UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                           --------------------------
                                    FORM 10-Q

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

              For the quarterly period ended March 31, 1999
                                    or
       |_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
             EXCHANGE ACT OF 1934

             For the transition period from            to            .


                        Commission File Number: 33-93464

                             DICTAPHONE CORPORATION
             (Exact Name of Registrant as Specified in its Charter)


             DELAWARE                                     06-0992637
(STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

                             3191 BROADBRIDGE AVENUE
                               STRATFORD, CT 06614
                                 (203) 381-7000
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE,
                   AND TELEPHONE NUMBER, INCLUDING AREA CODE)

            ---------------------------------------------------------
                    (Former name, former address and former
                   fiscal year, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

             YES     X              NO  ____

Number of shares of Common Stock,  par value $.01 per share,  outstanding  as of
May 11,  1999:  12,934,000  The Common Stock of the  registrant  is not publicly
traded.


<PAGE>

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

                                      INDEX
                                      -----


                                                                        PAGE NO.

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

ITEM 1.  Condensed Consolidated Financial Statements

              Unaudited Condensed Consolidated Statements 
              of Operations for the Three Months Ended 
              March 31, 1999 and March 31, 1998                             2

              Condensed Consolidated Balance Sheets as of
              March 31, 1999 (Unaudited) and December 31, 1998              3

              Unaudited Condensed Consolidated Statements
              of Cash Flow for the Three Months Ended 
              March 31, 1999 and March 31, 1998                             4

             Notes to Unaudited Consolidated Financial Statements           5

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

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk        23


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

ITEM 1.   Legal Proceedings                                                24

ITEM 6.   Exhibits and Reports on Form 8-K                                 24



                                       1
<PAGE>


                         PART I - FINANCIAL INFORMATION


ITEM 1.      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                             DICTAPHONE CORPORATION

           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                                                      THREE MONTHS            THREE MONTHS
                                                                          ENDED                   ENDED
                                                                     MARCH 31, 1998          MARCH 31, 1999
                                                                     --------------          --------------
             Revenues:
<S>                                                                    <C>                     <C>       
                  Product sales and rentals                            $   49,647              $   48,228
                  Contract manufacturing sales                             11,947                  10,348
                  Support services                                         22,231                  24,035
                                                                       ----------              ----------
                      Total revenue                                        83,825                  82,611
                                                                       ----------              ----------

             Costs and expenses:

                  Cost of sales, rentals and support services              45,012                  43,450

                  Selling and administrative                               27,110                  26,955

                  Amortization of intangibles                               7,881                   3,239

                  Research and development                                  4,700                   2,438
                                                                       ----------              ----------

             Operating (loss) profit                                         (878)                  6,529

             Interest expense                                               9,797                  10,139

             Other (income) expense - net                                    (826)                    331
                                                                       ----------              ----------

             Loss before income taxes                                      (9,849)                 (3,941)

             Income tax expense                                               996                     225
                                                                       ----------              ----------

                  Net loss                                                (10,845)                 (4,166)

                  Stock dividends on PIK Preferred Stock                      729                   1,231
                                                                       ----------              ----------

                  Net loss applicable to Common Stock                  $  (11,574)             $   (5,397)
                                                                       ==========              ==========
</TABLE>




     See accompanying notes to condensed consolidated financial statements.


                                       2
<PAGE>


                             DICTAPHONE CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,          MARCH 31,
                                                                                             1998                1999
                                                                                         ------------         -----------
                                                                                                              (UNAUDITED)
ASSETS
Current assets:
<S>                                                                                      <C>                <C>       
    Cash and cash equivalents                                                            $   11,727         $    4,760
    Accounts receivable, less allowances of $968 and $2,453, respectively                    77,432             89,409
    Inventories                                                                              53,362             48,899
    Other current assets                                                                      7,259              5,367
                                                                                         ----------         ----------
         Total current assets                                                               149,780            148,435
Property, plant and equipment, net                                                           32,425             35,033
Deferred financing costs, net of accumulated amortization of $14,246
 and $14,731, respectively                                                                    9,920              9,435
Intangibles, net of accumulated amortization of $122,595 and $125,834, respectively         206,122            203,047
Deferred tax asset                                                                           39,765             39,721
Other assets                                                                                 16,315             18,093
                                                                                         ----------         ----------
         Total assets                                                                    $  454,327         $  453,764
                                                                                         ==========         ==========
LIABILITIES AND STOCKHOLDERS' EQUITY 
  Current liabilities:
    Accounts payable                                                                     $    8,778         $    7,591
    Interest payable                                                                         10,067              4,150
    Accrued pension liability                                                                 8,352              8,786
    Accrued liabilities                                                                      31,433             24,031
    Advance billings                                                                         39,586             44,407
    Current portion of long-term debt                                                           795                790
                                                                                         ----------         ----------
         Total current liabilities                                                           99,011             89,755

Long-term debt                                                                              369,737            362,688
Other liabilities                                                                            14,141             14,163
                                                                                         ----------         ----------
         Total liabilities                                                                  482,889            466,606
                                                                                         ----------         ----------
Contingencies (Note 5)
Stockholders' equity:
    Preferred stock ($.01 par value; 7,500,000 shares authorized; 2,391,500 and
      2,473,300 shares of 14% PIK perpetual preferred stock issued and
      outstanding, liquidation values of $23,915 and $24,733
      at December 31, 1998 and March 31, 1999, respectively)                                 23,915             24,733
    Preferred stock ($.01 par value; 10,000,000 shares authorized; NONE
      and 2,000,000  shares of 12%  Convertible  PIK preferred  stock issued and
      outstanding, liquidation values of $ NONE and $20,413 at December
      31, 1998 and March 31, 1999, respectively)                                                ---             20,413
    Common stock ($.01 par value; 30,000,000 shares authorized;
      12,934,000 shares outstanding at December 31, 1998 and March 31, 1999)                    130                130
    Notes receivable from stockholders                                                         (741)              (741)
    Additional paid-in capital                                                              120,955            119,724
    Treasury stock, at cost                                                                    (660)              (660)
    Accumulated deficit                                                                    (170,417)          (174,583)
    Accumulated other comprehensive loss                                                     (1,744)            (1,858)
                                                                                         ----------         ----------
         Total stockholders' equity (deficit)                                               (28,562)           (12,842)
                                                                                         ----------         ----------
         Total liabilities and stockholders' equity                                      $  454,327         $  453,764
                                                                                         ==========         ==========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>



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

<TABLE>
<CAPTION>

                                                                                THREE MONTHS             THREE MONTHS
                                                                                    ENDED                    ENDED
                                                                               MARCH 31, 1998            MARCH 31, 1999
                                                                               --------------            --------------
       Operating activities:
<S>                                                                               <C>                     <C>        
          Net loss                                                                $  (10,845)             $   (4,166)
          Adjustments to reconcile net loss to net cash
           used in operating activities:
             Depreciation and amortization                                            10,778                   6,140
             Provision for deferred income taxes                                       1,110                      25
             Changes in assets and liabilities:
                 Accounts receivable                                                      (3)                (12,023)
                 Inventories                                                          (3,220)                  4,443
                 Other current assets                                                    791                   1,803
                 Accounts payable and accrued liabilities                            (13,073)                (13,887)
                 Advance billings                                                      1,446                   4,825
                 Other assets and other                                               (1,505)                 (3,036)
                                                                                  ----------              ----------
                    Net cash used in operating activities                            (14,521)                (15,876)
                                                                                  ----------              ----------

       Investing activities:
          Net investment in fixed assets                                              (2,194)                 (3,733)
                                                                                  ----------              ----------
             Net cash used in investing activities                                    (2,194)                 (3,733)
                                                                                  ----------              ----------

       Financing activities:
          Sale of preferred stock                                                        ---                  20,000
          Borrowings under revolving credit facility                                  20,000                  12,500
          Repayment under revolving credit facility                                   (8,000)                (19,500)
          Other                                                                           65                    (316)
                                                                                  ----------              ----------
             Net cash provided by financing activities                                12,065                  12,684
                                                                                  ----------              ----------

       Effect of exchange rate changes on cash                                           (32)                    (42)
                                                                                  ----------              ----------

       Decrease in cash                                                               (4,682)                 (6,967)

       Cash and cash equivalents, beginning of period                                 10,277                  11,727
                                                                                  ----------              ----------
       Cash and cash equivalents, end of period                                   $    5,595              $    4,760
                                                                                  ==========              ==========

       SUPPLEMENTAL CASH FLOW INFORMATION:

       Interest paid                                                              $   15,208              $   15,817
                                                                                  ==========              ==========
       Income taxes paid                                                          $       57              $       15
                                                                                  ==========              ==========
</TABLE>



     See accompanying notes to condensed consolidated financial statements.



                                       4
<PAGE>




                             DICTAPHONE CORPORATION

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                (Dollars in thousands, or as otherwise indicated)


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

             The condensed  consolidated financial statements of the Company are
       unaudited, as of and for the three month periods ended March 31, 1999 and
       March 31, 1998, but in the opinion of management  contain all adjustments
       which are of a normal and recurring  nature  necessary to present  fairly
       the financial  position and results of operations  and cash flows for the
       periods  presented.   These  financial   statements  should  be  read  in
       conjunction  with the financial  statements and notes thereto included in
       the Company's  Annual Report on Form 10-K for the year ended December 31,
       1998.

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

             COSTS AND EXPENSES.  Operating  expenses of field sales and service
       offices which represent the cost of support services revenue are included
       in cost of sales.

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

             ACCOUNTING  PRONOUNCEMENTS.  In June 1998, the Financial Accounting
       Standards  Board  ("FASB")  issued  Statement  of  Financial   Accounting
       Standards No. 133,  "Accounting  for Derivative  Instruments  and Hedging
       Activities"  ("SFAS 133"). The statement  requires companies to recognize
       all  derivatives as either assets or  liabilities,  with the  instruments
       measured at fair value.  The accounting for changes in fair value,  gains
       or  losses,  depends  on  the  intended  use of the  derivative  and  its
       resulting designation. The statement is effective for all fiscal quarters
       of fiscal years  beginning  after June 15,  1999.  The Company will adopt
       SFAS 133 by  January  1,  2000.  Adoption  of SFAS  133 is not  currently
       expected  to  have  a  material  impact  on  the  Company's  consolidated
       financial statements.

             In  March  1998,  the  American   Institute  of  Certified   Public
       Accountants  issued Statement of Position 98-1 ("SOP 98-1"),  "Accounting
       for the Costs of Computer  Software  Developed  or Obtained  for Internal
       Use." The  statement  is  effective  for  fiscal  years  beginning  after
       December 15, 1998. The statement defines which costs of computer software
       developed  or obtained  for  internal use are capital and which costs are
       expensed.  The Company  adopted SOP 98-1  effective  January 1, 1999. The
       adoption  of SOP 98-1 did not have a  material  impact  on the  Company's
       consolidated  financial  position or results of operations  for the first
       quarter  of 1999 and is not  expected  to have a  material  impact on the
       Company's consolidated financial statements.



                                       5
<PAGE>



2.     INVENTORIES

       Inventories consist of the following:

<TABLE>
<CAPTION>
                                                DECEMBER 31,        MARCH 31,
                                                    1998              1999
                                                ------------       ----------
<S>                                             <C>               <C>       
         Raw materials and work in process      $   15,799        $   16,055
         Supplies and service parts                 15,376            14,480
         Finished products                          22,187            18,364
                                                 ----------        ----------
           Total inventories                    $   53,362        $   48,899
                                                 ==========        ==========
</TABLE>

             In December 1998,  after assessing  prospective  sales, the Company
       recorded a non-cash charge of $5.0 million  associated with the provision
       for excess inventory related to the Company's Boomerang(TM), Insight(TM),
       FTR(TM) and Synergy(TM) products.

3.     INTANGIBLES

             The following  summarizes  intangible  assets,  net of  accumulated
       amortization and writedowns of $122,595 and $125,834 at December 31, 1998
       and March 31,  1999,  respectively.  Amortization  expense  for the three
       months ended March 31, 1998 and 1999 was $7,881 and $3,239, respectively.

<TABLE>
<CAPTION>
                                                DECEMBER 31,           MARCH 31,
                                                   1998                 1999
                                                -----------          -----------
<S>                                           <C>                  <C>       
           Goodwill                           $  127,611           $  126,403
           Tradenames                             71,265               70,778
           Service contracts                       2,530                1,501
           Non-compete agreement                   2,463                2,295
           Patents                                 2,253                2,070
                                                ----------           ----------
                                              $  206,122          $   203,047
                                                ==========          ===========
</TABLE>

4.     INCOME TAXES

             The income tax expense for the three months ended March 31, 1999 is
       $225.

             The  Company  has  recorded  a gross  deferred  tax  asset of $98.4
       million  reflecting the benefit of net operating loss  carryforwards  and
       various  book  tax  temporary   differences.   The  net  operating   loss
       carryforward  for  federal  income tax  purposes  as of March 31, 1999 is
       $130.0  million,  of  which  $13.7  million  of the  net  operating  loss
       carryforward  will expire in the year 2010,  $33.2 million will expire in
       the year 2011,  $40.0 million will expire in the year 2012, $35.6 million
       will  expire in the year 2018 and $7.5  million  will  expire in the year
       2020. In order to fully realize the deferred tax asset,  the Company will
       need to generate  future  taxable  income prior to  expiration of the net
       operating  loss  carryforwards.   In  1997,  the  Company  established  a
       valuation  allowance  of $24.1  million  against the deferred tax assets.
       During  1998,  the Company  increased  its  valuation  allowance by $20.8
       million. During the first three months of 1999, the Company increased its
       valuation allowance by $1.5 million resulting in a net deferred tax asset
       of $52.0 million.  Management believes,  based upon the Company's history
       of  prior  operating  results,   its  current   circumstances,   and  its
       expectations for the future, that taxable income of the Company will more
       likely than not be sufficient to fully utilize the net deferred tax asset
       of $52.0 million  recorded at March 31, 1999,  prior to  expiration.  The
       amount of the deferred tax asset considered realizable, however, could be
       reduced if estimates of future  taxable  income  during the net operating
       loss carryforward period are reduced.


                                       6
<PAGE>

5.     CONTINGENCIES AND CONCENTRATIONS OF RISK

       CONCENTRATIONS OF RISKS

             A substantial  portion of the  Company's  revenues are derived from
       the sale of products manufactured at the Company's manufacturing facility
       which is located in Melbourne,  Florida.  This manufacturing  facility is
       subject to the normal  hazards of any such  facility that could result in
       damage to the  facility.  Any such damage to this  facility or  prolonged
       delay in the  operations  of this  facility  for repairs or other  reason
       would  have  a  materially  adverse  effect  on the  Company's  financial
       position and results of operations.

       CONTINGENCIES

              On February 14, 1995,  Pitney Bowes, Inc. ("Pitney Bowes") filed a
       complaint against Sudbury Systems,  Inc. ("Sudbury") in the United States
       District court for the District of Connecticut  alleging  intentional and
       wrongful  interference with Pitney Bowes's plans to sell the Company. The
       complaint  seeks  damages  and a  declaratory  judgment  relating  to the
       validity  of a  patent  owned by  Sudbury  entitled  "Rapid  Simultaneous
       Multiple Access Information Storage and Retrieval System" and the alleged
       infringement  thereof by the Company.  Sudbury responded by answering the
       complaint and filing a third-party complaint against the Company alleging
       patent  infringement  and seeking  preliminary  and permanent  injunctive
       relief and treble damages. The third-party complaint filed by Sudbury did
       not quantify the amount of damages sought. The litigation is in the final
       stage of  discovery.  A trial date is likely to be set in the second half
       of 1999.  Pitney Bowes and the Company  have not yet  received  Sudbury's
       revised damages report nor has Sudbury's  damages expert given deposition
       testimony.   Accordingly,  at  this  time,  the  Company  cannot  make  a
       reasonable  estimate  of the  amount  of  damages  that will be sought by
       Sudbury.

              Management  believes the Company has  meritorious  defenses to the
       claims  against it.  Consequently,  the Company has not  provided for any
       loss exposure in connection with this complaint. Additionally, regardless
       of the outcome of this litigation, Pitney Bowes has agreed to defend this
       action and to indemnify the Company for any liabilities arising from such
       litigation.

              The  Company  is  subject  to  federal,  state and local  laws and
       regulations concerning the environment and is currently  participating in
       administrative  proceedings  as a participant  in a group of  potentially
       responsible  parties in connection  with two third party disposal  sites.
       These  proceedings  are in the  preliminary  stage,  and it is  currently
       impossible to reasonably estimate the potential costs of remediation, the
       timing  and  extent  of  remedial   actions  which  may  be  required  by
       governmental authorities, and the amount of the liability, if any, of the
       Company  alone or in relation to that of any other  responsible  parties.
       When  it is  possible  to make a  reasonable  estimate  of the  Company's
       liability  with  respect to such a matter,  a  provision  will be made as
       appropriate. Additionally, the Company has settled and paid its liability
       at three other third party disposal  sites. At a fourth site, the Company
       has paid  approximately  $11  thousand  for its share of the costs of the
       first phase of the clean up of the site and  management  believes that it
       has no continuing material liability for any later phases of the cleanup.
       Consequently,  management believes that its future liability, if any, for
       these four sites is not material. In addition,  regardless of the outcome
       of such  matters,  Pitney  Bowes has agreed to  indemnify  the Company in
       connection  with retained  environmental  liabilities and for breaches of
       the environmental  representations  and warranties in the Stock and Asset
       Purchase  Agreement,  originally  executed  on April 25, 1995 and amended
       August 11, 1995 between  Dictaphone  Acquisition  Corporation  and Pitney
       Bowes (the "Acquisition Agreement"), subject to certain limitations.


                                       7
<PAGE>

5.     CONTINGENCIES AND CONCENTRATIONS OF RISK (CONTINUED)

              The Company is a defendant in a number of additional  lawsuits and
       administrative  proceedings,  none  of  which  will,  in the  opinion  of
       management,  have a material adverse effect on the Company's consolidated
       financial position or results of operations.

              The Company does not believe that the ultimate  resolution  of the
       litigation,   administrative   proceedings  and   environmental   matters
       described  above in the aggregate will have a material  adverse effect on
       the Company's consolidated financial position or results of operations.

6.     SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT INFORMATION

             The following consolidated financial statements include the Company
       and  all  majority-owned   subsidiaries  as  follows:  Dictaphone  Canada
       Ltd/Ltee,   Dictaphone   Company  Ltd.,   Dictaphone   Deutschland  GmbH,
       Dictaphone  Netherlands BV and Dictaphone  International  A.G.  (together
       "Dictaphone Non-U.S.").

             Dictaphone Corporation has fully and unconditionally guaranteed the
       repayment of $200.0 million of 11-3/4% Senior Subordinated Notes Due 2005
       (the  "Notes")  issued to finance the  acquisition  of the  Company  from
       Pitney  Bowes.  The Notes are  subordinate  to  financing  of the  Credit
       Agreement,  dated August 7, 1995, as amended by five amendments to Credit
       Agreement,  dated June 28, 1996, June 27, 1997,  July 21, 1997,  November
       14, 1997 and December 31, 1998  (collectively,  the "Credit  Agreement"),
       and other senior  indebtedness  as defined in the  indenture  pursuant to
       which the Notes were issued (the "Note Indenture").  The Credit Agreement
       currently  consists of a $75.0  million  Tranche B Term Loan due June 30,
       2002 (the  "Tranche B Loan"),  a $62.75  million  Tranche C Term Loan due
       June 30, 2002 (the "Tranche C Loan" and together with the Tranche B Loan,
       the "Term Loans") and a six-year revolving credit facility of up to $40.0
       million (the "Revolving Credit Facility").  Dictaphone  Non-U.S. is not a
       guarantor of the Notes. In January 1998, Dictaphone Corporation was
       merged  into  Dictaphone  Corporation  (U.S.),  whereupon  the  surviving
       corporation changed its name to "Dictaphone Corporation".


                                       8
<PAGE>

6.     SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
       INFORMATION (Continued)

             The  following  are the  supplemental  consolidating  statements of
       operations for the three month periods ended March 31, 1998 and 1999, the
       supplemental  consolidating  balance sheet information as of December 31,
       1998 and March 31, 1999,  and cash flow  information  for the three month
       periods ended March 31, 1998 and 1999.


<TABLE>
<CAPTION>
                                                        DICTAPHONE CORPORATION
                               SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                                                   THREE MONTHS ENDED MARCH 31, 1998


                                                     DICTAPHONE       DICTAPHONE       CONSOLIDATING
                                                     CORPORATION       NON-U.S.         ADJUSTMENTS      CONSOLIDATED
                                                     -----------       --------         -----------      ------------
<S>                                                  <C>              <C>               <C>               <C>       
       Revenue from:
         Product sales and rentals                   $   46,888       $    5,917        $   (3,158)       $   49,647
         Contract manufacturing sales                    11,947              ---               ---            11,947
         Support services                                20,260            1,971               ---            22,231
                                                     ----------       ----------        ----------        ----------
             Total revenues                              79,095            7,888            (3,158)           83,825
                                                     ----------       ----------        ----------        ----------

       Costs and expenses:
         Cost of sales, rentals and support services     43,154            5,069            (3,211)           45,012
         Selling and administrative                      31,431            3,560               ---            34,991
         Research and development                         4,700              ---               ---             4,700
         Interest expense - net and other                 8,318              653               ---             8,971
                                                     ----------       ----------        ----------        ----------
             Total costs and expenses                    87,603            9,282            (3,211)           93,674
                                                     ----------       ----------        ----------        ----------

       Equity (loss) earnings                              (752)             ---               752               ---
                                                     ----------       ----------        ----------        ----------

       (Loss) income before income taxes                 (9,260)          (1,394)              805            (9,849)

       Income tax (expense) benefit                      (1,173)             186                (9)             (996)
                                                     ----------       ----------        ----------        ----------

       Net (loss) income                             $  (10,433)      $   (1,208)       $      796        $  (10,845)
                                                     ==========       ==========        ==========        ==========
</TABLE>



                                        9
<PAGE>



6.     SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
       INFORMATION  (Continued)


<TABLE>
<CAPTION>
                                                        DICTAPHONE CORPORATION
                               SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                                                   THREE MONTHS ENDED MARCH 31, 1999


                                                     DICTAPHONE       DICTAPHONE       CONSOLIDATING
                                                     CORPORATION       NON-U.S.         ADJUSTMENTS      CONSOLIDATED
                                                     -----------       --------         -----------      ------------
<S>                                                  <C>              <C>               <C>               <C>       
       Revenue from:
         Product sales and rentals                   $   44,776       $    5,722        $   (2,270)       $   48,228
         Contract manufacturing sales                    10,348              ---               ---            10,348
         Support services                                21,931            2,104               ---            24,035
                                                     ----------       ----------        ----------        ----------
             Total revenues                              77,055            7,826            (2,270)           82,611
                                                     ----------       ----------        ----------        ----------

       Costs and expenses:
         Cost of sales, rentals and support services     41,312            4,426            (2,288)           43,450
         Selling and administrative                      27,956            2,238               ---            30,194
         Research and development                         2,438              ---               ---             2,438
         Interest expense - net and other                 9,486              984               ---            10,470
                                                     ----------       ----------        ----------        ----------
             Total costs and expenses                    81,192            7,648            (2,288)           86,552
                                                     ----------       ----------        ----------        ----------

       Equity earnings (loss)                               605              ---              (605)              ---
                                                     ----------       ----------        ----------        ----------

       (Loss) income before income taxes                 (3,532)             178              (587)           (3,941)

       Income tax expense                                   (22)            (196)               (7)             (225)
                                                     ----------       ----------        ----------        ----------

       Net loss                                      $   (3,554)      $      (18)       $     (594)       $   (4,166)
                                                     ==========       ==========        ==========        ==========
</TABLE>


                                       10
<PAGE>



6.     SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
       INFORMATION  (Continued)


<TABLE>
<CAPTION>
                                                        DICTAPHONE CORPORATION
                                    SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
                                                           DECEMBER 31, 1998


                                                     DICTAPHONE       DICTAPHONE       CONSOLIDATING
                                                     CORPORATION       NON-U.S.         ADJUSTMENTS      CONSOLIDATED
                                                     -----------      ----------       -------------     ------------
<S>                                                  <C>              <C>               <C>               <C>
       ASSETS
       Current assets:
         Cash and cash equivalents                   $   10,114       $    1,613        $      ---        $   11,727
         Accounts receivable, less allowances            75,447            6,782            (4,797)           77,432
         Inventories                                     50,666            2,987              (291)           53,362
         Other current assets                             4,062            3,079               118             7,259
                                                     ----------       ----------        ----------        ----------
           Total current assets                         140,289           14,461            (4,970)          149,780

       Investments in subsidiaries                       28,520              ---           (28,520)              ---
       Property, plant and equipment, net                29,320            3,105               ---            32,425
       Deferred financing costs, net                      9,920              ---               ---             9,920
       Intangibles, net                                 192,492           13,630               ---           206,122
       Other assets                                      52,028            4,052               ---            56,080
                                                     ----------       ----------        ----------        ----------
       Total assets                                  $  452,569       $   35,248        $  (33,490)       $  454,327
                                                     ==========       ==========        ===========       ==========

       LIABILITIES AND STOCKHOLDERS'
       EQUITY
       Current liabilities:
         Accounts payable, interest payable
          and accrued liabilities                    $   53,100       $   11,111        $   (5,581)       $   58,630
         Advance billings                                37,294            2,292               ---            39,586
         Current portion of long-term debt                  628              167               ---               795
                                                     ----------       ----------        ----------        ----------
           Total current liabilities                     91,022           13,570            (5,581)           99,011

       Long-term debt                                   369,445           17,783           (17,491)          369,737
       Other liabilities                                 13,324              817               ---            14,141
       Stockholders' equity (deficit)                   (21,222)           3,078           (10,418)          (28,562)
                                                     ----------       ----------        ----------        ----------
       Total liabilities and stockholders' equity    $  452,569       $   35,248        $  (33,490)       $  454,327
                                                     ==========       ==========        ==========        ==========
</TABLE>





                                       11
<PAGE>



6.     SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
       INFORMATION  (Continued)


<TABLE>
<CAPTION>
                                                        DICTAPHONE CORPORATION
                                    SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
                                                            MARCH 31, 1999


                                                     DICTAPHONE       DICTAPHONE       CONSOLIDATING
                                                     CORPORATION       NON-U.S.         ADJUSTMENTS      CONSOLIDATED
                                                     -----------      ----------       --------------    ------------
<S>                                                  <C>              <C>               <C>               <C>       
       ASSETS
       Current assets:
         Cash and cash equivalents                   $    3,173       $    1,587        $      ---        $    4,760
         Accounts receivable, less allowances            84,572            8,467            (3,630)           89,409
         Inventories                                     46,850            2,322              (273)           48,899
         Other current assets                             2,307            3,272              (212)            5,367
                                                     ----------       ----------        ----------        ----------
           Total current assets                         136,902           15,648            (4,115)          148,435

       Investments in subsidiaries                       29,265              ---           (29,265)              ---
       Property, plant and equipment, net                32,069            2,964               ---            35,033
       Deferred financing costs, net                      9,435              ---               ---             9,435
       Intangibles, net                                 189,948           13,099               ---           203,047
       Other assets                                      53,745            3,746               323            57,814
                                                     ----------       ----------        ----------        ----------
       Total assets                                  $  451,364       $   35,457        $  (33,057)       $  453,764
                                                     ==========       ==========        ==========-       ==========

       LIABILITIES AND STOCKHOLDERS'
       EQUITY
       Current liabilities:
         Accounts payable, interest payable
          and accrued liabilities                    $   38,266       $   10,846        $   (4,554)       $   44,558
         Advance billings                                41,402            3,005               ---            44,407
         Current portion of long-term debt                  628              162               ---               790
                                                     ----------       ----------        ----------        ----------
           Total current liabilities                     80,296           14,013            (4,554)           89,755
       Long-term debt                                   362,445           17,734           (17,491)          362,688
       Other liabilities                                 13,399              764               ---            14,163
       Stockholders' equity (deficit)                    (4,776)           2,946           (11,012)          (12,842)
                                                     ----------       ----------        ----------        ----------
       Total liabilities and stockholders' equity    $  451,364       $   35,457        $  (33,057)       $  453,764
                                                     ==========       ==========        ==========        ==========
</TABLE>




                                       12
<PAGE>



6.     SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
       INFORMATION  (Continued)


<TABLE>
<CAPTION>
                                                        DICTAPHONE CORPORATION
                               SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
                                                   THREE MONTHS ENDED MARCH 31, 1998


                                                     DICTAPHONE       DICTAPHONE       CONSOLIDATING
                                                     CORPORATION       NON-U.S.         ADJUSTMENTS      CONSOLIDATED
                                                     -----------      ----------       -------------     ------------
<S>                                                  <C>              <C>               <C>               <C>        
       Operating activities:
         Net loss                                    $  (10,433)      $   (1,208)       $      796        $  (10,845)
         Adjustments to reconcile net loss
          to net cash provided by (used in)
          operating activities:
           Depreciation and amortization                 10,027              751               ---            10,778
           Provision for deferred income taxes            1,153              (61)               18             1,110
           Change in assets and liabilities:
             Accounts receivable                         (2,099)           1,870               226                (3)
             Inventories                                 (3,003)            (164)              (53)           (3,220)
             Other current assets                         1,294             (494)               (9)              791
             Accounts payable and accrued
              liabilities                               (11,610)          (1,387)              (76)          (13,073)
             Advance billings                             1,259              187               ---             1,446
             Other assets and other                      (1,335)             732              (902)           (1,505)
                                                     ----------       ----------        ----------        ----------
       Cash (used in) provided by operating
        activities                                      (14,747)             226               ---           (14,521)
                                                     ----------       ----------        ----------        ----------

       Investing activities:
         Net investment in fixed assets                  (1,748)            (446)              ---            (2,194)
                                                     ----------       ----------        ----------        ----------
       Cash used in investing activities                 (1,748)            (446)              ---            (2,194)
                                                     ----------       ----------        ----------        ----------

       Financing activities:
         Repayment under term loan facility                 ---              ---               ---               ---
         Borrowing from revolving credit facility        20,000              ---               ---            20,000
         Repayment under revolving credit facility       (8,000)             ---               ---            (8,000)
         Other                                              (14)              79               ---                65
                                                     ----------       ----------        ----------        ----------
       Cash provided by financing activities             11,986               79               ---            12,065
                                                     ----------       ----------        ----------        ----------

       Effect of exchange rate changes on cash              ---              (32)              ---               (32)
                                                     ----------       ----------        ----------         ---------

       Decrease in cash                                  (4,509)            (173)              ---            (4,682)

       Cash and cash equivalents,
        beginning of period                               8,276            2,001               ---            10,277
                                                     ----------       ----------        ----------         ---------

       Cash and cash equivalents,
        end of period                                $    3,767       $    1,828        $      ---        $    5,595
                                                     ==========       ==========        ==========        ==========
</TABLE>



                                       13
<PAGE>


6.     SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
       INFORMATION  (Continued)


<TABLE>
<CAPTION>
                                                        DICTAPHONE CORPORATION
                               SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
                                                   THREE MONTHS ENDED MARCH 31, 1999


                                                     DICTAPHONE       DICTAPHONE       CONSOLIDATING
                                                     CORPORATION       NON-U.S.         ADJUSTMENTS      CONSOLIDATED
                                                     -----------      ----------       -------------     ------------
<S>                                                  <C>              <C>               <C>               <C>        
       Operating activities:
         Net loss                                    $   (3,554)      $      (18)       $     (594)       $   (4,166)
         Adjustments to reconcile net loss
          to net cash provided by (used in)
          operating activities:
           Depreciation and amortization                  5,693              447               ---             6,140
           Provision for deferred income taxes              ---               25               ---                25
           Change in assets and liabilities:
              Accounts receivable                        (9,125)          (1,731)           (1,167)          (12,023)
              Inventories                                 3,816              645               (18)            4,443
              Other current assets                        1,755               41                 7             1,803
              Accounts payable and accrued
               liabilities                              (14,942)              28             1,027           (13,887)
              Advance billings                            4,108              717               ---             4,825
              Other assets and other                     (3,878)              97               745            (3,036)
                                                     ----------       ----------        ----------        ----------
       Cash (used in) provided by operating
        activities                                      (16,127)             251               ---           (15,876)
                                                     ----------       ----------        ----------        -----------

       Investing activities:
         Net investment in fixed assets                  (3,467)            (266)              ---            (3,733)
                                                     ----------       ----------        ----------        ----------
       Cash used in investing activities                 (3,467)            (266)              ---            (3,733)
                                                     ----------       ----------        ----------        ----------

       Financing activities:
         Sale of Preferred Stock                         20,000              ---               ---            20,000
         Borrowing from revolving credit facility        12,500              ---               ---            12,500
         Repayment under revolving credit facility      (19,500)             ---               ---           (19,500)
         Other                                             (347)              31               ---              (316)
                                                     ----------       ----------        ----------        ----------
       Cash provided by financing activities             12,653               31               ---            12,684
                                                     ----------       ----------        ----------        ----------

       Effect of exchange rate changes on cash              ---              (42)              ---               (42)
                                                     ----------       ----------        ----------        ----------

       Decrease in cash                                  (6,941)             (26)              ---            (6,967)

       Cash and cash equivalents,
        beginning of period                              10,114            1,613               ---            11,727
                                                     ----------       ----------        ----------        ----------

       Cash and cash equivalents,
        end of period                                $    3,173       $    1,587        $      ---        $    4,760
                                                     ==========       ==========        ==========        ==========
</TABLE>

                                       14
<PAGE>



7.     COMPREHENSIVE INCOME

             The Company adopted Statement of Financial Accounting Standards No.
       130, "Reporting Comprehensive Income" ("SFAS 130") as of January 1, 1998.
       SFAS 130 establishes standards for reporting and display of comprehensive
       income and its components.

             Total comprehensive loss for the three months ended March 31, 1998
       and 1999 consists of the following:

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED
                                                          MARCH 31,
                                                  ------------------------
                                                  1998                1999
                                                  ----                ----
<S>                                          <C>                 <C>         
         Net loss                            $   (10,845)        $    (4,166)

         Foreign currency translation
          adjustments                               (247)               (114)
                                             -----------         -----------

         Total comprehensive loss            $   (11,092)        $    (4,280)
                                             ===========         ===========
</TABLE>


                                       15
<PAGE>



8.       DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
         INFORMATION

                  Dictaphone has two reportable  segments:  System  Products and
         Services, and Contract Manufacturing.  The System Products and Services
         segment consists of the sale and service of system-related  products to
         dictation and voice  management  and  communications  recording  system
         customers in selected  vertical  markets.  The  Contract  Manufacturing
         segment  consists of the  manufacturing  operations of Dictaphone which
         provides  outside  electronics   manufacturing   services  to  original
         equipment  manufacturers  in the  telecommunications,  data management,
         computer and electronics industries.

                  The accounting  policies of the segments are the same as those
         described in the summary of significant accounting policies. Dictaphone
         evaluates  performance  based on profit or loss from operations  before
         income  taxes,  including  nonrecurring  gains and losses  and  foreign
         exchange gains and losses.

<TABLE>
<CAPTION>
                                                        DICTAPHONE CORPORATION
                                                        SEGMENT PROFIT AND LOSS

                                                                SYSTEM
                                                              PRODUCTS &        CONTRACT
                                                               SERVICES       MANUFACTURING         TOTAL
                                                              ----------      -------------         -----
<S>                                            <C>           <C>               <C>              <C>       
            Revenue from external customers  
              Three months ended March 31,     1999          $   72,263        $   10,348       $   82,611
              Three months ended March 31,     1998              71,898            11,927           83,825
            Intersegment revenues            
              Three months ended March 31,     1999                 ---            10,527           10,527
              Three months ended March 31,     1998                 ---            17,400           17,400
            Segment profit (loss)            
              Three months ended March 31,     1999              (5,095)            1,154           (3,941)
              Three months ended March 31,     1998             (10,917)            1,068           (9,849)
            Segment assets                   
              As of March 31,                  1999             447,867            44,183          492,050
              As of December 31,               1998          $  444,979        $   43,805       $  488,784
</TABLE>         


                                       16
<PAGE>



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

       OVERVIEW

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              ------------------
                                                           1998                1999
                                                           ----                ----
                                                                 (IN MILLIONS)
                                                                  (UNAUDITED)
<S>                                                     <C>                 <C>      

       Total revenue                                    $    83.8           $    82.6

       Cost of sales, rentals and support services           45.0                43.5
       Selling and administrative (1)                        35.0                30.2
       Research and development                               4.7                 2.4
                                                        ---------           ---------
          Operating (loss) profit                       $    (0.9)          $     6.5
                                                        ----------          ---------

       Net interest expense and other                         8.9                10.5
       Income tax expense                                     1.0                 0.2
                                                        ---------           ---------

       Net loss                                         $   (10.8)          $    (4.2)
                                                        =========           =========

       EBITDA (2)                                       $    10.4           $    12.0
                                                        =========           =========
</TABLE>

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

       (1)    Includes amortization of intangibles.

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


                                       17
<PAGE>



<TABLE>
<CAPTION>
                                                                                  THREE MONTHS ENDED
                                                                                       MARCH 31,
                                                                                  ------------------
                                                                                1998               1999
                                                                                ----               ----
                                                                                      (IN MILLIONS)
                                                                                       (UNAUDITED)
<S>                                                                          <C>                   <C>      
Revenue:
     Sales:
     Integrated Voice Systems...................................             $    12.5             $     7.2
     Integrated Health Systems..................................                   9.4                  12.7
                                                                             ---------             ---------
         Total U.S. Voice Systems...............................                  21.9                  19.9
     Communications Recording Systems...........................                  13.0                  14.3
     Customer Service Parts.....................................                   4.4                   3.9
     International and Dealer Operations........................                  10.1                   9.8
     Rentals  ..................................................                   0.3                   0.3
                                                                             ---------             ---------
         Product sales and rentals..............................                  49.7                  48.2
                                                                             =========             =========
     Support service:
     Customer Service...........................................                  19.3                  20.8
     Application and Training Specialists.......................                   0.9                   1.1
     International and Dealer Operations........................                   2.0                   2.1
                                                                             ---------             ---------
         Total support service..................................                  22.2                  24.0
                                                                             ---------             ---------
     Total System Products and Services.........................                  71.9                  72.2
     Contract Manufacturing.....................................                  11.9                  10.4
                                                                             ---------             ---------
Total revenue ..................................................             $    83.8             $    82.6
                                                                        =================     ===============
</TABLE>


RESULTS OF OPERATIONS - FIRST QUARTER 1999 VS. FIRST QUARTER 1998

       Total revenue declined 1.4% to $82.6 million in the first quarter of 1999
from $83.8  million for the first  quarter of 1998.  This  decline in revenue is
attributable  to lower  product  sales  revenue from  Integrated  Voice  Systems
("I.V.S.") and lower revenue from International and Dealer Operations, offset in
part  by  increased   product  sales  revenue  from  Integrated  Health  Systems
("I.H.S.") and  Communications  Recording Systems  ("C.R.S.") and higher revenue
from Customer  Service and  Applications  and Training  Specialists  ("A.T.S.").
Contract  Manufacturing  revenue  declined  13.2% to $10.4  million  from  $11.9
million in the first quarter of 1998.

       I.V.S.  revenue  declined  42.4% to $7.2  million in  response to actions
taken by the Company in the fourth quarter of 1998 to reduce and consolidate its
sales  force to focus on the more  profitable  systems  business  in  commercial
markets.  I.V.S.  orders in the first  quarter  of 1999  declined  33.9% to $8.4
million  from  $12.7  million  in the  first  quarter  of 1998.  I.H.S.  revenue
increased  35.1% to $12.7 million from $9.4 million due to the continued  growth
of  Enterprise  Express(TM)  sales.  I.H.S.  orders in the first quarter of 1999
increased  109.6% to $13.8  million  from $6.6  million in the first  quarter of
1998.  C.R.S.  revenue  increased  10.0%  to  $14.3  million  due  to  increased
Prolog(TM)/Guardian(TM)  sales.  C.R.S.  orders  in the  first  quarter  of 1999
increased 6.3% to $13.1 million from $12.3 million in the first quarter of 1998.
Customer  Service  revenue  (including  sale of parts)  increased  4.5% to $24.7
million from $23.7 million due to increased  warranty,  installation  and hourly
revenue.  A.T.S.  revenue  increased  13.4%  to $1.1  million  due to  increased
customer  training  provided  in support of system  products.  Sales and Support
Service revenue from  International and Dealer  Operations  declined slightly as
increased  Canadian  system  revenue  was offset by lower  desktop/portable  and
C.R.S.  revenue  in  Europe  and  one  time  revenue  in  1998  associated  with
establishing  a  distributorship   in  Switzerland.   International  and  Dealer
Operations  orders in the first quarter of 1999  increased  7.4% to $9.9 million
from $9.2 million in 1998.


                                       18
<PAGE>

       Cost of  sales,  rentals  and  support  services  declined  3.5% to $43.5
million  (52.6% of  revenue)  in the first  quarter of 1999 from  $45.0  million
(53.7% of revenue) in the first  quarter of 1998.  This decline in cost of sales
expressed as a percentage of revenue is attributable  to lower Customer  Service
costs,  higher  I.H.S.  price  realization  and a reduced  content of low margin
Contract Manufacturing revenue.

       Selling  and   administrative   expenses   (including   amortization   of
intangibles)  declined  13.7% to $30.2  million  (36.6% of revenue) in the first
quarter of 1999 from $35.0  million  (41.8% of revenue) in the first  quarter of
1998.  This decrease is  attributable  to lower  amortization  expense and lower
I.V.S.  selling expenses associated with sales force reductions partially offset
by increased  allowance for bad debts,  higher I.H.S.  selling  expenses,  costs
associated  with the proposed sale of the Company's  manufacturing  facility and
higher legal settlement costs.

       Research and development  expenses of $2.4 million (5.1% of product sales
and rental revenue)  declined 48.1% from $4.7 million (9.5% of product sales and
rental revenue),  reflecting  reduced staffing and compensation  consistent with
the requirements of major project development efforts.

       The  Company  recorded  an  operating  profit  of $6.5  million  (7.9% of
revenue)  during the first quarter of 1999 compared to an operating loss of $0.9
million (1.0% of revenue) for the first quarter of 1998. Excluding the impact of
the reduction in amortization expense,  operating profit would have increased by
$2.8 million due to lower costs and reduced operating expenses.

       The  Company has  recorded a gross  deferred  tax asset of $98.4  million
reflecting the benefit of net operating loss  carryforwards and various book tax
temporary  differences.  The net operating loss  carryforward for federal income
tax purposes as of March 31, 1999 is $130.0  million,  of which $13.7 million of
the net operating loss  carryforward will expire in the year 2010, $33.2 million
will expire in the year 2011,  $40.0 million will expire in the year 2012, $35.6
million  will expire in the year 2018 and $7.5  million  will expire in the year
2020. In order to fully realize the deferred tax asset, the Company will need to
generate  future  taxable  income prior to expiration of the net operating  loss
carryforwards.  In 1997, the Company  established a valuation allowance of $24.1
million against the deferred tax assets.  During 1998, the Company increased its
valuation allowance by $20.8 million. During the first three months of 1999, the
Company  increased  its  valuation  allowance by $1.5  million  resulting in net
deferred  tax  asset of  $52.0  million.  Management  believes,  based  upon the
Company's history of prior operating results, its current circumstances, and its
expectations for the future, that taxable income of the Company will more likely
than not be  sufficient  to fully  utilize the net  deferred  tax asset of $52.0
million  recorded  at March 31,  1999,  prior to  expiration.  The amount of the
deferred tax asset considered realizable, however, could be reduced if estimates
of future taxable income during the net operating loss  carryforward  period are
reduced.

LIQUIDITY AND CAPITAL RESOURCES

       The  Company's  liquidity  requirements  consist  primarily of scheduled
payments of principal and interest on its  indebtedness,  working  capital needs
and capital  expenditures.  At March 31, 1999, the Company had outstanding  Term
Loans of  $131.6  million,  a $31.5  million  loan  outstanding  under the $40.0
million  Revolving  Credit  Facility  and  the  Notes.  Availability  under  the
Revolving  Credit Facility at March 31, 1999 was $8.5 million.  Scheduled annual
principal  payments on the Term Loans are $0.6  million in 1999 and 2000,  $36.3
million in 2001 and $94.0 million in 2002. There are no scheduled  reductions in
the Revolving Credit Facility over the next two years.

       On December  31,  1998,  the  Company  and the  lenders  executed a fifth
amendment  to the  Credit  Agreement.  Under  the terms of this  amendment,  the
lenders agreed to waive  compliance by the Company with the financial  covenants
as of December 31, 1998 and for the four-Fiscal Quarter period then ended. Other


                                       19
<PAGE>

changes  effected by the amendment were (i)  modifications  to the covenants and
related definitions in respect of certain asset sales and the utilization of the
proceeds  from such asset sales,  (ii)  modifications  to the  required  Maximum
Leverage,  Minimum  EBITDA and Minimum  Interest  Coverage  Ratio  covenants (as
defined in the Credit  Agreement),  (iii) a change in the  maturity  date of the
Tranche C Loans to be equal to that of the Tranche B Loans, and (iv) an increase
in the interest rate on the Tranche B Loans to be equal to that of the Tranche C
Loans.

       In  January  1999,  the  Company  sold  2.0  million  shares  of its  12%
Convertible  Pay-in-Kind Preferred Stock to Stonington Capital Appreciation 1994
Fund, L.P. ("Stonington") for $20 million. In February 1999, $11.75 million were
used for the semi-annual  interest payment on the Notes.  Proceeds from the sale
were also used to repay amounts outstanding under the Revolving Credit Facility.

       In connection with the terms of the Credit Agreement, the Company entered
into interest  rate swap  agreements in November  1995,  effective  February 16,
1996, with an aggregate  notional  principal amount  equivalent to $75.0 million
which matured on February 16, 1999. The swap effectively  converted that portion
of the Term Loans to a fixed rate component of 5.8%;  thus,  reducing the impact
of changes in interest rates,  converting the total  effective  interest rate on
fifty percent of the initial outstanding Term Loans to 9.55%. No funds under the
swap  agreements were actually  borrowed or were repaid.  Amounts due to or from
the  counterparties  were reflected in interest  expense in the periods in which
they accrued.  On February 11, 1999, the Company  entered into interest rate cap
agreements  effective  February 16, 1999, with an aggregate  notional  principal
amount  equivalent to $66 million  maturing on February 16, 2001. The cap limits
that portion of the Company's Term Loans to a fixed rate component of 5.5%; thus
reducing  the impact of  increases in interest  rates and limiting the effective
interest rate on fifty percent of the currently outstanding Term Loans to 9.25%.

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

       The Company had $200.0 million of Notes outstanding as of March 31, 1999.
The Notes are subordinated to the Credit  Agreement  financings and other senior
indebtedness,  as defined in the Note  Indenture.  The Notes  contain  covenants
similar to the Credit  Agreement  and  provide for each  noteholder  to have the
right to require that the Company  repurchase the Notes at 101% of the principal
amount upon a change of control (as  defined in the Note  Indenture).  The Notes
bear interest of 11-3/4% per annum, payable semi-annually on each February 1 and
August 1. The Notes mature on August 1, 2005. At March 31, 1999,  the fair value
of the Notes was favorable $56.0 million based on dealer quotes.

       Capital  expenditures  for the first three  months of 1999  totaled  $3.7
million. The Company does not expect that the limitation on capital expenditures
contained in the Credit  Agreement  will limit,  in any material  respects,  the
Company's ability to fund capital expenditures.

       The Company's  quarterly  revenues and other operating  results have been
and will  continue to be affected by a wide variety of factors that could have a
material  adverse  effect on the  Company's  financial  performance  during  any
particular quarter.  Such factors include,  but are not limited to, the level of
orders that are  received and shipped by the Company in any given  quarter,  the
rescheduling and  cancellation of orders by customers,  availability and cost of
materials,  the  Company's  ability  to enhance  its  existing  products  and to
develop,  manufacture and  successfully  introduce and market new products,  new
product developments by the Company's competitors, market acceptance of products
of both the Company and its competitors,  competitive  pressures on prices,  the


                                       20
<PAGE>

ability to attract and retain qualified technical personnel,  significant damage
to or  prolonged  delay  in  operations  at  the  Company's  sole  manufacturing
facility,  and  interest  rate and foreign  exchange  fluctuations.  The Company
introduced a number of new products in its target markets in 1997,  1998 and the
first quarter of 1999 and plans to introduce  additional new products during the
balance of 1999 which are expected to enhance  future  revenues and liquidity of
the Company. However, there can be no assurance that the Company will be able to
implement its plans to introduce such products in a timely fashion, or that such
products  will meet the  expectations  of the  Company  for either  revenues  or
profitability.  Notwithstanding  the introduction of its new products,  the 1999
sale of 12%  Convertible  Pay-in-Kind  Preferred  Stock  to  Stonington  and its
availability  under the  Revolving  Credit  Facility,  the Company  will need to
improve  cash  flows  from   operating   activities  in  order  to  satisfy  the
requirements of the August 1, 1999  semi-annual  interest  payment on the Notes.
The Company has  implemented new measures to improve working capital in order to
provide this improved cash flow,  but there can be no assurance,  however,  that
the Company will be successful in such efforts.

YEAR 2000 READINESS

GENERAL
-------

       Most  businesses are facing a challenge at the turn of the century due to
a common  computer-related  practice employed since the 1960's of representing a
year with just two digits rather than four digits. The problem is not restricted
to system  hardware  components  but will be  manifested  within many  operating
systems,  firmware,  application  software  and  equipment  used  throughout  an
organization.  Dictaphone  has been and  continues  to be  actively  engaged  in
resolving its Year 2000 issues.  The Company has established a Year 2000 Project
Office charged with  evaluating  the Company's Year 2000 issues and  identifying
and  developing  appropriate  remedies  and  action  plans  with  respect to the
Company's  internal  systems  and the  Company's  products  to  ensure  a smooth
transition into the new millennium.

       The Year 2000 Project  Office has adopted a five phase program to address
the Company's  Year 2000 issues  consisting of Phase I - review and inventory of
existing systems, products,  equipment and suppliers that may be affected by the
Year 2000 issue;  Phase II - assessment  of the impact of the Year 2000 issue on
systems,  products,   equipment  and  suppliers;  Phase  III  -  remediation  or
replacement of non-compliant  systems,  products and equipment and determination
and implementation of solutions to address non-compliant  suppliers and vendors;
Phase IV - testing of systems, products and equipment following remediation; and
Phase V - contingency planning.

       The  Company's  Year 2000  efforts  have been  concentrated  on two major
areas:  1) internal use systems,  equipment and third party products used in the
Company's operations and 2) products sold by the Company to its customers.

STATE OF READINESS
------------------

       The Company is utilizing both internal and external  resources to perform
Year 2000  testing on its  internal  systems  and  equipment.  The  Company  has
completed Phase I of the program and has made substantial progress on Phases II,
III  and IV  for  all  of  its  critical  systems  and  equipment.  The  Company
anticipates  completion  of the  work  required  on the  remaining  systems  and
equipment by mid-third quarter 1999. In connection with the Company's efforts to
make its internal  systems Year 2000 compliant,  the Company has accelerated the
implementation  of a new  enterprise-wide  computer system in certain areas. The
implementation  timetable  for the  components of the new system is currently on
schedule and will be completed by mid-third quarter 1999.


                                       21
<PAGE>

       With respect to third party  suppliers,  in early 1998 the Company  began
the process of identifying and prioritizing  critical  suppliers and vendors and
initiated  communication  concerning their plans to address the Year 2000 issue.
This process is continuing  and the Company  believes  efforts in this area will
continue  throughout 1999 as more information becomes available from these third
parties.

       With respect to products sold to the Company's customers, the Company has
completed  Phase I of the program and is actively  engaged in Phases II, III and
IV. The Company has identified certain products which require remediation and is
actively  involved in the development and  communication of such remediations to
the Company's  customers.  Based on current estimates,  the Company  anticipates
completion of these phases by mid-third quarter 1999.

       Many of the Company's products rely on third party hardware, software and
firmware. The Company has been diligently working with all such third parties to
ascertain their readiness and the affect, if any, of their products'  compliance
status  on the  efficient  and  effective  operation  and  use of the  Company's
products.  Generally,  all  software,  hardware and firmware are supplied to the
Company by leading software companies that have Year 2000 programs of their own.
A majority of these vendors have provided information to the Company as to their
products' Year 2000 compliance status.  However,  there can be no guarantee that
the  software,  hardware or firmware  certified by third  parties,  on which the
Company's products may rely, will operate effectively and efficiently during and
after the  millennium.  The Company has,  however,  conducted  its own Year 2000
testing on integrated  products and believes that the risk of material operating
failures  associated  with the  components  provided by these  third  parties is
consistent with their product representations concerning Year 2000 compliance.

COSTS
-----

       The Company  estimates that the aggregate  costs of its Year 2000 program
will be  approximately  $12.5  million,  including $8.5 million of costs already
incurred. Of the total program costs,  approximately $9.0 million represents new
software and hardware  purchases  for internal  Company  systems which have been
accelerated in connection with the Year 2000 issue. A significant portion of the
remaining  $3.5  million  in  costs  have not  been  and  will  not  consist  of
incremental  costs,  but rather  will  represent  the  redeployment  of existing
Company  resources.  This  redeployment  of  resources is not expected to have a
significant impact on the day to day operations of the Company. Based on current
estimates  and  information,  the Company does not  anticipate  that these costs
associated  with Year 2000  issues  will have a material  adverse  effect on the
Company's consolidated  financial position,  results of operations or cash flows
in  future  periods.  However,  these  cost  estimates,  as well as the  project
timetables  previously  mentioned are based on management's best estimates,  and
there can be no guarantee  that these  estimates will be achieved or that actual
results will not materially differ from these estimates.

RISKS
-----

       With  respect to the  Company's  internal  systems,  the most  reasonably
likely worst case scenario for the Company's  failure to identify or remediate a
Year 2000 problem could be an  interruption  in, or failure of,  certain  normal
business activities or operations.  Such failures could materially and adversely
affect the Company's results of operations,  liquidity and financial  condition.
In addition,  due to the uncertainty of the Year 2000 readiness of third parties
and  suppliers  and  customers,  the Company is unable to determine at this time
whether the  consequences of the Year 2000 failures by these parties will have a
material impact on the Company's  consolidated  financial  position,  results of
operations or cash flows.


                                       22
<PAGE>

     The Company's  Year 2000  program,  however,  is expected to  significantly
reduce the Company's  exposure to these types of failures.  The Company believes
that the  implementation  of new systems and the timely  completion  of the Year
2000  program  should  reduce the risk of  internal  business  interruption  and
adverse financial impact.

     With respect to products  sold to  customers,  the most  reasonably  likely
worst case  scenario for Year 2000 related  product  failures  could include the
suspension  of use of such  products,  or  continued  use of the  products  with
reduced  functionality or operating  ability.  If this were to occur,  customers
could  attempt to assert  liability  claims  against the Company.  However,  the
Company  believes  that,  based on the level of Year 2000  testing  performed to
date, the product remedies  expected to be made available to its customers,  the
time remaining to implement such remedies,  and the legal defenses  available to
the Company,  the  likelihood  of the  occurrence of such worst case scenario is
minimized.

CONTINGENCY PLANS
-----------------

       Contingency plans are being prepared so that critical business  functions
will  continue to  operate.  These plans will  address  the  Company's  internal
systems and equipment, products sold by the Company to customers and third party
supplier  relationships.  The contingency plans will include manual alternatives
to  electronic  processes,  repair or  replacement  of products  and systems and
changes in  suppliers.  The  Company  expects  that  contingency  planning  will
continue  throughout  1999,  and will  further  evolve  as the  Company  obtains
additional information on the state of its Year 2000 readiness.

       The  Company  may,  from  time to time,  provide  estimates  as to future
performance.  Such estimates would be  "forward-looking"  statements  within the
meaning of Section  27A of the  Securities  Act of 1933 and  Section  21E of the
Securities  Exchange Act of 1934.  Because  such  statements  include  risks and
uncertainties,  actual  results  may  differ  materially  from  those  estimates
provided.  The  Company  undertakes  no  duty to  update  such  forward  looking
statements. Factors that could cause actual results to differ from these forward
looking statements include,  but are not limited to, those previously  discussed
herein.


ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
             ----------------------------------------------------------

       The Company's  cash flows and earnings are subject to  fluctuations  from
changes in interest rates and, to a lesser  extent,  foreign  currency  exchange
fluctuations.  See "Item 2 -  Management's  Discussion and Analysis of Financial
Condition  and Results of  Operations  - Liquidity  and Capital  Resources"  for
further information on intererst rate risk.


                                       23
<PAGE>



                           PART II - OTHER INFORMATION


ITEM 1.      LEGAL PROCEEDINGS
             -----------------

       See  Note  5  to  the  Company's  Condensed  Consolidated  Statements  of
Operations (Unaudited) which is incorporated herein by reference.


ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K
             --------------------------------

       (a)   EXHIBITS
             --------

                   27     --    Financial Data Schedule.

UNDERTAKING:

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

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

                    On January 8, 1999,  the Company  filed a Current  Report on
              Form 8-K,  reporting  under Item 5 thereof,  the  amendment of the
              Company's  senior  Bank  Credit  Agreement,  dated as of August 7,
              1995,  as  amended,  to waive  compliance  by the  Company  of the
              financial  covenants  as of  December  31,  1998  and for the four
              Fiscal  Quarter  periods then ended, to modify the  covenants  and
              related  definitions  in respect of  certain  asset  sales and the
              utilization  of the proceeds from such asset sales,  to modify the
              required  Maximum  Leverage,  Minimum EBITDA and Minimum  Interest
              Coverage  Ratio  Covenants,  to change  the  maturity  date of the
              Tranche C Loans to be equal to that of the Tranche B Loans, and to
              increase the  interest  rate on the Tranche B Loans to be equal to
              that of the Tranche C Loans.

                    In  addition,  with  the  fifth  amendment,   the  Company's
              principal  shareholder (the "Shareholder")  agreed to provide the
              Company  with  $20,000,000  in new cash equity (the "New  Equity")
              contributions  on or  before  January  28,  1999 to  fund  working
              capital and for general corporate purposes.



                                       24
<PAGE>



                                   SIGNATURES


       Pursuant to the requirements of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




Dated:  May 14, 1999                                DICTAPHONE CORPORATION
                                             -----------------------------------
                                                      (Registrant)



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


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


                                       25
<PAGE>



                                  EXHIBIT INDEX


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




         27    --  Financial Data Schedule.












                                       26