6-K 1 o05322e6-k.txt FORM 6-K 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------------------ Form 6-K REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13a-16 OR 15D-16 OF THE SECURITIES EXCHANGE ACT OF 1934 For the three months ended December 31, 2000 ------------------------------------ GT GROUP TELECOM INC. Suite 700 - 20 Bay Street Toronto, Ontario, Canada M5J 2N8 (416) 848-2000 (Address of principal executive offices) ------------------------------------ [indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F] Form 20-F X Form 40-F --- --- [indicate by check mark whether the registrant by furnishing information contained in this Form is also thereby furnishing the information to the Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of 1934] Yes No X --- --- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 GT GROUP TELECOM INC. INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 (UNAUDITED) (thousands of Canadian dollars) 3 GT GROUP TELECOM INC. INTERIM CONSOLIDATED BALANCE SHEETS (thousands of Canadian dollars)

~~Contents~~DECEMBER ~~Message~~31, toSEPTEMBER ~~Shareholders~~30, 32000 ~~Our~~2000 ~~Five~~-~~Part~~----------- ~~Strategy~~------------- in$ ~~Action:~~$ 1(UNAUDITED) ~~Own~~ASSETS ~~the~~CURRENT ~~Network~~ASSETS 7Cash 2and ~~Lead~~cash ~~with~~equivalents................................... ~~Data~~365,960 9444,050 3Trade ~~Target~~accounts ~~Small~~receivable................................... 38,765 30,253 Sales tax and ~~Medium~~other receivables............................. 20,876 19,699 Prepaid expenses............................................ 3,870 5,939 Inventory................................................... 605 436 -~~Sized~~-------- ~~Enterprises~~--------- 11430,076 4500,377 ~~Sell~~PREPAYMENTS ~~Directly~~ON toPROPERTY, ~~the~~PLANT ~~Customer~~AND 13EQUIPMENT................ 5132,852 ~~Integrated~~203,703 ~~Back~~PROPERTY, ~~Office~~PLANT 15AND ~~Employee~~EQUIPMENT............................... ~~Focus~~1,157,739 17954,917 ~~Management~~LONG-TERM ~~Discussion~~INVESTMENT........................................ 43,238 43,238 GOODWILL AND OTHER ASSETS................................... 229,112 227,033 --------- --------- 1,993,017 1,929,268 ========= ========= LIABILITIES CURRENT LIABILITIES Accounts payable and ~~Analysis~~accrued 18liabilities.................... ~~Report~~105,170 111,395 Unearned revenue............................................ 811 544 Current portion of ~~Management~~long-term 25debt........................... ~~Auditors~~6,292 4,348 --------- --------- 112,273 116,287 LONG-TERM UNEARNED REVENUE.................................. 1,118 1,255 LONG-TERM DEBT.............................................. 1,095,966 948,928 --------- --------- 1,209,357 1,066,470 SHAREHOLDERS' ~~Report~~EQUITY 26SHARE ~~Consolidated~~CAPITAL ~~Financial~~AND ~~Statements~~OTHER 27EQUITY ~~Notes~~ITEMS........................ to1,014,013 ~~Consolidated~~1,013,866 ~~Financial~~DEFICIT..................................................... ~~Statements~~(230,353) 30(151,068) ~~Supplemental~~--------- ~~Information~~--------- 52783,660 ~~Regional~~862,798 ~~Highlights~~--------- 54--------- ~~Corporate~~1,993,017 ~~Information~~1,929,268 55========= =========

The accompanying notes form an integral part of these interim consolidated financial statements. F-1 4 GT GROUP TELECOM INC. INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT (UNAUDITED) (thousands of Canadian dollars, except for per share amounts)

~~YEAR~~THREE CMONTHS $ENDED ~~BILLION~~DECEMBER 31, ------------------- 2000 1999 -------- ------- 99$ 4$ 00REVENUE..................................................... 639,924 012,267 7COST 02OF 8SERVICES............................................ 0325,426 92,138 04-------- ------- 14,498 129 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 41,780 10,863 05-------- ------- (27,282) (10,734) AMORTIZATION................................................ 23,385 1,124 INTEREST AND FINANCING CHARGES, NET......................... 27,543 141 -------- ------- LOSS BEFORE INCOME TAXES.................................... (78,210) (11,999) 06PROVISION FOR INCOME TAXES.................................. 1,075 65 -------- ------- LOSS FOR THE PERIOD......................................... (79,285) (12,064) 07DEFICIT -- BEGINNING OF PERIOD.............................. (151,068) (13,082) 08-------- 14------- 09DEFICIT 15-- END OF PERIOD.................................... (230,353) (25,146) ======== ======= LOSS PER SHARE.............................................. (0.63) (0.54) ======== ======= WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES (in thousands)................................................ 124,882 22,475 ======== =======

The accompanying notes form an integral part of these interim consolidated financial statements. F-2 5 GT GROUP TELECOM INC. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (thousands of Canadian dollars)

~~SALES~~THREE ~~OTHER~~MONTHS ENDED DECEMBER 31, ------------------- 2000 1999 -------- Q1------- ~~100~~$ ~~300~~$ Q2CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Loss for the period......................................... (79,285) (12,064) Items not affecting cash Amortization.............................................. 23,385 1,124 Non-cash interest expense................................. 30,551 -- -------- ------- (25,349) (10,940) -------- ------- Changes in non-cash working capital items Increase in accounts receivable........................... (9,689) (1,731) Increase in inventory..................................... (168) -- Increase (decrease) in prepaid expenses................... 2,069 (1,548) Increase (decrease) in accounts payable and accrued liabilities............................................ (6,111) 6,473 Increase (decrease) in unearned revenue................... 129 (117) -------- ------- (13,770) 3,077 -------- ------- Cash used in operating activities........................... (39,119) (7,863) -------- ------- FINANCING ACTIVITIES Repayment of long-term debt................................. -- (150) ~~500~~Issuance Q3of ~~200~~shares.......................................... ~~700~~147 Q414 ~~300~~-------- ~~725~~------- 147 (136) -------- ------- INVESTING ACTIVITIES Purchases of property, plant and equipment.................. (34,048) (18,940) Business acquisitions....................................... -- (2,710) Increase in other assets.................................... (5,070) (855) -------- ------- (39,118) (22,505) -------- ------- DECREASE IN CASH AND CASH EQUIVALENTS....................... (78,090) (30,504) CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD............ 444,050 59,851 -------- ------- CASH AND CASH EQUIVALENTS -- END OF PERIOD.................. 365,960 29,347 ======== =======

The accompanying notes form an integral part of these interim consolidated financial statements. F-3 6 GT GROUP TELECOM INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (expressed in Canadian dollars) 1 OPERATIONS AND BASIS OF PRESENTATION The Company markets and sells telecommunications services and related products over fibre-optic infrastructure to small and medium-sized businesses in Canada. The Company also uses Digital Subscriber Lines (DSL) and fixed wireless technology to extend the reach of its network. The Company provides data, Internet applications and voice services. These interim consolidated financial statements are prepared following accounting policies consistent with the Company's consolidated financial statements for the years ended September 30, 2000, 1999 and 1998. These financial statements are in accordance with generally accepted accounting principles in Canada which, in the case of the company, conform in all material respects with those in the United States, except as outlined in note 3. The information presented as at December 31, 2000 and for the interim periods ended December 31, 2000 and 1999 is unaudited. These unaudited interim financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented; all such adjustments are of a normal recurring nature. 2 SIGNIFICANT TRANSACTIONS (a) During the quarter ended December 31, 2000, the Company accepted approximately 76% of the fibre-optic capacity under the long-term capacity lease agreement entered into with 360networks inc. in May 2000. As a result, the Company recorded an increase in property plant and equipment and long-term debt of $61 million. The Company also obtained for use newly constructed fibres with a carrying value of $70 million pursuant to a prepaid indefeasible right to use arrangement. (b) On October 16, 2000, the Company entered into an asset purchase agreement with C1 Communications Inc. (C1). This transaction is expected to close during the quarter ended March 31, 2001. Under the purchase agreement, the Company will purchase from C1 all the property and assets used in its Atlantic Canada competitive local exchange carrier business. The Company will also assume the rights and obligations with respect to an existing indefeasible right to use agreement, which will grant the Company the right to use certain specifically identified existing fibres for 19 years. The purchase consideration consists of rights to acquire 2,372,000 Class B non-voting shares of the Company and the assumption of $22 million of long-term obligations of C1 relating to the indefeasible right to use agreement. Acquisition costs are estimated to be $2 million. (c) On December 20, 2000, the Company entered into additional cross currency swaps with several financial institutions to convert an additional 31% of the future U.S. dollar payments on the senior discount notes to Canadian dollars at fixed average exchange rate of approximately $1.5335. The Company has now fully hedged its exposure to fluctuations in the U.S. dollar in respect of its senior discount notes included within long-term debt. F-4 7 GT GROUP TELECOM INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) (expressed in Canadian dollars) 3 RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES The Company's condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in Canada, which, in the case of the Company conform in all material respects with GAAP in the United States of America, except as outlined below: A) NET LOSS AND SHAREHOLDERS' EQUITY The following summary sets out the adjustments to the Company's loss and shareholders' equity, which would be made to conform to U.S. GAAP:

~~(in~~THREE ~~thousands~~MONTHS ~~of Canadian dollars) YEAR~~ ENDED ~~SEPTEMBER~~DECEMBER 3031, ------------------~~----------------------------------------------------------------------------~~ 2000 1999 ~~1998~~ ------- -------~~--------------------------------------------------------------------------------~~ ~~Revenue~~$ $ ~~73,251~~Loss $for ~~2,705~~the $period ~~1,823~~in ~~Cost~~accordance ofwith ~~services~~Canadian ~~51,336~~GAAP........ 1(79,~~808~~285) 1(12,~~131~~064) Impact of U.S. accounting principles Amortization of purchase price adjustment(c).............. (396) -- Deferred charges.......................................... --~~------------------------------------------------------------------------------------------~~ ~~Gross~~(15) ~~margin~~Stock 21based compensation(d)............................... (3,~~915~~767) ~~897~~(1,015) ~~692~~Deferred ~~Selling~~foreign exchange(e).............................. (2,645) ~~general~~670 ~~and~~Recovery ~~administrative~~of ~~expenses~~future ~~100,959~~income ~~10,219~~taxes(g)........................ 31,~~038~~449 -- ------- -------~~------------------------------------------------------------------------------~~ ~~Loss~~Net ~~before~~loss ~~income~~in ~~taxes~~accordance ~~and~~with ~~amortization~~U.S. GAAP....................... (7984,~~044~~644) (912,~~322~~424) Unrealized loss on securities(~~2,346~~f).......................... ~~Amortization 43~~(10,~~055~~993) ~~853~~-- ~~255~~Unrealized ~~Interest~~gain ~~and~~on ~~finance~~derivative ~~items 54~~instruments,~~354~~ ~~(373)~~net ~~(162)~~of ~~Income~~future income tax ~~provision~~of $1,449(~~recovery~~g)................................ ~~(38~~3,~~467)~~380 ~~165~~ -- ------- -------~~--------------------------------------------------------------------------------~~ ~~Loss~~Comprehensive ~~for~~loss ~~the~~in ~~year~~accordance ~~$(137,986)~~with $U.S. GAAP............. (992,~~967~~257) $ (212,~~439~~424) ======= =======~~================================================================================~~ ~~Loss~~Net loss per share $in (1accordance with U.~~83)~~S. $GAAP............. (0.5674) $ (0.2655) ======= =======~~================================================================================~~

THE RECONCILIATION OF SHAREHOLDERS' EQUITY FROM CANADIAN TO U.S. GAAP IS AS FOLLOWS:

AS AT ~~SEPTEMBER~~AS 30AT ~~-----------------------------------------------------------------------------------------------------------------~~DECEMBER ~~(thousands~~31, ofSEPTEMBER ~~Canadian~~30, ~~dollars)~~2000 2000 ~~1999~~ ------------ -------------~~----------------------------------------------------------------------------------------~~ ~~ASSETS~~$ ~~CURRENT~~$ ~~ASSETS~~(AUDITED) ~~Cash~~Shareholders' ~~and~~equity ~~cash~~in ~~equivalents~~accordance $with ~~444,050~~Canadian $GAAP..... 59783,~~851~~660 ~~Accounts receivable (note 4) 49~~862,~~952~~798 ~~3,783~~Purchase ~~Prepaid~~price ~~expenses 5~~adjustment,~~939~~ ~~526~~net ~~Inventory~~of ~~436~~amortization ~~545~~of ~~----------------------------------------------------------------------------------------------------------------- 500~~$1,~~377~~013 ~~64,705~~(September ~~PROPERTY~~30, ~~PLANT~~2000 ~~AND~~-- ~~EQUIPMENT~~$617) (~~note 5~~c)........................ ~~954~~16,~~917~~639 7317,~~817~~035 ~~PREPAYMENTS~~Deferred ONcharges.......................................... ~~PROPERTY, PLANT AND EQUIPMENT~~ (~~notes 3(a~~417) ~~and 3~~(b417)) ~~203,703~~Cumulative stock--based ~~LONG-TERM~~compensation ~~INVESTMENT~~expense (~~note 6~~d)........... 43(15,~~238~~271) ~~-- GOODWILL AND OTHER ASSETS~~ (~~note 7~~11,651) ~~227,033~~Deferred ~~1,292~~stock ~~-----------------------------------------------------------------------------------------------------------------~~based $compensation ~~1,929,268~~expense ~~$ 139,814 ============================ LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities~~ (~~note 8~~d)............. ~~$ 111~~(30,~~395~~374) ~~$ 14,926 Unearned revenue~~ (~~note 9~~34,266) ~~544~~Net ~~656~~change ~~Current~~in ~~portion~~stock ofoptions ~~long-term debt~~ (~~note 10~~d)........................... 445,~~348~~645 145,~~253~~917 ~~-----------------------------------------------------------------------------------------------------------------~~Deferred ~~116,287~~foreign ~~16,835~~exchange ~~LONG-TERM UNEARNED REVENUE~~ (~~note 9~~e)............................. ~~1,255 1,494 LONG-TERM DEBT~~ (~~note 10~~4,311) ~~948,928 47,557 -----------------------------------------------------------------------------------------------------------------~~ (1,~~066,470 65,886 ----------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY SHARE CAPITAL (note 11~~666) ~~Authorized~~Recovery ~~Common shares Unlimited number~~ of ~~Class~~future Aincome ~~voting~~taxes and convertible Class B non-voting common shares without par value Preferred 50,000,000 Series A convertible first preference shares without par value 100,000,000 Series B convertible first preference shares without par value Issued and outstanding Common shares 79,542,239 Class A voting shares (~~1999 - 18,261,149~~f)(g).................... ~~463,333~~ 12,~~573~~504 4111,~~105,767~~055 ~~Class~~Other Bcomprehensive ~~non-voting~~income ~~shares~~ (~~1999 - 4,148,569~~f) ~~495,370 5,026 Preferred shares Nil Series A first preference shares~~ (~~1999~~g)......................... ~~- 41~~16,~~500,002)~~313 ~~-- 67~~23,~~281~~926 -------- --------~~-------------------------------------------------------------------------------------------------~~ ~~958,703~~Shareholders' ~~84,880~~equity ~~ADDITIONAL~~in ~~PAID-IN~~accordance ~~CAPITAL~~with ~~255~~U.S. ~~255~~GAAP......... ~~WARRANTS (note 11(f)) 58~~$824,~~776~~388 ~~-- LOANS TO OFFICERS (note 11(g)) (3~~$912,~~868)~~731 -- ~~SHARES TO BE ISSUED (note 11(h))~~ -- ~~1,875 DEFICIT (151,068) (13,082)~~ ----~~-------------------------------------------------------------------------------------------------------------~~ ~~862,798 73,928~~ ----------------------------------------------------------------------------------------------------------------- $ 1,929,268 $ 139,814 ============================ COMMITMENTS AND CONTINGENCIES (note 14) SUBSEQUENT EVENT (note 17)

F-5 8 GT GROUP TELECOM INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) (expressed in Canadian dollars) B) CONDENSED CONSOLIDATED BALANCE SHEETS The following table indicates the restated amounts for the items in the consolidated balance sheets of the Company that would be affected had the financial statements been prepared in accordance with U.S. GAAP:

~~YEAR~~AS ~~ENDED~~AT ~~SEPTEMBER~~AS 30AT ~~-----------------------------------------------------------------------------------------------~~DECEMBER ~~(thousands~~31, ofSEPTEMBER ~~Canadian~~30, ~~dollars)~~2000 2000 ~~1999 1998~~ ------------ -------------~~----------------------------------------------------------------------~~ ~~REVENUE~~ $ ~~73,251~~ $ ~~2,705~~(AUDITED) ~~$ 1~~Property,~~823~~ ~~COST~~plant OFand ~~SERVICES~~equipment ~~51,336~~(c)......................... 1,~~808 1~~161,~~131~~043 ~~----------------------------------------------------------------------------------------------- 21~~957,~~915~~957 ~~897 692 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 100,959 10,219 3,038~~ Long-~~----------------------------------------------------------------------------------------------~~term ~~(79,044)~~investment (~~9,322~~f).................................. (266,~~346)~~537 ~~AMORTIZATION 43~~77,~~055~~530 ~~853~~Goodwill ~~255~~and ~~INTEREST~~other ~~AND~~assets ~~FINANCE ITEMS Interest income~~ (~~22,208~~c) (~~920~~g).......................... ~~(58)~~254,008 ~~Interest~~239,327 ~~on long~~Long-term debt ~~81,207 262 147 Finance charges 4,631 192 -- Foreign exchange loss~~ (~~gain~~g)........................................ (91,~~276) 93 (251) ----------------------------------------------------------------------------------------------- 54~~113,~~354~~028 ~~(373) (162)~~ --~~---------------------------------------------------------------------------------------------~~ ~~LOSS~~Share ~~BEFORE~~capital ~~INCOME TAXES~~ (~~176,453~~c)......................................... (91,~~802) (2~~032,~~439)~~373 ~~PROVISION FOR (RECOVERY OF) INCOME TAXES (note 12) Current 3~~1,~~833 165 -- Future (42~~032,~~300)~~079 --Additional paid--in ~~-----------------------------------------------------------------------------------------------~~capital................................ ~~(38,467)~~337 ~~165~~337 --Deferred stock-~~----------------------------------------------------------------------------------------------~~based ~~LOSS~~compensation ~~FOR~~expense ~~THE YEAR~~ (~~137,986~~c)............. (930,~~967~~374) (234,~~439~~266) ~~DEFICIT~~Stock -options ~~BEGINNING~~outstanding ~~OF YEAR~~ (~~13,082~~c)............................. (345,~~115)~~645 ~~(676) ----------------------------------------------------------------------------------------------- DEFICIT - END OF YEAR $(151~~45,~~068)~~917 $Deficit................................................... (13239,~~082~~907) $ (3155,~~115~~263) ~~========================================~~Cumulative ~~LOSS~~other ~~PER~~comprehensive ~~SHARE~~income $ (~~1.83~~f) $ (~~0.56~~g) ~~$ (0~~.~~26)~~............. ~~======================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (in thousands) 75~~16,~~442~~313 1723,~~859 9,542 ========================================~~926

C) PURCHASE PRICE ADJUSTMENT For U.S. GAAP, the Company has recorded the purchase price of the assets acquired from Moffat Communications, based on the fair value of consideration at the date the Company entered into the asset purchase agreement in March 2000. For Canadian GAAP, the purchase price of the assets acquired is based on the fair value on the date the transaction closed in April 2000. Accordingly, property, plant and equipment, goodwill and other assets, and share capital increased by $3 million, $15 million and $18 million, respectively. D) STOCK-BASED COMPENSATION For U.S. GAAP, the Company has chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees". This method recognizes compensation cost as the amount by which the fair value of the stock exceeds the exercise price at the date of grant. The compensation cost is recognized over the vesting period. For U.S. GAAP, the compensation cost not yet recognized is presented as a deferred stock-based compensation charge, with a corresponding amount included in stock options outstanding, both of which form part of shareholders' equity. For Canadian GAAP, stock-based compensation expense is not recorded in the accounts of the Company. F-6 9 GT GROUP TELECOM INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) (expressed in Canadian dollars) Had the Company determined compensation costs based on fair value at the date of grant for its awards under a method prescribed by Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" the Company's loss and loss per share would be as follows:

~~YEAR~~THREE MONTHS ENDED ~~SEPTEMBER~~DECEMBER 3031, ------------------~~-----------------------------------------------------------------------------------------~~ ~~(thousands~~2000 ~~of Canadian dollars)~~ 2000 ~~1999 1998~~ ------- -------~~---------------------------------------------------------------------------------------------~~ ~~CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Loss for the year~~ $ ~~(137,986)~~ $ ~~(9,967)~~Loss ~~$ (2,439) Items not affecting cash Amortization 43,055 853 255 Non-cash interest expense 79,832 -- -- Additional paid-~~in ~~capital~~accordance --with --U.S. 84GAAP........................... ~~Shares issued for interest on long-term debt -- 171 62 Recovery of future income taxes~~ (4284,~~300~~644) ~~-- -- -----------------------------------------------------------------------------------------------------------~~ (5712,~~399~~424) ~~(8,943)~~Additional ~~(2,038)~~compensation ~~-----------------------------------------------------------------------------------------------------------~~expense............................. ~~Changes in non-cash working capital items Increase in accounts receivable~~ (~~44,112) (2,417) (723) Increase in prepaid expenses (5,179) (500) (~~1~~) Decrease (increase) in inventory 343 (545) -- Increase in accounts payable and accrued liabilities 57~~,~~771 1,295 1,363 Increase (decrease~~011) ~~in unearned revenue~~ (~~605~~105) ~~2,077 39~~ -------~~----------------------------------------------------------------------------------------------------~~ ~~8,218 (90) 678~~ -------~~----------------------------------------------------------------------------------------------------~~ ~~Cash~~Pro ~~flows~~forma ~~used~~net inloss.......................................... ~~operating activities~~ (4985,~~181~~655) (912,~~033~~529) (1,360) ----------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from long-term debt 690,711 4,421 1,762 Issuance of shares 396,120 71,526 5,924 Proceeds from issuance of warrants 58,776 -- -- ----------------------------------------------------------------------------------------------------------- 1,145,607 75,947 7,686 ----------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Business acquisitions (446,720) -- -- Purchase of property, plant and equipment (153,569) (8,454) (3,738) Increase in other assets (64,832) (1,085) (173) Purchase of long-term investment (43,238) -- -- Issuance of loans to officers (3,868) -- -- ----------------------------------------------------------------------------------------------------------- (712,227) (9,539) (3,911) ----------------------------------------------------------------------------------------------------------- INCREASE IN CASH AND CASH EQUIVALENTS 384,199 57,375 2,415 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 59,851 2,476 61 ----------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 444,050 $ 59,851 $ 2,476 ======= ======= Pro forma loss per share.................................... (0.69) (0.56) ======= =======~~=================~~

The pro-forma compensation expense reflected above has been estimated using the Black-Scholes option-pricing model. Assumptions used in the pricing model included: (i) risk free interest rate of between 4.10% - 6.45%; (ii) expected volatility of ranging between nil - 65%; (iii) expected dividend yield of nil; and (iv) an estimated average life of ranging from 2.67 - 3 years. E) DEFERRED FOREIGN EXCHANGE U.S. GAAP requires immediate recognition in income of unrealized foreign currency exchange gains and losses on long-term monetary items with a fixed or ascertainable life whereas Canadian GAAP requires that these unrealized gains and losses be deferred and amortized over the remaining term of the long-term monetary items. F) UNREALIZED LOSS ON SECURITIES Under U.S. GAAP, portfolio investments which are considered to be "available for sale" securities are measured at market value, with the unrealized gains and losses included in comprehensive income/loss. Under Canadian GAAP, the Company's long-term investment is recorded at cost. The concept of comprehensive income/loss does not exist under Canadian GAAP. G) UNREALIZED GAIN ON DERIVATIVE INSTRUMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes methods of accounting for derivative instruments, including certain derivatives embedded in other contracts, and for hedging activities. The statement requires that entities recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company adopted SFAS No. 133 effective October 1, 2000 and designated certain derivative instruments as cash flow hedges. For the three months ended December 31, 2000, the Company recorded the foreign exchange loss on the hedged portion of the long-term debt in other comprehensive income, offset by a gain in the fair value of the hedging instruments. These transactions were recorded net of tax. Under U.S. GAAP, this resulted in an additional recovery of future income taxes. F-7 10 GT GROUP TELECOM INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) (expressed in Canadian dollars) As the Financial Accounting Standards Board continues to issue additional guidance and interpretations on SFAS No. 133, the Company will review its accounting practices for derivative instruments, and make adjustments, if necessary. F-8 11 GT GROUP TELECOM INC. SUPPLEMENTAL INFORMATION TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (UNAUDITED) (thousands of Canadian dollars)

~~--------------------------------------------------------------------------------------------------------------------------~~DECEMBER ~~SHAW~~31, ~~VIDEON~~SEPTEMBER ~~CABLE~~30, ~~FIBERLINK~~JUNE ~~FIBERLINK~~30, ~~ATLANTIC~~MARCH ~~(a)~~31, ~~(b)~~2000 ~~(c)~~2000 ~~OTHER~~2000 ~~TOTAL~~2000 ------------ ------------- --------- ---------~~-------------------------------------------------------------------------------~~ ~~ASSETS Indefeasible right to use agreements Property, plant and equipment for constructed fibres~~ $ ~~329,000~~ $ ~~88,359~~ $ ~~29,689~~ $-- $ASSETS ~~447,048~~CURRENT ~~Prepayment~~ASSETS ~~for~~Cash ~~fibres~~and tocash beequivalents.................. ~~constructed 223~~365,~~000~~960 7444,~~600~~050 ~~-- -- 230~~526,~~600~~231 ~~Property~~732,053 ~~plant~~Trade ~~and~~accounts ~~equipment~~receivable.................. ~~100~~38,~~000~~765 730,~~397~~253 1732,~~560~~799 ~~435 125~~12,~~392~~801 ~~License~~Sales ~~rights~~tax ~~13,800~~and --other --receivables............ ~~-- 13~~20,~~800~~876 ~~Non-compete agreements 15~~19,~~000~~699 ~~-- 1~~7,~~200~~786 ~~-- 16~~2,~~200~~456 ~~Goodwill~~Prepaid ~~including~~expenses........................... ~~acquisition costs 119~~3,~~513~~870 ~~-- 25~~5,~~025~~939 38,~~261~~958 ~~147~~5,~~799~~227 ~~Other~~Inventory.................................. ~~current~~605 ~~assets~~436 ~~204~~201 ~~784~~201 ~~1,107 24 2,119~~ --------- --------- --------- ---------~~--------------------------------------------------------------------------------------~~ ~~800~~430,~~517~~076 ~~104~~500,~~140~~377 74575,~~581~~975 3752,~~720~~738 ~~982~~PREPAYMENT ON PROPERTY,~~958~~ ~~==========================================================================================================================~~PLANT ~~LIABILITIES~~AND ~~Current~~EQUIPMENT................................ ~~liabilities~~132,852 ~~246~~203,703 --230,600 ~~881~~223,000 --PROPERTY, PLANT AND EQUIPMENT.............. 1,~~127~~157,739 ~~Future~~954,917 ~~income~~778,926 ~~taxes 28~~567,~~200~~568 LONG--TERM 14INVESTMENT....................... 43,~~100~~238 43,238 43,238 -- 42GOODWILL AND OTHER ASSETS.................. 229,~~300~~112 227,033 199,710 192,366 --------- --------- --------- ---------~~--------------------------------------------------------------------------------------~~ 281,~~446~~993,017 --1,929,268 141,~~981~~828,449 ~~-- 43~~1,~~427~~735,672 ========= ========= ========= =========~~======================================================================================~~ ~~PURCHASE~~LIABILITIES ~~CONSIDERATION~~CURRENT ~~Cash~~LIABILITIES ~~paid~~Accounts ~~360,000~~payable ~~68,784~~and ~~15,226~~accrued ~~2,710~~liabilities... ~~446~~105,~~720~~170 ~~Class A voting shares -- -- -- 1~~111,~~010~~395 188,~~010~~485 ~~Class B non-voting shares -- 32,356~~ 42,~~374~~583 --Unearned ~~74,730~~revenue........................... ~~Series~~811 B544 ~~first~~1,325 ~~preference~~925 ~~shares~~Current ~~400,071~~portion --of long--term --debt.......... ~~400~~6,~~071~~292 ~~Acquisition costs 12~~4,~~000~~348 31,~~000~~204 26,~~000~~203 -- ~~17,000~~ ------- --------- --------- ---------~~----------------------------------------------------------------------------------------~~ $112,273 ~~772~~116,~~071~~287 $91,014 ~~104~~49,~~140~~711 $LONG-TERM ~~59,600~~UNEARNED $REVENUE................. 31,~~720~~118 $1,255 ~~939~~1,~~531~~080 ~~==========================================================================================================================~~1,219 ~~NUMBER~~LONG-TERM OFDEBT............................. ~~SHARES~~1,095,966 ~~ISSUED~~948,928 ~~Class~~853,123 A781,447 ~~voting~~FUTURE ~~shares~~INCOME TAXES........................ -- -- -- ~~336~~28,~~666~~200 ~~336,666~~ --------- --------- --------- --------- 1,209,357 1,066,470 945,217 860,577 --------- --------- --------- ---------~~--------------------------------------------------~~ ~~Class~~SHAREHOLDERS' BEQUITY ~~non-voting~~SHARE ~~shares~~CAPITAL --AND OTHER EQUITY ITEMS....... 1,~~667~~014,~~000~~013 1,~~740~~013,~~196~~866 --971,468 3937,~~407~~550 DEFICIT.................................... (230,~~196~~353) (151,068) (88,236) (62,455) --------- --------- --------- --------- 783,660 862,798 883,232 875,095 --------- --------- --------- ---------~~--------------------------------------------------~~ ~~Series~~1,993,017 B1,929,268 ~~first~~1,828,449 ~~preference shares 29~~1,~~096~~735,~~097~~672 --========= --========= --========= ~~29,096,097 --------------------------------------------------------------------------------------------------------------------------~~=========

F-9 12 GT GROUP TELECOM INC. SUPPLEMENTAL INFORMATION TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT (UNAUDITED) (thousands of Canadian dollars)

~~YEAR~~FOR ~~ENDED~~THE ~~SEPTEMBER~~THREE 30MONTHS ENDED, ------------------------------------------------------ DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 2000 2000 2000 2000 ------------ ------------- -------- ---------~~-----------~~ ~~2000~~$ ~~1999~~$ $ $ REVENUE...................................... 39,924 32,167 25,558 13,259 COST OF SERVICES............................. 25,426 21,230 17,415 10,553 -------- -------- ------- ------- 14,498 10,937 8,143 2,706 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................................... 41,780 38,901 30,984 20,286 -------- -------- ------- ------- (27,282) (27,964) (22,841) (17,580) AMORTIZATION................................. 23,385 20,241 15,447 6,169 INTEREST AND FINANCING CHARGES............... 27,543 26,488 14,488 13,237 -------- -------- ------- -------~~-----------------~~ ~~(unaudited)~~LOSS ~~Revenue~~BEFORE $INCOME ~~91,296~~TAXES..................... ~~$ 43,176 Income~~ (~~loss~~78,210) ~~before amortization, interest and finance items and income tax~~ (74,~~304~~693) ~~2,863 Net loss~~ (~~160~~52,~~930~~776) (5336,~~195~~986) ~~Loss~~PROVISION ~~per~~FOR ~~share $~~ (~~1.82~~RECOVERY OF) $INCOME (2TAXES.~~98)~~.... ~~Weighted~~1,075 ~~average number of common shares outstanding~~ (~~in thousands~~11,861) 88(26,~~639~~995) ~~17,859~~323 -------- -------- ------- ------- LOSS FOR THE PERIOD.......................... (79,285) (62,832) (25,781) (37,309) DEFICIT -- BEGINNING OF PERIOD............... (151,068) (88,236) (62,455) (25,146) -------- -------- ------- ------- DEFICIT --~~-------------------------------------------~~ END OF PERIOD..................... (230,353) (151,068) (88,236) (62,455) ======== ======== ======= ======= LOSS PER SHARE............................... (0.63) (0.52) (0.22) (0.90) ======== ======== ======= ======= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (in thousands)................. 124,882 120,256 118,376 41,506 ======== ======== ======= =======

F-10 13 MANAGEMENT'S DISCUSSION AND ANALYSIS QUARTER ENDED DECEMBER 31, 2000 (Figures expressed in CDN dollars) OVERVIEW We continue to experience a significant amount of growth this period compared to the prior year period, therefore, the analysis of our results of operations on a year to year basis is not useful. Accordingly, we have tailored our discussion to a quarter by quarter comparison in order to provide valuable information. During the quarter ended December 31, 2000, we experienced strong organic growth in our business through the continued development of our own network. As at December 31, 2000, we have available approximately $850 million in funding to execute our business plan to 2004, consisting of $366 million cash on hand, $364 million in available vendor financing and $120 million in available senior bank financing. We will continue to expand our presence as Canada's largest independent facilities-based provider of competitive data, Internet and voice telecommunications by executing our fully funded business plan. GROUP TELECOM -- OUR RESULTS OF OPERATIONS Revenue Total revenues increased by 24.1%, from $32.2 million to $39.9 million, from September to December 2000 quarters, respectively. The increase was driven by strong growth of 21.2% in our data and private line, and 37.3% in our voice services across all product categories. Data ports and private lines provisioned grew from 5,206 at September to 6,791 at December 2000 and from 38,879 to 51,037, respectively. Voice access lines provisioned grew from 36,516 at September to 48,435 at December 2000. Cost of Services Total cost of services increased by 19.8%, from $21.2 million to $25.4 million from September to December 2000 quarters, respectively. The increase was related to large growth in revenues for the same period. Gross margin totaled $14.5 million or 36.3% of revenues compared with $10.9 million or 34.0% of revenues in the previous quarter. For the second quarter in a row, our gross margin has increased due to a shift in our product mix to more on-net traffic. Selling, general and administrative expenses Total selling, general and administrative expenses amounted to $41.8 million for the current quarter compared to $38.9 million for the previous quarter, representing an increase of 7.4%. Selling, general and administrative expenses as a percentage of revenues decreased from 120.9% to 104.6% from September to December 2000 quarters, respectively. As we continue to grow our business, we expect to continue to leverage off and realize the benefits from our established infrastructure. EBITDA Earnings before interest, taxes, depreciation and amortization (EBITDA) related to data, application and voice services for the quarter ended December 31, 2000 was negative $27.3 million compared to negative $28.0 million for the previous quarter. Based on our current funded business plan, we are projecting to reach a positive EBITDA in the second half of 2002. Amortization Amortization expenses increased by $3.1 million during the current quarter to $23.4 million compared to $20.4 million for the previous quarter, representing an increase of 16%. Significant additions to property, plant and equipment in connection with the deployment of our network resulted in this increase. 14 Interest and financing charges Interest and financing charges were $27.6 million for the current quarter compared to $26.5 million in the previous quarter. This increase is due to a decrease in the net foreign exchange gain recorded in the quarter compared to the prior quarter. In December 2000, we entered into additional cross currency swaps to convert an additional 31% of the future U.S. dollar payments on the senior discount notes to Canadian dollars. We have now fully hedged our exposure to fluctuations in the U.S. dollar in respect of our senior discount notes, which are included within long-term debt. Provision for income taxes We have not generated any taxable income to date and therefore have not accrued any income tax expense. We have recorded a provision for large corporations' tax in the amount of $1 million for the quarter. Net loss As a result of the above, the net loss for the quarter ended December 31, 2000 was $79.3 or $0.63 per share compared to $62.8 million or $0.52 per share for the quarter ended September 30, 2000. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased during the quarter ended December 31, 2000 based on our operating requirements of $39.1 million and capital expenditures made to further expand our network amounted to $34.0 million. Through our organic build and indefeasible right to use arrangement as described below, we expanded the reach of our network by adding 38,182 fibre kilometres to our fibre-optic network of 228,765 fibre kilometres. Our network development in on plan and expected to grow to over 500,000 fibre kilometres by September 30, 2001. Increases in trade accounts receivable were due to growth in revenues. Accordingly, our trade receivables increased to $38.8 million compared to $30.3 million in September 2000. Other items such as prepaid expenses, accounts payable and accrued liabilities increased from September 30 to December 31, 2000. These increases are directly related to our growth during the quarter. During the quarter ended December 31, 2000, we received additional rights to use newly constructed fibres with a carrying value of $70.9 million under existing and prepaid indefeasible right to use arrangements. In addition, we accepted approximately 76% of the fibre-optic capacity under the long-term capacity lease agreement entered into with 360networks inc. in May 2000 and recorded $61.1 million increase in property, plant and equipment and long-term debt. FORWARD-LOOKING STATEMENTS Certain sections of this discussion contain forward-looking statements with respect to Group Telecom. These forward looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results, performance or achievements of Group Telecom to differ materially from those expressed or implied by the forward looking statements. 15 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. GT GROUP TELECOM INC. (Registrant) Date: February 6, 2001 By /s/ STEPHEN H. SHOEMAKER ---------------------------------------------- Stephen H. Shoemaker Executive Vice-President and Chief Financial Officer

2000 1999 ------------------------------------------------------------ Trade receivables $ 34,759 $ 1,191 Sales tax receivables 12,568 2,140 Employee receivables 3,105 487 Other 4,026 -- Allowance for doubtful accounts (4,506) (35) ------------------------------------------------------------ $ 49,952 $ 3,783 ============================================================

2000 ------------------------------------------------------------------------- ACCUMULATED COST AMORTIZATION NET ------------------------------------------------------------------------- Land $ 550 $ -- $ 550 Buildings 3,950 139 3,811 Furniture and fixtures 4,694 664 4,030 Computer equipment and software 40,786 3,094 37,692 Telecommunication networks 927,734 27,059 900,675 Leasehold improvements 8,702 543 8,159 ------------------------------------------------------------------------- $986,416 $ 31,499 $954,917 =========================================================================

1999 ---------------------------------------------------------------------- ACCUMULATED COST AMORTIZATION NET ---------------------------------------------------------------------- Land $ 490 $ -- $ 490 Buildings 887 87 800 Furniture and fixtures 877 56 821 Computer equipment and software 4,551 361 4,190 Telecommunication networks 67,638 476 67,162 Leasehold improvements 452 98 354 ---------------------------------------------------------------------- $74,895 $ 1,078 $73,817 ======================================================================

-------------------------------------------------------------------------------------------- 2000 1999 -------------------------------------------------------------------------------------------- Goodwill net of accumulated amortization of $4,319 (1999 - $nil) $131,464 $ -- Non-compete agreements and license rights net of accumulated amortization of $4,098 (1999 - $nil) 26,172 -- Deferred charges net of accumulated amortization of $527 (1999 - $32) 19,122 605 Deferred financing charges net of accumulated amortization of $2,684 (1999 - $38) 48,609 457 Deferred foreign exchange loss net of accumulated amortization of $179 (1999 - $1) 1,666 12 Deposits -- 218 -------------------------------------------------------------------------------------------- $227,033 $ 1,292 ============================================================================================

--------------------------------------------------------------------------------------- 2000 1999 --------------------------------------------------------------------------------------- Trade accounts payable $ 53,404 $ 2,017 Accounts payable and accruals for purchases of property, plant and equipment 32,498 9,355 Accrued vacation and bonuses 10,795 1,139 Capital tax, large corporations tax and sales taxes payable 6,786 622 Other accrued liabilities 7,912 1,383 Accrual for inventory purchases -- 410 --------------------------------------------------------------------------------------- $111,395 $ 14,926 =======================================================================================

------------------------------------------------------ 2000 1999 ------------------------------------------------------ Senior discount notes (a) $662,661 $ -- Vendor financing (b) 153,565 40,398 Vendor financing (c) 31,859 6,481 Senior bank facility (d) 100,144 -- Capital leases payable (f) 4,292 1,155 Notes payable (e) 755 776 953,276 48,810 Less: Current portion 4,348 1,253 ------------------------------------------------------ $948,928 $ 47,557 ======================================================

------------------------------------------------------------------------------------------- CAPITAL SENIOR SENIOR LEASES DISCOUNT VENDOR BANK AND NOTES NOTES FINANCING FACILITY PAYABLE ------------------------------------------------------------------------------------------- Year ending September 30, 2001 $ -- $ 1,615 $ -- $ 2,463 2002 -- 1,479 -- 1,676 2003 -- 8,783 4,907 1,155 2004 -- 10,703 10,014 339 2005 -- 13,727 10,014 -- Thereafter 662,661 149,117 75,209 -- 662,661 185,424 100,144 5,633 Less: Amounts representing interest -- -- -- (586) ------------------------------------------------------------------------------------------- $662,661 $185,424 $100,144 $ 5,047 ===========================================================================================

----------------------------------------------------------------------------------------------------------------------------------- NUMBER OF NUMBER OF NUMBER OF NUMBER OF SERIES A SERIES B CLASS A CLASS B FIRST FIRST VOTING NON-VOTING PREFERENCE PREFERENCE SHARES SHARES SHARES SHARES AMOUNT ----------------------------------------------------------------------------------------------------------------------------------- Balance as at September 30, 1997 7,095,132 -- -- -- $ 836 Class A voting shares issued for Cash 4,880,629 -- -- -- 6,083 Upon exercise of options(e) 822,167 -- -- -- 332 Upon exercise of warrants(e) 7,900 -- -- -- 4 Upon conversion of debentures(d) 2,482,592 -- -- -- 1,886 Share issuance costs -- -- -- -- (495) ----------------------------------------------------------------------------------------------------------------------------------- Balance as at September 30, 1998 15,288,420 -- -- -- 8,646 Class A voting shares issued for Cash 2,004,322 -- -- -- 3,480 Upon exercise of options(e) 630,000 -- -- -- 70 Upon conversion of debentures(d) 338,407 -- -- -- 423 Share issuance costs -- -- -- -- (46) Class B non-voting shares issued for Cash -- 721,101 -- -- 901 Upon conversion of debentures(d) 3,427,468 -- -- 4,284 Share issuance costs -- -- -- -- (159) Series A first preference shares issued for Cash -- -- 27,666,667 -- 41,500 Upon exercise of options(e) -- -- 13,833,335 -- 25,938 Share issuance costs -- -- -- -- (157) ----------------------------------------------------------------------------------------------------------------------------------- Balance as at September 30, 1999 18,261,149 4,148,569 41,500,002 -- 84,880 Class A voting shares issued for Cash 35,000 -- -- -- 280 Purchase of businesses (note 3) 336,666 -- -- -- 1,010 Upon exercise of options(e) 313,327 -- -- -- 336 Class B non-voting shares issued for Cash(b) -- 20,700,000 -- -- 422,280 Upon exercise of options(e) -- 1,850,000 -- -- 3,875 Purchase of businesses (note 3) -- 3,407,196 -- 29,096,097 474,801 Share issuance costs -- -- -- -- (30,634) Series A first preference shares issued for acquisition of rights of way(h) -- -- 1,000,000 -- 1,875 Conversions(c) 60,596,097 11,000,002 (42,500,002) (29,096,097) -- ----------------------------------------------------------------------------------------------------------------------------------- Balance as at September 30, 2000 79,542,239 41,105,767 -- -- $ 958,703 ===================================================================================================================================

2000 1999 ------------------------------------------------------------------------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE NUMBER OF EXERCISE NUMBER OF EXERCISE SHARES PRICE SHARES PRICE ------------------------------------------------------------------------------------------------- Outstanding -- Beginning of year 4,461,842 $1.64 1,854,978 $0.69 Class A voting shares Granted 4,076,700 9.09 1,658,228 1.34 Exercised (313,327) 1.07 (630,000) 0.11 Class B non-voting shares Granted 1,320,600 5.20 2,300,000 2.04 Exercised (1,850,000) 2.10 -- -- Expired -- -- (682,003) 0.50 Cancelled (330,580) 7.76 (39,361) 1.25 ------------------------------------------------------------------------------------------------- Outstanding -- End of year 7,365,235 $6.36 4,461,842 $1.64 ================================================================================================= Exercisable -- End of year Class A voting shares 2,289,626 $3.47 1,726,564 $1.19 Class B non-voting shares 715,525 2.83 1,883,333 2.16 ------------------------------------------------------------------------------------------------- Total 3,005,151 $3.32 3,609,897 $1.69 =================================================================================================

OUTSTANDING STOCK OPTIONS EXERCISABLE STOCK OPTIONS --------------------------------------------------------------------------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE EXERCISE CONTRACTUAL EXERCISE EXERCISE PRICE NUMBER LIFE PRICE NUMBER PRICE --------------------------------------------------------------------------------------------- $ 0.50 -- 1.875 2,437,513 3.01 years $ 1.42 1,908,634 $ 1.40 3.00 2,025,932 3.97 years 3.00 599,463 3.00 8.00 1,890,289 4.38 years 8.00 380,097 8.00 20.40 -- 20.86 666,801 4.63 years 20.52 94,241 20.48 24.08 300,700 4.79 years 24.08 20,882 24.08 26.21 44,000 4.88 years 26.21 1,834 26.21 --------------------------------------------------------------------------------------------- 7,365,235 3.86 years $ 6.36 3,005,151 $ 3.32 =============================================================================================

OUTSTANDING STOCK OPTIONS EXERCISABLE STOCK OPTIONS ------------------------------------------------------------------------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE EXERCISE CONTRACTUAL EXERCISE EXERCISE PRICE NUMBER LIFE PRICE NUMBER PRICE ------------------------------------------------------------------------------------------- $ 0.50 277,224 1.29 years $ 0.50 277,224 $ 0.50 1.00 37,500 1.08 years 1.00 37,500 1.00 1.25 1,239,118 3.76 years 1.25 972,062 1.25 1.50 1,108,000 4.60 years 1.50 523,111 1.50 1.875 1,300,000 4.59 years 1.875 1,300,000 1.875 3.00 500,000 4.92 years 3.00 500,000 3.00 ------------------------------------------------------------------------------------------- 4,461,842 4.17 years $ 1.64 3,609,897 $ 1.69 ==========================================================================================

2000 1999 ---------------------------------------------------------------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE NUMBER OF EXERCISE NUMBER OF EXERCISE SHARES PRICE SHARES PRICE ---------------------------------------------------------------------------------------- Outstanding -- Beginning of year 100,000 $ 0.50 415,000 $ 0.50 Class A voting shares Expired -- -- (313,311) 0.50 Cancelled -- -- (1,689) 0.50 Class B non-voting shares Issued 855,000 -- -- -- ---------------------------------------------------------------------------------------- Outstanding -- End of year 955,000 $ 0.50 100,000 $ 0.50 ========================================================================================

----------------------------------------------------------------- 2000 1999 ----------------------------------------------------------------- Future income tax assets Accounts receivable $ 1,876 $ -- Property, plant and equipment -- 27 Deferred charges -- 63 Long-term debt 6,149 -- Debt and share issue costs 8,381 257 Operating loss carry forwards 57,403 5,709 ----------------------------------------------------------------- 73,809 6,056 Valuation allowance (44,219) (6,056) ----------------------------------------------------------------- 29,590 -- Future income tax liabilities Property, plant and equipment (27,465) -- Deferred charges and other assets (2,125) -- ----------------------------------------------------------------- (29,590) -- ----------------------------------------------------------------- $ -- $ -- =================================================================

-------------------------------------------------------------------------------------------------------- 2000 1999 1998 -------------------------------------------------------------------------------------------------------- Statutory Canadian federal and provincial income tax rates 45.6% 45.6% 45.6% -------------------------------------------------------------------------------------------------------- Income tax recovery based on the statutory rates $(80,463) $ (4,470) $ (1,112) Differences from statutory rates relating to Change in valuation allowance 38,163 4,470 1,112 Large corporations tax 3,833 165 -- -------------------------------------------------------------------------------------------------------- $(38,467) $ 165 $ -- ========================================================================================================

---------------------------------------------------------------------------------------------------------------------- FIXED RATE FIXED FIXED NON- FLOATING WITHIN RATE RATE INTEREST RATE ONE YEAR 1 - 5 YEARS 6 - 10 YEARS BEARING ---------------------------------------------------------------------------------------------------------------------- September 30, 2000 Financial assets Cash and cash equivalents Canadian dollars $123,203 $ -- $ -- $ -- $ -- U.S. dollars (U.S.$213,329) 320,847 -- -- -- -- Accounts receivable -- -- -- -- 49,952 Loans to officers -- -- 3,868 -- -- Financial liabilities Accounts payable and accrued liabilities Canadian dollars -- -- -- -- 90,218 U.S. dollars (U.S.$14,431) -- -- -- -- 21,177 Long-term debt Canadian dollars 115,367 755 4,292 -- -- U.S. dollars (U.S.$565,871) 170,201 -- -- 662,661 -- ----------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------- FIXED RATE FIXED FIXED NON- FLOATING WITHIN RATE RATE INTEREST RATE ONE YEAR 1-5 YEARS 6-10 YEARS BEARING -------------------------------------------------------------------------------------------------------------- September 30, 1999 Financial assets Cash and cash equivalents Canadian dollars $39,794 $ -- $ -- $-- $ -- U.S. dollars (U.S.$13,657) 20,057 -- -- -- -- Accounts receivable -- -- -- -- 3,783 Financial liabilities Accounts payable and accrued liabilities Canadian dollars -- -- -- -- 9,554 U.S. dollars (U.S.$3,660) -- -- -- -- 5,372 Long-term debt Canadian dollars -- 327 1,603 -- -- U.S. dollars (U.S.$31,815) 40,398 926 5,556 -- -- --------------------------------------------------------------------------------------------------------------

----------------------------------------------------------- 2000 1999 1998 ----------------------------------------------------------- Operating lease expense $5,733 $ 197 $ 165 ===========================================================

----------------------------------------------------------- 2000 1999 1998 ----------------------------------------------------------- Paid in the years ended Interest $7,862 $ 95 $ 53 Income taxes 819 -- -- ===========================================================

--------------------------------------------------------------------------------------------------------- 2000 1999 1998 --------------------------------------------------------------------------------------------------------- Loss for the year in accordance with Canadian GAAP $(137,986) $ (9,967) $ (2,439) Impact of U.S. accounting principles Amortization of purchase price adjustment (c) (617) -- -- Deferred charges (15) (301) (87) Stock-based compensation (d) (11,430) (56) (1,056) Deferred foreign exchange (e) (1,655) (12) -- Recovery of future income taxes (f) 11,055 -- -- --------------------------------------------------------------------------------------------------------- Net loss for the year in accordance with U.S. GAAP (140,648) (10,336) (3,582) Unrealized gains on securities, net of tax of $10,366 (f) 23,926 -- -- --------------------------------------------------------------------------------------------------------- Comprehensive loss in accordance with U.S. GAAP $(116,722) $ (10,336) $ (3,582) ========================================================================================================= Net loss per share in accordance with U.S. GAAP $ (1.86) $ (0.58) $ (0.38) =========================================================================================================

---------------------------------------------------------------------------------------------------------------- 2000 1999 ---------------------------------------------------------------------------------------------------------------- Shareholders' equity in accordance with Canadian GAAP at September 30 $ 862,798 $ 73,928 Purchase price adjustment, net of amortization of $617 (1999 and 1998 - $nil) (c) 17,035 -- Deferred charges (417) (403) Cumulative stock-based compensation expense (d) (11,651) (1,118) Deferred stock-based compensation expense (d) (34,266) (287) Net change in stock options (d) 45,917 1,405 Deferred foreign exchange (e) (1,666) (12) Recovery of future income taxes (f) 11,055 -- Other comprehensive income (f) 23,926 -- ---------------------------------------------------------------------------------------------------------------- Shareholders' equity in accordance with U.S. GAAP at September 30 $ 912,731 $ 73,513 ================================================================================================================

-------------------------------------------------------------------------------- 2000 1999 -------------------------------------------------------------------------------- Property, plant and equipment (c) $ 957,957 $ 73,817 Long-term investment (f) 77,530 -- Goodwill and other assets (c) 239,327 877 Share capital (c) 1,032,079 85,480 Additional paid-in capital 337 337 Deferred stock-based compensation expense (d) (34,266) (287) Stock options outstanding (d) 45,917 723 Deficit (155,263) (14,615) Other comprehensive income (f) 23,926 -- --------------------------------------------------------------------------------

-------------------------------------------------------------------------------- 2000 1999 1998 -------------------------------------------------------------------------------- Loss in accordance with U.S. GAAP $(140,648) $ (10,336) $ (3,582) Additional compensation expense (2,106) (174) (18) -------------------------------------------------------------------------------- Pro forma net loss $(142,754) $ (10,510) $ (3,600) ================================================================================ Pro forma loss per share $ (1.89) $ (0.59) $ (0.38) ================================================================================

--------------------------------------------------------------------------------------------- 2000 1999 1998 --------------------------------------------------------------------------------------------- Amortization expense for the year consists of: Property, plant and equipment $30,510 $ 839 $ 213 Goodwill, non-compete agreements and license rights 8,417 -- 33 Deferred charges 4,128 14 9 --------------------------------------------------------------------------------------------- $43,055 $ 853 $ 255 =============================================================================================

SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31 (thousands of Canadian dollars) 2000 2000 2000 1999 ------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 444,050 $ 526,231 $ 732,053 $ 29,348 Accounts receivable Trade 30,253 32,799 12,801 1,922 Other 19,699 7,786 2,456 3,858 Prepaid expenses 5,939 8,958 5,227 2,074 Inventory 436 201 201 545 ------------------------------------------------------------------------------------------------------------------- 500,377 575,975 752,738 37,747 PROPERTY, PLANT AND EQUIPMENT 954,917 778,926 567,568 108,009 PREPAYMENT ON PROPERTY, PLANT AND EQUIPMENT 203,703 230,600 223,000 -- LONG-TERM INVESTMENT 43,238 43,238 -- -- GOODWILL AND OTHER ASSETS 227,033 199,710 192,366 14,902 ------------------------------------------------------------------------------------------------------------------- $ 1,929,268 $ 1,828,449 $ 1,735,672 $ 160,658 =================================================================================================================== LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities $ 111,395 $ 88,485 $ 42,583 $ 34,963 Unearned revenue 544 1,325 925 676 Current portion of long-term debt 4,348 1,204 6,203 3,746 ------------------------------------------------------------------------------------------------------------------- 116,287 91,014 49,711 39,385 LONG-TERM UNEARNED REVENUE 1,255 1,080 1,219 1,356 LONG-TERM DEBT 948,928 853,123 781,447 57,028 FUTURE INCOME TAXES -- -- 28,200 -- ------------------------------------------------------------------------------------------------------------------- 1,066,470 945,217 860,577 97,769 ------------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY SHARE CAPITAL AND OTHER EQUITY ITEMS 1,013,866 971,468 937,550 88,035 DEFICIT (151,068) (88,236) (62,455) (25,146) ------------------------------------------------------------------------------------------------------------------- 862,798 883,232 875,095 62,889 ------------------------------------------------------------------------------------------------------------------- $ 1,929,268 $ 1,828,449 $ 1,735,672 $ 160,658 ===================================================================================================================

FOR THE THREE MONTHS ENDED ------------------------------------------------------------------------------------------------------------ SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31 (thousands of Canadian dollars) 2000 2000 2000 1999 ------------------------------------------------------------------------------------------------------------ REVENUE $ 32,167 $ 25,558 $ 13,259 $ 2,267 COST OF SERVICES 21,230 17,415 10,553 2,138 ------------------------------------------------------------------------------------------------------------ 10,937 8,143 2,706 129 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 38,901 30,984 20,286 10,788 ------------------------------------------------------------------------------------------------------------ (27,964) (22,841) (17,580) (10,659) AMORTIZATION 20,241 15,447 6,169 1,198 INTEREST AND FINANCING CHARGES 26,488 14,488 13,237 141 ------------------------------------------------------------------------------------------------------------ LOSS BEFORE INCOME TAXES (74,693) (52,776) (36,986) (11,998) PROVISION (RECOVERY) OF FUTURE INCOME TAXES (11,861) (26,995) 323 66 ------------------------------------------------------------------------------------------------------------ LOSS FOR THE PERIOD (62,832) (25,781) (37,309) (12,064) DEFICIT - BEGINNING OF PERIOD (88,236) (62,455) (25,146) (13,082) ------------------------------------------------------------------------------------------------------------ DEFICIT - END OF PERIOD $(151,068) $ (88,236) $ (62,455) $ (25,146) ============================================================================================================ LOSS PER SHARE $ (0.52) $ (0.22) $ (0.90) $ (0.54) ============================================================================================================ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (in thousands) 120,256 118,376 41,506 22,474 ============================================================================================================

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