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 ~~year~~three months ended ~~September~~December 3031, 2001

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

NOTE

This Form 6-K Report is incorporated by reference into the Registration Statements on Form F-3 of GT Group Telecom Inc. (Registration Nos. 333-45378 and 333-58624).

GT Group Telecom Inc.

Interim Consolidated Financial Statements

~~September~~For the Three Months Ended December 3031, 2001, ~~2000~~ and 2000 ~~1999~~

(~~expressed in thousands of Canadian dollars~~Unaudited)

~~CONSENT~~(thousands OFof ~~INDEPENDENT~~Canadian ~~ACCOUNTANTS~~dollars)

~~We hereby consent to the incorporation by reference in the Registration Statements on Form F-3 (Registration Nos. 333-45378 and 333-58624) of~~ GT Group Telecom Inc. ~~of our report dated November 6, 2001 relating~~ ~~to the consolidated financial statements, which appears in this~~ ~~Form 6-K.~~

Toronto, Canada		/s/ PricewaterhouseCoopers LLP
December 31, 2001		Chartered Accountants

Interim Consolidated Balance Sheets

(Unaudited)

(thousands of Canadian dollars)


	December 31,			September 30,
	2001			2001

				$
	$			(audited)
Assets
Current assets
Cash and cash equivalents		299,904			349,220
Accounts receivable		51,058			53,023
Sales tax and other receivables		15,396			20,062
Prepaid expenses		8,019			7,849
Inventory		430			620

		374,807			430,774
Prepayments on property, plant and equipment		132,852			132,852
Property, plant and equipment		1,435,355			1,419,319
Goodwill and other assets		219,315			228,142

		2,162,329			2,211,087

Liabilities
Current liabilities
Accounts payable and accrued liabilities		116,626			133,140
Current portion of unearned revenue		343			175
Current portion of long-term debt		20,467			22,295

		137,436			155,610
Long-term unearned revenue		2,567			1,159
Long-term debt		1,485,571			1,434,835
Deferred gain on hedging instruments		27,693			21,618

		1,653,267			1,613,222

Shareholders’ Equity
Share capital and other equity items		1,133,630			1,133,628
Deficit		(624,568	)		(535,763	)

		509,062			597,865

		2,162,329			2,211,087

Reconciliation to accounting principles generally accepted in the United States (note 7).

See accompanying notes to interim consolidated financial statements.

F-1

AUDITORS’ REPORT

To the Board of Directors of

GT Group Telecom Inc.

WeInterim ~~have~~Consolidated ~~audited~~Statements ~~the consolidated balance sheets~~ of ~~GT Group Telecom Inc. as at September 30, 2001 and 2000~~Operations and ~~the consolidated statements of operations and deficit and~~Deficit ~~cash flows for the years ended September 30, 2001, 2000 and~~ 1999. These consolidated financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

~~We conducted our audits in accordance with~~(Unaudited) Canadian and United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In(thousands ~~our opinion, these consolidated financial statements present fairly, in all material respects, the financial position~~ of ~~the~~Canadian ~~company as at September 30~~dollars, ~~2001 and~~except ~~2000~~per ~~and the results of its operations and its cash flows~~share ~~for the years ended September 30, 2001, 2000 and 1999 in~~amounts) ~~accordance with Canadian generally accepted accounting~~ ~~principles.~~

Toronto, Canada	/s/ PricewaterhouseCoopers LLP
	Three months ended
November 6, 2001	Chartered Accountants
	December 31,
	2001			2000
	$			$
Revenue		61,327			39,924
Cost of sales and services		33,260			25,426
		28,067			14,498
Selling, general and administrative expenses		45,203			41,780
		(17,136	)		(27,282	)
Depreciation and amortization		30,523			23,385
Interest and financing charges		40,066			30,187
Loss before income taxes		(87,725	)		(80,854	)
Provision for income taxes		1,080			1,075
Loss for the period		(88,805	)		(81,929	)
Deficit — beginning of period		(535,763	)		(152,734	)
Deficit — end of period		(624,568	)		(234,663	)
Basic and diluted loss per share		(0.64	)		(0.66	)
Weighted average number of outstanding shares (in thousands)		138,848			124,882

Reconciliation to accounting principles generally accepted in the United States (note 7).

See accompanying notes to interim consolidated financial statements.

F-2

GT Group Telecom Inc. ~~Consolidated Balance Sheets (expressed in thousands of Canadian dollars)~~

				September 30
				2001			2000
				$			$
Assets
Current assets
Cash and cash equivalents					349,220			444,050
Accounts receivable (note 4)					73,085			49,952
Prepaid expenses					7,849			5,939
Inventory					620			436
					430,774			500,377
Prepayments on property, plant and equipment (notes 3(b) and 3(c))					132,852			203,703
Property, plant and equipment (note 5)					1,419,319			954,917
Long-term investment (note 6)					—			43,238
Goodwill (note 7)					124,097			131,464
Other assets (note 8)					110,047			112,606
					2,217,089			1,946,305
Liabilities
Current liabilities
Accounts payable and accrued liabilities (note 9)					133,140			111,395
Unearned revenue (note 10)					175			544
Current portion of long-term debt (note 11)					22,295			4,348
					155,610			116,287
Long-term unearned revenue (note 10)					1,159			1,255
Long-term debt (note 11)					1,434,835			965,965
Deferred gain on financial instruments					21,618			—
					1,613,222			1,083,507
Shareholders’ Equity
Share capital (note 12)
Authorized
	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
	Common shares
			Unlimited number of Class A voting and convertible Class B non-voting common shares without par value
Issued and outstanding
	Common shares
		80,969,474 Class A voting shares (2000 — 79,542,239)			466,415			463,333
		54,052,684 Class B non-voting shares (2000 — 41,105,767)			617,300			495,370
					1,083,715			958,703
Additional paid-in capital					255			255
Warrants					53,526			58,776
Loans to officers (note 12(g))					(3,868	)		(3,868	)
Deficit					(529,761	)		(151,068	)
					603,867			862,798
					2,217,089			1,946,305

Interim Consolidated Statements of Cash Flows

~~Commitments and contingencies~~ (~~note 16~~Unaudited) ~~Reconciliation to accounting principles generally accepted in the United States (note 20). See accompanying notes to consolidated financial statements.~~

~~Approved~~(thousands byof ~~the~~Canadian ~~Board~~dollars, ofexcept ~~Directors~~per share amounts)

/s/ James G. Matkin /s/ James Mansour /s/ P. Kenneth Kilgor



		Three months ended
		December 31,

		2001			2000

		$			$
Cash provided by (used in)
Operating activities
Loss for the period			(88,805	)		(81,929	)
Items not affecting cash
	Depreciation and amortization		30,523			23,385
	Non-cash interest expense		23,517			30,551
	Foreign exchange (gain) loss		(1,570	)		3,502

			(36,335	)		(24,491	)

Changes in non-cash working capital items
	Decrease (increase) in accounts receivable		10,638			(9,689	)
	Decrease (increase) in inventory		190			(168	)
	Increase in prepaid expenses		119			2,069
	Decrease in accounts payable and accrued liabilities		(21,871	)		(5,783	)
	Increase in unearned revenue		1,575			129

			(9,349	)		(13,442	)

Cash used in operating activities			(45,684	)		(37,933	)

Financing activities
Issuance of shares			1			147
Proceeds from monetization of swap arrangements			20,304			—

			20,305			147

Investing activities
Purchases of property, plant and equipment			(25,134	)		(34,048	)
Increase in other assets			(31	)		(5,070	)

			(25,165	)		(39,118	)

Effect of exchange rate changes on cash held in foreign currencies			1,228			(1,186	)

Decrease in cash and cash equivalents			(49,316	)		(78,090	)
Cash and cash equivalents — beginning of period			349,220			444,050

Cash and cash equivalents — end of period			299,904			365,960

See accompanying notes to interim consolidated financial statements.

F-3

GT Group Telecom Inc.

~~Consolidated~~Notes ~~Statements~~to ofInterim ~~Operations~~Consolidated ~~and~~Financial ~~Deficit~~Statements

(~~expressed in thousands of Canadian dollars, except per share amounts~~Unaudited)

	Years ended September 30,
	2001			2000			1999
	$			$			$
Revenue		209,123			73,251			2,705
Cost of sales and services		123,085			51,336			1,808
		86,038			21,915			897
Selling, general and administrative expenses		176,306			100,959			10,219
		(90,268	)		(79,044	)		(9,322	)
Depreciation and amortization		109,812			43,055			853
Interest and finance items
Interest income		(18,525	)		(22,208	)		(920	)
Interest expense		155,087			81,207			262
Finance charges		6,623			4,631			192
Foreign exchange loss (gain)		(10,669	)		(9,276	)		93
		132,516			54,354			(373	)
Loss on sale of long-term investment		40,965			—			—
Loss before income taxes		(373,561	)		(176,453	)		(9,802	)
Provision for (recovery of) income taxes (note 13)
Current		5,132			3,833			165
Future		—			(42,300	)		—
		5,132			(38,467	)		165
Loss for the year		(378,693	)		(137,986	)		(9,967	)
Deficit — Beginning of year		(151,068	)		(13,082	)		(3,115	)
Deficit — End of year		(529,761	)		(151,068	)		(13,082	)
Basic and diluted loss per share		(2.90	)		(1.83	)		(0.56	)
Weighted average number of outstanding common shares (in thousands)		130,425			75,442			17,859

(thousands of Canadian dollars)

~~Reconciliation~~1. toOperations ~~accounting~~and ~~principles~~basis ~~generally accepted~~of ~~in the United States (note 20).~~ presentation

~~See~~The ~~accompanying~~Company ~~notes~~markets and sells telecommunication services and related products to small and medium-sized businesses, large enterprises and telecommunication providers in Canada over its fibre-optic network. The Company collocates with the incumbents’ facilities, and uses unbundled loops to extend the reach of its network. The company also sells dark fibre to other telecommunication providers. The information presented as at December 31, 2001 and for the interim periods ended December 31, 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. These interim consolidated financial statements are prepared following accounting policies consistent with the Company’s consolidated financial statements for the years ended September 30, 2001, and 2000, except as outlined in note 2. These financial statements are in accordance with Canadian generally accepted accounting principles which, in the case of the company, conform in all material respects with those in the United States, except as outlined in note 7.


2.	Changes in accounting principles and other recent pronouncements

(a) Foreign exchange

Effective October 1, 2001, the company adopted the revised recommendations of the Canadian Institute of Chartered Accountants (CICA) Handbook (HB) section 1650 “Foreign Currency Translation”. The revised handbook section requires the immediate recognition in income of unrealized foreign currency exchange gains and losses on long-term monetary items with a fixed or ascertainable life as opposed to unrealized gains and losses being deferred and amortized over the remaining term of the long-term monetary items. The revised recommendations have been applied retroactively with the prior period’s financial statements being restated. The effect of this change was to increase the losses for the three months ended December 31, 2001 and 2000 each by $3 million.

(b) Business combinations

Effective October 1, 2001, the company adopted the CICA HB section 1581 “Business Combinations,” which is consistent with U.S. pronouncement, Statement of Financial Accounting Standards (SFAS) No. 141 “Business Combinations” issued by the Financial Accounting Standards Board (FASB) in July 2001. HB 1581 and SFAS No. 141 require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and provide guidance on the initial recognition and measurement of goodwill and other intangible assets acquired after the implementation date. The use of pooling is no longer permitted. The company accounts for all business combinations under the purchase method. The adoption of HB 1581 and SFAS No. 141 had no effect on the results of its operations.

(c) Goodwill and other intangible assets


	Effective October 1, 2002, the company will adopt the CICA HB section 3062 “Goodwill and Other Intangible Assets,” which is consistent with U.S. pronouncement, SFAS No. 142, “Goodwill and Other Intangibles Assets”, issued by the FASB in July 2001. Under HB 3062 and

F-4

GT Group Telecom Inc.

Notes to Interim Consolidated Financial Statements — ~~of Cash~~(Continued) ~~Flows~~

(~~expressed in thousands of Canadian dollars~~Unaudited)

		Years ended September 30,
		2001			2000			1999
		$			$			$
Cash provided by (used in)
Operating activities
Loss for the year			(378,693	)		(137,986	)		(9,967	)
Items not affecting cash
	Depreciation and amortization		109,812			43,055			853
	Non-cash interest expense		132,834			79,832			—
	Loss on sale of long-term investment		40,965			—			—
	Shares issued for interest on long-term debt		—			—			171
	Recovery of future income taxes		—			(42,300	)		—
	Foreign exchange (gain) loss		(7,681	)		(8,223	)		1,010
			(102,763	)		(65,622	)		(7,933	)
Changes in non-cash working capital items
	Increase in accounts receivable		(20,244	)		(44,112	)		(2,417	)
	Increase in prepaid expenses		(1,861	)		(5,179	)		(500	)
	Decrease (increase) in inventory		(183	)		343			(545	)
	Increase in accounts payable and accrued liabilities		10,044			58,276			1,108
	Increase (decrease) in unearned revenue		(465	)		(605	)		2,077
			(12,709	)		8,723			(277	)
Cash used in operating activities			(115,472	)		(56,899	)		(8,210	)
Financing activities
Proceeds from long-term debt			77,000			690,711			4,421
Proceeds from monetization of swap agreements			61,045			—			—
Issuance of shares			103,783			396,120			71,526
Proceeds from issuance of warrants			—			58,776			—
			241,828			1,145,607			75,947
Investing activities
Business acquisitions			(5,080	)		(446,720	)		—
Purchase of property, plant and equipment			(216,482	)		(153,569	)		(8,454	)
Increase in other assets			(9,357	)		(64,832	)		(1,085	)
Proceeds from sale (purchase) of long-term investment			2,275			(43,238	)		—
Issuance of loans to officers			—			(3,868	)		—
			(228,644	)		(712,227	)		(9,539	)
Effect of exchange rate changes on cash held in foreign currencies			7,458			7,718			(823	)
Increase (decrease) in cash and cash equivalents			(94,830	)		384,199			57,375
Cash and cash equivalents — Beginning of year			444,050			59,851			2,476
Cash and cash equivalents — End of year			349,220			444,050			59,851

(thousands of Canadian dollars)

~~Additional~~SFAS ~~cash~~No. ~~flow~~142, ~~disclosures~~which ~~(note 17)~~ can only be applied prospectively, goodwill and indefinite-life intangible assets are not amortized, but are tested for impairment annually or more frequently as required. Intangible assets that do have definite lives will continue to be amortized over their useful lives and reviewed for impairment in accordance with HB 3062 and SFAS No. 142. An impairment loss is recognized when the fair value of goodwill or intangibles is less than the carrying amount of those items. The company is currently evaluating the impact of the adoption of HB 3062 and SFAS No. 142 and has not yet determined the full effect of adoption on its results of operations or financial position. If goodwill had not been amortized in the three months ended December 31, 2001 and 2000, the reported net loss would each have been reduced by $2 million.

~~See accompanying notes to consolidated financial~~ (d) Stock-based ~~statements.~~compensation


	The CICA has approved HB Section 3870, “Stock-Based Compensation and Other Stock-Based Payments”. The new section requires that stock-based payments to non-employees and direct awards of stock to employees and non-employees be accounted for using a fair value-based method of accounting. The section also requires enterprises to account for stock appreciation rights (SARs) and similar awards to be settled in cash by measuring, on an ongoing basis, the amount by which the quoted market price exceeds the option price. SARs and similar awards to be settled by equity instruments are measured using the fair value-based method or in a manner similar to the accounting for awards and SARs settled in cash. The new section encourages, but does not require, the use of the fair value-based method to account for all other stock-based transactions with employees.

	The new HB section applies to public companies for fiscal periods beginning on or after January 1, 2002 for awards granted on or after the date of adoption and, therefore, will not apply to modifications and settlements of awards granted before fiscal periods beginning on or after January 1, 2002. The company will adopt the new standard effective October 1, 2002. The company is currently evaluating the implementation aspects of the new standard.


3.	Monetization of cross currency interest-rate swap


	In November 2001, the company monetized or unwound certain of its cross currency interest-rate swaps and received proceeds of $20 million. The company entered into new cross currency interest-rate swaps to maintain its fully hedged position on the U.S. foreign exchange rate and interest rate exposure of its senior discount notes.

F-5

GT Group Telecom Inc.

Notes to Interim Consolidated Financial Statements — (Continued)

(~~tabular amounts expressed in thousands of Canadian dollars~~Unaudited)

1. (thousands ~~Nature~~ of ~~Business~~Canadian dollars)

~~GT Group Telecom Inc~~4. ~~(“GT”)~~Segmented and its wholly owned subsidiaries GT Group Telecom Services Corp. and GT Group Telecom Services USA Corp. (collectively known as the “company”) markets and sells telecommunications services and related products over its owned fibre optic infrastructure to small and medium-sized businesses, large enterprises and telecommunications providers. The company also co-locates with the incumbents’ facilities, and uses unbundled loops to extend the reach of its network. The company provides data, internet applications and voice services and derives revenue from network usage and access, equipment sales, co-location and installation services. The company also sells dark fibre to other telecommunication providers.information

2The Company is a Canadian national facility based provider of high-speed data, internet, application and voice services comprising a single operating segment. ~~Significant~~Substantially ~~accounting~~all ~~policies~~of the company’s assets are located in Canada and revenue is derived from telecommunications services provided in Canada. The company makes decisions and evaluates financial profitability measured as a single operating segment with revenues from the following services and products:

These consolidated financial statements are prepared in accordance with accounting principles generally accepted 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 20.



	Three months ended
	December 31,

	2001		2000

	$		$
Data		48,045		32,064
Voice		11,877		7,379
Applications		1,405		481

		61,327		39,924

~~Principles~~ During the three months ended December 31, 2001 and 2000, one customer of ~~consolidation~~ the Company accounted for approximately 17% and 12% of revenue, respectively.

~~The consolidated financial statements include the accounts of the company and its wholly owned subsidiaries~~5. ~~All~~Subsequent ~~intercompany transactions and balances have been eliminated on consolidation.~~event

~~Cash~~ In January 2002, the Company drew the remaining $41 million from its senior bank facility. The $120 million revolving term loan is repayable as follows: $12 million in February 2003, $18 million in February 2004 and ~~cash~~February ~~equivalents~~ 2005, $24 million in February 2006 and the remainder of $48 million in February 2007. The loan is interest bearing at the bankers’ acceptance rate plus a margin of 4.25%, with interest payable quarterly.

~~Cash and cash equivalents consist of cash on deposit and highly liquid short-term interest bearing securities with maturity at the date of purchase of three months or less~~6. ~~Short-term~~Prior ~~interest~~period ~~bearing~~comparative ~~securities are recorded at cost plus accrued interest earned, which approximates current market value.~~amounts

~~Revenue recognition~~ Certain prior periods’ comparative numbers have been re-classified to conform to the current period’s presentation.

Revenue from network usage and access is recognized when services are provided. Revenue from equipment sales is recognized at the time the equipment is delivered and accepted by the customer. Revenue from installation services and from co-locations, where the company provides a location and services for the customers’ servers and telecommunication equipment, is recognized as services are rendered. Revenue on the sale of dark fibre is recognized when there is persuasive evidence of an agreement, the price is fixed or determinable, collectibility is reasonably assured and title has been transferred. Income from operating leases of fibre optic facilities is recognized on a straight-line basis over the term of the lease. Unearned revenue is recorded for services and operating leases when cash payment has been received in advance and is recognized as revenue in the period in which the services are provided.

F-6

GT Group Telecom Inc.

Notes to Interim Consolidated Financial Statements — (Continued)

(~~tabular amounts expressed in thousands of Canadian dollars~~Unaudited)

~~Property, plant~~(thousands ~~and~~of ~~equipment~~Canadian dollars)

~~Property, plant and equipment are recorded at cost less accumulated amortization~~ 7. Reconciliation ~~Amortization~~to accounting isprinciples ~~provided~~generally ~~over~~accepted ~~estimated~~in ~~useful lives on a straight-line basis at~~ the ~~following annual rates:~~ United States

Buildings			7%
Furniture and fixtures			20%
Computer equipment and software			33%
Telecommunication networks			5% to 20%
Leasehold improvements			over the term of the leases (4-8 years)


	The Company’s interim 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:

~~Telecommunication~~ (a) Net loss ~~networks, which are installed on rights of way granted by others, include construction costs, costs of acquiring rights of way, interest costs~~ and ~~network~~shareholders’ design costs, all of which are incurred in developing new networks or expanding existing networks. Amortization commences when the assets are available for use. Management reviews the carrying values of its property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing its review for recoverability, management estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized.equity

~~Long-term investment~~ 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:

The long-term investment is accounted for on the cost basis. The carrying value of the investment is written down to net realizable value when the loss in value is considered to be other than temporary.



		Three months ended
		December 31,

		2001			2000

		$			$
Loss for the period in accordance with Canadian GAAP			(88,805	)		(81,929	)
Impact of U.S. accounting principles
	Amortization of purchase price adjustment (c)		(396	)		(396	)
	Stock-based compensation (d)		(3,669	)		(3,767	)
	Recovery of (provision for) future income taxes		(15,683	)		1,448

Net loss in accordance with U.S. GAAP			(108,553	)		(84,644	)
	Unrealized loss on securities (e)		—			(10,993	)
	Unrealized gain (loss) on derivative instruments, net of future income tax of nil (2000 — $1,499) (f)		(61,152	)		3,380

Comprehensive loss in accordance with U.S. GAAP			(169,705	)		(92,257	)

Basic and diluted loss per share in accordance with U.S. GAAP			(0.78	)		(0.74	)

~~Goodwill and~~The ~~other~~reconciliation ~~assets~~ of shareholders’ equity from Canadian to U.S. GAAP is as follows:

Goodwill represents the excess of the cost of business acquisitions over the fair value of the identifiable net assets acquired. Goodwill is amortized over its estimated useful life ranging from 3 to 20 years. The company reviews the carrying value of its goodwill to determine whether there has been a permanent impairment in value. The measurement of possible impairment is based primarily on the ability to recover the carrying value from expected future operating cash flows on an undiscounted basis. Non-compete agreements, license rights and deferred charges are amortized on a straight-line basis over the term of the agreements or estimated useful life ranging from 3 to 10 years. Financing costs are amortized on a straight-line basis over the terms of the related debt financing. Effective October 1, 2001, the company will adopt the Canadian Institute of Chartered Accountants (“CICA”) Handbook (“HB”) section 1581 “Business Combinations” and section 3062 “Goodwill and Other Intangible Assets”. The new sections are consistent with U.S. pronouncements, SFAS No. 141 “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangibles Assets”, issued by the Financial Accounting Standards Board (“FASB”) in July 2001.



	As at

	December 31,			September 30,
	2001			2001

				$
	$			(audited)
Shareholders’ equity in accordance with Canadian GAAP		509,062			597,865
Purchase price adjustment, net of depreciation and amortization of $2,599 (September 30, 2001 — $2,203) (c)		15,053			15,450
Cumulative stock-based compensation expense (d)		(27,323	)		(23,657	)
Deferred stock-based compensation expense (d)		(13,112	)		(16,991	)
Net change in stock options (d)		40,435			40,648
Recovery of future income taxes (c)		689			16,373
Cumulative comprehensive income (loss) (f)		(23,109	)		36,595

Shareholders’ equity in accordance with U.S. GAAP		501,695			666,283

F-7

GT Group Telecom Inc.

Notes to Interim Consolidated Financial Statements — (Continued)

(~~tabular amounts expressed in thousands of Canadian dollars~~Unaudited)

HB (thousands ~~1581 and SFAS No. 141 require that the purchase method~~ of ~~accounting~~Canadian be used for all business combinations initiated after June 30, 2001 and provide guidance on the initial recognition and measurement of goodwill and other intangible assets acquired after the implementation date. The use of pooling is no longer permitted. Under HB 3062 and SFAS No. 142, which can only be applied prospectively, goodwill and indefinite-life intangible assets are not amortized, but are tested for impairment annually or more frequently as required. Intangible assets that do have definite lives will continue to be amortized over their useful lives and reviewed for impairment in accordance with HB 3062 and SFAS No. 142. An impairment loss is recognized when the fair value of goodwill or intangibles is less than the carrying amount of those items. The company currently accounts for all business combinations under the purchase method and does not expect adoption of HB 1581 and SFAS No. 141 to have an effect on the results of its operations. The company is currently evaluating the impact of the adoption of HB 3062 and SFAS No. 142 and has not yet determined the full effect of adoption on its results of operations or financial position. If goodwill had not been amortized in 2001 the reported net loss would have been reduced by $7 million.dollars)

~~Stock-based~~(b) Consolidated ~~compensation~~balance ~~plan~~sheets

The ~~company~~following ~~has~~table aindicates ~~stock-based~~the ~~compensation~~restated ~~plan,~~amounts ~~which~~for isthe ~~described~~items in ~~note~~the ~~12(f).~~consolidated Nobalance ~~compensation~~sheets ~~expense~~of ~~is recognized for~~ the ~~plan~~Company ~~when~~that ~~stock~~would ~~options~~be ~~are~~affected ~~issued~~had tothe ~~employees.~~financial ~~Any~~statements ~~consideration~~been ~~paid~~prepared byin ~~employees~~accordance onwith ~~exercise of stock options is credited to share capital~~U.S. GAAP:

Foreign currency translation



	As at

	December 31,			September 30,
	2001			2001

				$
	$			(audited)
Property, plant and equipment (c)		1,438,489			1,422,495
Long-term investment (e)		—			66,537
Goodwill and other assets (c)(f)		213,450			293,384
Long-term debt (f)		1,510,386			1,457,130
Share capital (c)		1,154,852			1,154,848
Additional paid-in capital		337			337
Deferred stock-based compensation expense (d)		(13,112	)		(16,991	)
Stock options outstanding (d)		40,435			40,648
Deficit		(657,708	)		(549,154	)
Cumulative comprehensive income (loss) (f)		(23,109	)		36,595

~~The~~ (c) Purchase price company translates all foreign currency denominated monetary assets and liabilities at year-end exchange rates. Revenues and expenses are translated at the rates prevailing on the respective transaction dates. Exchange gains and losses resulting from movements in rates are reflected in net income in the year except for gains or losses relating to long-term monetary liabilities which are deferred and amortized over the remaining term of the assets and liabilities. The company hedges its exposure to foreign currency exchange rate risk on long-term debt through the purchase of cross currency swaps and by designating existing foreign currency-denominated monetary assets. All such instruments are only used for risk management purposes and are designated as hedges of specific debt instruments. Accordingly, foreign exchange gains and losses on hedge instruments are recorded in the same period as the corresponding gains and losses on the related long-term debt. For cross currency interest rate swaps that are monetized or unwound, the company defers and amortizes any gains realized over the remaining term of the long-term debt originally hedged. Effective October 1, 2001, the company will adopt the revised recommendations of the CICA Handbook section 1650 “Foreign Currency Translation” which are to be applied by companies for fiscal years beginning on or after January 1, 2002. The revised handbook section requires the immediate recognition in income of unrealized foreign currency exchange gains and losses on long-term monetary items with a fixed or ascertainable life as opposed to unrealized gains and losses being deferred and amortized over the remaining term of the long-term monetary items. The revised recommendations are to be applied retroactively with prior years’ financial statements being restated. The effect of applying the revisions will be that foreign exchange gains and losses on long-term debt currently deferred and amortized over the term of the debt will be reflected in the statement of operations. The reported losses for the years ended in 2001 and 2000 will be increased by $4 million and $2 million, respectively.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 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.

F-8

GT Group Telecom Inc.

Notes to Interim Consolidated Financial Statements — (Continued)

(~~tabular amounts expressed in thousands of Canadian dollars~~Unaudited)

~~Income~~(thousands of Canadian dollars) ~~taxes~~

~~The~~Had ~~company uses~~ the ~~liability~~Company ~~method~~determined ofcompensation ~~accounting~~costs ~~for~~based ~~income~~on ~~taxes~~fair ~~under~~value ~~which~~at ~~future~~the ~~tax~~date ~~assets~~of ~~and~~grant ~~liabilities are recognized~~ for ~~differences~~its ~~between~~awards ~~the~~under ~~financial~~a ~~statement~~method ~~carrying~~prescribed ~~amounts~~by ofSFAS ~~existing assets and liabilities and their respective tax bases~~No. ~~Future~~123, ~~tax~~“Accounting ~~assets~~for ~~and~~Stock-Based ~~liabilities~~Compensation” ~~are measured using substantively enacted tax rates in effect in~~ the ~~period~~company’s inloss ~~which~~and ~~those~~loss ~~temporary~~per ~~differences~~share ~~are~~would ~~expected to~~ be ~~recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized~~ as ~~part of the provision for income taxes in the period that includes the enactment date. A valuation allowance is recorded to the extent there is uncertainty regarding realization of future tax assets.~~follows:

Basic and diluted loss per share


	Three months ended
	December 31, 2001

	$
Loss in accordance with U.S. GAAP		(108,553	)
Additional compensation expense		4,268

Pro forma net loss		(112,821	)

Pro forma basic and fully diluted loss per share		(0.81	)

~~Basic~~The ~~and~~pro-forma ~~diluted~~compensation ~~loss~~expense ~~per~~reflected ~~share~~above ishas ~~calculated~~been estimated using the ~~weighted~~Black-Scholes ~~average~~option-pricing ~~number~~model. ofAssumptions ~~common~~used ~~shares~~in ~~outstanding during~~ the ~~years.~~pricing ~~Common~~model ~~shares issuable on exercise of warrants for nil consideration are~~ included: as(i) ~~outstanding~~risk ~~common~~free ~~shares.~~interest ~~The~~rate ~~exercise~~ of ~~options~~between ~~and warrants outstanding at September 30, 2001, 2000 and 1999 would have an anti~~4.10%-~~dilutive effect on basic loss per common share~~6.41%; ~~Effective~~(ii) ~~October~~expected 1,volatility ~~2000, the company adopted the revised recommendations~~ of ~~the~~ranging ~~CICA~~between ~~Handbook~~nil-157%; ~~section~~(iii) ~~3500~~expected ~~“Earnings~~dividend ~~per~~yield ~~Share”. The revised handbook section requires the use~~ of ~~the~~nil; ~~treasury stock method to compute the dilutive effect of stock options~~ and ~~warrants.~~(iv) ~~The~~an ~~adoption~~estimated ofaverage ~~these~~life ~~recommendations had no effect as the exercise~~ of ~~options~~ranging ~~has~~from ~~an anti~~3-~~dilutive~~5 ~~effect on basic loss per common share~~years.

~~Use~~(e) Loss ofon ~~estimates~~securities

~~The~~Under ~~preparation~~U.S. ofGAAP, ~~financial~~portfolio ~~statements~~investments inwhich ~~accordance~~are ~~with~~considered ~~generally~~to ~~accepted~~be ~~accounting~~“available ~~principles~~for ~~requires~~sale” ~~management~~securities toare ~~make~~measured ~~estimates~~at market value, with the unrealized gains and ~~assumptions~~losses ~~that~~included ~~affect~~in comprehensive income/loss. Under Canadian GAAP, the ~~reported~~Company’s ~~amounts~~long-term ofinvestment ~~assets~~is ~~and~~recorded ~~liabilities~~at ~~and~~cost. ~~disclosure~~With ofthe ~~contingent~~sale ~~assets~~of ~~and~~investment ~~liabilities~~in ~~and~~June 2001, the ~~reported~~Company ~~amounts~~realized a loss of ~~revenues~~$41 ~~and~~million ~~expenses~~under ~~during~~Canadian GAAP. Under U.S. GAAP, this transaction resulted in the ~~reporting~~reversal ~~period~~of net unrealized losses previously recorded in other comprehensive income. ~~Actual~~The ~~results~~concept ~~could~~of ~~differ~~comprehensive ~~from~~income/loss ~~those~~does ~~estimates~~not exist under Canadian GAAP.

(f) Unrealized gain (loss) on derivative instruments


	In June 1998, the FASB 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 these derivative instruments at market value, with the unrealized gains and losses included in other comprehensive income. Under Canadian GAAP, the company records unrealized gains or losses on these derivative instruments in the statement of operations in the same period, and in an equivalent amount, as the corresponding unrealized foreign currency exchange gains and losses on the long-term debt that has been hedged. A corresponding asset or liability is recorded in the balance sheet for the amount of the derivative instrument that has been recognized.

F-9

GT Group Telecom Inc.

Notes to Interim Consolidated Financial Statements — (Continued)

(~~tabular amounts expressed in thousands of Canadian dollars~~Unaudited)

3. (thousands ~~Business~~of ~~acquisitions~~Canadian dollars)

~~Details~~ (g) Other recent ofaccounting ~~business acquisitions during the years ended September 30, 2001 and 2000 are as follows:~~pronouncements

		2001		2000
				Shaw		Videon		Cable
		C1		FiberLink		Fiberlink		Atlantic
		(a)		(b)		(c)		(d)		Other		Total
		$		$		$		$		$		$
Assets
Indefeasible right to use agreements:
	Property, plant and equipment for constructed fibres		38,880		329,000		88,359		29,689		—		447,048
	Prepayment for fibres to be constructed		—		223,000		7,600		—		—		230,600
Property, plant and equipment			6,830		100,000		7,397		17,560		435		125,392
License rights			—		13,800		—		—		—		13,800
Non-compete agreements			—		15,000		—		1,200		—		16,200
Goodwill including acquisition costs			—		119,513		—		25,025		3,261		147,799
Current assets			3,121		204		784		1,107		24		2,119
			48,831		800,517		104,140		74,581		3,720		982,958
Liabilities
Current liabilities			4,193		246		—		881		—		1,127
Obligations under capital lease			21,578		—		—		—		—		—
Future income taxes			—		28,200		—		14,100		—		42,300
			25,771		28,446		—		14,981		—		43,427
Purchase consideration
Cash paid			5,080		360,000		68,784		15,226		2,710		446,720
Class A voting shares			—		—		—		—		1,010		1,010
Class B non-voting shares			15,980		—		32,356		42,374		—		74,730
Series B first preference shares			—		400,071		—		—		—		400,071
Acquisition costs			2,000		12,000		3,000		2,000		—		17,000
			23,060		772,071		104,140		59,600		3,720		939,531
Number of Shares issued
Class A voting shares			—		—		—		—		336,666		336,666
Class B non-voting shares			2,372,000		—		1,667,000		1,740,196		—		3,407,196
Series B first preference shares			—		29,096,097		—		—		—		29,096,097

(i) Accounting for asset retirement obligations

~~Business~~In ~~acquisitions~~July ~~are~~2001, ~~accounted~~the FASB issued SFAS No. 143, “Accounting for byAsset ~~the~~Retirement ~~purchase~~Obligations. ~~method~~The ofstatement ~~accounting~~requires ~~under~~entities ~~which~~to record the ~~assets~~fair ~~and~~value ~~liabilities~~of ~~purchased~~a ~~are~~liability ~~recorded~~for atan ~~their~~asset ~~fair~~retirement ~~values~~obligation ~~with~~in the ~~excess~~period ofin which the ~~purchase~~legal ~~price~~or ~~over~~contractual ~~the~~removal ~~fair~~obligation ~~value~~is ofincurred. ~~identifiable~~The ~~assets~~statement ~~and~~is ~~liabilities~~effective ~~acquired~~for ~~recorded~~fiscal asyears ~~goodwill.~~beginning ~~The~~after ~~results~~June of15, ~~operations~~2002, ~~are~~with ~~included~~earlier inadoption ~~the~~encouraged. The company’s ~~consolidated~~does ~~statements~~not believe that the adoption of ~~operations~~SFAS ~~from~~No. ~~the~~143 ~~dates~~will have a material effect on its results of ~~acquisition~~operations and financial position.

(aii) Accounting for C1the impairment or disposal of long-lived assets

InSFAS ~~April~~No. ~~2001,~~144 “Accounting for the ~~company~~Impairment ~~purchased~~or ~~from~~Disposal Cof Long-Lived Assets”, was issued in October 2001.~~1.COM~~ ~~Inc~~The statement supersedes SFAS No. (121, “~~C1”)~~Accounting ~~all~~for the ~~property~~Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,” and applies to recognized long-lived assets of an entity to be held and used inor ~~its~~to ~~Atlantic~~be ~~Canada~~disposed ~~competitive~~of, ~~local~~including ~~exchange~~capital ~~carrier~~leases ~~business~~of lessees, long-lived assets of lessors subject to operating leases and long-term prepaid assets. The ~~company~~standard ~~also~~requires ~~assumed~~that an impairment loss should be recognized if the ~~rights~~carrying ~~and~~amount ~~obligations~~of ~~with~~a ~~respect~~long-lived toasset anis ~~existing~~not ~~indefeasible~~recoverable ~~right~~and toexceeds its fair value for assets in use. ~~agreement,~~Long-lived ~~which~~assets ~~has~~classified ~~granted~~as held for sale should be measured at the lower of their carrying amount or fair value less cost to sell. SFAS 144 is effective for fiscal years beginning after December 15, 2001. The company does not believe that the ~~right~~adoption toof ~~use~~SFAS ~~certain~~No. ~~specifically~~144 ~~identified~~will ~~existing~~have ~~fibres~~a ~~through~~material toeffect ~~2020~~on its results of operations and financial position.

F-10

GT Group Telecom Inc.

~~Notes~~Supplemental Information to Interim Consolidated Financial ~~Statements —~~ ~~(Continued)~~Statements

~~(tabular~~Consolidated ~~amounts~~Statements ~~expressed~~of inOperations ~~thousands of~~and ~~Canadian dollars)~~Deficit

(bUnaudited) ~~Shaw FiberLink~~

~~In February 2000, the company purchased from Shaw Communications Inc.~~ (~~“Shaw~~thousands ~~Communications”) and Shaw FiberLink Ltd. (“Shaw FiberLink”) all~~ of ~~the~~Canadian property and assets of Shaw FiberLink used in connection with the high-speed data and competitive access business. The company and Shaw FiberLink also entered into an indefeasible right to use agreement which grants the company an indefeasible right to use certain specifically identified existing fibres in the fibre optic cable networks of Shaw Communications for 60 years. Certain of the existing fibres located in New Brunswick, Canada under the indefeasible right to use agreement will be available for use in 2003. In addition, the company received an indefeasible right to use fibres to be built by February 2003 in mutually agreed locations. As at September 30, 2001, the carrying value of newly constructed fibres obtained for use by the company under this agreement amounts to $98 million.dollars)


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

				$
	$			(audited)			$			$
Assets
Current assets
Cash and cash equivalents		299,904			349,220			346,121			304,494
Trade accounts receivable		51,058			53,023			54,039			45,135
Sales tax and other receivables		15,396			20,062			22,142			13,302
Prepaid expenses		8,019			7,849			5,008			4,967
Inventory		430			620			493			440

		374,807			430,774			427,803			368,338
Prepayment on property, plant and equipment		132,852			132,852			132,852			132,852
Property, plant and equipment		1,435,355			1,419,319			1,370,607			1,244,839
Long-term investment		—			—			—			43,238
Goodwill and other assets		219,315			228,142			243,361			271,197

		2,162,329			2,211,087			2,174,623			2,060,464

Liabilities
Current liabilities
Accounts payable and accrued liabilities		116,626			133,140			116,496			123,188
Unearned revenue		343			175			1,196			844
Current portion of long-term debt		20,467			22,295			19,564			6,602

		137,436			155,610			137,256			130,634
Long-term unearned revenue		2,567			1,159			1,152			1,685
Long-term debt		1,485,571			1,434,835			1,360,799			1,242,858
Deferred gain on hedging instruments		27,693			21,618			—			—

		1,653,267			1,613,222			1,499,207			1,375,177

Shareholders’ Equity
Share capital and other equity items		1,133,630			1,133,628			1,132,041			1,015,018
Deficit		(624,568	)		(535,763	)		(456,625	)		(329,731	)

		509,062			597,865			675,416			685,287

		2,162,329			2,211,087			2,174,623			2,060,464

In April 2000, the company purchased from Moffat Communications Limited (“Moffat Communications”) all the property and assets used as a competitive access provider in its Videon Fiberlink business. The company and Moffat Communications also entered into an indefeasible right to use agreement which granted the company an indefeasible right to use certain specifically identified existing fibres in the fibre optic cable networks of Moffat Communications for 30 years. In addition, the company received an infeasible right to use fibres to be built by April 2003 in mutually agreed upon locations.

(d) Cable Atlantic

In July 2000, the company purchased from Cable Atlantic Inc. (“Cable Atlantic”) all the property and assets used in connection with the fibre optic telecom business. The company also entered into an indefeasible right to use agreement which granted the company an indefeasible right to use certain specifically identified existing fibres in the fibre optic cable networks of Cable Atlantic for 30 years.

4. Accounts receivable

	September 30,
	2001			2000
	$			$
Trade receivables		56,482			34,759
Goods and sales taxes recoverable		15,414			12,568
Employee receivables		3,879			3,105
Other		769			4,026
Allowance for doubtful accounts		(3,459	)		(4,506	)
		73,085			49,952

F-11

GT Group Telecom Inc.

~~Notes~~Supplemental Information to Interim Consolidated Financial ~~Statements —~~ ~~(Continued)~~Statements

~~(tabular~~Consolidated ~~amounts~~Statements ~~expressed~~of inOperations ~~thousands of~~and ~~Canadian dollars)~~Deficit

~~5. Property, plant and equipment~~ (Unaudited)

	September 30, 2001
			Accumulated
	Cost		Depreciation		Net
	$		$		$
Land		550		—		550
Buildings		4,000		457		3,543
Furniture and fixtures		6,935		2,174		4,761
Computer equipment and software		77,750		35,142		42,608
Telecommunication networks		1,430,818		74,846		1,355,972
Leasehold improvements		14,841		2,956		11,885
		1,534,894		115,575		1,419,319

(thousands of Canadian dollars)

	September 30, 2000
	For the three months ended,
				Accumulated
	December 31,			September 30,			June 30,			March 31,
	Cost			Depreciation			Net
	2001			2001			2001			2001
	$			$			$			$
Land		550			—			550
Revenue		61,327			62,264			58,409			48,526
Buildings		3,950			139			3,811
Cost of sales and services		33,260			34,394			33,611			29,653
Furniture and fixtures		4,694			664			4,030
		28,067			27,870			24,798			18,873
Computer equipment and software		40,786			3,094			37,692
Selling, general and administrative expenses		45,203			45,235			45,616			43,676
Telecommunication networks		927,734			27,059			900,675
		(17,136	)		(17,365	)		(20,818	)		(24,803	)
Leasehold improvements		8,702			543			8,159
Depreciation and amortization		30,523			28,983			29,700			27,745
		986,416			31,499			954,917
Interest and financing charges		40,066			30,668			34,331			41,664
Loss of sale on long term investment		—			—			40,965			—
Loss before income taxes		(87,725	)		(77,016	)		(125,814	)		(94,212	)
Provision for income taxes		1,080			2,122			1,080			855
Loss for the period		(88,805	)		(79,138	)		(126,894	)		(95,067	)
Deficit — beginning of period		(535,763	)		(456,625	)		(329,731	)		(234,664	)
Deficit — end of period		(624,568	)		(535,763	)		(456,625	)		(329,731	)
Basic and diluted loss per share		(0.64	)		(0.57	)		(0.97	)		(0.76	)
Weighted average number of common shares outstanding (in thousands)		138,848			138,735			130,910			124,965

Included in telecommunication networks as at September 30, 2001 are costs of $66 million (2000 — $87 million) relating to assets not yet available for use on which no depreciation has been charged. Included in telecommunication networks are assets under capital lease and long-term indefeasible right to use arrangements with a cost of $537 million (2000 — $447 million) and accumulated depreciation of $37 million (2000 — $13 million). Furniture, equipment and software, as at September 30, 2001 include capital lease asset costs of $5 million (2000 — $4 million), and related accumulated depreciation of $2 million (2000 — $1 million). In each of the years ended September 30, 2001 and 2000 interest and finance charges of $3 million were capitalized on projects under construction.

6. 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.

F-12

GTMANAGEMENT’S ~~Group~~DISCUSSION ~~Telecom Inc.~~AND ANALYSIS

~~Notes~~QUARTER toENDED ~~Consolidated Financial Statements~~DECEMBER —31, ~~(Continued)~~2001

(~~tabular~~Figures ~~amounts~~ expressed in ~~thousands~~CDN ~~of Canadian~~ dollars)

7This discussion and analysis is based on results recorded in accordance with accounting principles generally accepted in Canada and should be read in conjunction with the Interim Consolidated Financial Statements for the three months ended December 31, 2001, and the Consolidated Financial Statements and management’s discussion and analysis for the year ended September 30, 2001, included in Group Telecom’s 2001 Annual Report. ~~Goodwill~~ All figures are presented in Canadian dollars.

	September 30,
	2001		2000
	$		$
Goodwill net of accumulated amortization of $11,697 (2000 — $4,319)		124,097		131,464

Forward-looking statements

8 This discussion and analysis explains GT Group Telecom Inc.’s ~~Other~~(Group ~~assets~~Telecom) financial condition as at December 31, 2001, compared with the financial condition as at September 30, 2001, and the results of operations for the quarter ended December 31, 2001 compared with the quarter ended December 31, 2000, and is intended to assist shareholders and other readers to understand our business and the key factors underlying our financial results. Certain sections of this discussion and the Interim Consolidated Financial Statements 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.

	September 30,
	2001		2000
	$		$
Deferred financing charges net of accumulated amortization of $13,248 (2000 — $2,684)		47,473		48,609
Non-compete agreements and license rights net of accumulated amortization of $9,633 (2000 — $4,098)		19,792		26,172
Deferred charges net of accumulated amortization of $1,881 (2000 — $527)		17,626		19,122
Unrealized benefit of cross currency interest rate swap		19,155		17,037
Deferred foreign exchange loss net of accumulated amortization of $1,344 (2000 — $179)		6,001		1,666
		110,047		112,606

Overview

9. Group ~~Accounts~~Telecom ~~payable~~is Canada’s largest independent, facilities-based telecommunications company, providing competitive high-speed data, Internet, application and voice ~~accrued~~services ~~liabilities~~to over 15,000 customers. We provide business telecommunications services in 17 major markets over our owned fibre-optic network, which spans approximately 410,000 fibre-kilometres.

	September 30,
	2001		2000
	$		$
Trade accounts payable		40,975		53,404
Accounts payable and accruals for purchases of property, plant and equipment		39,030		32,498
Accrued vacation pay and bonuses		17,065		10,795
Capital tax, large corporations tax and sales taxes payable		12,150		6,786
Accrued cost of services		10,401		—
Other accrued liabilities		13,519		7,912
		133,140		111,395

A key element of our strategy is to own and control our network. This enables us to control the services provided to our customers from end to end, provide a high degree of network reliability and earn higher profit margins.

10 Revenue grew by over 50% in the current quarter over the comparable quarter in the prior year. ~~Unearned~~This ~~revenue~~growth was driven by the continued sale of high-margin on-net services.

~~Unearned~~ Our ~~revenue~~overall ~~represents~~gross ~~amounts~~margin ~~related~~percentage toincreased anby 10 percentage ~~operating~~points ~~lease arrangement entered into~~ in ~~April 1999, whereby~~ the ~~company~~quarter isended ~~the~~December 31, 2001 ~~lessor~~compared ~~of 24 strands of dark fibre including rights of way. The company received an up-front fee for installation costs related~~ to the ~~placement~~quarter ofended ~~fibre optic cable~~December 31, ~~building~~2000. ~~entrances~~This growth ~~and~~is ~~fibre~~consistent ~~optic~~with ~~cable~~our ~~connections~~growth toin ~~the lessee’s existing cable facilities which is presented as unearned~~ revenue and ~~is being recognized as income over~~ the ~~initial term~~ result of ~~the~~realizing ~~lease. Under this contract,~~ the ~~company~~cost ~~also~~savings ~~receives~~from ~~annual~~eliminating ~~payments~~leased ~~for lease~~ facilities and ~~rights~~reducing oflong ~~way~~distance ~~which~~and ~~are~~Internet ~~being recognized as income in equal annual amounts~~access costs. ~~The lease period ends in April, 2009, however the lessee has the option to extend the lease for an additional ten years.~~

Selling, general and administrative expenses continued to decrease as a percentage of revenue by over 30 percentage points in the quarter ended December 31, 2001 compared to the quarter ended December 31, 2000, largely because of effective budgetary controls over these expenses and the economies of scale attributable to greater revenues.

Earnings before interest, taxes, depreciation and amortization (EBITDA) loss for the quarter ended December 31, 2001 declined to a negative $17 million compared to a negative $27 million for the comparable quarter in the prior year.

We completed the quarter with approximately $600 million in liquidity, which includes $300 million in cash and cash equivalents.

F-13

GTResults ~~Group~~of ~~Telecom Inc.~~operations

~~Notes~~Key ~~to Consolidated~~ Financial ~~Statements —~~ ~~(Continued)~~Data

(~~tabular~~thousands ~~amounts~~of ~~expressed~~CDN indollars, ~~thousands~~except ~~of Canadian~~for ~~dollars~~per share amounts)

Minimum lease payments receivable for the next five years and thereafter are as follows:



		Three Months Ended
		December 31,

		2001			2000			Increase (Decrease)


Revenue
	Data	$	48,045		$	32,064		$	15,981		50%
	Voice		11,877			7,379			4,498		61%
	Applications		1,405			481			924		192%

			61,327			39,924			21,403		54%
Cost of sales and services			33,260			25,426			7,834		31%

Gross margin			28,067			14,498			13,569		94%
	Gross margin %		46%			36%			10%
Selling, general and administrative expenses			45,203			41,780			3,423		8%

EBITDA			(17,136	)		(27,282	)		10,146		37%
Depreciation and amortization			30,523			23,385			7,138		31%
Interest and financing charges			40,066			30,187			9,879		33%

Loss before income taxes			(87,725	)		(80,854	)		(6,871	)	8%
Provision for income taxes			1,080			1,075			5		0%

Loss for the period		$	(88,805	)	$	(81,929	)	$	(6,876	)	8%

Weighted average number of outstanding shares (in thousands)			138,848			124,882
Basic and diluted loss per share			(0.64	)		(0.66	)

		$
Year ending September 30,
	2002		500
	2003		500
	2004		250
	2005		250
	2006		250
	Thereafter		500

Revenue

11 Total revenues increased by 54%, from $40 million for the three months ended December 31, 2000 to $61 million for the three months ended December 31, 2001. ~~Long~~This ~~term~~increase ~~debt~~was driven by continued growth in all product categories, especially on-net data and voice services.

	September 30,
	2001		2000
	$		$
Senior discount notes (a)		825,136		679,698
Vendor financing (b)		289,599		153,565
Vendor financing (c)		66,031		31,859
Senior bank facility (d)		178,544		100,144
Obligations under capital leases (e)		97,820		5,047
		1,457,130		970,313
Less: Current portion		22,295		4,348
		1,434,835		965,965

Data ports installed grew from 6,791 as at December 31, 2000, to 12,008 as at December 31, 2001. Private lines provisioned grew from 51,037 as at December 31, 2000, to 70,848 as at December 31, 2001. Voice access lines provisioned grew from 48,435 as at December 31, 2000, to 100,205 as at December 31, 2001. The growth in these services has generated the increase in our revenue.

~~Repayments~~Cost of ~~long-term~~sales ~~debt~~and ~~in each of the next~~services ~~five years are as follows:~~

		Senior				Senior
		discount		Vendor		bank
		notes		financing		facility
		$		$		$
Year ending September 30,
	2002		—		1,357		139
	2003		—		14,094		4,969
	2004		—		20,947		10,140
	2005		95,886		20,947		15,140
	2006		191,772		27,415		44,281

Total cost of sales and services increased by 31%, from $25 million for the three months ended December 31, 2000, to $33 million for the three months ended December 31, 2001. Gross margin totalled $28 million or 46% of revenue for the three months ended December 31, 2001, compared with $14 million or 36% of revenue for the three months ended December 31, 2000. We improved gross margin as a result of growing on-net revenues and by deriving efficiencies from our network.

~~(a)~~ Selling, ~~Senior~~general ~~discount~~and ~~notes~~administrative expenses

~~Pursuant~~ Total ~~to an indenture dated February 1~~selling, ~~2000,~~general ~~the~~and ~~company~~administrative expenses ~~issued 855,000 units, consisting of US $855 million~~ (~~issued at a price of 52.651% of the stated amount~~SG&A) ~~of 13.25% senior discount notes due 2010 and 855,000 warrants to purchase 4,198,563 Class B non-voting shares. Gross proceeds~~ amounted to US $~~450~~ 45 million, ~~equivalent~~for ~~to approximately Cdn. $651 million. Expenses related to~~ the ~~offering~~current quarter ~~amounted~~compared to ~~approximately~~ $20 42 million. Offor the ~~total~~comparable ~~proceeds,~~quarter in ~~$592 million was allocated to~~ the ~~senior~~prior ~~discount~~year, ~~notes~~representing ~~and~~an ~~$59~~increase ~~million was allocated to the share purchase warrants~~of 8%.

SG&A expenses as a percentage of revenues decreased from 105% for the three months ended December 31, 2000, compared with 74% for the three months ended December 31, 2001. As we continue to grow, we will be able to leverage off and realize cost benefits from our established infrastructure.

F-14

~~GT Group Telecom Inc.~~EBITDA

~~Notes~~Earnings tobefore ~~Consolidated~~interest, ~~Financial~~taxes, depreciation and ~~Statements —~~amortization (~~Continued~~EBITDA) for the quarter ended December 31, 2001 was a negative $17 million compared with a negative $27 million for quarter ended December 31, 2000.

~~(tabular~~EBITDA ~~amounts~~is ~~expressed~~a financial measure commonly used in the ~~thousands~~telecommunications and other industries and is presented to assist in understanding Group Telecom’s operating results. Compared to our loss for the period determined in accordance by generally accepted accounting procedures, EBITDA excludes depreciation and amortization, interest and financing charges, and provision for income taxes. EBITDA is not intended to represent results of our operations or our cash flow results in ~~Canadian~~accordance ~~dollars)~~with generally accepted accounting principles.

~~The~~ Depreciation senior discount notes accrue interest at 13.25% on the face value of the notes until February 1, 2005. The interest accrued to February 1, 2005 is payable at maturity together with the face value of the notes. After February 1, 2005, interest is payable semi-annually in cash in arrears February 1 and August 1 of each year, at an annual rate of 13.25%. The effective annual interest rate on the senior discount notes is 14.93%, as the cost of the purchase warrants is being amortized over the term of the senior discount notes. On or after February 1, 2003, the company can elect to commence the payment of interest in cash semi-annually on February 1 and August 1 of each year, thereby reducing the stated amount of the note. The company has an early redemption option at any time after February 1, 2005 for all or part of the senior discount notes. The redemption prices for the notes for each year ending February 1, are as follows: 106.625% in 2005, 104.417% in 2006, 102.208% in 2007 and 100% thereafter, plus unpaid interest. In addition, prior to February 1, 2005, the company may redeem up to 35% of the notes at a redemption price of 113.25% of the outstanding amounts of the notes, at the time of redemption. The notes are unsecured obligations of the company and the indenture contains certain restrictive covenants including limitation on indebtedness, restriction on the payment of dividends and other payments, limitations on liens, asset dispositions, change of control and limitation on transactions with subsidiaries. To reduce the exposure to U.S. dollar exchange rate fluctuations, the company has entered into cross currency swaps as described in note 14.amortization

~~Vendor~~Depreciation and amortization expenses increased ~~financing~~by $7 million or 31% during the current quarter to $31 million for the three months ended December 31, 2001, compared to $23 million for the three months ended December 31, 2000. Additions to property, plant and equipment in connection with the deployment of the network and strategic acquisitions resulted in this increase.

~~(b)~~ Interest ~~On February 3, 2000, the company entered into a US$315 million facility with a particular vendor to finance the purchase~~ and ~~installation~~financing of telecommunication equipment and services. This vendor facility matures on June 30, 2008 with quarterly principal repayments at the rate of 1.25% of the amount outstanding, starting on March 31, 2003 until December 31, 2007. In March and June of 2008, the principal is repayable in two instalments of 37.5% of the outstanding amount.charges

~~The~~ Interest ~~balance~~and offinancing ~~$290~~charges were $40 million ~~under~~for ~~this~~the ~~facility~~three atmonths ~~September~~ended 30December 31, 2001, iscompared ~~comprised of amounts~~ to ~~be drawn of~~ $7 30 million, ~~and~~for ~~amounts drawn on~~ the ~~vendor~~three ~~credit~~months ~~facility~~ended December 31, ~~of $283 million (denominated as US $179 million)~~2000. ~~Availability~~Interest ~~under~~and ~~the~~financing ~~credit~~expenses increased ~~facility~~primarily isas bya ~~way~~result of ~~multiple draw-downs. At the option of the company, draw-downs under the credit facility bear~~ interest atincurred ~~either LIBOR plus an applicable margin or U.S. Prime Rate plus an applicable margin. Depending~~ on ~~the~~high yield ~~ratio of consolidated total~~ debt ~~to annualized earnings before interest, taxes~~ and ~~amortization,~~additional ~~the~~draw-downs margin added to the LIBOR is between 3.0% and 4.5% and the margin added to the U.S. Prime Rate is between 2.0% and 3.5%. The effective interest rate on outstanding amounts during the year ended September 30, 2001 was 9.6% (2000 — 11.5%). In addition, a commitment fee varying between 0.75% and 1.50% depending on the level of ~~utilization of the~~ vendor ~~facility~~financing isand senior ~~payable on the undrawn portion~~bank debt.

~~(c)~~ Provision ~~On September 29, 2000, the company entered into a new vendor credit facility~~ for ~~$120~~income million to finance the purchase and installation of telecommunication equipment and services provided by a certain vendor. This vendor credit facility matures September 29, 2007 with annual principal repayment at a rate of 4.89% of the outstanding amount on September 30, 2003, 10% on September 30, 2004 and September 30, 2005, 20% on September 20, 2006, and 55.11% on September 29, 2007. Availability under the vendor credit facility is by way of multiple drawdowns.taxes

Group Telecom has not generated any taxable income to date and therefore has 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

The net loss for the three months ended December 31, 2001 was $89 million or $0.64 per share compared to $82 million or $0.66 per share for the three months ended December 31, 2000.

Liquidity and capital expenditures

Liquidity

Cash and cash equivalents decreased during the three months ended December 31, 2001 by $49 million, due to our operating requirements of $46 million and capital purchases of $25 million, largely off-set by proceeds of $20 million from the monetization of swap arrangements. Cash used in operations activities during the three months ended December 31, 2001 was $46 million compared with $38 million in the comparable quarter in the prior year.

In November 2001, we monetized or unwound certain of our cross currency interest-rate swaps and received cash proceeds of $20 million. We entered into new cross currency interest-rate swaps to maintain our fully hedged position on the U.S. foreign exchange rate and interest rate exposure on our senior discount notes.

As at December 31, 2001, we had approximately $600 million in funding available, consisting of $300 million of cash and cash equivalents, $255 million in vendor financing facilities, and $43 million in our senior bank facility. Subsequent to December 31, 2001 we utilized the remaining amount available under this facility. The facility bears interest at banker’s acceptance rates plus a margin of 4.25% and is repayable in tranches starting in February 2003 and finishing in February 2007.

F-15

GTCapital ~~Group Telecom Inc.~~expenditures

~~Notes~~We continued to ~~Consolidated~~expand ~~Financial~~the reach of our ~~Statements~~fibre-optic network. At the quarter ended December —31, 2001, ~~(Continued)~~our network totalled 409,953-fibre-kilometres across Canada and into the United States. On-net buildings increased from 1670 as at December 31, 2000 to 2,253 as at December 31, 2001.

~~(tabular~~Expenditures ~~amounts~~on ~~expressed~~property, inplant ~~thousands~~and ofequipment ~~Canadian~~during ~~dollars)~~the current quarter were $40 million compared to $91 million for the comparable quarter in the prior year.

~~The~~ Changes ~~balance~~in ~~under~~accounting ~~this~~principles ~~facility at September 30, 2001 of $66 million is comprised of amounts to be drawn of $4 million,~~ and ~~amounts~~other recent drawn on the credit facility of $62 million. At the option of the company, the credit facility bears interest at either the Prime Rate (published rate of a Schedule I Canadian Bank) or the quoted banker acceptances rate (“BA rate”) plus an applicable margin. The applicable margin on Prime Rate loans ranges from 2.00% to 3.25% and the margin applicable to BA Rate loans ranges from 3.00% to 4.25%, depending upon the company’s consolidated ratio of total debt to annualized earnings before interest, taxes and amortization. The effective interest rate on outstanding amounts during the year ended September 30, 2001 was 9.6% (2000 — 12.0%). In addition, a commitment fee of 0.5% per annum is payable on the undrawn portion of the credit facility.pronouncements

(da) Foreign ~~Senior bank facility~~exchange

OnEffective ~~February~~October 31, ~~2000~~2001, ~~the~~we ~~company~~adopted ~~entered~~the ~~into~~revised arecommendations ~~credit agreement for a senior bank facility for an amount~~ of ~~$220~~the ~~million.~~Canadian ~~The~~Institute ~~bank facility is comprised~~ of aChartered ~~$120~~Accountants ~~million~~(CICA) ~~seven~~Handbook ~~year~~(HB) ~~revolving~~section ~~reducing~~1650 ~~term~~“Foreign ~~loan~~Currency ~~and a $100 million reducing term loan~~Translation”. The ~~$120~~revised ~~million~~handbook ~~revolving~~section ~~term~~requires ~~loan~~the ~~reduces,~~immediate ~~starting~~recognition ~~February 3, 2003 to $108 million and reduces on every anniversary thereafter to $90 million~~ in ~~2004,~~income ~~$72~~of ~~million~~unrealized inforeign ~~2005,~~currency ~~$48~~exchange ~~million~~gains ~~in 2006~~ and ~~nil~~losses inon ~~2007. The $100 million reducing~~ long-term ~~loan~~monetary isitems ~~amortized~~with ~~annually~~a byfixed ~~4.9%~~or onascertainable ~~February~~life 3,as ~~2003,~~opposed ~~10%~~to onunrealized ~~February~~gains ~~3, 2004~~ and ~~2005,~~losses ~~20%~~being ondeferred ~~February 3, 2006~~ and ~~55.1%~~amortized onover ~~February 3, 2006. At~~ the ~~option~~remaining term of the ~~company,~~long-term ~~the~~monetary ~~bank facility may be used as LIBOR loans denominated in U~~items.S. ~~dollars,~~The ~~bankers~~revised ~~acceptances~~recommendations inhave ~~Canadian~~been ~~dollars,~~applied ~~U.S.~~retroactively ~~Base~~with ~~rate~~the ~~loans~~prior inperiod’s ~~U.S.~~financial ~~dollars~~statements ~~and~~being ~~standby letters of credit in Canadian or U~~restated.S. ~~dollars.~~ The ~~margins~~effect ~~added~~of tothis ~~the~~change ~~applicable~~was ~~interest rates may vary from 2.0%~~ to ~~4.5%,~~increase ~~depending upon~~ the ~~company’s~~losses ~~consolidated~~for ~~ratio~~the ofthree ~~total~~months ~~debt~~ended toDecember ~~annualized earnings before interest~~31, ~~taxes~~2001 and ~~amortization.~~2000 ~~The~~each ~~effective~~by ~~interest~~$3 ~~rate on outstanding amounts during the year ended September 30, 2001 was 8~~million.~~0% (2000 — 11.9%).~~

~~Collateral agency~~(b) Business ~~and intercreditor agreement~~combinations

~~The~~Effective ~~company~~October ~~has~~1, ~~granted~~2001, ~~the~~we ~~lenders~~adopted ~~under~~ the ~~vendor~~CICA ~~credit~~HB ~~facilities~~section ~~and~~1581 ~~the~~“Business ~~senior~~Combinations,” ~~bank~~which ~~credit~~is ~~facility~~consistent ~~general~~with ~~security~~U.S. ~~agreements~~pronouncement, ~~providing~~Statement ~~the~~of ~~lenders~~Financial aAccounting ~~first~~Standards ~~priority~~(SFAS) ~~lien~~No. on141 ~~all~~“Business ~~the~~Combinations” ~~present~~issued ~~and~~by ~~future~~the ~~property~~Financial ~~and~~Accounting ~~assets~~Standards ofBoard a(FASB) ~~subsidiary~~in ofJuly ~~the company~~2001. ~~The~~HB ~~parties~~1581 toand ~~the~~SFAS ~~various~~No. ~~credit~~141 ~~agreements~~require ~~have~~that ~~entered~~the ~~into~~purchase anmethod ~~amended~~of ~~and~~accounting ~~restated~~be ~~Collateral~~used ~~Agency~~for ~~and~~all ~~Intercreditor~~business ~~Agreement,~~combinations ~~which~~initiated ~~among~~after ~~other~~June ~~things~~30, ~~sets~~2001 ~~out~~and ~~the~~provide ~~agreement~~guidance ~~between~~on the ~~lenders~~initial ~~for~~recognition ~~the priority~~ and ~~security~~measurement of ~~the~~goodwill ~~obligations~~and ofother ~~the~~intangible ~~company’s~~assets ~~subsidiaries~~acquired toafter the ~~lenders,~~implementation ~~and rights enforcement and allocation of proceeds~~date. The ~~credit~~use ~~facility agreement contains certain covenants that restrict the ability~~ of ~~the~~pooling ~~company~~is ~~and~~no ~~its~~longer ~~subsidiaries~~permitted. toWe ~~incur~~account ~~additional~~for ~~indebtedness~~all ~~and~~business ~~issue~~combinations ~~certain~~under ~~preferred stock, pay dividends or make other distributions, engage in sale and leaseback transactions, create certain liens, enter into certain transactions with affiliates, sell assets of~~ the ~~company~~purchase ormethod. ~~its~~The ~~subsidiaries,~~adoption ~~issue or sell equity interests~~ of ~~the~~HB ~~company’s~~1581 ~~subsidiaries or enter into certain mergers~~ and ~~consolidations~~SFAS No. ~~The~~141 ~~company~~had isno ineffect ~~compliance~~on ~~with~~the ~~all~~results of ~~its~~our ~~debt covenants as at September 30, 2001~~operations.

(c) Goodwill and other intangible assets


	Effective October 1, 2002, we will adopt the CICA HB section 3062 “Goodwill and Other Intangible Assets,” which is consistent with U.S. pronouncement, SFAS No. 142, “Goodwill and Other Intangibles Assets”, issued by the FASB in July 2001. Under HB 3062 and SFAS No. 142, which can only be applied prospectively, goodwill and indefinite-life intangible assets are not amortized, but are tested for impairment annually or more frequently as required. Intangible assets that do have definite lives will continue to be amortized over their useful lives and reviewed for impairment in accordance with HB 3062 and SFAS No. 142. An impairment loss is recognized when the fair value of goodwill or intangibles is less than the carrying amount of those items.

	We are currently evaluating the impact of the adoption of HB 3062 and SFAS No. 142 and have not yet determined the full effect of adoption on our results of operations or our financial position. If goodwill had not been amortized in the three months ended December 31, 2001 and 2000, our reported net loss would each have been reduced by $2 million.

Risks and uncertainties

The funding of our current business plan is dependent upon Group Telecom meeting budgeted targets and effectively managing cash resources. If we are unable to execute our business plan to achieve these objectives because of controllable or non-controllable factors, we may fully utilize current funding arrangements and may require additional financing to meet our obligations.

The telecommunications industry is capital intensive and subject to rapid and significant changes in technology the effect of which, on our business, cannot be predicted. We believe that our future success will

F-16

GTdepend, ~~Group~~in ~~Telecom~~part, ~~Inc~~on our ability to anticipate or adapt to such changes. We believe that our existing cash resources and financing will provide adequate funding to further expand our network. There can be no assurance that the amount of funds actually required for this expansion will not exceed our currently anticipated expenditures.

~~Notes~~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 Group Telecom to raise ~~Consolidated~~sufficient ~~Financial~~additional capital or enter other financing ~~Statements —~~arrangements ~~(Continued)~~to meet our needs when required or on terms acceptable to us. If our vendors fail to deliver appropriate new technology, we may lose customers and market share, which could harm our business and operating results.

(tabular amounts expressed in thousands of Canadian dollars)

(e) Obligations under capital leases

Capital leases are payable in monthly or quarterly instalments with interest at annual rates varying between 6% and 13%. Interest expense on capital leases during the year ended September 30, 2001 was $10 million (2000 — $1 million). Repayments of capital leases payable in each of the next five years are as follows:

		$
Year ending September 30,
	2002		19,386
	2003		20,607
	2004		15,196
	2005		9,654
	2006		9,653
	Thereafter		137,139
			211,635
Less: amount representing interest			(113,815	)
			97,820

12. Share capital

Authorized

Preferred

Unlimited number of non-voting first and second preference shares without nominal or par value. The first and second preference shares may be issued in one or more series. Each share is convertible at the option of the holder into either Class A voting shares or Class B non-voting shares depending on foreign ownership restrictions then in place and automatically upon an initial public offering of such shares, initially on a one-to-one basis to May 7, 2000, with a compound increase of 10%, subject to adjustment. The Board of Directors of the company may fix the number of shares in each series and designate rights, privileges, restriction, conditions and other provisions. The first and second preference shares shall be entitled to preference over any other shares of the company with respect to the payment of dividends and in the event of liquidation of the company. On May 7, 1999 and February 14, 2000, Series A and Series B first preference shares were created, respectively. In addition to the rights and privileges of the first preference shares described above, the Series A and Series B first preference shares have a liquidation value equal to the price paid for the share plus a compound annual rate of return of 10% and have anti-dilutive provisions protecting their conversion into Class A voting shares or Class B non-voting shares. At September 30, 2001 and 2000, there were 50,000,000 authorized Series A and 100,000,000 authorized Series B first preference shares.

Common

Unlimited number of Class A voting shares without nominal or par value, each Class A share has one vote; unlimited number of convertible Class B non-voting shares without nominal or par value. Other than with respect to voting rights and limited conversion rights, the two classes of common shares have identical rights.

F-17

~~GT Group Telecom Inc.~~SIGNATURE

Notes to Consolidated Financial Statements — (Continued)

(tabular amounts expressed in thousands of Canadian dollars)

Each Class B non-voting share may, under certain limited circumstances at the option of the holder, be converted into one Class A voting share. The holders of Class A and B shares are entitled to receive dividends as determined by the Board of Directors, subject to the rights of the holders of the preferred shares. The holders of Class A voting and Class B non-voting shares are also entitled to participate equally in the event of liquidation of the company, subject to the rights of the holders of the preferred shares.

Issued

							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, 1998				15,288,420		—		—			—			8,646
	Class A voting shares issued for Cash			2,004,322		—		—			—			3,480
		Upon exercise of options (f)		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 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 (f)		313,327		—		—			—			336
	Class B non-voting shares issued for Cash (a)			—		20,700,000		—			—			422,280
		Upon exercise of options (f)		—		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		—		—		1,000,000			—			1,875
	Conversions (b)			60,596,097		11,000,002		(42,500,002	)		(29,096,097	)		—
Balance at September 30, 2000				79,542,239		41,105,767		—			—			958,703
	Class A voting shares issued Upon exercise of options (f)			1,327,235		—		—			—			3,032
	Class B non-voting shares issued for
		Cash (c)		—		10,000,000		—			—			105,000
		Upon exercise of options (f)		—		200,000		—			—			375
		Purchase of businesses (note 3)		—		2,372,000		—			—			15,980
		Upon exercise warrants (f)		100,000		374,917		—			—			5,299
		Share issuance costs		—		—		—			—			(4,674	)
Balance at September 30, 2001				80,969,474		54,052,684		—			—			1,083,715

F-18

GT Group Telecom Inc.

Notes to Consolidated Financial Statements — (Continued)

(tabular amounts expressed in thousands of Canadian dollars)

(a) Initial public offering

Pursuant to an Initial Public Offering on March 15, 2000, the company issued 18,000,000 Class B non-voting shares for aggregate cash proceeds of US$233 million, net of US$19 million in underwriting commissions and expenses of the offering. In addition, the underwriters exercised their option to purchase an additional 2,700,000 Class B non-voting shares for net proceeds of US$35 million to the company. Aggregate net proceeds of the Initial Public Offering amounted to $392 million (US$249 million).

(b) Conversion of shares

On completion of the company’s initial public offering on March 15, 2000, 42,500,002 series A and 29,096,097 series B first preference shares were automatically converted into 60,596,097 Class A voting shares and 11,000,002 Class B non-voting shares on a one-for-one basis.

On May 29, 2001, the company issued 10,000,000 Class B non-voting shares for an aggregate cash proceeds of $100 million, net of $5 million in underwriting commissions and expenses of the offering.

(d) Convertible debentures

On December 15, 1998 and March 5, 1999, the company issued 12% convertible debentures totalling $5 million due March 31, 2000. The debentures plus accrued interest could be converted by the company into fully-paid Series A first preference shares at a conversion price of $1.25 per preference share before July 1, 1999 (“Mandatory Conversion Period”). If the company did not exercise its right to convert the debentures into Series A first preference shares, each holder of debentures had the option to convert the debentures into fully paid Class A voting shares or Class B non-voting shares at a conversion price of $1.25 per share, in compliance with CRTC foreign ownership restrictions in effect at the time of conversion. On April 30, 1999, the company waived the condition that the debentures be converted to Series A first preference shares, and all debentures including accrued interest were converted into 338,407 Class A voting shares and 3,427,468 Class B non-voting shares.

(e) Preference share purchase options

On May 7, 1999, the company issued 27,666,667 units to a group of institutional shareholders at $1.50 per unit. Each unit consisted of one Series A first preference share and an option to purchase half of one Series A first preference share at a share price of $1.875 until August 10, 1999 and at $2.25 until November 10, 1999. At September 30, 1999, all the options had been exercised, resulting in the issuance of 13,833,335 Series A first preference shares.

(f) Common share options and warrants

Options

The Board of Directors has established a stock option plan under which options to purchase Class A voting shares and Class B non-voting shares are granted to directors, officers and employees of the company. Options are granted at exercise prices estimated to be at least equal to the fair value of the shares, vest over a three-year period and generally expire five years from the date of grant.

F-19

GT Group Telecom Inc.

Notes to Consolidated Financial Statements — (Continued)

(tabular amounts expressed in thousands of Canadian dollars, except per share amounts)

At September 30, 2001, there were 6,581,384 (2000 — 5,594,635) options to purchase Class A voting shares and 1,885,000 (2000 — 1,770,600) options to purchase Class B non-voting shares outstanding. These options expire between September 2003 and September 2006. Option activity for the year is as follows:

		2001					2000
					Weighted					Weighted
					average					average
					exercise					exercise
		Number			price		Number			price
					$					$
Outstanding — Beginning of year			7,365,235			6.36		4,461,842			1.64
Class A voting shares
	Granted		3,033,014			15.90		4,076,700			9.09
	Exercised		(1,327,235	)		2.26		(313,327	)		1.07
Class B non-voting shares
	Granted		335,000			19.42		1,320,600			5.20
	Exercised		(200,000	)		1.88		(1,850,000	)		2.10
Cancelled upon employee terminations			(739,630	)		14.45		(330,580	)		7.76
Outstanding — End of year			8,466,384			10.51		7,365,235			6.36
Exercisable — End of year
Class A voting shares			2,973,471			9.55		2,289,626			3.47
Class B non-voting shares			1,151,063			4.76		715,525			2.83
Total			4,124,534			8.22		3,005,151			3.32

A summary of stock options outstanding at September 30, 2001 is set out below:

	Outstanding stock options						Exercisable stock options
			Weighted-
			average
			Remaining		Weighted-				Weighted-
			Contractual		average				average
Exercise price	Number		Life		Exercise price		Number		exercise price
$					$				$
0.50 - 2.65		1,378,198		2.6 years		1.40		1,107,191		1.37
2.66 - 5.29		1,698,600		3.3 years		3.05		1,046,308		3.00
5.30 - 7.94		290,449		4.6 years		6.84		41,449		6.63
7.95 - 10.58		1,757,771		3.5 years		8.09		799,435		8.02
10.59 - 13.23		81,189		4.1 years		12.33		20,214		12.29
13.24 - 15.88		144,281		4.2 years		14.04		35,112		13.97
15.89 - 18.52		119,100		4.2 years		17.09		27,614		17.13
18.53 - 21.17		2,621,493		3.9 years		19.66		902,088		19.75
21.18 - 23.81		43,634		3.8 years		23.15		16,425		23.16
23.82 - 26.46		331,669		3.8 years		24.34		128,698		24.33
		8,466,384		3.5 years	$	10.51		4,124,534	$	8.22

F-20

GT Group Telecom Inc.

Notes to Consolidated Financial Statements — (Continued)

(tabular amounts expressed in thousands of Canadian dollars, except per share amounts)

A summary of stock options outstanding at September 30, 2000 is set out below:

	Outstanding stock options						Exercisable stock options
			Weighted-
			average
			Remaining		Weighted-				Weighted-
			Contractual		average				average
Exercise price	Number		Life		Exercise price		Number		exercise price
$					$				$
0.50 - 1.875		2,437,513		3.0 years		1.42		1,908,634		1.40
3.00		2,025,932		4.0 years		3.00		599,463		3.00
8.00		1,890,289		4.4 years		8.00		380,097		8.00
20.40 - 20.86		666,801		4.6 years		20.52		94,241		20.48
24.08		300,700		4.8 years		24.08		20,882		24.08
26.21		44,000		4.9 years		26.21		1,834		26.21
		7,365,235		3.9 years	$	6.36		3,005,151	$	3.32

Warrants

At September 30, 2001, there were nil (2000 — 100,000) warrants to purchase Class A voting shares and 778,651 (2000 — 855,000) warrants to purchase Class B non-voting shares outstanding. Warrant activity for each of the years is as follows:

		2001					2000
					Weighted				Weighted
					average				average
					exercise				exercise
		Number			price		Number		price
					$				$
Outstanding — Beginning of year			955,000			0.05		100,000		0.50
Class A voting shares
	Exercised		(100,000	)		0.50		—		—
Class B non-voting shares
	Granted		—			—		855,000		—
	Exercised		(76,349	)		—		—		—
Outstanding — End of year			778,651			—		955,000		0.05

The warrants for Class B non-voting shares were issued at a value of $59 million pursuant to an indenture dated February 1, 2000 (note 11(a)). Each warrant entitles the holder to purchase 4.9106 Class B non-voting shares through to February 1, 2010 for nil consideration. Under the terms of the indenture, the warrants are exercisable after November 2000, following a registration of the warrants and associated Class B non-voting shares which was completed by the company.

(g) Loans to officers

Pursuant to employment contracts, certain officers have been provided option-exercise loans which bear interest at the effective applicable federal interest rate of the Internal Revenue Code and are due the earlier of: (i) five years from the date of purchase ranging from September 1, 2004 to January 4, 2005, (ii) cessation of employment or (iii) upon the sale of the shares purchased.

F-21

GT Group Telecom Inc.

Notes to Consolidated Financial Statements — (Continued)

(tabular amounts expressed in thousands of Canadian dollars)

The option exercise loans are secured by a first charge against the shares purchased. These loans amount to $4 million at September 30, 2001 and 2000.

13. Income taxes

The tax effects of temporary differences that give rise to future income tax assets and liabilities are as follows:

		September 30,
		2001			2000
		$			$
Future income tax assets
	Accounts receivable		1,168			1,876
	Long-term debt		17,181			6,149
	Obligations under capital leases		18,328			—
	Deferred gain on financial instruments		3,395			—
	Debt and share issue costs		2,309			8,381
	Operating loss carry forwards		108,365			57,403
			150,746			73,809
Valuation allowance			(141,632	)		(44,219	)
			9,114			29,590
Future income tax liabilities
	Property, plant and equipment		(1,290	)		(27,465	)
	Deferred charges		(4,816	)		(2,125	)
	Unrealized benefit of cross currency interest rate swap		(3,008	)		—
			(9,114	)		(29,590	)
			—			—

Management has recorded a valuation allowance for the net amount of future income tax assets. The company has non-capital losses available to reduce taxable income in future years. These losses expire as follows:

		$
Year ending September 30,
	2002		11
	2003		315
	2004		522
	2005		4,523
	2006		7,764
	2007		112,749
	2008		219,089
			344,973

F-22

GT Group Telecom Inc.

Notes to Consolidated Financial Statements — (Continued)

(tabular amounts expressed in thousands of Canadian dollars)

The income tax provision for the year differs from the amount obtained by applying the statutory Canadian federal and provincial income tax rates to loss before income taxes as follows:

		Year ended September 30,
		2001			2000			1999
		$			$			$
Statutory Canadian federal and provincial income tax rates			42.0	%		45.6	%		45.6	%
Income tax recovery based on the statutory rates			(156,896	)		(80,463	)		(4,470	)
Differences from statutory rates relating to
	Change in valuation allowance		97,413			38,163			4,470
	Effect of reductions in tax rates on future income tax		49,029			—			—
	Large corporations tax		5,132			3,833			165
	Non-deductible portion of net capital loss		7,609			—			—
	Non-deductible amortization of goodwill		5,612			—			—
	Other		(2,767	)		—			—
			5,132			(38,467	)		165

14. Financial instruments and risk management

Fair values of financial assets and liabilities

The fair values of cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities approximate their carrying values due to the short-term nature of these instruments. At September 30, 2001, using discounted cash flow analysis, the carrying value of obligations under capital leases approximates its fair value. As at September 30, 2001, based on current trading values, the fair value of the senior discount notes is approximately $205 million, vendor financing is $259 million and senior bank debt is $125 million.

Credit risk

Financial instruments that potentially subject the company to a concentration of credit risk consist of cash and cash equivalents, and accounts receivable. The company’s cash and cash equivalents are deposited with highly rated financial institutions to reduce the company’s exposure to credit risk. The company’s accounts receivable are derived from revenue earned from customers located in Canada. The company performs ongoing credit evaluations on its customers’ financial condition and, generally, requires no collateral from its customers. The company maintains an allowance for doubtful accounts receivable based upon expected collectibility of accounts receivable.

F-23

GT Group Telecom Inc.

Notes to Consolidated Financial Statements — (Continued)

(tabular amounts expressed in thousands of Canadian dollars)

Interest rate and foreign currency risk

The company is exposed to foreign currency fluctuations on its U.S. dollar denominated trade payables and long-term debt to the extent that these liabilities exceed the U.S. dollar cash and cash equivalents. The following table summarizes the company’s exposure to interest rate and foreign currency risk:

						Fixed rate
				Floating		within		Fixed rate		Fixed rate		Non-interest
				rate		one year		1-5 years		6-10 years		bearing
				$		$		$		$		$
September 30, 2001
	Financial assets
		Cash and cash equivalents
			Canadian dollars		252,257		—		—		—		—
			U.S. dollars (US$61,490)		96,963		—		—		—		—
		Accounts receivable
			Canadian dollars		—		—		—		—		62,525
			U.S. dollars (US$6,694)		—		—		—		—		10,560
		Loans to officers			—		—		3,868		—		—
	Financial liabilities
		Accounts payable and accrued liabilities
			Canadian dollars		—		—		—		—		128,811
			U.S. dollars (US$2,687)		—		—		—		—		4,329
		Long-term debt
			Canadian dollars		225,860		480		97,340		—		—
			U.S. dollars (US$718,510)		308,314		—		—		825,136		—
September 30, 2000
	Financial assets
		Cash and cash equivalents
			Canadian dollars		123,203		—		—		—		—
			U.S. dollars (US$213,657)		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 (US$14,431)		—		—		—		—		21,177
		Long-term debt
			Canadian dollars		115,367		755		4,292		—		—
			U.S. dollars (US$565,092)		170,201		—		—		679,698		—

Cross currency interest rate swaps

The company has entered into cross currency interest rate swaps with several financial institutions to convert all of the future US dollar payments on the senior discount notes to Canadian dollars at a fixed average exchange rate of approximately $1.5584. The payments represent the semi-annual interest payments from August 1, 2005 to February 1, 2010 and the principal repayment on February 1, 2010. As a result of the cross currency interest rate swaps, the average fixed interest rate of the senior discount notes has increased from 13.25% to approximately 13.58%. The company and the financial institutions each have the right to terminate the swaps on February 1, 2005. The fair value of cross currency swaps at September 30, 2001 is approximately $72 million. In August and September 2001, the company monetized or unwound certain of its cross currency interest rate swaps and received proceeds of $61 million.

F-24

GT Group Telecom Inc.

Notes to Consolidated Financial Statements — (Continued)

(tabular amounts expressed in thousands of Canadian dollars)

15. Segmented information

The company is a Canadian national facilities based provider of high-speed data, internet application and voice services comprising a single operating segment. Substantially all of the company’s assets are located in Canada and revenue is derived from telecommunications services provided in Canada. The company makes decisions and evaluates financial profitability measured as a single operating segment with revenues from the following services and products:

	Years ended September 30,
	2001		2000		1999
	$		$		$
Data		159,639		62,681		2,648
Voice		39,390		10,068		12
Applications		4,618		502		45
Sale of dark fibre		5,476		—		—
		209,123		73,251		2,705

For the year ended September 30, 2001, one customer of the company accounted for approximately 15% of revenue and for the year ended September 30, 2000, another customer of the company accounted for approximately 15% of revenue. For the year ended September 30, 1999, three customers of the company accounted for approximately 48% of the company’s revenue (one customer accounted for 26%, a second customer accounted for 12% and third customer accounted for 10%).

16. Commitments and contingencies

Vendor financing agreement

The company has entered into a vendor financing agreement to purchase and license certain engineering and construction services together with digital switches and related network software and equipment from a supplier. The minimum future purchase commitment is US$136 million through to 2003. If the company’s purchases are less than the commitment, an insignificant penalty will be incurred.

Letters of credit

As of September 30, 2001, the company has letters of credit in favour of network equipment suppliers in the amount of $3 million.

F-25

GT Group Telecom Inc.

Notes to Consolidated Financial Statements — (Continued)

(tabular amounts expressed in thousands of Canadian dollars)

Operating leases

The company has entered into operating leases for its premises, certain equipment and for rights of way. Minimum lease payments for the next five years and thereafter are as follows:

		$
Year ending September 30,
	2002		27,708
	2003		21,252
	2004		19,484
	2005		17,600
	2006		14,305
	Thereafter		84,956

The rent expense under operating leases for the following years was as follows:

	2001		2000		1999
	$		$		$
Operating lease expense		13,080		5,733		197

Legal proceeding

A press release issued by lawyers for some complainants states that a suit has been filed against the underwriters of the company’s initial public offering and the company. This class action suit is one of what the company understands to be over nine hundred similar suits filed against numerous investment dealers and over 210 issuers in the Federal District Court for the Southern District of New York. These so-called “laddering” suits allege that the underwriters acted improperly in the way in which they allocated stock to buyers in public offerings and colluded with these buyers in after-market activities. The company has advised both its outside counsel and its insurers of this matter. The company believes it has strong defence to this lawsuit and intends to contest it. However, because this lawsuit is at an early stage, the company is unable to provide an evaluation of the ultimate outcome of the litigation.

17. Additional cash flow disclosures

	Year ended September 30,
	2001		2000		1999
	$		$		$
Interest paid		24,804		7,862		95
Income taxes paid		6,751		819		—

Non-cash transactions

Purchases of property, plant and equipment of $215 million for the year ended September 30, 2001 (2000 — $159 million) and purchases of other assets of $7 million at September 30, 2001 (2000 — $6 million) were financed through long-term debt, notes payable and through accounts payable and accrued liabilities. In addition, the company issued $16 million in Class A voting and Class B non-voting shares in respect of businesses acquired during the year ended September 30, 2001 (2000 — $476 million) (note 3). Accordingly, these transactions are not reflected in the Statement of Cash Flows.

F-26

GT Group Telecom Inc.

Notes to Consolidated Financial Statements — (Continued)

(tabular amounts expressed in thousands of Canadian dollars)

18. Related party transactions

In the ordinary course of business, the company recorded the following transactions with a minority shareholder at the exchanged amounts:

	2001		2000
	$		$
Transactions with a related party were as follows:
Revenue		16,490		11,000
Expenses		—		2,000
Amounts due from and to a related party are as follows:
Accounts receivable		2,323		11,000
Accounts payable		—		2,000

19. Prior year comparative amounts

Certain prior years’ comparative numbers have been reclassified to conform to the current year’s presentation.

20. 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 (“U.S. GAAP”) except as outlined below:

(a) Net loss and shareholders’ equity

The following summary sets out the adjustments to the company’s loss for the year and shareholders’ equity which would be made to conform to U.S. GAAP:

		2001			2000			1999
		$			$			$
Loss for the year in accordance with Canadian GAAP			(378,693	)		(137,986	)		(9,967	)
Impact of U.S. accounting principles
	Amortization of purchase price adjustment (c)		(1,586	)		(617	)		—
	Deferred charges		—			(15	)		(301	)
	Stock based compensation (d)		(15,012	)		(11,430	)		(56	)
	Deferred foreign exchange (e)		(3,918	)		(1,655	)		(12	)
	Recovery of future income taxes (f)		5,318			11,055			—
Net loss for the year in accordance with U.S. GAAP			(393,891	)		(140,648	)		(10,336	)
Other comprehensive income
Reversal of unrealized loss on sale of securities (f)			28,230			—			—
	Unrealized gain (loss) on securities, net of tax reversal of $10,366 (2000 — provision of $10,366) (f)		(52,156	)		23,926			—
	Unrealized gain on derivative instruments, net of tax provision of $15,683 (h)		36,595			—			—
			12,669			23,926			—
Comprehensive loss in accordance with U.S. GAAP			(381,222	)		(116,722	)		(10,336	)
Basic and fully diluted loss per share in accordance with U.S. GAAP			(3.02	)		(1.86	)		(0.58	)

F-27

GT Group Telecom Inc.

Notes to Consolidated Financial Statements — (Continued)

(tabular amounts expressed in thousands of Canadian dollars)

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

	2001			2000
	$			$
Shareholders’ equity in accordance with Canadian GAAP at September 30		603,867			862,798
Purchase price adjustment, net of amortization of $2,203 (2000 — $617) (c)		15,450			17,035
Cumulative stock-based compensation expense (d)		(23,657	)		(11,651	)
Deferred stock-based compensation expense (d)		(16,991	)		(34,266	)
Net change in stock options (d)		40,648			45,917
Deferred foreign exchange (e)		(6,001	)		(2,083	)
Recovery of future income taxes (f)		16,372			11,055
Other comprehensive income (f)(h)		36,595			23,926
Shareholders’ equity in accordance with U.S. GAAP at September 30		666,283			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:

	2001			2000
	$			$
Property, plant and equipment (c)		1,422,495			957,957
Long-term investment (f)		—			77,530
Goodwill and other assets (c)		293,384			239,327
Share capital (c)		1,154,848			1,032,079
Additional paid-in capital		337			337
Deferred stock-based compensation expense (d)		(16,991	)		(34,266	)
Stock options outstanding (d)		40,648			45,917
Deficit		(549,154	)		(155,263	)
Other comprehensive income (f)		36,595			23,926

For U.S. GAAP, the company has recorded the purchase price of the assets acquired from Moffat Communications (note 3(c)), based on the fair value of consideration agreed to on March 27, 2000, when the company entered into an asset purchase agreement. For Canadian GAAP, the fair value of the shares to be issued as partial consideration of the purchase price has been determined based on the average stock price on April 27, 2000, the date the transaction closed.

F-28

GT Group Telecom Inc.

Notes to Consolidated Financial Statements — (Continued)

(tabular amounts expressed in thousands of Canadian dollars)

The purchase consideration consisted of $68 million cash and the rights to acquire 1,667,000 Class B non-voting shares of the company. For U.S. GAAP purposes, details of assets and liabilities acquired at their fair value are as follows:

		$
Assets acquired
Indefeasible Right to Use Agreement
	Property, plant and equipment for constructed fibres		91,748
	Prepayment for fibres to be constructed		7,600
Videon Fiberlink acquisition
	Property, plant and equipment		7,397
	Non-competition agreement		2,360
	Goodwill		12,594
	Other current assets		784
			122,483
Liabilities assumed
Future income taxes			689

(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 of the options. 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 financial statements 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:

	2001			2000			1999
	$			$			$
Loss in accordance with U.S. GAAP		(393,891	)		(140,648	)		(10,336	)
Additional compensation expense		(11,656	)		(2,106	)		(174	)
Pro forma net loss		(405,547	)		(142,754	)		(10,510	)
Pro forma basic and fully diluted loss per share		(3.11	)		(1.89	)		(0.59	)

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 between 4.10% - 6.41%; (ii) expected volatility ranging between nil - 128%; (iii) expected dividend yield of nil; and (iv) an estimated average life ranging from 1 - 3 years.

F-29

GT Group Telecom Inc.

Notes to Consolidated Financial Statements — (Continued)

(tabular amounts expressed in thousands of Canadian dollars)

(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 and tax provision previously recorded in other comprehensive income. The concept of comprehensive income/loss does not exist under Canadian GAAP.

(g) Details of depreciation and amortization expense

		2001		2000		1999
		$		$		$
Depreciation and amortization expense for the year consists of:
	Property, plant and equipment		84,076		30,510		839
	Goodwill, non-compete agreements and license rights		13,818		8,417		—
	Deferred charges		11,918		4,128		14
			109,812		43,055		853

(h) 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 these derivative instruments at market value, with the unrealized gains and losses included in other comprehensive income. Under Canadian GAAP, the company records unrealized gains or losses on these derivative instruments in the statement of operations in the same period, and in an equivalent amount, as the corresponding unrealized foreign currency exchange gains and losses on the long-term debt that has been hedged. A corresponding asset or liability is recorded in the balance sheet for the amount of the derivative instrument that has been recognized.

F-30

GT Group Telecom Inc.

Notes to Consolidated Financial Statements — (Continued)

(tabular amounts expressed in thousands of Canadian dollars)

(i) Other recent accounting pronouncements

(i) Accounting for Asset Retirement Obligations

In July 2001 the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” The statement requires entities to record the fair value of a liability for an asset retirement obligation in the period in which the legal or contractual removal obligation is incurred. The statement is effective for fiscal years beginning after June 15, 2002, with earlier adoption encouraged. The company does not believe that the adoption of SFAS No. 143 will have a material effect on its results of operations and financial position.

(ii) Accounting for the Impairment or Disposal of Long-Lived Assets

SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” was issued in October, 2001. The statement supersedes SFAS No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of “ and applies to recognized long-lived assets of an entity to be held and used or to be disposed of, including capital leases of lessees, long-lived assets of lessors subject to operating leases and long-term prepaid assets. The standard requires that an impairment loss should be recognized if the carrying amount of a long-lived asset is not recoverable and exceeds it fair value for assets in use. Long-lived assets classified as held for sale should be measured at the lower of their carrying amount or fair value less cost to sell. FAS 144 is effective for fiscal years beginning after December 15, 2001. The company does not believe that the adoption of SFAS No. 144 will have a material effect on its results of operations and financial position.

F-31

GT Group Telecom Inc.

Supplemental Information to Interim Consolidated Financial Statements

Consolidated Balance Sheets

(Unaudited)

(thousands of Canadian dollars)

	September 30,			June 30,			March 31,			December 31
	2001			2001			2001			2000
	(audited)
	$			$			$			$
Assets
Current assets
Cash and cash equivalents		349,220			346,121			304,494			365,960
Trade accounts receivable		53,023			54,039			45,135			38,765
Sales tax and other receivables		20,062			22,142			13,302			20,876
Prepaid expenses		7,849			5,008			4,967			3,870
Inventory		620			493			440			605
		430,774			427,803			368,338			430,076
Prepayment on property, plant and equipment		132,852			132,852			132,852			132,852
Property, plant and equipment		1,419,319			1,370,607			1,244,839			1,157,739
Long-term investment		—			—			43,238			43,238
Goodwill and other assets		234,144			247,272			285,756			243,417
		2,217,089			2,178,534			2,075,023			2,007,322
Liabilities
Current liabilities
Accounts payable and accrued liabilities		133,140			116,496			123,188			105,170
Unearned revenue		175			1,196			844			811
Current portion of long-term debt		22,295			19,564			6,602			6,292
		155,610			137,256			130,634			112,273
Long-term unearned revenue		1,159			1,151			1,684			1,118
Long-term debt		1,434,835			1,360,799			1,242,858			1,110,271
Deferred gain on hedging instruments		21,618			—			—			—
		1,613,222			1,499,206			1,375,176			1,223,662
Shareholders’ Equity
Share capital and other equity items		1,133,628			1,132,041			1,015,018			1,014,013
Deficit		(529,761	)		(452,713	)		(315,171	)		(230,353	)
		603,867			679,328			699,847			783,660
		2,217,089			2,178,534			2,075,023			2,007,322

F-32

GT Group Telecom Inc.

Supplemental Information to Interim Consolidated Financial Statements

Consolidated Statements of Operations and Deficit

(Unaudited)

(thousands of Canadian dollars, except per share amounts)

	For the three months ended,
	September 30,			June 31,			March 31,			December 30,
	2001			2001			2001			2000
	$			$			$			$
Revenue		62,264			58,409			48,526			39,924
Cost of sales and services		34,394			33,611			29,653			25,426
		27,870			24,798			18,873			14,498
Selling, general and administrative expenses		45,235			45,616			43,676			41,780
		(17,365	)		(20,818	)		(24,803	)		(27,282	)
Depreciation and amortization		28,983			29,700			27,745			23,385
Interest and financing charges		28,578			44,979			31,416			27,543
Loss of sale on long term investment		—			40,965			—			—
Loss before income taxes		(74,926	)		(136,462	)		(83,964	)		(78,210	)
Provision for income taxes		2,122			1,080			855			1,075
Loss for the period		(77,048	)		(137,542	)		(84,819	)		(79,285	)
Deficit — Beginning of period		(452,713	)		(315,171	)		(230,352	)		(151,068	)
Deficit — End of period		(529,761	)		(452,713	)		(315,171	)		(230,353	)
Basic and diluted loss per share		(0.56	)		(1.05	)		(0.68	)		(0.63	)
Weighted average number of outstanding common shares (in thousands)		138,735			130,910			124,965			124,882

F-33

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: ~~December~~February 317, ~~2001~~2002 By /s/ STEPHEN H. SHOEMAKER Stephen H. Shoemaker Executive Vice-President and Chief Financial Officer

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