SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                                    FORM 10-K

(Mark One)

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

For the fiscal year ended SEPTEMBER 30, 1996

/ /  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 1-12866

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

                 Canada                                       N/A
  -------------------------------------        ---------------------------------
     (State or other jurisdiction of              (IRS Employer Identification
      incorporation or organization                          Number)

               4317 N.E. Thurston Way, Vancouver, Washington 98662
--------------------------------------------------------------------------------
          (Address of Principal Executive Offices)    (Zip Code)

       Registrant's telephone number, including area code: (360) 254-4700

           Securities registered pursuant to Section 12(b) of the Act:

                                                      Name of Each Exchange
           Title of Each Class                         on Which Registered
           -------------------                         -------------------
    Common Shares, without par value                 American Stock Exchange

           Securities registered pursuant to Section 12(g) of the Act:

                                      None

                  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
                                                     ------  ------
<PAGE>

                  Indicate  by check mark if  disclosure  of  delinquent  filers
pursuant to Item 405 of Regulation S-K is not contained herein,  and will not be
contained,  to the best of the  Registrant's  knowledge,  in definitive proxy or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. / /

                  The  aggregate  market  value  at  December  27,  1996  of the
Registrant's  Common Shares,  without par value (based upon the closing price of
$8 5/16 per  share of such  Shares  on the  American  Stock  Exchange),  held by
non-affiliates of the Registrant was approximately $158,925,416.  Solely for the
purposes of this  calculation,  shares  held by  directors  and  officers of the
Registrant  have  been  excluded.   Such  exclusion   should  not  be  deemed  a
determination  or an admission by the Registrant that such  individuals  are, in
fact, affiliates of the Registrant.

                  Indicate  the  number  of  shares  outstanding  of each of the
issuer's classes of common stock, as of the latest practicable date: At December
20, 1996, there were outstanding  22,045,638 of the Registrant's  Common Shares,
without par value.

                       DOCUMENTS INCORPORATED BY REFERENCE

                  Certain   portions  of  the   Registrant's   definitive  proxy
statement to be filed not later than January 28, 1997 pursuant to Regulation 14A
are  incorporated by reference in Items 10 through 13 of Part III of this Annual
Report on Form 10-K.
<PAGE>

ITEM 1.   BUSINESS

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.  Since inception as
a  facilities-based   competitive  access  provider  ("CAP"),  the  Company  has
constructed and operated digital interconnected telecommunications networks that
provide an  alternative  to local exchange  carriers  ("LECs").  The Company has
expanded beyond the scope of traditional CAP operations into  competitive  local
exchange  carrier  ("CLEC")  services  and  currently   provides,   through  its
established sales channels, a range of enhanced telecommunications services that
include long  distance,  Internet  access and data  services.  In addition,  the
Company  provides  switched  access and recently  began to offer local dial tone
services to complement its existing  telecommunications  service offerings.  The
Company also  provides  advanced  telecommunications  switching  platforms  with
integrated applications software and network telemanagement capabilities through
its subsidiary, NACT Telecommunications, Inc. ("NACT").

         The  Company's  fiber  optic  networks  currently  serve 24  cities  in
Arizona,  California,  New  Mexico  and  Washington  and its  digital  microwave
networks  serve four of the Hawaiian  Islands.  In addition,  the Company has 18
networks under construction and other networks in various stages of development.

         The Telecommunications Act of 1996 (the  "Telecommunications  Act") 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 its existing  telecommunications  service offerings.  In order to
capitalize on these  opportunities,  the Company has accelerated the development
and  construction  of additional  networks  within its region.  In addition,  to
facilitate the provision of local  services,  the Company has deployed four high
capacity digital switches and intends to deploy additional switches in the first
half of 1997.

TELECOMMUNICATIONS NETWORKS

         The Company's network strategy is to continue to develop and expand its
network  infrastructure to ultimately  assemble,  through a combination of owned
and leased facilities and joint ventures, an integrated regional network for the
on-net  provision of CLEC services,  including  local,  long distance,  Internet
access and data  services.  The  Company  will  continue to focus on the western
United  States  in order to take  advantage  of its  strategically  advantageous
position in California and Hawaii and the substantial telecommunications traffic
that exists among the western United States, Mexico, the Pacific Rim and western
Canada.

         The Company's networks comprise fiber optic cables,  microwave or other
wireless facilities, integrated switching facilities, advanced electronics, data
switching equipment, transmission equipment and associated wiring and equipment.
The Company  typically  designs a ring  architecture  with  connectivity  to LEC
central offices, points-of-presence ("POPs") of long distance carriers and large
concentrations of telecommunication intensive end-users.

         At December 15, 1996,  (i) in California,  the Company had  operational
networks in Northern California (Concord,  Hayward,  Pleasanton, San Ramon, Mare
Island and Walnut Creek), Southern California (Bloomington,  Loma Linda, Rialto,
Riverside, San Bernardino, City of Industry, Monterey Park, Anaheim and Ontario)
and the San Joaquin Valley  (Coalinga,  Fresno,  Bakersfield and Taft);  (ii) in
Hawaii, the Company had operational  networks on Hawaii, Maui, Molokai and Oahu;
(iii) in Arizona, the Company had an operational network in Tucson and owned 50%
of Phoenix Fiber Access, Inc. ("Phoenix Fiber") which had an operational network
in Phoenix; (iv) in New Mexico, the Company had an operational


                                       -1-
<PAGE>

network in  Albuquerque;  and (v) in  Washington,  the Company  had  operational
networks in Spokane and Vancouver.  In addition,  the Company is constructing an
inter-island  fiber optic network that will connect six of the Hawaiian  Islands
and fiber optic networks on the islands of Hawaii, Maui and Oahu.

         The Company's decision to construct a network in a particular locale is
preceded  by a review  of the  area's  demographic,  economic,  competitive  and
telecommunications  requirements.  The characteristics examined include location
and  concentration  of  potential   business,   governmental  and  institutional
end-users, the locale's economic prospects, information regarding demand for the
various  services offered by the Company and actual and potential LECs, CLEC and
other competitors. Market demand is estimated using market research conducted by
the Company and from  information  such as demand sets provided by interexchange
carriers ("IXCs").

         If the  locale's  characteristics  are  deemed to  warrant  development
activities, the Company, with the assistance of engineering consultants, designs
a network that will connect the largest  practicable  concentration of potential
end-users, IXCs, POPs and LEC central offices. The Company initiates discussions
simultaneously  with  municipal  officials,  rights-of-way  providers,  IXCs and
potential  end-users  and prepares  estimates of the costs of fiber optic cable,
transmission,  switching and other electronic equipment,  engineering design and
construction,  rights-of-way and structural access.  Concurrently,  estimates of
potential  network revenues and profitability are prepared and are compared with
estimated  costs to determine  whether the  projected  rate of return  justifies
construction.  If the projected rate of return meets the Company's guidelines, a
detailed financial and business plan is prepared.

         The  construction  of  a  network  requires  that  the  Company  obtain
municipal  franchise and other permits.  These rights are frequently the subject
of  non-exclusive  agreements  of finite  duration  providing for the payment of
fees. In addition,  the Company must secure rights-of-way and other access which
are  typically  provided  under  non-exclusive   multi-year  agreements,   which
generally  contain renewal  options.  Generally,  these rights are obtained from
utilities,  LECs, other CLECs,  railroads and IXCs. The  Telecommunications  Act
requires  most  utilities  to  afford  access  to   rights-of-way  to  CLECs  on
non-discriminatory terms and conditions and at reasonable costs.

         The Company's requirements for a planned network are communicated to an
engineering  firm that  finalizes the route and completes the network's  design.
Independent  construction  and  installation  contractors are selected through a
competitive   bidding  process.   The  Company's  own  personnel  supervise  the
construction,  negotiate  required  contracts,  and test and verify the  network
components.  Cable,  equipment  and  supplies  required  for  the  networks  are
available from a variety of sources at competitive rates.

         The  construction  period of a new network  varies  depending upon such
factors as the number of  backbone  route  miles to be  installed,  the  initial
number of buildings  targeted  for  connection  to the network  backbone and the
general  deployment of the network  backbone.  Construction  is planned to allow
revenue-generating  operations to commence prior to the completion of the entire
network  backbone.   After  installing  the  network  backbone,   extensions  to
additional  buildings and expansions to other regions of a metropolitan area are
evaluated,  based on detailed  assessments of market  potential.  Based upon the
Company's  experience with its operational  networks,  the Company believes that
generally a new fiber optic network can be commercially  operational within four
to five months after construction commences.


                                       -2-
<PAGE>

         The successful implementation of the Company's network strategy is best
evidenced in the States of California  and Hawaii.  In  California,  the Company
holds two  Certificates of Public  Convenience and Necessity  ("CPCNs") from the
California  Public Utilities  Commission  ("CPUC"),  which allows the Company to
install its fiber optic cable along existing public utility corridors, and has a
statewide  pole  attachment  agreement,  which enables the Company to expand its
infrastructure  without the delays typically experienced in obtaining individual
licenses and  rights-of-way.  The Company has begun to interconnect  each of its
operational  California and Hawaiian  networks to allow the on-net  provision of
the Company's services  throughout each State. In Hawaii, the Company operates a
digital   microwave   network   and  has   recently   entered   into  a  network
interconnection  agreement  with GTE Hawaiian  Telephone  Company  ("GTE"),  the
dominant service provider in the Hawaiian Islands, that is subject to regulatory
approval.  The Company is the only  authorized  provider of statewide full local
dial tone  services  other  than GTE.  The  Company  is also  supplementing  its
microwave  network  with  terrestrial  fiber  optic  facilities  and  has  begun
deployment of an  inter-island  fiber network to extend its services  throughout
the State. The Hawaii Public Utilities  Commission (the "HPUC") has authorized a
subsidiary  of the Company to expand its  authority  to include  local  exchange
services in competition with GTE. Deployment of local exchange services on other
than a resale  basis or  through  the  purchase  from GTE of  unbundled  network
elements  are  dependent  upon HPUC  approval of the  interconnection  agreement
recently  entered  into  between  the Company  and GTE and the  installation  of
necessary facilities and equipment. The Company has also recently completed pole
attachment  and audit  occupancy  agreements  with  GTE.  The  Company  recently
completed a rights-of-way  agreement with Hawaiian  Electric Company relating to
all islands other than Kauai, which will facilitate this network deployment.

TELECOMMUNICATIONS SERVICES

         In conjunction with its network expansion,  the Company has developed a
strategy to leverage  its existing  infrastructure  by providing a wide range of
integrated local and long distance telecommunications services to meet the voice
and data needs of its  end-user  customers.  The Company  intends to continue to
primarily focus on business, government and academic end-users within its region
that have significant telecommunications  requirements. To meet these customers'
needs, the Company offers a number of CLEC services including:

         LOCAL SERVICES

         Local services involve the transmission of voice, video or data to long
distance carrier-specified or end- user-specified termination sites (by manually
or electronically  dialing a telephone number). By contrast,  the special access
services  currently  provided by the  Company  and other  CLECs  involve a fixed
communications  link or  "pipe,"  usually  between  a  specific  end-user  and a
specific long  distance  carrier's  POP.  With a switch,  it is possible for the
Company to direct a long distance  carrier's  traffic to any end-user whether or
not the end-user is connected to the Company's  network.  Under current  federal
regulations,  the  Company is  permitted  to provide a full range of  interstate
switched access and enhanced services.  In addition,  a switch gives the Company
the  technological  capability  to  provide  the full  range of local  telephone
services,  although  state  authority  may be necessary for  intrastate  service
offerings.

         To facilitate the provision of local services, the Company has deployed
four  switches  for  switched  access as well as local  dial  tone and  enhanced
services  and intends to deploy  additional  switches in the first half of 1997.
The Company plans to continue to install switching  equipment in its operational
networks,  in markets  where it is  constructing  networks and in certain  other
cities where the Company will rely on LEC facilities for transmission. Once each
switch is operational,  the Company expects to begin providing, where regulatory
conditions  permit,  local dial tone,  in addition to enhanced  services such as
ISDN, Centrex, voice mail and other custom calling features.


                                       -3-
<PAGE>

         LONG DISTANCE SERVICES

         The Company offers enhanced long distance services,  such as toll free,
private line,  calling card,  prepaid calling card and  international  call back
services to  end-users,  agents and other  carriers.  The Company  supplies long
distance  services  pursuant to resale  agreements that enable it to utilize the
network  facilities of major long distance carriers such as AT&T Corp.  ("AT&T")
and MCI Communications  Corporation ("MCI"). The Company's current customer base
encompasses  primarily business customers purchasing between $200 and $15,000 of
service per month. The Company has recently  expanded its long distance products
and services  through the  acquisition of Call America  Business  Communications
Corporation and its affiliated companies (collectively "Call America"), TotalNet
Communications   Inc.    ("TotalNet")   and   certain   assets   of   Texas-Ohio
Communications, Inc. and affiliated companies (collectively, "Texas-Ohio").

         CALL  AMERICA.  The Company has entered into an  agreement  and plan of
merger with Call  America,  pursuant to which the Company  would acquire 100% of
Call  America by means of a merger,  for a purchase  price of  1,307,692  common
shares with no par value of the Company (the "Common Shares"), subject to a post
closing  adjustment of additional Common Shares if, 180 days after the effective
time of the merger,  the market  price of the Common  Shares is less than $12.50
per share. The maximum number of additional  Common Shares to be issued pursuant
to the post closing  adjustment is 114,489.  The  consummation  of the merger is
contingent upon obtaining  certain  required  consents and approvals,  including
regulatory approvals, which are expected to be received by the end of 1996. Call
America,  which is based in San Luis Obispo,  California,  is a facilities-based
long  distance  reseller  that  provides  switched  long  distance,  voice mail,
operator services, paging, Internet access, wireless messaging, e-mail and other
services to approximately  8,000 customers in the three-county  area of San Luis
Obispo, Santa Barbara and Ventura counties.

         TOTALNET.  The  Company  acquired  TotalNet  for a  purchase  price  of
approximately  $8.7  million,  payable  entirely in Common  Shares to the former
shareholders  of TotalNet in two  installments.  Sixty  percent of the  purchase
price (approximately $5.2 million),  for a total of 481,391 Common Shares valued
at $10.90 per share,  was paid on October 17, 1996 and the  remaining 40% of the
purchase  price  (approximately  $3.5  million)  is payable in Common  Shares on
October 17, 1997,  based on the market  value of the Common  Shares at such time
but in no event  less than  $7.63 per  share,  or more than  $20.00  per  share.
TotalNet,  which is based in Houston, Texas, is both a facilities-based  carrier
and a  switchless  reseller of long  distance  services.  TotalNet  provides 1+,
toll-free  "800,"  operator-assisted  and calling card services to approximately
3,500 small to medium sized businesses in the Houston metropolitan area.

         TEXAS-OHIO.  The  Company  acquired  certain  assets of  Texas-Ohio  in
exchange for $589,704 and the assumption of certain liabilities. Texas-Ohio is a
full-service  long  distance  reseller  that  provides  its  customers  with 1+,
toll-free  "800,"  operator-assisted  and  calling  card  services.   Texas-Ohio
specializes  in enhanced  calling card  services.  Texas Ohio  provides its long
distance  services  to 26 agents  and  resellers  nationwide  who  market  these
products to over 2,500 customers.  Texas Ohio's electronic order entry system is
unique to the  industry  and allows  agents to enroll and service its  customers
on-line.   Additionally,   the  Company  has  an  experienced  customer  service
department that is fully operational 24 hours a day, seven days a week.

         INTERNET SERVICES

         In March 1996, the Company acquired Reservations,  Inc. d/b/a Hawaii On
Line ("Hawaii On Line"), the largest Internet access provider in Hawaii, and has
since  increased  the number of Hawaii On Line's  customers  from  approximately
4,900 to approximately  12,000. The Company is also presently providing Internet
services to  customers in Portland and  Vancouver  (Washington).  In addition to
providing  Internet access, the Company offers electronic  interchange  services
through its recently acquired LightYear


                                       -4-
<PAGE>

division,  WorldWide Web development and hosting and other Internet services and
is also developing various Internet software  applications.  Management believes
that these services will become an important  component of the Company's overall
product  offerings  and  will  permit  the  Company  to  leverage  its  existing
infrastructure.  The Company  intends to continue to expand its Internet  access
and service business to other markets.

         DATA SERVICES

         The Company offers national and  international  frame relay services on
its own frame  relay  network  and  through an  interconnection  agreement  with
Intermedia Communications Inc. ("Intermedia"). Under this agreement, the Company
and  Intermedia  have  agreed to link  their data  networks  and  terminate  one
another's  traffic.  The Company  currently  offers frame relay services in most
major markets in the United States,  with a focus on the markets  located in the
western part of the country.

         The Company is developing metropolitan area networks leveraging off its
fiber, wireless,  microwave and other transport facilities.  These networks will
be used to offer  services  such as high  speed LAN  connectivity  service  with
access  rates  ranging  from 10 to 100  Mbps,  video  conferencing,  multi-media
networking and high capacity access to the Internet.

         The  Company's  data  networks  are  monitored  by its network  control
center,  24 hours a day, 7 days a week.  The  Company  intends  to  provide  its
customers monthly network management reports that would allow users to track the
performance  of their  virtual  private  network.  Customer  network  management
support will permit  customers to monitor and tailor  their  virtual  network as
desired with a communication link into the Company's network management systems.

         National and international  frame relay  connectivity are achieved with
individual  network-to-network  interface ("NNI") agreements with Intermedia and
other telecommunications carriers. In addition to dedicated local loop access to
the Company's frame relay network,  the Company has established frame relay NNIs
with PacBell,  U S West  Communications,  Inc. ("U S West"),  SBC Communications
Corporation and GTE Corporation and its affiliated companies (collectively,  the
"GTE Companies") to provide frame relay services.

         SHARED TENANT SERVICES

         The  Company   offers  shared  tenant   services  to  large   apartment
communities in New Mexico,  Oregon, Utah and Washington.  Shared tenant services
include resold dial tone, long distance,  voice mail, calling features,  calling
cards,  cable  television,  home alarm service and Internet access.  The Company
recently expanded its shared tenant services business through the acquisition of
Tri-Star Residential Communication Corp. ("Tri-Star"), a Washington-based shared
tenant services  provider.  The Company acquired  Tri-Star on September 19, 1996
for a purchase price of $2,417,150,  payable entirely in Common Shares, in eight
quarterly installments.

         The Company  provides dial tone service  through  on-site PBX telephone
systems located within each apartment  complex that are connected to the LEC. As
the Company expands its network and central office  switching  facilities,  PBXs
will be replaced with central office access nodes originating from the Company's
own dial tone facilities,  thereby  resulting in significant cost savings to the
Company.  In  addition,  the Company is in the process of  connecting  apartment
communities to its own fiber network.

MANUFACTURING

         The  Company,   through  its  subsidiary,   NACT,   provides   advanced
telecommunications switching platforms with integrated applications software and
network telemanagement capabilities. As a single


                                       -5-
<PAGE>

source  provider,  NACT  believes that it is the only company in its market that
designs,  develops and manufactures all hardware and software elements necessary
for a fully integrated turnkey  telecommunications  switching solution.  Because
NACT provides a complete integrated  solution,  its customers do not require the
multiple  suppliers of hardware and value added resellers of software that would
otherwise be  necessary  to provide a wide range of services  and  applications.
NACT's customers include long distance carriers,  prepaid debit card and prepaid
cellular network operators,  international call back/reorigination providers and
other specialty service providers.

         NACT's  products and  services  include the STX  application  switching
platform (the "STX"),  the NTS telemanagement and billing system (the "NTS") and
facilities  management  services.  In May  1996,  NACT  introduced  the STX,  an
integrated  digital tandem switching system that currently  supports up to 1,024
ports per switch and can be  combined  with three  additional  STXs to provide a
total capacity of 4,096 ports per system. The STX includes  proprietary  systems
software that enables  standard  applications  such as 1+ and optional  advanced
applications such as international call/back  reorigination,  prepaid debit card
and prepaid cellular.  NACT has targeted the STX, with its enhanced features and
scaleable  capacity,  to an expanded group of customers,  including  independent
telephone companies,  CAPs/CLECs,  shared tenant service providers, Fortune 1000
corporations  and local  telephone  companies  outside the United  States.  NACT
believes  that the STX offers value added  features and capacity at price points
typically  lower than those  offered by its  competitors.  The NTS performs call
rating,  accounting,  switch management,  invoicing and traffic  engineering for
multiple  switches  that may be NACT  switches or other  industry  switches.  In
conjunction  with the sale of a  system,  NACT  offers a  facilities  management
service whereby NACT will operate and maintain a customer's switch for a fee. In
providing  this service,  NACT enables its  customers to direct their  attention
toward marketing their products rather than focusing on the technical aspects of
operating a switch.

COMPETITION

         The telecommunications industry is highly competitive. In most markets,
the Company's  networks'  principal  competitor  is the Regional Bell  Operating
Company ("RBOC") or the GTE Companies.  Additional competitors may include other
CAPs,  CLECs,  microwave and  satellite  carriers,  wireless  telecommunications
providers and private networks built by large end-users.  Potential  competitors
(using similar or different  technologies)  include cable television  companies,
utilities and LECs outside  their  current local service area. In addition,  the
Company  anticipates future competition from large long distance carriers,  such
as AT&T, MCI and Sprint  Corporation  ("Sprint"),  which have announced plans to
offer  integrated  local  and  long  distance   telecommunications  services  as
regulations  allow.  Consolidation  of  telecommunications   companies  and  the
formation of strategic alliances within the telecommunications  industry as well
as the  development  of new  technologies  could  give rise to  significant  new
competitors to the Company.

         As a  recent  entrant  in the  integrated  telecommunications  services
industry,  the  Company  has not  achieved  and does not  expect  to  achieve  a
significant market share for any of its services. In particular,  the RBOCs, the
GTE  Companies  and  other  local   telephone   companies   have   long-standing
relationships  with their  customers,  have  financial,  technical and marketing
resources substantially greater than those of the Company, have the potential to
subsidize  competitive  services with revenues from a variety of businesses  and
currently benefit from certain existing regulations that favor the LECs over the
Company in certain respects. While recent regulatory and legislative initiatives
allow CLECs such as the Company to interconnect  with LEC facilities and provide
increased  business   opportunities  for  the  Company,   such   interconnection
opportunities  have been accompanied by increased  pricing  flexibility for, and
relaxation of regulatory  oversight of, the LECs. Local telephone companies also
may enter the long distance market, subject to certain conditions.  For example,
the Federal  Communications  Commission  (the  "FCC")  granted  LECs  additional
flexibility in pricing their interstate  special and switched access services on
a central office


                                       -6-
<PAGE>

specific  basis.  Under this pricing  scheme,  LECs may establish  pricing zones
based on access traffic density and charge  different prices for central offices
in each zone.

         In California,  the Company has selected cities where it was or expects
to be the first entrant into a market.  Although the Company  expects that other
CLECs  will  develop  networks  in cities  where the  Company is  developing  or
operating  networks,  currently the Company's only competitors in its California
markets are the LECs,  although Brooks Fiber Properties  ("Brooks") has begun to
construct networks in Fresno and Bakersfield.

         Currently,  in Hawaii,  the Company is the only authorized  provider of
statewide full local dial tone services other than GTE.

         In Tucson,  the Company  competes with the LEC, U S West, and two other
companies  that also have a license  agreement  with the City of  Tucson.  These
companies,   Brooks   Fiber   Communications   of  Tucson,   Inc.  and  American
Communications  Services  Inc.  ("ACSI")  and  the  Company  have  entered  into
agreements  with Tucson  Electric Power Company  ("TEP") for pole attachment and
access to TEP's facilities rights-of-way.

         In Phoenix,  Phoenix  Fiber  competes  with the LEC. In addition to the
LEC, four other companies (Electric Lightwave, Inc., MFS Communications Company,
MCI and  Teleport  Communications  Group,  Inc.) have  constructed  or intend to
construct  fiber optic  telecommunication  transmission  networks in the Phoenix
area.  Such companies are expected to offer services that will compete with some
or all of the services to be offered by Phoenix Fiber.

         In addition to the Company,  ASCI and Brooks have franchise  agreements
with the city of Albuquerque.

         The  long   distance   telecommunications   industry   has   relatively
insignificant  barriers  to  entry,  numerous  entities  competing  for the same
customers  and a high average churn rate,  as customers  frequently  change long
distance  providers  in response to the  offering of lower rates or  promotional
incentives by  competitors.  The Company  competes  with major  carriers such as
AT&T,  MCI and Sprint,  as well as other  national  and regional  long  distance
carriers and resellers,  many of whom are able to provide services at costs that
are   lower   than  the   Company's   current   costs.   As  a  result   of  the
Telecommunications  Act,  the  Company  believes  that  RBOCs  also will  become
competitors  in the  long  distance  telecommunications  industry.  The  Company
believes  that the  principal  competitive  factors  affecting its long distance
operations  are pricing,  customer  service,  accurate  billing,  clear  pricing
policies  and,  to a lesser  extent,  variety of  services.  The  ability of the
Company  to  compete  effectively  will  depend  upon its  continued  ability to
maintain high quality  market driven  services at prices  generally  equal to or
below those charged by its competitors.  The FCC has, on several occasions since
1984,  approved  or required  price  reductions  by AT&T and,  in 1995,  the FCC
announced  that AT&T will no longer be  regulated  as a dominant  long  distance
carrier.  This decision is expected to increase AT&T's  flexibility in competing
in the long distance  services market and, in particular,  eliminates the longer
tariff notice requirements previously applicable only to AT&T. Most recently the
FCC has adopted  rules that will  eliminate the ability or need of long distance
carriers to file tariffs with the FCC. To maintain its competitive  posture, the
Company  believes that it must be in a position to reduce its prices in order to
meet reductions in rates, if any, by others. Any such reductions could adversely
affect the Company.

         The  Internet  services  market  is  highly  competitive.  There are no
substantial  barriers to entry,  and the Company expects that  competition  will
continue to intensify. The Company's competitors in this market include Internet
access providers, other telecommunications  companies, online services providers
and Internet software providers.


                                       -7-
<PAGE>

         The market for  telecommunications  products is highly  competitive and
subject to rapid technological change. NACT expects competition to increase from
existing competitors in the distributed  switching systems market and from other
companies  that may enter NACT's  existing or future  markets,  including  major
central office switch vendors.  In its  manufacturing  operations,  the Company,
through its subsidiary  NACT,  competes with a number of lower  capacity  switch
manufacturers  such as  Communications  Product  Development,  Inc.,  Integrated
Telephony Products, Inc. and PCS Telecom, Inc. NACT also competes with providers
of open  architecture  (programmable)  hardware  switching  platforms  that  are
enhanced by applications  providers and value added resellers.  Such competitors
include Excel, Inc., which has agreements with software  application  providers,
which has agreements with software  applications  providers.  As NACT's business
develops and it seeks to market its switches to a broader customer base,  NACT's
competitors   may  include  larger  switch  and   telecommunications   equipment
manufacturers such as Lucent Technologies Inc., Harris Corporation,  Siemens AG,
Alcatel Alsthom Compagnie,  Generale  D'Electricite,  Telefonaktiebolaget,  L.M.
Ericcson and Northern Telecom, Ltd.

         Most of the Company's actual and potential  competitors in its switched
access, long distance,  Internet and data services and manufacturing  businesses
have substantially greater financial, technical and marketing resources than the
Company.  While the  Company  believes  that it is well  positioned  to  compete
effectively, there can be no assurance that it will be able to do so.

MARKETING

         The Company markets its  telecommunications  service  offerings through
the use of direct mail, print, radio and television  advertising,  attendance at
trade shows and open houses, press conferences,  newsletters and media releases.
The  Company has  developed  two primary  channels of  distribution:  commercial
channels,  which include  commercial  sales offices,  telemarketing  and product
specific  sales,  and  target-specific  channels,  which include  carrier sales,
government  systems,  alternate  channels  marketing and vertical  markets.  The
Company has sales offices in 18 cities in which it operates networks.

         The  Company's  commercial  distribution  channels  focus on end-users,
including  business  customers  with   telecommunication-intensive   needs.  The
Company's   direct  sales  agents  work  in  conjunction   with  its  agent  and
telemarketing  groups to sell value-added  services to medium and large business
end-users.  The  telemarketing  group  generates  qualified  leads and schedules
appointments  for the  Company's  regional  sales agents as well as  consummates
sales to long  distance and Internet  customers in cities where the Company does
not operate a network.  The Company's  product  specific sales  channels  market
prepaid debit cards to retail stores and the collector's market.

         The Company's  target-specific  channels  focus on customers  with more
complex  telecommunications  requirements.  Long distance  sales  constitute the
largest  source of  revenues to the  Company.  The Company  takes  advantage  of
opportunities  created by the large IXCs and is working to identify  and address
smaller  carriers.  Larger carriers use the Company's  services to augment their
networks and enhance their service offerings, while smaller carriers rely on the
Company to provide services as well as methods to sell services.

REGULATION

         The  Company's  telecommunications  services  business  is  subject  to
varying degrees of federal, state and local regulation.

         FEDERAL REGULATION

         The  FCC  regulates  interstate  and  international   telecommunication
transmissions.   The  allocation  of  jurisdiction  between  federal  and  state
regulators over dedicated circuits that carry both interstate and


                                       -8-
<PAGE>

intrastate  traffic (including private line and special access services) creates
definitional issues. The FCC, however, has noted that private line, non-switched
telecommunications  services can be  classified as  jurisdictionally  interstate
(subject  to  FCC  jurisdiction)  if at  least  10%  of  the  transmissions  are
interstate  in  nature.   The  FCC  has  not  ruled   specifically   as  to  the
jurisdictional nature of the traffic of the Company's networks.

         The Company  provides service either on a private carrier basis or on a
common  carrier  basis.  In the interstate  market,  the primary  distinguishing
factor between  private  carriers and common  carriers is that private  carriers
provide  customized  services  to  select  customers  pursuant  to  individually
negotiated  contracts  and do not file tariffs with the FCC but common  carriers
hold  themselves  out to serve the public  generally.  The FCC  imposes  certain
regulations on common carriers such as the RBOCs that have some degree of market
power.  The FCC imposes less regulation on common carriers  without market power
including,  to date, CAPs/CLECs.  The FCC requires common carriers to receive an
authorization  to  construct  and operate  telecommunication  lines  between the
United States and international points.

         The FCC requires that local telephone  companies having annual revenues
exceeding $100.0 million (for example,  the RBOCs and the GTE Companies)  permit
the interconnection of their facilities with those of CLECs.  Interconnection is
the ability of an entity to connect its  network to local  telephone  companies'
central offices,  which requires the cooperation of the local telephone  company
and  facilitates  the carrying on of business by CLECs.  This  requirement  aids
CLECs in  competing  in the  interstate,  switched  and special  access  service
markets.  It  allows  CLECs  to  reach  a  much  larger  customer  base  without
significantly increasing their own physical network.

         In  August  1996,  the  FCC  released  its  decision  implementing  the
interconnection  portions of the  Telecommunications  Act (the  "Interconnection
Decision").  The  Interconnection  Decision  establishes rules  implementing the
Telecommunications  Act  requirements  that incumbent  local  exchange  carriers
negotiate interconnection  agreements and provides guidelines for review of such
agreements by state public  utilities  commissions.  In October 1996, the Eighth
Circuit  stayed   effectiveness  of  certain  portions  of  the  Interconnection
Decision,   including  provisions  establishing  a  pricing  methodology  and  a
procedure  permitting new entrants to "pick and choose" among various provisions
of existing or negotiated interconnection agreements. Although the judicial stay
of the  Interconnection  Decision does not prevent the Company from  negotiating
interconnection   agreements  with  local  exchange  carriers,  it  does  create
uncertainty  about  the  rules  governing  pricing,   terms  and  conditions  of
interconnection  agreements,  and could make  negotiating  such  agreements more
difficult and protracted.  On November 12, 1996, the U.S.  Supreme Court refused
to vacate the Eighth Circuit's  judicial stay. The Eighth Circuit is expected to
hear oral  arguments  in this  case in  January  1997 and  further  appeals  are
possible.  There can be no  assurance  that the  Company  will be able to obtain
interconnection agreements on terms acceptable to the Company.

         On October 29, 1996, the FCC adopted an order (the "Order") in which it
eliminated the requirement  that  non-dominant  interstate  carriers such as the
Company maintain tariffs on file with the FCC for domestic interstate  services.
The Order applies to all non-dominant  interstate carriers,  including AT&T. The
Order does not apply to the RBOCs or other local exchange  providers.  The Order
was issued  pursuant to authority  granted to the FCC in the  Telecommunications
Act to "forbear" from regulating any telecommunications services provider if the
FCC  determines  that the public  interest  will be served.  After a  nine-month
transition period, relationships between interstate carriers and their customers
will be set by contract.  At that point long  distance  companies  may no longer
file with the FCC  tariffs for  interstate,  domestic,  interexchange  services.
Carriers have the option to immediately  cease filing  tariffs.  Several parties
have filed motions for  reconsideration  of the Order and MCI has filed a motion
for the FCC to stay the  Order.  MCI and others  have also filed  appeals in the
U.S. Court of Appeals for the District of Columbia.

         Except in certain  designated  geographically  competitive  zones,  the
current  policy of the FCC for most special access  services  dictates that LECs
charge all customers the same price for the same service.


                                       -9-
<PAGE>

Thus,  the LECs  generally  cannot  lower  prices to those  customers  likely to
contract for their services  without also lowering  charges for the same service
to  all  customers  in  the  same   geographic   area,   including  those  whose
telecommunications  requirements would not justify the use of such lower prices.
The FCC may,  however,  alleviate this constraint on the LECs and permit them to
offer  special rate  packages to very large  customers,  as it has done in a few
cases, or permit other forms of regulatory rate flexibility. The FCC has adopted
proposals that  significantly  lessen the regulation of LECs that are subject to
competition  in their  service  areas and  provide  such  LECs  with  additional
flexibility in pricing their interstate switched and special access on a central
office specific basis.

         The Telecommunications Act is intended to increase competition. Because
implementation of the  Telecommunications Act is subject to numerous federal and
state policy rulemaking proceedings, it is unknown at this time what impact such
legislation will have on the Company.

         Pursuant  to  authority  granted by the FCC,  the  Company  resells the
international message  communications  services of other common carriers between
the United States and  international  points. In connection with such authority,
certain of the  Company's  subsidiaries  have filed  tariffs  stating the rates,
terms  and  conditions  for  their  international  services.  The FCC has  ruled
international  call back services to be legal where the specific  countries from
which such calls are  placed do not have laws that  specifically  make call back
illegal.  The FCC has stated  that it will take  action  against  United  States
carriers that violate  another  country's call back  prohibition if that country
has been unable to insure compliance.

         With  respect  to  its  domestic   service   offerings,   International
Telemanagement  Group,  Inc.  ("ITG"),  a subsidiary  of the Company,  has filed
tariffs with the FCC stating the rates,  terms and conditions for its interstate
rates. To the extent that ITG provides intrastate  services,  it may be required
to obtain  authority from state regulatory  authorities  prior to providing such
services, as well as certificates  authorizing ITG to transact business in these
states.  There  can be no  assurance  that  such  state  authorizations  will be
granted.

         To   the   extent   NACT   provides    international    or   interstate
telecommunications  services, it is required to obtain regulatory authority from
the FCC. Any intrastate telecommunications services provided by NACT may require
authority from state regulatory agencies.

         Under the Communications  Act of 1934, as amended (the  "Communications
Act"),  foreign  nationals may not own more than 20% of a company,  or have more
than a 20% voting  interest in a company,  that directly  holds a common carrier
radio license.  The  Communications  Act also prohibits  foreign  nationals from
owning 25% or more of a company which in turn controls a company holding a radio
license,  unless the FCC permits such alien  participation based on a showing of
public  interest.  The operations of the Company's  Hawaiian  microwave  network
require the use of radio licenses from the FCC. Pacific Network, Inc., an entity
controlled  by John Warta,  the  President  and Chief  Executive  Officer of the
Company holds the licenses for the Hawaii microwave facilities. The FCC also has
the authority,  which it is not presently exercising,  to impose restrictions on
foreign  ownership of  communications  service  providers  not  utilizing  radio
frequencies,  which  could  have a  material  adverse  effect  on the  Company's
business.  In  addition,  the  networks  may  subsequently  need to obtain radio
licenses to "fill in" certain  customers in the networks  that are not practical
to reach by wire.  Should the Company's  networks require a common carrier radio
license in the  future,  they may be  prohibited  from  obtaining  such  license
because of the foreign ownership restrictions of the Communications Act.

         In  addition,  under the FCC's  foreign  ownership  rules,  the Company
cannot hold Personal Communications Services ("PCS") licenses directly. Magnacom
Wireless,  LLC  ("Magnacom"),  a company  controlled by John M. Warta, the Chief
Executive  Officer of the  Company,  has applied for various PCS  licenses.  The
Company is in the process of establishing a non-exclusive 12 year agreement with


                                      -10-
<PAGE>

Magnacom  whereby the Company will purchase  services  relating to such licenses
from Magnacom for use or resale.

         STATE REGULATION

         State  regulatory  agencies have regulatory  jurisdiction  when Company
facilities and services are used to provide intrastate services.  In particular,
state  regulation  determines  which local  telephone  services  the Company may
offer.  Several  states,   including   California  and  Arizona,   have  adopted
initiatives  that allow  competition  in various  aspects of the local  exchange
market.  A  portion  of the  Company's  current  traffic  may be  classified  as
intrastate  and therefore  subject to state  regulation.  To provide  intrastate
services,  the Company generally must obtain a certificate of public convenience
and  necessity  from  the  state   regulatory   agency  and  comply  with  state
requirements for telecommunications utilities.

         ARIZONA.  In Arizona,  the Tucson and Phoenix  networks  and  alternate
access transmission  services,  to the extent that they provide the transmission
of messages or telephone service within Arizona,  could be deemed public service
corporations  and  subject  to  the  jurisdiction  of  the  Arizona  Corporation
Commission  (the  "ACC") for  certain  purposes.  The  Company has applied for a
Certificate   of   Convenience   and   Necessity   from   the  ACC  to   provide
jurisdictionally  intrastate special access,  private line and/or local exchange
services in Arizona. A hearing is currently scheduled for December 20, 1996. The
Company has  entered  into a license  agreement  with Pima County (the county in
which Tucson is located)  which was  officially  recorded on July 16,  1996,  to
construct,  install, maintain and operate a fiber optics communication system in
the public right-of-way.

         CALIFORNIA.  As of January 1, 1995, the CPUC permits  competition on an
interLATA and intraLATA  interexchange basis for all toll services. The CPUC has
authorized  facilities  based local  competition as of January 1, 1996 and local
resales as of March 1,  1996.  On  November  1, 1996,  two  subsidiaries  of the
Company,  were granted permanent authority to provide both  facilities-based and
resale  local  exchange  services  and were  certified  by the  CPUC to  provide
interLATA service and certain intraLATA  services within the State of California
(specifically  including intraLATA interexchange service on a 10XXX access basis
and intraLATA non-switched services at speeds of 1.544 Mbps and above).

         HAWAII. In Hawaii, the HPUC has broad jurisdictional powers to regulate
public  utility  companies  that own,  control,  operate  or manage any plant or
equipment or furnish facilities,  directly or indirectly for public use, for the
conveyance or transmission of telecommunications  messages between points within
Hawaii.  The  Company  is  subject to the  jurisdiction  of the HPUC,  which has
granted  the  Company a CPCN as a carrier  of voice and data on a point to point
basis in  Hawaii.  On June 3, 1996,  the HPUC  promulgated  new rules  governing
"Competition  in  Telecommunication  Services."  Under the HPUC's new rules,  an
application  by the  Company for an expanded  CPCN is no longer  necessary.  GST
Hawaii, as a telecommunications carrier granted a CPCN before the effective date
of the new rules,  files a separate  tariff for any proposed,  modified,  or new
service,  unless ordered otherwise by the HPUC. The Hawaii basic CLEC tariff was
filed and became  effective  on  September  4, 1996.  The HPUC has  allowed  the
Company  to  expand  its  authority  to  include  local  exchange   services  in
competition  with GTE.  Deployment  of local  exchange  services on other than a
resale basis or through the purchase of unbundled  network elements from GTE are
dependent upon HPUC approval of the  interconnection  agreement recently entered
into  between  the  Company  and GTE  (as  well as the  placement  of  necessary
facilities and equipment).

         NEW MEXICO.  In October  1995,  the Company was granted a CPCN from the
New Mexico State  Corporation  Commission  to provide  intrastate,  non-switched
private line  services.  GST New Mexico is the first CLEC  authorized to provide
such services in New Mexico.

         WASHINGTON.  The Company has applied to the  Washington  Utilities  and
Transportation  Commission for registration and "competitive  carrier" status in
Washington. The Company's application to register as


                                      -11-
<PAGE>

a telecommunications provider was approved on March 27, 1996 and its application
for competitive carrier status is pending.

         LOCAL REGULATION

         The networks are subject to numerous local regulations such as building
codes  and  licensing.  Such  regulations  vary on a city by city and  county by
county  basis.  The  networks  need to obtain  rights-of-way  over  private  and
publicly   owned  land  to  permit   the   installation   of  the  fiber   optic
telecommunication equipment.

GST GLOBAL TELECOMMUNICATIONS INC.

           At the date hereof, the Company had invested  approximately Cdn. $4.9
million in a publicly  traded  Canadian  corporation  (subsequently  renamed GST
Global  Telecommunications,  Inc. and  hereinafter  referred to as "Global") and
held approximately 32% of Global's outstanding shares. Global is to issue to the
Company up to an  additional  5,000,000 of its common shares (on a fully diluted
basis),  subject  to  approval  of the  Vancouver  Stock  Exchange  ("VSE"),  in
consideration  for the transfer by the Company to Global of its rights in and to
the Bestel project described below. The Company's  designees comprise a majority
of the members of Global's  Board of Directors.  The Company  intends to conduct
certain of its international  activities through Global. Global is to employ its
own operating  management  and raise in the capital  markets the equity and debt
financing required for its proposed activities.  At the date hereof,  Global had
raised  approximately  Cdn $22 million through private  placements of its common
shares.

         Global has the right to subscribe, pursuant to a Subscription Agreement
dated August 20, 1996,  for an interest  (expected to be  approximately  25%) in
Bestel, S.A. de C.V. ("Bestel") for a total consideration of $3,920,000.  Bestel
will be a  facilities-based  CAP that  proposes to construct and operate a fiber
optic  telecommunications  network consisting of approximately 1,375 route miles
connecting certain cities in Mexico, including Nuevo Laredo,  Monterrey,  Mexico
City, Guadalajara and Manzanillo.

         Global has also  entered into an Agreement to acquire from a subsidiary
of  Cable  &  Wireless  Holding  Plc  an 80%  interest  in  Vitacom  Corporation
("Vitacom"),  for a purchase  price of  $1,500,000  payable in cash.  Vitacom is
engaged  in the  provision  of voice,  high  speed  data  information  and other
services and the  manufacture  and sale of VSAT (very small  aperture  satellite
terminal) and other  equipment used to access the Internet.  Consummation of the
transaction is subject to the receipt of regulatory approvals.

MAGNACOM

         Magnacom  has been  granted  30mhz (C  Block)  Personal  Communications
Services ("PCS") licenses from the FCC for the following cities: Albuquerque and
Santa  Fe,  New  Mexico;  Tucson,   Arizona;   Eugene  and  Salem,  Oregon;  and
Guam/Saipan.  Magnacom  also has  submitted  bids in the FCC's 10mhz (D, E and F
block) PCS license auctions for the cities of Honolulu, Hilo, Lihue and Kahului,
Hawaii; Portland,  Medford and Roseburg,  Oregon; Longview,  Yakima,  Kennewick,
Walla Walla and Spokane, Washington; and Boise and Lewiston, Idaho.

         Magnacom and the Company  have  entered  into an agreement  pursuant to
which the  Company  has made  payments  to the FCC on behalf  of  Magnacom.  The
Company paid  $5,997,000 and $2,970,000  during the third and fourth quarters of
Fiscal 1996 and made an additional payment of $5,426,000 after the end of Fiscal
1996. In return,  Magnacom agreed to allow the Company to provide switched local
and long distance services and manage  Magnacom's  networks in markets where the
Company  has  operational  CLEC  networks.  The  Company  agreed to  purchase  a
designated  amount of minutes from Magnacom at the most favorable  rates offered
to Magnacom customers and the three payments that the Company has


                                      -12-
<PAGE>

made will be used as advances  against such purchase.  In addition,  the Company
acquired an option to purchase for nominal  consideration  a 24% interest (to be
increased to a 99% interest) in Magnacom. The exercise of such option as to such
increased interest is contingent upon, among other things, FCC approval.

         Magnacom  has  acquired  licenses  and bid for  additional  licenses in
cities  located  on  or  near  the  Company's  existing  and  planned  networks.
Management  of the Company  believes the  capability of the Company to provide a
wireless   telecommunications  service  is  consistent  with  and  enhances  the
Company's  strategy of providing a full array of services to its customers.  The
Magnacom agreement will increase product capability with wireless local loop and
wireless  Internet  access.  The Company  further  believes the  agreement  with
Magnacom will allow the Company to provide wireless  telecommunication  services
to its customers at competitive prices.

         The provision of wireless  telecommunications  service by Magnacom will
be dependent upon its ability to obtain the financing necessary to make payments
to the FCC under the terms of its licenses,  to obtain working  capital,  and to
build the  required  facilities,  including  the  telecommunications  equipment,
necessary to provide this service.  The Company will not advance any  additional
funds to or on behalf of Magnacom or purchase additional minutes or other assets
of Magnacom or make any further loans to or  investments  in Magnacom.  Magnacom
has had discussions  with various  financing  sources and potential users of its
services.  It believes  that it will be  successful  in obtaining  the necessary
financing  from  independent  financing  sources  and  a  combination  of  joint
ventures,  investment  and  arrangements  with  independent  firms,  but no such
arrangements  have been  concluded  and there can be no assurance  Magnacom will
succeed with its financing plan and  therefore,  that it will be able to provide
PCS services. In such event, the Company would probably be unable to recover its
advance payments to Magnacom.

EMPLOYEES

         As of November  15,  1996,  the Company  and its  subsidiaries  had 686
full-time  employees,  of which 246 were employed in engineering and operations,
23 in  research  and  development,  154 in sales and  marketing,  29 in customer
service, 73 in management,  153 in administration and finance and eight in legal
and  regulatory.  None of such  employees is covered by a collective  bargaining
agreement.  The Company  considers  its  relationship  with its  employees to be
satisfactory.

RECENT DEVELOPMENTS

         On October 22,  1996,  the Company  completed  a private  placement  to
non-U.S.  investors of 2,000,000 special warrants (the "Special  Warrants") at a
purchase price of $11.125 per Special Warrant (the "Special Warrant  Offering").
Each  Special  Warrant is  exercisable  for one Common Share and one-half of one
underlying  warrant (each an  "Underlying  Warrant").  Each  Underlying  Warrant
entitles the holder to purchase one additional Common Share for a purchase price
of $13.00 for one year from the date of issuance.  The Special  Warrants  become
exercisable by holders for no additional  consideration  upon the later to occur
of (i) the  date  upon  which  approval  for a final  Canadian  prospectus  (the
"Canadian  Prospectus")  qualifying  the Common Shares and  Underlying  Warrants
issuable upon exercise of the Special  Warrants is received from the  securities
commission  of each of the Canadian  provinces  where the Special  Warrants were
sold and (ii) the date that a  registration  statement  (the "U.S.  Registration
Statement") filed with the Securities and Exchange Commission (the "Commission")
registering  the resale of the  Common  Shares  issuable  upon  exercise  of the
Special Warrants and Underlying Warrants is declared effective, but in any event
no later that  September 22, 1997.  In the event that the  requisite  regulatory
approvals  for the Canadian  Prospectus  are not received by the Company and the
U.S. Registration Statement is not declared effective,  in each case by February
19, 1997,  then each  Special  Warrant  will become  exercisable  for 1.1 Common
Shares and one-half of one Underlying Warrant.


                                      -13-
<PAGE>

         The Company  received  $9,690,000,  constituting  50% of the  aggregate
purchase  price  of the  Special  Warrants  (net of  placement  agency  fees and
expenses), on October 22, 1996. The balance of the net purchase price of Special
Warrants  ($11,125,000)  is being held in escrow  and is payable to the  Company
upon  the  earlier  to  occur of (x) the  date of  receipt  of final  regulatory
approval of a preliminary Canadian Prospectus from the securities commissions of
the  applicable  Canadian  provinces  and (y) the  initial  filing  of the  U.S.
Registration Statement with the Commission,  in each case covering the resale of
the Common  Shares  issuable  upon  exercise  of the  Special  Warrants  and the
Underlying Warrants.

         On December 12, 1996, NACT filed a registration statement in respect of
an initial public offering of its common stock (the "NACT Offering") pursuant to
which the  Company  and NACT  will  sell one  million  and two  million  shares,
respectively,  thereby reducing the Company's  interest in NACT to approximately
63%.

ITEM 2.  PROPERTIES.

         The  Company  owns a building  comprising  60,000  square  feet,  which
contains its principal  executive  offices,  located at 4317 N.E.  Thurston Way,
Vancouver,  Washington  98662.  Its  telephone  number at that  address is (360)
254-4700. Such building, which was purchased in 1995 by the Company.

         The Company leases  approximately  15,400 square feet of space in Orem,
Utah,  pursuant  to  a  month-to-month   lease.  The  current  monthly  rent  is
approximately  $14,000.  GST Realco,  Inc.,  a subsidiary  of the Company  ("GST
Realco"),  has entered into a construction  contract  pursuant to which a 40,000
square foot office building is currently being built for NACT in Provo, Utah. To
date,  all of the  construction  costs  have been borne by GST  Realco.  NACT is
currently in the process of securing permanent financing for the purchase of the
land and the building from GST Realco.

         The Company also leases  offices  elsewhere in the United States and in
Vancouver,  British  Columbia,  pursuant to leases which expire on various dates
through March 24, 2007. The Company's  current  aggregate  annual rental expense
pursuant  to leases  that  provide  for annual  payments  exceeding  $100,000 is
approximately $2,025,000.

ITEM 3.  LEGAL PROCEEDINGS.

         On  August  24,  1995,   Aerotel,   Ltd.  and  Aerotel   U.S.A.,   Inc.
(collectively,  "Aerotel")  commenced  an action  against NACT and a customer of
NACT in the  United  States  District  Court,  Southern  District  of New  York,
alleging that  telephone  systems  manufactured  and sold by NACT  incorporating
prepaid debit card features  infringe upon Aerotel's  patent which was issued in
November 1987 (the "Aerotel  Patent").  The complaint further alleges defamation
and unfair  competition as a result of a Special Report  disseminated by NACT to
its customers and tortious  interference  with prospective  business  relations,
alleging that NACT induced third parties to abandon licensing  negotiations with
Aerotel.  Aerotel seeks  injunctive  relief,  damages in an unspecified  amount,
damages of up to three times the damages found for willful  infringement  of the
Aerotel  Patent  and an order  requiring  NACT to  publish a written  apology to
Aerotel.  An  Answer  and  Counterclaim  has been  filed in  which  NACT  denies
infringement of the Aerotel Patent and seeks judgment that the Aerotel Patent is
invalid and that Aerotel has misused its patent in violation of antitrust  laws.
NACT also  denies  that it has  committed  defamation,  unfair  competition  and
tortious interference with prospective business relations. NACT's patent counsel
believes that NACT has valid defenses to the Aerotel claims.  Pretrial discovery
has commenced and is expected to be completed in mid- 1997. On May 3, 1996, NACT
served a motion for summary  judgment,  which motion is SUB JUDICE.  The case is
not  expected  to be tried  until  late  1997 at the  earliest.  An  unfavorable
decision in this action could have a material adverse effect on NACT.


                                      -14-
<PAGE>

         On July 5, 1994,  the Tucson City Council (the  "Council")  awarded GST
Tucson a  non-exclusive  fiber  optic  communication  license  that  permits GST
Tucson, for a period of 25 years, to conduct, maintain and operate in and across
designated portions of city-owned  rights-of-way.  On June 12, 1995, the Council
approved  the City of Tucson  Competitive  Telecommunications  Code (the "Tucson
Code"),  which was  subsequently  amended on July 10, 1995.  The Tucson Code now
provides,  among other things,  (i) that the City of Tucson grant licenses for a
period of 15 years,  (ii) for an increase from 2% to 5 1/2% of gross revenues to
be paid by licensees and (iii) for  cancellation of a license in certain events.
The Council  subsequently refused to permit GST Tucson to modify the route plans
previously approved in order to construct  connections between its customers and
the network,  asserting that GST Tucson's  existing license does not permit such
action and  requiring GST Tucson  Lightwave to receive an amended  license under
the  Tucson  Code to modify  its  route  plans.  After  trying  to  negotiate  a
settlement  with the City of Tucson  with  respect  to its  license,  GST Tucson
commenced an action in the Superior  Court of Arizona,  County of Pima,  against
the City of  Tucson.  The  Court  has  ruled in favor of the City  that the City
Engineer does not have the authority to grant  modifications from the route map,
that such route  modifications must be approved by the Council and that the City
could condition GST Tucson's  application for a franchise for intrastate service
on a  relinquishment  of GST  Tucson's  existing  license.  Although the City of
Tucson  subsequently  granted  GST  Tucson's  request  to  permit  access to two
buildings in the downtown area and route  modifications to effect service to its
south-side  hub site, the City has refused to amend the license to approve other
route modifications. GST Tucson has appealed the Superior Court's rulings to the
Arizona Court of Appeals,  which has  scheduled  oral argument for January 1997.
Absent  success in such  appeal,  GST Tucson  could be  required to obtain a new
license with less favorable provisions to further expand the Tucson network.

         On May 13, 1996,  GST Tucson  instituted an action in the United States
District Court for the District of Arizona  against the City of Tucson seeking a
declaratory judgment and injunctive relief asserting that the City of Tucson, in
violation  of  the   Telecommunications   Act,   failed  to  manage  its  public
rights-of-way  in a  competitively  neutral and  nondiscriminatory  manner.  GST
Tucson has moved for summary  judgment on the pleadings.  The City of Tucson has
cross moved for summary judgment on the pleadings and U S West, an intervenor in
the  proceeding has moved for summary  judgment on the  pleadings,  each arguing
that  statewide  franchise and state law exempts U S West from having to pay any
local franchise fees. The Court heard the parties' oral arguments on December 4,
1996 and has taken the matter under advisement.

         The  Company is not a party to any other  material  legal  proceedings,
nor,  to the  knowledge  of the  Company,  are any  material  legal  proceedings
threatened  against the Company.  The Company is a party to various  proceedings
before the public  utilities  commissions  of the states in which it provides or
proposes to provide  telecommunications  services.  These proceedings  typically
relate to  licensure  of the  Company  or others  and to the  regulation  of the
provision of telecommunications service.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                  Not applicable.

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY
         AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION

         The  Company's  Common  Shares,  without  par value,  are traded on the
American Stock Exchange (the "AMEX") (ticker  symbol:  GST) and on the Vancouver
Stock Exchange (the "VSE") (ticker symbol: GST.U).


                                      -15-
<PAGE>

         The following  table sets forth,  for the two most recent fiscal years,
the high and low closing sale prices for the Common  Shares,  as reported by the
AMEX and the VSE. The table also sets forth the average of the monetary exchange
rates on the last day of each month during such period.  All prices  reported on
the VSE through March 8, 1995 are expressed in Canadian dollars.

                           American
                             Stock          Vancouver Stock
                           Exchange            Exchange
                         -------------      ---------------
                                                                 Exchange
                         High     Low       High       Low      Rate (C$/$)
                         ----     ----      ----       ----       ------
  Fourth Quarter         5.50     4.13      7.75       5.38       1.4028
CALENDAR YEAR 1995
  First Quarter(1)       5.00     3.50  US $4.90   US $4.15       1.3992
  Second Quarter         5.94     4.00      5.88       4.00          --
  Third Quarter          7.81     5.63      7.63       5.75          --
  Fourth Quarter         7.19     5.56      7.13       5.75          --
CALENDAR YEAR 1996                                                
  First Quarter          8.75     5.75      8.25       5.75          --
  Second Quarter        15.875    7.75     13.75       8.125         --
  Third Quarter         13.75     8.75     13.35      11.00          --
                                                              

------------------------
(1)      The VSE began reporting trades of listed  securities in U.S. dollars on
         March 9, 1995. For the first calendar  quarter of 1995 through March 8,
         1995, the high and low sale prices of the Common Shares on the VSE were
         C$6.38 and C$5.00, respectively.

DIVIDENDS

         The Company  has never  declared  or paid any  dividends  on the Common
Shares and does not  presently  intend to pay  dividends on the Common Shares in
the foreseeable future. It intends to retain future earnings, if any, to finance
the development and expansion of its business.  The Company's ability to declare
or pay cash  dividends,  if any, is dependent  upon the ability of the Company's
present  and future  subsidiaries  to declare  and pay  dividends  or  otherwise
transfer  funds to the  Company,  because the Company  conducts  its  operations
entirely  through  subsidiaries.  Pursuant to credit  agreements with Tomen (the
"Tomen  Facility"),  the  Company's  subsidiaries  that own and  operate the San
Gabriel  Valley,  Tucson and  Albuquerque  networks may not pay any dividends or
make any distributions on their capital stock to their shareholders.  Subsequent
network  financings  under the Tomen  Facility are  expected to include  similar
prohibitions.  In addition, the Indentures for the 13 7/8% Senior Discount Notes
due 2005 (the "Senior  Notes") of GST USA, Inc. ("GST USA"), a subsidiary of the
Company,  guaranteed  by  the  Company,  and  the  13  7/8%  Convertible  Senior
Subordinated  Discount  Notes due 2005 of the Company (the  "Convertible  Notes"
and,  together with the Senior Notes,  the "1995 Notes")  guaranteed by GST USA,
limit, and, for the foreseeable future, effectively prohibit, the ability of the
Company to declare or pay cash dividends.

NUMBER OF SHAREHOLDERS

         As of  December  20,  1996,  there  were 244  holders  of record of the
Company's Common Shares.  The Company believes that there are in excess of 3,500
beneficial  owners of the Company's Common Shares  additional to such holders of
record.


                                      -16-
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA.

ITEM 7.  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

         The  Company  provides a broad range of  integrated  telecommunications
products and services, primarily to customers located in the western continental
United States and Hawaii. Since inception as a facilities-based CAP, the Company
has constructed and operated digital interconnected  telecommunications networks
that provide an alternative  to LECs. The Company has expanded  beyond the scope
of traditional CAP operations into CLEC services and currently provides, through
its established sales channels, a range of enhanced  telecommunications services
that include long distance,  Internet access and data services. In addition, the
Company  provides  switched  access and recently  began to offer local dial tone
services to complement its existing  telecommunications  service offerings.  The
Company also  provides  advanced  telecommunications  switching  platforms  with
integrated applications software and network telemanagement capabilities through
its subsidiary, NACT.

         The  Company's  fiber  optic  networks  currently  serve 24  cities  in
Arizona,  California,  New  Mexico  and  Washington  and its  digital  microwave
networks  serve four of the Hawaiian  Islands.  In addition,  the Company has 18
networks under construction and other networks in various stages of development.

         The  Telecommunications  Act  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 its  existing
telecommunications   service   offerings.   In  order  to  capitalize  on  these
opportunities,  the Company has accelerated the development and  construction of
additional networks within its region. In addition,  to facilitate the provision
of local services,  the Company has deployed four high capacity digital switches
and intends to deploy additional switches in the first half of 1997.

RESULTS OF OPERATIONS

                       FISCAL 1996 COMPARED TO FISCAL 1995

         REVENUES.  Total revenues for Fiscal 1996 increased  $22.6 million,  or
121.0% to $41.3 million from $18.7  million for Fiscal 1995.  Telecommunications
services  revenues for Fiscal 1996 increased  $20.6  million,  or 185%, to $31.7
million from $11.1 million for Fiscal 1995.  The increase in  telecommunications
services  revenues  resulted  from an  acceleration  of  revenue  growth in CLEC
operations and continuing  growth of long distance,  Internet and data services,
including revenues associated with Fiscal 1995 and 1996 strategic  acquisitions.
Telecommunications  products revenues for Fiscal 1996 increased $2.0 million, or
26.6% over Fiscal 1995  results.  The  increase  in  telecommunications  product
revenues  resulted from the  introduction by NACT of its new STX product line in
the third quarter of Fiscal 1996.

         OPERATING EXPENSES.  Total operating expenses for Fiscal 1996 increased
$53.6 million,  or 176.8%,  to $83.9 million from $30.3 million for Fiscal 1995.
Network  expenses,  which include direct local and long distance  circuit costs,
increased $16.7 million to $26.6 million from $10.1 million for Fiscal 1995,


                                      -17-
<PAGE>

due to an  expanded  customer  base and  increased  usage.  As a  percentage  of
telecommunications  services revenues, network expenses decreased from 90.9% for
Fiscal 1995 to 83.8% for Fiscal 1996. Facilities  administration and maintenance
expenses  for Fiscal 1996  increased  $8.2  million to $10.3  million  from $2.1
million for Fiscal 1995. As a percent of  telecommunications  services revenues,
facilities  administration  and  maintenance  expenses  increased from 18.9% for
Fiscal  1995 to 32.5% for  Fiscal  1996.  The  increase  relates  to  additional
personnel  and  facility  costs  required by  continuing  network  expansion,  a
substantial portion of which are incurred before the realization of revenues.

         Cost of product revenues at NACT for Fiscal 1996 increased $0.9 million
to  $4.0  million  from  $3.1  million  for  Fiscal  1995.  As a  percentage  of
telecommunications  products  revenues for Fiscal 1996, cost of product revenues
remained relatively constant as compared to Fiscal 1995 results.  However, gross
profit on telecommunications product revenues as a percent of telecommunications
product revenues decreased nominally due to initial lower margins resulting from
the  discontinuance  of the LCX as NACT  transitioned to the new STX to existing
customers.  Research and development  costs increased  nominally for Fiscal 1996
relative to Fiscal 1995 as the Company moved to more rapidly develop an improved
billing system and to maintain ongoing research and development of the Company's
existing hardware and software product lines.

         Selling,  general and administrative  expenses increased $22.0 million,
or 193.5%,  to $33.4 million from $11.4 million for Fiscal 1995. The increase is
due to the expansion of the  Company's  CLEC and enhanced  services  operations,
including,  to a lesser  extent,  the  acquisitions  during  Fiscal 1996 of Call
America,  certain  assets  of  Texas-Ohio,  Hawaii  On Line  and  Tri-Star.  The
implementation  of the Company's  integrated  services  strategy has resulted in
additional  marketing,  management  information  and sales  staff  dedicated  to
network expansion and increased service offerings.

         Depreciation and amortization for Fiscal 1996 increased $5.9 million to
$8.3 million  from $2.4  million for Fiscal 1995 due to  increased  depreciation
resulting from newly  constructed  networks  becoming  operational.  To a lesser
extent,  the increase in depreciation and amortization was also due to increased
amortization of intangible assets resulting from acquisitions.

         OTHER EXPENSES. Other expenses for Fiscal 1996 increased $16.1 to $18.0
million  from $1.9 million for Fiscal 1995.  The  increase was  principally  the
result of additional  interest  expense  associated  with the Company's  sale in
December 1995 of units  consisting in the aggregate of $312.4 million  principal
amount at  maturity  of the Senior  Notes,  $39.1  million  principal  amount at
maturity of the Convertible  Notes,  receiving  gross proceeds of  approximately
$180.0 million (the "1995 Notes Offering"). The increase was partially offset by
interest income  resulting from the investment of the proceeds of the 1995 Notes
Offering.

                       FISCAL 1995 COMPARED TO FISCAL 1994

         REVENUES.  Revenues for Fiscal 1995 increased $12.7 million, or 211.3%,
to $18.7 million from $6.0 million for Fiscal 1994. The increase resulted from a
$11.0  million  increase  in  telecommunications  services  revenues  and a $1.7
million,  or 28.4%,  increase in product  revenues  of NACT.  Telecommunications
service  revenues  increased  $10.6  million  as a result of  wholesale  carrier
services revenues generated by NACT and WINS, which began to offer such services
during Fiscal 1995,  and long distance and other service  revenues of ITG, which
was acquired effective May 1, 1995. In addition, an increase of $0.4 million was
the result of revenues  generated by the Hawaiian digital  microwave and the San
Gabriel Valley networks.  The San Gabriel Valley networks became  operational in
Fiscal 1995.  The increase in  manufacturing  revenues was due to increased unit
sales  of  telecommunications  switching  and  network  management  and  billing
systems.


                                      -18-
<PAGE>

         OPERATING EXPENSES.  Total operating expenses for Fiscal 1995 increased
$23.0  million,  or 315.0%,  to $30.3 million from $7.3 million for Fiscal 1994.
Network  expenses for Fiscal 1995 increased  $10.0 million to $10.1 million from
$0.1  million  for  Fiscal  1994 due to  expansion  of network  operations,  the
acquisition of ITG and the  commencement of wholesale  carrier  services at WINS
and NACT.  Facilities  administration  and  maintenance  expenses  totaled  $2.1
million for Fiscal 1995,  compared to only $26,000 for Fiscal 1994. The increase
was due to  significant  network  expansion in Fiscal 1995,  whereas Fiscal 1994
results  included  only three months of  engineering  expenses at the  Company's
Hawaiian network.

         Cost of product  revenues  at NACT for Fiscal  1995  increased  to $3.1
million,  or 40.9% of product  revenues,  for Fiscal 1995 from $2.1 million,  or
36.3%  of  product   revenues,   for  Fiscal  1994.   Research  and  development
expenditures  of NACT  increased by $0.6  million,  or 84.4% to $1.3 million for
Fiscal 1995 from $0.7 million for Fiscal 1994 due to the continuing  development
of a new switch that was introduced in Fiscal 1996.

         Selling,  general and administrative expenses increased $7.4 million to
$11.4  million for Fiscal 1995 from $4.0 million for Fiscal  1994.  The increase
was principally the result of higher salary and benefit costs incurred in Fiscal
1995  as the  Company  added  a  significant  number  of  sales,  marketing  and
management employees in connection with network expansion.  Also contributing to
the  increase  in  selling,  general  and  administrative  expenses  were higher
professional  fees and travel costs related to expansion of CLEC operations.  In
addition, bad debt expense increased $1.3 million in Fiscal 1995 principally due
to a reserve for doubtful accounts for an ITG customer.

         Depreciation  and  amortization  increased $2.0 million to $2.4 million
for Fiscal 1995 from $0.4 million for Fiscal 1994 as a result of amortization of
intangible assets related to acquisitions and depreciation of  newly-operational
networks.

         OTHER  EXPENSES.  Other expenses  increased $.2 million to $1.9 million
for Fiscal 1995 from $1.7 million for Fiscal 1994.  Contributing to the increase
was an $.8 million increase in interest expense  resulting from Tomen borrowings
and a $.5 million write-off of investments. Offsetting these increases was a $.4
million decrease in the loss on joint ventures due to improved operating results
at the Phoenix Fiber network. Additionally, in Fiscal 1994 the Company wrote-off
$.7 million in pre-operating  costs at GST Telecom. No such losses were realized
in Fiscal 1995.

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  to  increase  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
$194.3 million for Fiscal 1996,  $38.0 million for Fiscal 1995 and $10.9 million
for  Fiscal  1994.  The  Company's  net cash used in  operating  and  investment
activities was $139.0 million for Fiscal 1996, $36.2 million for Fiscal 1995 and
$11.4 million for Fiscal 1994.

         The Company made capital  expenditures of $97.6 million in Fiscal 1996,
$33.9  million in Fiscal  1995 and $1.4  million  in Fiscal  1994.  The  Company
estimates  capital  expenditures  of  approximately  $350.0  million  and $150.0
million for fiscal years 1997 and 1998, respectively. These expenditures will be
utilized for the expansion,  development and  construction of its networks,  the
acquisition  and deployment of switches and related  equipment to facilitate the
offering of advanced telecommunication services and internal management systems.
Continued significant capital expenditures are expected to be made


                                      -19-
<PAGE>

thereafter.  In addition,  the Company  expects to continue to incur  increasing
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  the nature of future  expansion  and
acquisition   opportunities,   economic  conditions,   competition,   regulatory
developments and the availability of capital.

         The  Company  completed  the 1995  Notes  offering  in  December  1995,
consisting of $160.0  million in Senior Notes and $20.0  million in  Convertible
Notes. The net proceeds from the issuance of the 1995 Notes, $171.3 million, are
being used to fund network development, capital expenditures and working capital
requirements.  The  indentures  governing the Senior Notes  include  restrictive
covenants which,  among other items, limit or restrict  additional  indebtedness
incurred by the Company,  investment in certain  subsidiaries and the payment of
dividends.

         The  Company  has   historically   funded  its  capital   expenditures,
acquisitions,  working capital requirements and operating losses from public and
private offerings of Common Shares, notes and warrants to purchase Common Shares
and notes and from  funds made  available  under the Tomen  Facility.  Under the
Tomen  Facility,  Tomen  agreed  to make  up to a total  of  $100.0  million  of
financing  available,  on a  project-by-project  basis, for the construction and
development of network  projects.  At September 30, 1996,  Tomen had provided or
agreed to provide,  the Company with $34.5 million of financing  under the Tomen
Facility  and had  purchased  1,074,074  Common  Shares and warrants to purchase
546,155 additional Common Shares. In November 1996, Tomen agreed in principle to
provide the Company with $41.0 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 in an amount to be determined and warrants to purchase 75,000  additional
Common Shares.

         On October 22,  1996,  the Company  completed  a private  placement  to
non-U.S.  investors  of  the  Special  Warrants.  The  Special  Warrants  become
exercisable by holders for no additional  consideration  upon the later to occur
of (i) the date upon which approval for the Canadian Prospectus is received from
the securities  commission of each of the Canadian  provinces  where the Special
Warrants  were sold and (ii) the date that the U.S.  Registration  Statement  is
declared  effective,  but in any event, no later that September 22, 1997. In the
event that the requisite  regulatory  approvals for the Canadian  Prospectus are
not received by the Company and the U.S. Registration  Statement is not declared
effective,  in each case by February  19, 1997,  then each Special  Warrant will
become exercisable for 1.1 Common Shares and one-half of one Underlying Warrant.

         The Company  received  $9,690,000,  constituting  50% of the  aggregate
purchase  price  of the  Special  Warrants  (net of  placement  agency  fees and
expenses), on October 22, 1996. The balance of the net purchase price of Special
Warrants  ($11,125,000)  is being held in escrow  and is payable to the  Company
upon  the  earlier  to  occur of (x) the  date of  receipt  of final  regulatory
approval of a preliminary Canadian Prospectus from the securities commissions of
the  applicable  Canadian  provinces  and (y) the  initial  filing  of the  U.S.
Registration Statement with the Commission,  in each case covering the resale of
the Common  Shares  issuable  upon  exercise  of the  Special  Warrants  and the
Underlying Warrants.

         The  Company  recently  entered  into an  agreement  for $50 million of
additional  equipment  financing  (the "NTFC  Financing")  with the NTFC Capital
Corporation  ("NTFC").  The Company  expects to use the  proceeds  from the NTFC
Financing  to finance the  purchase of  equipment  and  products  from  Northern
Telecom  Inc.  ("Nortel").  The Company  currently is  negotiating  the terms of
additional financing to be provided by Nortel.

         In  September  1996,  the  Company  entered  into a Loan  and  Security
Agreement  with  Siemens   Stromberg-Carlson   ("Siemens")  (the  "Siemens  Loan
Agreement") that provides for loans by Siemens of


                                      -20-
<PAGE>

up to an  aggregate  of $226.0  million  to  finance  the  purchase  of  Siemens
equipment and certain equipment from other suppliers.

         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. In such  connection,  the Company may make public or private
offerings of its debt and equity securities and may negotiate  additional credit
facilities, which may be similar to the Tomen Facility or to the NTFC Financing.

         At  September  30,  1996,  the  Company  had  cash,  cash  equivalents,
restricted  cash and marketable  securities of $82.5  million,  compared to $6.9
million at September 30, 1995. The Company believes that the net proceeds of the
Special Warrant Offering, the NACT Offering and any other offerings,  if any, in
the future,  together with cash on hand and borrowings  expected to be available
under both the Tomen Facility and the equipment  financing arranged with Siemens
and NTFC, will provide  sufficient  funds for the Company to expand its business
as presently  planned and to fund its operating  expenses through the first half
of fiscal 1997. Thereafter, the Company expects to require additional financing.
However, in the event that the Company's plans or assumptions change or prove to
be inaccurate,  or the foregoing  sources of funds 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 capital
sooner than  currently  anticipated.  Sources of financing may include public or
private debt or equity  financing by the Company or its  subsidiaries,  sales of
assets or other  financing  arrangements.  There can be no  assurance  that such
additional financing would be available to the Company or, if available, that it
could be obtained on acceptable terms or within the limitations contained in 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  and
expansion plans and expenditures and could have a material adverse effect on the
Company.  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.

         Although the Company's liquidity  substantially improved as a result of
the 1995 Notes  Offering,  because  the 1995 Notes do not require the payment of
cash interest prior to June 2001 and the 1995 Notes and the Notes do not require
payment of principal until maturity in 2005 and 2007, respectively, a portion of
the  indebtedness  under the Tomen Facility will, and a portion of the equipment
financing  may,  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 in full at  maturity  and that the 1995  Notes may need to be  refinanced.
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
or equipment financing.  Because the Company does not currently have a revolving
credit facility, if a shortfall occurs, alternative financing would be necessary
in order for the Company to meet its liquidity  requirements and there can be no
assurance that such  financing  would be available.  In such event,  the Company
could face substantial  liquidity  problems.  The ability of the Company to meet
its obligations and 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.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
                  See page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS


                                      -21-
<PAGE>

         ON ACCOUNTING AND FINANCIAL DISCLOSURE.
                  Not applicable.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The information required by this item is incorporated by reference from
the Company's  definitive proxy statement to be filed not later than January 28,
1997 pursuant to Regulation 14A of the General Rules and  Regulations  under the
Securities Exchange Act of 1934 ("Regulation 14A").

ITEM 11. EXECUTIVE COMPENSATION.

         The information required by this item is incorporated by reference from
the Company's  definitive proxy statement to be filed not later than January 28,
1997 pursuant to Regulation 14A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN
         BENEFICIAL OWNERS AND MANAGEMENT.

         The information required by this item is incorporated by reference from
the Company's  definitive proxy statement to be filed not later than January 28,
1997 pursuant to Regulation 14A.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information required by this item is incorporated by reference from
the Company's  definitive proxy statement to be filed not later than January 28,
1997 pursuant to Regulation 14A.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
         AND REPORTS ON FORM 8-K.

(a)(1)   Consolidated  Financial  Statements:  see  the  Index  to  Consolidated
         Financial Statements.
   (2)   Financial Statement Schedules:  see the Index to Consolidated Financial
         Statements.
   (3)   Exhibits:
  *3(a)  Certificate of Incorporation of the Company, as amended to date.
  *3(b)  By-Laws of the Company as amended to date.
   4(a)  Senior Notes  Indenture dated as of December 19, 1995, by and among GST
         USA,  Inc.,  the Company and United  States Trust  Company of New York,
         incorporated by reference to Exhibit 2.3 to the Company's Form 20-F for
         the fiscal year ended September 30, 1995 (the "1995 Form 20- F").
   4(b)  Convertible Notes Indenture dated as of December 19, 1995, by and among
         the Company, GST USA, Inc. and United States Trust Company of New York,
         incorporated by reference to Exhibit 2.4 to the 1995 Form 20-F.
 *10(a)  1995 Stock Option Plan of the Company, as amended to date.
 *10(b)  1996 Stock Option Plan of the Company, as amended to date.
 *10(c)  1996 Employee Stock Purchase Plan of the Company.
 *10(d)  1996 Senior Executive Officer Stock Option Plan of the Company.
 *10(e)  1996 Senior Operating Officer Stock Option Plan of the Company.
  10(f)  Amended and Restated  Credit  Agreement  dated as of April 26, 1995, by
         and  between  GST  Pacific  Lightwave,  Inc.  and Tomen  America  Inc.,
         incorporated by reference to Exhibit 1.2 to the 1995 Form 20-F
  10(g)  Stock  Purchase  Agreement  dated as of May 1, 1995, by and between GST
         Net,  Inc. and Stanley M. Nolte,  incorporated  by reference to Exhibit
         2.1 to the 1995 Form 20-F


                                      -22-
<PAGE>

  10(h)  Senior Notes Registration  Rights Agreement dated December 19, 1995, by
         and among GST USA, Inc., the Company, the Specified  Subsidiaries named
         therein  and  Morgan  Stanley  &  Co.  Incorporated,   incorporated  by
         reference to Exhibit 2.5 to the 1995 Form 20-F
  10(i)  Convertible  Notes  Registration  Rights  Agreement  dated December 19,
         1995,  by  and  among  GST  USA,  Inc.,  the  Company,   the  Specified
         Subsidiaries  named  therein  and  Morgan  Stanley & Co.  Incorporated,
         incorporated by reference to Exhibit 2.6 to the 1995 Form 20-F
  10(j)  Agreement  and Plan of Merger,  dated  September  27, 1996 (the "Merger
         Agreement"),  by and among TotalNet  Communications Inc.  ("TotalNet"),
         GST Newco of Texas, Inc. and the Company,  incorporated by reference to
         Exhibit 2.1 to the Company's Form 8-K dated October 17, 1996 (the "Form
         8-K")
  10(k)  Letter dated October 17, 1996 amending the Merger  Agreement  among the
         Company,  GST Newco of  Texas,  Inc.,  and  TotalNet,  incorporated  by
         reference to Exhibit 2.2 to the Form 8-K
 *10(l)  Amended and Restated Master  Agreement dated as of May 24, 1996, by and
         among Tomen America Inc.,  the Company,  GST Telecom Inc.,  GST Pacific
         Lightwave,  Inc.,  Pacwest  Network  L.L.C.,  Pacwest Network Inc., GST
         Tucson Lightwave, Inc. and GST New Mexico Lightwave, Inc.
 *10(m)  Amendment No. 2 to GST  Telecommunications,  Inc. Common Stock Purchase
         Agreement  dated as of May 24, 1996,  by and among the  Company,  Tomen
         America Inc. and Tomen Corporation.
 *10(n)  Credit  Agreement  dated as of May 24,  1996,  by and  between  GST New
         Mexico Lightwave, Inc. and TM Communications LLC.
 *10(o)  Credit  Agreement  dated as of May 24, 1996,  by and between GST Tucson
         Lightwave, Inc. and TM Communications LLC.
 *10(p)  Amended and  Restated  Consulting  Agreement  dated as of  September 1,
         1995, by and between Sunwest  Ventures,  Inc. and GST USA, Inc. and GST
         Telecom.
 *10(q)  Personal Services Agreement dated as of October 1, 1995, by and between
         GST USA, Inc. and GST Telecom Inc. and Stephen Irwin.
 *10(r)  Restated  and Amended  Employment  Agreement  dated as of  September 1,
         1995, by and between GST USA, Inc. and GST Telecom Inc. and John Warta.
 *10(s)  Restated  and Amended  Employment  Agreement  dated as of  September 1,
         1995,  by and between GST USA,  Inc. and GST Telecom Inc. and Robert H.
         Hanson.
 *10(t)  Amended and  Restated  Employment  Agreement  dated as of  September 1,
         1995, by and between GST USA, Inc. and GST Telecom Inc. and Clifford V.
         Sander.
 *10(u)  Agreement  and Plan of Merger  dated as of  September  26,  1996 by and
         among Call America Business  Communications  Corporation,  Call America
         Business   Communications  of  Fresno,   Inc.,  Call  America  Business
         Communications   of  Bakersfield,   Inc.,  the   shareholders  of  such
         companies, GST Newco of California, Inc., and the Company.
 *10(v)  Equipment  Loan and Security  Agreement  dated December 19, 1996 by and
         between NTFS Capital Corporation and GST Equipco.
 *21     Subsidiaries of the Company.
 *23     Consent to the incorporation by reference in the Company's Registration
         Statements  on Forms S-3 and S-8 of the  independent  auditors'  report
         included herein.
 *27     Financial Data Schedule.

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

*        Filed herewith.

(b)      Reports on Form 8-K: The Registrant  filed a Current Report on Form 8-K
         dated October 31, 1996 reporting  under Item 2 thereof the  acquisition
         by merger of  TotalNet  and under Item 5 thereof  the  Special  Warrant
         Offering.


                                      -23-
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended,  the Registrant has duly caused this report to
be signed on its behalf by the undersigned,  thereunto duly  authorized,  in the
City of Vancouver, State of Washington, on the 30th day of December, 1996.

                                        GST TELECOMMUNICATIONS, INC.

                                        By:  /S/ W. GORDON BLANKSTEIN
                                        ----------------------------------------
                                                 W. Gordon Blankstein,
                                                 Chairman of the Board
<PAGE>

                                POWER OF ATTORNEY

         KNOW  ALL MEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears below  constitutes  and appoints John Warta,  Stephen  Irwin,  Robert H.
Hanson and Clifford V. Sander his true and lawful attorney-in-fact,  each acting
alone,  with full power of substitution  and  resubstitution  for him and in his
name,  place and stead, in any and all capacities to sign any and all amendments
to this  report,  and to file the same,  with all  exhibits  thereto,  and other
documents in connection therewith,  with the Securities and Exchange Commission,
hereby  ratifying  and  confirming  all  that  said  attorneys-in-fact  or their
substitutes,  each acting  alone,  may lawfully do or cause to be done by virtue
thereof.

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended,  this  report  has been duly  signed by the  following  persons  in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
               Signature                                           Title                                        Date
               ---------                                           -----                                        ----
<S>                                        <C>                                                                  <C>
/S/W. GORDON BLANKSTEIN                    Chairman of the Board
----------------------------------------
         (W. Gordon Blankstein)                                                                                 December 30, 1996

/S/JOHN WARTA                              President, Chief Executive Officer (Principal
----------------------------------------
              (John Warta)                 Executive Officer) and Director                                      December 30, 1996

/S/ROBERT H. HANSON                        Senior Vice President - Corporate
----------------------------------------
           (Robert H. Hanson)              Development, Chief Financial Officer                                 December 30, 1996
                                           (Principal Financial Officer) and Director

/S/CLIFFORD V. SANDER                      Senior Vice President, Treasurer and Chief                           December 30, 1996
----------------------------------------
          (Clifford V. Sander)             Accounting Officer (Principal Accounting
                                           Officer)

/S/STEPHEN IRWIN                           Vice Chairman of the Board, Secretary and
----------------------------------------
         (Stephen Irwin)                   Director                                                             December 30, 1996

/S/IAN WATSON                              Director
----------------------------------------
         (Ian Watson)                                                                                           December 30, 1996

                                           Director
----------------------------------------
           (Peter E. Legault)                                                                                   December 30, 1996

/S/JACK G. ARMSTRONG                       Director
----------------------------------------
           (Jack G. Armstrong)                                                                                  December 30, 1996

/S/TAKASHI YOSHIDA                         Director
----------------------------------------
            (Takashi Yoshida)                                                                                   December 30, 1996

/S/THOMAS E. SAWYER                        Director
----------------------------------------
           (Thomas E. Sawyer)                                                                                   December 30, 1996
</TABLE>
<PAGE>
                          INDEX TO FINANCIAL STATEMENTS

                                                                         Page(s)

GST TELECOMMUNICATIONS, INC.

Independent Auditors' Reports................................................F-2

Consolidated Balance Sheets at

  September 30, 1996 and 1995................................................F-4

Consolidated Statements of Operations for the 
  years ended September 30, 1996 and
  1995 and the thirteen months ended

  September 30, 1994.........................................................F-5

Consolidated Statements of
  Shareholders' Equity at

  September 30, 1994, 1995 and 1996..........................................F-7

Consolidated Statements of Cash Flows for the 
  years ended September 30, 1996 and
  1995 and the thirteen months ended

  September 30, 1994.........................................................F-8

Notes to Consolidated Financial Statements...................................F-9


                                       F-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
GST Telecommunications, Inc.:

We  have  audited  the   accompanying   consolidated   balance   sheets  of  GST
Telecommunications,  Inc. as of  September  30,  1996 and 1995,  and the related
consolidated statements of operations, shareholders' equity , and cash flows for
the  years  then  ended.  These  consolidated   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,   in   all   material   respects,   the   financial   position   of  GST
Telecommunications,  Inc. as of September 30, 1996 and 1995,  and the results of
its  operations  and cash  flows for the years  then  ended in  conformity  with
generally accepted accounting principles in the United States.

Accounting  principles  generally  accepted in the United States vary in certain
significant  respects from accounting  principles  generally accepted in Canada.
Application  of accounting  principles  generally  accepted in Canada would have
affected  results of operations for the year ended  September 30, 1996 and 1995,
and  shareholders'  equity as of  September  30,  1996 and 1995,  to the  extent
summarized in note 10 to the consolidated financial statements.

                                                           KPMG PEAT MARWICK LLP

Portland, Oregon
November 22, 1996


                                      F - 2
<PAGE>
KPMG
Chartered Accountants                        Telephone (604) 691-3000
Box 10426, 777 Dunsmuir Street               Telefax   (604) 691-3031
Vancouver, BC V7Y 1K3  Canada

AUDITORS' REPORT

To the Board of Directors
GST Telecommunications, Inc.

We have audited the consolidated statements of operations,  shareholders equity,
and cash flows of GST  Telecommunications,  Inc. for the  thirteen  months ended
September  30,  1994.   These   consolidated   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

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

In our opinion,  these consolidated  financial statements present fairly, in all
material  respects,  the results of operations and cash flows of the Company for
the thirteen  months  ended  September  30, 1994 in  accordance  with  generally
accepted accounting principles in the United States.

Accounting  principles  generally  accepted in the United States vary in certain
significant  respects from accounting  principles  generally accepted in Canada.
Application  of accounting  principles  generally  accepted in Canada would have
affected  results of operations for the thirteen months ended September 30, 1994
and  shareholders'  equity as at September 30, 1994, to the extent summarized in
note 9 to the consolidated financial statements.

KPMG Peat Marwick Thorne

Chartered Accountants

Vancouver, Canada

December 8, 1994


                                      F - 3
<PAGE>

                          GST TELECOMMUNICATIONS, INC.

                           Consolidated Balance Sheets

                      (In thousands, except share amounts)

                           September 30, 1996 and 1995

<TABLE>
<CAPTION>
                                     ASSETS                                           1996         1995
                                                                                   ---------    ---------
                                                                                      (In U.S. Dollars)
<S>                                                                                <C>          <C>      
Current assets:

      Cash and cash equivalents                                                    $  61,343    $   6,024
      Restricted cash                                                                 16,000         --
      Accounts receivable, net                                                         9,472        4,306
      Investments                                                                      5,176          871
      Inventory                                                                        2,406          387
      Other current assets                                                             6,151        1,252
                                                                                   ---------    ---------

                                                                                     100,548       12,840
                                                                                   ---------    ---------

Property and equipment, net                                                          127,575       38,033
Goodwill, net                                                                         38,003       13,587
Other assets, net                                                                     35,575        8,665
                                                                                   ---------    ---------

                                                                                     201,153       60,285
                                                                                   ---------    ---------

                                                                                   $ 301,701    $  73,125
                                                                                   =========    =========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

      Accounts payable                                                             $  12,443    $   9,683
      Accrued expenses                                                                26,743        3,090
      Current portion of capital lease obligations                                       722          223
      Current portion of long-term debt                                                4,832          736
      Other current liabilities                                                          726          512
                                                                                   ---------    ---------

                                                                                      45,466       14,244
                                                                                   ---------    ---------

Deferred compensation                                                                    158          151
Capital lease obligation, less current portion                                         1,453          658
Long-term debt, less current portion                                                 232,674       19,088
Minority interest                                                                        182        3,279

Commitments and contingencies

Shareholders' equity:
      Preference shares:

           Authorized - 10,000,000 no par shares; none issued or outstanding            --           --
      Common shares:
           Authorized -  unlimited  number of no par common  shares;  issued and
               outstanding - September 30, 1996 - 21,257,697 shares,

               September 30, 1995 - 18,700,290 shares                                 72,647       50,166
      Commitment to issue shares:
           September 30, 1996 - 1,922,007 shares,

           September 30, 1995 - 336,498 shares                                        25,454        1,494
      Accumulated deficit                                                            (76,333)     (15,955)
                                                                                   ---------    ---------

                                                                                      21,768       35,705
                                                                                   ---------    ---------

                                                                                   $ 301,701    $  73,125
                                                                                   =========    =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F - 4
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                      Consolidated Statements of Operations

               (In thousands, except per share and share amounts)

                   Years ended September 30, 1996 and 1995 and
                    thirteen months ended September 30, 1994

<TABLE>
<CAPTION>
                                                                                           Thirteen
                                                            Year ended     Year ended    months ended
                                                           September 30,  September 30,  September 30,
                                                               1996           1995           1994
                                                             --------       --------       --------
                                                                       (In U.S. Dollars)
<S>                                                          <C>            <C>            <C>     
Revenues:

      Telecommunication services                             $ 31,726       $ 11,118       $    112
      Product                                                   9,573          7,563          5,889
                                                             --------       --------       --------

                     Total revenues                            41,299         18,681          6,001
                                                             --------       --------       --------

Operating costs and expenses:

      Network expenses                                         26,580         10,103            149
      Facilities administration and maintenance                10,317          2,096             26
      Cost of product revenues                                  3,974          3,096          2,137
      Selling, general and administrative                      33,375         11,373          3,953
      Research and development                                  1,352          1,270            689
      Depreciation and amortization                             8,298          2,374            384
                                                             --------       --------       --------

                     Total operating costs and expenses        83,896         30,312          7,338
                                                             --------       --------       --------

                     Loss from operations                     (42,597)       (11,631)        (1,337)
                                                             --------       --------       --------

Other expenses (income):

      Interest income                                          (5,549)          (303)          (254)
      Interest expense, net of amounts capitalized             21,224            838             27
      Loss from joint venture                                   1,495            661          1,099
      Write-off of pre-operating costs                           --             --              691
      Loss on investments                                          26            526           --
      Other                                                       839            160             87
                                                             --------       --------       --------

                                                               18,035          1,882          1,650
                                                             --------       --------       --------

                     Loss before minority interest in
                           income (loss) of subsidiary
                           and income tax                     (60,632)       (13,513)        (2,987)
                                                             --------       --------       --------
</TABLE>

                                   (Continued)


                                      F - 5
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                Consolidated Statements of Operations, Continued

               (In thousands, except per share and share amounts)

<TABLE>
<CAPTION>
                                                                                           Thirteen
                                                            Year ended     Year ended    months ended
                                                           September 30,  September 30,  September 30,
                                                               1996           1995           1994
                                                             --------       --------       --------
                                                                       (In U.S. Dollars)
<S>                                                          <C>            <C>            <C>     
Income tax expense:

      Current                                                $    157       $     70       $    487
      Deferred                                                   --               96             15
                                                             --------       --------       --------

                                                                  157            166            502
                                                             --------       --------       --------

                     Loss before minority interest
                           in income (loss) of subsidiaries   (60,789)       (13,679)        (3,489)

Minority interest in (income) loss
      of subsidiaries                                             411          2,364             (2)
                                                             --------       --------       --------

                     Loss for the period                     $(60,378)       (11,315)        (3,491)
                                                             ========       ========       ========

Loss per share                                               $  (3.18)      $  (0.82)      $  (0.35)
                                                             ========       ========       ========

Weighted average common and common
      equivalents shares outstanding                         18,988,127     13,780,796     9,878,704
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F - 6
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                 Consolidated Statements of Shareholders' Equity

                    (In thousands, except per share amounts)

                                (In U.S. Dollars)

<TABLE>
<CAPTION>
                                                   Commitment to
                                                    issue common                                      
                                                    shares (Note 6)                Common shares                            Total   
                                                -------------------------     ------------------------   Accumulated   shareholders'
                                                  Shares         Amount         Shares        Amount       deficit         equity
                                                ----------     ----------     ----------    ----------    ----------     ----------
<S>                                              <C>           <C>            <C>           <C>           <C>            <C>       
Balance, August 31, 1993                              --       $     --        9,003,421    $   10,511    $   (1,149)    $    9,362

Issuance of common stock for
      services                                        --             --           48,000           183          --              183
Issuance of common stock, net                         --             --        2,515,479        10,368          --           10,368
Issuance of common stock under
      option plans                                    --             --          343,750           974          --              974
Commitment to issues shares for
      business combinations                        551,536          3,038           --            --            --            3,038
Net loss                                              --             --             --            --          (3,491)        (3,491)
                                                ----------     ----------     ----------    ----------    ----------     ----------

Balance, September 30, 1994                        551,536          3,038     11,910,650        22,036        (4,640)        20,434

Issuance of common stock for
      services                                        --             --           34,057           150          --              150
Issuance of common stock in
      business combinations                       (551,536)        (3,038)     1,719,785         8,785          --            5,747
Issuance of common stock, net                         --             --        4,593,598        17,965          --           17,965
Issuance of common stock under
      option plans                                    --             --          442,200         1,230          --            1,230
Commitment to issues shares for
      business combinations                        336,498          1,494           --            --            --            1,494
Net loss                                              --             --             --            --         (11,315)       (11,315)
                                                ----------     ----------     ----------    ----------    ----------     ----------

Balance, September 30, 1995                        336,498          1,494     18,700,290        50,166       (15,955)        35,705

Issuance of common stock for
      services                                        --             --           85,627           621          --              621
Issuance of common stock in
      business combinations                       (168,249)          (747)     1,200,873        11,097          --           10,350
Issuance of common stock, net                         --             --        1,189,849         9,672          --            9,672
Issuance of common stock under
      option plans                                    --             --           67,500           293          --              293
Commitment to issues shares for
      business combinations                      1,753,758         24,707           --            --            --           24,707
Issuance of common stock under
      employee stock purchase plan                    --             --           13,558           132          --              132
Accrual of compensation costs for
      stock award and option plans                    --             --             --             666          --              666
Net loss                                              --             --             --            --         (60,378)       (60,378)
                                                ----------     ----------     ----------    ----------    ----------     ----------

Balance, September 30, 1996                      1,922,007     $   25,454     21,257,697    $   72,647    $  (76,333)    $   21,768
                                                ==========     ==========     ==========    ==========    ==========     ==========
</TABLE>


See accompanying notes to financial statements.


                                      F - 7
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                      Consolidated Statements of Cash Flows

                                 (In thousands)

                   Years ended September 30, 1996 and 1995 and
                    thirteen months ended September 30, 1994

<TABLE>
<CAPTION>
                                                                                           Thirteen
                                                            Year ended     Year ended    months ended
                                                           September 30,  September 30,  September 30,
                                                               1996           1995           1994
                                                             --------       --------       --------
                                                                       (In U.S. Dollars)
<S>                                                          <C>            <C>            <C>      
Operations:

      Loss for the period                                    $(60,378)      $(11,315)      $ (3,491)
      Items not involving cash:
           Minority interest in income (loss) of subsidiary      (411)        (2,364)             2
           Loss from joint ventures                             1,495            661          1,099
           Write-off of pre-operating costs                      --             --              691
           Depreciation and amortization                        9,496          2,824            557
           Deferred income taxes                                 --               96             15
           Deferred compensation                                    7            151           --
           Accretion of interest                               19,978           --             --
           Write-off of other assets                              766            122           --
           Issuance of stock for compensation                     890           --             --
           Issuance of stock for financing commitment             396            150            183
           Loss on disposal of fixed assets                       246           --             --
           Loss on investments                                     26            526           --

Changes in non-cash operating working capital:

      Accounts receivable, net                                 (1,066)        (1,549)          (882)
      Inventory                                                (2,019)           (13)          (163)
      Other current and other assets, net                      (5,304)          (417)          (120)
      Accounts payable and accrued liabilities                  2,387           (190)         2,350
      Other current liabilities                                   185            262             53
                                                             --------       --------       --------

                     Cash provided by (used in) operations    (33,306)       (11,056)           294
                                                             --------       --------       --------

Investments:

      Acquisition of subsidiaries, net of cash acquired        (1,441)           207         (4,235)
      Investment in joint ventures                               --             --              (35)
      Settlement of notes receivable                             --            3,367         (5,107)
      Purchase of investment in affiliate                        (294)          --             --
      Purchase of investments                                  (9,799)           848           (843)
      Proceeds from sale of investments                         5,493           --             --
      Purchase of fixed assets                                (76,192)       (27,730)          (906)
      Proceeds from sale of fixed assets                            8           --             --
      Purchase of other assets                                 (7,449)        (1,829)          (580)
      Change in restricted cash                               (16,000)          --             --
                                                             --------       --------       --------

                     Cash used in investing activities       (105,674)       (25,137)       (11,706)
                                                             --------       --------       --------

Financing:

      Proceeds from long-term debt                            196,207         19,857           --
      Principal payments on long-term debt                     (2,112)          (816)          (387)
      Issuance of common shares, net of issuance costs         10,098         19,195         11,342
      Deferred debt financing costs                            (9,894)          (853)           (70)
      Issuance of subsidiary shares                              --              615           --
                                                             --------       --------       --------

                     Cash provided by financing activities    194,299         37,998         10,885
                                                             --------       --------       --------

                     Increase (decrease) in cash and cash
                       equivalents                             55,319          1,805           (527)

Cash and cash equivalents, beginning of period                  6,024          4,219          4,746
                                                             --------       --------       --------

Cash and cash equivalents, end of period                     $ 61,343       $  6,024       $  4,219
                                                             ========       ========       ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F - 8
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                           September 30, 1996 and 1995

                                (In U.S. Dollars)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   (a) DESCRIPTION OF THE COMPANY

         GST Telecommunications, Inc. (the Company) is a Canadian company in the
         business of providing  competitive local exchange services primarily in
         the western United States. In addition, the Company provides a range of
         telecommunications  services  which  include  long  distance,  Internet
         access   and   data   services.    The   Company   also    manufactures
         telecommunications switching equipment.

         The consolidated financial statements for the years ended September 30,
         1996 and 1995,  and the thirteen  months ended  September 30, 1994 have
         been reported in U.S. dollars,  the functional currency of the Company.
         The Company  changed its fiscal  year-end to  September 30 effective in
         1994 (note 10).

   (b) BASIS OF CONSOLIDATION

         These  consolidated  financial  statements  include the accounts of the
         Company  and its greater  than 50% owned  subsidiaries.  The  Company's
         investments in unconsolidated companies owned 20% or more are accounted
         for using the equity method. All significant intercompany accounts have
         been eliminated.

   (c) CASH AND CASH EQUIVALENTS

         Cash equivalents consist of short-term,  highly liquid investments with
         original maturities of ninety days or less.

   (d) RESTRICTED CASH

         Pursuant to an agreement between the Company and a vendor relating to a
         construction  in  progress as of  September  30,  1996,  the Company is
         required to maintain  $16 million in a restricted  account  pending the
         completion of the project as collateral against payment.  Completion of
         the project is  anticipated  in the next fiscal year.  At September 30,
         1996, the Company is committed to purchase  approximately $20.7 million
         relating to this project.

                                                                     (Continued)


                                      F - 9
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

   (e) ACCOUNTS AND NOTES RECEIVABLE

         The  Company  maintains a security  interest in the  telecommunications
         systems it sells until the Company is paid in full. Management provides
         an allowance for doubtful  accounts and notes based on current customer
         information  and  historical  statistics.  The  allowance  for doubtful
         accounts  was  $1,264  and  $1,401  at  September  30,  1996 and  1995,
         respectively.

   (f) INVESTMENTS

         The Company adopted the provisions of Statement of Financial Accounting
         Standards  No.  115,  ACCOUNTING  FOR CERTAIN  INVESTMENTS  IN DEBT AND
         EQUITY  SECURITIES  (Statement 115) at October 1, 1994. Under Statement
         115, the Company  classifies  its debt and equity  securities in one of
         three categories:  trading,  available-for-sale,  or  held-to-maturity.
         Trading  securities are bought and held  principally for the purpose of
         selling them in the near term.  Held-to-maturity  securities  are those
         securities  in which the Company has the ability and intent to hold the
         security until maturity.  All other  securities not included in trading
         or held-to-maturity are classified as available-for-sale.

         Trading and  available-for-sale  securities are recorded at fair value.
         All of the Company's  investments  comprised primarily of U.S. Treasury
         Securities and commercial  paper, are classified as  available-for-sale
         and mature in periods  ranging from 3 to 9 months.  Unrealized  holding
         gains and losses, net of the related tax effect, on  available-for-sale
         securities  are excluded  from  earnings and are reported as a separate
         component  of  shareholders'  equity until  realized.  A decline in the
         market  value of any  available-for-sale  security  below  cost that is
         deemed  other than  temporary  is charged to earnings  resulting in the
         establishment  of new cost basis for the security.  Dividend  income is
         recognized  when  earned.  Realized  gains and  losses  for  securities
         classified  as  available-for-sale  are  included in  earnings  and are
         derived using the  specific-identification  method for  determining the
         cost of securities  sold.  The amortized cost  approximated  the market
         value of these securities at September 30, 1996 and 1995.

                                                                     (Continued)


                                     F - 10
<PAGE>

                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

   (g) INVENTORY

         Inventory  is  stated  at the lower of cost  (first-in,  first-out)  or
         market (net realizable value) and consists of the following:

                                                                  1996     1995
                                                                 ------   ------

               Raw materials                                     $  378   $  317
               Work in process                                      346       70
               Finished and refurbished goods                     1,682     --
                                                                 ------   ------
                                                                
                              Total inventory                    $2,406   $  387
                                                                 ======   ======

   (h) INVESTMENTS IN AFFILIATES

         The  Company  has a 50%  interest  in Phoenix  Fiber  Access,  Inc.,  a
         competitive  access  fiber  optic  telecommunications  network  in  the
         Phoenix,   Arizona  metropolitan  area.  The  carrying  value  of  this
         investment,  which is  included  in other  assets  in the  accompanying
         consolidated balance sheet was $1,364 and $2,859 at September 30, 1996,
         and 1995, respectively.

         The   Company   has  an   approximate   40%   interest  in  GST  Global
         Telecommunications, Inc. (GST Global), a publicly traded corporation on
         the    Vancouver    Stock    Exchange    which   intends   to   conduct
         telecommunications  operations on a worldwide basis. The carrying value
         of  this  investment,   which  is  included  in  other  assets  in  the
         accompanying  consolidated  balance sheet,  was $3,634 at September 30,
         1996 (see note 2).

    (i) PROPERTY AND EQUIPMENT

         Property and  equipment is recorded at cost and is  depreciated  on the
         straight-line  basis over their  estimated  useful lives,  which are as
         follows:

               Telecommunications networks                              10 years
               Electronic and related equipment                         10 years
               Leasehold improvements                                   10 years
               Furniture, office equipment and other                 3 - 7 years
               Building                                                 40 years

         Construction,  engineering  and overhead costs directly  related to the
         development of competitive access networks are capitalized. The Company
         begins  depreciating these costs when the networks become  commercially
         operational.  Depreciation is provided using the  straight-line  method
         over the estimated useful lives of the assets owned.

                                                                     (Continued)


                                     F - 11
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

    (j) GOODWILL

         Goodwill,  which  represents  the excess of the purchase price over the
         fair value of net assets  acquired,  is amortized over periods  ranging
         from five to twenty years using the straight-line  method.  The Company
         assesses the  recoverability  of this  intangible  asset by determining
         whether the  amortization  of the goodwill  balance over its  remaining
         life can be recovered through discounted projected future cash flows of
         the acquired  businesses  from which the goodwill  arose.  Amortization
         charged to  operations  was $1,690,  $389,  and $19 for the years ended
         September  30,  1996 and 1995,  and the  thirteen  month  period  ended
         September 30, 1994, respectively.

   (k) REVENUE RECOGNITION

         For  telecommunication  services  revenue,  revenue  is  recorded  upon
         placing  of  calls  or  rendering  of  other  related   services.   For
         telecommunication product revenue, revenue is recorded upon shipment of
         product and is presented in the accompanying consolidated statements of
         operations net of product returns.

         Deferred revenue,  of which $477 and $373 are included in other current
         liabilities in the accompanying balance sheet at September 30, 1996 and
         1995,  respectively,  consists  of monthly  service  contract  payments
         received in advance, warranty payments received in advance and research
         and development advances.  Advance warranty payments are amortized over
         the length of warranty on the system sold, which is typically one year.

    (l) LOSS PER SHARE

         Loss per share has been calculated using the weighted average number of
         common and dilutive common  equivalent shares assumed to be outstanding
         during the period (using the treasury stock method for dilutive  common
         equivalent  shares).  Common  equivalent  shares consist of options and
         warrants to purchase common stock.

         Fully diluted loss per share has not been presented for the outstanding
         options and warrants as they are anti-dilutive.

  (m) ISSUANCE OF SUBSIDIARY STOCK

         Issuances of subsidiary stock are accounted for as capital transactions
         in the accompanying consolidated financial statements.

                                                                     (Continued)


                                     F - 12
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

   (n) SEGMENTED INFORMATION

         Segmented  information  has  not  been  presented  as  the  Company  is
         presently  operating  100% in the  telecommunications  industry  in the
         United  States and all  revenues and  operating  profits and losses are
         derived from United  States  operations  and  substantially  all assets
         reside in the United States.

   (o) INCOME TAXES

         The Company  accounts  for income  taxes under the asset and  liability
         method.  Under the asset and liability  method,  deferred  income taxes
         reflect  the future tax  consequences  of  differences  between the tax
         bases of assets and liabilities and their financial  reporting  amounts
         at each  year-end.  Deferred  tax assets and  liabilities  are measured
         using  enacted  tax rates  expected  to apply to taxable  income in the
         years in which those temporary differences are expected to be recovered
         or settled.  The effect on  deferred  tax assets and  liabilities  of a
         change in the tax rates is  recognized  in  income in the  period  that
         includes the enactment date.  Valuation allowances are established when
         necessary to reduce  deferred tax assets to the amounts  expected to be
         realized.

   (p) FOREIGN CURRENCY

         The functional currency of all of the Company's  operations is the U.S.
         dollar. In accordance with Statement of Financial  Accounting Standards
         No. 52, "Foreign Currency Translation", nonmonetary balance sheet items
         recorded in Canadian  dollars are  remeasured at  historical  rates and
         monetary   balance  sheet  items  recorded  in  Canadian   dollars  are
         remeasured   at  current   rates.   Exchange   gains  and  losses  from
         remeasurement   of  monetary  assets  and  liabilities  are  recognized
         currently in income.

   (q) FINANCIAL INSTRUMENTS

         The carrying  amounts  reported in the balance  sheet for cash and cash
         equivalents, receivables, short-term investments, short-term borrowings
         and accounts  payable and accrued  liabilities  approximate fair values
         due to the short maturity of those instruments.

         The carrying amount of the Company's  long-term debt  approximates  its
         fair  value.  The  fair  value  of the  Company's  long-term  debt  was
         determined  based on quoted  market  prices  for  similar  issues or on
         current rates  available to the Company for debt of the same  remaining
         maturities and similar terms.

                                                                     (Continued)


                                     F - 13
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

         Fair value  estimates  are made at a specific  point in time,  based on
         relevant  market  information  about the  financial  instrument.  These
         estimates  are  subjective  in nature  and  involve  uncertainties  and
         matters of significant judgment and therefore cannot be determined with
         precision.  Changes  in  assumptions  could  significantly  affect  the
         estimates.

   (r) USE OF ESTIMATES

         The  preparation of financial  statements in conformity  with generally
         accepted  accounting  principles  requires management to make estimates
         and  assumptions  that  affect  the  reported  amounts  of  assets  and
         liabilities and disclosure of contingent  assets and liabilities at the
         date of the financial  statements and the reported  amounts of revenues
         and expenses during the reporting  period.  Actual results could differ
         from those estimates.

   (s) RECLASSIFICATIONS

         Certain   reclassifications   have  been   made  in  the   accompanying
         consolidated financial statements for 1995 and 1994 to conform with the
         1996 presentation.

(2) ACQUISITIONS

      From  September 1, 1993 through  September 30, 1996,  the Company made the
      acquisitions  set  forth  below,  each of  which  was  accounted  for as a
      purchase,  except  for  Canadian  Programming  Concepts,  Inc.,  which was
      accounted  for  as  an  equity  investment.   The  consolidated  financial
      statements  include  the  operating  results  from the  effective  date of
      acquisition.

   (a) CALL AMERICA BUSINESS COMMUNICATIONS, INC. (CALL AMERICA)

         In the  fourth  quarter  of  1996,  the  Company  acquired  100% of the
         outstanding capital stock of Call America. Call America is a California
         company  that  provides  long  distance  and  ancillary  communications
         services.  The  Company  acquired  Call  America for  consideration  of
         $14,777,  consisting  of  1,177,692  shares of common  stock  valued at
         $12.50 per share,  and $56 in legal fees. An additional  130,000 common
         shares  have been  placed in  escrow  and will be issued to the  former
         owners of Call America in one year, subject to certain  indemnification
         clauses  contained  in  the  purchase  agreement.  Up to an  additional
         114,489 shares could be issued to the former Call America owners if the
         market  price of the  Company's  common  stock is less than  $12.50 six
         months after the closing date.  Additionally,  $533 in notes receivable
         due from the former  owners of Call America will be forgiven if certain
         operating milestones are met over the next 10 years. In connection with
         this  acquisition,  the Company recorded  $21,166 in assets,  including
         $9,798 in goodwill, and $6,389 in liabilities.

                                                                     (Continued)


                                     F - 14
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

   (b) TOTALNET COMMUNICATIONS, INC. (TOTALNET)

         In the  fourth  quarter  of  1996,  the  Company  acquired  100% of the
         outstanding  capital  stock  of  TotalNet,   a  long  distance  service
         provider.  The Company acquired  TotalNet for  consideration of $7,911,
         consisting of 401,160  common shares valued at $4,373,  a commitment to
         issue  shares  valued  at  $3,498  at the one year  anniversary  of the
         agreement,  and $40 in legal fees. The number of shares issuable at the
         one year  anniversary  will be determined by a share price based on the
         weighted  average  market price of the Company's  common shares for the
         ten days preceding the  anniversary  providing that in no case will the
         anniversary  share  price be lower than $7.63 or greater  than $20.  An
         additional  80,232 common shares will be issued to the former owners of
         TotalNet at the anniversary  date,  subject to certain  indemnification
         clauses  contained in the purchase  agreement.  In connection with this
         acquisition,  the Company recorded $10,149 in assets,  including $4,700
         in goodwill, and $2,239 in liabilities.

   (c) GST TELECOM, INC. (GST TELECOM)

         In the third quarter of 1994, the Company acquired 60% of the shares of
         GST Telecom in exchange  for  contributing  60% of the shares of Tucson
         Lightwave,  Inc.  (Tucson) and a commitment to provide at least $11,024
         in equity  financing.  GST Telecom develops,  constructs,  and operates
         competitive local exchange networks and other  communications  systems.
         The shares of Tucson were  acquired  from  Pacwest,  LLC  (Pacwest) (an
         entity  controlled  by the Chief  Executive  Officer of the Company) in
         exchange for 100,000  common shares of the Company  valued at $447. The
         Company  has made  $132,184  in  equity  contributions  to GST  Telecom
         through September 30, 1996.

         In the third quarter of 1995, the Company acquired an additional 20% of
         GST Telecom for 1,000,000 common shares valued at $5 per share.

         In the first quarter of 1996, the Company acquired the remaining 20% of
         GST Telecom for  consideration  of up to a maximum of 1,000,000  common
         shares (valued at $10.00 per share) based upon the fair market value of
         a 20% interest in GST Telecom,  which was  determined by an independent
         appraisal during September 1996. Currently, 1,000,000 common shares are
         held in escrow  pending the release of such shares.  In  addition,  the
         parties  agreed that the Company has fulfilled  all of its  obligations
         relating to the funding of GST Telecom and its subsidiaries.

         In connection with these acquisitions,  the Company recorded $40,516 in
         net assets, including goodwill of $15,330, and liabilities of $3,478.

                                                                     (Continued)


                                     F - 15
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

   (d) NATIONAL APPLIED COMPUTERS TECHNOLOGIES, INC. (NACT)

         In the fourth quarter of 1993, the Company  purchased 52% of the common
         shares of NACT.  Subsequent to September 1, 1993, at various times, the
         Company  acquired the  remaining  48% interest of NACT.  NACT is a Utah
         manufacturer  of  telecommunications  switching and network  management
         equipment for the inter-exchange industry.

         The  consideration  paid for 100% of NACT's  outstanding  common shares
         consisted of $3,621 in cash, $466 in notes payable,  $160 in legal fees
         and 956,283  common shares valued at $4,832.  15% of the stock acquired
         from NACT was purchased from NACT's former  President,  who is also the
         Company's Chief Technology  Officer and a Director of the Company,  for
         384,195  common  shares  of  the  Company.  In  connection  with  these
         acquisitions,  the Company  recorded  $10,122 in net assets,  including
         goodwill of $1,387, and liabilities of $1,203.

   (e) INTERNATIONAL TELEMANAGEMENT GROUP, INC. (ITG)

         In the  third  quarter  of  1995,  the  Company  acquired  100%  of the
         outstanding  capital stock of ITG. ITG is an Ohio company that provides
         a variety of domestic and  international  long distance  services.  The
         Company  acquired  ITG for  consideration  of $75,  the  assumption  of
         certain liabilities, and an earn out provision. In connection with this
         acquisition,  the  Company  recorded  $7,261 in net  assets,  including
         goodwill of $4,025, and liabilities of $7,185.

    (f) OTHERS

         In May 1996,  the  Company  purchased  from  Tomen  America,  Inc.  the
         remaining  10%  interest  in the GST  Pacific  Lightwave,  Inc.,  a GST
         Telecom  subsidiary  which  operates a fiber  optic  competitive  local
         exchange network in southern  California.  The  consideration  paid for
         this  acquisition  consisted  of $1,250 in cash,  which was recorded as
         goodwill.

                                                                     (Continued)


                                     F - 16
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

         In a series of  transactions  during the third and fourth  quarters  of
         1996, the Company acquired  approximately  40% of Canadian  Programming
         Concepts,  Inc. (CPC), a Canadian  corporation which is publicly traded
         on the Vancouver  Stock Exchange,  for  consideration  of $3,659.  As a
         result  of this  investment,  CPC's  name was  changed  to GST  Global.
         Concurrent with this  investment,  four of the Company's  directors and
         one of the  Company's  employees  were  appointed  to GST  Global's six
         member board of directors.  The key officers of GST Global are officers
         of the  Company.  Several  employees  and  directors of the Company own
         shares in GST Global  amounting  to  approximately  5% of GST  Global's
         outstanding  shares at September 30, 1996.  At September 30, 1996,  the
         market value of GST Global totaled approximately $26,366.

         During 1996, the Company acquired the assets of Reservations,  Inc. dba
         Hawaii Online  (HOL),  the assets of  Texas-Ohio  Communications,  Inc.
         (TOC),   and  100%  of  the  outstanding   capital  stock  of  Tri-Star
         Residential Communications, Inc. (Tri-Star). HOL is an Internet service
         provider;  TOC  is a  long  distance  service  provider;  and  Tri-Star
         provides  shared tenant  services  consisting of long  distance,  cable
         television and security service to tenants of multi-dwelling  apartment
         units.  Consideration  paid for these  acquisitions  totaled $3,341 and
         consisted of 32,624 common shares valued at $350, a commitment to issue
         common shares valued at $2,115 over the next two years, $599 in accrued
         payments to be made during 1997,  $120 of cash, and $157 in legal fees.
         In connection with these  acquisitions,  the Company recorded $5,529 in
         assets, including $1,085 of goodwill, and $2,278 in liabilities.

         The  pro  forma  results  shown  below  reflect   purchase   accounting
adjustments  assuming  the  acquisitions  described  above  occurred  as of  the
beginning of each of the periods presented:

                                             Year            Year
                                            ended           ended
                                         September 30,   September 30,
                                             1996           1995
                                         (Unaudited)     (Unaudited)
                                             ----           ----

               Revenues                    $ 71,600        54,762
               Net loss                     (65,196)      (22,918)
               Net loss per share             (3.05)        (1.34)

         The pro forma results are not  necessarily  indicative of what actually
         would have occurred had the acquisitions  been in effect for the entire
         periods  presented.  In  addition,  they  are  not  intended  to  be  a
         projection  of future  results  that may be achieved  from the combined
         operations.

                                                                     (Continued)


                                     F - 17
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

(3) PROPERTY AND EQUIPMENT

                                                     September 30, September 30,
                                                          1996         1995
                                                       ---------    ---------

               Telecommunications networks             $  25,551    $   9,577
               Electronic and related equipment           31,547       10,058
               Leasehold improvements                      3,619          300
               Furniture, office equipment and other       8,746        2,201
               Building                                    2,134        2,134
               Construction in progress                   62,763       15,313
                                                       ---------    ---------

                                                         134,360       39,583

               Less accumulated depreciation              (6,785)      (1,550)
                                                       ---------    ---------

                                                       $ 127,575    $  38,033
                                                       =========    =========

      Property and equipment includes $62,763 and $15,313 of equipment which had
      not been placed in service at September  30, 1996 and 1995,  respectively,
      and accordingly, is not being depreciated. During the year ended September
      30,  1996  and  1995,  $2,316  and  $291 of  interest,  respectively,  was
      capitalized  as  part  of  telecommunications  networks  and  networks  in
      progress.

(4) ACCRUED EXPENSES

                                                     September 30, September 30,
                                                          1996         1995
                                                       ---------    ---------

               Fixed asset purchases                   $  14,153          796
               Accrued acquisition costs                   4,213         --
               Carrier costs                               4,057          680
               Other                                       4,320        1,614
                                                       ---------    ---------

                              Total                    $  26,743        3,090
                                                       =========    =========

                                                                     (Continued)


                                     F - 18
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

(5) FINANCING ARRANGEMENTS

   (a) DEBT

         The  Company's  long-term  debt at  September  30,  1996 and 1995 is as
         follows:

<TABLE>
<CAPTION>
                                                                                     1996        1995
                                                                                     ----        ----
<S>                                                                                <C>          <C>   
               Note payable to Tomen,  quarterly  interest payments at the LIBOR
                    rate plus 3% (8.7% at  September 30,  1996) with  quarterly
                    principal  payments  (together with  interest)  beginning in
                    fiscal 1998 through 2005,  collateralized by equipment.  The
                    Company  has the option to convert  the  interest  rate to a
                    fixed rate equal to the Treasury index rate
                    plus 3% during the term of the loan                            $ 31,771     16,674
               Senior discount notes, 13-7/8% effective interest with
                    semi-annual interest payments due beginning June 15,
                    2001 on a total maturity value of $312,448, principal
                    due December 15, 2005                                           177,760       --
               Convertible senior subordinated discount notes 13-7/8%
                    effective interest with semi-annual interest payments
                    due beginning June 15, 2001 on a total maturity value
                    of $39,056, principal due December 15, 2005                      22,220       --
               Other                                                                  5,755      3,150
                                                                                   --------   --------

                                                                                    237,506     19,824

               Less current portion of long-term debt                                 4,832        736
                                                                                   --------   --------

                                                                                   $232,674     19,088
                                                                                   ========   ========
</TABLE>

                                                                     (Continued)


                                     F - 19
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

         The  schedule  of future  principal  payments on  long-term  debt is as
         follows:

                     1997                                        $       4,832
                     1998                                                3,474
                     1999                                                4,567
                     2000                                                5,438
                     2001                                                5,295
                     Thereafter                                        213,900
                                                                 -------------

                                                                 $     237,506
                                                                 =============

   (b) ISSUANCE OF DEBT AND CONVERTIBLE DEBT SECURITIES

         In the first quarter of 1996,  the Company  issued  approximately  $180
         million in 39,056 Units (the Units) each  consisting  of eight  13.875%
         (effective  interest rate) Senior Discount Notes (the senior notes) and
         one 13.875% (effective  interest rate) Convertible Senior  Subordinated
         Discount Note (the  convertible  notes)  maturing on December 15, 2005.
         The Units  were sold at a  substantial  discount  and there  will be no
         accrual  of cash  interest  prior to  December  15,  2000 or payment of
         interest  until June 15, 2001.  The Units accrete to a total  principal
         amount of approximately $351.5 million by December 15, 2000. The senior
         notes   will  rank  in  right  of  payment   with  all   unsubordinated
         indebtedness of the Company while the convertible  notes will be junior
         to all  senior  Company  debt.  The senior  and  convertible  notes are
         subject to certain debt covenants.

         Each of the  convertible  notes is  convertible  at the  option  of the
         holder into common shares any time after  December 15, 1996. The number
         of shares to be issued upon conversion is based on an accreted value on
         the conversion date divided by $7.536. In addition,  after December 15,
         1996, all of the convertible  notes may be  automatically  converted to
         common  shares by the Company if the Company's  common  shares  sustain
         certain market value levels for 30 consecutive trading days.

         On or after December 15, 2000, the senior and convertible notes will be
         redeemable at the option of the Company.

                                                                     (Continued)


                                     F - 20
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

   (c) TOMEN AMERICA, INC. FACILITY

         In the  first  quarter  of  1995,  the  Company  entered  into a master
         financing  agreement  with  Tomen  America,  Inc.  (Tomen).  Under  the
         agreement,  Tomen will loan up to $100 million to  subsidiaries  of the
         Company  for  development  and  construction  of network  projects.  An
         upfront fee of 1.50% of the aggregate  principal amount of each project
         loan and a commitment  fee of 0.50% per annum on the unused  portion of
         each project loan is payable to Tomen. Tomen will evaluate each network
         project separately to determine if it will participate in financing the
         project.  The agreement originally provided Tomen the right to purchase
         a 10% equity interest in each network project it financed.  Pursuant to
         such right,  in 1995 Tomen  purchased a 10%  interest in the  Company's
         southern  California  project. In May 1996, the Company repurchased the
         10%  interest in the project  and the  agreement  was amended to cancel
         Tomen's right to purchase an equity interest in funded projects.  As of
         September  30,  1996,  Tomen has  agreed  to  provide a total of $34.45
         million in debt financing to the Company's  subsidiaries ($31.8 million
         of which has been drawn down as of September 30, 1996) for construction
         and operation of its fiber optic networks in Southern  California,  New
         Mexico,  and Arizona.  The Tomen  financing  agreements  are subject to
         certain debt  covenants.  Subsequent to September  30, 1996,  Tomen has
         agreed to provide an additional  $41 million in debt  financing for the
         Company's Hawaiian network.

         Concurrent  with the  signings of the master  financing  agreement  and
         subsidiary  credit  agreements,  the  Company  has  also  signed  stock
         purchase agreements with Tomen wherein Tomen purchased shares of common
         stock and  received  warrants to purchase  additional  shares of common
         stock.  Pursuant to such agreements,  through September 30, 1996, Tomen
         has purchased  1,074,074  shares of common stock at prices ranging from
         $4.60 to $10.80 per share for total cash consideration of $6,955. Tomen
         also holds  warrants  to purchase  up to 546,155  additional  shares of
         common  stock at prices  ranging  from $5.52 to $12.96 per share.  Such
         warrants  expire at various  times  between  October 1996 and May 1998.
         Subsequent  to  September  30,  1996,  Tomen  exercised  a warrant  and
         purchased  250,000  shares of common stock at $5.52 per share for total
         cash consideration of $1,380.

         The Company's Chief  Executive  Officer serves as a consultant to Tomen
         for which he is paid a fee. Simultaneous with the execution of the June
         21,  1994  purchase  of  60%  of  GST  Telecom  from  Pacwest.  Pacwest
         contracted  with  the  Company  to  receive  a fee  equal  to 1% of the
         aggregate debt and equity financing provided by Tomen to the Company.

                                                                     (Continued)


                                     F - 21
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

   (d) SIEMENS STROMBERG-CARLSON AGREEMENT

         In the fourth  quarter of 1996,  the  Company  entered  into a loan and
         security agreement with Siemens Stromberg-Carlson  (Siemens). Under the
         terms of the  agreement,  Siemens  will loan up to $226  million to the
         Company  for  the  purchase  and  installation  of   telecommunications
         switching and related  equipment.  Amounts borrowed under the agreement
         will  initially bear interest at LIBOR plus 4.5% and will be secured by
         the  equipment.  Such  interest will decrease to LIBOR plus 3.5% at the
         time each initial loan is  converted to a term loan,  which  conversion
         will occur at the first  calendar  quarter  following the initial loan.
         Upon making the first loan  request,  the Company  will be committed to
         purchase a minimum of $16.5 million in equipment over 3 years.  Amounts
         borrowed   under  the   agreement   will  be  repaid  in  24  quarterly
         installments  beginning 5 quarters  after the initial loan is converted
         to a term loan.  At  September  30, 1996,  no amount had been  borrowed
         pursuant to this agreement.

   (e) NORTHERN TELECOM, INC. PURCHASE AGREEMENT

         In the fourth  quarter of 1996,  the  Company  entered  into a purchase
         agreement with Northern Telecom,  Inc. (Nortel),  pursuant to which the
         Company is  committed  to purchase a minimum of $50  million,  of which
         $1.9  million  has  been   purchased  as  of  September  30,  1996,  in
         telecommunications  switching  equipment over the next three years. The
         Company is currently negotiating an agreement to finance such equipment
         purchases with a third party.

   (f) LINE OF CREDIT

         At  September  30,  1996,  the Company was  contingently  liable  under
         repurchase   agreements   for  a  maximum  of  $1,035  to  a  financial
         institution. The financial institution provides lease financing to NACT
         customers on a recourse  basis.  The Company has  established  a $1,000
         line of credit with the financial  institution  to provide  funding for
         payment of these leases, if required.  No balance was outstanding under
         the line of credit at September 30, 1996.

                                                                     (Continued)


                                     F - 22
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

(6) SHAREHOLDERS' EQUITY

   (a) COMMITMENT TO ISSUE SHARES

         Pursuant to a final  agreement  dated  January 5, 1995,  the Company is
         committed to issue  168,249  common shares at a fair value of $4.44 per
         share  ($747)  to  former  shareholders  of NACT on  January  5,  1997.
         Additionally,   pursuant  to  the  terms  of  the  purchase  agreements
         discussed  in note 2, the  Company is  committed  to issue a minimum of
         1,753,758 shares valued at $24,707 at various times throughout 1997.

   (b) PREFERENCE SHARES

         The Company's Board of Directors has the authority, without any further
         vote or action by the Company's shareholders, to issue up to 10,000,000
         Preference Shares, without par value (the Preference Shares), in one or
         more series and to determine the designations,  powers, preferences and
         relative,  participating,  optional or other rights thereof,  including
         without  limitation,  the  dividend  rate (and  whether  dividends  are
         cumulative),  conversion  rights,  voting  rights,  rights and terms of
         redemption, redemption price and liquidation preference.

   (c) ESCROW AGREEMENTS

         Of the  21,257,697  shares  currently  outstanding,  750,000  are  held
         pursuant to an escrow  agreement,  their  release  being subject to the
         approval  of  regulatory  authorities.  These  common  shares have been
         issued  by the  Company  and have  rights  equal to those of all  other
         common shares except that the holders may not exercise voting rights on
         a resolution to cancel shares,  and have waived their rights to receive
         dividends or to  participate  in the assets and property of the Company
         on a winding-up or dissolution of the Company.  In accordance  with the
         escrow  provisions  of this  agreement,  these shares cannot be sold or
         traded  by  the  owner  until  they  are  released  by  the  regulatory
         authorities  in  accordance  with a formula  adopted by the  regulatory
         authorities.  If the  Company  has not met the  conditions  set for the
         release of these  shares by January  16,  2001,  these  shares  will be
         canceled.

         Pursuant to the Company  acquiring  the  remaining  20% interest in GST
         Telecom during 1996, 1,000,000 common shares were put in escrow pending
         a valuation of GST Telecom. An independent appraisal of GST Telecom was
         received in  September  1996  allowing  the release of such shares from
         escrow  (see note 2). On November  7, 1996,  such shares were  released
         from escrow.

                                                                     (Continued)


                                     F - 23
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

   (d) 1996 EMPLOYEE STOCK PURCHASE PLAN

         In July 1996, the Company adopted the 1996 Employee Stock Purchase Plan
         (the Stock  Purchase  Plan) which  provides  eligible  employees of the
         Company with an opportunity to acquire common shares of the Company. It
         is the intention of the Company that the Stock Purchase Plan qualify as
         an "Employee  Stock  Purchase  Plan" under  Section 423 of the Internal
         Revenue Code.  Under this Stock Purchase  Plan, the Company  authorized
         the issuance of 500,000  common shares to be issued to employees of the
         Company.

         Employees  who own 5% or more of the  voting  rights  of the  Company's
         outstanding common shares may not participate in the Plan.

   (e) STOCK OPTION PLANS

         EMPLOYEE STOCK OPTION PLANS

         In January 1995, the Company  created a Stock  Incentive Plan (the 1995
         Plan) which provides for the granting to employees  (including officers
         and employee  directors) of incentive  stock options within the meaning
         of  Section  422A of the  Internal  Revenue  Code of 1986,  and for the
         granting  of  non-statutory  stock  options  to  employees   (including
         officers  and  employee  directors),  directors  and  consultants.  The
         options  have a term of five years and vest and become  exercisable  at
         the  discretion of the Board of  Directors.  Under the plan, no options
         vest until at least six months after the date of grant.

         In January 1996, the Company created an additional Stock Incentive Plan
         (the 1996 Plan) in which the Board of Directors approved and authorized
         the issuance of 400,000 stock options to be granted to employees of the
         Company.  The terms of the 1996 Plan are  identical to that of the 1995
         Plan.  In January  1996,  the Board of  Directors  also  authorized a 1
         million  increase in the number of common shares  reserved for issuance
         under the Company's 1995 Stock Option Plan.

                                                                     (Continued)


                                     F - 24
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

         1996 SENIOR OPERATING AND EXECUTIVE OFFICER STOCK OPTION PLANS

         In May 1996,  the Company  adopted the 1996  Senior  Operating  Officer
         Stock  Option  Plan (the  Senior  Operating  Plan) and the 1996  Senior
         Executive  Officer  Stock  Option Plan (the Senior  Executive  Plan) in
         which the Board of Directors approved and authorized the issuance of up
         to 900,000 and 600,000 options,  respectively,  to be awarded to senior
         operating  and  executive  management  of the Company,  at a $10 option
         exercise  price.  The  options  have a term of six  years  and vest and
         become  exercisable  at the  discretion of the Board of Directors.  All
         stock options  granted under the Senior  Executive Plan as of September
         30,  1996 vest  upon the  achievement  of  certain  milestones  as were
         determined  by the  Board  of  Directors.  It is the  intention  of the
         Company  that  certain  options  granted  pursuant to these Plans shall
         constitute  incentive  stock  options under Section 422 of the Internal
         Revenue Code,  while certain  other options  granted  pursuant to these
         Plans shall be nonqualified stock options.

         The exercise price of all incentive  stock options  granted under these
         four  Plans  must be at least  equal to the  fair  market  value of the
         shares on the date of grant.  With respect to any  participant who owns
         stock  possessing  more than 10% of the voting  rights of the Company's
         outstanding  share capital,  the exercise price of any incentive  stock
         option granted must equal at least 110% of the fair market value on the
         grant  date.  The  exercise  price of all  nonqualified  stock  options
         granted  under the 1995 and 1996  Plans and the  Senior  Operating  and
         Executive Plans must be at least 80% and 50%, respectively, of the fair
         market value of the common stock on the date of grant.

                                                                     (Continued)


                                     F - 25
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

         Activity under the various stock option plans is as follows:

                                                 Number of        Price
                                                  Shares          Range
                                                ----------    ---------------

Options outstanding at August 31, 1993             785,250     $ 1.00 -   3.00

Options:

     Granted                                       435,000       4.25 -   5.00
     Exercised                                    (343,750)      1.00 -   3.00
     Canceled                                           -             -
                                                ----------    ---------------

Options outstanding at September 30, 1994          876,500       1.00 -   5.00

Options:

     Granted                                     1,190,035       3.55 -   6.75
     Exercised                                    (442,200)      1.00 -   4.25
     Canceled                                      (30,042)      3.55 -   5.00
                                                ----------    ----------------

Options outstanding at September 30, 1995        1,594,293       3.55 -   6.75

Options:

     Granted                                     1,563,373       5.00 -  10.00
     Exercised                                     (67,500)      3.55 -   6.75
     Canceled                                      (32,447)      6.75 -  10.00
                                                ----------    ----------------

Options outstanding at September 30, 1996        3,057,719     $ 3.55 -  10.00
                                                ==========    ================

         Of the 3,057,719 options outstanding, 1,208,843 options were vested and
         exercisable and 966,089 options were available for future grant.

   (f) 1996 STOCK BONUS AGREEMENT

         In September  1994,  the Company's  Board of Directors  adopted a Stock
         Award Plan  which  provides  for the  awarding  of up to 70,000  common
         shares of the  Company  to a  certain  member  of  management  upon the
         achievement of certain milestones.

                                                                     (Continued)


                                     F - 26
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

   (g) WARRANTS OUTSTANDING

         Warrants outstanding and exercisable at September 30, 1996:

                   Number of
                 common shares         Exercise                 Exercise
                   Issuable              Price               Expiration Date
                   --------              -----               ---------------

                      250,000             $5.52             October 23, 1996
                      125,000             $5.62               April 26, 1997
                      171,155            $12.96                 May 23, 1998
                       50,000            $10.00               April 29, 1999
                      300,000             $6.75           September 30, 2000

         The 546,155  warrants  expiring  October 23, 1996  through May 23, 1998
         were  granted  to  Tomen  in  conjunction   with  the  Tomen  financing
         agreements (see note 5), of which the 250,000 warrants expiring October
         23,  1996 were  exercised  during  October  1996.  The 50,000  warrants
         expiring  April 29,  1999 were  granted in  conjunction  with a private
         placement of common stock during  fiscal year ending 1994.  The 300,000
         warrants expiring  September 30, 2000 were granted to a director of the
         Company.  No value has been  assigned  to any  granted  warrants as the
         exercise  price  exceeded  the common stock market price at the time of
         grant.

                                                                     (Continued)


                                     F - 27
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

(7) INCOME TAXES

         The  provision  for income taxes  differs  from the amount  computed by
         applying the Canadian  statutory  income tax rate to net income  before
         taxes as follows:

                                                                     Thirteen
                                                                       month
                                        Year ended     Year ended   period ended
                                       September 30, September 30, September 30,
                                              1996         1995         1994
                                              ---          ---          ---

Computed expected income tax
      expense (benefit) at Canadian
      statutory rate                          (39)%        (39)%        (39)%
Expected state/province income tax
      expense (benefit)                        (4)          (6)          (5)
Increase (decrease) in valuation
      allowance                                21           38           56
Amortization of goodwill                        1            5            5
Minority interest                             --            (7)         --
Effect of difference in United
      States statutory rate                     5            5            6
Effect of acquisition of new subsidiaries      10            1          --
Non-deductible interest                         2          --           --
Other                                           4            4           (6)
                                              ---          ---          ---

            Income tax expense (benefit)      - %            1%          17%
                                              ===          ===          ===

                                                                     (Continued)


                                     F - 28
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

      Deferred income taxes reflect the net tax effects of temporary differences
      between  the  carrying  amounts of assets and  liabilities  for  financial
      reporting  purposes and the amounts used for income tax purposes.  The tax
      effects of significant  items comprising the Company's  deferred tax asset
      and liability are as follows:

<TABLE>
<CAPTION>
                                                         September 30,    September 30,
                                                             1996             1995
                                                           --------         --------
<S>                                                        <C>              <C>     
Deferred tax assets:
     United States Federal and state
         net operating loss carryforwards                  $ 16,378         $  3,325
     Canadian net operating loss carryforwards                3,065            2,533
     Non-deductible interest                                  4,608             --
     Canadian non-deductible interest                           798             --
     Canadian capital loss carryforward                         128             --
     Other                                                    2,063            1,633
                                                           --------         --------

               Total gross deferred tax assets               27,040            7,491

     Less valuation allowance                               (19,429)          (6,734)
                                                           --------         --------

Deferred tax liabilities:
     Furniture, fixtures and equipment,
         due to differences in depreciation                   2,110              693
     Capitalized software/intangibles                         5,501               64
                                                           --------         --------

               Total gross deferred tax liabilities           7,611              757
                                                           --------         --------

               Net deferred taxes                          $   --           $   --
                                                           ========         ========
</TABLE>

      The  valuation  allowance  for deferred tax assets as of September 1, 1993
      was $593. The net change in total valuation  allowance for the years ended
      September 30, 1996 and 1995, and the thirteen month period ended September
      30, 1994 was an increase of $12,695, $4,346, and $1,795 respectively.

                                                                     (Continued)


                                     F - 29
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

      The  Company   has   non-capital   losses  for  income  tax   purposes  of
      approximately  Canadian $6,811 available to reduce Canadian taxable income
      of future years, expiring as follows:

                         1999                    $  686
                         2000                     2,072
                         2002                     1,597
                         2003                     2,456
                                                 ------

                                                 $6,811
                                                 ======

      Based on a history of recurring  losses,  it is  questionable  whether the
      Company  will be  allowed  to  utilize  these  Canadian  losses if the tax
      authority  determines  that the Company has no reasonable  expectation  of
      profit.  As of  September  30,  1996,  the Company also has a Canadian net
      capital  loss  carryforward  of $389.  Net  capital  losses can be carried
      forward  indefinitely  but can only be utilized to offset taxable  capital
      gain.

      The  Company  has  net  operating   losses  for  income  tax  purposes  of
      approximately  $44,985 available to reduce United States taxable income of
      future years, expiring as follows:

                         2007                   $   405
                         2008                       455
                         2009                     2,717
                         2010                     4,939
                         2011                    36,469
                                                -------

                                                $44,985
                                                =======

      For United States income tax purposes, utilization of net operating losses
      may be subject to  limitation  in the event a change in  ownership  of the
      Company has  occurred  pursuant to IRC Section  382. No analysis  has been
      performed by the Company to determine  whether such  ownership  change has
      occurred.

                                                                     (Continued)


                                     F - 30
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

(8) LEASES

      The Company is obligated  under capital leases for equipment  which expire
      at various  dates during the next five years.  At  September  30, 1996 and
      1995, the gross amounts of equipment and related accumulated  amortization
      recorded under capital leases were as follows:

                                                               1996       1995
                                                              -------    -------

               Equipment                                      $ 2,068        853
               Less accumulated amortization                     (291)        67
                                                              -------    -------
                                                             
                                                              $ 1,777        786
                                                              =======    =======
                                              
      The  Company  also  has  noncancelable  operating  leases,  primarily  for
      facilities,  which expire over the next five years.  Rental  expense under
      operating  leases was $1,501,  $866 and $253 for the years ended September
      30, 1996 and 1995, and the thirteen month period ended September 30, 1994,
      respectively.

                                                                     (Continued)


                                     F - 31
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

      Future minimum lease payments under noncancelable  leases (with initial or
      remaining  lease terms in excess of one year) and future  minimum  capital
      lease payments as of September 30, 1996 are:

<TABLE>
<CAPTION>
                                                                                   Capital  Operating
                                                                                   Leases    Leases
                                                                                   -------   -------
<S>                                                                                <C>       <C>  
           Year ending September 30:
               1997                                                                $   980     2,777
               1998                                                                    900     2,902
               1999                                                                    494     2,797
               2000                                                                    235     1,960
               2001                                                                      4     1,493
               Thereafter                                                             --       7,335
                                                                                   -------   -------

                           Total minimum lease payments                              2,613   $19,264
                                                                                             =======

               Less amount representing interest (at rates ranging
                    from 8.7 to 18.6%)                                                 438
                                                                                   -------

                           Net minimum lease payments                                2,175

               Less current installments of obligations under capital leases           722
                                                                                   -------

                           Obligations under capital leases, excluding
                                current installments                               $ 1,453
                                                                                   =======
</TABLE>

      Under the terms of two noncancelable  subleases,  the Company will receive
      $220 over the next ten years.

                                                                     (Continued)


                                     F - 32
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

(9) COMMITMENTS AND CONTINGENCIES

   (a) PENSION AND PROFIT SHARING PLANS

         In 1995, the Company  adopted a defined  contribution  401(k) plan (the
         Plan).   Employees  are  eligible  to  participate  in  the  Plan  upon
         commencement of service.  Participants  may defer up to 15% of eligible
         compensation.   Currently,   the  Company  does  not  provide  matching
         contributions for the Plan.

         NACT also sponsors a defined contribution 401(k) plan for employees who
         have  completed  one  year  of  service  and  attained  the  age of 21.
         Participants may defer up to 15% of eligible compensation. The Company,
         at its  discretion,  may match 50% of participant  contributions  up to
         7.5% of participant  compensation.  NACT made employer contributions to
         this plan of $60, $51 and $32 in the years ending  September  30, 1996,
         1995 and 1994, respectively.

         Through  September  30,  1996,  NACT  provided a  discretionary  profit
         sharing program for full time employees who had completed one full year
         of employment.  Under the plan, 10% of the increase in profits based on
         NACT's previous highest retained  earnings balance were allocated among
         employees  determined on length of  employment  and salary level at the
         discretion of the Board of Directors. Contributions to the program were
         $132,  $171 and $105 for the years ended  September  30, 1996 and 1995,
         and the thirteen month period ended  September 30, 1994,  respectively.
         The program was terminated on September 30, 1996.

   (b) LONG DISTANCE CARRIERS

         The Company is party to various  contracts with long distance  carriers
         pursuant to which the Company is committed to minimum service fees. The
         average  monthly  minimum  commitments  range from $1.6 million to $5.1
         million per month over the next three  years.  The Company must pay the
         carriers for differences  between the commitment amounts and the actual
         amounts billed.

                                                                     (Continued)


                                     F - 33
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

   (c) LEGAL PROCEEDINGS

         On  August  24,  1995,   Aerotel,   Ltd.  and  Aerotel   U.S.A.,   Inc.
         (collectively, "Aerotel") filed a patent infringement suit against NACT
         alleging  that  telephone   systems   manufactured  and  sold  by  NACT
         incorporate  prepaid  calling  features  which  infringe  upon a patent
         issued to Aerotel in  November  1987.  The  complaint  further  alleges
         defamation and unfair  competition  by NACT and seeks various  damages.
         NACT has filed an Answer and Counterclaim  denying patent infringement,
         committing defamation or unfair competition and seeks judgment that the
         Aerotel  patent is invalid  and that  Aerotel has misused its patent in
         violation of antitrust laws. Based on information  currently available,
         NACT's  management  is of the  opinion  that there will be no  material
         impact of NACT's  financial  position  or  results of  operations  as a
         result  of this  suit.  Accordingly,  no  provision  for  loss has been
         provided in the accompanying financial statements.

         On April 24, 1996, C.W. Holdings  (formerly Martin Holdings Ltd.) filed
         a damages suit against the Company  alleging  negligence  in failing to
         safely  deliver  to  C.W.  Holdings  a share  certificate  representing
         209,738  common shares of the Company.  C.W.  Holdings has commenced an
         action in the Supreme  Court of British  Columbia  against the Company,
         the Company's registrar and transfer agent, and other parties unrelated
         to the  Company.  The  Company's  legal  counsel  believes  that  it is
         improbable that there will be an outcome  unfavorable to the Company in
         the legal proceedings.

         The  Company is  involved  in various  other  claims and legal  actions
         arising  in  the  ordinary  course  of  business.  In  the  opinion  of
         management,  the ultimate  disposition of these matters will not have a
         material effect on the Company's financial position.

   (d) EMPLOYMENT AGREEMENTS

         The Company has entered into employment  agreements with key members of
         management.  These  agreements  provide for payments  based upon death,
         disability and change of control. The agreements also contain covenants
         not to compete.

(10)  RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
      IN THE UNITED STATES AND IN CANADA

      These financial  statements have been prepared by management in accordance
      with generally accepted  accounting  principles in the United States (U.S.
      GAAP). Except for the earnings/loss per share calculations as noted below,
      these financial  statements also conform,  in all material respects,  with
      those  accounting   principles  that  are  generally  accepted  in  Canada
      (Canadian GAAP).

                                                                     (Continued)


                                     F - 34
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

      For U.S. GAAP purposes,  the 750,000 escrow shares disclosed in note 6 are
      considered  contingent  shares and are not  included in the loss per share
      calculations.  For U.S. GAAP purposes, when these shares are released from
      escrow,  to the extent  their fair market  value  exceeds  their  issuance
      price,  compensation  expense will be recognized by the Company.  The loss
      per share  determined in accordance with accounting  principles  generally
      accepted  in Canada is  $(3.06),  $(0.78)  and $(0.33) for the years ended
      September 30, 1996, 1995 and the thirteen month period ended September 30,
      1994, respectively.

      The Company changed its fiscal year-end to September 30 effective in 1994.
      Accordingly, amounts reported in the consolidated financial statements are
      for the thirteen-month period ended September 30, 1994. Selected financial
      information as at and for the year ended August 31, 1994 is as follows:

Selected information from statement of operations:
      Revenues                                                         $  5,253
      Operating expenses                                                  6,147
                                                                       --------

                  Loss from operations                                      894

      Other expenses                                                      1,681
                                                                       --------

                  Loss before minority interest and income tax            2,575

      Income tax expense                                                    470
                                                                       --------

                  Loss before minority interest                           3,045

      Minority interest in income of subsidiaries                           126
                                                                       --------

                  Loss for the year                                    $  3,171
                                                                       ========

Selected information from statement of cash flows:
      Operations:
           Loss for the year                                             (3,171)
           Items not involving cash                                       2,420
           Changes in non-cash operating working capital                   (154)
                                                                       --------

                  Cash used in operations                                  (905)

      Financing                                                          14,040
      Investing                                                         (12,846)
                                                                       --------

                  Increase in cash and cash equivalents                     289

      Cash and cash equivalents, beginning of year                        4,745
                                                                       --------

      Cash and cash equivalents, end of year                           $  5,034
                                                                       ========

                                                                     (Continued)


                                     F - 35
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

(11) INFORMATION RELATING TO CONSOLIDATED STATEMENTS OF CASH FLOWS

      "Net cash provided (used) by operating  activities" includes cash payments
      for interest of $1,813,  $364 and $24 and cash payments for taxes of $-0-,
      $264 and $253,  for the years ended  September 30, 1996 and 1995,  and the
      thirteen month period ended September 30, 1994, respectively.

      NON-CASH INVESTING AND FINANCING ACTIVITIES WHICH AFFECT THE
      CONSOLIDATED STATEMENTS OF CASH FLOWS

      Effective  May 1, 1995,  the Company  acquired a 100% interest in ITG. See
      note 2 for a discussion of the assets and liabilities acquired.

      On January 5, 1995,  the Company  acquired the  remaining  20% of National
      Applied  Computer  Technologies,  Inc.  (see  note 2). As a result of this
      transaction,  the  Company  recorded  $2,137  in  other  assets,  $521  in
      liabilities,  $747 in common stock, $1,494 in a commitment to issue common
      shares  and a  reduction  of  $886  to  its  non-controlling  interest  in
      subsidiaries account.

      Effective  June 1, 1995,  the Company  acquired an  additional  20% of GST
      Telecom (see note 2). The Company recorded $5,000 in common stock,  $3,226
      in other assets, and a reduction of $1,774 to its non-controlling interest
      in subsidiaries account related to this transaction.

      As a result of capital  contributions made to GST Telecom, Inc. throughout
      the year ending  September 30, 1995, the Company  recorded $4,457 in other
      assets  and an  increase  of $4,457  to its  non-controlling  interest  in
      subsidiaries account.

      During the year ending  September  30, 1995,  the Company  recorded a $200
      reduction in notes  receivable  and a $200 increase to deferred  financing
      costs pursuant to a loan agreement and promissory note dated July 7, 1994,
      whereby the Company loaned $200 to Pacwest Network, L.L.C. (Pacwest) which
      was repaid in full by crediting against fees payable to Pacwest in respect
      of financing provided by Tomen America, Inc.

      Property and equipment  includes  amounts in accounts  payable and accrued
      liabilities  of $18,291,  $4,363 and $-0- at September 30, 1996,  1995 and
      1994, respectively.

                                                                     (Continued)


                                     F - 36
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

      In September  1996, the Company  acquired an additional 1.5 million common
      shares  of GST  Global,  for  consideration  of $3,364  (see note 2).  The
      Company recorded $3,364 in other assets and accrued  liabilities  relating
      to this transaction.

      During the year ending September 30, 1996, the Company recorded $45,478 in
      assets,  $11,665  in  liabilities,  a  reduction  of  $2,686  to  minority
      interest,  $29,444  in common  stock and  $5,613 in  commitments  to issue
      common stock as a result of the 1996 acquisitions discussed in note 2.

(12) RELATED PARTY TRANSACTIONS

      During the third and fourth quarters of 1996, the Company made payments of
      $5,997  and  $2,970 to the FCC for 5 PCS  licenses  on behalf of  Magnacom
      Wireless,  LLC  (Magnacom),  a company  controlled by the Chief  Executive
      Officer of the Company. The $2,970 payment is included as an other current
      asset in the  accompanying  balance  sheet,  whereas the $5,997 payment is
      included as an other asset in the accompanying  balance sheet. The Company
      is in the process of  establishing a  non-exclusive  twelve year agreement
      with Magnacom;  whereby,  the Company will purchase  services  relating to
      such  licenses  from  Magnacom  for use or resale.  As  consideration  for
      services provided by Magnacom to the Company, the Company will make annual
      lump sum  payments to Magnacom  in  accordance  with an agreed to schedule
      (with the $5,997  payment  being the first of such  payments)  as advanced
      payments  for the  services  to be  provided by  Magnacom.  Subsequent  to
      September 30, 1996,  the Company made an  additional  payment of $5,426 to
      the FCC on behalf of Magnacom.

      The operations of the Company's Hawaiian microwave network require the use
      of radio  licenses from the FCC. Such licenses are owned by PNI, a company
      controlled by the Company's  Chief  Executive  Officer.  Under  agreements
      between the Company and PNI,  (1) the Company pays a monthly fee to PNI to
      utilize PNI's licenses for its communications  traffic and (2) PNI pays an
      equal  monthly fee to the  Company for the right to utilize the  Company's
      facilities  for  other  communications  traffic  using  up to 10% of PNI's
      license capacity.

      A bridge loan that was obtained  and paid back by the Company  during 1995
      was guaranteed by five executive officers of the Company. In consideration
      for the guarantee, such officers were issued 25,000 shares of common stock
      of the Company.

                                                                     (Continued)


                                     F - 37
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

      The  Company  paid  approximately  $2,264,  $770 and $396 in legal fees in
      1996, 1995 and 1994, respectively, to a firm having a member who is also a
      director of the Company.

      Under the Tomen facility,  Tomen has the right to act as procurement agent
      for each network project it finances.  The Company has purchased equipment
      through Tomen at competitive prices.

(13) GST USA

      In August 1994, the Company formed a wholly-owned subsidiary, GST USA, and
      transferred  all U.S.  assets,  liabilities  and operations  into GST USA.
      Selected financial information as at and for the years ended September 30,
      1996 and 1995 are as follows:

      Selected balance sheet information:

                                                     Year              Year
                                                     ended             ended
                                                 September 30,     September 30,
                                                     1996              1995
                                                   ---------        ---------

Current assets                                     $  77,506          $  11,415
Non-current assets                                   168,882             60,006
                                                   ---------          ---------

                                                   $ 246,388          $  71,421
                                                   =========          =========

Current liabilities                                $  34,286          $  13,712
Non-current liabilities                              210,243             19,646
Minority interest                                        182              3,279
Share capital                                         66,520             44,471
Accumulated deficit                                  (64,843)            (9,687)
                                                   ---------          ---------

                                                   $ 246,388          $  71,421
                                                   =========          =========

                                                                     (Continued)


                                     F - 38
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

      Selected information from statement of operations:

                                                       Year            Year
                                                       ended           ended
                                                   September 30,   September 30,
                                                       1996            1995
                                                     ---------      ---------
                                                     
Revenues                                             $  37,721      $  18,681
Operating costs and expenses                           (77,590)       (28,942)
                                                     ---------      ---------
                                                     
              Loss from operations                     (39,869)       (10,261)
                                                     
Other expenses                                          15,625         (1,384)
                                                     ---------      ---------
                                                     
              Loss before minority interest in loss  
                  of subsidiaries and income tax       (55,494)       (11,645)
                                                     
Income tax expense                                         (72)          (166)
                                                     ---------      ---------
                                                     
              Loss before minority interest in loss  
                  of subsidiaries                      (55,566)       (11,811)
                                                     
Minority interest in loss of subsidiaries                  411          2,364
                                                     ---------      ---------
                                                     
              Net loss                               $ (55,155)        (9,447)
                                                     =========      =========

                                                                     (Continued)


                                     F - 39
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

      Selected information from statement of cash flows:

                                                       Year            Year
                                                       ended           ended
                                                   September 30,   September 30,
                                                       1996            1995
                                                     ---------      ---------
Operations:
     Loss for the year                               $ (55,155)     $  (9,447)
     Items not involving cash                           29,256          1,590
     Changes in non-cash operating working capital      (6,400)        (3,419)
                                                     ---------      ---------
                                                    
              Cash used in operations                  (32,299)       (11,276)
                                                    
     Investing                                        (105,090)       (29,684)
     Financing                                         174,915         43,544
                                                     ---------      ---------
                                                    
              Increase in cash and cash equivalent  s   37,526          2,584
                                                    
     Cash and cash equivalents, beginning of year        3,894          1,310
                                                     ---------      ---------
                                                    
     Cash and cash equivalents, end of year          $  41,420      $   3,894
                                                     =========      =========

                                                                     (Continued)


                                     F - 40
<PAGE>
                          GST TELECOMMUNICATIONS, INC.

                   Notes to Consolidated Financial Statements

               (In thousands, except per share and share amounts)

                                (In U.S. Dollars)

(14) SUBSEQUENT EVENTS

      SPECIAL WARRANTS OFFERING

      On October 22, 1996, the Company completed a private placement to non-U.S.
      investors  of  2,000,000  Special  Warrants  at a  purchase  price of U.S.
      $11.125 per Special Warrant.  The Special  Warrants become  exercisable by
      holders for no additional consideration upon the later to occur of (i) the
      date upon which  approval for a final Canadian  prospectus  qualifying the
      common  shares  and share  purchase  warrants  (the  Underlying  Warrants)
      issuable  upon  exercise  of the Special  Warrants  is  received  from the
      securities  commission of each of the Canadian provinces where the Special
      Warrants were sold and (ii) the date that a registration  statement  filed
      with the Securities and Exchange Commission  registering the resale of the
      common  shares  issuable  upon  exercise  of  the  Special   Warrants  and
      Underlying Warrants is declared effective, but in any event, no later than
      September 22, 1997.  Each Special  Warrant is  exercisable  for one common
      share and one-half of one Underlying Warrant. Each full Underlying Warrant
      entitles the holder to purchase one additional common share for a purchase
      price of U.S. $13.00 for one year from the date of issuance.  In the event
      that the requisite regulatory approvals of the Canadian Prospectus are not
      received  by the  Company  and  the  U.S.  Registration  Statement  is not
      declared  effective,  in each case by February 19, 1997, then each Special
      Warrant will become  exercisable for 1.1 common shares and one-half of one
      Underlying Warrant.

      The Company  received U.S.  $9,690,000,  constituting 50% of the aggregate
      purchase price of the Special  Warrants (net of placement  agency fees and
      expenses),  on October 22, 1996.  The balance of the net purchase price of
      Special Warrants (U.S. $11,125,000) is being held in escrow and is payable
      to the  Company  upon the  earlier  to occur of (x) the date of receipt of
      final regulatory  approval of a preliminary  Canadian  Prospectus from the
      securities  commissions of the applicable  Canadian  provinces and (y) the
      initial filing of the U.S. Registration Statement with the Commission,  in
      each case covering the resale of the Common Shares  issuable upon exercise
      of the Special Warrants and the Underlying Warrants.

      NACT PUBLIC OFFERING

      The Board of Directors of NACT has authorized the filing of a registration
      statement with the Securities and Exchange  Commission  permitting NACT to
      sell shares of its common stock to the public.


                                     F - 41
<PAGE>

                                  EXHIBIT INDEX

EXHIBIT

  *3(a)  Certificate of Incorporation of the Company, as amended to date.
  *3(b)  By-Laws of the Company as amended to date.
   4(a)  Senior Notes  Indenture dated as of December 19, 1995, by and among GST
         USA,  Inc.,  the Company and United  States Trust  Company of New York,
         incorporated by reference to Exhibit 2.3 to the Company's Form 20-F for
         the fiscal year ended September 30, 1995 (the "1995 Form 20- F").
   4(b)  Convertible Notes Indenture dated as of December 19, 1995, by and among
         the Company, GST USA, Inc. and United States Trust Company of New York,
         incorporated by reference to Exhibit 2.4 to the 1995 Form 20-F.
 *10(a)  1995 Stock Option Plan of the Company, as amended to date.
 *10(b)  1996 Stock Option Plan of the Company, as amended to date.
 *10(c)  1996 Employee Stock Purchase Plan of the Company.
 *10(d)  1996 Senior Executive Officer Stock Option Plan of the Company.
 *10(e)  1996 Senior Operating Officer Stock Option Plan of the Company.
  10(f)  Amended and Restated  Credit  Agreement  dated as of April 26, 1995, by
         and  between  GST  Pacific  Lightwave,  Inc.  and Tomen  America  Inc.,
         incorporated by reference to Exhibit 1.2 to the 1995 Form 20-F
  10(g)  Stock  Purchase  Agreement  dated as of May 1, 1995, by and between GST
         Net,  Inc. and Stanley M. Nolte,  incorporated  by reference to Exhibit
         2.1 to the 1995 Form 20-F
  10(h)  Senior Notes Registration  Rights Agreement dated December 19, 1995, by
         and among GST USA, Inc., the Company, the Specified  Subsidiaries named
         therein  and  Morgan  Stanley  &  Co.  Incorporated,   incorporated  by
         reference to Exhibit 2.5 to the 1995 Form 20-F
  10(i)  Convertible  Notes  Registration  Rights  Agreement  dated December 19,
         1995,  by  and  among  GST  USA,  Inc.,  the  Company,   the  Specified
         Subsidiaries  named  therein  and  Morgan  Stanley & Co.  Incorporated,
         incorporated by reference to Exhibit 2.6 to the 1995 Form 20-F
  10(j)  Agreement  and Plan of Merger,  dated  September  27, 1996 (the "Merger
         Agreement"),  by and among TotalNet  Communications Inc.  ("TotalNet"),
         GST Newco of Texas, Inc. and the Company,  incorporated by reference to
         Exhibit 2.1 to the Company's Form 8-K dated October 17, 1996 (the "Form
         8-K")
  10(k)  Letter dated October 17, 1996 amending the Merger  Agreement  among the
         Company,  GST Newco of  Texas,  Inc.,  and  TotalNet,  incorporated  by
         reference to Exhibit 2.2 to the Form 8-K
*10(l)   Amended and Restated Master  Agreement dated as of May 24, 1996, by and
         among Tomen America Inc.,  the Company,  GST Telecom Inc.,  GST Pacific
         Lightwave,  Inc.,  Pacwest  Network  L.L.C.,  Pacwest Network Inc., GST
         Tucson Lightwave, Inc. and GST New Mexico Lightwave, Inc.
*10(m)   Amendment No. 2 to GST  Telecommunications,  Inc. Common Stock Purchase
         Agreement  dated as of May 24, 1996,  by and among the  Company,  Tomen
         America Inc. and Tomen Corporation.
*10(n)   Credit  Agreement  dated as of May 24,  1996,  by and  between  GST New
         Mexico Lightwave, Inc. and TM Communications LLC.
*10(o)   Credit  Agreement  dated as of May 24, 1996,  by and between GST Tucson
         Lightwave, Inc. and TM Communications LLC.
*10(p)   Amended and  Restated  Consulting  Agreement  dated as of  September 1,
         1995, by and between Sunwest  Ventures,  Inc. and GST USA, Inc. and GST
         Telecom.
*10(q)   Personal Services Agreement dated as of October 1, 1995, by and between
         GST USA, Inc. and GST Telecom Inc. and Stephen Irwin.
*10(r)   Restated  and Amended  Employment  Agreement  dated as of  September 1,
         1995, by and between GST USA, Inc. and GST Telecom Inc. and John Warta.
*10(s)   Restated  and Amended  Employment  Agreement  dated as of  September 1,
         1995,  by and between GST USA,  Inc. and GST Telecom Inc. and Robert H.
         Hanson.
<PAGE>

*10(t)   Amended and  Restated  Employment  Agreement  dated as of  September 1,
         1995, by and between GST USA, Inc. and GST Telecom Inc. and Clifford V.
         Sander.
*10(u)   Agreement  and Plan of Merger  dated as of  September  26,  1996 by and
         among Call America Business  Communications  Corporation,  Call America
         Business   Communications  of  Fresno,   Inc.,  Call  America  Business
         Communications   of  Bakersfield,   Inc.,  the   shareholders  of  such
         companies, GST Newco of California, Inc., and the Company.
*10(v)   Equipment  Loan and Security  Agreement  dated December 19, 1996 by and
         between NTFS Capital Corporation and GST Equipco.
 *21     Subsidiaries of the Company.
 *23     Consent to the incorporation by reference in the Company's Registration
         Statements  on Forms S-3 and S-8 of the  independent  auditors'  report
         included herein.
 *27     Financial Data Schedule.

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

*        Filed herewith.