusted to give retroactive
effect to these stock splits.


As of January 15, 1998, there were an estimated 5,500 holders of record of
the Common Stock.


The Company has not paid or declared any cash dividends on its common stock
since the completion of the initial public offering in April 1996. While there
are no restrictions on the payment of dividends, the Company does not anticipate
the payment of any cash dividends on its common stock for the foreseeable
future.


13


ITEM 6. SELECTED FINANCIAL DATA


OPTICAL CABLE CORPORATION
SELECTED FINANCIAL DATA







YEARS ENDED OCTOBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ---------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF INCOME DATA:
Net sales ....................................... $52,189 $ 45,152 $ 36,360 $ 26,217 $ 24,980
Cost of goods sold .............................. 30,613 24,907 20,121 14,138 13,036
------- -------- -------- -------- --------
Gross profit ................................. 21,576 20,245 16,239 12,079 11,944
Total operating expenses ........................ 9,572 8,416 7,660 7,967 7,724
------- -------- -------- -------- --------
Income from operations ........................ 12,004 11,829 8,579 4,112 4,220
Other income (expense), net ..................... (47) 198 (379) (614) (870)
------- -------- -------- -------- --------
Income before income tax expense and extraordi-
nary item .................................... 11,957 12,027 8,200 3,498 3,350
Income tax expense (1) ........................... 4,150 2,806 -- -- --
------- -------- -------- -------- --------
Income before extraordinary item ............ 7,807 9,221 8,200 3,498 3,350
Extraordinary item .............................. -- -- -- (149) --
------- -------- -------- -------- --------
Net income .................................... $ 7,807 $ 9,221 $ 8,200 $ 3,349 $ 3,350
======= ======== ======== ======== ========
Pro forma Income Data (1):
Net income before pro forma income tax provi-
sion, as reported............................. $ 9,221
Pro forma income tax provision ............... 1,747
--------
Pro forma net income ........................ $ 7,474
========
Net income per share (pro forma for 1996) ...... $ 0.202 $ 0.190
======= ========
Weighted average shares outstanding (pro forma for
1996) .......................................... 38,675 39,361
======= ========
BALANCE SHEET DATA:
Working capital ................................. $19,912 $ 14,377 $ 9,076 $ 10,140 $ 6,322
Total assets .................................... 35,214 31,127 18,819 19,056 16,465
Long-term debt, less current maturities ......... -- -- -- 8,000 2,000
Total stockholders' equity ..................... 31,379 23,572 14,952 7,832 7,161


- ----------
(1) Through March 31, 1996, the Company was not subject to federal and state
income taxes since it had elected, under provisions of the Internal Revenue
Code, to be taxed as an S Corporation. In connection with the closing of the
Company's initial public offering (see note 11 to financial statements), the
Company terminated its status as an S Corporation effective March 31, 1996
and became subject to federal and state income taxes. Accordingly, the
statement of income data for the year ended October 31, 1996 includes income
taxes from April 1, 1996, and for informational purposes, the statement of
income data for the year ended October 31, 1996 includes a pro forma
adjustment for income taxes which would have been recorded if the Company
had been subject to income taxes for the entire fiscal year presented.


14


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION


GENERAL

Except for the historical data set forth herein, the following discussion
contains certain forward-looking information. The Company's actual results may
differ materially from these projected results. Factors that could cause or
contribute to such differences include, but are not limited to, level of sales
to key customers, actions by competitors, fluctuations in the price of raw
materials, the Company's dependence on a single manufacturing facility, ability
to protect its proprietary manufacturing technology, dependence on a limited
number of suppliers and technological changes and introductions of new competing
products.


RESULTS OF OPERATIONS

Net Sales

Net sales consists of gross sales of products, less discounts, refunds and
returns. Net sales increased 15.6 percent to $52.2 million in fiscal 1997 from
$45.2 million for fiscal 1996. This increase was attributable to the Company's
continued effort to reach a broader customer base throughout the United States
and internationally with increased advertising, trade show attendance, and
direct sales presence in more states. This effort resulted in greater sales in
all market segments and product types.

Net sales increased 24.2 percent to $45.2 million in fiscal 1996 from $36.4
million for fiscal 1995. This increase was attributable to the Company's
continued effort to reach a broader customer base throughout the United States
and internationally with increased advertising, trade show attendance and direct
sales presence in more states. This effort resulted in greater sales in all
market segments and product types.

The Company's base business is projected to grow rapidly with increasing
market share potential. Many new markets are expected to emerge as fiber optic
sensors are developed for production plant automation, smart highways and
security applications, along with a host of other specialty markets. Most
electronic communication devices produced by the vast number of global suppliers
are expected to rely more heavily on fiber optic communications to achieve their
performance goals. Management believes the Company's unique technological
background and specialty market expertise should lend itself well to capture an
increasing share of this global market along with expected earnings growth.
Optical Cable Corporation also intends to make inroads into various other
markets such as single-mode telecommunications and cable television.


Gross Profit Margin

Cost of goods sold consists of the cost of materials, compensation costs
and overhead related to the Company's manufacturing operations. The Company's
gross profit margin (gross profit as a percentage of net sales) decreased to
41.3 percent in fiscal 1997 from 44.8 percent in fiscal 1996. This decrease was
due to increased fiber prices, the Company's product mix sold, the ratio of
large orders and the ratio of net sales attributable to the Company's
distributors during the year. During fiscal 1997, sales from orders $50,000 or
more approximated 20 percent of net sales compared to 19 percent for fiscal
1996. Discounts on large orders are generally greater than for sales from orders
less than $50,000. In addition, for fiscal 1997, net sales to distributors
approximated 51 percent of net sales versus 49 percent for fiscal 1996.
Discounts on sales to distributors are generally greater than for sales to the
Company's other customer base.

The Company's gross profit margin increased slightly to 44.8 percent in
fiscal 1996 from 44.7 percent in fiscal 1995.


15

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of the compensation
costs (including sales commissions) for sales and marketing personnel, travel
expenses, customer support expenses, trade show expenses, advertising, the
compensation cost for administration, finance and general management personnel,
as well as legal and accounting fees. Selling, general and administrative
expenses as a percentage of net sales were 18.3 percent in fiscal 1997 compared
to 18.6 percent in fiscal 1996. This lower percentage was primarily the result
of the fact that net sales for fiscal 1997 increased at a faster rate than
selling, general and administrative expenses compared to fiscal 1996. The ratio
of selling, general and administrative expenses as a percentage of net sales was
also impacted due to incurring approximately $350,000 of shareholder related
expenses during fiscal 1997, such as printing and distribution costs for the
annual report and the proxy statement, and costs for the annual meeting of
shareholders, compared to approximately $141,000 of similar expenses in fiscal
1996.

Selling, general and administrative expenses as a percentage of net sales
were 18.6 percent in fiscal 1996 compared to 21.1 percent in fiscal 1995. This
lower percentage was primarily the result of the fact that net sales for fiscal
1996 increased at a faster rate than selling, general and administrative
expenses compared to fiscal 1995.

Interest Expense

The $369,000 reduction in interest expense in fiscal 1996 compared to
fiscal 1995 is due to the Company generating adequate amounts of cash from
operations to meet its cash needs thereby requiring limited use of its revolving
line of credit during fiscal 1997 and 1996.

Income Before Income Tax Expense

Income before income tax expense of $12 million in fiscal 1997 decreased
$70,000 compared to fiscal 1996. This slight decrease was primarily due to
increased sales volume offset by the decrease in gross profit margin.

Income before income tax expense increased 46.7 percent to $12 million for
fiscal 1996 from $8.2 million for fiscal 1995. This increase was primarily due
to increased sales volume and a reduction in interest expense.

Income Taxes

Through March 31, 1996, the Company was not subject to federal and state
income taxes since it had elected to be taxed as an S Corporation. In connection
with the Company's initial public offering (see note 11 to financial
statements), the Company terminated its status as an S Corporation effective
March 31, 1996 and became subject to federal and state income taxes. The
statement of income for the year ended October 31, 1997 includes income taxes,
at an effective tax rate of 34.7 percent, and the statement of income for the
year ended October 31, 1996 includes income taxes from April 1, 1996, and, for
informational purposes, a pro forma adjustment for income taxes, at an effective
tax rate of 37.9 percent, which would have been recorded if the Company had been
subject to income taxes for the entire period presented. The lower effective tax
rate for fiscal 1997 is due primarily to the benefit of the Company's foreign
sales corporation.

The Company recorded a $114,000 net benefit for deferred income taxes upon
termination of the Company's S Corporation status. The adjustment reflects the
net deferred income tax asset balance at March 31, 1996 in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes, which requires an asset and liability approach for the
accounting and financial reporting of income taxes. See note 10 to financial
statements for further details regarding income taxes.

Net Income

Net income for fiscal 1997 was $7.8 million compared to $9.2 million for
fiscal 1996. Net income decreased $1.4 million due primarily to income tax
expense of $4.1 million for fiscal 1997 compared to $2.8 million for fiscal 1996
as a result of the Company's termination of its S Corporation status effective


16

March 31, 1996. Net income for fiscal 1997 increased $333,000, or 4.5 percent
over pro forma net income for fiscal 1996. This increase resulted primarily from
the decrease in income before income tax expense of $70,000, and by the $404,000
decrease in income tax expense in fiscal 1997 from the pro forma income tax
provision in fiscal 1996.

Net income increased 12.4 percent to $9.2 million for fiscal 1996 from $8.2
million for fiscal 1995. This increase was a result of a $3.8 million increase
in income before income tax expense which was offset by the recording of income
tax expense of $2.8 million for fiscal 1996 as a result of the Company's
termination of its S Corporation status effective March 31, 1996.


FINANCIAL CONDITION

Total assets at October 31, 1997 were $35.2 million, an increase of $4.1
million, or 13.1 percent over October 31, 1996. This increase was primarily due
to an increase of $563,000 in trade accounts receivable, net, resulting from the
increased sales volume during fourth quarter 1997 as compared to fourth quarter
1996, an increase of $1.8 million in inventories, and a $2.3 million increase in
property and equipment, net, due to the Company's expansion of its headquarters
facilities. The expansion was funded in part through the $692,000 decrease in
cash and cash equivalents.

Total stockholders' equity at October 31, 1997 increased $7.8 million, or
33.1 percent from October 31, 1996 with net income retained accounting for the
increase.


LIQUIDITY AND CAPITAL RESOURCES

The Company's primary capital needs have been to (i) fund working capital
requirements, (ii) repay indebtedness, (iii) purchase property and equipment for
expansion and (iv) fund distributions to its previously sole stockholder
primarily to satisfy his tax liabilities resulting from the Company's S
Corporation status, which was terminated March 31, 1996. The Company's primary
sources of financing have been cash from operations, bank borrowings and
proceeds from the initial public offering of the Company's common stock. The
Company believes that its cash flow from operations and available lines of
credit will be adequate to fund its operations for at least the next twelve
months.

On February 28, 1997, the Company and its bank executed a loan commitment
letter, which renewed its $5 million secured revolving line of credit available
for general corporate purposes and established a $10 million secured line of
credit to fund potential acquisitions, mergers or joint ventures. The lines of
credit are equally and ratably secured by the Company's accounts receivable,
contract rights, inventory, furniture and fixtures, machinery and equipment and
general intangibles. The lines of credit will expire on February 28, 1998,
unless renewed or extended. As of the date hereof, the Company has no additional
material sources of financing.

On October 29, 1997, the Company's Board of Directors authorized the
repurchase of up to $5 million of the Company's common stock in the open market
or in privately negotiated transactions. The Company intends to use excess
working capital and other sources as appropriate to finance the share repurchase
program.

Cash flows from operations were approximately $4.0 million, $4.1 million
and $11.3 million in fiscal 1997, 1996 and 1995, respectively. For fiscal 1997,
cash flows from operations were primarily provided by operating income, offset
by an increase in trade accounts receivable of $552,000, an increase in
inventory of $1.8 million and a decrease in accounts payable and accrued
expenses of $2.3 million. For fiscal 1996, cash flows from operations were
primarily provided by operating income, offset by an increase in trade accounts
receivable of $3.4 million and an increase in inventory of $4.2 million. Cash
flows from operations in fiscal 1995 were primarily provided by operating income
and a decrease in inventory of $2.8 million. In 1995, the Company reduced its
inventory of optical fiber because it had additional access to ready supplies.

Net cash used in investing activities was for expenditures related to
facilities and equipment and was $3.6 million, $3.1 million and $387,000 in
fiscal 1997, 1996 and 1995, respectively. The Company's expansion of its
headquarters facilities was completed in fiscal 1997, and as of October 31,
1997, there were no material commitments for additional capital expenditures.


17


Net cash provided by (used in) financing activities was $(1.1) million,
$193,000 and $(10.5) million in fiscal 1997, 1996 and 1995, respectively. The
net cash used in financing activities in fiscal 1997 consisted of repayment of
debt outstanding under the Company's lines of credit of $1.1 million compared to
an increase of $794,000 in fiscal 1996. The net cash provided by financing
activities in fiscal 1996 also included net proceeds from the issuance of common
stock of $5.6 million, offset by $6.2 million in cash distributions to the
Company's previously sole stockholder for payment of his income taxes with
respect to the taxable income of the Company prior to the termination of the
Company's S Corporation status. The net cash used in financing activities in
fiscal 1995 consisted of a decrease in debt outstanding under the line of credit
of $5.9 million, payments on long-term debt of $3.5 million and cash
distributions to the Company's previously sole stockholder of $1.1 million.

Given the Company's software and hardware and the nature of its industry,
management does not consider the cost of addressing the Year 2000 issue to be a
material event or uncertainty that would cause reported financial information
not to be indicative of future operating results or financial condition.


NEW ACCOUNTING STANDARDS

SFAS No. 128

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share. SFAS No. 128
establishes standards for computing and presenting earnings per share (EPS) and
applies to entities with publicly held common stock or potential common stock.
SFAS No. 128 simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15, Earnings per Share, and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.

Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.

SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. SFAS No. 128 requires restatement of all prior-period EPS data
presented. It is not anticipated that SFAS No. 128 will have any material effect
on current or prior period EPS data presented by the Company.


SFAS No. 130

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements. SFAS
No. 130 was issued to address concerns over the practice of reporting elements
of comprehensive income directly in equity.

This Statement requires all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed in equal prominence with the other
financial statements. It does not require a specific format for that financial
statement but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement.

SFAS No. 130 is applicable to all entities that provide a full set of
financial statements. Enterprises that have no items of other comprehensive
income in any period presented are excluded from the scope of this Statement.


18


SFAS No. 130 is effective for both interim and annual periods beginning
after December 15, 1997. Comparative financial statements provided for earlier
periods are required to be reclassified to reflect the provisions of this
Statement. It is not anticipated that SFAS No. 130 will have any material effect
on current or prior period financial statement displays presented by the
Company.


SFAS No. 131

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for the
way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers.

SFAS No. 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated, unless it is impracticable to
do so. SFAS No. 131 need not be applied to interim financial statements in the
initial year of its application, but comparative information for interim periods
in the initial year of application shall be reported in financial statements for
interim periods in the second year of application. It is not anticipated that
SFAS No. 131 will have any material effect on current or prior period segment
disclosures presented by the Company.


19

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


INDEX TO
FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES





PAGE
-----

FINANCIAL STATEMENTS:

Independent Auditors' Report ................................................... 21

Balance Sheets as of October 31, 1997 and 1996 ................................. 22

Statements of Income for the Years ended October 31, 1997, 1996 and 1995 ...... 23

Statements of Stockholders' Equity for the Years ended October 31, 1997, 1996 and
1995 ........................................................................ 24

Statements of Cash Flows for the Years ended October 31, 1997, 1996 and 1995 ... 25

Notes to Financial Statements ................................................... 26


FINANCIAL STATEMENT SCHEDULES:
Financial statement schedules have been omitted since they are not required, not
applicable, or the information is otherwise included in the financial statements
of the Company.




20


INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Optical Cable Corporation:


We have audited the accompanying balance sheets of Optical Cable
Corporation as of October 31, 1997 and 1996, and the related statements of
income, stockholders' equity, and cash flows for each of the years in the
three-year period ended October 31, 1997. 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 audits 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Optical Cable Corporation as
of October 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended October 31, 1997, in
conformity with generally accepted accounting principles.


KPMG Peat Marwick LLP


Roanoke, Virginia
December 12, 1997

21


OPTICAL CABLE CORPORATION
BALANCE SHEETS
OCTOBER 31, 1997 AND 1996








OCTOBER 31,
----------------------------
1997 1996
------------- ------------

ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 985,807 $ 1,677,739
Trade accounts receivable, net of allowance for doubtful accounts
of $307,400 in 1997 and $300,000 in 1996 ..................... 9,931,276 9,368,476
Other receivables ............................................. 540,102 354,041
Due from employees ............................................. 3,534 1,475
Inventories ................................................... 12,019,443 10,261,437
Prepaid expenses ................................................ 121,046 64,863
Deferred income taxes .......................................... 81,484 155,304
----------- -----------
Total current assets .......................................... 23,682,692 21,883,335

Other assets, net ................................................ 50,953 67,996
Property and equipment, net .................................... 11,480,433 9,175,871
----------- -----------
Total assets ................................................ $35,214,078 $31,127,202
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ................................................... $ -- $ 1,103,000
Accounts payable and accrued expenses ........................... 2,593,256 5,488,765
Accrued compensation and payroll taxes ........................ 612,736 676,725
Income taxes payable .......................................... 564,999 237,926
----------- -----------
Total current liabilities .................................... 3,770,991 7,506,416

Deferred income taxes .......................................... 64,382 49,227
----------- -----------
Total liabilities ............................................. 3,835,373 7,555,643
----------- -----------
Stockholders' equity:
Preferred stock, no par value, authorized 1,000,000 shares; none
issued and outstanding ....................................... -- --
Common stock, voting; no par value, authorized 50,000,000 shares;
issued and outstanding 38,675,416 shares ..................... 18,594,116 18,594,116
Retained earnings ............................................. 12,784,589 4,977,443
----------- -----------
Total stockholders' equity .................................... 31,378,705 23,571,559

Commitments and contingencies ----------- -----------
Total liabilities and stockholders' equity .................. $35,214,078 $31,127,202
=========== ===========




See accompanying notes to financial statements.

22


OPTICAL CABLE CORPORATION
STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995





YEARS ENDED OCTOBER 31,
---------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------

Net sales .......................................... $52,188,850 $45,152,299 $36,359,953
Cost of goods sold ................................. 30,612,690 24,907,373 20,121,355
----------- ----------- -----------
Gross profit .................................... 21,576,160 20,244,926 16,238,598
Selling, general and administrative expenses ...... 9,572,061 8,415,798 7,660,100
----------- ----------- -----------
Income from operations ........................ 12,004,099 11,829,128 8,578,498
Other income (expense):
Interest income ................................. 15,351 94,888 175
Interest expense ................................. (17,930) (9,595) (378,205)
Other, net ....................................... (44,580) 112,988 (377)
----------- ----------- -----------
Other income (expense), net ..................... (47,159) 198,281 (378,407)
----------- ----------- -----------
Income before income tax expense ............... 11,956,940 12,027,409 8,200,091
Income tax expense ................................. 4,149,794 2,806,849 --
----------- ----------- -----------
Net income .................................... $ 7,807,146 $ 9,220,560 $ 8,200,091
=========== =========== ===========
Pro forma income data (unaudited):
Net income before pro forma income tax pro-
vision, as reported ............................. $ 9,220,560
Pro forma income tax provision .................. 1,746,513
-----------
Pro forma net income .............................. $ 7,474,047
===========
Net income per share (pro forma for 1996) ......... $ 0.202 $ 0.190
=========== ===========
Weighted average shares outstanding (pro forma
for 1996) ....................................... 38,675,416 39,360,659
=========== ===========


See accompanying notes to financial statements.

23



OPTICAL CABLE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995



COMMON STOCK ADDITIONAL TOTAL
---------------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------------ ------------- ------------- --------------- --------------

Balances at October 31, 1994 ......... 36,000,000 $ 596 $ 767,849 $ 7,063,249 $ 7,831,694
Cash distributions to previously sole
stockholder ........................ -- -- -- (1,080,000) (1,080,000)
Net income ........................... -- -- -- 8,200,091 8,200,091
---------- ----------- ---------- ----------- ------------
Balances at October 31, 1995 ......... 36,000,000 596 767,849 14,183,340 14,951,785
Net income -- five months ended
March 31, 1996 ..................... -- -- -- 4,243,117 4,243,117
Issuance of common stock for cash
($2.50 per share, less issuance
costs of $1,139,326).................. 2,675,416 5,549,214 -- -- 5,549,214
Cash distributions to previously sole
stockholder ........................ -- -- -- (6,150,000) (6,150,000)
Recapitalization ..................... -- 13,044,306 (767,849) (12,276,457) --
Net income -- seven months ended
October 31, 1996 ..................... -- -- -- 4,977,443 4,977,443
---------- ----------- ---------- ----------- ------------
Balances at October 31, 1996 ......... 38,675,416 18,594,116 -- 4,977,443 23,571,559
Net income ........................... -- -- -- 7,807,146 7,807,146
---------- ----------- ---------- ----------- ------------
Balances at October 31, 1997 ......... 38,675,416 $18,594,116 $ -- $12,784,589 $ 31,378,705
========== =========== ========== =========== ============



See accompanying notes to financial statements.

24


OPTICAL CABLE CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995



YEARS ENDED OCTOBER 31,
-------------------------------------------------
1997 1996 1995
-------------- -------------- ---------------

Cash flows from operating activities:
Net income ................................................ $7,807,146 $9,220,560 $ 8,200,091
Adjustments to reconcile net income to net cash pro-
vided by operating activities:
Depreciation and amortization ........................ 706,076 533,445 404,469
Bad debt expense (recovery) ........................... (10,778) 266,366 87,652
Deferred income taxes ................................. 88,975 (106,077) --
Loss on sale of property and equipment ............... -- -- 381
(Increase) decrease in:
Trade accounts receivable ........................... (552,022) (3,447,954) (1,921,238)
Other receivables .................................... (186,061) (255,744) (45,514)
Due from employees ................................. (2,059) 1,750 (2,800)
Inventories .......................................... (1,758,006) (4,228,395) 2,813,002
Prepaid expenses .................................... (56,183) 21,690 (80,721)
Other assets ....................................... 39 116,237 (201,237)
Increase (decrease) in:
Accounts payable and accrued expenses ............... (2,260,416) 1,881,379 1,594,951
Accrued compensation and payroll taxes ............... (63,989) (154,472) 450,928
Income taxes payable ................................. 327,073 237,926 --
---------- ---------- -----------
Net cash provided by operating activities ......... 4,039,795 4,086,711 11,299,964
---------- ---------- -----------
Cash flows from investing activities:
Purchase of property and equipment ........................ (3,628,727) (3,137,421) (387,231)
Proceeds from sale of property and equipment ............ -- -- 20
---------- ---------- -----------
Net cash used in investing activities ............... (3,628,727) (3,137,421) (387,211)
---------- ---------- -----------
Cash flows from financing activities:
Net borrowings (payments) on notes payable ............... (1,103,000) 794,000 (5,903,238)
Payments on long-term debt .............................. -- -- (3,500,000)
Proceeds from issuance of common stock, net of issu-
ance costs .............................................. -- 5,549,214 --
Cash distributions to previously sole stockholder ......... -- (6,150,000) (1,080,000)
---------- ---------- -----------
Net cash provided by (used in) financing ac-
tivities.......................................... (1,103,000) 193,214 (10,483,238)
---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents ...... (691,932) 1,142,504 429,515
Cash and cash equivalents at beginning of year ............ 1,677,739 535,235 105,720
---------- ---------- -----------
Cash and cash equivalents at end of year .................. $ 985,807 $1,677,739 $ 535,235
========== ========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash payments for interest .............................. $ 17,930 $ 9,595 $ 386,663
========== ========== ===========
Income taxes paid ....................................... $3,733,746 $2,675,000 $ --
========== ========== ===========
Noncash investing activities - capital expenditures
accrued in accounts payable ........................... $ 245,566 $ 880,659 $ --
========== ========== ===========



See accompanying notes to financial statements.

25


OPTICAL CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995


(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Description of Business

Optical Cable Corporation (the Company) manufactures and markets a broad
range of fiber optic cables for "high bandwidth" transmission of data, video and
audio communications over moderate distances. The Company's fiber optic cables
are sold nationwide and in over 68 foreign countries (also see note 9).


(b) Cash Equivalents

Cash equivalents of $763,000 and $1,397,510 at October 31, 1997 and 1996,
respectively, consist of overnight repurchase agreements at October 31, 1997 and
money market mutual funds at October 31, 1996. For purposes of the statements of
cash flows, the Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.


(c) Inventories

Inventories of raw materials and production supplies are stated at the
lower of cost (specific identification for optical fibers and first-in,
first-out for other raw materials and production supplies) or market.
Inventories of work in process and finished goods are stated at average cost,
which includes raw materials, direct labor and manufacturing overhead.


(d) Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization
are provided for using both straight-line and declining balance methods over the
estimated useful lives of the assets. Estimated useful lives are thirty-nine
years for buildings and improvements and five to seven years for machinery and
equipment and furniture and fixtures.


(e) Revenue Recognition

Revenue is recognized at the time of product shipment or delivery to the
customer, based on shipping terms.


(f) Income Taxes

Through March 31, 1996, the Company was not subject to federal and state
income taxes since it had elected, under provisions of the Internal Revenue
Code, to be taxed as an S Corporation. In lieu of corporation income taxes, the
stockholders of an S Corporation are taxed on their proportionate share of the
Company's taxable income.

In connection with the closing of the Company's initial public offering
(see note 11), the Company terminated its status as an S Corporation effective
March 31, 1996 and became subject to federal and state income taxes.
Accordingly, the statement of income for the year ended October 31, 1996
includes income taxes from April 1, 1996, and for informational purposes, the
statement of income for the year ended October 31, 1996 includes a pro forma
adjustment for income taxes which would have been recorded if the Company had
been subject to income taxes for the entire fiscal year presented.

Effective March 31, 1996, income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are


26


OPTICAL CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 - (CONTINUED)

measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.


(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
November 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.


(h) Stock Option Plan

Prior to November 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
November 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.


(i) Pro Forma Net Income Per Share

Pro forma net income per share was computed by dividing pro forma net
income by the pro forma weighted average number of common shares outstanding
during the period (as adjusted for the recapitalization) and by deeming to be
outstanding the number of shares (1,800,000) the Company would have needed to
issue at the initial public offering price per share ($2.50) to pay a $1 million
cash distribution to the previously sole stockholder in December 1995 and a $3.5
million cash distribution to the previously sole stockholder out of the proceeds
of the initial public offering.


(j) Use of Estimates

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


27


OPTICAL CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 - (CONTINUED)

(2) ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE

A summary of changes in the allowance for doubtful accounts receivable for
the years ended October 31, 1997, 1996 and 1995 follows:




YEARS ENDED OCTOBER 31,
---------------------------------------------
1997 1996 1995
------------- ------------- -------------

Balance at beginning of year ...... $ 300,000 $ 200,000 $ 250,000
Bad debt expense (recovery) ......... (10,778) 266,366 87,652
Losses charged to allowance ......... (26,592) (176,512) (170,070)
Recoveries added to allowance ...... 44,770 10,146 32,418
--------- ---------- ----------
Balance at end of year ............ $ 307,400 $ 300,000 $ 200,000
========= ========== ==========



(3) INVENTORIES

Inventories at October 31, 1997 and 1996 consist of the following:


OCTOBER 31,
----------------------------
1997 1996
------------- ------------
Finished goods ............ $ 4,854,697 $ 2,465,659
Work in process ......... 1,976,970 3,104,339
Raw materials ............ 5,125,044 4,645,843
Production supplies ...... 62,732 45,596
----------- -----------
$12,019,443 $10,261,437
=========== ===========


(4) PROPERTY AND EQUIPMENT

Property and equipment at October 31, 1997 and 1996 consists of the
following:




OCTOBER 31,
---------------------------------
1997 1996
--------------- ---------------

Land ................................................ $ 2,745,327 $ 2,745,327
Building and improvements ........................... 7,058,660 3,401,997
Machinery and equipment .............................. 4,578,631 3,982,889
Furniture and fixtures .............................. 732,963 428,742
Construction in progress ........................... 33,619 1,596,611
------------ ------------
Total property and equipment, at cost ............ 15,149,200 12,155,566
Less accumulated amortization and depreciation ...... (3,668,767) (2,979,695)
------------ ------------
Property and equipment, net ........................ $ 11,480,433 $ 9,175,871
============ ============



28


OPTICAL CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 - (CONTINUED)

(5) NOTES PAYABLE

On February 28, 1997, the Company and its bank executed a loan commitment
letter, which renewed its $5 million secured revolving line of credit available
for general corporate purposes and established a $10 million secured line of
credit to fund potential acquisitions, mergers or joint ventures. The lines of
credit bear interest at 1.50 percent above the monthly LIBOR rate (5.80 percent
as of October 31, 1997) and are equally and ratably secured by the Company's
accounts receivable, contract rights, inventory, furniture and fixtures,
machinery and equipment and general intangibles. The lines of credit will expire
on February 28, 1998, unless renewed or extended. While the lines of credit do
not require a compensating balance that legally restricts the use of cash
amounts, at the bank's request, the Company has agreed to maintain an
unrestricted target cash balance of $125,000.


(6) LEASES

In August 1994, the Company entered into a four-year operating lease for
computerized mailing and shipping equipment with an unrelated party. Rent
expense under this lease amounted to $25,030 for the years ended October 31,
1997, 1996 and 1995. Future minimum rental payments required under the lease are
$23,680 payable in fiscal year 1998.


(7) RELATED PARTY AGREEMENTS

Effective November 1, 1994, the Company entered into two separate one-year
employment agreements with its previously sole stockholder. Total compensation
under the agreements consisted of salary payments equal to 6 percent of the
previous fiscal year's net sales. Effective February 1, 1995, these agreements
were replaced by an employment agreement that reduces the salary payment
percentage from 6 percent to 1 percent and provides for sales commissions equal
to 1 percent of the positive difference between the current fiscal year's net
sales and the prior fiscal year's net sales. Compensation under these agreements
amounted to $521,889, $451,523 and $672,371 for the years ended October 31,
1997, 1996 and 1995, respectively.

Effective November 2, 1994, the Company entered into a services agreement
to pay sales commissions of 4 percent of net foreign sales to OCC-VI, Inc., a
foreign sales corporation. All of the outstanding shares of common stock of
OCC-VI, Inc. are beneficially owned by the Company's previously sole
stockholder. For the year ended October 31, 1995, the Company recorded
commissions expense of $343,290 related to the services agreement. As of
September 28, 1995, the Company terminated this services agreement.


(8) EMPLOYEE BENEFITS

The Company's independently administered self-insurance program provides
health insurance coverage for employees and their dependents on a
cost-reimbursement basis. Under the program, the Company is obligated for claims
payments. A stop loss insurance contract executed with an insurance carrier
covers claims in excess of $35,000 per covered individual and $763,255 in the
aggregate per year. During the years ended October 31, 1997, 1996 and 1995,
total claims expense of $872,582, $876,481 and $545,543, respectively, was
incurred, which represents claims processed and an estimate for claims incurred
but not reported.


29


OPTICAL CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 - (CONTINUED)

Effective January 1, 1994, the Company adopted a 401(k) retirement savings
plan. To become eligible for the plan, an employee must complete six months of
service and be at least 21 years of age. The plan allows participants to
contribute through salary reduction up to 6 percent of their annual compensation
on a pretax basis. Company matching contributions are two dollars for every one
dollar contributed by an employee up to 4 percent of the employees' annual
compensation. The Company made matching contributions to the plan of $313,365,
$233,072 and $205,011 for the years ended October 31, 1997, 1996 and 1995,
respectively.

The Company and its previously sole stockholder adopted on March 1, 1996 a
stock incentive plan which is called the Optical Cable Corporation 1996 Stock
Incentive Plan (the "Plan"). The Plan is intended to provide a means for
employees to increase their personal financial interest in the Company, thereby
stimulating the efforts of these employees and strengthening their desire to
remain with the Company through the use of stock incentives. The Company has
reserved 4,000,000 shares of common stock for issuance pursuant to incentive
awards under the Plan. At October 31, 1997, there were 3,336,500 additional
shares available for grant under the Plan. Under the Plan, stock options may be
granted at not less than fair market value on the date of grant. The options
have terms ranging from 8.75 to 10 years and vest 25 percent after two years, 50
percent after three years, 75 percent after four years and 100 percent after
five years.

The per share weighted-average fair value of stock options granted during
1997 and 1996 was $9.38 and $2.18, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: 1997 -- expected cash dividend yield of zero percent, risk-free
interest rate of 6.08 percent, expected volatility of 85.5 percent and an
expected life of 8.75 years; 1996 -- expected cash dividend yield of zero
percent, risk-free interest rate of 6.28 percent, expected volatility of 85.5
percent and an expected life of 10 years.

The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had compensation cost for the Company's Plan been
determined consistent with SFAS No. 123, the Company's net income (pro forma for
1996) and net income per share (pro forma for 1996) would have been reduced to
the SFAS No. 123 pro forma amounts indicated below:



YEARS ENDED OCTOBER 31,
---------------------------
1997 1996
------------- -----------

Net income:
As reported (pro forma for 1996 - unaudited) ...... $ 7,807,146 $7,474,047
=========== ==========
Pro forma .......................................... $ 7,638,186 $7,400,134
=========== ==========
Net income per share:
As reported (pro forma for 1996 - unaudited) ...... $ 0.202 $ 0.190
=========== ==========
Pro forma .......................................... $ 0.197 $ 0.188
=========== ==========



30


OPTICAL CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 - (CONTINUED)

Stock option activity during the periods indicated is as follows:



NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
----------- -----------------

Balance at October 31, 1995 .............................. -- $ --
Granted ................................................ 460,000 2.500
Forfeited ............................................. (18,000) 2.500
-------
Balance at October 31, 1996 (no options exercisable) . 442,000 2.500
Granted ................................................ 254,000 11.125
Forfeited ............................................. (32,500) 6.348
-------
Balance at October 31, 1997 (no options exercisable,
424,000 options at exercise price of $2.50 per
share with remaining contractual life of 8.5
years, and 239,500 options at exercise price of
$11.125 per share with remaining contractual life
of 8.5 years) ......................................... 663,500 5.613
=======


(9) BUSINESS AND CREDIT CONCENTRATIONS

The Company provides credit, in the normal course of business, to various
commercial enterprises, governmental entities and not-for-profit organizations.
Concentration of credit risk with respect to trade receivables is limited due to
the Company's large number of customers. The Company also manages exposure to
credit risk through credit approvals, credit limits and monitoring procedures.
Management believes that credit risks at October 31, 1997 and 1996 have been
adequately provided for in the financial statements.

For the years ended October 31, 1997, 1996 and 1995, 73 percent, 75 percent
and 76 percent, respectively, of net sales were from customers located in the
United States, while 27 percent, 25 percent and 24 percent, respectively, were
from international customers. Europe accounted for approximately 10 percent of
net sales for the year ended October 31, 1997 while no foreign geographic areas
accounted for more than 10 percent of net sales for the years ended October 31,
1996 and 1995. As of October 31, 1997 and 1996, there were no significant
amounts receivable from any one customer other than those described below.

For the year ended October 31, 1997, 22 percent of net sales were
attributable to two major domestic distributors. The combined related trade
accounts receivable for these distributors at October 31, 1997 totaled
approximately $2,265,000. No single customer or other distributor accounted for
more than 5 percent of net sales for the year ended October 31, 1997. As of
October 31, 1997, no single customer or other distributor had an outstanding
balance payable to the Company in excess of 5 percent of total stockholders'
equity.

For the year ended October 31, 1996, 12 percent of net sales were
attributable to one major domestic distributor. The related trade accounts
receivable for this distributor at October 31, 1996 totaled approximately
$2,468,000. No single customer or other distributor accounted for more than 5
percent of net sales for the year ended October 31, 1996. As of October 31,
1996, no single customer or other distributor had an outstanding balance payable
to the Company in excess of 5 percent of total stockholders' equity.

For the year ended October 31, 1995, 10 percent of net sales were
attributable to one major domestic distributor. No single customer or other
distributor accounted for more than 5 percent of net sales for the year ended
October 31, 1995.


31


OPTICAL CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 - (CONTINUED)

(10) INCOME TAXES

The Company recorded a $114,045 net benefit for deferred income taxes upon
termination of the Company's S Corporation status. The adjustment reflects the
net deferred income tax asset balance at March 31, 1996 in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes, which requires an asset and liability approach for the
accounting and financial reporting of income taxes. The components of the net
deferred tax asset at March 31, 1996 were substantially the same as the October
31, 1996 components presented below.

Income tax expense for the years ended October 31, 1997 and 1996 consists
of:


YEAR ENDED OCTOBER 31, 1997 CURRENT DEFERRED TOTAL
- ----------------------------- ------------- ---------- ------------
U.S. Federal ............... $ 3,654,654 $ 78,224 $ 3,732,878
State ..................... 406,165 10,751 416,916
----------- -------- -----------
Totals ..................... $ 4,060,819 $ 88,975 $ 4,149,794
=========== ======== ===========


YEAR ENDED OCTOBER 31, 1996 CURRENT DEFERRED TOTAL
- ----------------------------- ------------- --------- ------------
U.S. Federal ............... $ 2,556,601 $ (93,490) $ 2,463,111
State ..................... 356,325 (12,587) 343,738
----------- --------- -----------
Totals ..................... $ 2,912,926 $(106,077) $ 2,806,849
=========== ========= ===========

Reported income tax expense for the years ended October 31, 1997 and 1996
differs from the "expected" tax expense, computed by applying the U.S. Federal
statutory income tax rate of 35 percent to income before income tax expense, as
follows:




YEARS ENDED OCTOBER 31,
-------------------------------
1997 1996
-------------- --------------

"Expected" tax expense ................................. $ 4,184,929 $4,209,593
Increase (reduction) in income tax expense resulting from:
Foreign Sales Corporation benefit ..................... (164,459) (98,473)
State income taxes, net of federal benefits ............ 254,592 215,967
S Corporation taxable income for the five months ended
March 31, 1996 ....................................... -- (1,485,091)
Net deferred income tax asset balance at March 31, 1996. -- (114,045)
Other differences, net ................................. (125,268) 78,898
----------- ----------
Reported income tax expense ........................... $ 4,149,794 $2,806,849
=========== ==========



32


OPTICAL CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 - (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the Company's net deferred tax asset as of October 31, 1997 and 1996
are presented below:



OCTOBER 31,
----------------------------
1997 1996
------------- ------------

Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts ......... $ 115,662 $ 113,775
Inventories, due to additional costs inventoried for tax purposes pur-
suant to the Tax Reform Act of 1986.................................. 64,671 91,781
Self-insured health care costs, due to accrual for financial reporting
purposes ............................................................ 45,986 43,780
Compensated absences due to accrual for financial reporting pur-
poses ............................................................... 25,076 --
---------- ---------
Total gross deferred tax assets .................................... 251,395 249,336
Less valuation allowance ............................................. -- --
---------- ---------
Net deferred tax assets ............................................. 251,395 249,336
Deferred tax liabilities:
Plant and equipment, due to differences in depreciation and capital
gain recognition ................................................... (64,381) (49,227)
Other receivables, due to accrual for financial reporting purposes ... (169,912) (94,032)
---------- ---------
Total gross deferred tax liabilities .............................. (234,293) (143,259)
---------- ---------
Net deferred tax asset, including current net tax asset of $81,484 in 1997
and $155,304 in 1996, and noncurrent net tax liability of
$64,382 in 1997 and $49,227 in 1996................................. $ 17,102 $ 106,077
========== =========


Based on the Company's historical and current pretax earnings, management
believes that it is more likely than not that the recorded deferred tax assets
will be realized.


(11) RECAPITALIZATION AND INITIAL PUBLIC OFFERING

During fiscal year 1996, the Company's Board of Directors authorized the
filing of a registration statement for a public offering of the Company's common
stock. In connection with the public offering, the Board and the previously sole
stockholder approved an increase in the number of authorized shares of common
stock from 50,000 shares to 50,000,000 shares, a recapitalization involving an
exchange of all outstanding $1 par value common stock (596 shares) on a
60,403-for-1 basis for no par value common stock (36,000,000 shares) and the
authorization of 1,000,000 shares of preferred stock, no par value, issuable in
multiple series.

On April 1, 1996, the Company completed a public offering of 2,675,416
shares of the Company's common stock from which it received net proceeds of
approximately $5.5 million.

In connection with the recapitalization, additional paid-in capital as of
March 31, 1996 has been reclassified to no par value common stock, and the
amount of the undistributed taxable S Corporation earnings remaining as of March
31, 1996 has been reclassified to no par value common stock.


33


OPTICAL CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 - (CONTINUED)

(12) FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments ("SFAS No. 107"), requires the Company to
disclose estimated fair values of its financial instruments. SFAS No. 107
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The carrying amounts reported in the balance sheet for cash, cash equivalents,
trade accounts receivable, other receivables, notes payable, accounts payable
and accrued expenses approximate fair value because of the short maturity of
these instruments.


(13) FUTURE ACCOUNTING CONSIDERATION -- EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share (SFAS No. 128).
SFAS No. 128 establishes standards for computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or potential
common stock. SFAS No. 128 simplifies the standards for computing earnings per
share previously found in APB Opinion No. 15, Earnings per Share, and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.

Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.

SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. SFAS No. 128 requires restatement of all prior-period EPS data
presented. It is not anticipated that SFAS No. 128 will have any material effect
on current or prior period EPS data presented by the Company.

34


OPTICAL CABLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 - (CONTINUED)

(14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations
for the years ended October 31, 1997 and 1996:




QUARTER ENDED
------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1997 JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
- ---------------------------------- ------------- ------------- ------------- ------------

Net sales ........................ $12,491,311 $10,645,571 $14,285,834 $14,766,134
Gross profit ..................... 5,351,665 4,292,588 5,616,809 6,315,098
Income before income taxes ...... 3,203,870 2,035,806 3,102,845 3,614,419
Net income ..................... 2,080,361 1,312,523 2,016,683 2,397,579
Net income per share ............ 0.054 0.034 0.052 0.062





QUARTER ENDED
------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1996 JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
- -------------------------------------- ------------- ------------- ------------- ------------

Net sales ........................... $10,342,472 $10,183,960 $10,862,064 $13,763,803
Gross profit ........................ 4,707,021 4,096,839 4,953,023 6,488,043
Income before income taxes ......... 2,774,994 2,252,228 2,983,232 4,016,955
Net income ........................... 2,774,994 2,068,288 1,858,823 2,518,455
Pro forma net income ............... 1,709,397 1,387,372 1,858,823 2,518,455
Pro forma net income per share ...... 0.045 0.036 0.046 0.063



35


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.


PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


The information contained in the Proxy Statement under the captions
"PROPOSAL NO. 1, ELECTION OF DIRECTORS" and "EXECUTIVE OFFICERS AND OTHER
SIGNIFICANT EMPLOYEES" concerning directors, persons nominated to become
directors, executive officers and certain other significant employees of the
Company is incorporated herein by reference.


ITEM 11. EXECUTIVE COMPENSATION

The information contained in the Proxy Statement under the captions
"EXECUTIVE COMPENSATION", and under the caption "PROPOSAL NO. 1, ELECTION OF
DIRECTORS" concerning compensation of directors, is incorporated herein by
reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained in the Proxy Statement under the caption
"BENEFICIAL OWNERSHIP OF COMMON STOCK" is incorporated herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained in the Proxy Statement under the caption "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" is incorporated herein by reference.


36


PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


(a) 1. Index of Financial Statements

The Company's financial statements and related information are included
in Part II, Item 8 of this Form 10-K on pages 20 through 35.


2. Index of Financial Statement Schedules

None.

3. Index of Exhibits

The documents filed as exhibits to this Form 10-K pursuant to Item 601 of
Regulation S-K are:




EXHIBIT
NUMBER DESCRIPTION
- ------------ ----------------------------------------------------------------------------------

3.1 Amended and Restated Articles of Incorporated of Optical Cable Corporation

3.2 Bylaws of Optical Cable Corporation, as amended

4.1 Form of certificate representing Common Stock

10.1 Royalty Agreement, dated November 1, 1993, by and between Robert
Kopstein and Optical Cable Corporation

10.2 Assignment of Technology Rights from Robert Kopstein to Optical
Cable Corporation, effective as of October 31, 1994

10.3 Employment Agreement by and between Optical Cable Corporation and
Robert Kopstein, effective March 12, 1997

10.4 Tax Indemnification Agreement, dated as of October 19, 1995, by
and between Optical Cable Corporation and Robert Kopstein

10.5 Optical Cable Corporation 1996 Stock Incentive Plan (filed as
exhibit 28.1 to the registrant's Registration Statement on Form
S-8 filed on August 2, 1996 (file no. 333-09433), and
incorporated herein by reference thereto)

10.6 Loan Agreement, dated April 25, 1997, by and between Optical Cable Corpora-
tion and First Union National Bank of Virginia

10.7 Security Agreement, dated April 25, 1997, between Optical Cable Corporation
and First Union National Bank of Virginia

23 Consent of KPMG Peat Marwick LLP to incorporation by reference of
independent auditors' report included in this Form 10-K, into
registrant's registration statement on Form S-8

27 Financial Data Schedule



(b) Reports on Form 8-K

A Form 8-K dated October 30, 1997 was filed announcing that the Board of
Directors of the Company had authorized the repurchase of up to $5 million
of the Company's common stock.

(c) Exhibits

The documents set forth in the index of exhibits above are filed as
exhibits to this Form 10-K pursuant to Item 601 of Regulation S-K and, if
not incorporated by reference, are attached hereto.


37


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.

OPTICAL CABLE CORPORATION

Date: January 29, 1998 By /s/ Robert Kopstein
-------------------------
Robert Kopstein
Chairman of the Board
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 indicated as of January 29, 1998.






/s/ Robert Kopstein Chairman of the Board, President, Chief Executive
- --------------------------------- Officer and Director
Robert Kopstein (principal executive officer)

/s/ Luke J. Huybrechts Senior Vice President of Sales and Director
- ---------------------------------
Luke J. Huybrechts

/s/ Kenneth W. Harber Vice President of Finance, Treasurer, Secretary and
- --------------------------------- Director
Kenneth W. Harber (principal financial and accounting officer)

/s/ Randall H. Frazier Director
- ---------------------------------
Randall H. Frazier

/s/ John M. Holland Director
- ---------------------------------
John M. Holland



38