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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-Q

[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

                  For the quarterly period ended June 30, 2000

                                       OR

[_]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

                For the transition period from        to

                         Commission File Number 0-30837

                                  GENUITY INC.
             (Exact name of registrant as specified in its charter)

                Delaware                                 74-2864824
    (State or other jurisdiction of                   (I.R.S. Employer
     incorporation or organization)                 Identification No.)

         3 Van de Graaff Drive,                            01803
             Burlington, MA                              (Zip Code)
    (Address of principal executive
              offices)

          Registrant's telephone number, including area code 781-262-4000

    (Former name, former address and former fiscal year, if changed since last
                                    report)

   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes   No X

   The Company had 173,913,000 shares of $0.01 par value Class A common stock
outstanding and 18,256,000 shares of $0.01 par value Class B common stock
outstanding at August 11, 2000.

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<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
PART I--FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
    Consolidated Statements of Operations for the Three and Six Month
     Periods ended
     June 30, 1999 and 2000................................................   3
    Consolidated Balance Sheets as of December 31, 1999 and June 30, 2000..   4
    Consolidated Statements of Cash Flows for the Six Months ended June 30,
     1999 and 2000.........................................................   5
    Consolidated Statements of Changes in Stockholders' Equity for the Six
     Month Periods ended June 30, 1999 and 2000............................   6
    Consolidated Statements of Comprehensive Loss for the Three and Six
     Month Periods ended June 30, 1999 and 2000............................   7
    Notes to Unaudited Consolidated Financial Statements...................   8
Item 2. Management's Discussion and Analysis of Financial Condition and
 Results of Operations.....................................................  19
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........  22
PART II--OTHER INFORMATION
Item 1. Legal Proceedings..................................................  23
Item 2. Changes in Securities and Use of Proceeds..........................  23
Item 3. Defaults upon Senior Securities....................................  23
Item 4. Submission of Matters to a Vote of Security Holders................  23
Item 5. Other Information..................................................  23
Item 6. Exhibits and Reports on Form 8-K...................................  23
    Exhibit 27--Financial Data Schedule
SIGNATURES.................................................................  24
</TABLE>

                                       2
<PAGE>

                                  GENUITY INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Dollars in Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                    Three Months Ended     Six Months Ended
                                         June 30,              June 30,
                                    --------------------  --------------------
                                      1999       2000       1999       2000
                                    ---------  ---------  ---------  ---------
<S>                                 <C>        <C>        <C>        <C>
Revenues..........................  $ 165,545  $ 267,924  $ 322,828  $ 515,776
Operating Expenses
  Cost of goods sold..............    178,856    308,222    339,396    592,150
  Selling, general and
   administrative.................     94,178    124,645    187,301    232,981
  Depreciation and amortization...     44,148     61,808     85,240    115,594
                                    ---------  ---------  ---------  ---------
    Total operating expenses......    317,182    494,675    611,937    940,725
                                    ---------  ---------  ---------  ---------
Operating Loss....................   (151,637)  (226,751)  (289,109)  (424,949)
Other Income (Expense)............
  Interest income (expense), net..        391      2,027        (43)      (946)
  Other, net......................     (1,714)       737     (2,055)    (7,330)
                                    ---------  ---------  ---------  ---------
Loss Before Income Taxes..........   (152,960)  (223,987)  (291,207)  (433,225)
Income Taxes......................        369        720        702      1,308
                                    ---------  ---------  ---------  ---------
Net Loss..........................  $(153,329) $(224,707) $(291,909) $(434,533)
                                    =========  =========  =========  =========
Basic and Diluted Loss Per Common
 Share............................  $   (8.40) $   (1.17) $  (15.99) $   (2.26)
                                    =========  =========  =========  =========
Basic and Diluted Weighted-Average
 Common Shares Outstanding........     18,256    192,169     18,256    192,169
                                    =========  =========  =========  =========
</TABLE>


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

                                       3
<PAGE>

                                  GENUITY INC.

                          CONSOLIDATED BALANCE SHEETS
                   (Dollars in Thousands, except Share Data)

<TABLE>
<CAPTION>
                                                      December 31,   June 30,
                                                          1999         2000
                                                      ------------  -----------
<S>                                                   <C>           <C>
                       ASSETS
Current Assets:
  Cash and cash equivalents.......................... $     6,044   $ 1,931,695
  Receivables, less allowances of $5,550 and $6,115..     234,440       228,669
  Other current assets...............................      13,627        32,280
                                                      -----------   -----------
    Total current assets.............................     254,111     2,192,644
Property, Plant and Equipment, Net...................   1,520,934     1,914,427
Goodwill and Other Intangibles, Net..................     537,989       520,020
Other Assets.........................................      30,098        39,472
                                                      -----------   -----------
    Total assets..................................... $ 2,343,132   $ 4,666,563
                                                      ===========   ===========
        LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Short-term obligations, including current
   maturities........................................ $    25,921   $    36,131
  Note payable--GTE..................................     136,484           --
  Accounts payable...................................     172,399       127,829
  Accrued compensation and related liabilities.......      49,637        32,069
  Accrued circuits...................................      51,775        87,177
  Accrued liabilities................................      78,937        83,152
  Advanced billings..................................      26,320        19,919
                                                      -----------   -----------
    Total current liabilities........................     541,473       386,277
Long-Term Obligations................................     112,717        51,049
Deferred Compensation................................      20,466        11,618
Other Liabilities....................................         370           370
                                                      -----------   -----------
    Total liabilities................................     675,026       449,314
                                                      -----------   -----------
Stockholders' Equity:
  Class A common stock--$0.01 par value;
   1,600,000,000 shares authorized; no shares issued
   and outstanding December 31, 1999 and 173,913,000
   shares issued and outstanding June 30, 2000.......         --          1,739
  Class B common stock--$0.01 par value; 21,000,000
   shares authorized; 18,256,000 shares issued and
   outstanding.......................................         183           183
  Class C common stock--$0.01 par value; 800,000,000
   shares authorized; no shares issued and
   outstanding.......................................         --            --
  Additional paid-in capital.........................   2,972,142     5,955,422
  Other comprehensive income.........................       2,696         1,353
  Accumulated deficit................................  (1,306,915)   (1,741,448)
                                                      -----------   -----------
    Total stockholders' equity.......................   1,668,106     4,217,249
                                                      -----------   -----------
    Total liabilities and stockholders' equity....... $ 2,343,132   $ 4,666,563
                                                      ===========   ===========
</TABLE>

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

                                       4
<PAGE>

                                  GENUITY INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                           Six Months Ended
                                                               June 30,
                                                         ---------------------
                                                           1999        2000
                                                         ---------  ----------
<S>                                                      <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss.............................................. $(291,909) $ (434,533)
  Adjustments to reconcile net loss to net cash used in
   operations:
    Depreciation and amortization.......................    85,240     115,594
    Changes in current assets and current liabilities:
      Receivables--net..................................   (40,578)      5,771
      Other current assets..............................   (40,968)    (18,653)
      Other current liabilities.........................    45,122      16,034
    Other, net..........................................    (2,133)      5,301
                                                         ---------  ----------
  Net cash used in operating activities.................  (245,226)   (310,486)
                                                         ---------  ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures..................................  (300,845)   (545,728)
  Capitalized software..................................   (10,374)    (12,670)
                                                         ---------  ----------
    Net cash used in investing activities...............  (311,219)   (558,398)
                                                         ---------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of long-term debt...........................   (20,709)    (61,668)
  Change in short-term obligations......................     5,855      10,210
  Change in note payable/receivable--GTE................   (44,982)   (136,484)
  Proceeds from stock offering, net of expenses.........       --    1,831,547
  Contributions from GTE................................   602,398   1,150,930
                                                         ---------  ----------
    Net cash provided by financing activities...........   542,562   2,794,535
                                                         ---------  ----------
Net increase (decrease) in cash and cash equivalents....   (13,883)  1,925,651
Cash and cash equivalents, beginning of period..........    13,883       6,044
                                                         ---------  ----------
Cash and cash equivalents, end of period................ $       0  $1,931,695
                                                         =========  ==========
Supplemental Cash Flow Disclosures:
Cash paid during the year for:
  Interest.............................................. $   3,134  $    4,158
                                                         =========  ==========
  State income taxes.................................... $   2,110  $      523
                                                         ---------  ----------
Noncash Investing and Financing Activities:
  Capital lease obligation incurred for equipment
   purchase............................................. $  23,374  $      --
                                                         =========  ==========
  Accounts payable--work in process..................... $ (40,011) $  (44,956)
                                                         =========  ==========
</TABLE>

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

                                       5
<PAGE>

                                  GENUITY INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                       (Dollars and Shares in Thousands)

<TABLE>
<CAPTION>
                                           Class B
                          Class A Common    Common    Additional     Other
                          -------------- ------------  Paid-In   Comprehensive Accumulated
                          Shares  Stock  Shares Stock  Capital   Income (Loss)   Deficit      Total
                          ------- ------ ------ ----- ---------- ------------- -----------  ----------
<S>                       <C>     <C>    <C>    <C>   <C>        <C>           <C>          <C>
Balance, December 31,
 1998...................      --  $  --  18,256 $183  $1,990,485    $ 3,928    $  (659,869) $1,334,727
 Tax benefit on exercise
  of stock options--
  GTE...................      --     --     --   --        1,446        --             --        1,446
 Capital contributions--
  GTE...................      --     --     --   --      602,398        --             --      602,398
 Net loss...............      --     --     --   --          --         --        (291,909)   (291,909)
 Other..................      --     --     --   --          --        (726)                      (726)
                          ------- ------ ------ ----  ----------    -------    -----------  ----------
Balance, June 30, 1999..      --  $  --  18,256 $183  $2,594,329    $ 3,202    $  (951,778) $1,645,936
                          ======= ====== ====== ====  ==========    =======    ===========  ==========
Balance, December 31,
 1999...................      --  $  --  18,256 $183  $2,972,142      2,696     (1,306,915)  1,668,106
 Effect of stock
  offering, net of
  $75,500 of offering
  expenses..............  173,913  1,739    --   --    1,829,808                             1,831,547
 Tax benefit on exercise
  of stock options--
  GTE...................      --     --     --   --        2,542        --             --        2,542
 Capital contributions--
  GTE...................      --     --     --   --    1,150,930        --             --    1,150,930
 Net loss...............      --     --     --   --          --                   (434,533)   (434,533)
 Other..................      --     --     --   --          --      (1,343)           --       (1,343)
                          ------- ------ ------ ----  ----------    -------    -----------  ----------
Balance, June 30, 2000..  173,913 $1,739 18,256 $183  $5,955,422    $ 1,353    $(1,741,448) $4,217,249
                          ======= ====== ====== ====  ==========    =======    ===========  ==========
</TABLE>


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

                                       6
<PAGE>

                                  GENUITY INC.

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                    Three Months Ended     Six Months Ended
                                         June 30,              June 30,
                                    --------------------  --------------------
                                      1999       2000       1999       2000
                                    ---------  ---------  ---------  ---------
<S>                                 <C>        <C>        <C>        <C>
Net Loss........................... $(153,329) $(224,707) $(291,909) $(434,533)
Other Comprehensive Income (Loss):
  Foreign currency translation
   adjustments.....................       204       (368)       328        182
  Unrealized gain (loss) on
   securities......................         8          0     (1,054)    (1,525)
                                    ---------  ---------  ---------  ---------
                                          212       (368)      (726)    (1,343)
                                    ---------  ---------  ---------  ---------
Comprehensive Loss................. $(153,117) $(225,075) $(292,635) $(435,876)
                                    =========  =========  =========  =========
</TABLE>



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

                                       7
<PAGE>

                                  GENUITY INC.

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in Thousands, Except Share and Per Share Amounts)

1. GENERAL

Basis of Presentation

   The unaudited consolidated financial statements of Genuity Inc. ("Genuity"
or the "Company") include the accounts of the Company and its three wholly-
owned subsidiaries, Genuity Telecom Inc., Genuity Solutions Inc. and Genuity
Networks Inc. All significant intercompany amounts have been eliminated. The
unaudited consolidated financial statements of Genuity presented herein, should
be read in conjunction with the consolidated financial statements of Genuity as
of and for the year ended December 31, 1999. In the opinion of management, the
unaudited consolidated financial statements presented herein reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation. Interim results are not necessarily indicative of results to
be expected for the entire year.

   Genuity prepares its consolidated financial statements in accordance with
generally accepted accounting principles, which require that management make
estimates and assumptions that affect reported amounts. Actual results could
differ from these estimates.

Summary of Significant Accounting Policies

   The Company's significant accounting policies are described in more detail
in Note 1 of the Notes to Consolidated Financial Statements included in its
Form S-1 filed with the Securities and Exchange Commission. For interim
reporting purposes, the Company follows the same significant accounting
policies.

Revenue Recognition

   Revenue is generally recognized when services are rendered or products are
delivered to customers. The majority of Genuity's contracts consist of separate
agreements to provide Internet access, web-hosting, value added e-business or
transport services to customers.

Income Taxes

   Genuity has historically filed its federal income tax return on a
consolidated basis with GTE. Upon completion of the initial public offering,
Genuity was deconsolidated from GTE for income tax purposes. Income tax
payments and refunds will be determined based on the stand-alone filings of
Genuity. The accompanying consolidated financial statements are presented as if
Genuity was a stand-alone company for all periods presented. As a result of
Genuity's cumulative losses, tax benefits on operating losses of Genuity have
not been recognized.

   Genuity computes current and deferred income tax expense on a stand-alone
basis in accordance with Statement of Financial Accounting Standards (SFAS) No.
109 "Accounting for Income Taxes," which requires recognition of deferred tax
liabilities and assets based upon the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax basis of assets and
liabilities using tax rates in effect for the year in which the differences are
expected to reverse. A valuation allowance has been established to reflect the
likelihood of realization of deferred tax assets.

Goodwill and Other Intangibles

   Goodwill and other intangible assets pertain to the acquisitions of BBN
Corporation and Genuity Incorporated, both acquired in 1997, and internal use
software. Goodwill is being amortized on a straight-line

                                       8
<PAGE>

                                  GENUITY INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
           (Dollars in Thousands, Except Share and Per Share Amounts)

basis over the lesser of 20 years or the period benefited. Other intangible
assets include customer bases, trademarks, developed technology and in-place
work forces in connection with the acquisitions, and internal use software.
Customer bases and in-place work forces are amortized in a manner consistent
with historical attrition patterns over 3 to 10 years. Trademarks, developed
technology and internal use software are amortized on a straight-line basis
over 3 to 10 years.

Concentrations of Credit Risk and Significant Customers

   Genuity's accounts receivable are subject to credit risk. Genuity performs
regular credit evaluations of its customers' financial condition and maintains
allowances for potential credit losses. Genuity's risk of loss is limited due
to advance billings to some of its customers for services and the ability to
terminate service on delinquent accounts. The credit risk is also mitigated by
the large number of customers comprising the customer base, with the exception
of one large customer, America Online, Inc. ("America Online"). Revenues from
America Online in relation to Genuity's total revenues were significant.
However, the credit risk associated with America Online is mitigated by
utilization of advance billings and a history of timely collections. The
average accounts receivable balance of America Online represented 30% and 42%
of Genuity's receivable balance during the six-month period ended June 30, 1999
and 2000, respectively, while revenues from America Online represented 54% and
46% of Genuity's total revenues for six-month period ended June 30, 1999 and
2000, respectively.

   Genuity has been a supplier of network access services in the United States
to America Online since 1995. Genuity entered into a new agreement with America
Online effective as of December 31, 1999, pursuant to which America Online has
agreed to purchase additional dial-up access services from Genuity for a seven-
year term through December 31, 2006. Under the new agreement, America Online
has also agreed to purchase managed digital subscriber line and other broadband
network access services from Genuity for a five-year term through December 31,
2004. This agreement includes provisions for minimum purchase requirements at
fixed monthly fees, subject to market pricing adjustments, service level
requirements and termination provisions.

   Under a separate agreement with AOL Japan, Inc. ("AOL Japan") and Genuity's
Japanese branch, Genuity has agreed to provide dial-up network access services
to America Online in Japan. This agreement also includes minimum purchase
requirements on the part of AOL Japan, market pricing adjustments, service
level requirements, and termination provisions.

Stock-Based Compensation

   Stock options issued to employees and directors are accounted for in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" under which there is no charge to earnings for stock
options granted with an exercise price equal to the fair market value of the
common stock on the date of grant.

Loss per Share

   Loss per common share is calculated based on the provisions of SFAS No. 128,
"Earnings per Share." Basic earnings or loss per share ("EPS") is measured as
the income or loss attributable to common stockholders divided by the weighted
average outstanding common shares for the period. Diluted EPS presents the
dilutive effect on a per share basis of potential common shares as if they had
been converted at the beginning of the periods presented. Potential common
shares that have an anti-dilutive effect are excluded from diluted EPS.
Contingently issuable shares are included in the calculation of diluted EPS if
all of the necessary conditions regarding the share issuance have been met as
of the end of the reporting period.

                                       9
<PAGE>

                                  GENUITY INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
           (Dollars in Thousands, Except Share and Per Share Amounts)

Recent Accounting Pronouncement

   On December 3, 1999, the Securities and Exchange Commission issued SAB No.
101. Genuity adopted this accounting in the first quarter of 2000. There was no
impact to the Company's consolidated statement of operations for the adoption
of SAB No. 101, as it has been the Company's practice to recognize installation
revenue only to the extent of incurred costs.

   In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. This new standard is not
anticipated to have an impact on the Company's consolidated financial
statements based on the current structure and operations.

Reclassifications

   Certain reclassifications have been made to the 1999 financial statements to
conform to the 2000 presentation. Such reclassifications have no effect on
previously reported net loss or stockholders' equity.

2. SIGNIFICANT TRANSACTIONS

Initial Public Offering

   The Company completed an initial public offering of its Class A common stock
on June 30, 2000 and the Company's Class A common stock began trading on the
NASDAQ National Market. The Company sold 173,913,000 shares of Class A common
stock at a price of $11 per share.

Recapitalization

   Prior to the initial public offering, Genuity was a wholly owned subsidiary
of GTE, now part of Verizon Communications ("Verizon"). On June 22, 2000,
Genuity completed a recapitalization. As part of the recapitalization, Genuity
converted 510 shares of common stock issued and outstanding to 18,256,000
shares of Class B common stock. These shares have been reflected as if issued
on January 1, 1999.

   On June 22, 2000 GTE executed a recapitalization agreement in connection
with its receipt of the Class B common stock. The recapitalization agreement
requires Genuity to obtain the consent of Verizon prior to taking actions such
as making acquisitions for consideration that exceeds 20% of Genuity's market
capitalization, making any acquisitions with a purchase price in excess of $100
million or entering into any joint venture with an investment in excess of $100
million that is not closely related to Genuity's business, making any
disposition in excess of 20% of Genuity's market capitalization, and certain
other restrictions on incurring indebtedness and other protective rights.

   In connection with the recapitalization, GTE made a capital contribution to
Genuity of $330.7 million to fund accrued compensation amounts, employee
benefit plan obligations and certain other liabilities.

Common Stock

   The shares of Genuity's Class A common stock, Class B common stock and Class
C common stock are identical in all respects except for voting rights,
conversion rights and as otherwise described below. The rights,

                                       10
<PAGE>

                                  GENUITY INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
           (Dollars in Thousands, Except Share and Per Share Amounts)

preferences and privileges of holders of Class A common stock, Class B common
stock and Class C common stock are subject to the rights of the holders of
shares of any other class of common stock that Genuity may authorize and issue
and any series of preferred stock that Genuity may designate and issue in the
future.

   Voting Rights. Except as required by law or as described below, the holders
of the Class A common stock, Class B common stock and Class C common stock vote
together as a single class on all matters submitted to a vote of Genuity's
shareholders. Each share of Class A common stock entitles the holder to one
vote per share. So long as 50% or more of the shares of Class B common stock
outstanding at the completion of the initial public offering remain
outstanding, no holder or group of holders of Class A common stock may vote any
of their shares in excess of 20% of the aggregate number of the then
outstanding number of shares of Class A common stock.

   Each share of Class B common stock entitles the holder to one vote per
share. The holders of Class B common stock, voting separately as a class, are
entitled to elect one director to Genuity's board of directors. Genuity is also
required to obtain the consent of the holders of Class B common stock, before
taking specific actions, including making significant acquisitions or
dispositions, entering into major business combinations, and incurring
indebtedness or issuing additional equity securities in excess of specified
limits. Under the terms of an FCC Memorandum and Order (the "FCC order"),
Verizon has agreed that it will not consent to Genuity's acquisition of a
traditional voice long-distance provider unless the FCC has first reviewed and
approved the acquisition.

   Each share of Class C common stock entitles the holder to five votes per
share.

   Conversion. The Class A common stock has no conversion rights. Verizon owns
all of the outstanding shares of Class B common stock.

   Under the terms of the FCC order:

  . if Verizon eliminates the applicable restrictions of Section 271 of the
    Telecommunications Act of 1996 (the "Section 271 restrictions") as to
    100% of Bell Atlantic in-region lines, Verizon could convert the Class B
    common stock into 800 million shares of Class C common stock;

  . if Verizon eliminates the applicable Section 271 restrictions as to 50%
    of Bell Atlantic in-region lines and, under circumstances described in
    the recapitalization agreement, it first offers its shares to Genuity, it
    could transfer its shares of Class B common stock to one or more third
    parties that would then be able to convert the Class B common stock into
    an aggregate of 800 million shares of Class A common stock;

  . if Verizon does not eliminate the applicable Section 271 restrictions as
    to at least 50% of Bell Atlantic in-region lines, the Class B common
    stock is convertible into shares of Class A common stock, representing
    approximately 10% of Genuity's total common stock outstanding after
    conversion.

   Under the terms of the FCC order, if Verizon has not eliminated the
applicable Section 271 restrictions as to 100% of Bell Atlantic in-region lines
on or before June 30, 2005, which date may be extended under certain
conditions, Verizon's ability to convert the Class B common stock into 800
million shares of Class A common stock or Class C common stock will expire. If
Verizon has satisfied the applicable Section 271 restrictions as to 100% of
Bell Atlantic in-region lines on or before that date, or any extension, its
ability to convert the Class B common stock into 800 million shares of Class A
common stock or Class C common stock will not expire. The Class B common stock
transferred to a third party will not be subject to this expiration limitation.

                                       11
<PAGE>

                                  GENUITY INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
           (Dollars in Thousands, Except Share and Per Share Amounts)

   Each share of Class C common stock is convertible by the holder at any time
into one share of Class A common stock. Each share of Class C common stock will
automatically convert into one share of Class A common stock if at any time the
aggregate number of outstanding shares of Class C common stock, together with
shares of Class C common stock issuable upon conversion of Class B common
stock, constitutes less than 10% of Genuity's outstanding common stock.

   Verizon's Right to Acquire Additional Shares. If at any time during the one
year following conversion by Verizon or its affiliates of any shares of Class B
common stock, Verizon and its affiliates control shares of Class A common stock
and Class C common stock that in the aggregate exceed 70% of the total number
of shares of outstanding common stock, Verizon may acquire from Genuity during
this one-year period a number of shares of Class A common stock so that it will
own shares of common stock equal to 80% of the total number of shares of the
outstanding common stock.

   Genuity Right of First Offer. Under the terms of the FCC order, if Verizon
seeks to sell some or all of its shares of Genuity Class B common stock, or the
shares of Genuity common stock received by it on conversion of all or some of
Genuity's shares of its Class B common stock, after eliminating the applicable
Section 271 restrictions as to at least 50% but less than 95% of Bell Atlantic
in-region lines, Verizon will first offer to sell those shares to Genuity with
the purchase price payable in the form of an unsubordinated, marketable debt
instrument of Genuity with a fair market value equal to its face value.
Genuity's issuance to Verizon of such a debt instrument shall constitute an
exception to any limitation on the aggregate amount of Genuity's debt that
Verizon may hold pursuant to the FCC order. This debt instrument will bear
interest at a commercially reasonable rate, comparable to rates under similar
instruments held by companies with debt ratings comparable to Genuity's, with a
commercially reasonable time for repayment. The purchase price for all of the
shares of Class B common stock will be equal to the lower of (a) the fair
market value of those shares as determined by a nationally recognized
independent investment banker selected jointly by Verizon and Genuity or (b)
the sum of :

  . the value of a 10% equity interest in Genuity at the time of such sale,
    based on the average of the closing prices of the Class A common stock on
    the thirty trading days prior to the date Verizon offers the shares to
    Genuity; and

  . the amount Verizon would have had on the date of the completion of the
    sale if it had taken the amount of its initial investment in Genuity
    above a 10% equity interest, based on the initial public offering price
    for the Class A common stock, and invested such amount at the time of the
    closing of the initial public offering in the S&P 500 Index.

   Verizon has agreed to grant any consent necessary for Genuity to be able to
complete the purchase of Verizon's Class B common stock.

   Liquidation. In the event of any dissolution, liquidation, or winding up of
Genuity's affairs, whether voluntary or involuntary, the holders of the Class A
common stock, the Class B common stock, and the Class C common stock will be
entitled to share ratably, in proportion to the number of shares they represent
of Genuity's outstanding common stock, in the assets legally available for
distribution to stockholders, in each case after payment of all of Genuity's
liabilities and subject to preferences that may apply to any series of
preferred stock then outstanding. Genuity may not dissolve, liquidate or wind
up its affairs without obtaining the consent of the holders of the outstanding
shares of its Class B common stock.

   Mergers and Other Business Combinations. If Genuity enters into a merger,
consolidation or other similar transaction in which shares of its common stock
are exchanged for or converted into securities, cash or

                                       12
<PAGE>

                                  GENUITY INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
           (Dollars in Thousands, Except Share and Per Share Amounts)
any other property, the holders of each class of Genuity's common stock will be
entitled to receive an equal per share amount of the securities, cash, or any
other property, as the case may be, for which or into which each share of any
other class of common stock is exchanged or converted; provided that in any
such merger, consolidation or other similar transaction, the holders of the
shares of Class B common stock shall be entitled to receive, at their election,
either (1) the merger consideration such holders would have received had they
converted their shares of Class B common stock immediately prior to the
consummation of such transaction or (2) a new security that is convertible into
the merger consideration and has substantially identical voting and other
rights as the Class B common stock. In any transaction in which shares of
capital stock are distributed, the shares that are exchanged for or converted
into the capital stock may differ as to voting rights and conversion rights
only to the extent that the voting rights and conversion rights of Class A
common stock, Class B common stock and Class C common stock differ at that
time. The holders of the Class B common stock, voting separately as a class,
must consent to any such merger, consolidation or other similar transaction.

Agreements with Verizon

   Concurrent with the closing of the initial public offering, Genuity executed
agreements with GTE Service Corporation (GTESC) and other affiliates of GTE,
now part of Verizon, including transition services agreements, purchase, resale
and marketing agreement, intellectual property agreements, network monitoring
agreement and real estate agreements. The transition services, intellectual
property, network monitoring and real estate agreements involve services
provided to and received from Verizon. The terms of these agreements vary from
four to twelve months with rights to terminate earlier. The fees paid or
received from these agreements are fixed under the agreements and were based on
historical costs and comparable market prices. Under the purchase, resale and
marketing agreement, Verizon has agreed to purchase at least $500 million of
Genuity's services over a five-year period.

3.  PROPERTY, PLANT AND EQUIPMENT, NET

   Property, plant and equipment, net was comprised of the following (in
thousands):

<TABLE>
<CAPTION>
                                                      December 31,  June 30,
                                                          1999        2000
                                                      ------------ ----------
   <S>                                                <C>          <C>
   Land..............................................  $    4,705  $    4,705
   Buildings and fixtures............................       6,318       6,318
   Communications network--fiber-optic cable.........     481,573     549,235
   Communications network--data processing equipment
    and machinery....................................     728,177     948,035
   Furniture.........................................      18,653      20,197
   Leasehold improvements............................     170,420     169,122
   Work in progress..................................     402,740     587,581
                                                       ----------  ----------
   Sub-Total.........................................   1,812,586   2,285,193
   Accumulated depreciation..........................    (291,652)   (370,766)
                                                       ----------  ----------
     Total...........................................  $1,520,934  $1,914,427
                                                       ==========  ==========
</TABLE>

   During 1999, Genuity completed its initial buildout of its communications
network in the United States. Costs directly related to the network have been
capitalized, including amounts associated with the indefeasible rights of use.
Genuity commenced depreciation as individual segments were placed in service.

                                       13
<PAGE>

                                  GENUITY INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
           (Dollars in Thousands, Except Share and Per Share Amounts)

   Depreciation expense was $31.6 million and $46.0 million for the three
months ended June 30, 1999 and 2000, respectively, and $60.2 million and $85.0
million for the six months ended June 30, 1999 and 2000, respectively.

4. GOODWILL AND OTHER INTANGIBLES, NET

   Goodwill and other intangibles, net was comprised of the following (in
thousands):

<TABLE>
<CAPTION>
                                                         December 31, June 30,
                                                             1999       2000
                                                         ------------ --------
   <S>                                                   <C>          <C>
   Goodwill.............................................   $495,348   $495,348
   Customer bases.......................................     77,000     77,000
   Trademarks...........................................     34,000     34,000
   Developed technology.................................     19,000     19,000
   In-place work forces.................................      9,190      9,190
   Internal use software................................     34,580     47,250
                                                           --------   --------
     Sub-Total..........................................    669,118    681,788
   Accumulated amortization.............................   (131,129)  (161,768)
                                                           --------   --------
     Total..............................................   $537,989   $520,020
                                                           ========   ========
</TABLE>

   Amortization expense was $12.5 million and $15.8 million for the three
months ended June 30, 1999 and 2000, respectively, and was $25.0 million and
$30.6 million for the six months ended June 30, 1999 and 2000, respectively.

5. DEBT

   Long-term obligations and short-term obligations were as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                         June
                                                           December 31,   30,
                                                               1999      2000
                                                           ------------ -------
   <S>                                                     <C>          <C>
   6% convertible subordinated debentures.................   $ 48,948   $     0
   Capital leases.........................................     63,769    51,049
                                                             --------   -------
     Total long-term obligations..........................   $112,717   $51,049
                                                             ========   =======
   Note payable--GTE......................................   $136,484   $     0
   6% convertible subordinated debentures.................          0    11,254
   Current portion of capital leases......................     25,921    24,877
                                                             --------   -------
     Total short-term obligations.........................   $162,405   $36,131
                                                             ========   =======
</TABLE>

   The 6% convertible subordinated debentures due 2012 may be converted by the
bondholders into cash at an exchange ratio of $966.67 for each $1,000 in
principal amount of debentures. The debentures are unsecured obligations of
Genuity and are subordinated in right of payment to Genuity's senior
indebtedness, if any. During the six months ended June 30, 2000, Genuity paid
$37.7 million related to debentures that had been converted by the bondholders.
The remaining balance at June 30, 2000 has been included in short-term
obligations based on an estimate of the timing for the remaining debt
conversions.


                                       14
<PAGE>

                                  GENUITY INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
           (Dollars in Thousands, Except Share and Per Share Amounts)

6. STOCK-BASED COMPENSATION

Long-Term Stock Incentive Plan

   The Long-Term Stock Incentive Plan (the "Stock Plan") was approved by the
board of directors on May 22, 2000. The Stock Plan provides for the following
awards based on the Class A common stock: stock options, stock appreciation
rights, stock-based performance bonuses and other stock-based awards. No cash
awards will be permitted under the plan (except in lieu of fractional shares).
Awards may be granted to employees of Genuity or any entity in which it owns at
least a 10% interest. The Stock Plan will be administered by the executive
compensation committee of the Genuity board of directors. The administrator has
the authority to determine eligibility, grant awards and make all other
determinations under the plan.

   Stock options granted under the Stock Plan may have a term of up to 10 years
and may be either incentive stock options, as defined in the Internal Revenue
Code, or nonqualified stock options. Stock options granted may not be assigned
other than by will or by applicable laws. The period or periods during which an
award will be exercisable or remain outstanding, including any periods
following termination of service, the manner of exercise and other details of
awards will be determined by the administrator consistent with the Stock Plan.

   There are approximately 87,165,000 shares authorized for award under the
Stock Plan. As of June 30, 2000 approximately 62,810,000 options were
outstanding.

Outside Directors' Compensation Plan

   The Outside Directors' Compensation Plan (the "Directors' Plan") was
approved by Genuity's board of directors on May 22, 2000. Pursuant to this
plan, non-employee directors who agreed, prior to the initial public offering,
to serve on the board of directors received a $30,000 annual cash fee and one-
time option to purchase 30,000 shares of Class A common stock at an exercise
price equal to the initial public offering price. In addition, non-employee
directors who agree after the initial public offering to serve on the board of
directors will receive, effective upon election to the board of directors, a
$30,000 annual cash fee and options to purchase 30,000 shares of Class A common
stock at an exercise price equal to the fair market value at the time of grant.
These stock options will vest in three equal installments and each installment
will become exercisable on the day prior to the annual meeting of the
stockholders. There are approximately 487,000 shares authorized for award under
the Directors' Plan. As of June 30, 2000, 120,000 options were outstanding.

7. EMPLOYEE BENEFIT PLANS

   The board of directors of Genuity adopted the Genuity Savings Plan effective
with the initial public offering. Under this Plan, Genuity will provide
matching contributions in Genuity Class A common stock based on qualified
employee contributions. Employees can contribute between 1% and 20% of their
eligible pay, as defined, and are immediately 100% vested.

8. EARNINGS PER SHARE

   The weighted average common shares outstanding for both basic and diluted
earnings per share were 18,256,000 shares for the three and six month periods
ended June 30, 1999 and 192,169,000 shares for the three and six month periods
ended June 30, 2000. Potential common shares were not included in the
computations of weighted average diluted shares outstanding for the quarter and
six months ended June 30, 2000 because their inclusion would be anti-dilutive.
Contingently issuable shares were not included in the computations of weighted
average diluted shares outstanding for the quarter and six months ended June
30, 2000 as the necessary conditions surrounding the share issuance had not
been met.

                                       15
<PAGE>

                                  GENUITY INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
           (Dollars in Thousands, Except Share and Per Share Amounts)

9. SEGMENT REPORTING

   Genuity's operations are reported in three segments, Access, Hosting and
Transport.

   Access--Internet access pertains to a variety of global Internet access
services, including dial-up, dedicated, DSL and other broadband, by providing
and managing the underlying scaleable infrastructure. Genuity also provides a
range of customer premise equipment necessary to connect to the Internet,
including routers, channel service units/data service units, modems, software
and other products. Customers receive 24 hours per day, seven days per week
network monitoring and technical support from Genuity's Network Operations
Centers (NOC).

   Hosting--Hosting pertains to services that allow customers to successfully
implement their e-business strategies through scaleable, reliable and secure
Web sites, which serve as their e-business storefronts. The e-business model
enables companies to decrease sales costs; accelerate time to market; access
new sales channels; increase revenues, productivity and customer satisfaction;
and gain competitive advantage. Genuity currently operates 11 global data
centers, nine in the U.S., one in Leeds, England and one in Tokyo, Japan.
Through the web hosting operation center, Genuity monitors these systems 24
hours a day and seven days a week.

   Transport--Genuity provides a broad range of transport services to customers
through a single point of contact for planning, ordering, installing, billing,
maintaining and managing our customers' transport services. Genuity provides
seamless operation of local loops, central office connections and interexchange
carrier transport. Through Genuity's NOC, network faults, intrusion or
environmental alarms are observed, diagnostics are performed, and referrals or
dispatches are initiated as needed.

   Value-Added Services / Other--Includes revenue from international
operations, sale of international services and revenue generated from value-
added Internet services of security, virtual private networks and voice-over
IP.

   Network costs within GNI which are incurred to support the Access, Hosting
and Transport segments are not allocated to these segments for management
reporting or segment reporting purposes. Similarly, selling, general and
administrative expenses are not allocated to the segments for management or
segment reporting purposes.

   Revenues for America Online in relation to Genuity's total revenues were 54%
and 46% for the six months ended June 30, 1999 and 2000, respectively.

   Management utilizes several measurements to evaluate its operations and
allocate resources. However, the principal measurements are consistent with
Genuity's financial statements. The accounting policies of the segments are the
same as those described in Note 1.

                                       16
<PAGE>

                                  GENUITY INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
           (Dollars in Thousands, Except Share and Per Share Amounts)
   Financial information for Genuity's segments is as follows (in thousands):

<TABLE>
<CAPTION>
                                   Three Months Ended     Six Months Ended
                                        June 30,              June 30,
                                   --------------------  --------------------
                                     1999       2000       1999       2000
                                   ---------  ---------  ---------  ---------
   <S>                             <C>        <C>        <C>        <C>
   Revenues
     Access....................... $ 132,434  $ 197,687  $ 260,472  $ 380,972
     Hosting......................    11,041     27,122     21,069     48,814
     Transport....................    15,594     21,862     29,129     45,487
     Value-Added Services/Other...     6,476     21,253     12,158     40,503
                                   ---------  ---------  ---------  ---------
       Total revenues.............   165,545    267,924    322,828    515,776
   Operating Expenses
     Cost of goods sold...........   178,856    308,222    339,396    592,150
     Selling, general and
      administrative..............    94,178    124,645    187,301    232,981
     Depreciation and
      amortization................    44,148     61,808     85,240    115,594
                                   ---------  ---------  ---------  ---------
       Total operating expenses...   317,182    494,675    611,937    940,725
                                   ---------  ---------  ---------  ---------
   Operating Loss                   (151,637)  (226,751)  (289,109)  (424,949)
   Other Income (Expense)
     Interest income (expense),
      net.........................       391      2,027        (43)      (946)
     Other, net...................    (1,714)       737     (2,055)    (7,330)
                                   ---------  ---------  ---------  ---------
   Loss Before Income Taxes....... $(152,960) $(223,987) $(291,207) $(433,225)
                                   =========  =========  =========  =========
   Capital Expenditures(1)
     Access....................... $  31,597  $  54,536  $  46,973  $  77,430
     Hosting......................     9,590     27,279     13,701     44,631
     Transport....................       755        281      2,209        828
     GNI..........................   121,477    194,925    195,691    298,163
     Value-Added Services/Other...    15,632     60,658     25,634     79,720
                                   ---------  ---------  ---------  ---------
       Total...................... $ 179,051  $ 337,679  $ 284,208  $ 500,772
                                   =========  =========  =========  =========
   Depreciation and Amortization
     Access....................... $   7,540  $  11,137  $  14,137  $  21,275
     Hosting......................     2,916      4,297      5,916      7,961
     Transport....................     1,299      1,774      3,242      3,556
     GNI..........................    17,593     26,231     32,564     46,885
     Value-Added Services/Other...    14,800     18,369     29,381     35,917
                                   ---------  ---------  ---------  ---------
       Total...................... $  44,148  $  61,808  $  85,240  $ 115,594
                                   =========  =========  =========  =========
   International Revenues......... $   5,051  $   8,955  $   8,863  $  17,637
                                   =========  =========  =========  =========
</TABLE>
--------
(1) Includes accruals and capital leases.

                                       17
<PAGE>

                                  GENUITY INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
           (Dollars in Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
                                                        December 31,  June 30,
                                                            1999        2000
                                                        ------------ ----------
   <S>                                                  <C>          <C>
   Property, Plant and Equipment, Net
     Access............................................  $  180,777  $  233,946
     Hosting...........................................      52,998      89,181
     Transport.........................................      26,974      24,749
     GNI...............................................   1,162,287   1,411,215
     Value-Added Services/Other........................      97,898     155,336
                                                         ----------  ----------
       Total...........................................  $1,520,934  $1,914,427
                                                         ==========  ==========
   International Long-lived assets.....................  $    1,855  $    5,110
                                                         ==========  ==========
</TABLE>

10. COMMITMENTS AND CONTINGENCIES

Contract Commitments

   Genuity has entered into several agreements for indefeasible rights-of-use
(IRU) for its network infrastructure in the United States. The initial terms of
the IRUs are for 20-25 years, with options to extend the terms. As of June 30,
2000, the outstanding commitments under the agreements are approximately $275
million. Genuity is also obligated to pay operating and maintenance costs under
the contract terms.

   Genuity has entered into a number of agreements for IRUs to trans-oceanic
cable systems that are either deployed or in the process of being deployed. The
initial terms of the IRUs are for 25 years. As of June 30, 2000, the
outstanding commitments under the agreements total approximately $65 million.

   Genuity has noncancelable long-term purchase commitments with circuit
providers. The purchase agreements contain provisions that require Genuity to
purchase a minimum amount of services annually. If Genuity does not purchase
the minimum service, it is required to pay the amount of the shortfall between
the minimum commitments and actual purchases. As of June 30, 2000, future
minimum circuit payments under these noncancelable purchase commitments were as
follows (in thousands):

<TABLE>
   <S>                                                                  <C>
   2000................................................................ $ 23,516
   2001................................................................   36,865
   2002................................................................   31,032
   2003................................................................   26,344
                                                                        --------
                                                                        $117,757
                                                                        ========
</TABLE>

Contingencies

   Some claims arising in the ordinary course of business are pending against
the Company. In the opinion of management, these claims are without merit and
are not expected to have a material effect on operations.

                                       18
<PAGE>

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
       OF OPERATIONS

   This Form 10-Q contains certain forward-looking statements regarding, among
other things, our future financial performance, our anticipated growth
strategies and anticipated trends in our business as well as projections
relating to our capital expenditure requirements, our network expansion plans,
locations of new data centers, network operations centers and points of
presence, expected deployment dates for capacity on trans-oceanic cable, our
plans for transitioning customer traffic from leased capacity to our network,
research and development initiatives and increases in sales and marketing
personnel. Investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof and are
predictions based solely on our current expectations and projections about
certain events. In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, we caution investors that our future
financial and operating results may differ materially from those projected in
the forward-looking statements. Such forward-looking statements involve known
and unknown risks and uncertainties and, accordingly, there are many factors
that may cause our actual results, level of activity, performance or
achievements to be materially different from any future results, level of
activity, performance of achievements expressed or implied by such forward-
looking statements. Those factors that may cause our actual results, level of
activity, performance or achievements to be materially different from that
expressed or implied by any forward-looking statement include our ability to
maintain or increase our market share and therefore maintain our status as a
Tier 1 Internet backbone provider, maintain and strengthen our relationship
with America Online and other significant customers, obtain additional capital
to fund our operations and the expansion of our capacity and network
infrastructure, successfully maintain and continue to strengthen our brand
recognition, compete effectively for service and enterprise customers, reduce
operating expenses and introduce new services.

   The following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated financial statements and related notes
included in this report.

 Revenues

<TABLE>
<CAPTION>
                                                      Quarter Ended June 30,
                                                     --------------------------
                                                         1999          2000
                                                     ------------  ------------
                                                      Amount   %    Amount   %
                                                     -------- ---  -------- ---
<S>                                                  <C>      <C>  <C>      <C>
Access.............................................. $132,434  80% $197,687  74%
Hosting.............................................   11,041   7    27,122  10
Transport...........................................   15,594   9    21,862   8
Value-Added Services/Other..........................    6,476   4    21,253   8
                                                     -------- ---  -------- ---
Total............................................... $165,545 100% $267,924 100%
                                                     ======== ===  ======== ===
<CAPTION>
                                                     Six Months Ended June 30,
                                                     --------------------------
                                                         1999          2000
                                                     ------------  ------------
                                                      Amount   %    Amount   %
                                                     -------- ---  -------- ---
<S>                                                  <C>      <C>  <C>      <C>
Access.............................................. $260,472  81% $380,972  74%
Hosting.............................................   21,069   7    48,814   9
Transport...........................................   29,129   9    45,487   9
Value-Added Services/Other..........................   12,158   3    40,503   8
                                                     -------- ---  -------- ---
Total............................................... $322,828 100% $515,776 100%
                                                     ======== ===  ======== ===
</TABLE>

   Revenues for the quarter ended June 30, 2000 increased $102 million, or 62%,
and revenues for the first six months of 2000 increased $193 million, or 60%,
over the same periods in 1999.


                                       19
<PAGE>

   Access. Access revenues for the quarter ended June 30, 2000 increased $65
million, or 49%, and for the first six months of 2000 increased $121 million,
or 46%, over the same periods in 1999. This increase was due primarily to a 71%
increase in the number of dial-up access modems deployed since June 30, 1999,
primarily resulting from the expanded relationship with America Online, and to
a lesser extent, an increase in the number of dedicated access customers. These
increases were offset in part by lower prices.

   Hosting. Hosting revenues for the quarter ended June 30, 2000 increased $16
million, or 146%, and for the first six months of 2000 increased $28 million,
or 132%, over the same periods in 1999, due primarily to an increase in the
average monthly revenue per managed hosting customer.

   Transport. Transport revenues for the quarter ended June 30, 2000 increased
$6 million, or 40%, and for the first six months of 2000 increased $16 million,
or 56%, over the same periods in 1999, due primarily to the sale of excess
capacity on our network as we brought new network segments on line as well as
increased sales of private line services and ATM services to telecommunications
carriers and Internet service providers.

   Value-Added Services/Other. Other revenues for the quarter ended June 30,
2000 increased $15 million, or 228%, and for the first six months of 2000
increased $28 million, or 233%, over the same periods in 1999 due primarily to
an increase in revenues from voice-over IP services and sales of Internet
access services in international markets.

 Cost of Goods Sold

   Cost of goods sold for the quarter ended June 30, 2000 increased $129
million, or 72%, and first six months of 2000 increased $253 million, or 74%,
over the same periods in 1999. The increase for both the quarter and six-month
periods was due to the build-out of our network infrastructure to provide
access to a broader base of customers, support a growing customer base and
provide increased scope to service customers of our Internet access services.
The continued expansion of the dial-up network operated for America Online also
contributed to the increase in cost of goods sold in 2000. Cost of goods sold,
as a percentage of total revenues, was 108% and 115% for the quarters ended
June 30, 1999 and 2000, respectively, and 105% and 115% for the first six
months of 1999 and 2000, respectively. Telecommunications circuit costs, as a
percentage of cost of goods sold, were approximately 64% and 70% for the
quarter ended June 30, 1999 and 2000, respectively, and 66% and 70% for the
first six months of 1999 and 2000, respectively.

 Selling, General and Administrative Expenses

   Selling, general and administrative expenses for the quarter ended June 30,
2000 increased $30 million, or 32%, and for the first six months of 2000 and
increased $46 million, or 24%, over the same periods in 1999. This increase was
due primarily to increased selling expenses that were directly attributable to
an increase in the number of sales and sales-related employees, both
domestically and internationally, and to the branding efforts surrounding our
name change. The growth in the sales force resulted in higher training expenses
and additional costs for expansion of field offices. Also contributing to this
increase were the hiring of additional management staff and related operating
expenses, increased facilities costs and increased information technology
expenses.

 Depreciation and Amortization

   Depreciation and amortization expenses for the quarter ended June 30, 2000
increased $18 million, or 40%, and for the first six months of 2000 increased
$30 million, or 36%, over the comparable periods in 1999. This increase
reflects the continuing investment in our network infrastructure in order to
support our growth in customers and services.


                                       20
<PAGE>

 Income Taxes

   We generated pre-tax book losses of $224 million for the quarter ended June
30, 2000 and $433 million for the first six months of 2000. Federal income tax
returns were filed on a consolidated basis with GTE through the date of our
initial public offering. The tax provision, however, was computed on a stand-
alone basis. Because we have historically generated net operating losses, a
valuation allowance has been established to reflect the likelihood of realizing
the deferred tax assets.

 Net Loss

   Net losses increased to $225 million for the quarter ended June 30, 2000
compared to $153 million for the quarter ended June 30, 1999 and to $435
million for the first six months of 2000 compared to $292 million in the same
period in 1999.

Liquidity and Capital Resources

   We have used cash in our operating and investing activities during all
periods. We have funded these cash requirements principally through permanent
contributions to capital from GTE and borrowings from its affiliates.

   Net cash used in operating activities was $245 million and $310 million for
the first six months of 1999 and 2000, respectively. Net cash used in operating
activities for these periods was primarily the result of operating losses.

   Net cash used in investing activities was $311 million and $558 million for
the first six months of 1999 and 2000, respectively. Net cash used in investing
activities in each of these periods was primarily the result of capital
expenditures for construction of our network infrastructure, as well as
leasehold improvements, furniture, fixtures, computers and other equipment. The
Company currently intends to spend approximately $1.8 billion to $2.0 billion
during the year ended December 31, 2000, of which approximately $1.2 billion is
expected to be spent on the continued expansion of our fiber optic network and
approximately $250 million is expected to be spent on the construction of
additional data centers. As of June 30, 2000, Genuity has entered into $1.0
billion of commitments for these projected expenditures, of which $527 million
was outstanding. Our capital expenditures program, as currently contemplated,
will require between $11 billion and $13 billion over the next five years, the
majority of which will be for the expansion of our network infrastructure.

   Net cash received from financing activities was $543 million and $2.8
billion for the six months ended June 30, 1999 and 2000, respectively. Capital
contributions from GTE amounted to $602 million and $1.2 billion for the first
six months of 1999 and 2000, respectively. In addition, we received net
proceeds of $1.8 billion as a result of our initial public offering of Class A
common stock. We anticipate that the Company will have sufficient liquidity to
fund its operating expenses and capital requirements into the first quarter of
2001. As additional sources of liquidity, the Company is currently negotiating
a revolving line of credit facility and anticipates raising funds through a
debt offering.

Inflation

   We do not believe that inflation has had a material adverse impact on our
business or operating results during the periods presented.

Recently Issued Accounting Pronouncements

   The Securities and Exchange Commission issued Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in Financial Statements, on December 3,
1999. Genuity adopted this accounting guidance in the first quarter of 2000.
There was no impact to the Company's consolidated statement of operations for
the adoption of SAB No. 101, as it has been the Company's practice to recognize
installation revenue only to the extent of incurred costs.

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   In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments, embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133, as amended by SFAS No.
137, is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. This new standard is not anticipated to have an impact of the
Company's consolidated financial statements based on the current structure and
operations.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

   While our long-term debt bears fixed interest rates, the fair value of our
fixed rate long-term debt is sensitive to changes in interest rates. There is a
risk that market rates will increase and the required payments will exceed
those based on the current market rates. The estimated fair value of long-term
debt based on a debt pricing model was lower than its recorded value by
approximately $6.6 million as of December 31, 1999. Under our current risk
management policies, we do not use interest rate derivative instruments to
manage our exposure to interest rate changes.

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                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

   We are not involved in any legal proceedings which we believe would, if
adversely determined, have a material adverse effect upon our business,
financial condition or results of operations.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

   Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

   Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   We solicited and received the unanimous written consent of our stockholders
during the three months ended June 30, 2000 to approve our amended and restated
certificate of incorporation in connection with our initial public offering and
to approve our Long-Term Stock Incentive Plan and Outside Directors'
Compensation Plan.

ITEM 5. OTHER INFORMATION

   Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

   (a) Exhibits

   27.0 Financial Data Schedule.

   (b) Reports on Form 8-K

   Not applicable.

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                                   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.


                                          Genuity Inc.

                                                 /s/ Daniel P. O'Brien
                                          By: _________________________________
                                                     Daniel P. O'Brien
                                                 Executive Vice President,
                                                Chief Financial Officer and
                                                         Treasurer
                                                (Duly Authorized Officer and
                                                  Principal Financial and
                                                    Accounting Officer)

August 14, 2000

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