SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

MARK ONE:

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

                For the quarterly period ended September 30, 1998

[ ]  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: 000-24653

                          NORTHEAST OPTIC NETWORK, INC.
             (Exact name of registrant as specified in its charter)

         Delaware                                        04-3056279
(State or other jurisdiction                  (I.R.S. Employer Identification
      of incorporation)                                    Number)

                              391 Totten Pond Road
                                    Suite 401
                          Waltham, Massachusetts 02154
                                 (781) 890-6868
        (Registrant's address and telephone number, including area code)

                   ------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

             Yes [X]                                      No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
stock: 16,066,335 shares of Common Stock, $.01 par value per share, as of
September 30, 1998.

<PAGE>

PART I.  FINANCIAL INFORMATION
Item 1 - Financial Statements:

                          NORTHEAST OPTIC NETWORK, INC.

                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                               September 30,        December 31,
                                                                                   1998                1997
<S>                                                                            <C>                 <C>
CURRENT ASSETS:
Cash and cash equivalents                                                      $  67,678,378       $    1,098,452
Short-term restricted cash                                                        22,857,039                    -
Short-term investments                                                            47,939,097                    -
Accounts receivable                                                                  133,080            1,034,391
Refundable taxes from related party                                                  755,838              368,734
Prepaid expenses and other current assets                                            382,940               13,572
                                                                               -------------       --------------

Total current assets                                                             139,746,372            2,515,149
                                                                               -------------       --------------

PROPERTY AND EQUIPMENT, AT COST:
Communications network                                                            15,814,057           15,583,770
Machinery and equipment                                                            1,474,188               54,927
Motor vehicles                                                                        29,426               29,426
Furniture and fixtures                                                                30,432               11,918
Communications network construction in progress                                   27,722,836            1,292,492
                                                                               -------------       --------------
                                                                                  45,070,939           16,972,533

Less--Accumulated depreciation                                                     1,020,089              437,830
                                                                               -------------       --------------
                                                                                  44,050,850           16,534,703
                                                                               -------------       --------------

RESTRICTED CASH                                                                   50,661,674              819,923

INTANGIBLE ASSETS, NET
Prepaid right-of-way fees, related party                                           2,162,775            2,348,156
Goodwill                                                                          47,472,143                    -
Deferred financing costs                                                           6,157,517            1,241,170
Other                                                                                 23,022                1,899
                                                                               -------------       --------------

                                                                               $ 290,274,353       $   23,461,000
                                                                               =============       ==============

CURRENT LIABILITIES:
Current maturities of long-term obligations                                    $     208,807       $    1,982,911
Accounts payable                                                                     697,038              294,758
Accounts payable construction-in-progress                                          1,569,750            1,199,293
Accrued expenses                                                                   6,812,444              571,593
Accrued right-of-way fees, related party                                           1,050,909              785,535
Deferred revenue                                                                   1,349,708            1,144,170
                                                                               -------------       --------------

Total current liabilities                                                         11,688,656            5,978,160
                                                                               -------------       --------------

DEFERRED TAX LIABILITY                                                                86,000               61,000
                                                                               -------------       --------------

NOTE PAYABLE TO RELATED PARTY                                                              -            2,100,000
                                                                               -------------       --------------

LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES                                   180,000,000              135,994
                                                                               -------------       --------------

MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES                                             -            5,338,786

COMMITMENTS AND CONTINGENCIES

CMP WARRANT                                                                                -              532,836

STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, $.01 par value-
Authorized--200,000 shares; 0 and 78,324 shares issued and                                 -                  783
outstanding at September 30, 1998 and December 31, 1997,
respectively
Series B convertible preferred stock, $.01 par value-
Authorized--4,500,000 shares; 0 and 962,734 shares issued and                              -                9,627
outstanding at September 30, 1998 and December 31, 1997,
respectively
Common stock, $.01 par value-
Authorized--30,000,000 shares; 16,066,333 and 113,928 shares issued                  160,663                2,848
and outstanding at September 30, 1998 and December 31, 1997,
respectively
Warrants                                                                               8,595                8,595
Additional paid-in capital                                                       108,118,249           11,817,216
Accumulated deficit                                                               (9,787,810)          (2,524,845)
                                                                               -------------       --------------

Total stockholders' equity                                                        98,499,697            9,314,224
                                                                               -------------       --------------

                                                                               $ 290,274,353       $   23,461,000
                                                                               =============       ==============
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

<PAGE>

                          NORTHEAST OPTIC NETWORK, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                 Three Months Ended                        Nine Months Ended
                                                   September 30,                             September 30,


                                             1997                  1998                 1997                  1998
<S>                                     <C>                   <C>                  <C>                   <C>

REVENUES:                               $     133,005         $     172,161        $     244,410         $     505,937
                                        -------------         -------------        -------------         -------------
EXPENSES:                                                                                              
   Cost of sales                              289,777               546,504              803,173             1,604,782
   Selling, general and
      administrative                          172,554             2,272,808              822,759             3,365,567
   Depreciation and
      amortization                            137,936               491,633              306,127             1,107,291
                                        -------------         -------------        -------------         -------------
           Total expenses                     600,267             3,310,945            1,932,059             6,077,640
                                        -------------         -------------        -------------         -------------
           Loss from operations              (467,262)           (3,138,784)          (1,687,649)           (5,571,703)
                                        -------------         -------------        -------------         -------------
OTHER INCOME (EXPENSE):
   Interest income and other, net              38,603             1,615,895              123,359             1,702,767
   Interest expense                           (37,297)           (3,275,400)             (37,778)           (3,732,439)
                                        -------------         -------------        -------------         -------------
           Total other income
           (expense)                            1,306            (1,659,505)              85,581            (2,029,672)
                                        -------------         -------------        -------------         -------------
           Loss before minority
           interest in
           subsidiaries' earnings
           and provision for
           (benefit from) income
           taxes                             (465,956)           (4,798,289)          (1,602,068)           (7,601,375)

MINORITY INTEREST                             218,721                     -              753,985             1,108,933

PROVISION FOR (BENEFIT FROM)
INCOME TAXES                                  (53,000)                    -             (182,000)             (564,480)
                                        -------------         -------------        -------------         -------------
NET LOSS BEFORE
EXTRAORDINARY ITEM                      $    (194,235)        $  (4,798,289)       $    (666,083)         $ (5,927,962)

EXTRAORDINARY ITEM                                  -            (1,335,004)                   -            (1,335,004)
                                        -------------         -------------        -------------         -------------
NET LOSS                                $    (194,235)        $  (6,133,293)       $    (666,083)        $  (7,262,966)
                                        =============         =============        =============         =============

BASIC AND DILUTED LOSS PER
SHARE BEFORE
EXTRAORDINARY ITEM                      $(0.68)               $(.48)               $(2.34)               $(1.66)
                                        ======                =====                ======                ======
BASIC AND DILUTED LOSS PER
SHARE AFTER EXTRAORDINARY
ITEM                                    $(0.68)               $(.61)               $(2.34)               $(2.03)
                                        ======                =====                ======                ======
BASIC AND DILUTED WEIGHTED
AVERAGE SHARES
OUTSTANDING                                   284,828            10,063,870              284,828             3,581,332
                                        =============         =============        =============         =============
</TABLE>


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

<PAGE>

                          NORTHEAST OPTIC NETWORK, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                               Nine Months Ended September 30,

                                                                  1997                 1998
<S>                                                               <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                       $   (666,083)        $ (7,262,966)
   Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities-

      Extraordinary item - write-off of deferred                             -            1,335,004
        financing costs
      Loss on disposal of property and equipment                             -                8,953
      Accretion of long-term obligations                                     -               62,165
      Amortization of deferred financing costs                               -              104,365
      Depreciation and amortization                                    306,127            1,107,291
      Changes in assets and liabilities-
        Accounts receivable                                            (75,242)             901,311
        Refundable taxes from related party                                  -             (387,104)
        Prepaid expenses and other current assets                       (8,023)            (369,368)
        Accounts payable                                               112,064              402,280
        Accrued expenses                                               321,977            4,455,326
        Deferred revenue                                                 6,554              205,538
        Deferred tax liability                                               -               25,000
                                                                  ------------         ------------
           Net cash (used in) provided by operating
           activities                                                   (2,626)             587,795
                                                                  ------------         ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of short-term investments                                       -          (67,939,097)
   Sale of short-term investments                                            -           20,000,000
   Purchases of property and equipment                                       -           (1,492,874)
   Purchases of communications network                              (6,394,089)         (24,594,731)
   Increase in intangible assets                                      (127,322)          (6,348,484)
                                                                  ------------         ------------
           Net cash (used in) provided by investing               
           activities                                               (6,521,411)         (80,375,186)
                                                                  ------------         ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Increase in construction accounts payable                           617,538              370,457
   Proceeds from issuance of long-term obligations                   1,600,000          180,000,000
   Proceeds from note payable to related party                               -           15,775,000
   Payments on long-term obligations                                  (282,276)         (19,785,098)
   Restricted cash                                                    (819,923)         (72,698,790)
   Proceeds from issuance of ownership interest                      1,750,088                    -
   Proceeds from exercise of stock options and                               -               32,153
      warrants
   Minority interest in subsidiary                                    (679,620)          (1,108,933)
   Proceeds from initial public offering                                     -           43,782,528
   Proceeds from sale of preferred stock, net                          800,035                    -
                                                                  ------------         ------------
           Net cash provided by financing activities                 2,985,842          146,367,317
                                                                  ------------         ------------
NET INCREASE (DECREASE) IN CASH AND CASH                          
EQUIVALENTS                                                         (3,538,195)          66,579,926

CASH AND CASH EQUIVALENTS, BEGINNING OF                           
PERIOD                                                               4,864,925            1,098,452
                                                                  ------------         ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                          $  1,326,730         $ 67,678,378
                                                                  ============         ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
   Cash paid during the year for-
      Interest                                                    $    163,499         $    636,861
                                                                  ============         ============
      Taxes                                                       $     29,950         $     34,883
                                                                  ============         ============

SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
   Goodwill recorded in connection with the
      Reorganization                                              $          -         $ 47,871,068
                                                                  ============         ============
   Conversion of Minority Interest into Series A
      convertible preferred stock in connection with
      the Reorganization                                          $          -         $  4,229,853
                                                                  ============         ============
   Exercise of CMP warrant                                        $          -         $    532,836
                                                                  ============         ============
</TABLE>

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

<PAGE>

NORTHEAST OPTIC NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

        NorthEast Optic Network, Inc. (the Company) (formerly FiveCom, Inc.) and
        its subsidiaries are engaged in the ownership, management, operation and
        construction of fiber optic telecommunication networks in New England
        and New York.

        The Company was incorporated in Massachusetts in July 1989. In May 1996,
        FiveCom LLC, an operating subsidiary majority-owned by the Company, was
        organized in Massachusetts. Also in May 1996, FiveCom LLC and Mode 1
        Communications, Inc. (Mode 1), an affiliate of Northeast Utilities
        Services Company (NU), organized NECOM LLC in Massachusetts, with
        FiveCom LLC owning 60%, and Mode 1 owning 40% of the membership interest
        in NECOM LLC. In December 1996, FiveCom LLC and Central Maine Power
        Company (CMP), organized FiveCom of Maine LLC in Massachusetts, with CMP
        owning 66.7% and FiveCom LLC owning 33.3% of the membership interests in
        FiveCom of Maine LLC. In addition, CMP purchased a 90.9% interest in the
        Company, giving it a controlling interest in the Company. FiveCom LLC,
        NECOM LLC and FiveCom of Maine LLC commenced operations upon their
        respective dates of organization. Prior to the Reorganization completed
        on July 8, 1998 (see Note 2) the Company had a controlling interest in
        all entities except FiveCom of Maine LLC (FiveCom of Maine LLC and the
        Company were commonly controlled by CMP). After the Reorganization,
        FiveCom of Maine LLC became a wholly owned subsidiary of the Company. As
        a result, the accompanying financial statements have been restated to
        give retroactive effect to the merger of FiveCom of Maine LLC with and
        into a subsidiary of the Company as a reorganization of entities under
        common control in a manner similar to a pooling of interest.

        The accompanying consolidated financial statements reflect the
        application of certain accounting policies as described below and
        elsewhere in these notes to consolidated financial statements.

        Basis of Presentation

                The accompanying unaudited consolidated financial statements
                have been prepared by the Company pursuant to the rules and
                regulations of the Securities and Exchange Commission, and
                reflect all adjustments, consisting of only normal recurring
                adjustments, which, in the opinion of management, are necessary
                for a fair statement of the results of the interim periods
                presented. These financial statements do not include disclosures
                associated with the annual financial statements and,
                accordingly, should be read in conjunction with the attached
                Management's Discussion and Analysis of Financial Condition and
                Results of Operation and the financial statements and footnotes
                for the year ended December 31, 1997 included in the Company's
                Prospectus for the sale of 4,500,000 shares of Common Stock and
                $180,000,000 of Senior Notes with the Securities and Exchange
                Commission on July 30, 1998.

        (b)     Management Estimates

                The preparation of financial statements in conformity with
                generally accepted accounting

<PAGE>

NORTHEAST OPTIC NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




                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 amounts could
                differ from those estimates.

        (c)     Revenue Recognition

                Revenues on telecommunications network services are recognized
                ratably over the term of the applicable agreements with
                customers. Other service revenue, which consists of design and
                installation work, is recognized as services are performed.

        Reclassifications

                Certain prior period amounts have been reclassified to conform
with current period presentation.

(2)      REORGANIZATION

         Prior to the Reorganization, approximately 90.9% of the Company was
         owned by MaineCom Services. In addition, the Company had one direct
         subsidiary, FiveCom LLC, of which the Company owned approximately 82.6%
         of the outstanding membership interests, with 9.9% of the outstanding
         membership interests being owned by Mode 1, 5% of the outstanding
         membership interests being owned by CMP and the remaining membership
         interests being owned by certain individuals. FiveCom LLC in turn owned
         60% of the outstanding membership interests in NECOM LLC (with Mode
         owning the other 40%) and 33.3% of the outstanding membership interests
         of FiveCom of Maine LLC (with MaineCom Services owning the other
         66.7%).

         In order to simplify the corporate structure and in contemplation of
         the Offerings, the Company's major stockholders decided to reorganize
         the Company. In April 1998, prior to the Reorganization, CMP exercised
         its warrants to purchase 5,876 shares of membership interests in
         FiveCom LLC for an aggregate exercise price of $58.76 and on July 8,
         1998, (i) each of the minority members in FiveCom LLC (and each of Mode
         1 and MaineCom Services) exchanged their membership interests in
         FiveCom LLC, NECOM LLC and FiveCom of Maine LLC, respectively, for
         3,470,470 shares of the Series B Convertible Preferred Stock of the
         Company; (ii) FiveCom LLC and NECOM LLC were each merged with and into
         the Company; (iii) FiveCom of Maine LLC was merged into FiveCom of
         Maine, Inc., a wholly-owned subsidiary of the Company; and (iv) the
         Company was reincorporated in Delaware under the name "NorthEast Optic
         Network, Inc." and the Company's Certificate of Incorporation was
         amended and restated.

         As a result of the Reorganization, (i) MaineCom Services ownership of
         the Company was reduced to 52.82%, with Mode 1 gaining an ownership
         interest of 40.84% in the Company, and (ii) FiveCom LLC and NECOM LLC
         were merged with and into the Company, and FiveCom of Maine LLC became
         a wholly-owned subsidiary of the Company which was converted from a
         Massachusetts limited liability company into a Delaware corporation.


<PAGE>

NORTHEAST OPTIC NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





         On July 8, 1998, the Company entered into a Restructuring and
         Contribution Agreement with CMP, MaineCom Services (a wholly-owned
         subsidiary of CMP) and Mode 1 (an affiliate of NU) relating to the
         restructuring of the Company. Pursuant to this Agreement, each of
         MaineCom Services and Mode 1 exchanged membership interests in
         subsidiaries of the Company for shares of the Series B Convertible
         Preferred Stock of the Company. In addition, pursuant to the
         Restructuring and Contribution Agreement, the Company's President and
         the Company's Vice President, Operations, exchanged their membership
         interests in FiveCom LLC, a subsidiary of the Company, for shares of
         the Series B Convertible Preferred Stock of the Company.

         Prior to the reorganization, FiveCom, Inc., NU, and other minority
         interests owned 82.7%, 9.9% and 7.4%, respectively, of FiveCom LLC
         membership interests. CMP through its ownership in FiveCom, Inc. owned
         a 75.1% interest in FiveCom LLC. In connection with the Reorganization,
         the Company recorded an intangible asset of approximately $47,871,000
         to reflect the Company's exchange of membership interest (acquisition)
         related to NU's minority interest in a subsidiary (NECOM LLC), in
         accordance with AICPA Accounting Interpretation 39 to APB Opinion No.
         16, Business Combinations (AIN-39). The intangible will be amortized
         over 30 years, reflecting assignment of value to goodwill and to the
         rights-of-ways, which have 30-year terms.

 (3)            EARNINGS PER SHARE

         The Company has adopted SFAS No. 128, Earnings per Share, effective
         December 15, 1997. SFAS No. 128 establishes standards for computing and
         presenting earnings per share and applies to entities with publicly
         held common stock or potential common stock. The Company has applied
         the provisions of SFAS No. 128, retroactively to all periods presented.
         In accordance with SEC Staff Accounting Bulletin (SAB) No. 98, the
         Company has determined that there were no nominal issuances of common
         stock or potential common stock in the period prior to the Company's
         planned initial public offering. Diluted weighted average shares
         outstanding for 1997 and 1998 exclude the potential common shares from
         warrants, stock options and convertible preferred stock outstanding
         because to do so would have been antidilutive for the periods
         presented. The potential common shares excluded in the three and nine
         months ended September 30, 1997 and 1998 related to outstanding common
         stock warrants and stock options were 11,233 shares for all periods.
         The potential common shares excluded in the three and nine months ended
         September 30, 1997 and 1998 related to convertible preferred stock were
         1,090,317, 1,116,641, 1,513,043 and 1,200,115 shares, respectively.

<PAGE>

NORTHEAST OPTIC NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




         Pro forma basic and diluted weighted average shares outstanding for the
         three months and nine months ended September 30, 1998 have been
         calculated as if the reorganization and offerings had taken place on
         January 1, 1998.


<TABLE>
<CAPTION>
                                                                        Three Months Ended        Nine Months Ended
                                                                        September 30, 1998        September 30, 1998
         <S>                                                              <C>                        <C>
         Basic and Diluted Loss Per Share:
             Net loss before extraordinary item available to
             shareholders                                                 $   (4,798,289)            $   (5,927,962)
             Extraordinary item                                               (1,335,004)                (1,335,004)
                                                                          --------------            --------------
              Net loss available to shareholders                          $   (6,133,293)            $   (7,262,966)
                                                                          ==============            ==============
              Weighted average shares outstanding                             10,063,870                  3,581,332
                                                                          ==============            ===============
              Pro forma weighted average shares outstanding                   16,066,335                 16,064,950
                                                                          ==============            ===============

             Basic and diluted loss per share                                     $(0.61)                    $(2.03)
                                                                          ==============            ===============
             Basic and diluted pro forma loss per share                           $(0.38)                    $(0.45)
                                                                          ==============            ===============
</TABLE>

(4)     CONTINGENCIES

        Certain claims arising in the ordinary course of business are pending
        against the Company. In the opinion of management, these claims are
        without merit and they believe there is no potential liability.

(5)     NOTE PAYABLE TO RELATED PARTY AND EXTRAORDINARY ITEM

        On October 7, 1997 the Company entered into a $30,000,000 construction
        loan agreement with CMP. $17,875,000 has been advanced under the loan
        agreement. This amount was repaid in full from the net proceeds from the
        Company's IPO and debt offering. In conjunction with the note, the
        Company issued a warrant to purchase additional membership interest. The
        fair market value of the warrant, $532,836, included in deferred
        financing costs in accompanying balance sheet, was being amortized as
        interest expense over the term of the note. Upon successful completion
        of the IPO, retirement of the note and expense of the warrant, the
        Company recorded an extraordinary charge of $1,335,004 in the statement
        of operations to write-off the remaining balance of the deferred
        financing costs.

(6)     PRINCIPAL STOCKHOLDERS AGREEMENT

        CMP and NU have entered into a Principal Stockholders Agreement dated
        May 28, 1998, whereby each such party agrees that, following the
        completion of the Offerings, it will not permit or cause the Company to
        (i) merge or consolidate, liquidate or dissolve, change its form of
        organization or sell, lease, exchange or transfer all or substantially
        all of its assets; or (ii) seek bankruptcy protection or certain other
        protection from creditors, unless both parties agree. After the closing
        of the proposed equity offering and debt financing, this agreement will
        remain in effect for so long as (a) NU owns at least 10% of the
        outstanding Common Stock of the Company, fully diluted and (b) the
        aggregate Common Stock of the Company owned by NU and CMP is at least
        33-1/3% of the outstanding

<PAGE>

NORTHEAST OPTIC NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




        Common Stock of the Company, fully diluted. The Company expects that
        each of CMP and NU will be major creditors of the Company under their
        existing right-of-way agreements.

INITIAL PUBLIC OFFERING AND DEBT OFFERING

        On August 5, 1998, the Company completed the sale of 4,500,000 shares of
        its Common Stock at a price of $12.00 per share. Of the aggregate shares
        of Common Stock sold, 4,000,000 were sold for the account of the Company
        generating net proceeds to the Company of approximately $44,640,000 and
        500,000 shares were sold for account of certain stockholders of the
        Company. In addition, the Company completed the sale of $180,000,000
        Senior Notes Due 2008, generating net proceeds to the Company of
        approximately $174,600,000. The Company used approximately $20,000,000
        of the net proceed to repay borrowings under the note payable to CMP and
        other outstanding debt.

EQUITY TRANSACTIONS

        Preferred Stock

             The Restated Certificate of Incorporation authorizes the issuance
             of up to 2,000,000 shares of preferred stock, $.01 par value per
             share. Under the terms of the Certificate of Incorporation, the
             Board of Directors is authorized, subject to any limitations
             prescribed by law, without stockholder approval, to issue such
             shares of preferred stock in one or more series. Each series of
             preferred stock shall have rights, preferences, privileges and
             restrictions, including voting rights, dividend rights, conversion
             rights, redemption privileges and liquidation preferences, as shall
             be determined by the Board of Directors.

             In connection with the Reorganization, the par value of the Series
             A convertible preferred stock, Series B convertible preferred stock
             and common stock was reduced from $0.05 to $0.01 per share,
             resulting in a reduction in par value of $3,133, $38,509 and $4,557
             in Series A convertible preferred stock, Series B convertible
             preferred stock and common stock, respectively, and a corresponding
             increase in additional paid-in capital of $46,199. All par value
             amounts have been retroactively restated to reflect the reduction.

             In connection with the Reorganization, the conversion rate on the
             Series A convertible preferred stock was reduced to a 1:1 ratio and
             199,636 additional shares of Series A Convertible Preferred Stock
             were issued to adjust for such reduction.

        (b)  Common Stock

             On June 23, 1998 the Board of Directors voted to increase the
             authorized common shares to 30,000,000.

             In July 1998, the Company's Board of Directors voted to effect a
             2.5- to -1 common stock split. Series A and B convertible preferred
             stock will convert at a rate equal to the common stock split.

<PAGE>


NORTHEAST OPTIC NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



             All share and per share amounts have been retroactively restated to
             reflect the stock split.


<PAGE>

Item 2.    Management's Discussion and Analysis of Financial Condition
and Results of Operations

Cautionary Statement

           In addition to historical information contained herein, this Report
contains certain "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to the safe harbors created
thereby. All statements included in this Report regarding the Company's
financial position, business strategy and plans, objectives for future
operations, technical developments, Year 2000 compliance and industry conditions
- - other than statements of historical facts - - are forward-looking
statements. While these statements reflect the Company's reasonable assumptions,
based upon management's beliefs and information currently available to it, the
Company can give no assurance that such expectations will prove to be correct.

           These forward looking statements are subject to certain risks,
uncertainties and assumptions related to certain factors including, without
limitation, the factors described under the heading "Certain Factors That May
Affect Future Results" below.

Overview

           The Company is a facilities-based provider of technologically
advanced, high bandwidth, fiber optic transmission capacity for communications
carriers on local loop, inter-city and interstate facilities. The Company is
currently expanding its fiber optic network, the NEON system, to encompass over
900 route miles, or more than 60,000 fiber miles, in New York and New England
(the "NorthEast").

           The Company generates revenue primarily through the leasing of
capacity on its network and also through the provision of services consisting
principally of design and installation work. The Company generally receives
fixed monthly payments from its customers for the leasing of capacity on its
network and recognizes revenues ratably over the term of the applicable customer
agreement. Other service revenues are recognized when services are performed.

Results Of Operations

           The Company did not generate significant revenues until the last half
of 1997. Revenues through the third quarter of 1997 consisted primarily of lease
payments from MCI Communications Corporation and Brooks Fiber Communications
(now part of WorldCom).

           The Company's revenues increased by $39,156, or 29%, to $172,161 in
the three months ended September 30, 1998 from $133,005 for the comparable
period in 1997. Revenues increased by $261,527, or 107%, to $505,937 in the nine
months ended September 30, 1998 from $244,410 in the comparable period in 1997.
Revenues in 1998 were generated by recurring lease services to customers, which
commenced primarily during the second half of 1997.


                                      - 2 -

<PAGE>

           Total cost of sales for the third quarter of 1998 were $546,504, an
increase of 89% over the $289,777 recorded in the third quarter of 1997. Total
cost of sales for the nine months ended September 30, 1998 were $1,604,782, an
increase of 100% over the $803,173 recorded in the comparable period in 1997.
The increase was primarily due to incurring rights-of-way fees resulting from
network expansion in the Company's service territory.

           Selling, general and administrative expenses increased to $2,272,808
in the third quarter of 1998 from $172,554 in the third quarter of 1997, and to
$3,365,567 for the nine months ended September 30, 1998 from $822,759 in the
comparable period in 1997, reflecting one-time bonus payments and the cost of
developing management, sales and infrastructure resources.

           Depreciation and amortization expense was $491,633 in the third
quarter of 1998 as compared to $137,936 in the third quarter of 1997.
Depreciation and amortization expense was $1,107,291 for the first nine months
of 1998, compared to $306,127 for the first nine months of 1997. The increase
resulted from higher depreciation expense, resulting from additional portions of
the NEON system being placed into service and the amortization of goodwill as a
result of the reorganization of the Company on July 8, 1998.

           Interest income increased in the third quarter of 1998 to $1,615,895
compared to $38,603 in the third quarter of 1997, and to $1,702,767 for the nine
months ended September 30, 1998 from $123,359 for the comparable period of 1997.
The increase was due primarily to higher cash balances resulting from the
initial public offering of $180.0 million aggregate principal amount of its 12
3/4% Senior Notes (the "Senior Notes") and the sale of four million shares of
its Common Stock to the public at $12.00 per share (the "Public Offerings").

           Interest expense increased in the third quarter of 1998 to $3,275,400
from $37,297 in the third quarter of 1997 and to $3,732,439 for the first nine
months of 1998 from $37,778 for the first nine months of 1997. The increase
resulted primarily from interest incurred on the Senior Notes.

           The elimination of minority interest in the third quarter was in
connection with the reorganization of the Company on July 8, 1998, whereby the
minority interests in the Company's subsidiaries were exchanged for Series B
convertible preferred stock. Minority interest for the nine months ended
September 30, 1998 amounted to $1,108,933 compared to $753,985 in the same
period of 1997. The increase resulted from a rise in the proportionate share of
the net losses of subsidiaries.

           Benefit from income taxes increased in the nine months ended
September 30, 1998 to $564,480 from $182,000 for the comparable period of 1997.
The benefit related to refundable income taxes resulting from the Company's tax
sharing arrangement with Central Maine Power Company ("CMP"), which terminated
upon the closing of the Public Offerings on August 5, 1998.

           A net loss before extraordinary item of $4,798,289 was recorded in
the third quarter of 1998 versus a net loss of $194,235 in the third quarter of
1997. For the nine months ended September 30, 1998, the Company recorded a net
loss before extraordinary item of $5,927,962, compared to a net loss of $666,083
for the comparable period of 1997. The increase in net loss before extraordinary
item is primarily attributable to the factors discussed above.

                                      - 3 -

<PAGE>

           The extraordinary item in the third quarter ending September 30, 1998
amounted to $1,335,004 representing the write off of deferred financing costs
associated with two construction loans repaid in the third quarter with the
proceeds from the Company's Public Offerings.

           A net loss after extraordinary item of $6,133,293 was recorded in the
third quarter of 1998 versus a net loss of $194,235 in the third quarter of
1997. For the nine months ended September 30, 1998, the Company recorded a net
loss after extraordinary item of $7,262,966, compared to a net loss of $666,083
for the nine months of 1997. The increase in net loss after extraordinary item
is primarily attributable to the factors discussed above.


Liquidity and Capital Resources

           On August 5, 1998, the Company completed the Public Offerings,
resulting in net proceeds to the Company of approximately $218 million (after
deducting expenses).

           Net cash (used in) provided by operating activities was $(2,626) and
$587,795 for the nine months ended September 30, 1997 and 1998, respectively.
Net cash provided by operating activities for the nine months ended September
30, 1998 was due primarily to the accrued interest expense in the amount of
$3,633,750 on the Senior Notes.

           Cash flow from financing activities was $2,985,842 and $146,367,317
in the nine months ended September 30, 1997 and 1998, respectively. Cash flow
from financing activities during the nine months ended September 30, 1998 was
generated by the Public Offerings. Of the proceeds from the Public Offerings,
$19,785,098 were used to repay long-term construction loans from CMP and Peoples
Heritage Bank, and $72,698,790 was used to establish an escrow account to secure
the payment of the first seven scheduled interest and principal payments on the
Senior Notes.

           Cash used in investing activities totaled $6,521,411 and $375,186 in
the nine months ended September 30, 1997 and 1998, respectively. Cash
requirements consisted primarily of the cost of construction to build the NEON
system and the purchase of short-term investments.

           The Company anticipates that going forward it will continue to
experience negative cash flow as it expands the NEON system, constructs
additional networks and markets its services. Cash provided by operations will
not be sufficient to fund the expansion and development of the NEON system as
currently planned, and, as a result, the Company intends to use cash on hand and
the net proceeds of the Offerings to fund this expansion and development.
Management believes that the net proceeds from the Public Offerings in addition
to cash from operations will be sufficient to fund the substantial completion of
the NEON system as currently planned as well as its other working capital needs.
The expectations of required future capital expenditures are based on the
Company's current estimates. There can be no assurance that actual expenditures
will not significantly exceed current estimates or that the Company will not
accelerate its capital expenditures program. The Company is considering moving
its headquarters to accommodate an expanded employee base.

                                      - 4 -

<PAGE>

Year 2000

           The Year 2000 issue is faced by substantially every company in the
computer or information technology industries, as well as every company which
relies on computer systems. The Company is currently in the process of assessing
its exposure to the Year 2000 issue. Generally, the Company is assessing its
exposure in the following major areas: (i) reduction in demand for the Company's
services because of Year 2000 problems experienced by the Company's customers
and potential customers and the Year 2000 problems of their customers and
potential customers; (ii) Year 2000 problems faced by the Company's material
suppliers which could have an impact on the Company's business, results of
operations or financial condition; and (iii) Year 2000 problems relating to both
the Company's internal information technology systems and non-information
technology systems. The Company is currently unable to estimate the costs of
addressing its Year 2000 issues, if any, or to describe its most reasonably
likely worst case Year 2000 scenario, and, accordingly, the Company has yet to
develop a contingency plan for a most reasonably likely worst case scenario.

           The Company is in the process of conducting a survey of its major
customers and vendors to determine the state of their Year 2000 readiness. There
can be no assurance that the Company's customers will not forego or delay
purchases of the Company's services, or that components or infrastructure
necessary for the NEON system will be available as a result of the Company's
vendors' Year 2000 problems.

           The Company is in the process of determining the nature and extent of
the work required to make its internal information technology (IT) and non-IT
systems Year 2000 compliant. The Company's internal information system consists
of accounting software. The licensor of the software has indicated to the
Company that the product is Year 2000 compliant. The Company is also evaluating
its non-IT systems which contain technology such as micro-controllers. The
Company has yet to determine where and whether these systems will require
remediation or replacement. Because all current hardware and software within the
Company is less than 2 years old, the Company does not foresee a material
expense or a material adverse impact on the Company's business, operating
results or financial condition as a result of the impact of the Year 2000
problem on its internal systems. 

           In addition, the Company relies on third party vendors in the conduct
of its business. The Company is in the process of obtaining assurances from its
material vendors and suppliers that there will not be a material interruption of
service or supply as a result of the Year 2000 computer problem. There can be no
assurances that any third party vendors' Year 2000 compliance problems will not
have a material adverse impact on the Company's business and operating and
financial results. For instance, any failure on the part of such vendors'
accounting, production control or shipping systems could have a material adverse
impact on the Company's business, operating results or financial condition.
Furthermore, the NEON system is heavily dependent upon the transmission
infrastructure of Northeast Utilities and its operating companies("NU") and CMP.
Should either NU or CMP experience any disruption or other difficulties in the
provision of electricity to their customers as a result of the Year 2000
problem, each of NU and CMP has the right under their agreements with the
Company to take such actions as are necessary to ensure or restore electrical
service to their customers, which actions could disrupt the construction or
operation of the NEON system.

                                      - 5 -

<PAGE>

           The Company has not incurred any material costs directly related to
the Year 2000 issue through September 30, 1998. Pending further investigation of
its exposure to the Year 2000 issue, the Company is unable to determine the
costs of addressing any Year 2000 issues that may arise in the future.

Certain Factors That May Affect Future Results

           The future financial and operating results of the Company remain
difficult to predict, and are subject to various risks and uncertainties,
including those set forth below.

           The Company's current business has only a very limited history. As a
facilities-based provider of fiber optic transmission capacity, the Company is a
development stage company in the process of constructing the NEON system
throughout the Northeast. Although limited portions of the NEON system are
currently operational, the Company does not expect to begin to realize any
substantial revenue until the NEON system is substantially completed. The
Company does not expect to achieve substantial completion of the NEON system as
currently planned until the end of 1999. The Company has incurred net losses
from inception. The Company's future operating results will fluctuate annually
and quarterly due to several factors, some of which are outside the control of
the Company. These factors include the cost of construction of the NEON system
(including any unanticipated costs associated therewith), the availability of
rights-of-way ("ROWs"), the cost and timely availability of equipment and
construction contractors, pricing strategies for its services, changes in the
regulatory environment, changes in telecommunications technology and changes in
general and local economic conditions. In addition, the extent of the demand for
the Company's services cannot be estimated with any degree of certainty.

           Furthermore, the development of the Company's business, the
completion of the NEON system and the development of the Company's services and
customer base will require significant expenditures, most of which will need to
be made before the Company is able to offer services over substantially all of
the NEON system. These expenditures, together with associated operating
expenses, will adversely impact cash flow and profitability until an adequate
customer base is established. To date, the Company has expended substantial
amounts on construction of the NEON system. Such cash expenditures have been
funded by proceeds from the Company's financing activities. Accordingly, the
Company has generated negative cash flow. There can be no assurance that the
Company will not need to obtain additional capital to complete the NEON system.

           The Company's ability to achieve its strategic objectives will depend
in large part upon the successful, timely and cost-effective completion of the
NEON system. Factors that could affect such completion include, among other
things, (i) obtaining adequate ROWs on acceptable terms in and between major
cities in the Northeast not covered by utility ROWs currently available to the
Company,(ii) obtaining required governmental permits and certifications where
necessary and (iii) delays or disruptions resulting from physical damage, power
loss, defective equipment or the failure of third-party suppliers or contractors
to meet their obligations in a timely and cost-effective manner.

           In order to complete the NEON system, the Company must obtain
additional ROWs and other permits to install fiber optic cables from third
parties, including electric utilities, transit authorities and others. The
Company has not yet obtained the necessary ROWs to complete the NEON system,
including those necessary to encompass the planned New York local loop. The
Company may be required to pay cash or provide in-

                                     - 6 -

<PAGE>

kind facilities for these ROWs or other ROWs to accommodate extensions to the
NEON system. The Company is unable to predict with certainty the cost of
obtaining necessary ROWs, and there can be no assurance that it will be able to
obtain such ROWs on acceptable terms, if at all. In addition, if CMP or NU
(including any of its operating companies) or any other entity with whom the
Company has an agreement seeks bankruptcy or other protection from its
creditors, the Company's ability to exercise rights to obtain route extensions
or other rights under its agreement with such entity may be adversely affected.

           The Company's IRUs are derivative of the grantor's interest in the
real property on which the NEON system is located. To the extent that the
grantor has a limited easement in such property, the IRUs granted to the Company
may be alleged to be insufficient for the Company's uses. Certain landowners
have asserted claims against the Company on this basis, and, to date, rather
than electing to contest the landowner's interpretation of the scope of the
easement, the Company has, in certain cases, elected to make a payment to such
landowner to acquire a ROW meeting the Company's requirements. The Company
believes that the easements granted by a substantial number of landowners to
grantors of the Company's IRUs are similar in scope to those with respect to
which claims have been asserted, and there can be no assurance that additional
claims will not be made in the future.

       The Company expects that it will require a substantial amount of capital
to complete the build-out of the NEON system as currently planned. In the event
that the proceeds of the Company's financing activities to date are insufficient
to meet its capital expenditure or other capital requirements, the Company would
be required to obtain funding from other sources to complete the construction of
the NEON system and to fund operating losses. There can be no assurance that
additional financing will be available to the Company or, if available, that it
can be obtained on a timely basis and on acceptable terms.

           The Company's ability to implement its business strategy is dependent
upon the Company's ability to secure a market for its leased dark and lit fiber
optic capacity and to obtain service contracts with communications carriers.
Many of the Company's targeted customers are companies that may also be the
Company's potential competitors. If the Company's services are not satisfactory
or cost competitive, the Company's potential customers may elect to develop
other alternatives in the Company's markets. The Company has incurred and will
continue to incur significant operating expenses and has made and will continue
to make significant capital investments, in each case based upon certain
expectations as to the anticipated customer demand for the Company's services in
its markets.

           The Company's business strategy assumes that its current and future
service revenues will come from a limited number of communications carriers.
Therefore, dissatisfaction with the Company or the Company's services by a
relatively few number of customers could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company is aware that certain inter-exchange carriers are constructing or
considering constructing new networks, or buying companies with local networks,
which could reduce their need for the Company's services. Furthermore, The
Company has received notice from Sprint Communications Company, L.P. alleging
that it may have incurred unspecified damages as the result of certain
inadvertent disclosures.

           Implementation of the Company's business strategy also will require
substantial growth in the Company's management staff, support

                                      - 7 -

<PAGE>

systems and other operations and may be affected by factors such as: (i) the
availability of financing and regulatory approvals; (ii) the existence of
strategic alliances or relationships; (iii) technological, regulatory or other
developments in the Company's business; (iv) changes in the competitive climate
in which the Company operates; and (v) the emergence of future opportunities.

           The Company's future performance will depend to a significant extent
upon the efforts and abilities of its senior executives. There can be no
assurance that the Company will be able to attract and retain qualified
executives to achieve its business operations. In November, 1998, the Company
named Vincent C. Bisceglia as its Chairman of the Board of Directors and Chief
Executive Officer to succeed Richard Crabtree.

           The construction and operation of the NEON system by the Company is
dependent upon indefeasible rights of use ("IRUs") granted to the Company in
ROWs and in fiber optic filaments. IRUs, which are created by contract, have
been used extensively in the telecommunications industry. Although IRUs confer
upon the holder certain indicia of ownership, legal title and the right to
control the ROW or the fiber optic filaments, as the case may be, remain in the
hands of the grantor. Therefore, while IRUs might be construed as conferring a
significant equitable right in the ROW or the fiber optic filaments, as the case
may be, the legal status of IRUs remains uncertain, and there can be no
assurance that a trustee in bankruptcy would not void an IRU in the event of the
bankruptcy of the grantor of such IRU. In addition, the IRUs granted by CMP and
NU are subject to pre-existing, system-wide mortgages used to secure utility
bonds issued by those companies. The Company has sought acknowledgments from the
NU companies' indenture trustees that the Company's rights under the ROW
agreements between the Company and NU (the "NU Agreements") would be recognized
in the event of the foreclosure of the related mortgage. Although agreements
have been obtained from certain of the indenture trustees, if such an agreement
is not obtained from the trustees for one or more of the NU companies, a default
by any such company under its mortgage that resulted in the foreclosure of the
mortgage could result in the Company losing its rights under the NU Agreements
in the state in which such company operates. The Company has not sought such
acknowledgments from CMP's indenture trustee because, unlike in the NU
Agreements, in the agreement between the Company and CMP relating to the
Company's right of use in fiber-optic filaments within a cable along a certain
route in CMP's service territory (the "CMP Agreement"), the Company is not
entitled to such acknowledgments. A default by CMP under its mortgage that
results in the foreclosure of the mortgage could result in the Company losing
its rights under the CMP Agreement.

           The NU Agreements and the CMP Agreement contain provisions which
acknowledge the right of NU and CMP, respectively, to make the provision of
electrical services to their own customers their top priority; NU and CMP are
required only to exercise "reasonable care" with respect to the Company's
facilities and are otherwise free to take whatever actions they deem appropriate
with respect to ensuring or restoring service to their electricity customers,
any of which actions could impair the construction and operation of the NEON
system. In addition, certain of the Company's construction efforts are
constrained by the ability of NU and CMP to de-energize segments of their
transmission and distribution facilities in order to permit construction crews
to work safely. The Company has experienced construction delays in the past as a
result of the inability to timely de-energize certain segments and may
experience such delays in the future.

                                      - 8 -

<PAGE>

           The telecommunications industry is highly competitive. The Company
faces substantial competition from incumbent local exchange carriers ("ILECs"),
which currently dominate their local telecommunications markets, and competitive
local exchange carriers ("CLECs"), most of which have greater financial and
other resources than the Company. In addition to ILECs and CLECs, potential
competitors capable of offering services similar to those offered by the Company
include interchange carriers ("IXCs"), other facilities-based communications
service providers, cable television companies, electric utilities, microwave
carriers, satellite carriers, wireless telephone system operators and end-users
with private communications networks. NU and CMP each own or have an IRU in
certain fibers in the cable that includes the NEON system, which permit NU and
CMP to compete directly with the Company in the future if they are not using
these fibers for their own corporate requirements. The Company's ROWs are
nonexclusive in that other service providers (including the utilities
themselves) could install competing networks using the same ROWs.

           In the future, the Company may be subject to more intense competition
due to the development of new technologies, an increased supply of domestic and
international transmission capacity, the consolidation in the industry among
local and long distance service providers and the effects of deregulation
resulting from the Telecommunications Act of 1996 (the "1996 Act"). The
introduction of new products or emergence of new technologies may reduce the
cost or increase the supply of certain services similar to those provided by the
Company. The Company cannot predict which of many possible future product and
service offerings will be crucial to maintain its competitive position or what
expenditures will be required to develop profitably and provide such products
and services.

           Regulation of the telecommunications industry is changing rapidly.
Existing and future federal, state and local governmental regulations will
greatly influence the viability of the Company. Consequently, undesirable
regulatory changes could adversely affect the Company's business, financial
conditions and results of operations. For instance, while the Company does not
believe that its fiber offerings, as proposed, are subject to common carrier
regulation by the Federal Communications Commission ("FCC") or under the common
carrier provisions of the Communications Act of 1934, as amended (the
"Communications Act"), except with respect to its provision of
telecommunications services on a common carrier basis offered through its
subsidiaries in New York and Connecticut, the Company cannot predict the future
regulatory status of its business. The FCC has recognized a class of private,
non-common carriers whose practice it is to make individualized decisions on
what terms and with whom to deal. These carriers may be subject to FCC
jurisdiction but are not currently extensively regulated. Such private carriers
include entities providing "telecommunications" for a fee as defined in the 1996
Act, which may include certain of the Company's offerings. In the event that the
Company becomes subject to the FCC's jurisdiction, it will be required to comply
with a number of regulatory requirements, including, but not limited to rate
regulation, reporting requirements, special payments, including universal
service assessments and access charges, and required service offerings.
Compliance with these regulatory requirements may impose substantial
administrative burdens on the Company. In addition, ILECs, CLECs and IXCS are
subject to various federal telecommunications laws. Accordingly, changes in
federal telecommunications law may affect the Company's business by virtue of
the interrelationships that exist among the Company and many of these regulated
telecommunications entities. It is difficult for the Company to forecast at this
time how these changes

                                      - 9 -

<PAGE>

will affect the Company in light of the complex interrelationships that exist in
the industry and the different levels of regulation.

           The Company is subject to state regulation, which can vary
substantially from state to state. The Company's subsidiaries in New York and
Connecticut have petitioned to provide telecommunications services on a
certificated common carrier basis. Therefore, such subsidiaries may be subject
to the obligations that applicable law places on all similarly certificated
common carriers as described above, including: the filing of tariffs, state
regulation of certain service offerings and pricing, requirements for
interconnection with and resale to other carriers, payment of regulatory fees
and assessments, and reporting requirements. In some jurisdictions, the
Company's pricing flexibility for intrastate services may be limited because of
regulation, although the Company's direct competitors are expected to be subject
to similar restrictions.

           The Company has contracted with NU and CMP to provide substantially
all of the engineering, routine maintenance and construction supervision
activities associated with the construction of that portion of the NEON system
located on NU and CMP properties. The Company has also contracted with various
third party contractors, as well as CMP, to construct the NEON system. As a
result, the Company may have less control over the timeliness and quality of the
work performed by such parties than if such work were to be performed by the
Company's own employees. In addition, as a result of their activities on behalf
of the Company, NU, CMP and such contractors may from time to time have access
to certain proprietary information about the Company.

           The telecommunications industry is subject to rapid and significant
changes in technology. For instance, recent technological advances permit
substantial increases in transmission capacity of both new and existing fiber
and the introduction of new products or emergence of new technologies may reduce
the cost or increase the supply of certain services similar to those provided by
the Company.

           The Company is dependent upon third-party suppliers for a number of
components and parts used in the NEON system. In particular, the Company
purchases cable that includes fiber optic glass manufactured by Lucent
Technologies, Inc. ("Lucent"). The Company believes that there are alternative
suppliers or alternative components for all of the components contained in the
NEON system. However, any delay or extended interruption in the supply of any of
the key components, changes in the pricing arrangements with its suppliers and
manufacturers or delay in transitioning a replacement supplier's product into
the NEON system could disrupt the Company's operations.

           The Company anticipates that prices for its services to carriers
specifically, and interstate services in general, will continue to decline over
the next several years due primarily to (i) price competition as various network
providers continue to install networks that compete with the NEON system, (ii)
technological advances that permit substantial increases in the transmission
capacity of both new and existing fiber and (iii) strategic alliances or similar
transactions that increase customer purchasing power, such as long distance
capacity purchasing alliances among certain ILECs.

           The Company is not currently engaged in the transmission of voice,
data or video services and does not provide switched voice and data services.
Accordingly, the Company, unlike some telecommunications companies, derives and
expects to continue to derive substantially all of its revenues from the leasing
of fiber optic capacity to its

                                     - 10 -

<PAGE>

customers, many of whom transmit voice, data or video information or provide
switched voice and data services. The limited nature of the Company's current
services could limit potential revenues and result in the Company having lower
revenues than competitors which provide a wider array of services.

           The Company's success in marketing its services to its customers
requires that the Company provide competitive reliability, capacity and security
via its network. The Company's network and the infrastructures upon which it
depends are subject to physical damage, power loss, capacity limitations,
software defects, breaches of security and other disruptions beyond the control
of the Company that may cause interruptions in service or reduced capacity for
customers. The Company's agreements with its customers typically provide for the
payment of outage related credits (a predetermined reduction or offset against
the Company's lease rate when a customer's leased facility is non-operational or
otherwise does not meet certain operating parameters) or damages in the event of
a disruption in service, which credits or damages could be substantial.

           The Company is highly leveraged. The Company's high degree of
leverage could have adverse consequences to the holders of the Company's
securities, including, among other things: (i) commencing on August 15, 2002, a
substantial portion of the Company's cash flow will be dedicated to the payment
of the Company's interest expense with respect to the Notes and such cash flow
may be insufficient to meet its payment obligations on the Notes in addition to
paying other obligations of the Company as they become due; (ii) the Company's
ability to obtain any necessary financing in the future for completion of the
NEON system or other purposes may be impaired; (iii) certain of the future
borrowings by the Company may be at variable rates of interest that could cause
the Company to be vulnerable to increases in interest rates; (iv) the Company
may be more leveraged than its competitors, which may place the Company at a
competitive disadvantage; and (v) the Company may be vulnerable to a downturn in
its business or the economy generally or to delays in or increases in the cost
of constructing the NEON system. There can be no assurance that the Company will
be able to generate sufficient cash flow to pay its indebtedness and its other
obligations as they become due.

           The indenture under which the Notes were issued imposes significant
operating and financing restrictions on the Company and its present and future
subsidiaries. These restrictions affect, and in certain cases significantly
limit or prohibit, among other things, the ability of the Company and its
subsidiaries to incur certain indebtedness, pay dividends and make certain other
restricted payments, create liens, issue and sell capital stock or subsidiaries,
guarantee certain indebtedness, sell assets or consolidate, merge or transfer
all or substantially all of their assets.

           CMP and NU beneficially own or control a majority of the outstanding
Common Stock of the Company. As a result of their stock ownership, these
stockholders acting together will be able to continue to elect the members of
the Board of Directors and decide all matters requiring stockholder approval.
The Company has entered into various agreements with CMP and NU. Certain
conflicts may arise between the interests of CMP and NU and the security holders
of the Company.

                                     - 11 -

<PAGE>

PART II - OTHER INFORMATION

Item 2.    Changes in Securities and Use of Proceeds.

           On July 30, 1998, the Company commenced the initial public offering
of its Common Stock and the concurrent offering of the Senior Notes pursuant to
a Registration Statement on Form S-1 (Commission file number 333-53441, declared
effective July 30, 1998). The Public Offerings closed on August 5, 1998,
resulting in the sale of 4,500,000 shares of Common Stock (of which, 4,000,000
shares were sold by the Company and 500,000 shares were sold for the account of
certain shareholders) at a public offering price of $12.00 per share
(constituting aggregate gross proceeds of $44,640,000 for the account of the
Company and $5,580,000 for the account of the selling stockholders) and
$180,000,000 aggregate principal amount of the Senior Notes (constituting all of
the Notes registered and resulting in aggregate gross proceeds of $174,600,000
for the account of the Company). An additional 1,000,000 shares of Common Stock,
which had been registered for sale by the selling stockholders, were not sold.

           The managing underwriters of the Offerings were Credit Suisse First
Boston and Warburg Dillon Read LLC.

           Through September 30, 1998, the net proceeds of the Public Offerings
were used as follows:

<TABLE>
<S>                                                                        <C>
Purchase of U.S. Government obligations to provide for payment in full
of seven scheduled interest payments due on the Notes                      $ 72,258,419
Repayment of indebtedness                                                  $ 19,573,970
Capital expenditures (construction of NEON system)                         $ 10,894,028
Working Capital                                                            $  9,482,968
Payment of certain bonuses                                                 $  1,000,000
Temporary investments                                                      $106,030,615
                                                                           ------------
Total use of proceeds                                                      $219,240,000
</TABLE>

Item 6.         Exhibits and Reports on Form 8-K

        (a)     Exhibits

                Exhibit 10.43 - Employment Agreement, dated November 12, 1998,
                between the Registrant and Vincent Bisceglia

                Exhibit 27 - Financial Data Schedule

        (b)     Reports on Form 8-K

                None.


                                     - 12 -

<PAGE>

                                   SIGNATURES

       Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


11/16/98                             /s/ Vincent C. Bisceglia
------------------                   ---------------------------
Date                                 Vincent C. Bisceglia
                                     Chairman of the Board
                                     and Chief Executive Officer


11/16/98                             /s/ William F. Fennell
------------------                   ---------------------------
Date                                 William F. Fennell
                                     Vice President, Finance,
                                     Chief Financial Officer and
                                     Treasurer


                                     - 13 -

<PAGE>

                          NORTHEAST OPTIC NETWORK, INC.
                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit Number                 Exhibit Description
--------------                 -------------------
<S>                            <C>
Exhibit 10.43 -                Employment Agreement, dated November 12, 1998,
                               between the Registrant and Vincent Bisceglia


Exhibit 27 -                   Financial Data Schedule
</TABLE>


                                      - 14-