SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

/ X/     QUARTERLY  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934

For the quarterly period ended JUNE 30, 1997

                                       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 333-8807
                                                --------

                          GST TELECOMMUNICATIONS, INC.
--------------------------------------------------------------------------------
             (Exact name of Registrant as Specified in its Charter)

          CANADA                                         NOT APPLICABLE
(State or Other Jurisdiction                   (IRS Employer Identification
 of Incorporation or Organization)              Number)

4317 NE THURSTON WAY, VANCOUVER, WA                              98662
----------------------------------------                      ----------
(Address of Principal Executive Offices)                      (Zip Code)

Registrant's Telephone Number, Including Area Code: (360) 254-4700

                                       N/A
--------------------------------------------------------------------------------
              (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 X No

                  Indicate  the  number  of  shares  outstanding  of each of the
issuer's classes of common stock, as of the latest  practicable  date: At August
5, 1997 there were outstanding  27,199,004 Common Shares,  without par value, of
the Registrant.


<PAGE>

                          GST TELECOMMUNICATIONS, INC.

                                      INDEX

                                                                         PAGE(S)

                          PART I: FINANCIAL INFORMATION

ITEM 1.        Financial Statements:

               Consolidated Condensed Balance Sheets - June 30,            3
               1997 (unaudited) and September 30, 1996
               Consolidated Condensed Statements of Operations-            4
               Three Months Ended June 30, 1997 and 1996, Nine
               Months Ended June 30, 1997 and 1996 (unaudited)

               Consolidated Condensed Statements of Cash Flows            5
               - Nine Months Ended June 30, 1997 and 1996
               (unaudited)

               Notes to Consolidated Condensed Financial                6-10
               Statements (unaudited)

ITEM 2.        Management's Discussion and Analysis of Financial       11-15
               Condition and Results of Operations

                           PART II: OTHER INFORMATION

ITEM 1. Legal Proceedings                                                 16

ITEM 2. Changes in Securities                                          16-17

ITEM 6. Exhibits and Reports on Form 8-K                                  17

Signatures                                                                18


<PAGE>

ITEM 1.   FINANCIAL INFORMATION

                          GST TELECOMMUNICATIONS, INC.
                      CONSOLIDATED CONDENSED BALANCE SHEET
                JUNE 30, 1997 (UNAUDITED) AND SEPTEMBER 30, 1996
                                 (in thousands)


<TABLE>
<CAPTION>
ASSETS                                                        June 30, 1997           September 30, 1996(1)
<S>                                                         <C>                         <C>
 Current assets
    Cash and cash equivalents                               $    38,350                 $     61,343
    Restricted cash and investments                             128,479                       16,000
    Accounts receivable, net                                     22,212                        9,472
    Investments                                                   2,315                        5,176
    Inventories                                                   2,852                        2,406
    Prepaid expenses and other current assets                    11,760                        6,151
                                                            ------------------          -------------

         Total current assets                                   205,968                      100,548
                                                            ------------------          -------------

 Restricted investments                                          80,695                            -

 Property, plant and equipment                                  314,986                       134,714
   less accumulated depreciation                                (14,630)                       (7,139)
                                                            ------------------          --------------
                                                                300,356                       127,575

 Other assets                                                   108,338                        79,424
   less accumulated amortization                                (13,331)                       (5,846)
                                                            ------------------          --------------
                                                                 95,007                        73,578

                                                            $   682,026                       301,701
                                                            ==================           ============
LIABILITIES AND SHAREHOLDERS' EQUITY
 Current liabilities
    Accounts payable                                        $    15,010                 $      12,443
    Accrued liabilities                                          21,085                        26,743
    Current portion of capital lease obligations                  4,640                           722
    Current portion of long term debt                             3,700                         4,832
    Other current liabilities                                       106                           726
                                                            ------------------            -----------

         Total current liabilities                               44,541                        45,466
                                                            ------------------            -----------

 Deferred compensation                                              158                           158
 Capital lease obligation, less current portion                  11,427                         1,453
 Long term debt, less current portion                           567,405                       232,674

 Minority interest in subsidiaries                               12,065                           182

 Preference shares                                               52,968                             -

 Shareholders' equity
    Common shares                                               132,400                       72,647
    Commitment to issue shares                                    4,707                       25,454
    Deficit                                                    (143,645)                     (76,333)
                                                            ------------------     ------------------

         Total shareholders' equity                              (6,538)                $    21,768
                                                            ------------------     ------------------

                                                            $   682,026                 $   301,701
                                                            ==================     ==================
</TABLE>
(1)  The  information  in this column was  derived  from the  Company's  audited
     financial statements as of September 30, 1996.

                                      -3-
<PAGE>

                          GST TELECOMMUNICATIONS, INC.
                 CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
                       JUNE 30, 1997 AND 1996 (UNAUDITED)
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                                                       Three Months                          Nine Months
                                                                      Ended June 30,                        Ended June 30,
                                                      -----------------------------------     --------------------------------------

                                                            1997            1996                    1997                   1996
                                                      -----------   ---------------------     --------------------   ---------------
Revenue:

<S>                                                   <C>            <C>                      <C>                   <C>            
      Telecommunication services                      $  20,682      $     7,918              $    58,738           $    19,452
      Telecommunication products                          6,333            2,444                   16,186                 5,772
                                                      ----------    ------------              -----------           ------------
                                                         27,015           10,362                   74,924                25,224
                                                      ----------    ------------              -----------           ------------
Operating costs and expenses:
      Network expenses                                   15,593             5,043                  48,250                14,922
      Facilities administration and maintenance           3,388             3,582                   9,833                 5,793
      Cost of product revenues                            1,873             1,133                   5,557                 2,803
      Selling, general and administrative                18,772             8,946                  49,395                20,689
      Research and development                              713               310                   1,739                   910
      Depreciation and amortization                       5,663             2,107                  14,833                 5,385
                                                      ----------    -------------             -----------           -----------
                                                         46,002            21,121                 129,607                50,502
                                                      ----------    -------------             ------------          -------------

 Loss from operations                                   (18,987)        (10,759)                 (54,683)               (25,278)
                                                      ----------    ------------              -----------           ------------
Other expenses (income)
      Interest income                                    (2,000)          (1,812)                  (3,377)              (4,209)
      Interest expense                                   10,503            6,833                   21,321                14,801
      Loss from joint venture                                 -              384                       -                    987
      Other                                                 271              511                  (6,549)                   547
                                                      ----------     ------------             ------------          -------------
                                                           8,774           5,916                  11,395                 12,126
                                                      ----------     ------------             ------------          -------------

Loss before income taxes
      and minority interest                             (27,761)        (16,675)                 (66,078)               (37,404)
                                                      ----------    ------------              -----------           ------------

      Income Taxes                                         (729)            (13)                    (843)                   (31)
      Minority interest in (income)
        loss of subsidiaries                               (404)             96                     (391)                   335
                                                      ----------    ------------              -----------            -----------
                                                         (1,133)             83                   (1,234)                   304

Net loss                                               $(28,894)      $ (16,592)              $  (67,312)            $  (37,100)
                                                      ==========    ============              ===========            ===========

Net loss per common and common
      equivalent share                                 $  (1.15)      $   (0.86)              $    (2.87)            $    (2.00)
                                                      ==========    ============              ===========            ===========

Weighted average common and common
equivalent shares outstanding                         25,164,628      19,220,694              23,460,468             18,512,988
                                                      ==========    ============              ==========             ==========
</TABLE>

                                      -4-
<PAGE>



                 CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
                   JUNE 30, 1997 AND JUNE 30, 1996 (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                                      Nine Months
                                                                                                    Ended June 30,

                                                                                   -------------------------------------------------

                                                                                          1997                         1996
                                                                                   -------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                                                   <C>                    <C>            
Net loss                                                                              $     (67,312)         $      (37,100)
Adjustment to reconcile net loss to net cash used in operating activities
     Write off of fixed and other assets                                                          -                     486
     Minority interest in income (loss) of subsidiaries                                         391                    (335)
     Loss on investments in affiliates                                                          796                     986
     Accretion of interest                                                                   13,981                  13,312
     Amortization and depreciation                                                           16,070                   6,218
     Stock compensation                                                                         446                       -
     Issuance of stock for financing commitments                                                  -                     396
     Gain on sale of subsidiary shares                                                       (7,424)                      -
Changes in non-cash operating working capital:
     Receivables                                                                             (8,457)                 (1,113)
     Inventory                                                                                  151                  (1,238)
     Prepaid expenses and other                                                              (5,435)                 (1,150)
     Accounts payable and accrued liabilities                                                 5,698                  (1,427)
     Deferred revenue                                                                          (370)                    233
                                                                                   -----------------    --------------------

NET CASH USED IN OPERATING ACTIVITIES                                                       (51,465)                (20,732)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of subsidiary shares                                                  27,365                       -
Proceeds from the sale of marketable securities                                               5,176                       -
Purchase of marketable securities                                                            (3,065)                 (4,452)
Acquisition of subsidiaries, net of cash acquired                                            (1,564)                     11
Acquisition of property and equipment                                                      (159,736)                (40,971)
Cash and investments restricted for purchase of property and equipment                     (110,203)                      -
Purchase of other assets                                                                    (12,151)                 (9,025)
Proceeds from the sale of fixed assets                                                        5,774                       -
                                                                                   -----------------    --------------------

NET CASH USED IN INVESTING ACTIVITIES                                                      (248,404)                (54,437)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares                                                                    24,652                   9,918
Issuance of preference shares                                                                50,000                       -
Deferred financing costs                                                                    (11,313)                 (9,330)
Principal payments on capital leases                                                         (1,686)                    (52)
Principal payments on long term debt                                                         (5,079)                   (974)
Proceeds from long term debt                                                                314,850                 193,109
Purchase of securities to finance interest payments                                         (94,548)                      -
                                                                                   -----------------    --------------------

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES                                                 276,876                 192,671
                                                                                   -----------------    --------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                        (22,993)                117,502
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                             61,343                   6,024
                                                                                   -----------------    --------------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                            $      38,350           $     123,526
                                                                                   =================    ====================
</TABLE>
                                      -5-
<PAGE>

                          GST TELECOMMUNICATIONS, INC.
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                       (IN THOUSANDS EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)

1.       BASIS OF PRESENTATION

         The accompanying  financial statements have been prepared in conformity
with generally accepted accounting principles.  However,  certain information or
footnote  disclosures  normally  included in  financial  statements  prepared in
accordance with generally accepted accounting principles have been condensed, or
omitted,  pursuant to the rules and  regulations  of the Securities and Exchange
Commission.  In the  opinion  of  management,  the  statements  include  all the
adjustments  necessary  (which are of normal and recurring  nature) for the fair
presentation  of the results of the interim period  presented.  These  financial
statements should be read in conjunction with the Company's audited consolidated
financial  statements for the year ended  September 30, 1996, as included in the
Company's Annual Report on Form 10-K.

2.       NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE

         Net loss per common and common  equivalent  share is computed using the
weighted average number of common and dilutive common  equivalent shares assumed
to be outstanding during the period. Common equivalent shares consist of options
and warrants to purchase common shares.

3.       INVENTORIES

         Inventories,  net of  reserves,  stated  at the lower of cost or market
consist of:

                                        June 30, 1997    September 30, 1996
                                        -------------    ------------------

Raw Material                             $  1,139         $  378
Work in Progress                              361            346
Finished Goods                                601            317
Refurbished Inventory Held for Sale           751          1,365
                                         ---------        -------

                    Total Inventories       2,852          2,406
                                         =========        =======

4.       SHAREHOLDERS' EQUITY

         Shares issued and outstanding are as follows:

                                         June 30, 1997     September 30, 1996
                                         -------------     ------------------

Common Shares, no par value              27,076,169          21,257,697

Unlimited number of
common shares authorized

                                      -6-

<PAGE>

5.       SUPPLEMENTAL CASH FLOW INFORMATION

         As a result of acquisitions, the Company recorded $15,988 in assets and
$4,369 in  liabilities  during the nine months ended June 30, 1997.  The Company
purchased  $15,576 in assets through capital leases during the nine months ended
June 30, 1997. Accounts payable and accrued liabilities include $10,988 in fixed
asset  purchases at June 30,  1997.  During the nine months ended June 30, 1997,
the Company made $2,596 in interest payments.

6.       RECENT DEVELOPMENTS

         In May 1997,  the Company  issued $265 million in senior  secured notes
due May 1, 2007.  The notes bear  interest at a rate of 13.25% with  semi-annual
interest payments due beginning November 1, 1997. Approximately $93.8 million of
the  proceeds  have  been set aside to fund the  first  six  scheduled  interest
payments. The remainder of the net proceeds will be used to purchase and install
telecommunications equipment.

         Effective May 31, 1997,  the Company  acquired 100% of the  outstanding
capital stock of Action Telcom,  Inc.  (Action),  a Texas company which provides
long distance and ancillary  telecommunications  services, and produces software
used in the the  telecommunications  industry.  The Company  acquired Action for
consideration of $12,046, consisting of $8,161 in common shares, $1,290 in cash,
$2,580 in notes payable and $16 in acquisition  costs.  In connection  with this
acquisition,  the  Company  recorded  $13,457  of  assets,  including  $4,500 of
purchased software technology and $3,622 of goodwill, and $3,991 in liabilities.

                                      -7-

<PAGE>


7.

GST USA, INC. (A)

CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 1997 (UNAUDITED) AND SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                   June 30, 1997             September 30, 1996
ASSETS

<S>                                                                                <C>                        <C>        
Current assets                                                                     $     180,892              $    77,506

Non-current assets                                                                       434,996                  168,882

                                                                                -----------------           --------------
      TOTAL ASSETS                                                                 $     615,888              $   246,388
                                                                                =================           ==============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities                                                                $     101,487              $    34,286

Non-current liabilities                                                                  551,899                  210,243

Minority interest                                                                         12,066                      182

Total shareholders' equity                                                               (49,564)                    1,677

                                                                                -----------------           --------------
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                   $     615,888              $   246,388
                                                                                =================           ==============
</TABLE>


(A) GST USA,  Inc.  ("GUS") is a  wholly-owned  subsidiary  of the Company.  The
summarized financial  information of GUS is as of and for the three months ended
June 30, 1997 and the comparable 1996 period. The total outstanding indebtedness
of GUS  includes  its senior  discount  notes with an  accreted  value of $196.5
million  as of June 30,  1997,  which  the  Company  fully  and  unconditionally
guaranteed, and senior secured notes of $265 million as of June 30, 1997, which,
on May 13,  2000 or  earlier  if  permitted,  will be fully and  unconditionally
guaranteed by the Company.  Separate financial  statements and other disclosures
concerning GUS are not presented  because  management  has determined  that such
information is not materially different than the information already provided.

                                      -8-

<PAGE>

GST USA, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>

                                                          Three Months                                   Nine Months
                                                          Ended June 30,                               Ended June 30,

                                         --------------------------------------------   -------------------------------------------

                                                 1997                     1996             1997                        1996
                                         ----------------             ---------------    --------------            -------------

<S>                                        <C>                        <C>                 <C>                      <C>      
Revenue                                    $      16,736              $     10,362        $    47,985              $  25,224

Operating costs and expenses               $      35,287              $     20,645        $   101,185              $  49,143
                                         ----------------           ---------------       -------------           ------------

      Loss from operations                 $     (18,551)             $    (10,283)       $   (53,200)             $ (23,919)

Other expenses                             $      (8,051)             $      4,997        $    (6,530)             $  10,120
                                         ----------------           ---------------       -------------           ------------

Net Loss                                   $     (26,602)             $    (15,280)       $   (59,730)             $ (34,039)
                                         ================           ===============       =============           ============
</TABLE>

                                      -9-

<PAGE>


GST USA, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                 Nine Months
                                                                Ended June 30,
                                                    ------------------------------------

                                                         1997                 1996
                                                    ---------------        -------------

<S>                                                  <C>                   <C>        
Cash used in operations                              $   (49,717)          $  (18,647)

Cash used in investing                                  (244,429)             (53,945)

Cash provided by financing                               271,835              172,478
                                                    -------------          -----------

Increase (decrease) in cash and cash equivalents         (22,311)              99,886

Cash and cash equivalents, beginning of period            41,420                 3,894
                                                    -------------          -----------

Cash and cash equivalents, end of period            $     19,109             $ 103,780
                                                    =============          ===========
</TABLE>

                                      -10-

<PAGE>

ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         The  following  management's   discussion  and  analysis  of  financial
condition and results of operations  contains  forward  looking  statements that
involve  risks and  uncertainties.  The  Company's  actual  results could differ
materially  from those  anticipated  in these  forward  looking  statements as a
result of certain factors discussed herein.

OVERVIEW

         GST Telecommunications,  Inc. (the "Company") provides a broad range of
integrated  telecommunications  products  and  services,  primarily to customers
located in the western  continental  United States and Hawaii.  As a competitive
local exchange carrier ("CLEC"), the Company operates state-of-the-art,  digital
telecommunications  networks  that provide an  alternative  to  incumbent  local
exchange carriers. The Company provides, through its established sales channels,
telecommunications services that include long distance, Internet access and data
transmission  services  and recently  introduced  local dial tone  services.  In
addition, the Company produces advanced  telecommunications  switching platforms
with integrated  applications software and network  telemanagement  capabilities
through  its  equipment  subsidiary,  NACT  Telecommunications,  Inc.  ("NACT").
Through the recent  acquisition of Action Telcom,  Inc. ("Action  Telcom"),  the
Company also develops and markets an  industry-leading  network  management  and
fraud protection system.

         The  Telecommunications  Act of 1996 and state  regulatory  initiatives
have substantially changed the telecommunications  regulatory environment in the
United States. As a result of these regulatory changes, the Company is permitted
in  certain   states  to  provide  local  dial  tone  in  addition  to  existing
telecommunications   service   offerings.   In  order  to  capitalize  on  these
opportunities,  the  Company  has  accelerated  the  development  of  additional
networks within its region while significantly expanding its product and service
offerings,  primarily  with  respect  to the  provision  of local  services.

RESULTS OF OPERATIONS

         REVENUES.  Total  revenues for the three and nine month  periods  ended
June 30, 1997 increased $16.7 million,  or 160.7%, and $49.7 million, or 197.0%,
respectively,  over the  comparable  three and nine month periods ended June 30,
1996.  Telecommunications services revenues for the three and nine month periods
ended June 30, 1997 increased $12.8 million,  or 161.2%,  and $39.3 million,  or
202.0%,  respectively,  over the  comparable  periods in the previous  year. The
increase in telecommunications  services revenues resulted from the inclusion of
revenues from  strategic  acquisitions,  including  GST Call  America,  Inc. and
TotalNet  Communications,  Inc.,  as well as  increased  CLEC  service  revenues
generated  by the  Company's  networks.  To a lesser  extent,  the  increase  in
telecommunications  services revenues resulted from increased  Internet,  shared
tenant and data services. Telecommunications products revenues for the three and
nine month periods ended June 30, 1997  increased $3.9 million,  or 159.1%,  and
$10.4  million,  or 180.4%,  respectively,  over the three and nine months ended
June 30, 1996.  The increase in  telecommunication  products  revenues  resulted
primarily  from  the  introduction  in  April  1996 of  NACT's  STX  switch  and
subsequent  increased  unit sales.  To a lesser  extent the  increase in product
revenues is

                                      -11-

<PAGE>
due to the  inclusion  of  newly  acquired  Action  Telcom's  sales  of  network
management and fraud protection systems.

         OPERATING  EXPENSES.  Total  operating  expenses for the three and nine
month periods ended June 30, 1997 increased $24.9 million,  or 117.8%, and $79.1
million,  or 156.6%,  respectively,  over the three and nine month periods ended
June 30, 1996.  Network  expenses,  which include direct local and long distance
circuit  costs,  were  75.4%  and  82.1%,  respectively,  of  telecommunications
services  revenues  for the three and nine month  periods  ended June 30,  1997,
compared to 63.7% and 76.7% for the  comparable  periods in the  previous  year.
Facilities  administration  and maintenance  expenses  (consisting  primarily of
costs  related to personnel  providing  maintenance,  monitoring  and  technical
assistance  for the  Company's  networks)  for the three and nine month  periods
ended June 30, 1997 were 16.4% and 16.7%,  respectively,  of  telecommunications
services revenues  compared to 45.2% and 29.8% for the comparable  periods ended
June 30,  1996.  The primary  reason for the  increase in network  expenses as a
percent of  telecommunications  services revenues and the decrease in facilities
administration  and  maintenance  expenses  as a percent  of  telecommunications
services revenues is the inclusion of revenue from 1996 strategic  acquisitions,
a significant  portion of which are generated from the resale of other carriers'
networks.

         Cost of product  revenues,  which  includes the costs  associated  with
product   revenues  of  NACT  and  Action  Telcom,   were  29.6%  and  34.3%  of
telecommunications  products revenues for the three and nine month periods ended
June 30,  1997,  respectively,  compared  to 46.4% and 48.6% for the  comparable
periods ended June 30, 1996.  The decrease  results  primarily from economies of
scale  related  to  increased  unit  sales of NACT's STX  switch.  Research  and
development  costs for the three and nine months  ended June 30, 1997  increased
$.4 million and $.8 million,  respectively,  over the comparable  periods in the
previous  year.  The increase is due to the addition of personnel to enhance the
current switch  product line and to facilitate the  development of new switching
products and applications.

         Selling,  general and  administrative  expenses  for the three and nine
month periods ended June 30, 1997 increased $9.8 million,  or 109.8%,  and $28.7
million, or 138.8%, respectively,  over the three and nine months ended June 30,
1996.  The increase is due to the expansion of the  Company's  CLEC and enhanced
services  operations,  and to the acquisition of four companies over the past 12
months.  The  implementation of the Company's  integrated  services strategy has
resulted in additional marketing, management information and sales staff.

         Depreciation  and  amortization  for the three and nine  month  periods
ended June 30, 1997 increased $3.6 million and $9.5 million, respectively,  over
the comparable  periods in the previous year.  The increase is  attributable  to
newly-constructed  networks  becoming  operational  and to the  amortization  of
intangible  assets related to the Company's  acquisitions.  The Company  expects
that  depreciation  will  continue to increase  as it expands its  networks  and
increases switched services.

         OTHER  EXPENSES/INCOME.  For the three and nine  months  ended June 30,
1997, the Company  recorded net other expense of $8.8 million and $11.4 million,
respectively,  compared to net other  expense of $5.9 million and $12.1  million
for the comparable  periods ended June 30, 1996. For the nine month period,  the
reason for the  improvement  in net other  expenses as compared to the  previous
year  was a $7.4  million  gain  recognized  on the sale of one  million  of the
Company's shares of NACT in February 1997. If the gain had been excluded,  other
expenses for the nine month period ended June 30, 1997 would have increased $6.7
million over the nine month period ended June 30, 1996. Such increase  primarily
resulted from increased  interest expense due to the issuance of $180 million in
debt  securities  in  December  1995 and the  issuance  of $265  million in debt
securities  in May 1997.  For the three  month  period,  the  increase  in other
expenses as compared to the same period of the previous year is primarily due to
the interest related to the May 1997 debt offering.

                                      -12-

<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

         The  Company has  incurred  significant  operating  and net losses as a
result of the  development  and operation of its networks.  The Company  expects
that such  losses  will  continue as the  Company  emphasizes  the  development,
construction  and  expansion of its networks and builds its customer  base,  and
that cash provided by operations will not be sufficient to fund the expansion of
its networks and services.

         Net cash provided by financing  activities  from  borrowings and equity
issuances to fund capital  expenditures,  acquisitions  and operating losses was
$276.9 million and $192.7 million for the nine month periods ended June 30, 1997
and 1996, respectively.  The Company's net cash used in operating and investment
activities was $299.9 million and $75.2 million for the nine month periods ended
June 30, 1997 and 1996, respectively.

         Capital  expenditures  for the nine months ended June 30, 1997 and 1996
were  $168.4  million and $44.0  million,  respectively.  The Company  estimates
capital  expenditures  of between  $225 million and $250 million for fiscal 1997
and $150 million for fiscal 1998. The majority of these expenditures is expected
to be made for network  construction  and the  purchase of switches  and related
equipment  to  facilitate  the  offering of the  Company's  services.  Continued
significant  capital  expenditures  are  expected  to  be  made  thereafter.  In
addition,  the Company  expects to continue to incur  operating  losses while it
expands its business and builds its customer base.  Actual capital  expenditures
and  operating  losses  will  depend on numerous  factors  beyond the  Company's
control, including economic conditions, competition, regulatory developments and
the availability of capital.

         In October 1996, the Company  completed a private placement to non-U.S.
investors  of two  million  common  shares and  warrants  to  purchase  up to an
additional  one million  common shares at $13.00 per share for one year from the
date of issuance. The Company received $20.8 million in net proceeds conjunction
with the sale of the two million common shares.

         In  September  1996,  the Company  entered into a loan  agreement  with
Siemens  Stromberg-Carlson  ("Siemens") that provides for loans by Siemens of up
to an aggregate of $226 million to finance the purchase of Siemens equipment and
certain  equipment from other  suppliers.  $116 million of such loan proceeds is
presently  available to the Company.  The Company may seek to obtain the balance
of such proceeds on an as needed basis, subject to the negotiation and execution
of mutually  satisfactory  documentation.  In December 1996, the Company entered
into an agreement with Northern Telecom Finance Company ("NTFC"), which provides
for $50 million of equipment  financing to finance the purchase of equipment and
products  from  Northern  Telecom,  Inc.  As of June 30,  1997,  the Company has
borrowed  $4.5 million and $44.6  million  from Siemens and NTFC,  respectively,
pursuant to these agreements.

         In February  1997, the Company  consummated a private  placement of $50
million of redeemable preferred shares (the "Preferred  Shares").  The Preferred
Shares,  which are convertible at any time after February 28, 2000 at an imputed
price of $11.375 per share, will not pay dividends in cash, except to the extent
cash  dividends are paid on common  shares.  In addition,  the  liquidation  and
redemption  prices of the Preferred Shares will accrete at a semi-annual rate of
11.875%.  On February 28, 2004, and under certain  circumstances,  the Preferred
Shares will also be subject to mandatory conversion or redemption, provided that
to the extent the  Company is  prohibited  from paying the  redemption  price in
cash,  holders of the  Preferred  Shares may elect to convert  such  shares into
Common  Shares and if such  election  is not made,  the  Company  may extend the
mandatory redemption date to August 28, 2007.

         In February  1997,  NACT  completed an initial  public  offering of its
common  stock  pursuant  to which the  Company and NACT sold one million and two
million shares, respectively,  of NACT's

                                      -13-

<PAGE>

common stock, resulting in net proceeds to the Company and NACT of approximately
$9.1 million and $18.2 million, respectively.

         In May 1997,  the Company  completed  the  offering of $265  million in
senior secured notes (the "1997  Notes").  The net proceeds from the issuance of
the  1997  Notes,  $255.8  million,   will  be  used  to  purchase  and  install
telecommunications  equipment  such as fiber  optic  cable,  switches  and other
related equipment,  to pay the first six scheduled interest payments on the 1997
Notes and to refinance approximately $40 million of previously purchased capital
equipment.  The  indenture   and the indentures associated  with the 1995 Notes,
include  restrictive  covenants  which,  among  other  items,  limit or restrict
additional   indebtedness  incurred  by  the  Company,   investment  in  certain
subsidiaries, the sale of assets and the payment of dividends.

         The Company proposes to incur  significant  additional  indebtedness to
purchase telecommunications equipment such as switches and fiber optic cable and
to  finance  related  design,   development,   construction,   installation  and
integration costs. The Company may make public and private offerings of its debt
and equity securities and may negotiate additional credit facilities.

         At  June  30,  1997,  the  Company  had  cash,  cash  equivalents,  and
investments,  including  restricted  cash and  investments,  of $249.8  million,
compared to $82.5  million at September 30, 1996.  Management  believes that the
cash on hand, borrowings expected to be available under the Tomen Facility,  the
NTFC  agreement  and  the  Siemens  agreement,   and  proceeds  from  securities
offerings,  if any, will provide  sufficient funds for the Company to expand its
business as presently  planned and to fund its operating  expenses  through June
1998.  Thereafter,  the Company expects to require additional financing.  In the
event that the Company's plans or assumptions  change or prove to be inaccurate,
or its cash  resources,  together with  borrowings  under the current  financing
arrangements  prove  to  be  insufficient  to  fund  the  Company's  growth  and
operations,  or if the Company consummates additional acquisitions,  the Company
may be  required to seek  additional  sources of capital  sooner than  currently
anticipated.  There  can be no  assurance  that  the  Tomen  Facility  or  other
financing  will be  available  to the Company or, if  available,  that it can be
concluded on terms acceptable to the Company or within the limitations contained
within the Company's  financing  arrangements.  Failure to obtain such financing
could  result  in the  delay  or  abandonment  of some  or all of the  Company's
development  or expansion  plans and could have material  adverse  effect on the
Company's business.  Such failure could also limit the ability of the Company to
make  principal  and  interest  payments on its  outstanding  indebtedness.  The
Company  has no working  capital or other  credit  facility  under  which it may
borrow for working capital and other general corporate purposes. There can be no
assurance that such a facility will be available to the Company in the future or
that if such a facility were available,  that it would be available on terms and
conditions acceptable to the Company.

         The Company's liquidity  substantially improved as a result of the 1995
Notes offering and the 1997 Notes offering because the 1995 Notes do not require
the  payment  of cash  interest  prior to June 2001 and the 1995  Notes and 1997
Notes do not require the payment of principal  until  maturity in 2005 and 2007,
respectively.  However,  a portion of the indebtedness  under the Tomen Facility
and a portion of the equipment financing will mature prior to 2005. Accordingly,
the Company  may  need to refinance a  substantial  amount of  indebtedness.  In
addition,  the  Company  anticipates  that  cash flow  from  operations  will be
insufficient to repay the 1995 Notes and 1997 Notes in full at maturity and that
such notes will need to be refinanced. The ability of the Company to effect such
refinancings will be dependent upon the future performance of the Company, which
will be subject to prevailing economic conditions and to financial, business and
other factors, including factors beyond the control of the Company.

There can be no assurance  that the Company will be able to improve its earnings
before  fixed  charges or that the Company will be able to meet its debt service
obligations, including its obligations under the Tomen Facility, the 1995 Notes,
the 1997 Notes or its equipment financing.

                                      -14-

<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

         In February 1997,  the Financial  Accounting  Standards  Board ("FASB")
issued Statement of Financial  Accounting Standard No. 128. "Earnings per Share"
("SFAS 128").  This  statement  establishes a different  method of computing net
income per share than is currently  required  under the provisions of Accounting
Principles Board Opinion No. 15. Under SFAS 128. the Company will be required to
present both basic net income per share and diluted net income per share.  Basic
net income per share is expected to be  comparable  or slightly  higher than the
currently presented net income per share as the effect of dilutive stock options
will not be  considered  in  computing  basic net income per share.  Diluted net
income  per share is  expected  to be  comparable  or  slightly  lower  than the
currently presented net income per share since the diluted calculation will also
use the  average  market  price  instead of the higher of the  average or ending
market price for its calculations.  The Company expects to adopt SFAS 128 in the
first quarter of fiscal 1998 and, at that time,  all  historical  net income per
share data presented will be restated to conform to the provisions of SFAS 128.

                                      -15-

<PAGE>
                           PART II: OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

         On or about  April 8,  1997,  U S WEST filed a state  court  proceeding
against the Arizona  Corporation  Commission (the "ACC"),  individual members of
the ACC and GST Net  (AZ),  Inc.  ("GST  Net"),  which  holds a  certificate  of
convenience and necessity  ("CCN") to provide local exchange service in Arizona.
In its  complaint  appealing  the  ACC's  February  6, 1997  decision  and order
granting  GST Net its CCN,  U S WEST  alleged  that the  ACC's  action  violates
certain  requirements  of the  Arizona  Constitution  relating to rate of return
regulation,  carrier of last resort obligations and equal protection. The appeal
seeks to subject GST Net and U S WEST to identical forms of regulation, treating
both carriers as either traditional monopoly carriers or as co-equal competitive
companies.  GST Net answered U S WEST's  complaint on August 6, 1997,  alleging,
among  other   things,   that  U  S  WEST's   complaint   is  preempted  by  the
Telecommunications  Act of 1996. Should U S WEST prevail in its appeal, it could
have a material adverse effect on the Company's operations in Arizona.

         Reference is made to Item 3 "Legal Proceedings" of the Company's Annual
Report on Form 10-K for the fiscal year ended  September  30, 1996 and to Item 1
"Legal Proceedings" of the Company's Quarterly Report on Form 10-Q for the three
months ended  December 31, 1996,  and to the  descriptions  therein of an action
commenced  by GST Tucson  Lightwave,  Inc.  ("GST  Tucson")  against the City of
Tucson in the  Superior  Court of  Arizona,  County of Pima and a second  action
commenced by GST Tucson against the City of Tucson in the United States District
Court for the  District of Arizona.  On August 5, 1997,  the Tucson City Council
approved a settlement  agreement that resolves the Tucson litigation.  Under the
terms of the settlement agreement,  GST Tucson agreed to pay the City the annual
license  fee  called  for by the  Tucson  Code that  amounts  to 5 1/2% of gross
revenues,  and the City  permit GST Tucson to modify its  current  route map and
serve customers  throughout the City limits.  While dismissing the pending state
court appeal, the parties agreed to allow the United States Court of Appeals for
the Ninth  Circuit  to decide  the  pending  legal  issue  relating  to  whether
companies like GST Tucson enjoy a private right of action to assert right-of-way
claims under Section 253(c) of the  Telecommunications Act of 1996 in the United
States District Courts.

ITEM 2.           CHANGES IN SECURITIES

         1. On June 5,  1997,  the  Registrant  issued an  aggregate  of 903,000
Common Shares to 3 individuals as consideration for the Registrant's acquisition
of Action Telcom, Co.

                                      -16-

<PAGE>

         2. On June 19,  1997,  the  Registrant  issued an  aggregate  of 41,750
Common Shares to four individuals as an installment payment in consideration for
the  Registrant's   acquisition  in  September  1996  of  Tri-Star   Residential
Communications Corp.

            There  were  no  underwriters  involved  in  any  of  the  foregoing
issuances of equity  securities and such issuances were exempt from registration
under Section 4(2) of the  Securities Act of 1933, as amended,  as  transactions
not involving a public offering.

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits

         Exhibit 10.1               Placement  Agreement  dated May 8, 1997,  by
                                    and among GST Telecommunications,  Inc., GST
                                    USA,  Inc.,  GST  Funding,  Inc.  and Morgan
                                    Stanley & Co. Incorporated

         Exhibit 10.2               Indenture  dated as of May 13, 1997,  by and
                                    among GST Telecommunications, Inc., GST USA,
                                    Inc.,  GST Funding,  Inc. and United  States
                                    Trust Company of New York, as Trustee

         Exhibit 10.3               Registration  Rights Agreement dated May 13,
                                    1997,  by and among GST  Telecommunications,
                                    Inc.,  GST USA,  Inc.,  GST  Funding,  Inc.,
                                    Morgan Stanley & Co.  Incorporated,  Dillon,
                                    Read & Co.,  Inc.  and TD  Securities  (USA)
                                    Inc.

         Exhibit 10.4               Collateral  Pledge  and  Security  Agreement
                                    dated as of May 13,  1997,  by and among GST
                                    Funding,  Inc.,  United States Trust Company
                                    of New York and the  holders of the Notes as
                                    defined therein.

         Exhibit 27                 Financial Data Schedule

         (b)  Reports on Form 8-K

           None


                                      -17-


<PAGE>



                               S I G N A T U R E S

         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.

                                              GST TELECOMMUNICATIONS, INC.
                                                     (Registrant)


                                              /S/ Daniel L. Trampush
                                              ----------------------
                                              Daniel L. Trampush
                                              (Senior Vice President and Chief
                                              Financial Officer)

Date:  August 12, 1997


                                      -18-