<PAGE> 1
Commission File Number: 333-11506
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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 quarter ended March 31, 2000
------------------------------------
GT GROUP TELECOM INC.
Suite 700 - 20 Bay Street
Toronto, Ontario, Canada
M5J 2N8
(416) 943-9555
(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
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<PAGE> 2
ITEM 1:
GT GROUP TELECOM INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(expressed in Canadian dollars)
<PAGE> 3
GT GROUP TELECOM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------- ------------------
$
(UNAUDITED) $
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................. 732,052,985 59,851,461
Accounts receivable
Trade.................................................... 12,801,358 1,191,895
Other.................................................... 2,455,779 2,591,662
Prepaid expenses........................................... 5,226,483 526,270
Inventory.................................................. 201,255 544,590
------------- -----------
752,737,860 64,705,878
PROPERTY, PLANT AND EQUIPMENT.............................. 567,568,255 73,816,711
GOODWILL AND OTHER ASSETS.................................. 415,365,838 --
------------- -----------
1,735,671,953 139,814,243
------------- -----------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities................... 42,582,949 14,926,086
Unearned revenue........................................... 924,839 655,605
Current portion of long-term debt.......................... 6,203,585 1,253,358
------------- -----------
49,711,373 16,835,049
LONG-TERM UNEARNED REVENUE................................. 1,218,752 1,493,750
LONG-TERM DEBT............................................. 781,447,023 47,556,922
FUTURE INCOME TAXES........................................ 28,200,000 --
------------- -----------
860,577,148 65,885,721
------------- -----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL AND OTHER EQUITY ITEMS (note 3).............. 937,550,064 87,010,231
DEFICIT.................................................... (62,455,259) (13,081,709)
------------- -----------
875,094,805 73,928,522
------------- -----------
1,735,671,953 139,814,243
============= ===========
</TABLE>
SUBSEQUENT EVENTS (note 7)
The accompanying notes form an integral part of these consolidated
financial statements.
F-1
<PAGE> 4
GT GROUP TELECOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(UNAUDITED)
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
----------------------------- ---------------------------
2000 1999 2000 1999
------------- ------------ ------------ -----------
$ $ $ $
<S> <C> <C> <C> <C>
REVENUE............................... 13,259,382 501,436 15,525,947 873,824
COST OF SALES......................... 10,553,877 311,881 12,691,403 560,465
----------- ---------- ----------- ----------
2,705,505 189,555 2,834,544 313,359
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 20,285,615 1,396,188 31,074,769 3,135,338
----------- ---------- ----------- ----------
(17,580,110) (1,206,633) (28,240,225) (2,821,979)
AMORTIZATION.......................... 6,169,094 137,471 7,367,429 275,018
INTEREST AND FINANCING CHARGES........ 13,237,374 147,245 13,378,351 182,037
----------- ---------- ----------- ----------
LOSS BEFORE INCOME TAXES.............. (36,986,578) (1,491,349) (48,986,005) (3,279,034)
PROVISION FOR INCOME TAXES............ 322,460 -- 387,545 --
----------- ---------- ----------- ----------
LOSS FOR THE PERIOD................... (37,309,038) (1,491,349) (49,373,550) (3,279,034)
DEFICIT -- BEGINNING OF PERIOD........ (25,146,221) (4,902,242) (13,081,709) (3,114,557)
----------- ---------- ----------- ----------
DEFICIT -- END OF PERIOD.............. (62,455,259) (6,393,591) (62,455,259) (6,393,591)
=========== ========== =========== ==========
LOSS PER SHARE (note 4)............... (0.90) (0.10) (1.53) (0.21)
=========== ========== =========== ==========
</TABLE>
The accompanying notes form an integral part of these consolidated financial
statements.
F-2
<PAGE> 5
GT GROUP TELECOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
---------------------------
2000 1999
------------- ----------
$ $
<S> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Loss for the period......................................... (49,373,550) (3,279,034)
Items not affecting cash Amortization....................... 7,367,429 275,018
------------- ----------
(42,006,121) (3,004,016)
------------- ----------
Changes in non-cash working capital items Decrease
(increase) in accounts receivable......................... (11,209,580) 148,699
Increase in prepaid expenses.............................. (4,495,356) (47,037)
Decrease in inventory..................................... 343,335 --
Increase in accounts payable and accrued liabilities...... 19,943,264 2,931,066
Increase (decrease) in unearned revenue................... (5,764) 17,374
------------- ----------
4,575,899 3,050,102
------------- ----------
Cash flows used in operating activities..................... (37,430,222) 46,086
------------- ----------
FINANCING ACTIVITIES
Issuance of shares.......................................... 396,291,059 78,000
Repayment of long-term debt................................. (310,525) (105,836)
Proceeds from long-term debt................................ 717,754,845 4,899,616
Proceeds from issuance of warrants.......................... 58,282,664 --
Issuance of loans to officers............................... (5,115,222) --
------------- ----------
1,166,902,821 4,871,780
------------- ----------
INVESTING ACTIVITIES
Purchase of property, plant and equipment................... (38,270,243) (4,706,767)
Increase in other assets.................................... (56,050,832) (4,025)
Business acquisitions....................................... (362,950,000) --
------------- ----------
(457,271,075) (4,710,792)
------------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 672,201,524 207,074
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD............ 59,851,461 2,476,445
------------- ----------
CASH AND CASH EQUIVALENTS -- END OF PERIOD.................. 732,052,985 2,683,519
============= ==========
</TABLE>
Additional cash flow disclosures (note 5)
The accompanying notes form an integral part of these consolidated financial
statements.
F-3
<PAGE> 6
GT GROUP TELECOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000 AND 1999 AND SEPTEMBER 30, 1999
(expressed in Canadian dollars)
1 OPERATIONS AND BASIS OF PRESENTATION
The company markets and sells telecommunications services and related
products over fiber optic infrastructure to small and medium-sized
businesses in Canada. The company provides data, internet applications and
voice services and derives revenue from network usage and access, equipment
sales, co-location and consulting services and certain fiber optic leases.
The company was considered a development stage company in prior years and
for part of the current year. As a development stage company, the principal
activities of the company included developing business plans, raising
capital and debt financing and acquiring and developing telecommunication
networks. The company's principal operations effectively began in the last
quarter of fiscal 1999, when its Vancouver telecommunication networks and
facilities were put into commercial service to provide customers with
integrated services. In fiscal 1999, the company also completed various
agreements with respect to financing and started developing
telecommunication networks and facilities under a national expansion
strategy.
The company is a 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 services provided in Canada.
These condensed consolidated financial statements are prepared in
accordance with generally accepted accounting principles in Canada which,
in the case of the company, conform in all material respects with those in
the United States, except as outlined in note 8.
The information presented as at and for the interim periods ended March 31,
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 condensed consolidated financial statements should be read in
conjunction with the company's consolidated financial statements for the
years ended September 30, 1999, 1998 and 1997. The results of operations
for the six months ended March 31, 2000 are not necessarily indicative of
the results to be expected for the year ending September 30, 2000.
2 SIGNIFICANT TRANSACTIONS
(a) Pursuant to an offering circular and purchase agreement which closed
on February 1, 2000, the company issued 855,000 units, consisting of
US$855 million (issued at a price of 52.651%) 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 million, equivalent to
approximately $651 million. Expenses related to the offering amounted to
approximately $20 million. Of the total proceeds amounting to $651
million, $592 million was allocated to the Senior Discount Notes and $58
million was allocated to the share purchase warrants.
(b) On December 22, 1999, the company entered into an asset purchase and
subscription agreement with Shaw Communications Inc. ("Shaw
Communications") and Shaw FiberLink Ltd. ("Shaw FiberLink"). This
transaction closed on February 16, 2000. Under the purchase agreement,
the company purchased from Shaw FiberLink all of the property and
assets of Shaw FiberLink used in connection with the high speed data
and competitive access business. The assets purchased include
equipment, computer hardware, fixed assets, replacement parts,
operational contracts, equipment contracts, supply contracts,
interconnect agreements, co-location agreements, customer contracts,
F-4
<PAGE> 7
GT GROUP TELECOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
MARCH 31, 2000 AND 1999 AND SEPTEMBER 30, 1999
(expressed in Canadian dollars)
software licences, broadband wireless licences, vehicles, intellectual
property, permits, goodwill and certain other fiber assets. The company
and Shaw FiberLink also entered into an indefeasible right to use
agreement ("indefeasible right to use") which grants the company an
indefeasible right to use certain specifically identified existing
fibers in the fiber optic cable networks of Shaw Communications for 60
years. In addition, the company will receive an indefeasible right to
use fibers to be built over the next three years in mutually agreed
regions. The company will also assume certain obligations related to
permits, operational contracts, customer contracts, software licences
and certain other obligations.
The purchase consideration of $760 million consisted of $360 million in
cash and 29,096,097 series B first preference shares of the company to
provide Shaw Communications with a 27.1% fully diluted interest in the
company at the date of the acquisition. The fair value of these shares
was determined to be $400 million. Acquisition costs amounted to $12
million.
Details of the assets and liabilities acquired at their fair value are
as follows:
<TABLE>
<CAPTION>
$
-----------
<S> <C>
Indefeasible Right to Use Agreement
Property, plant and equipment representing indefeasible
rights to use constructed fibers....................... 329,000,000
Prepayment for indefeasible rights to use fibers to be
constructed............................................ 223,000,000
Shaw FiberLink purchase
Property, plant and equipment............................. 100,000,000
Licence rights............................................ 13,800,000
Non-competition agreement................................. 15,000,000
Goodwill.................................................. 119,400,000
Future income taxes....................................... (28,200,000)
-----------
772,000,000
===========
</TABLE>
The prepayment of $223 million on property, plant and equipment
represents the prepayment of an indefeasible right to use certain fibers
to be built by Shaw Communications over the next three years. This
amount is currently included in other assets.
Included in property, plant and equipment is an amount of $22 million
for an indefeasible right to use certain existing fibers located in New
Brunswick, Canada commencing in 2003.
Upon completion of the Initial Public Offering on March 9, 2000 (note
2(c)), the series B first preference shares issued to Shaw
Communications were automatically converted into Class A voting shares
of the company on a one-for-one basis.
(c) Pursuant to an Initial Public Offering which closed on March 9, 2000,
the company issued 18,000,000 Class B non-voting shares for aggregate
cash proceeds of US$232.9 million, net of US$19.1 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$35.2 million to the
company. Aggregate net proceeds of the Initial Public Offering amounted
to $390.7 million expressed in Canadian dollars.
Upon completion of the Initial Public Offering, 42,500,002 series A
first preference shares were automatically converted into 31,500,000
Class A voting shares and 11,000,002 Class B non-voting shares on a
one-for-one basis.
F-5
<PAGE> 8
GT GROUP TELECOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
MARCH 31, 2000 AND 1999 AND SEPTEMBER 30, 1999
(expressed in Canadian dollars)
3 SHARE CAPITAL AND OTHER EQUITY ITEMS
SHARE CAPITAL
Authorized
Common shares
Unlimited number of convertible Class A voting and Class B
non-voting common shares without par value
Preferred
50,000,000 Series A, convertible first preference shares without
par value
100,000,000 Series B, convertible first preference shares without
par value
Issued and outstanding
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
----------- -------------
$ $
<S> <C> <C>
Common shares
79,484,575 (September 30, 1999 -- 18,261,149)
Class A voting shares.............................. 463,977,323 12,573,300
36,098,571 (September 30,1999 -- 41,148,569)
Class B non-voting shares.......................... 420,149,924 5,026,015
Preferred shares
Nil (September 30, 1999 -- 41,500,002) Series A,
first preference shares............................ -- 67,280,541
----------- ----------
884,127,247 84,879,856
Warrants (note 2(a)).................................... 58,282,664 --
Additional paid-in capital.............................. 255,375 255,375
Loans to officers....................................... (5,115,222) --
Shares to be issued..................................... -- 1,875,000
----------- ----------
937,550,064 87,010,231
=========== ==========
</TABLE>
4 LOSS PER SHARE
Loss per share has been calculated using the weighted average number of
common shares outstanding for the periods presented. The weighted average
number of common shares for the three months ended March 31, 2000 amounted
to 41,506,186 and 1999 -- 15,330,642 (six months ended March 31, 2000 --
32,184,134; 1999 -- 15,312,680) shares.
Fully diluted loss per share has not been disclosed as it would be
anti-dilutive.
5 ADDITIONAL CASH FLOW DISCLOSURES
NON-CASH TRANSACTIONS
Purchases of property, plant and equipment of $454,706,651 for the six
months ended March 31, 2000 (six months ended March 31, 1999 -- $5,331,961)
and purchase of other assets of $362,330,845 at March 31, 2000 (six months
ended March 31, 1999 -- $8,668) were financed through long-term debt,
F-6
<PAGE> 9
GT GROUP TELECOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
MARCH 31, 2000 AND 1999 AND SEPTEMBER 30, 1999
(expressed in Canadian dollars)
notes payable and through accounts payable and accrued liabilities.
Accordingly, these transactions are not reflected in the statements of cash
flows.
6 RELATED PARTY TRANSACTIONS
During the three months ended March 31, 2000, the company earned $1.7
million (1999 -- $nil) of revenues and incurred $0.4 (1999 -- $nil) of
administrative expenses in respect of transitional processing fees on the
Shaw FiberLink operations from a minority shareholder. The company has also
engaged this related company to process certain cash disbursements on its
behalf. Included in accounts receivable is $1.7 (1999 -- $nil) receivable
from this customer and in accounts payable and accrued liabilities is $10.0
million (1999 -- $nil) payable as at March 31, 2000 to this related
company.
7 SUBSEQUENT EVENTS
(a) On March 27, 2000, the company entered into an asset purchase
agreement with Moffat Communications Limited ("Moffat
Communications"). This transaction closed on April 27, 2000. Under the
purchase agreement, the company purchased from Moffat Communications
all the property and assets used in connection with the fiber optic
business telecom operations. The assets purchased include equipment,
operational contracts, equipment contracts, supply contracts,
interconnect agreements, co-location agreements, customer contracts,
software licences, intellectual property, permits, accounts
receivable, prepaid expenses and certain other assets. The company and
Moffat Communications also entered into an indefeasible right to use
agreement ("indefeasible right to use") which granted the company an
indefeasible right to use certain specifically identified existing
fibers in the fiber optic cable networks of Moffat Communications for
30 years. The company also assumed certain liabilities related to
permits, operational contracts, customer contracts, software licences
and certain other obligations.
The purchase consideration consisted of $68 million in cash and 1,667,000
Class B non-voting shares of the company. At April 27, 2000, the closing
date of this transaction, these shares had an aggregate value of
approximately $35 million. Acquisition costs are estimated to be $3
million.
(b) On March 23, 2000, the company entered into a multiple element
agreement with 360networks Inc. Pursuant to this transaction, which is
expected to close in May 2000, the company will:
(i) acquire diverse route fiber optic capacity under a long-term
lease arrangement giving the company exclusive telecommunication
rights on certain specific wavelengths;
(ii) purchase certain dark fibers to be constructed along Canadian
route paths;
(iii) be granted an indefeasible right to use certain dark fibers to be
constructed along United States route paths;
(iv) acquire options to purchase additional segments of fibers on
similar terms; and
(v) acquire an equity interest in 360networks Inc.
The aggregate value of the fiber optic capacity and routes acquired by
the company amounts to approximately $352 million.
8 RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
STATES
The company's condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
("GAAP") in Canada, which, in the case of the company conform in all
material respects with GAAP in the United States of America, except as
outlined below:
F-7
<PAGE> 10
GT GROUP TELECOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
MARCH 31, 2000 AND 1999 AND SEPTEMBER 30, 1999
(expressed in Canadian dollars)
(A) NET LOSS AND SHAREHOLDERS' EQUITY
The following summary sets out the adjustments to the company's loss and
shareholders' equity which would be made to conform to U.S. GAAP:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 SIX MONTHS ENDED MARCH 31,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ----------- ------------ -----------
$ $ $ $
<S> <C> <C> <C> <C>
Loss for the period in accordance
with Canadian GAAP.............. (37,309,038) (1,491,349) (49,373,550) (3,279,034)
Impact of U.S. accounting
principles
Deferred charges................ -- (75,195) (14,460) (150,390)
Stock based compensation (c).... (2,793,674) -- (3,809,118) --
Deferred foreign exchange (d)... 7,939,032 -- 8,609,378 --
----------- ---------- ----------- ----------
Loss and comprehensive loss for
the period in accordance with
U.S. GAAP.................... (32,163,680) (1,566,544) (44,587,750) (3,429,424)
=========== ========== =========== ==========
Loss per share in accordance with
U.S. GAAP....................... (0.77) (0.10) (1.39) (0.22)
=========== ========== =========== ==========
</TABLE>
The reconciliation of the change in shareholders' equity from Canadian to
U.S. GAAP is as follows:
<TABLE>
<CAPTION>
AS AT
----------------------------
MARCH 31, SEPTEMBER 30,
2000 1999
----------- -------------
$
$ (AUDITED)
<S> <C> <C>
Shareholders' equity in accordance with Canadian GAAP....... 875,094,805 73,928,522
Deferred charges............................................ (417,000) (402,540)
Cumulative stock-based compensation expense(c).............. (4,926,732) (1,117,614)
Deferred stock based compensation expense................... (42,079,014) (287,176)
Net change in stock options................................. 47,005,746 1,404,790
Deferred foreign exchange(d)................................ 8,597,522 (11,856)
----------- ----------
Shareholders' equity in accordance with U.S. GAAP........... 883,275,327 73,514,126
=========== ==========
</TABLE>
F-8
<PAGE> 11
GT GROUP TELECOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
MARCH 31, 2000 AND 1999 AND SEPTEMBER 30, 1999
(expressed in Canadian dollars)
(B) CONDENSED CONSOLIDATED BALANCE SHEETS
The following table indicates the restated amounts for the items in the
consolidated balance sheets of the company that would be affected had the
financial statements been prepared in accordance with U.S. GAAP:
<TABLE>
<CAPTION>
AS AT
----------------------------
MARCH 31, SEPTEMBER 30,
2000 1999
----------- -------------
$
$ (AUDITED)
<S> <C> <C>
Other assets................................................ 311,595,257 877,258
Deferred stock-based compensation expense(c)................ 42,079,014 (287,176)
Share capital............................................... 884,788,360 85,479,556
Additional paid-in capital.................................. 337,215 337,215
Stock options outstanding(c)................................ 46,262,793 723,250
Deficit..................................................... 59,201,469 14,613,719
</TABLE>
(C) STOCK-BASED COMPENSATION
For U.S. GAAP, the company has chosen to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees".
This method recognizes compensation cost as the amount by which the fair
value of the stock exceeds the exercise price at the date of grant. The
compensation cost is recognized over the vesting period. For U.S. GAAP, the
compensation cost not yet recognized is presented as a deferred stock-based
compensation charge, with a corresponding amount included in stock options
outstanding, both of which form part of shareholders' equity. For Canadian
GAAP, stock-based compensation expense is not recorded in the accounts of
the Company.
Had the company determined compensation costs based on fair value at the
date of grant for its awards under a method prescribed by Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation" the company's loss and loss per share would be as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------ ----------------
<S> <C> <C>
Loss in accordance with U.S. GAAP.................... (32,163,680) (44,587,750)
Additional compensation expense...................... (365,687) (470,352)
----------- -----------
Pro forma net loss................................... (32,529,367) (45,058,102)
----------- -----------
Pro forma loss per share............................. (0.78) (0.14)
----------- -----------
</TABLE>
The pro-forma compensation expense reflected above has been estimated using
the Black Scholes option-pricing model. Assumptions used in the pricing
model included: (i) risk free interest rate of between 4.10% -- 6.44%; (ii)
expected volatility of nil; (iii) expected dividend yield of nil; and (iv)
an estimated average life of 2.67 years.
F-9
<PAGE> 12
GT GROUP TELECOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
MARCH 31, 2000 AND 1999 AND SEPTEMBER 30, 1999
(expressed in Canadian dollars)
A summary of stock options outstanding at March 31, 2000 is set out below:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS EXERCISABLE STOCK OPTIONS
--------------------------------------------- --------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
EXERCISE REMAINING AVERAGE AVERAGE
PRICE NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
-------- --------- ---------------- -------------- --------- --------------
$ $ $
<S> <C> <C> <C> <C> <C>
0.50.. 97,827 0.79 years 0.50 97,827 0.50
1.00.. 37,500 0.58 years 1.00 37,500 1.00
1.25.. 914,873 3.10 years 1.25 706,224 1.25
1.50.. 1,065,056 4.17 years 1.50 625,694 1.50
1.875. 369,894 3.55 years 1.875 232,496 1.875
3.00.. 2,040,099 4.44 years 3.0 263,172 3.00
8.00.. 1,942,529 4.88 years 8.00 81,219 8.00
20.40.. 167,200 4.96 years 20.40 13,933 20.40
--------- ---------- ------- --------- -------
6,634,978 4.23 years $ 4.31 2,058,065 $ 1.97
========= ========== ======= ========= =======
</TABLE>
(D) 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.
(E) RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 establishes methods of accounting for derivative and hedging activities
related to those instruments as well as other hedging activities. The
company has not assessed the impact on its financial position, results of
operations or cash flows of adopting SFAS No. 133. The company will be
required to implement SFAS No. 133 for its fiscal year ended September 30,
2001.
F-10
<PAGE> 13
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED MARCH 31, 2000
OVERVIEW
We experienced a significant amount of growth over the period of the last
year. Therefore, the analysis of our results of operations on a year to year
basis is not meaningful. We have decided to limit our discussion to a quarter to
quarter analysis in order to provide valuable information.
During the quarter ended March 31, 2000, we experienced significant growth
in our business through both developments of our own network and acquisition.
Proceeds received in connection with financing agreements and initial public
offering were used to consolidate our presence as a nationwide competitive local
exchange carrier.
GROUP TELECOM RESULTS OF OPERATIONS
Revenue
Total revenues increased by 485% from $2.3M to $13.3M, sequentially from
December 1999 to March 2000. The increase was driven by strong growth in both
our voice and data/private services.
Cost of Sales
Total cost of sales increased by 394%, from $2.1M to $10.6M sequentially
from December 1999 to March 2000. The increase was related to large growth in
revenues for the same period. Gross margin percentage significantly increased by
14 points from December 1999 (6%) to March 2000 (20%). The increase is due to a
shift in revenue mix to higher margin data services and an increase in on-net
traffic.
Selling, general and administrative expenses
Total sales, general and administrative expenses amounted to $20.3M for the
current quarter compared to $10.9M for the previous quarter, representing an
increase of 87%. Our growth created cost increases in several areas such as
salaries, rent, advertising and travel. This significant growth will continue as
we complete the buildup of our network and sales force.
EBITDA
Actual EBITDA for the quarter ended March 31, 2000 was negative $17.6M
compared to negative $10.7M for the previous period.
Amortization
Amortization expenses increased significantly during the current quarter to
$6.2M compared to $1.1M for the previous quarter, representing an increase of
449%. Significant additions to property, plant and equipment in connection with
the deployment of our network accounted for the increase.
Interest and financing charges
Interest and financing charges were $13.2M for the current quarter compared
to $0.1M in the previous period. This increase is due to interest cost related
to the high yield debt and the term loans entered into during the quarter ended
March 31, 2000.
Provision for income taxes
We have not generated any taxable income to date and therefore have not
accrued any income tax expense. We have accrued a provision for large
corporations tax in the amount of $0.3M for the quarter.
<PAGE> 14
Net loss
As a result of the above, the net loss for the three months ended March 31,
2000 was $37.3M compared to $12.1M for the three months ended December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased significantly during the quarter ended
March 31, 2000 due to the following net proceeds:
<TABLE>
<S> <C>
- - High yield debt and term loans financing.................. $717.8M
- - Initial public offering and other issuance of shares...... $396.3M
</TABLE>
Portion of these proceeds were used in connection with the purchase of
FiberLink, which occurred during the quarter ended March 31, 2000. Total
purchase price for this transaction amounted to $760.0M, comprised of $360.0M in
cash and $400.0M in shares. The assets purchased were as follows:
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<S> <C>
- - Prepaid IRU............................................... $223.0M
- - Property, plant and equipment............................. $100.0M
- - IRU assets................................................ $329.0M
- - Non-compete agreement..................................... $ 15.0M
- - Use of licenses........................................... $ 13.8M
</TABLE>
In connection with this transaction we recorded acquisition costs of
$12.0M, a future tax liability of $28.2M and a goodwill balance of $119.4M.
During the quarter ended March 31, 2000, capital expenditures related to
the expansion of our network amounted to $35.5M compared to $35.1M for the
previous quarter, representing an increase of 1%.
GROUP TELECOM WORKING CAPITAL ITEMS
Increases in accounts receivable were due to growth in sales. Accordingly,
our trade receivable increased significantly to $12.8M compared to $2.0M in
December 1999.
Other items such as prepaid expenses, accounts payable and accrued
liabilities increased from December 31, 1999 to March 31, 2000. These increases
are directly related to the growth of our company as a nationwide competitive
local exchange carrier.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
GT GROUP TELECOM INC.
(Registrant)
Date May 11, 2000 By /s/ Stephen H. Shoemaker
---------------------------------------
Name: Stephen H. Shoemaker
Title: Executive Vice-President
and Chief Financial Officer
</TABLE>
