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 MARCH 31, 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)

<PAGE>

                  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 May 14,
1997, there were outstanding 25,798,642 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 Sheet - March 31,           3
               1997 (unaudited) and September 30, 1996

               Consolidated  Condensed Statements of Operations -           4
               Three  Months  Ended March 31, 1997 and 1996,  Six
               Months  ended  March  31,  1997  and 1996 and 1995
               (unaudited)

               Consolidated  Condensed Statements of Cash Flows -           5
               Six  Months   Ended   March  31,   1997  and  1996
               (unaudited)

               Notes   to   Consolidated    Condensed   Financial           6
               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

ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS         17

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K                            17-18

SIGNATURES                                                                 19






                                2
<PAGE>


Part 1. Financial Information

                         GST Telecommunications, Inc.

                      CONSOLIDATED CONDENSED BALANCE SHEET
               MARCH 31, 1997 (unaudited) and September 30, 1996

                                 (in thousands)

<TABLE>
<CAPTION>
                                                                      March 31, 1997        September 30, 1996    (1)
<S>                                                                    <C>                      <C>      
ASSETS
   Current assets
      Cash and cash equivalents                                        $  37,073                $  61,343
      Restricted cash                                                     11,261                   16,000
      Accounts receivable, net                                            15,407                    9,472
      Investments                                                          2,000                    5,176
      Inventories                                                          2,808                    2,406
      Prepaid expenses and other current assets                            7,531                    6,151
                                                                       ---------                ---------

           Total current assets                                           76,080                  100,548
                                                                       ---------                ---------

   Property, plant and equipment                                         258,325                  134,714
     less accumulated depreciation                                       (12,407)                  (7,139)
                                                                       ---------                ---------
                                                                         245,918                  127,575


   Other assets                                                           86,508                   79,424
     less accumulated amortization                                       (10,560)                  (5,846)
                                                                       ---------                ---------
                                                                          75,948                   73,578

                                                                       $ 397,946                $ 301,701
                                                                       =========                =========

LIABILITIES AND SHAREHOLDERS' EQUITY
   Current liabilities
      Accounts payable                                                 $  10,166                $  12,443
      Accrued liabilities                                                 19,395                   26,743
      Current portion of capital lease obligations                           723                      722
      Current portion of long term debt                                    1,650                    4,832
      Other current liabilities                                              355                      726
                                                                       ---------                ---------

           Total current liabilities                                      32,289                   45,466
                                                                       ---------                ---------


   Deferred compensation                                                     158                      158
   Capital lease obligation, less current portion                          1,628                    1,453
   Long term debt, less current portion                                  287,495                  232,674

   Minority interest in subsidiaries                                      11,661                      182

   Preference shares                                                      50,000                     --

   Shareholders' equity

      Common shares                                                      103,642                   72,647
      Warrants                                                            20,815                     --
      Commitment to issue shares                                           5,009                   25,454
      Deficit                                                           (114,751)                 (76,333)
                                                                       ---------                ---------

           Total shareholders' equity                                     14,715                   21,768
                                                                       ---------                ---------

                                                                       $ 397,946                $ 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
                       MARCH 31, 1997 AND 1996 (UNAUDITED)
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                             Three Months                           Six Months
                                                            Ended March 31,                       Ended March 31,
                                                   -------------------------------       -------------------------------

                                                        1997              1996                1997               1996
                                                   ------------       ------------       ------------       ------------
<S>                                                <C>                <C>                <C>                <C>         
Revenue:

      Telecommunication services                   $     19,619       $      7,000       $     38,056       $     11,534
      Telecommunication products                          5,073              1,343              9,853              3,328
                                                   ------------       ------------       ------------       ------------

                                                         24,692              8,343             47,909             14,862
                                                   ------------       ------------       ------------       ------------
Operating costs and expenses:

      Network expenses                                   16,929              5,653             32,657              9,879
      Facilities administration and maintenance           3,120              1,833              6,445              3,174
      Cost of product revenues                            1,863                865              3,684              1,670
      Selling, general and administrative                15,391              6,298             30,623             10,780
      Research and development                              616                317              1,026                600
      Depreciation and amortization                       4,481              1,958              9,170              3,278
                                                   ------------       ------------       ------------       ------------

                                                         42,400             16,924             83,605             29,381
                                                   ------------       ------------       ------------       ------------

 Loss from operations                                   (17,708)            (8,581)           (35,696)           (14,519)
                                                   ------------       ------------       ------------       ------------

Other expenses (income)

      Interest income                                      (538)            (2,128)            (1,377)            (2,397)
      Interest expense                                    5,384              6,241             10,818              7,968
      Loss from joint venture                              --                  375               --                  603
      Other                                              (6,928)                63             (6,820)                36
                                                   ------------       ------------       ------------       ------------
                                                         (2,082)             4,551              2,621              6,210
                                                   ------------       ------------       ------------       ------------

Loss before income taxes
      and minority interest                             (15,626)           (13,132)           (38,317)           (20,729)
                                                   ------------       ------------       ------------       ------------

      Income Taxes                                         (118)                (1)              (114)               (18)
      Minority interest in loss of subsidiaries             (40)                64                 13                239
                                                   ------------       ------------       ------------       ------------
                                                           (158)                63               (101)               221

Net loss                                           $    (15,784)      $    (13,069)      $    (38,418)           (20,508)
                                                   ============       ============       ============       ============

Net loss per common and common
      equivalent share                             $      (0.70)      $      (0.72)      $      (1.72)      $      (1.13)
                                                   ============       ============       ============       ============

Weighted average common and common
      equivalent shares outstanding                  22,425,014         18,263,335         22,329,978         18,161,068
                                                   ============       ============       ============       ============
</TABLE>

                                4
<PAGE>
                 CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
                  MARCH 31, 1997 AND MARCH 31, 1996 (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                             Six Months
                                                                                           Ended March 31,

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

                                                                                      1997              1996
                                                                                  ------------------------------
<S>                                                                                 <C>                <C>    
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                                          $ (38,418)         $ (20,508)
Adjustment to reconcile net income to net cash used in operating activities
     Minority interest in loss of subsidiaries                                          (13)              (239)
     Loss on investments in affiliates                                                  585                603
     Accretion of interest                                                            8,824              6,509
     Amortization and depreciation                                                    9,909              3,278
     Stock compensation                                                                 351               --
     Issuance of stock for financing commitments                                       --                  230
     Gain on sale of subsidiary shares                                               (7,424)              --
Changes in non-cash operating working capital:
     Receivables                                                                     (2,976)               979
     Inventory                                                                         (402)              (560)
     Prepaid expenses and other                                                      (1,272)            (1,658)
     Accounts payable and accrued liabilities                                        (3,900)            (1,851)
     Deferred revenue                                                                  (121)              (236)
                                                                                  ---------          ---------

NET CASH USED IN OPERATING ACTIVITIES                                               (34,857)           (13,453)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of subsidairy shares, net                                         27,365               --
Proceeds from sale of marketable securities                                           5,176               --
Purchase of marketable securities                                                    (2,000)            (4,654)
Acquisition of subsidiaries, net of cash acquired                                      (672)              (178)
Acquisition of property and equipment                                              (117,289)           (21,386)
Purchase of other assets                                                            (10,143)            (2,663)
                                                                                  ---------          ---------
NET CASH USED IN INVESTING ACTIVITIES                                               (97,563)           (28,881)

CASH FLOWS FROM FINANCING ACTIVITIES
Collection of warrants receivable                                                    20,815               --
Issuance of common shares                                                             1,650              1,572
Issuance of preference shares                                                        50,000               --
Deferred financing costs                                                             (1,728)            (7,989)
Principal payments on capital leases                                                   (350)              (157)
Principal payments on long term debt                                                 (4,865)              (390)
Proceeds from long term debt                                                         42,628            179,625
                                                                                  ---------          ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES                                         108,150            172,661
                                                                                  ---------          ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                (24,270)           130,327
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                     61,343              6,024
                                                                                  ---------          ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                        $  37,073          $ 136,351
                                                                                  =========          =========
</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:

                                        March 31, 1997       September 30, 1996
                                       ----------------      -------------------

Raw Material                           $    1,187           $       378
Work in Progress                              307                   346
Finished Goods                                374                   317
Refurbished inventory held for sale           940                 1,365
                                       ----------------      -------------------

             Total Inventories               2,808                 2,406
                                       ================      ===================

4.                  SHAREHOLDERS' EQUITY

                    Shares authorized and outstanding are as follows:

                                 March 31, 1997         September 30, 1996
                                ----------------      ---------------------

Common Shares, no par value        23,612,091               21,257,697

Unlimited number of
common shares authorized

                                6

<PAGE>
5.                  SUPPLEMENTAL CASH FLOW INFORMATION

                    As a result of an acquisition,  the Company  recorded $3,837
in assets and $379 in  liabilities  during the six months  ended March 31, 1997.
The Company  purchased  $524 in assets via capital  leases during the six months
ended March 31, 1996.  Accounts payable and accrued  liabilities include $15,303
in fixed asset  purchases at March 31,  1997.  During the six months ended March
31, 1997, the Company made $1,605 in interest payments

6.                  ACCOUNTING CHANGE

                    Effective   January  1,  1997,  the  Company  increased  the
estimated  depreciable  life of its  telecommunications  networks  from 10 to 20
years and decreased the estimated  depreciable life of certain equipment from 10
to five years.  These  estimates  were changed to better  reflect the  estimated
period  during  which  these  assets will remain in service and result in useful
lives which are more consistent with industry practice. The changes in estimates
of  depreciable  lives were made on a prospective  basis,  beginning  January 1,
1997.  The effect of this  change was to decrease  depreciation  expense and net
loss for the three months ended March 31, 1997 by $311.

7.                  RECENT DEVELOPMENTS

                    In February 1997 NACT  Telecommunications,  Inc. ("NACT") (a
subsidiary of the Company)  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 common stock, resulting in gross proceeds to the
Company  and  NACT of $10  million  and $20  million,  respectively. The Company
recognized a $7.4 million gain on the sale of NACT common stock.  As a result of
this transaction, the Company's interest in NACT decreased from 100% to 63%.

                    Also in  February  1997,  the  Company  completed  a private
placement  of  $50  million  in  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%.  Under  certain  circumstances,  the
Preferred Shares will also be subject to mandatory conversion or redemption.

                    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.

                                7

<PAGE>
8.
GST USA, INC. (A)
CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1997 (UNAUDITED) AND SEPTEMBER 30, 1996
(IN THOUSANDS)
(STATED IN U.S. DOLLARS)

<TABLE>
<CAPTION>
                                                         March 31, 1997         September 30, 1996
<S>                                                        <C>                      <C>      
ASSETS

Current assets                                             $  56,811                $  77,506

Non-current assets                                           290,317                  168,882

                                                           ---------                ---------
      TOTAL ASSETS                                         $ 347,128                $ 246,388
                                                           =========                =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities                                        $  94,240                $  34,286

Non-current liabilities                                      264,128                  210,243

Minority interest                                             11,661                      182

                                                           ---------                ---------
      Total liabilities                                      370,029                  244,711
                                                           ---------                ---------

                                                           ---------                ---------
      Total shareholders' equity                             (22,901)                   1,677
                                                           ---------                ---------

                                                           ---------                ---------
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY           $ 347,128                $ 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
March  31,  1997  and  the  comparable  1996  period.   The  total   outstanding
indebtedness of GUS includes its senior discount notes with an accreted value of
$  190.1   million  as  of  March  31,  1997,   which  the  Company   fully  and
unconditionally guaranteed.  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 SIX MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(IN THOUSANDS)
(STATED IN U.S. DOLLARS)

<TABLE>
<CAPTION>
                                                     Three Months                                   Six Months
                                                   Ended March 31,                                Ended March 31,
                                         -----------------------------------        ------------------------------------------

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

<S>                                        <C>                  <C>                  <C>                         <C>           
Revenue                                    $      16,088        $      8,343         $         31,249            $      14,862

Operating costs and expenses               $      33,935        $     16,409         $         65,897            $      28,498
                                         ---------------       -------------        -----------------          ---------------

      Loss from operations                 $     (17,847)       $     (8,066)        $        (34,648)           $     (13,636)

Other expenses                             $       4,485        $      3,963         $          1,521            $       5,123
                                         ---------------       -------------        -----------------          ---------------

Net Loss                                   $     (13,362)       $    (12,029)        $        (33,127)           $     (18,759)
                                         ===============       =============        =================          ===============
</TABLE>

                                9

<PAGE>
GST USA, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(IN THOUSANDS)
(STATED IN U.S. DOLLARS)

<TABLE>
<CAPTION>
                                                                Six Months
                                                             Ended March 31,

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

                                                         1997                1996e
                                                   ---------------     --------------

<S>                                                <C>                  <C>
Cash used in operations                            $      (33,496)      $     (12,713)

Cash used in investing                                    (94,166)            (27,027)

Cash provided by financing                                107,791             151,706
                                                   ---------------     --------------

Increase in cash and cash equivalents                     (19,871)            111,966

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

Cash and cash equivalents, end of period           $       21,549       $     115,860
                                                   ===============     ==============
</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,   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.  The
Company also  produces  advanced  telecommunications  switching  platforms  with
integrated applications software and network telemanagement capabilities through
its equipment subsidiary, NACT.

            The Company's digital networks currently serve 19 cities in Arizona,
California,  Hawaii,  New Mexico and  Washington.  In addition,  the Company has
networks under  construction  which,  when  completed,  will serve 18 additional
cities  and  expand  its  regional  footprint  to Idaho,  Oregon,  Utah and five
Hawaiian Islands.

            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.  To
facilitate  its entry into local  services,  the Company has in service two high
capacity  digital  switches,  has installed and is testing five  additional high
capacity  digital  switches and is planning to deploy an  additional  eight such
switches in 1997.

RESULTS OF OPERATIONS

            REVENUES.  Total  revenues for the three and six month periods ended
March 31, 1997 increased $16.3 million, or 196.0%, and $33.0 million, or 222.4%,
respectively,  over the  comparable  three and six month periods ended March 31,
1996.  Telecommunications  services revenues for the three and six month periods
ended March 31, 1997 increased $12.6 million,  or 180.3%, and $26.5 million,  or
230.0%,  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
six month periods ended March 31, 1997  increased $3.7 million,  or 277.7%,  and
$6.5 million, or 196.1%, respectively, over the three and six months ended March
31, 1996. The increase in 

                               11

<PAGE>
telecommunication products revenues resulted from the introduction in April 1996
of NACT's STX switch and subsequent increased unit sales.

            OPERATING  EXPENSES.  Total operating expenses for the three and six
month periods ended March 31, 1997 increased $25.5 million, or 150.5%, and $54.2
million,  or 184.6%,  respectively,  over the three and six month  periods ended
March 31, 1996.  Network expenses,  which include direct local and long distance
circuit  costs,  were  86.3%  and  85.8%,  respectively,  of  telecommunications
services  revenues  for the three and six month  periods  ended March 31,  1997,
compared to 80.8% and 85.7% for the  comparable  periods in the  previous  year.
Facilities  administration and maintenance  expenses for the three and six month
periods   ended  March  31,  1997  were  15.9%  and  16.9%,   respectively,   of
telecommunications  services  revenues  compared  to  26.2%  and  27.5%  for the
comparable  periods ended March 31, 1996. The primary reason for the decrease in
these  expenses  as a percent of  telecommunications  services  revenues  is the
inclusion  of revenue from 1996  strategic  acquisitions,  substantially  all of
which are not generated on the Company's networks.

            Cost of product revenues at NACT for the three and six month periods
ended March 31, 1997 were 36.7% and 37.4%,  respectively,  of telecommunications
products revenues,  compared to 64.4% and 50.1% for the comparable periods ended
March 31,  1996.  The  decrease  results  from  economies  of scale  related  to
increased   unit   sales  of   NACT's   STX   switch.   Additionally,   cost  of
telecommunications  products  revenues  as a  percentage  of  telecommunications
products  revenues  increased in the three month period ended March 31, 1996 due
to  decreased  demand  for the  LCX,  the  predecessor  to the STX,  during  the
transition from the LCX to the STX.  Research and development  costs at NACT for
the three and six months  ended  March 31,  1997  increased  $.3 million and $.4
million,  respectively,  over the  comparable  periods in the previous year. The
increase is  primarily  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 six
month periods ended March 31, 1997 increased $9.1 million,  or 144.4%, and $19.8
million, or 184.1%, respectively,  over the three and six months ended March 31,
1996.  The increase is primarily due to the expansion of the Company's  CLEC and
enhanced  services  operations  and  the  acquisition  of  three  long  distance
companies  and a provider of shared  tenant  services in the last half of fiscal
1996.  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 six month periods
ended March 31, 1997 increased $2.5 million and $5.9 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 fiscal 1996 acquisitions. The Company
expects that  depreciation  will continue to increase as it expands its networks
and increases switched services.  Effective January 1, 1997, the Company changed
the  estimated  depreciable  lives of certain  fixed  assets.  The effect of the
change was to  decrease  depreciation  expense by $.3  million  for the  quarter
ended  March 31, 1997. The Company does not expect the impact of such changes to
be material in the future.

            OTHER EXPENSES/INCOME.  For the three and six months ended March 31,
1997,  the  Company  recorded  net other  income of $2.0  million  and net other
expense of $2.7  million,  respectively,  compared to net other  expense of $4.6
million and $6.2 million for the  comparable  periods ended March 31, 1996.  The
primary reason for the  improvement in other  expense/income  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 such gain had been excluded,
other  expenses 

                               12

<PAGE>
for the three and six month  periods  ended March 31, 1997 would have  increased
$.8 million and $3.8 million, respectively, over the three and six month periods
ended March 31, 1996. For the three month period,  the increase is primarily due
to a  decrease  in  interest  income  resulting  from a  decrease  in  cash  and
investments as compared to the prior year.  The increases were partially  offset
by a decrease in interest  expense which resulted from increased  capitalization
of interest expense due to an increase in asset construction  activity.  For the
six month  period,  the increase  primarily  resulted  from  increased  interest
expense due to the issuance of $180 million in debt  securities in December 1995
and from a decrease in interest income, as noted herein.

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
$108.2 million and $172.7 million for the six month periods ended March 31, 1997
and 1996, respectively.  The Company's net cash used in operating and investment
activities  was $132.4 million and $42.3 million for the six month periods ended
March 31, 1997 and 1996, respectively.

            Capital  expenditures  for the six months  ended  March 31, 1997 and
1996 were $120.6 million and $22.0 million,  respectively. The Company estimates
capital  expenditures  of  approximately  $260  million and $150 million for the
fiscal years 1997 and 1998, respectively.  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 1994, the Company and Tomen entered into  agreements (the
"Tomen Facility") pursuant to which Tomen agreed to make available up to a total
of $100 million of financing on a project by project basis, for the construction
and  development  of  network  projects.  Tomen has a right of first  refusal to
finance each network project up to the limit of the facility. To date, Tomen has
provided, or agreed to provide,  $34.5 million in debt financing under the Tomen
Facility for the Company's network projects in Southern  California,  Tucson and
Albuquerque.  Furthermore,  Tomen has purchased  1,449,074 common shares without
par  value  (the  "Common  Shares"),  and holds  warrants  to  purchase  171,155
additional  Common Shares. In November 1996 Tomen agreed in principle to provide
the Company with $41 million of additional  financing  under the Tomen  Facility
for the Hawaiian inter-island network and terrestrial fiber optic facilities and
in connection  with such  financing will purchase  additional  Common Shares and
warrants to purchase 75,000 additional Common Shares.

            In  December  1995,  the  Company  completed  a  $180  million  debt
offering, consisting of $160 million in senior discount 

                               13

<PAGE>
notes  and  $20  million  in  convertible  senior  subordinated  discount  notes
(collectively, the "1995 Notes"). The net proceeds from the issuance of the 1995
Notes,  $171.3  million,   were  used  to  fund  network  development,   capital
expenditures and working capital requirements.

            In October  1996,  the  Company  completed  a private  placement  to
non-U.S.  investors of two million  special  warrants (the "Special  Warrants").
Each  Special  Warrant is  exercisable  for one common  share and one-half of an
underlying warrant. Each full underlying warrant entitles the holder to purchase
one  additional  Common  Share at $13.00 for one year from the date of issuance.
The  Company  received  $9.7  million in net  proceeds  in October  1996 and the
remaining $11.1 million in net proceeds in January 1997.

            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 March 31,  1997,  the Company has
borrowed $41.9 million pursuant to the NTFC agreement.

            In February 1997, the Company consummated a private placement of $50
million of 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 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,  $255.6  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 indentures,  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,   

                               14

<PAGE>
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  March  31,  1997,  the  Company  had  cash,  cash   equivalents,
restricted cash and  investments of $50.3 million,  compared to $82.5 million at
September 30, 1996.  Management  believes  that the cash on hand,  including the
proceeds from the sale of the 1997 Notes in May 1997, and borrowings expected to
be  available  under the Tomen  Facility,  the NTFC  agreement  and the  Siemens
agreement 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 may be insufficient to repay the 1995 Notes and 1997 Notes in full at
maturity  and that such  notes may 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.

NEW ACCOUNTING PRONOUNCEMENT

            In February 1997, the Financial  Accounting  Standards  Baord issued
Statement  of  Financial  Accounting  Standards  (SFAS) No. 128,  "Earnings  per
Share". The 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 No.  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.

            The  Company  plans to adopt  SFAS No.  128 in the first  quarter of
fiscal  1998 and does not expect  the new  pronouncement  to have a  significant
impact on per share data.

                               15

<PAGE>
                           PART II: OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

         On or about  February 25, 1997,  US WEST filed a  declaratory  judgment
action  against  members of the  Arizona  Corporation  Commission  (the  "ACC"),
American  Communications  Services Inc.,  Brooks Fiber  Properties  Inc. and the
Registrant  in the United  States  District  Court in  Arizona.  The  Registrant
understands  that one or more  substantially  similar  lawsuits  have been filed
against other competitive local exchange carriers,  including MFS Communications
Company,  Inc.  ("MFS").  US WEST  alleges  that  the ACC  has  entered  into an
interconnection  order that unlawfully requires US WEST to resell services below
cost,  imposes resale  restrictions and denies US WEST recovery for construction
and implementation costs, unlawfully treats the cost recovery of access revenues
for interim number portability,  requires US WEST to obtain additional rights of
way or build additional  facilities  solely to provide access to the Registrant,
and amounts to a taking of US WEST's property without just compensation. US WEST
seeks  a   declaratory   judgment   stating   that  the  ACC  has  violated  the
Telecommunications  Act of 1996 and that the ACC has  taken US  WEST's  property
without  providing  just   compensation.   US  WEST  also  seeks  an  injunction
prohibiting all defendants,  including the Registrant, from taking any action to
enforce any of the order's allegedly unlawful provisions.  The Registrant's time
to answer or move against the  complaint has been  extended  indefinitely  by US
WEST,  pending a decision  with  respect to a motion to  dismiss  the  complaint
against MFS in the action filed by US WEST against it. Should US WEST prevail in
its suit,  it would have an adverse  impact on the  Registrant's  operations  in
Arizona; however, the magnitude thereof is uncertain at this time.

ITEM 2.           CHANGES IN SECURITIES

         1. On January 5, 1997,  the  Registrant  issued an aggregate of 168,249
Common Shares to 23 individuals as an installment  payment in consideration  for
the Registrant's  acquisition of a minority interest in NACT Telecommunications,
Inc.

         2. On February 11, 1997, the Registrant  issued 10,000 Common Shares to
one individual pursuant to a stock bonus agreement entered into in March 1996.

         3. On February 28, 1997, the Registrant  issued $50 million of Series A
Convertible  Preference Shares (the "Preference  Shares").  See the Registrant's
Report on Form 8-K filed on March 14, 1997 for a description  of issuance of the
Preference  Shares,  including the terms of  conversion,  which is  incorporated
herein by reference.

         4. On March 4,  1997,  the  Registrant  issued an  aggregate  of 15,000
Common  Shares  to  four  individuals  pursuant  to  employment  and  consulting
agreements  entered into in  connection  with the  Registrant's  acquisition  of
Hawaii On Line in February 1996.



                                       16
<PAGE>
         5. On March 19,  1997,  the  Registrant  issued an  aggregate of 31,848
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 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  The  Registrant  held its Annual  Meeting of  Shareholders  on
March 17, 1997. The following matters were voted upon at such meeting:

                  1.       The  election  of John Warta,  W. Gordon  Blankstein,
Stephen Irwin, Robert H. Hanson, Thomas E. Sawyer, Ian Watson, Peter E. Legault,
Jack G.  Armstrong and Takashi  Yoshida as directors of the  Registrant to serve
until the next annual  meeting or until their  successors  are duly  elected and
appointed.

                  2.       The approval of an amendment to the Registrant's 1996
Stock Option Plan to increase the number of Common Shares that may be subject to
options under such plan from 400,000 to 700,000.

                  3.       The  approval of the  Registrant's  Senior  Executive
Officer Stock Option Plan.

                  4.       The  approval of the  Registrant's  Senior  Operating
Officer Stock Option Plan.

                  5.       The  appointment  of  KPMG  Peat  Marwick  LLP as the
Registrant's auditors until the next annual meeting.

                  All  of  such  matters  were  approved  by a  majority  of the
Registrant's  shareholders  based upon a showing of hands at the annual  meeting
pursuant to the requirements of Canadian corporate law.

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits

           Exhibit 10.1                     Employment Agreement dated March 11,
                                            1997,  by and between GST USA,  Inc.
                                            and Joseph Basile, Jr.
           Exhibit 10.2                     Employment  Agreement dated February
                                            10,  1997,  by and  between GST USA,
                                            Inc. and GST Telecom Inc. and Daniel
                                            L. Trampush
           Exhibit 27                       Financial Data Schedule

         (b)  Reports on Form 8-K

                  On March 14, 1997, the  Registrant  filed a Report on Form 8-K
reporting, in "Item 5. Other Events," the consummation of a



                                       17
<PAGE>
private placement of $50 million of Series A Convertible  Preference Shares with
Ocean Horizon S.R.L., an affiliate of Princes Gate Investors II, L.P.



                                       18
<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 of the
undersigned thereunto duly authorized.

Date: MAY 14, 1997                     GST TELECOMMUNICATIONS, INC.
      ------------                     (Registrant)


                                         /S/ CLIFFORD V. SANDER
                                       -------------------------------------
                                       Clifford V. Sander
                                       (Senior Vice President and Treasurer)




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



                                       19