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 JUNE 30, 1998

                                       OR

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

For the transition period from _________ to ____________________

                          Commission file number 0-9728

                           GST EQUIPMENT FUNDING, INC.
--------------------------------------------------------------------------------
             (Exact name of Registrant as Specified in its Charter)

          Delaware                                        91-1785734
--------------------------------------------------------------------------------
(State or Other Jurisdiction                (IRS Employer Identification
 of Incorporation or Organization)          Number)

        4001 MAIN STREET, VANCOUVER, WA                  98663
---------------------------------------                ----------
(Address of Principal Executive Offices)               (Zip Code)

Registrant's Telephone Number, Including Area Code: (360) 906-7100

                                       N/A
--------------------------------------------------------------------------------
(Former  Name,  Former  Address and Former  Fiscal Year,  if Changed  Since Last
Report)

            THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
                 INSTRUCTION H(1)(A) AND (B) OF FORM 10-Q AND IS
                    THEREFORE FILING THIS FORM 10-Q WITH THE
                 REDUCED DISCLOSURE FORMAT CONTEMPLATED THEREBY.

                  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/ Yes   No / /

                  Indicate  the  number  of  shares  outstanding  of each of the
issuer's classes of common stock, as of the latest  practicable  date: At August
12, 1998, there were outstanding 100 shares of common stock,  $.01 par value per
share, of the Registrant.

<PAGE>
                           GST EQUIPMENT FUNDING, INC.

                                      INDEX

                                                                         PAGE(S)

                          PART I: FINANCIAL INFORMATION

ITEM 1.        FINANCIAL STATEMENTS:

               Balance Sheets - June 30, 1998 (unaudited)
               and December 31, 1997                                       3

               Statements of Operations  - Three Months Ended
               June 30, 1998 and 1997 and Six Months Ended
               June 30, 1998 and period from March 5, 1997
               (date of inception) to June 30, 1997
               (unaudited)                                                 4

               Statements of Cash Flows - Six Months Ended
               June 30, 1998 and period from March 5, 1997
               (date of inception) to June 30, 1998
               (unaudited)                                                 5

               Notes to Financial Statements (unaudited)                   6

ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS (REDUCED DISCLOSURE
               NARRATIVE)                                                  7

ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
               Not Required

                           PART II: OTHER INFORMATION

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


SIGNATURES                                                                 9


                                      -2-
<PAGE>
                           GST EQUIPMENT FUNDING, INC.
                                 BALANCE SHEETS
                 JUNE 30, 1998 (UNAUDITED) AND DECEMBER 31, 1997
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                        June 30, 1998     December 31, 1997
                                                        -------------     -----------------
ASSETS
<S>                                                       <C>              <C>
     Current assets
       Cash and cash equivalents                            $ 3,968            $ 373
       Restricted investments                                31,601           30,656
                                                         -----------      -----------
            Total current assets                             35,569           31,029
                                                         -----------      -----------

     Restricted investments                                  56,354          112,719
     Notes receivable from parent                           159,292          109,164
     Interest receivable from parent                          3,764            2,670
     Deferred financing costs, net                            8,676            8,994
                                                         -----------      -----------
                                                          $ 263,655        $ 264,576
                                                         ===========      ===========

LIABILITIES AND SHAREHOLDERS' DEFICIT
     Current liabilities
       Accrued interest payable                             $ 5,852          $ 5,852
       Other payable to parent                                5,011            1,260
                                                         -----------      -----------
            Total current liabilities                        10,863            7,112
                                                         -----------      -----------
     Long term debt                                         265,000          265,000

     Shareholders' deficit
       Common stock:
         Authorized - 1,000 of $.01 par common shares;
           issued and outstanding - 100 shares                    -                -
       Additional paid-in capital                             1,000            1,000
       Accumulated deficit                                  (13,208)          (8,536)
                                                         -----------      -----------
            Total shareholders' deficit                     (12,208)          (7,536)
                                                         -----------      -----------
                                                          $ 263,655        $ 264,576
                                                         ===========      ===========
</TABLE>

(1)    The  information  in this column was derived from the  Company's  audited
       financial statements as of December 31, 1997.

       See notes to financial statements.

                                      -3-
<PAGE>
                           GST EQUIPMENT FUNDING, INC.
                             STATEMENT OF OPERATIONS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                             Three Months              Six Months
                                            Ended June 30,             Ended June 30,         Period from date
                                     ------------------------   ----------------------          of inception
                                                                                                (March 5, 1997)
                                         1998            1997              1998                to June 30, 1997
                                     ------------------------   ----------------------       -------------------
<S>                                    <C>             <C>              <C>                        <C>
Revenue:
     Interest income                   $ 6,972         $ 2,954          $ 13,385                   $ 2,954
Operating costs and expenses:
     Interest expense                    9,023           4,802            18,057                     4,802
                                     ----------   -------------   ---------------            --------------
 Loss before income taxes               (2,051)         (1,848)           (4,672)                   (1,848)
     Income taxes                            -           1,004                 -                     1,004
                                     ----------   -------------   ---------------            --------------
Net loss                              $ (2,051)       $ (2,852)         $ (4,672)                 $ (2,852)
                                     ==========   =============   ===============            ==============
</TABLE>

        See notes to financial statements.

                                      -4-
<PAGE>
                           GST EQUIPMENT FUNDING, INC.
                             STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                                 Period from
                                                                       Six Months             date of inception
                                                                     Ended June 30,            (March 5, 1997)
                                                                          1998                 to June 30, 1997
                                                                   ------------------     ----------------------

CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                    <C>                       <C>
Net loss                                                                (4,672)                    (2,852)
Adjustments to reconcile net loss to net cash used
in operating activities:
  Amortization of deferred financing costs                                 500                        120
Changes in non-cash operating working capital:
  Interest receivable from parent                                       (1,094)                    (1,316)
  Accrued interest payable                                                   -                      4,682
  Accrued income taxes payable to parent                                     -                      1,004
  Other payable to parent                                                3,751                        575
                                                                   -----------                 ----------
Net cash used in operating activities                                   (1,515)                     2,213

CASH FLOWS FROM INVESTING ACTIVITIES

  Change in investments restricted for fixed asset purchases            37,717                   (110,214)
  Notes receivable from parent                                         (50,128)                   (54,264)
                                                                   -----------                 ----------
Net cash used in investing activities                                  (12,411)                  (164,478)

CASH FLOWS FROM FINANCING ACTIVITIES

  Proceeds from long term debt                                               -                    265,000
  Equity investment by parent                                                -                        999
  Change in investments restricted to finance interest payments         17,703                    (94,547)
  Deferred financing costs                                                (182)                    (9,188)
                                                                   -----------                 ----------
Net cash provided by financing activities                               17,521                    162,264
                                                                   -----------                 ----------

Net increase in cash and cash equivalents                                3,595                         (1)
Cash and cash equivalents at beginning of period                           373                          1
                                                                   -----------                 ----------

Cash and cash equivalents at end of period                               3,968                          -
                                                                   ===========                 ==========
</TABLE>

   See notes to financial statements.

                                      -5-

<PAGE>
                           GST EQUIPMENT FUNDING, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.       BASIS OF PRESENTATION

         The accompanying  financial  statements of GST Equipment Funding,  Inc.
("GST  Funding")  have been  prepared  in  conformity  with  generally  accepted
accounting  principles.  However,  certain  information or footnote  disclosures
normally included in financial  statements prepared in accordance with generally
accepted accounting principles have been condensed, or omitted,  pursuant to the
rules and regulations of the Securities and Exchange Commission.  In the opinion
of management,  the statements include all adjustments necessary (which are of a
normal and  recurring  nature) for the fair  presentation  of the results of the
interim periods  presented.  The results of operations for the periods presented
are not necessarily indicative of the results to be expected for the full fiscal
year or for subsequent  periods.  These financial  statements  should be read in
conjunction with the GST Funding's  audited  financial  statements for the three
months  ended  December 31, 1997,  as included in the GST  Funding's  Transition
Report on Form 10-K for the three month  transition  period  ended  December 31,
1997.

2.       NET LOSS PER SHARE AND SHAREHOLDER'S EQUITY

         GST Funding does not have any equity  instruments  that are  considered
common stock equivalents,  and, as weighted average common shares total only 100
for the periods  presented,  all of which are owned by GST USA,  Inc.,  loss per
share data is meaningless and is not presented in the accompanying  consolidated
condensed financial statements.


                                      -6-
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS (REDUCED DISCLOSURE NARRATIVE).

OVERVIEW

         GST Equipment Funding, Inc. ("GST Funding") was formed on March 5, 1997
for the  purpose  of  issuing  its  13.25%  senior  secured  notes due 2007 (the
"Secured Notes") and financing the purchase of telecommunications equipment. GST
Funding acts as purchasing  agent for GST USA, Inc. ("GST USA") and sells to GST
USA the  equipment  it  purchases  with  proceeds  from the sale of  the Secured
Notes. GST Funding has only a limited operating history.

         As of June 30, 1998,  GST Funding has  purchased  approximately  $145.9
million of equipment and holds  restricted  investments of  approximately  $88.0
million restricted for the acquisition of equipment and the payment of interest.
All of such  equipment  has been sold to GST USA in  exchange  for  intercompany
notes. Ultimately,  such equipment is leased by GST USA to the various operating
subsidiaries of GST Telecommunications, Inc. ("GST").

OPERATIONS

         The operations of GST Funding are limited to (i) purchasing  equipment,
(ii) selling equipment,  (iii) receiving payments under intercompany notes, (iv)
making  payments  of  interest  and  principal  on the  Secured  Notes,  and (v)
fulfilling its  obligations  under the indenture  relating to the Secured Notes,
the pledge agreement  relating to the security interest in the Secured Notes and
the  registration  rights  agreement  relating to the Secured Notes. GST Funding
satisfied its obligations under such  registration  rights agreement in November
1997, upon the consummation of an exchange offer for the Secured Notes.

LIQUIDITY AND CAPITAL RESOURCES

         On May 13, 1997,  GST Funding  completed the sale of $265.0  million of
Secured  Notes.  Of the $255.8  million of net proceeds from the issuance of the
Secured Notes, as of June 30, 1998 approximately  $93.8 million had been used to
purchase  securities  pledged  to fund the first six  interest  payments  on the
Secured Notes (the first two payments totaling $33.9 million having been made as
of June 30,  1998) and  approximately  $145.9  million had been used to purchase
telecommunications  equipment  ($41.5  million  of which  was used to  refinance
intercompany  indebtedness).  The indenture governing the Secured Notes includes
restrictive  covenants which,  among other items,  limit or restrict  additional
indebtedness  incurred by GST Funding,  GST USA and GST,  investment  in certain
subsidiaries and the payment of dividends.


                                      -7-
<PAGE>

                           PART II: OTHER INFORMATION

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits

              Exhibit 27                             Financial Data Schedule

         (b)  Reports on Form 8-K
                  None





                                      -8-

<PAGE>
                               S I G N A T U R E S

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



Date: AUGUST 13, 1998                      GST EQUIPMENT FUNDING, INC.
                                           (Registrant)



                                           /S/ DANIEL L. TRAMPUSH
                                           -------------------------------------
                                               Daniel L. Trampush,
                                               (Senior Vice President and Chief
                                               Financial Officer)



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