~~MARCH~~ UNITED 31, SEPTEMBER 30, 2001 2000 ----------- ------------- $ $ (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents................................... 304,494 444,050 Trade accounts receivable................................... 45,135 30,253 Sales tax and other receivables............................. 13,302 19,699 Prepaid expenses............................................ 4,967 5,939 Inventory................................................... 440 436 --------- --------- 368,338 500,377 PREPAYMENTS ON PROPERTY, PLANT AND EQUIPMENT................ 132,852 203,703 PROPERTY, PLANT AND EQUIPMENT............................... 1,244,839 954,917 LONG-TERM INVESTMENT........................................ 43,238 43,238 GOODWILL AND OTHER ASSETS................................... 233,896 227,033 --------- --------- 2,023,163 1,929,268 ========= ========= LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities.................... 123,188 111,395 Current portion of unearned revenue......................... 844 544 Current portion of long-term debt........................... 6,602 4,348 --------- --------- 130,634 116,287 UNEARNED REVENUE............................................ 1,684 1,255 LONG-TERM DEBT.............................................. 1,190,998 948,928 --------- --------- 1,323,316 1,066,470 --------- --------- SHAREHOLDERS' EQUITY SHARE CAPITAL AND OTHER EQUITY ITEMS........................ 1,015,018 1,013,866 DEFICIT..................................................... (315,171) (151,068) --------- --------- 699,847 862,798 --------- --------- 2,023,163 1,929,268 ========= =========STATES

~~THREE~~ SECURITIES MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ------------------- ------------------- 2001 2000 2001 2000 -------- ------- -------- ------- $ $ $ $ REVENUE........................................... 48,526 13,259 88,450 15,526 COST OF SERVICES.................................. 29,653 10,554 55,079 12,691 -------- ------- -------- ------- 18,873 2,705 33,371 2,835 SELLING, GENERAL AND ~~ADMINISTRATIVE~~EXCHANGE EXPENSES...... 43,676 20,286 85,456 31,075 -------- ------- -------- ------- (24,803) (17,581) (52,085) (28,240) DEPRECIATION AND AMORTIZATION..................... 27,745 6,169 51,130 7,367 INTEREST AND FINANCING CHARGES, NET............... 31,416 13,237 58,959 13,379 -------- ------- -------- ------- LOSS BEFORE INCOME TAXES.......................... (83,964) (36,987) (162,174) (48,986) PROVISION FOR INCOME TAXES........................ 855 322 1,929 388 -------- ------- -------- ------- LOSS FOR THE PERIOD............................... (84,819) (37,309) (164,103) (49,374) DEFICIT -- BEGINNING OF PERIOD.................... (230,352) (25,146) (151,068) (13,082) -------- ------- -------- ------- DEFICIT -- END OF PERIOD.......................... (315,171) (62,455) (315,171) (62,456) ======== ======= ======== ======= LOSS PER SHARE.................................... (0.68) (0.90) (1.31) (1.53) ======== ======= ======== ======= WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES (in thousands)...................................... 124,965 41,506 124,923 32,184 ======== ======= ======== =======COMMISSION

~~THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31~~ WASHINGTON, ~~MARCH~~DC 31, -------------------- --------------------- 2001 2000 2001 2000 ------- --------- -------- --------- $ $ $ $ CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Loss for the period............................. (84,819) (37,309) (164,103) (49,374) Items not affecting cash Depreciation and amortization................. 27,745 6,169 51,130 7,367 Non-cash interest expense..................... 34,566 15,299 65,117 15,299 ------- --------- -------- --------- (22,508) (15,841) (47,856) (26,708) ------- --------- -------- --------- Changes in non-cash working capital items Decrease (increase) in accounts receivable.... 1,336 (9,478) (8,353) (11,209) Decrease (increase) in inventory.............. 165 343 (3) 343 Decrease (increase) in prepaid expenses....... (1,097) (2,948) 972 (4,496) Increase (decrease) in accounts payable and accrued liabilities........................ 2,050 13,470 (4,061) 19,944 Increase (decrease) in unearned revenue....... (205) 110 (76) (6) ------- --------- -------- --------- 2,249 1,497 (11,521) 4,576 ------- --------- -------- --------- Cash used in operating activities............... (20,259) (14,344) (59,377) (22,132) ------- --------- -------- --------- FINANCING ACTIVITIES Issuance of shares.............................. 1,005 396,276 1,152 396,291 Proceeds from long-term debt.................... -- 702,297 -- 702,146 Proceeds from issuance of warrants.............. -- 58,283 -- 58,283 Issuance of loans to officers................... -- (5,115) -- (5,115) ------- --------- -------- --------- 1,005 1,151,741 1,152 1,151,605 ------- --------- -------- --------- INVESTING ACTIVITIES Purchases of property, plant and equipment...... (41,484) (19,330) (75,532) (38,270) Business acquisitions........................... -- (360,240) -- (362,950) Increase in other assets........................ (728) (55,121) (5,799) (56,051) ------- --------- -------- --------- (42,212) (434,691) (81,331) (457,271) ------- --------- -------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................... (61,466) 702,706 (139,556) 672,202 CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD........................................ 365,960 29,347 444,050 59,851 ------- --------- -------- --------- CASH AND CASH EQUIVALENTS -- END OF PERIOD...... 304,494 732,053 304,494 732,053 ======= ========= ======== =========20549

~~THREE~~ Form ~~MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31,~~ 6------------------- ------------------- 2001 2000 2001 2000 -------- ------- -------- ------- $ $ $ $ Loss for the period in accordance with Canadian GAAP.......................... (84,819) (37,309) (164,103) (49,374) Impact of U.S. accounting principles Amortization of purchase price adjustment (c)...................... (396) -- (792) -- Deferred charges....................... -- -- -- (14) Stock based compensation (d)........... (3,779) (2,794) (7,546) (3,809) Deferred foreign exchange (e).......... (10,248) 7,939 (12,893) 8,609 Recovery of future income taxes........ -- -- 1,449 -- -------- ------- -------- ------- Net loss in accordance with U.S. GAAP.... (99,242) (32,164) (183,885) (44,588) Unrealized loss on securities (f)...... (51,528) -- (62,521) -- Unrealized gain on derivative instruments (g)..................... 33,481 -- 36,861 -- -------- ------- -------- ------- Comprehensive loss in accordance with U.S. GAAP........................... (117,289) (32,164) (209,545) (44,588) ======== ======= ======== ======= Net loss per share in accordance with U.S. GAAP........................... (0.79) (0.77) (1.47) (1.39) ======== ======= ======== =======K

AS Report AT AS AT MARCH 31, SEPTEMBER 30, --------- ------------- 2001 2000 --------- ------------- $ $ (AUDITED) Shareholders' equity in accordance with Canadian GAAP....... 699,847 862,798 Purchase price adjustment, net of ~~depreciation~~Foreign and amortization of $1,409 (September 30, 2000 -- $617) (c)... 16,242 17,035 Deferred charges............................................ (417) (417) Cumulative stock-based compensation expense (d)............. (18,412) (11,651) Deferred stock based compensation expense (d)............... (24,895) (34,266) Net change in stock options (d)............................. 43,307 45,917 Deferred foreign exchange (e)............................... (14,559) (1,666) Recovery of future income taxes............................. 12,504 11,055 Other comprehensive income (f)(g)........................... (1,734) 23,926 ------- ------- Shareholders' equity in accordance with U.S. GAAP........... 711,883 912,731 ======= =======Issuer

AS Pursuant ATto ASRule ~~AT MARCH 31, SEPTEMBER 30,~~ 13a-~~--------~~16 ~~-------------~~or ~~2000 2000 $ $ (AUDITED) Property, plant and equipment (c).......................... 1,248,100 957,957 Long~~15d-~~term~~16 investment (f)................................... 15,008 77,530 Goodwill and other assets (c)(g)........................... 319,706 239,327 Long-term debt (g)......................................... 1,239,803 948,928 Share capital (c).......................................... 1,034,016 1,032,079 Additional paid-in capital................................. 337 337 Deferred stock-based compensation expense (c).............. (24,895) (34,266) Stock options outstanding (c).............................. 43,307 45,917 Deficit.................................................... (339,148) (155,263) Cumulative other comprehensive income (f)(g)............... (1,734) 23,926of

~~THREE~~ the ~~MONTHS~~Securities ~~ENDED~~Exchange ~~SIX~~Act ~~MONTHS~~of ENDED MARCH 31, 2001 MARCH 31, 2001 ------------------ ---------------- $ $ Loss in accordance with U.S. GAAP................. (99,242) (183,885) Additional compensation expense................. (4,429) (5,440) -------- -------- Pro forma net loss................................ (103,671) (189,325) ======== ======== Pro forma loss per share.......................... (0.83) (1.52) ======== ========1934

~~MARCH~~ For ~~31,~~the ~~DECEMBER~~nine ~~31,~~months ~~SEPTEMBER~~ended June 30, ~~JUNE 30,~~ 2001 2000 2000 2000 --------- ------------ ------------- --------- $ $ $ $ ASSETS CURRENT ASSETS Cash and cash equivalents.................. 304,494 365,960 444,050 526,231 Trade accounts receivable.................. 45,135 38,765 30,253 32,799 Sales tax and other receivables............ 13,302 20,876 19,699 7,786 Prepaid expenses........................... 4,967 3,870 5,939 8,958 Inventory.................................. 440 605 436 201 --------- --------- --------- --------- 368,338 430,076 500,377 575,975 PREPAYMENT ON PROPERTY, PLANT AND EQUIPMENT................................ 132,852 132,852 203,703 230,600 PROPERTY, PLANT AND EQUIPMENT.............. 1,244,839 1,157,739 954,917 778,926 LONG-TERM INVESTMENT....................... 43,238 43,238 43,238 43,238 GOODWILL AND OTHER ASSETS.................. 233,896 229,112 227,033 199,710 --------- --------- --------- --------- 2,023,163 1,993,017 1,929,268 1,828,449 ========= ========= ========= ========= LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities... 123,188 105,170 111,395 88,485 Unearned revenue........................... 844 811 544 1,325 Current portion of long-term debt.......... 6,602 6,292 4,348 1,204 --------- --------- --------- --------- 130,634 112,273 116,287 91,014 LONG-TERM UNEARNED REVENUE................. 1,684 1,118 1,255 1,080 LONG-TERM DEBT............................. 1,190,998 1,095,966 948,928 853,123 FUTURE INCOME TAXES........................ -- -- -- -- --------- --------- --------- --------- 1,323,316 1,209,357 1,066,470 945,217 --------- --------- --------- --------- SHAREHOLDERS' EQUITY SHARE CAPITAL AND OTHER EQUITY ITEMS....... 1,015,018 1,014,013 1,013,866 971,468 DEFICIT.................................... (315,171) (230,353) (151,068) (88,236) --------- --------- --------- --------- 699,847 783,660 862,798 883,232 --------- --------- --------- --------- 2,023,163 1,993,017 1,929,268 1,828,449 ========= ========= ========= =========

~~FOR~~ GT ~~THE~~Group ~~THREE~~Telecom ~~MONTHS ENDED, ------------------------------------------------------ MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, 2001 2000 2000 2000 --------- ------------ ------------- -------- $ $ $ $ REVENUE~~Inc...................................... 48,526 39,924 32,167 25,558 COST OF SERVICES............................. 29,653 25,426 21,230 17,415 -------- -------- -------- ------- 18,873 14,498 10,937 8,143 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................................... 43,676 41,780 38,901 30,984 -------- -------- -------- ------- (24,803) (27,282) (27,964) (22,841) DEPRECIATION AND AMORTIZATION................ 27,745 23,385 20,241 15,447 INTEREST AND FINANCING CHARGES............... 31,416 27,543 26,488 14,488 -------- -------- -------- ------- LOSS BEFORE INCOME TAXES..................... (83,964) (78,210) (74,693) (52,776) PROVISION FOR (RECOVERY OF) INCOME TAXES..... 855 1,075 (11,861) (26,995) -------- -------- -------- ------- LOSS FOR THE PERIOD.......................... (84,819) (79,285) (62,832) (25,781) DEFICIT -- BEGINNING OF PERIOD............... (230,352) (151,068) (88,236) (62,455) -------- -------- -------- ------- DEFICIT -- END OF PERIOD..................... (315,171) (230,353) (151,068) (88,236) ======== ======== ======== ======= LOSS PER SHARE............................... (0.68) (0.63) (0.52) (0.22) ======== ======== ======== ======= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (in thousands)................. 124,965 124,882 120,256 118,376 ======== ======== ======== =======

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

GT Group Telecom Inc.

Interim Consolidated Financial Statements

For the Nine months ended June 30, 2001 and 2000

(Unaudited)

(thousands of Canadian dollars)

GT Group Telecom Inc.

Interim Consolidated Balance Sheets

(thousands of Canadian dollars)


	June 30,			September 30,
	2001			2000

	$			$
	(unaudited)




Assets




Current assets




Cash and cash equivalents		346,121			444,050




Trade accounts receivable		54,039			30,253




Sales tax and other receivables		22,142			19,699




Prepaid expenses		5,008			5,939




Inventory		493			436

		427,803			500,377




Prepayments on property, plant and equipment		132,852			203,703




Property, plant and equipment		1,370,607			954,917




Long-term investment		—			43,238




Goodwill and other assets		221,810			227,033

		2,153,072			1,929,268

Liabilities




Current liabilities




Accounts payable and accrued liabilities		116,496			111,395




Current portion of unearned revenue		1,196			544




Current portion of long-term debt		19,564			4,348

		137,256			116,287




Long-term unearned revenue		1,151			1,255




Long-term debt		1,335,337			948,928

		1,473,744			1,066,470

Shareholders’ Equity




Share capital and other equity items		1,132,041			1,013,866




Deficit		(452,713	)		(151,068	)

		679,328			862,798

		2,153,072			1,929,268

The accompanying notes form an integral part of these interim consolidated financial statements.

F-1

GT Group Telecom Inc.

Interim Consolidated Statements of Operations and Deficit

(Unaudited)

(thousands of Canadian dollars, except for per share amounts)



	Three months ended						Nine months ended
	June 30,						June 30,

	2001			2000			2001			2000

	$			$			$			$




Revenue		58,409			25,558			146,861			41,084




Cost of services		33,611			17,415			88,691			30,106

		24,798			8,143			58,170			10,978




Selling, general and administrative expenses		45,616			30,984			131,082			62,058

		(20,818	)		(22,841	)		(72,912	)		(51,080	)




Depreciation and amortization		29,700			15,447			80,829			22,814




Interest and financing charges, net		44,979			14,488			103,929			27,866




Loss on sale of long-term investment		40,965			—			40,965			—

Loss before income taxes		(136,462	)		(52,776	)		(298,635	)		(101,760	)




Provision for (recovery of) income taxes		1,080			(26,995	)		3,010			(26,606	)

Loss for the period		(137,542	)		(25,781	)		(301,645	)		(75,154	)




Deficit — Beginning of period		(315,171	)		(62,455	)		(151,068	)		(13,082	)

Deficit — End of period		(452,713	)		(88,236	)		(452,713	)		(88,236	)

Basic and diluted loss per share		(1.05	)		(0.22	)		(2.36	)		(1.24	)

Weighted average number of outstanding shares (in thousands)		130,910			118,376			127,578			60,395

The accompanying notes form an integral part of these interim consolidated financial statements.

F-2

GT Group Telecom Inc.

Interim Consolidated Statements of Cash Flows

(Unaudited)

(thousands of Canadian dollars)



		Three months ended						Nine months ended
		June 30,						June 30,

		2001			2000			2001			2000

		$			$			$			$




Cash provided by (used in)




Operating activities




Loss for the period			(137,542	)		(25,781	)		(301,645	)		(75,154	)
Items not affecting cash




	Depreciation and amortization		29,700			15,447			80,829			22,814




	Non-cash interest expense		37,090			26,378			102,208			41,676




	Loss on sale of long-term investment		40,965			—			40,965			—




	Recovery of future income taxes		—			(26,606	)		—			(26,606	)

			(29,787	)		(10,562	)		(77,643	)		(37,270	)

Changes in non-cash working capital items




	Decrease (increase) in accounts receivable		(14,673	)		(24,021	)		(23,026	)		(36,537	)




	Decrease (increase) in inventory		(53	)		—			(57	)		343




	Decrease (increase) in prepaid expenses		9			(3,731	)		980			(8,227	)




	Increase (decrease) in accounts payable and accrued liabilities		8,827			(1,899	)		7,919			29,626




	Increase (decrease) in unearned revenue		(181	)		263			(257	)		257

			(6,071	)		(29,388	)		(14,441	)		(14,538	)

Cash used in operating activities			(35,858	)		(39,950	)		(92,084	)		(51,808	)

Financing activities




Issuance of shares			101,044			255			102,196			396,036




Proceeds from long-term debt			77,000			—			77,000			690,583




Proceeds from issuance of warrants			—			—			—			58,775




Issuance of loans to officers			—			—			—			(3,808	)

			178,044			255			179,196			1,141,586

Investing activities




Purchases of property, plant and equipment			(92,487	)		(54,258	)		(168,017	)		(92,528	)




Proceeds on sale (purchase) of long-term investment			2,274			(43,238	)		2,274			(43,238	)




Business acquisitions			(5,080	)		(67,760	)		(5,080	)		(430,710	)




Increase in other assets			(5,266	)		(871	)		(14,218	)		(56,922	)

			(100,559	)		(166,127	)		(185,041	)		(623,398	)

Increase (decrease) in cash and cash equivalents			41,627			(205,822	)		(97,929	)		466,380




Cash and cash equivalents — Beginning of period			304,494			732,053			444,050			59,851

Cash and cash equivalents — End of period			346,121			526,231			346,121			526,231

The accompanying notes form an integral part of these interim consolidated financial statements.

F-3

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 to small and medium-sized businesses in Canada over fibre-optic infrastructure and uses Digital Subscriber Line (DSL) technology to extend the reach of its network. The Company operates as a single reportable segment. Substantially all of the Company’s assets are located in Canada and revenue is derived from services provided in Canada.

	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, and 1999. 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 June 30, 2001 and for the interim periods ended June 30, 2001 and 2000 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 events


(a)	Acquisition of C1


	In April 2001, the Company purchased from C.1.COM Inc. (C1) all the property and assets used in its Atlantic Canada competitive local exchange carrier business. The Company also assumed the rights and obligations with respect to an existing indefeasible right to use agreement, which has granted the Company the right to use certain specifically identified existing fibres for 19 years.

	The purchase consideration consisted of $5 million in cash, 2,372,000 Class B non-voting shares of the Company, the assumption of $22 million of long-term obligations of C1 relating to the indefeasible right to use agreement and a net working capital adjustment of $1 million. Acquisition costs are estimated to be $2 million. The purchase price of $46 million has been allocated to property, plant and equipment.


(b)	Issuance of common shares


	In May 2001, the Company issued 10,000,000 class B non-voting shares for an aggregate cash proceeds of $101 million, net of $4 million in underwriting commissions and expenses of the offering.


(c)	Agreement with 360networks


	In June 2001, the Company renegotiated its agreements with 360networks, inc. and received certain dark fibres in Canada for $58 million and the indefeasible right to use certain dark fibres along United States route paths for $7 million. The $32 million deposit paid in May 2000 was applied against the total purchase price of $65 million. The Company also acquired certain metropolitan ducts for cash of $13 million. These purchases have been included in property plant and equipment. As a result of the renegotiations, the Company’s remaining commitments to acquire fibre in Canada and the United States were cancelled.

	In addition, the Company renegotiated its long-term lease arrangement to reduce its obligation to lease fibre-optic wavelengths along diverse routes in Canada and the United States and to cancel its

F-4

GT Group Telecom Inc.

Notes to Interim Consolidated Financial Statements — (Continued)

(Unaudited)

(expressed in Canadian dollars)


	option to purchase additional wavelengths on similar terms. The assets and obligations under this arrangement have decreased from an original estimate of $85 million to $68 million.

(d) Sale of long-term investment


	In June 2001, the Company sold its long-term investment in 360networks, inc. for $2 million in cash realizing a loss of $41 million, net of a tax provision of nil.

(e) Issuance of long-term debt


	In June 2001, the Company drew $77 million from its $120 million senior bank facility. The $77 million revolving term loan is repayable as follows: $5 million in February 2005, $24 million in February 2006 and with the remainder of $48 million due in February 2007. The loan is interest bearing at the bankers acceptance rate plus a margin of 4.25% and is payable quarterly.

3 Reconciliation to accounting principles generally accepted in the United States


	The Company’s 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:



		Three months ended						Nine months ended
		June 30						June 30

		2001			2000			2001			2000

		$			$			$			$




Loss for the period in accordance with Canadian GAAP			(137,542	)		(25,781	)		(301,645	)		(75,154	)
Impact of U.S. accounting principles




	Amortization of purchase price adjustment (c)		(396	)		(230	)		(1,189	)		(230	)




	Deferred charges		—			—			—			(15	)




	Stock based compensation (d)		(3,756	)		(3,801	)		(11,301	)		(7,610	)




	Deferred foreign exchange (e)		10,648			(5,993	)		(2,245	)		2,617




	Recovery of future income taxes		—			—			1,449			—

Net loss in accordance with U.S. GAAP			(131,046	)		(35,805	)		(314,931	)		(80,392	)




	Reversal of unrealized loss on sale of securities (f)		28,230			—			28,230			—




	Unrealized gain (loss) on securities (f)		—			12,100			(62,522	)		12,100




	Unrealized gain (loss) on derivative instruments (g)		(13,326	)		—			23,536			—

Comprehensive loss in accordance with U.S. GAAP			(116,142	)		(23,705	)		(325,687	)		(68,292	)

Net loss per share in accordance with U.S. GAAP			(1.00	)		(0.30	)		(2.47	)		(1.33	)

F-5

GT Group Telecom Inc.

Notes to Interim Consolidated Financial Statements — (Continued)

(Unaudited)

(expressed in Canadian dollars)


	The reconciliation of shareholders’ equity from Canadian to U.S. GAAP is as follows:



	As at

	June 30,			September 30,
	2001			2000

	$			$
				(audited)




Shareholders’ equity in accordance with Canadian GAAP		679,328			862,798




Purchase price adjustment, net of depreciation and amortization of $1,806 (September 30, 2000 — $617) (c)		15,846			17,035




Deferred charges		(417	)		(417	)




Cumulative stock-based compensation expense (d)		(20,261	)		(11,651	)




Deferred stock based compensation expense (d)		(20,963	)		(34,266	)




Net change in stock options (d)		41,224			45,917




Deferred foreign exchange (e)		(3,911	)		(1,666	)




Recovery of future income taxes		12,504			11,055




Other comprehensive income (f)(g)		13,170			23,926

Shareholders’ equity in accordance with U.S. GAAP		716,520			912,731

(b) 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:



	As at

	June 30,			September 30,
	2001			2000

	$			$
				(audited)




Property, plant and equipment (c)		1,373,826			958,264




Long-term investment (f)		—			77,530




Goodwill and other assets (c)(g)		275,704			224,949




Long-term debt (g)		1,374,823			953,276




Share capital (c)		1,152,946			1,032,079




Additional paid-in capital		337			337




Deferred stock-based compensation expense (d)		(20,963	)		(34,266	)




Stock options outstanding (d)		41,224			45,917




Deficit		(470,195	)		(155,263	)




Cumulative other comprehensive income (f)(g)		13,170			23,926

(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,

F-6

GT Group Telecom Inc.

Notes to Interim Consolidated Financial Statements — (Continued)

(Unaudited)

(expressed in Canadian dollars)


	property, plant and equipment, goodwill and other assets, and share capital are higher under U.S. GAAP 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.

	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:


	Three months ended			Nine months ended
	June 30, 2001			June 30, 2001

	$			$




Loss in accordance with U.S. GAAP		(131,046	)		(314,931	)




Additional compensation expense		(3,131	)		(8,560	)

Pro forma net loss		(134,177	)		(323,491	)

Pro forma loss per share		(1.02	)		(2.54	)


	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 - 96%; (iii) expected dividend yield of nil; and (iv) an estimated average life of ranging from 3 - 5 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) 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.

	With the sale of investment in June 2001, the Company realized a loss of $41 million under Canadian GAAP. Under U.S. GAAP, this transaction resulted in the reversal of net unrealized losses previously recorded in other comprehensive income. The concept of comprehensive income/loss does not exist under Canadian GAAP.

F-7

GT Group Telecom Inc.

Notes to Interim Consolidated Financial Statements — (Continued)

(Unaudited)

(expressed in Canadian dollars)

(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. Under U.S. GAAP, the Company records the foreign exchange gains or losses on the hedged portion of the long-term debt in income, offset by a reclassification from other comprehensive income for gains and losses in the fair value of the hedging instruments.

	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.

(h) Recent accounting pronouncements

In June 2001, the FASB approved the proposed Statements of Financial Accounting Standards No. 141, “Business Combinations” and No. 142 “Goodwill and Other Intangible Assets”. The provisions of FAS 141 and FAS 142 may be adopted by the Company for its fiscal year beginning on October 1, 2001. FAS 141 requires all business combinations to be accounted for under the purchase method and requires the separate recognition of intangible assets apart from goodwill if certain criteria are met. FAS 142 prohibits the amortization of goodwill and indefinite life intangible assets. Instead, goodwill and intangible assets are to be written down whenever carrying value exceeds fair value. Intangible assets that do not have an indefinite life must continue to be amortized. The Company is currently evaluating the implementation aspects of these new pronouncements.

F-8

GT Group Telecom Inc.

Supplemental Information to Interim Consolidated Financial Statements

Consolidated Balance Sheets

(Unaudited)

(thousands of Canadian dollars)


	June 30,			March 31,			December 31,			September 30,
	2001			2001			2000			2000

	$			$			$			$




Assets




Current assets




Cash and cash equivalents		346,121			304,494			365,960			444,050




Trade accounts receivable		54,039			45,135			38,765			30,253




Sales tax and other receivables		22,142			13,302			20,876			19,699




Prepaid expenses		5,008			4,967			3,870			5,939




Inventory		493			440			605			436

		427,803			368,338			430,076			500,377




Prepayment on property, plant and equipment		132,852			132,852			132,852			203,703




Property, plant and equipment		1,370,607			1,244,839			1,157,739			954,917




Long-term investment		—			43,238			43,238			43,238




Goodwill and other assets		221,810			233,896			229,112			227,033

		2,153,072			2,023,163			1,993,017			1,929,268

Liabilities




Current liabilities




Accounts payable and accrued liabilities		116,496			123,188			105,170			111,395




Unearned revenue		1,196			844			811			544




Current portion of long-term debt		19,564			6,602			6,292			4,348

		137,256			130,634			112,273			116,287




Long-term unearned revenue		1,151			1,684			1,118			1,255




Long-term debt		1,335,337			1,190,998			1,095,966			948,928

		1,473,744			1,323,316			1,209,357			1,066,470

Shareholders’ Equity




Share capital and other equity items		1,132,041			1,015,018			1,014,013			1,013,866




Deficit		(452,713	)		(315,171	)		(230,353	)		(151,068	)

		679,328			699,847			783,660			862,798

		2,153,072			2,023,163			1,993,017			1,929,268

F-9

GT Group Telecom Inc.

Supplemental Information to Interim Consolidated Financial Statements

Consolidated Statements of Operations and Deficit

(Unaudited)

(thousands of Canadian dollars)



	For the three months ended,

	June 30,			March 31,			December 30,			September 30,
	2001			2001			2000			2000

	$			$			$			$




Revenue		58,409			48,526			39,924			32,167




Cost of services		33,611			29,653			25,426			21,230

		24,798			18,873			14,498			10,937




Selling, general and administrative expenses		45,616			43,676			41,780			38,901

		(20,818	)		(24,803	)		(27,282	)		(27,964	)




Depreciation and amortization		29,700			27,745			23,385			20,241




Interest and financing charges		44,979			31,416			27,543			26,488




Loss on sale of long term investment		40,965			—			—			—

Loss before income taxes		(136,462	)		(83,964	)		(78,210	)		(74,693	)




Provision for (recovery of) income taxes		1,080			855			1,075			(11,861	)

Loss for the period		(137,542	)		(84,819	)		(79,285	)		(62,832	)




Deficit — Beginning of period		(315,171	)		(230,352	)		(151,068	)		(88,236	)

Deficit — End of period		(452,713	)		(315,171	)		(230,353	)		(151,068	)

Basic and diluted loss per share		(1.05	)		(0.68	)		(0.63	)		(0.52	)

Weighted average number of common shares outstanding (in thousands)		130,910			124,965			124,882			120,256

F-10

Management’s Discussion and Analysis

Quarter Ended June 30, 2001

(Figures expressed in CDN dollars)

The following discussion and analysis should be read in conjunction with Group Telecom’s Interim Consolidated Financial Statements for the nine months ended June 30, 2001 and Consolidated Financial Statements and Management’s Discussion and Analysis of financial condition as at September 30, 2000 and results of operations for the year then ended included in Group Telecom’s 2000 Annual Report.

This discussion and analysis explains Group Telecom’s (the Company) financial condition and results of operations for the quarter ended June 30, 2001 compared with the quarter ended March 31, 2001. Since the Company continues to experience a significant amount of growth this period compared to the prior year period the analysis of the Company’s 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.

Overview

During the quarter ended June 30, 2001, the Company experienced organic growth in its business through the continued development of its own network. As at June 30, 2001, the Company has available approximately $654 million in funding available to execute its business plan, which includes $346 million cash on hand, $265 million in available vendor financing and $43 million in available senior bank financing. The available liquidity will fully fund the Company’s business plan into 2004.

During the current quarter the Company recorded strong revenue growth across all product lines in tandem with a reduction in EBITDA (Earnings before interest, taxes, depreciation and amortization) losses by $4.0 million over the previous quarter. The Company received delivery of dark fibre from 360networks, inc. across Canada and into the United Sates which will enable the Company to provide additional capacity and connectivity for its customers. In addition the company successfully completed the acquisition of C.1.COM Inc.’s Atlantic Canada business which now gives the Company the ability to operate in 17 markets across nine provinces in Canada.

Results of Operations

Revenue

Total revenues increased by 20.4%, from $48.5 million to $58.4 million, from March 2001 to June 2001 quarters, respectively. The increase was driven by strong growth of 22.1% in data and private lines, 11.7% in voice services and 40.1% in application services.

Data ports provisioned grew from 8,551 at March 2001 to 10,519 at June 2001. Private lines provisioned grew from 57,628 at March 2001 to 62,867 at June 2001. Voice access lines provisioned grew from 62,633 at March 2001 to 85,482 at June 2001.

Cost of services

Total cost of services increased by 13.1%, from $29.7 million to $33.6 million from March 2001 to June 2001 quarter, respectively. The increase was related to the growth in revenues for the same period. Gross margin totaled $24.8 million or 42.5% of revenues compared with $18.9 million or 38.9% of revenues in the previous quarter. The Company’s gross margin has improved as it continues to focus on selling on-net services, migrating traffic from leased to owned network and due to a reduction in its lower margin long distance business.

Selling, general and administrative expenses

Total selling, general and administrative expenses amounted to $45.6 million for the current quarter compared to $43.7 million for the previous quarter, representing an increase of 4.3%. Selling, general and administrative expenses as a percentage of revenues decreased from 90.0% to 78.1% from March 2001 to June

F-11

2001 quarters, respectively. As the Company continues to grow it expects to continue to leverage off and realize the benefits from its established infrastructure.

EBITDA

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter ended June 2001 was negative $20.8 million compared to negative $24.8 million for the previous quarter. Based on its current business plan, the Company continues to project reaching a positive EBITDA in the second half of 2002.

Depreciation and amortization

Depreciation and amortization expenses increased by $2.0 million during the current quarter to $29.7 million compared to $27.7 million for the previous quarter, representing an increase of 7.2%. Additions to property, plant and equipment in connection with the deployment of the network and strategic acquisitions resulted in this increase.

Interest and financing charges

Interest and financing charges were $45.0 million for the current quarter compared to $31.4 million in the previous quarter. Interest and financing expenses increased primarily as a result of interest incurred on high yield debt and additional draw downs of vendor financing. As a result of the decline in U.S. exchange rates the Company experienced a foreign exchange loss, on its U.S. dollar cash balances, that contributed to this increase.

Provision for income taxes

The Company has not generated any taxable income to date and therefore has not accrued any income tax expense. The Company has recorded a provision for large corporations’ tax in the amount of $1.1 million for the quarter.

Loss on sale of long term investment

During the current quarter the Company sold all of its long-term investment in 360networks, inc. for proceeds of $2.3 million and realized a loss of $41.0 million on the sale.

Net loss

The net loss for the quarter ended June 30, 2001 excluding the foreign exchange loss and the one time loss on the sale of the long term investment was $92.7 million or $0.71 per share compared to $84.8 million or $0.68 per share for the quarter ended March 31, 2001. The net loss for the quarter including the above items was $137.5 million or $1.05 per share.

Liquidity and Capital Resources

Liquidity

Cash and cash equivalents decreased during the quarter ended June 30, 2001 primarily due to operating requirements of $35.9 million and capital expenditures funded with cash of $92.5 million.

To increase liquidity, during the current quarter, the Company successfully offered 10,000,000 class B non-voting shares, at $10.5 per share, and raised gross proceeds of $105.0 million. In addition the Company drew down the available senior bank facility by $77.0 million. The $77.0 million revolving term loan is repayable as follows: $5.0 million in February 2005, $24.0 million in February 2006 and $48.0 million in February 2007. The loan bears interest at the banker’s acceptance rate plus a margin of 4.25% and is payable quarterly.

F-12

Capital expenditures

The Company renegotiated its fibre purchase agreement with 360networks, inc. and received dark fibres for $57.6 million and the indefeasible right to use dark fibres for $7.5 million. A $32.4 million deposit paid in March 2000 was applied against the total purchase price of $65.1 million. In addition the Company paid $12.5 million for metropolitan ducts primarily in Toronto to expand its growing local service business.

In April 2001, the Company purchased from C.1.COM Inc. (C1) all the property and assets used in C1’s Atlantic Canada competitive local exchange carrier business. The acquisition of C1 enabled the Company to acquire in Nova Scotia and New Brunswick approximately 44,400 fibre kilometres, 116 “on-net” buildings, customers and employees. The purchase consideration $45.7 million allocated to property, plant and equipment consisted of $5.0 million in cash, 2,372,000 Class B non-voting shares of Group Telecom, the assumption of $21.6 million of long term obligations of C1 and a net working capital adjustment of $1.0 million.

The Company continued to expand the reach of its network through organic build and acquisition which in total added 121,770 fibre kilometers to its fibre-optic network. Our fibre footprint now includes 372,717 fibre kilometers across Canada and into the United States.

Credit rating

Standard and Poor affirmed, on August 1, 2001, its single-“B” corporate credit and single-“B”-minus senior unsecured debt ratings on Group Telecom. It also revised its outlook on the senior unsecured debt rating on the Company from stable to negative given the potential for a higher than anticipated use of secured debt in its capital structure.

Risks and uncertainties

The telecommunications industry is capital intensive and subject to rapid and significant changes in technology the effect of which, on the Company’s business, cannot be predicted. We believe that our future success will depend, in part, on our ability to anticipate or adapt to such changes.

In addition, the company believes that its existing cash resources and financing will provide adequate funding to support its business plan. There can be no assurance; however, that the amount of funds actually required will not exceed the Company’s currently anticipated expenditures. If additional funding is required, there can be no assurance, however, that market conditions or the terms of our existing or future indebtedness will permit the Company to raise sufficient additional capital or enter other financing arrangements to meet its needs when required or on terms acceptable to the Company.

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.

F-13

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: August 10, 2001		By /s/ STEPHEN H. SHOEMAKER Stephen H. Shoemaker Executive Vice-President and Chief Financial Officer

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