<PAGE>

===============================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                           ________________________


                                  FORM 10-K/A


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

[ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 for the transition period from ____________ to
     _________________


For the fiscal year ended March 31, 1999          Commission File Number 0-13627

                                 _____________
                           CTC COMMUNICATIONS CORP.
             (Exact name of registrant as specified in its charter)

               Massachusetts                             04-2731202
      (State or other jurisdiction                   (I.R.S. Employer
      of incorporation or organization)              Identification No.)

              220 Bear Hill Road
             Waltham, Massachusetts                        02451
     (Address of principal executive offices)            (Zip Code)
      --------------------------------------

                                (781) 466-8080
             (Registrant's telephone number, including area code)

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

                                                   Name of Each Exchange
          Title of Each Class                       on Which Registered
          -------------------                       -------------------
                 None                                      None

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

          Title of Each Class:                   Common Stock ($.01 Par Value)
          --------------------                   -----------------------------

     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 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 the 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 of the registrant's voting stock held by non-
affiliates was approximately $127,208,131  on July 9, 1999, based on the closing
sales price of the registrant's common stock as reported on the Nasdaq National
Market as of such date.

     On July  9 , 1999, 10,397,504 shares of the Registrant's Common Stock,
$.01 par value, were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE
None.
===============================================================================
<PAGE>

                                     PART I

ITEM 1.  BUSINESS

Overview

     We are a rapidly growing single-source provider of voice and data
telecommunications services, or integrated communications provider, with 15
years of marketing, sales and service experience. We target predominantly medium
and larger-sized business customers who seek greater capacity for voice and data
traffic, a single provider for their telecommunications requirements and
improved levels of service. We have a large, experienced sales force consisting
of 164 sales people supported by 101 network consultants. Our sales force is
located close to our customers in 25 sales branches primarily in New England and
New York State.

     We are currently deploying our own state-of-the-art network facilities to
carry telecommunications traffic.  Our network uses packet-switching, a
technology which transmits data in discrete packages.  It also uses internet
protocol, which is a method that allows computers with different architectures
and operating systems to communicate over the internet, and asynchronous
transfer mode, or ATM, architecture, which allows the network to transmit
multiple types of media, such as voice, data and video.  The first phase of our
network includes 22 Cisco Systems advanced data switches and two network
operations centers.  We are interconnecting our facilities with leased
transmission capacity over fiber optic cable strands from Level 3 Communications
and NorthEast Optic Network. Cisco has reviewed and approved our network design
and has designated our network as a Cisco Powered Network.  In May 1999, we
began testing of our network with some of our customers. By late summer, we
expect to begin providing, and billing for, commercial service to a limited
number of customers on our network.

     We became an integrated communications provider in January 1998. Prior to
that, we were the largest independent sales agent for NYNEX Corp. (now Bell
Atlantic), based on agency revenues.  At the end of 1997, before leaving the
Bell Atlantic agency program, we were managing relationships for approximately
7,000 customers, representing over 280,000 local access lines and over $200
million in annual local telecommunications spending.  As of March 31, 1999,
after only 15 months as an integrated communications provider, we were serving
over 9,000 customers and had over 142,000 access lines and equivalent circuits,
or ALEs.  ALEs are the total number of voice circuits and equivalent data
circuits we have in service.  Voice circuits are the actual number of voice
circuits purchased by our customers, while equivalent data circuits represent
the data transmission capacity purchased by our customers divided by 64 kilobits
per second, which is the capacity necessary to carry one voice circuit.

Our Services

     We offer the following services:

Local Telephone Services.   We offer connections between customers'
telecommunications equipment and the local telephone network, which we currently
lease from incumbent local exchange carriers.  For large customers or customers
with specific requirements, we integrate their private systems with analog or
digital connections. We also provide all associated call processing features as
well as continuously connected private lines for both voice and data
applications.

Long Distance Telephone Services.   We offer a full range of domestic and
international long distance services, including "1+" outbound calling, inbound
toll free service, standard and customized calling plans. We also offer related
services such as calling cards, operator assistance and conference calling.

High Speed Data Services.   We offer a wide array of both continuously connected
and switched high speed digital data services. Switched or high speed digital
data services include ISDN, frame relay and ATM products.
<PAGE>

Internet Services.   We offer high speed, continuously connected internet access
and services through various digital connections.  In addition, we offer
switched digital access to the internet via ISDN. We provide the necessary
communications hardware, configuration support and other support services on a
24-hour, 7-day a week basis.

Wholesale Services to Internet Service Providers.   We provide a full array of
local services to internet service providers including telephone numbers and
switched and continuously connected access to the internet.

Future Service Offerings.   Following deployment of the network, we may offer
the following additional services: hosting of web-sites, electronic commerce
over the internet, data security and storage services, systems integration,
consulting and network monitoring services, customized private networks and
other data, and voice and sophisticated network products.

Our Integrated Communications Network

     We began deploying the first phase of our state-of-the-art, packet-switched
network in January 1999.   We will be able to offer a broad array of
sophisticated services over our network. We believe our network will enable us
to improve margins, enhance network and service quality and broaden our range of
product offerings. We also believe that our network will ultimately enable us to
deliver voice and data services across a single multi-service connection. We
expect our network to lower customers' overall telecommunications costs and
stimulate demand for new services.

     The first phase of our network includes 22 Cisco advanced data switches and
two network operation centers.  Our primary network operations  center is
located in our Waltham, Massachusetts technology center.  Our fully redundant
back-up network operations center is located in Springfield, Massachusetts.  We
are interconnecting our facilities with leased transmission capacity over fiber
optic cable strands from Level 3 Communications and NorthEast Optic Network.
Initially, we have obtained high capacity connections between our switches
providing multiple, back-up  connections.  The initial transmission
infrastructure will consist of fiber optic rings with the ability to
automatically re-route data in either direction covering the southern, western
and eastern New England regions. This SONET technology provides for the use of
redundant circuits and allows data to travel to its destination along many
different paths.

     The network will also allow us to take advantage of available technology to
meet increasing customer demands for reliable, high capacity voice, data and
video connections. We have also arranged to co-locate our switching hubs in
Level 3 Communications and  NorthEast Optic Network facilities along selected
fiber routes.   We expect to work with Cisco to test various new Cisco
technologies in our technology center.  We expect this to better position us to
adopt developing Cisco technology at an early stage.

     We intend to access our customer locations from our network through our
PowerPath(SM) services.  These will include a variety of high capacity
technologies, including digital subscriber line, or DSL, service which permits
high speed connections over existing telephone lines, leased high capacity
wireline circuits, or T-1s, wireless technologies and fiber optic facilities, as
available. Initially, we will offer continuously connected long distance and
data services over our network. We believe that these services represent over
50% of our target customers' fixed line telecommunications spending. The balance
represents local dial tone services which we currently obtain from other
carriers. We plan to incorporate local dial tone service into our packet-
switching architecture as that technology matures.

     Our network strategy to incorporate local dial tone functionality at a
later stage will allow us to simplify the transitioning of existing customers
onto our network because our customer will not have to disconnect from the
incumbent local exchange carrier and then reconnect to our network. To
transition our customers onto our network, we will simply be required to
reprogram our customer's systems to direct long distance and data traffic to our
network. This strategy will also allow our customers to retain their existing
phone numbers as well as have the built-in redundancy of the separate physical
connection to the incumbent local exchange carrier. At a later stage, once

                                      -2-
<PAGE>

customers can use the same telephone number irrespective of who provides their
telecommunications  service, we will be able to more easily transition our
customers' local dial tone service onto our network.

Sales and Customer Care

     We market telecommunications services by developing long-term business
relationships with our customers and offering them comprehensive management of
their telecommunications requirements. Each of our customers is assigned a local
dedicated team consisting of a sales executive and a network consultant. This
team provides a single point of contact for our customer's needs. This team
works together with the customer to design, implement and maintain an integrated
telecommunications solution. This team also reviews and updates the customer's
services on a regular basis. We believe that providing localized, high quality
customer care promotes continued sales of new services and reduces customer
churn.

Sales and Service Infrastructure.   Our branches are currently staffed with over
300 individuals, representing approximately 80% of our employees. As of July 9,
1999, there were 164 sales executives, 101 network consultants, 26
branch/regional managers and 16 service managers located in 25 sales branches
serving markets in Connecticut, Maine, Maryland, Massachusetts, New Hampshire,
New York, Rhode Island and Vermont.

Customer Sales and Service Model.   At their first meeting with a prospective
customer, our sales executives analyze the customer's current telecommunications
usage and costs. Sales executives then outline the range of services and
potential savings we offer and make recommendations to optimize the customer's
current network. Sales executives also discuss the benefits of our comprehensive
customer care program and develop account management plans designed to balance
network expense and utility. Sales executives and network consultants continue
to review the customer's telecommunications usage and requirements and update
the customer's suite of services and network design. We believe the
relationship-intensive approach of assigning sales executives and network
consultants to each customer account results in high customer satisfaction and
retention rates.

     Our sales executives regularly participate in training programs on subjects
such as solution-oriented sales, comprehensive customer care, network design and
other technical features of our services. We seek to motivate and retain our
sales executives through extensive training and a commission structure that
supports our relationship oriented sales and service policies.

Customer Care.   Our network consultants are trained in our service offerings
and are responsible for customer care. Network consultants are located in each
of our sales branches and are assigned directly to individual customer accounts
in direct support of the sales executives. Our localized, multi-step customer
care process provides an ongoing and comprehensive service program to our
customers. This process ranges from long-term consultative planning to day-to-
day handling of service issues.

     Our customer care program is designed to provide prompt action in response
to customer inquiries and complaints. The local sales branches are staffed 11
hours a day, 5 days a week. At other times, incoming calls automatically roll
over to a central customer care center which is staffed 24 hours a day, 7 days a
week. We believe that our network consultants are motivated to provide the
highest level of customer care because a significant portion of their
compensation is based on customer retention and satisfaction.

Our Information Systems

     Our information systems include five central applications which fully
integrate our sales and account management, customer care, provisioning, billing
and financial processes. Automation of each of these processes is designed for
high transaction volumes, accuracy, timely installation, accurate billing feeds
and quality customer service. Data entered in one application is generally
exported into all other applications. Each branch office is connected via frame
relay to the central processor. Our employees have online access to our
information systems from their branch desktops or docking stations.

                                      -3-


<PAGE>

     We also have an electronic interface to most of our major suppliers. When a
sales executive places an order for one of these suppliers, our information
systems electronically direct it to the appropriate supplier and monitors any
delays in provisioning the order. Once the order is provisioned, our information
systems automatically remove it from the in-process order file, update the
customer's service inventory and network configuration, initiate billing, post
the sales executive's commission and update our financial reports.

     Our information systems include the following applications:

Account and Sales Management.   Our account management application is the hub of
our information systems. It stores all of our customer-related information, such
as location detail, contact information, transaction history and account
profile. Our account management application also automatically exports data to
our customized sales application. Our sales application is a fully-integrated
database that provides sales personnel with access to information for pricing
services, customized sales proposals, customer correspondence, sales
performance, referencing methods and procedures, service descriptions,
competitive information and historical profiles of our current and prospective
customers. These historical profiles include details of installed services,
recent transactions and billing history. Our sales system can be used both on-
and off-line. All entries made while off-line are automatically updated to the
central processor and all relevant data is simultaneously exported to the other
central applications each time a salesperson connects to the network.

Customer Care.   Our network consultants use our account care application to
review installed services, make additions, changes and deletions to accounts,
initiate and track repair and service work and review past billing for any
customer. This closed loop application provides automatic follow up and records
all transactions in a customer history file. Service orders and repair requests
input in our account care application are automatically exported into our
provisioning application.

Provisioning.   We generally direct customer orders through our provisioning
application electronically to our major suppliers. We track these orders through
our account care application from initiation through completion. If any delay in
provisioning occurs, the proactive nature of this application alerts the sales
executive or network consultants who can take corrective action and notify the
customer of the delay. Once the order has been filled the information is
automatically fed to our billing application.

Billing and Customer Interface.   Our billing application allows us to provide
our customers a single bill for all the services we provide. Our billing
application also allows the customer to review historic bill detail, perform
customized usage analyses and download information directly to their own
accounting applications. Using a secure Web-based application called
IntelliVIEW, our customers have near real-time online access to our billing
application.  Using IntelliVIEW, our customers are able to review and analyze
their bills and related information. Customer billing statements are also
available on CD ROM, diskette or paper. Paper statements generated by our
billing application offer our customers different management formats.

Financial.   Data from our billing application is automatically exported to our
financial application. Our financial application tracks and prepares reports on
sales activity, commissions, branch operations, branch profitability and cash
flows. The financial application also compiles this data for our periodic
financial reports. In addition, this application provides internal controls for
revenue tracking and costing. The integrated nature of our information systems
allows us to operate each branch as a separate profit and loss center.

     We are actively upgrading our information systems in order to support our
network. We have selected Oracle's relational database for our data repository
and warehouse. We will integrate our business applications described above with
the data repository.  Customers, vendors, partners and internal users, will
access our business applications using either UNIX, Windows 95 or standard
internet browsers. We expect that our upgraded information systems will allow us
to grow and expand our business, replace and upgrade business applications
without impacting other applications and provide us with reliable data.

                                      -4-
<PAGE>

Competition

     We operate in a highly competitive environment. We have no significant
market share in any market in which we operate. We will face substantial and
growing competition from a variety of data transport, data networking and
telephony service providers. We will face competition from single-source
providers and from providers of each individual telecommunications service. Many
of these competitors are larger and better capitalized than we are. Also, many
of our competitors are incumbent providers, with long standing relationships
with their customers and greater name recognition.

     Bell Atlantic is a competitor for local and data services, and, we expect
based on  regulatory developments,  eventually will be a competitor for long
distance services as well.  Major competitors in our markets for the provision
of single-source solutions include WinStar Communications, Inc. and Teligent,
Inc.  Network Plus is a competitor in our market for the provision of long
distance and, to some extent, local services.  Competitors for our data services
also include AT&T Local (Teleport) and MCI Worldcom (Brooks Fiber and MFS).  Our
competitors for long distance services include all the major carriers such as
AT&T, MCI Worldcom and Sprint.

     In addition, the continuing trend toward business combinations and
alliances in the telecommunications industry may create significant new
competitors. Examples of some of these alliances include: Bell Atlantic's
proposed acquisition of GTE, SBC's proposed merger with Ameritech, AT&T's
acquisition of TCI and proposed acquisition of Media One, US West's proposed
merger with Global Crossing, Global Crossing's proposed acquisition of Frontier
Corp., Qwest's proposed acquisition of US West and Frontier Corp. and SBC's
acquisition of SNET. Many of these combined entities have or will have resources
far greater than ours. These combined entities may provide a single package of
telecommunications products that is in direct competition with our products.
These combined entities may be capable of offering these products sooner and at
more competitive rates than we can.

Competition from Single-Source Providers.   The number of single-source
providers has increased because of the current regulatory trend toward fostering
competition and the continued consolidation of telecommunications service
providers. Many single-source providers and long distance carriers have
committed substantial resources to building their own networks or to purchasing
carriers with complementary facilities. Through these strategies, a competitor
can offer single-source local, long distance and data services similar to those
that we will offer. The alternative strategies available to these competitors
may provide them with greater flexibility and a lower cost structure.

     Once the Regional Bell Operating Companies, or RBOCs, are allowed to offer
in-region long distance services under the terms of Section 271 of the
Telecommunications Act, they will be in a position to offer local and long
distance services similar to the services we offer. No RBOC is currently
permitted to provide long distance services for calls originating in their
region. We cannot assure you that this will continue to be the case. The FCC
must approve RBOC provision of in-region long distance services and can only do
so upon finding that the RBOC has complied with the 14-point checklist outlined
in Section 271 of the Telecommunications Act. This 14-point checklist is
designed to ensure that RBOC competitors have the ability to provide local
telephone services in competition with the RBOC. The FCC has not yet found that
any RBOC has complied with the 14-point checklist.

     Although the Telecommunications Act and other federal and state regulatory
initiatives will provide us with new business opportunities, as competition
increases regulators are likely to provide the incumbent local exchange carriers
with more pricing flexibility. Our revenues may be adversely affected if the
incumbent local exchange carriers elect to lower their rates and sustain these
lower rates over time. We believe that we may be able to offset the effect of
lower rates by offering new services to our target customers, but we cannot
assure you that this will occur. In addition, if future regulatory decisions
give incumbent local exchange carriers increased pricing flexibility or other
regulatory relief, such decisions could have a material adverse effect on our
business.

Competition for Provision of Local Exchange Services.   In the local exchange
market, incumbent local exchange carriers, including RBOCs, continue to hold
near-monopoly positions. We also face competition or prospective competition
from one or more integrated communications providers, and from other competitive
providers, including

                                      -5-
<PAGE>

providers who do not own their own network. Many of these competitors are larger
and better capitalized than we are. Some carriers have entered into
interconnection agreements with incumbent local exchange carriers and either
have begun, or in the near future likely will begin, offering local exchange
service in each of our markets. Further, as of February 8, 1999, the largest
long distance carriers were permitted to bundle local and long distance
services. This removes one of our competitive advantages. Other entities that
currently offer or are potentially capable of offering switched services include
cable television companies, electric utilities, other long distance carriers,
microwave carriers, and large customers who build private networks.

     Wireless telephone system operators are also competitors in the provision
of local services. Cellular, personal communications service, and other
commercial mobile radio services providers may offer wireless services to fixed
locations, rather than just to mobile customers. This ability to provide fixed
as well as mobile services will enable wireless providers to offer wireless
local loop service and other services to fixed locations (e.g., office and
apartment buildings) in direct competition with us and other providers of
traditional fixed telephone service. In addition, the FCC recently auctioned
substantial blocks of spectrum for fixed use including local exchange services.
We expect exploitation of this spectrum to increase competition in the local
market.

     The World Trade Organization recently concluded an agreement that could
result in additional competitors entering the U.S. local and long-distance
markets. Under the WTO agreement, the United States committed to open
telecommunications markets to foreign-owned carriers. The FCC has adopted
streamlined procedures for processing market entry applications from foreign
carriers, making it easier for such carriers to compete in the U.S. We cannot
predict whether foreign-owned carriers will enter our markets as a result of the
WTO agreement.

Competition for Provision of Long Distance Services.   The long distance market
is significantly more competitive than the local exchange market. In the long
distance market numerous entities compete for the same customers. In addition,
customers frequently change long distance providers in response to lower rates
or promotional incentives by competitors. This results in a high average rate of
customer loss, or churn, in the long distance market. Prices in the long
distance market have declined significantly in recent years and are expected to
continue to decline. Competition in this market will further increase once RBOCs
are permitted to offer long distance services.

Data and Internet Services.   The market for high speed data services and access
to the internet is highly competitive. We expect competition in this market to
continue to intensify. Our competitors in this market will include internet
service providers and other telecommunications companies, including large
interexchange carriers and RBOCs. Many of these competitors have greater
financial, technological and marketing resources than those available to us.
Recently, various RBOCs have filed petitions with the FCC requesting regulatory
relief in connection with the provision of their own data services. In response
to these petitions, the FCC issued a decision that data services generally are
telecommunications services that, when provided by incumbent local exchange
carriers, are subject to the unbundling, resale, and other independent local
exchange carrier obligations prescribed in Section 251 of the Telecommunications
Act. Petitions have been filed with the FCC asking them to reconsider this
decision. The FCC also has initiated a proceeding to determine whether
independent local exchange carriers will be able to escape their Section 251
obligations by providing data services through ''truly'' separate affiliates,
whether the FCC will require incumbent local exchange carriers to unbundle their
data services equipment and resell data  services, and whether the FCC will
grant RBOCs relief for the provision of data services. We cannot predict the
effect that this proceeding will have on our ability to obtain facilities and
services from incumbent local exchange carriers and on the competition that we
will face from incumbent local exchange carriers in the data services market.

Government Regulation

     The local and long distance telephony services and, to a lesser extent, the
data services we provide are regulated by federal, state, and, to some extent,
local government authorities. The FCC has jurisdiction over all
telecommunications common carriers to the extent they provide interstate or
international communications services. Each state regulatory commission has
jurisdiction over the same carriers with respect to the provision of intrastate
communications services. Local governments sometimes impose franchise or
licensing requirements on

                                      -6-
<PAGE>

telecommunications carriers and regulate construction activities involving
public rights-of-way. Changes to the regulations imposed by any of these
regulators could have a material adverse effect on our business, operating
results and financial condition.

     In recent years, the regulation of the telecommunications industry has been
in a state of flux as the United States Congress and various state legislatures
have passed laws seeking to foster greater competition in telecommunications
markets. The FCC and state utility commissions have adopted many new rules to
implement this legislation and encourage competition. These changes, which are
still incomplete, have created new opportunities and challenges for us and our
competitors. The following summary of regulatory developments and legislation is
not intended to describe all present and proposed federal, state and local
regulations and legislation affecting the telecommunications industry. Some of
these and other existing federal and state regulations are the subject of
judicial proceedings, legislative hearings and administrative proposals which
could change, in varying degree, the manner in which this industry operates. We
cannot predict the outcome of these proceedings, or their impact on the
telecommunications industry at this time.

Federal Regulation

     We are currently not subject to price cap or rate of return regulation at
the federal level and are not currently required to obtain FCC authorization for
the installation, acquisition or operation of our domestic interexchange network
facilities. However, we must comply with the requirements of common carriage
under the Communications Act. We are subject to the general requirement that our
charges and terms for our telecommunications services be "just and reasonable"
and that we not make any "unjust or unreasonable discrimination" in our charges
or terms. The FCC has jurisdiction to act upon complaints against any common
carrier for failure to comply with its statutory obligations.

     Comprehensive amendments to the Communications Act were made by the
Telecommunications Act, which was signed into law on February 8, 1996. The
Telecommunications Act effected changes in regulation at both the federal and
state levels that affect virtually every segment of the telecommunications
industry. The stated purpose of the Telecommunications Act is to promote
competition in all areas of telecommunications. While it may take years for the
industry to feel the full impact of the Telecommunications Act, it is already
clear that the legislation provides us with new opportunities and challenges.

     The Telecommunications Act greatly expands the interconnection requirements
on the incumbent local exchange carriers, or incumbent local exchange carriers.
The Telecommunications Act requires the incumbent local exchange carriers to:

 .    provide physical collocation, which allows companies such as us and other
     competitive local exchange carriers to install and maintain their own
     network termination equipment in incumbent local exchange carrier central
     offices, and virtual collocation only if requested or if physical
     collocation is demonstrated to be technically infeasible;

 .    unbundle components of their local service networks so that other providers
     of local service can compete for a wide range of local services customers;
     and

 .    establish "wholesale" rates for their services to promote resale by
     competitive local exchange carriers.

     In addition, all local exchange carriers must:

 .    establish number portability, which will allow a customer to retain its
     existing phone number if it switches from the local exchange carrier to a
     competitive local service provider;

 .    provide nondiscriminatory access to telephone poles, ducts, conduits and
     rights-of-way.

                                      -7-
<PAGE>

 .    compensate other local exchange carriers on a reciprocal basis for traffic
     originated on one local exchange carrier and terminated on the other local
     exchange carrier.

     The FCC is charged with establishing national guidelines to implement
certain portions of the Telecommunications Act. The FCC issued its
interconnection order on August 8, 1996. On July 18, 1997, however, the United
States Court of Appeals for the Eighth Circuit issued a decision vacating the
FCC's pricing rules, as well as certain other portions of the FCC's
interconnection rules, on the grounds that the FCC had improperly intruded into
matters reserved for state jurisdiction. On January 25, 1999, the Supreme Court
largely reversed the Eighth Circuit's order, holding that the FCC has general
jurisdiction to implement the local competition provisions of the
Telecommunications Act. In so doing, the Supreme Court stated that the FCC has
authority to set pricing guidelines for unbundled network elements, to prevent
incumbent local exchange carriers from disaggregating existing combinations of
network elements, and to establish "pick and choose" rules regarding
interconnection agreements. "Pick and choose" rules would permit a carrier
seeking interconnection to "pick and choose" among the terms of service from
other interconnection agreements between the incumbent local exchange carriers
and other competitive local exchange carriers. This action reestablishes the
validity of many of the FCC rules vacated by the Eighth Circuit. Although the
Supreme Court affirmed the FCC's authority to develop pricing guidelines, the
Supreme Court did not evaluate the specific pricing methodology adopted by the
FCC and has remanded the case to the Eighth Circuit for further consideration.
Thus, while the Supreme Court resolved many issues, including the FCC's
jurisdictional authority, other issues remain subject to further consideration
by the courts and the FCC. We cannot predict the ultimate disposition of those
matters. We also cannot predict the possible impact of this decision, including
the portion dealing with unbundled network elements, on existing interconnection
agreements between incumbent local exchange carriers and competitive local
exchange carriers or on agreements that may be negotiated in the future.

     Although most of the FCC rules that the Supreme Court was considering were
upheld, the Court vacated the FCC's rule that identifies the unbundled network
elements that incumbent local exchange carriers must provide to competitive
local exchange carriers. The FCC recently initiated a new proceeding to
reexamine whether it will identify which unbundled network elements incumbent
local exchange carriers must provide, and, if so, how to identify those
elements. It is unclear how the FCC will decide this issue or the effect that
the FCC's decision will have on our business or operations.

     The FCC recently adopted new rules designed to make it easier and less
expensive for competitive local exchange carriers to obtain collocation at
incumbent local exchange carrier central offices by, among other things,
restricting the incumbent local exchange carriers' ability to prevent certain
types of equipment from being collocated and requiring incumbent local exchange
carriers to offer alternative collocation arrangements to competitive local
exchange carriers. The FCC also initiated a new proceeding to address line
sharing, which, if implemented, would allow competitive local exchange carriers
to offer data services over the same line that a consumer uses for voice
services without the competitive local exchange carrier having to provide the
voice service. While we expect that the FCC's new collocation rules will be
beneficial to us, we cannot be certain that these new rules will be implemented
in a favorable manner. Moreover, incumbent local exchange carriers or other
parties may ask the FCC to reconsider some or all of its new collocation rules,
or may appeal these rules in federal court. We cannot predict the outcome of
these actions or the effect they may have on our business.

     Under the Communications Act, incumbent local exchange carriers have an
obligation to negotiate with us in good faith to enter into interconnection
agreements. We will need interconnection agreements to provide enhanced
connectivity to our network and to provide local dial tone services. If we
cannot reach agreement, either side may petition the applicable state commission
to arbitrate remaining disagreements. These arbitration proceedings can last up
to 9 months. Moreover, state commission approval of any interconnection
agreement resulting from negotiation or arbitration is required, and any party
may appeal an adverse decision by the state commission to federal district
court. The potential cost in resources and delay from this process could harm
our ability to compete in certain markets, and there is no guarantee that a
state commission would resolve disputes, including pricing disputes in our
favor. Moreover, as explained above, the FCC rules governing pricing standards
for access to the networks of the

                                      -8-
<PAGE>

traditional telephone companies are currently being challenged in federal court.
If the courts overturn the FCC's pricing rules, the FCC may adopt a new pricing
methodology that would require us to pay a higher price to traditional telephone
companies for interconnection. This could have a detrimental effect on our
business.

     The Telecommunications Act permits RBOCs to provide long distance services
outside their local service regions immediately, and will permit them to provide
in-region long distance service upon demonstrating to the FCC and state
regulatory agencies that they have adhered to the Telecommunication Act's 14-
point competitive checklist. Some RBOCs have filed applications with various
state public utility commissions and the FCC seeking approval to offer in-region
long distance service. Some states have denied these applications while others
have approved them. However, to date, the FCC has denied each of the RBOC's
applications brought before it because it found that the RBOC had not
sufficiently made its local network available to competitors. We anticipate that
a number of RBOCs will file additional applications in 1999.

     In May 1997, the FCC released an order establishing a significantly
expanded universal service regime to subsidize the cost of telecommunications
service to high cost areas, as well as to low-income customers and qualifying
schools, libraries, and rural health care providers. Providers of interstate
telecommunications services, like us, as well as certain other entities, must
pay for these programs. We are also eligible to receive funding from these
programs if we meet certain requirements, but we are not currently planning to
do so. Our share of the payments into these subsidy funds will be based on our
share of certain defined telecommunications end-user revenues. Currently, the
FCC is assessing such payments on the basis of a provider's revenue for the
previous year. Various states are also in the process of implementing their own
universal service programs. We are currently unable to quantify the amount of
subsidy payments that we will be required to make and the effect that these
required payments will have on our financial condition. Moreover, the FCC's
universal service rules remain subject to judicial appeal and further FCC
review. Additional changes to the universal service program could increase our
costs.

     On November 1, 1996, the FCC issued an order that required nondominant
interexchange carriers, like us, to cease filing tariffs for our domestic
interexchange services. The order required mandatory detariffing and gave
carriers nine months to withdraw federal tariffs and move to contractual
relationships with their customers. This order subsequently was stayed by a
federal appeals court, and it is unclear at this time whether the detariffing
order will be implemented. In June 1997, the FCC issued another order stating
that non-dominant local exchange carriers, like us, could withdraw their tariffs
for interstate access services provided to long distance carriers. The FCC
continues to require that carriers obtain authority to provide service between
the United States and foreign points and file tariffs for international service.
If the FCC's orders become effective, nondominant interstate services providers
will no longer be able to rely on the filing of tariffs with the FCC as a means
of providing notice to customers of prices, terms and conditions under which
they offer their interstate services. If we cancel our FCC tariffs as a result
of the FCC's orders, we will need to implement replacement contracts which could
result in substantial administrative expenses.

     In March 1999, the FCC adopted further rules that, while still maintaining
mandatory detariffing, nonetheless require long distance carriers to make
specific public disclosures on the carriers' Internet websites of their rates,
terms and conditions for domestic interstate services. The effective date for
these rules is also delayed until a court decision on the appeal of the FCC's
detariffing order.

     Recently, the FCC has determined that both continuous access and dial-up
calls from a customer to an internet service provider, are interstate, not
local, calls, and, therefore, are subject to the FCC's jurisdiction. The FCC has
initiated a proceeding to determine the effect that this regulatory
classification will have on the obligation of a local  exchange carrier to pay
reciprocal compensation for dial-up calls to internet service providers that
originate on one local  exchange carrier network and terminate on another local
exchange carrier network.  Moreover, several states are  considering this issue,
and one state has held that local exchange carriers do not need to pay
reciprocal compensation for calls terminating at internet service providers.  In
addition, one RBOC has petitioned the FCC for a ruling that telephone-to-
telephone calls made over the internet are subject to regulation as a
telecommunications service under the Communications Act. Although the FCC has
suggested that such internet-based telephone-to-

                                      -9-
<PAGE>

telephone calls may be considered a telecommunications service, it has not
reached a final decision on that issue. We cannot predict the effect that the
FCC's resolution of these issues will have on our business.

     In August 1997, the FCC issued rules transferring responsibility for
administering and assigning local telephone numbers from the RBOCs and a few
other local exchange carriers to a neutral entity in each geographic region in
the United States. In August 1996, the FCC issued new numbering regulations that
prohibit states from creating new area codes that could unfairly hinder local
exchange carriers by requiring their customers to use 10 digit dialing while
existing independent local exchange carrier customers use 7 digit dialing. These
regulations also prohibit incumbent local exchange carriers which are still
administering central office numbers pending selection of the neutral
administrator from charging "code opening" fees to competitors unless they
charge the same fee to all carriers including themselves. In addition, each
carrier is required to contribute to the cost of numbering administration
through a formula based on net telecommunications revenues. In July 1996, the
FCC released rules requiring all local exchange carriers to have the capability
to permit both residential and business consumers to retain their telephone
numbers when switching from one local service provider to another, known as
"number portability."  In May 1999, the FCC initiated a proceeding to address
the problem of the declining availability of area codes and phone numbers.

     A customer's choice of local or long distance telecommunications company is
encoded in a customer record, which is used to route the customer's calls so
that the customer is served and billed by the desired company. A user may change
service providers at any time, but the FCC and some states regulate this process
and require that specific procedures be followed. When these procedures are not
followed, particularly if the change is unauthorized or fraudulent, the process
is known as "slamming." Slamming is such a significant problem that it was
addressed in detail by Congress in the Telecommunications Act, by some state
legislatures, and by the FCC in recent orders. The FCC has levied substantial
fines for slamming. The risk of financial damage and business reputation from
slamming is significant. Even one slamming complaint could cause extensive
litigation expenses for us. The FCC recently decided to apply its slamming rules
(which originally covered only long distance) to local service as well.

State Regulation

     To the extent that we provide telecommunications services which originate
and terminate in the same state, we are subject to the jurisdiction of that
state's public service commission. As our local service business and product
lines expand, we will offer more intrastate service and become increasingly
subject to state regulation. The Telecommunications Act maintains the authority
of individual state utility commissions to preside over rate and other
proceedings, as discussed above, and impose their own regulation of local
exchange and interexchange services so long as such regulation is not
inconsistent with the requirements of the Telecommunications Act. For instance,
states may impose tariff and filing requirements, consumer protection measures
and obligations to contribute to universal service, and other funds.

     We are subject to requirements in some states to obtain prior approval for,
or notify the state commission of, any transfers of control, sales of assets,
corporate reorganizations, issuances of stock or debt instruments and related
transactions. Although we believe such authorizations could be obtained in due
course, there can be no assurance that the FCC or state commissions would grant
us authority to complete any of these transactions.

     We have state regulatory authority to provide competitive local exchange
services and interexchange services in nine states. We also have state
regulatory authority to provide interexchange services in approximately 31
additional states. In some states, in which we have or have had de minimis
intrastate interexchange revenues, we have not obtained authorization to provide
such interexchange services or have allowed such authorization to lapse. We have
either subsequently obtained, or are in the process of applying to obtain, the
appropriate authorization in these states.

     The Telecommunications Act generally preempts state statutes and
regulations that restrict the provision of competitive local services. States,
however, may still restrict competition in some rural areas. As a result of this

                                      -10-
<PAGE>

preemption, we will be free to provide the full range of local, long distance,
and data services in any state. While this action greatly increases our
potential for growth, it also increases the amount of competition to which we
may be subject.

Local Government Regulation

     We may be required to obtain from municipal authorities street opening and
construction permits to install our facilities in some cities. In some of the
areas where we provide service, we are subject to municipal franchise
requirements requiring us to pay license or franchise fees either on a
percentage of gross revenue, flat fee or other basis. The Telecommunications Act
requires municipalities to charge nondiscriminatory fees to all
telecommunications providers, but it is uncertain how quickly this requirement
will be implemented by particular municipalities in which we operate or plan to
operate or whether it will be implemented without a legal challenge.

Employees

As of July 9, 1999, we employed 393 persons. None of our employees are
represented by a collective bargaining agreement.


                                    PART II

ITEM 6.  SELECTED FINANCIAL DATA

     The following selected financial data for the five years ended March 31,
1999 are derived from our financial statements. You should read the following
financial data together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements and the
related notes.

     All earnings per share and weighted average share information included in
the accompanying financial statements have been restated to reflect the five-
for-four stock split effected in fiscal year ended March 31, 1995, and the
three-for-two stock split and the two-for-one stock split effected in fiscal
year ended March 31, 1996.


<TABLE>
<CAPTION>
                                                     Fiscal Year ended March 31,
                                         ---------------------------------------------------
                                            1995       1996      1997       1998       1999
                                         ----------   -------   -------   -------    -------
                                         (dollars in thousands, except per share information)
<S>                                      <C>         <C>       <C>       <C>        <C>
Statement of Operations Data
Agency revenues ......................   $   18,898  $ 25,492  $ 29,195  $ 24,775   $    ---
Telecommunications revenues ..........        3,038     5,383    11,095    16,172     70,964
                                         ----------  --------  --------  --------   --------
     Total revenues ..................       21,936    30,875    40,290    40,947     70,964
Cost of telecommunications revenue
      (excluding  depreciation and
      amortization) ..................        2,451     4,242     8,709    14,039     61,866
Selling, general and administrative
 expenses ............................       16,663    19,349    23,077    29,488     52,521
Depreciation and amortization ........          656       660       743     1,418      3,778
Income (loss) from operations ........        2,166     6,624     7,761    (3,998)   (47,201)
Net income (loss) ....................        1,472     4,094     4,683    (2,498)   (51,238)
Earnings (loss) per share
     Basic ...........................         0.18      0.43      0.49      (.25)     (5.18)
     Diluted .........................         0.17      0.38      0.43      (.25)     (5.18)
Other Financial Data
EBITDA (loss) ........................   $    2,932  $  7,295  $  8,519  $ (2,405)   (43,346)
</TABLE>

                                      -11-
<PAGE>

<TABLE>
<S>                                           <C>       <C>       <C>      <C>       <C>
Capital expenditures .....................      599       759     1,222     6,109     36,041
Net cash provided (used) by operating
activities ...............................    1,580     2,192     3,572    (7,951)   (33,254)
Net cash used in investing activities ....      599       759     1,222     4,765      6,282
Net cash provided by financing
activities ...............................      171       119       114     8,479     39,622
</TABLE>

<TABLE>
<CAPTION>

                                                                   As of March 31,
                                         -------------------------------------------------------

                                           1995         1996      1997       1998       1999
                                         ---------   ---------  ---------  ---------  ---------
                                                        (dollars in thousands)

Balance Sheet Data
<S>                                      <C>         <C>        <C>        <C>        <C>

Cash and cash equivalents .............  $    2,391  $   3,942  $   6,406  $  2,168   $   2,254
Total assets ..........................       7,726     12,509     20,186    30,768      69,482
Total long-term debt, including
  current portion .....................          --         --         --     9,673      64,858
Series A redeemable convertible
  preferred stock .....................          --         --         --                12,672
Stockholders' equity (deficit) ........       5,526      9,495     14,292    11,966     (37,144)
</TABLE>

    EBITDA consists of income (loss) before interest, income taxes, depreciation
and amortization.  We have provided EBITDA because it is a measure of financial
performance commonly used in the telecommunications industry.  Other companies
may calculate it differently from us.  EBITDA is not a measurement of financial
performance under generally accepted accounting principles, or GAAP.  We do not
believe you should consider EBITDA as an alternative to net income (loss) as a
measure of results of operations or to GAAP-based cash flow data as a measure of
liquidity.  Capital expenditures  consists of additions to property and
equipment acquired for cash or under notes payable and capital leases.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
    OF OPERATIONS

Overview

    Historically, we have generated agency revenues and telecommunications
revenues. Agency revenues consist of commissions we earned as an agent of Bell
Atlantic and other Regional Bell Operating Companies,  and long distance
providers. Telecommunications revenues are generated by our sale of local, long
distance, data communications, internet access and other communications
services. For the fiscal year ended March 31, 1998, agency commissions accounted
for approximately 60% of our revenues, with telecommunications revenues
accounting for the other 40%. As a result of our transition to an integrated
communications provider strategy in January 1998, agency commissions earned
after December 31, 1997 are not material.

    Our financial information for the fiscal year ended March 31, 1999 reflects
a full year of operations under our new strategy. Our financial information for
fiscal years ended on or before March 31, 1998 primarily reflects our operations
as an agent for Bell Atlantic. Because of our transition to our new strategy and
our network buildout, most of the financial information for these periods does
not reflect our current business and is not comparable to results for subsequent
periods.

Results of Operations

Fiscal Year Ended March 31, 1999 Compared to Fiscal Year Ended March 31, 1998.

    Total revenues for the fiscal year ended March 31, 1999 were $70,964,000, an
increase of 73% from $40,947,000 for the preceding fiscal year. As an integrated
communications provider, revenues for fiscal 1999 reflect our direct sales of
local telecommunications services in addition to our direct sales of other
telecommunications services.  Revenue for fiscal 1998 reflect agency commissions
on local telecommunications

                                      -12-
<PAGE>

services for the period April 1, 1997 through December 31, 1997 as well as our
direct sales of other telecommunications services for the entire year.

     A common basis for measurement of an integrated communications provider's
progress is the growth in access line equivalents, or ALEs. ALEs are the total
number of voice circuits and equivalent data circuits we have in service. Voice
circuits are the actual number of voice circuits purchased by our customers. We
calculate our equivalent data circuits by dividing the data transmission
capacity purchased by our customers by 64 kilobits per second, which represents
the capacity necessary to carry one voice circuit. During the quarter ended
March 31, 1999, voice and data ALEs in service increased by 38,935, or
approximately 38% from the quarter ended December 31, 1998. This brought our
total ALEs in service to 142,207 at the end of our first 15 months as an
integrated communications provider. Data ALEs increased by approximately 45%
from the quarter ended December 31, 1998 to 28,502, or 20% of total ALEs in
service as of March 31, 1999. Data ALEs at March 31, 1999 include 6,720 ALEs
purchased by other carriers including internet service providers.

     Costs of telecommunications revenues, excluding depreciation and
amortization, increased to $61,866,000 for fiscal 1999 from $14,039,000 for
fiscal year 1998 as a result of our decision to provide local services directly
instead of providing local services on an agency basis. However, as a percentage
of telecommunications revenue, costs of telecommunications revenues remained at
87% for fiscal 1999 and 1998. We expect that, as a result of a recent agreement
we entered into with Bell Atlantic, our costs of reselling Bell Atlantic local
lines will decrease. Under the terms of this agreement we will receive up to an
additional 15% discount on the wholesale rates Bell Atlantic is required to
offer. Under this agreement, we have committed to maintain in service over the
next five years a number of resold Bell Atlantic local telephone lines at least
equal to 100,000 at the end of the first year and 225,000 at the end of each of
the remaining four years.

     Selling, general and administrative expenses increased 78% to $52,521,000
in fiscal 1999 from $29,488,000 for fiscal 1998. This increase was primarily due
to the increased number of service and technical employees hired and other
expenses incurred in connection with operating under our new strategy. Also
contributing to the increase were approximately $9,886,000 of expenses and
charges relating to the litigation and settlement with Bell Atlantic. Selling,
general and administrative expenses also increased for fiscal 1999 due to
increased expenses associated with the network buildout.

     Depreciation and amortization expense increased 166% to $3,778,000 in
fiscal 1999 from $1,418,000 in fiscal 1998. This increase was a result of the
investments we made in equipment and software for our network.

     Interest and other expense increased to $5,563,000 for the fiscal year
ended March 31, 1999, as compared to interest and other income of $213,000 for
the fiscal year ended March 31, 1998. The increase is due to increased
borrowings to fund our operating losses and the deployment of our network, the
fees associated with our credit and vendor facilities, and the amortization of
the interest expense associated with warrants issued in connection with the
financings.

     The benefit for income taxes, which is limited to refunds available on a
loss carryback basis, has been recognized ratably as a percentage of our
estimated pre-tax loss over each of the four quarters of the fiscal year. The
effective rate of the benefit varied with changes in management's estimates.

Fiscal Year Ended March 31, 1998 Compared to Fiscal Year Ended March 31, 1997

     The results for the fiscal year ended March 31, 1998 reflect our decision
to leave the Bell Atlantic agency program in December 1997 and our commencement
of operations as an integrated communications provider. This decision adversely
affected revenues and expenses to a certain extent in the third quarter as we
prepared for this transition and significantly affected revenues in the fourth
quarter after the transition had been effected. Total revenues of $40,947,000
for fiscal 1998 were essentially flat as compared to $40,290,000 for the fiscal
year ended March 31, 1997. Agency revenues decreased 15% to $24,775,000 for
fiscal 1998 from $29,195,000 in fiscal 1997,

                                      -13-
<PAGE>

primarily as a result of fourth quarter revenues of only $194,000, as compared
to $8,354,000 for the same period of fiscal 1997. This decrease reflects the
fact that we left the Bell Atlantic agency program in December 1997, and thus no
Bell Atlantic agency revenues were reported in the fourth quarter of fiscal
1998. Telecommunications revenues increased 46% to $16,172,000 for fiscal 1998
from $11,095,000 for fiscal 1997. This increase reflects the increased sales of
long distance, internet access, and data services as well as the commencement of
our sale of local telecommunications services as an integrated communications
provider in the fourth quarter of fiscal 1998. Although local telecommunications
sales increased during the fourth quarter, they were significantly less than we
expected as a result of the imposition of the temporary restraining order in
connection with the Bell Atlantic litigation initiated in February 1998, which
required us to sell these local services only to new customers, resulting in a
longer sales cycle. This temporary restraining order was dissolved in August
1998.

     Costs of telecommunications revenues, excluding depreciation and
amortization, increased 61% to $14,039,000 for fiscal 1998 from $8,709,000 for
fiscal 1997. As a percentage of telecommunications revenues, cost of
telecommunications revenues was 87% for fiscal 1998 as compared to 78% for
fiscal 1997. This overall increase was due primarily to increased sales of
telecommunications services and increased costs for those services sold. Due
largely to the initiation of local telecommunications sales in the fourth fiscal
quarter, cost of telecommunications revenues for this period increased 127% to
$5,944,000 from $2,615,000 for the same period in fiscal 1997. These increases
as a percentage of revenues were attributable to fixed costs associated with the
sale of local telecommunications services, lower long distance rates extended to
customers in advance of rate decreases from one of our long distance suppliers,
increased costs associated with adding new customers and services, and costs
associated with phasing out our debit calling card program.

     Selling, general and administrative expenses increased 28% to $29,488,000
in fiscal 1998 from $23,077,000 in fiscal 1997. This increase was a result of
the increased number of sales and service employees hired in connection with our
transition to an integrated communications provider, increased payments of
commission and bonuses, increased corporate and administrative expenses,
expenses related to new branch openings and $614,000 of costs incurred
attributable to our litigation with Bell Atlantic.

     Depreciation and amortization expense increased 91% to $1,418,000 in fiscal
1998 from $743,000 in fiscal 1997. This increase was attributable to increased
depreciation associated with greater capital expenditures.

Liquidity and Capital Resources

     Prior to March 1998, we had funded our working capital and operating
expenditures primarily from cash flow from operations. Commencing in April 1998,
we have funded our transition to an integrated communications provider,
expansion of our sales branches, operating losses and the deployment of our
network by raising additional equity capital and through bank, vendor and lease
financing.

     In April 1998, we received $12.0 million from our private placement of our
Series A redeemable convertible preferred stock and warrants to Spectrum Equity
Investors II, L.P. We also received a commitment on June 30, 1998 from Spectrum
to purchase, at our option, an additional $5.0 million of preferred stock on the
same terms and conditions as the Series A preferred stock. This option expired
on June 30, 1999 without our issuing any additional shares of preferred stock.

     On September 1, 1998, we entered into a senior secured credit facility with
Goldman Sachs Credit Partners and Fleet National Bank. Under the terms of this
senior secured credit facility, the lenders have provided a three-year credit
facility to us consisting of revolving loans in the aggregate amount of up to
$75.0 million. Under our senior secured credit facility we may borrow $15.0
million unconditionally and an additional $60.0 million based on trailing 120
days accounts receivable collections, reducing to trailing 90 days accounts
receivable collections by March 31, 2000. As of March 31, 1999, we had
availability of $45.2 million under this senior secured credit facility of which
we had borrowed approximately $36.1 million.

                                      -14-
<PAGE>

     On October 14, 1998, we entered into an agreement with Cisco Capital for up
to $25.0 million of vendor financing. Under the terms of the agreement, we have
agreed to a three-year, $25.0 million volume purchase commitment of Cisco
equipment and services and Cisco Capital has agreed to advance funds as these
purchases occur. Up to $10.0 million of the vendor facility can be utilized for
costs associated with the integration of Cisco equipment and related
peripherals. Under the terms of the vendor facility, we are required to pay
interest on funds advanced under the facility at an annual rate of 12.5%. As of
March 31, 1999, we had borrowed $15.4 million under the vendor facility.

     Since September 30, 1998, we have entered into various lease and vendor
financing agreements which provide for the acquisition of up to $16.2 million of
equipment and software. As of March 31, 1999, the aggregate amount borrowed
under these agreements was approximately $14.0 million.

     In order to provide liquidity, we entered into a loan agreement dated as of
March 15, 1999 with Toronto Dominion (Texas), Inc. to provide an unsecured
standby credit facility for up to $30.0 million for capital expenditures and
other general corporate purposes. Originally, $10.0 million of this facility was
immediately available, with the remaining $20.0 million becoming available only
if we raised an additional $5.0 million of proceeds from the issuance of equity.
Toronto Dominion has waived the requirement that we raise any equity, and
therefore, the entire $30.0 million is now available to us. As of July 9, 1999,
we had borrowed $6.0 million under this facility. Availability under this
facility will be reduced by any proceeds of our common stock offering described
below. If we raise at least $30.0 million in that offering, the facility will
terminate upon the closing of the offering.

     We have filed a registration statement for a public offering of up to
3,725,000 shares of our common stock. There can be no assurance, however, that
this offering will be consummated.

     As we continue to deploy our network, further penetrate our existing region
and expand into new markets throughout the Boston--Washington, D.C. corridor, we
will need significant additional capital. We believe that the availability under
our standby facility with Toronto Dominion, together with cash on hand, the
proceeds of our bank, lease and vendor financing arrangements and the amounts we
expect to be available under our credit and vendor facilities will be sufficient
to fund our capital requirements for at least the next 12 months. During this
period we will seek to raise additional capital through the issuance of debt and
possibly equity securities, the timing of which will depend on market
conditions, and which could occur in the near future. We may also seek to raise
additional capital through further equity offerings, vendor financing, equipment
lease financing and bank loans.

     We cannot assure you that additional financing will be available on terms
acceptable to us when we need it. The agreements governing our existing
indebtedness limit our ability to obtain debt financing. If we are unable to
obtain financing when we need it, we may delay or abandon our development and
expansion plans. That could have a material adverse effect on our business,
results of operations and financial condition. The actual timing and amount of
our capital requirements may be materially affected by various factors,
including the timing and actual cost of the network, the timing and cost of our
expansion into new markets, the extent of competition and pricing of
telecommunications services by others in our markets, the demand by customers
for our services, technological change and potential acquisitions.

     On February 24, 1999, we settled a lawsuit against Bell Atlantic Corp.
Under the terms of the settlement agreement we received cash and will receive
other consideration to satisfy claims of commissions we earned while we were an
agent for Bell Atlantic. Both parties have agreed to keep the specific terms of
the settlement confidential. We do not expect to incur any additional material
costs related to this matter subsequent to March 31, 1999.

     Working capital deficit at March 31, 1999 was $6.7 million compared to a
working capital surplus of $12.0 million at March 31, 1998, a decrease of $18.7
million. This decrease is due primarily to the increase in accounts payable and
accrued expenses associated with our transition to an integrated communications
provider. We will fund this deficit through borrowings under our credit
facilities, which are long term liabilities. Cash balances at March 31, 1999 and
March 31, 1998 totaled approximately $2.3 million and $2.2 million,
respectively.

                                      -15-
<PAGE>

Year 2000 Compliance

Our State of Readiness

     We have evaluated the effect of the year 2000 problem on our information
systems. We are implementing plans to permit our systems and applications to
effectively process information in order to support ongoing operations in the
year 2000 and beyond. We believe our information technology systems and non-
information systems will be year 2000 compliant by the end of 1999.

     In connection with the deployment of our new network, we have designed a
new database architecture for our computer systems which we expect will be year
2000 compliant. We expect installation of the network and related network
control software to be completed in the summer of 1999. We expect installation
of our new information systems related to our new network to be completed in the
third or fourth quarter of 1999. We began testing our network, and these new
systems when we first began installation, and we expect testing to continue. We
are also upgrading our current information systems to be year 2000 compliant in
case we have not completed installing our new systems by the end of 1999.
Approximately 40% of our existing information systems are now year 2000
compliant. We expect to complete this upgrade in the third or fourth quarter of
1999. While we expect that all significant information systems will be year 2000
compliant in the third or fourth quarter of 1999, we cannot assure you that all
year 2000 problems in the new system will be identified or that the necessary
corrective actions will be completed in a timely manner. We expect our non-
information systems to be year 2000 compliant in the third or fourth quarter of
1999.

     We have requested certification from our significant vendors and suppliers
demonstrating their year 2000 compliance. Approximately 80% of vendors and
suppliers have delivered these certifications. We will continue to seek
additional certifications. However, we cannot assure you that we will receive
any additional certifications. Generally these certifications state that our
vendors and suppliers are year 2000 compliant but do not require any affirmative
action if these certifications are inaccurate. We intend to continue to identify
critical vendors and suppliers and communicate with them about their plans and
progress in addressing year 2000 problems. We cannot assure you that the systems
of these vendors and suppliers will be timely converted. We also cannot assure
you that any failure of their systems to be year 2000 compliant will not
adversely affect our operations.

Our Costs of Year 2000 Remediation

     We have incurred approximately $120,000 in costs to date related
specifically to year 2000 issues and expect to incur an additional approximately
$380,000 through the end of 1999. However, we cannot assure you that the costs
associated with year 2000 problems will not be greater than we anticipate.

Our Year 2000 Risk

     Based on the efforts described above, we currently believe that our systems
will be year 2000 compliant in a timely manner. We have completed the process of
identifying year 2000 issues in our information systems and non-information
systems and expect to complete any remediation efforts in the third and fourth
quarters of 1999.

     We cannot assure you that our operations and financial results will not be
affected by year 2000 problems. We may experience interruptions in service and
not receive billing information in a timely manner if either our systems or
those of our vendors or suppliers are not year 2000 compliant in a timely
manner. It is possible that we could experience other serious year 2000
difficulties that we cannot presently predict.

                                      -16-
<PAGE>

Our Contingency Plans

     We have begun upgrading our current information systems as part of our
contingency plans in case our new systems are not installed before the end of
1999. In addition, we intend to seek to identify alternate service providers in
case our current providers are unable to adequately deliver services in the year
2000.

Description of Senior Secured Facilities

Fleet/Goldman Credit Facility

     As of September 1, 1998, we entered into a senior secured credit facility
with Goldman Sachs Credit Partners, L.P., or GSCP, and Fleet National Bank, or
Fleet. GSCP and Fleet provided us with a three-year senior secured credit
facility consisting of revolving loans in the aggregate amount of up to $75
million. Advances under the facility bear interest at 1.75% over the prime rate.
Advances under the facility are secured by a first priority perfected security
interest on all of our assets, except that we have the ability to exclude assets
we acquire through purchase money financing. In addition, we are required to pay
a commitment fee of 0.5% per annum on any unused amounts under the facility. We
are also required to pay a monthly line fee of $150,000 per month. In connection
with this credit facility we issued to Goldman Sachs & Co. warrants to purchase
662,600 shares of our common stock and to Fleet National Bank warrants to
purchase 311,812 shares of our common stock. We may borrow $15 million
unconditionally and $60 million based on trailing 120 days accounts receivable
collections, reducing to the trailing 90 days of collections by March 31, 2000.
If we wish to prepay the loan during the first 18 months we must pay a
prepayment penalty of 2% of the aggregate amount of the facility. As of March
31, 1999, we had borrowed $36,145,000 under this credit facility.

     Under this credit facility, we have agreed, among other things, to maintain
minimum quarterly net revenues, to achieve minimum EBITDA targets for rolling
six-month periods measured at the end of each fiscal quarter and to achieve a
minimum quarterly target of provisioned ALEs.

     We have also agreed that we will not, without the prior written consent of
the lenders, with various exceptions:

 .    create, incur or assume any secured indebtedness,

 .    create, incur or assume any liens,

 .    enter into any merger, consolidation, reorganization, recapitalization or
     reclassification of our stock,

 .    sell, lease, assign, transfer or otherwise dispose of any of our assets,

 .    declare or pay any cash dividends or purchase, acquire or redeem any of our
     stock,

 .    make, acquire or incur any liabilities in connection with the acquisition
     of any entity or the acquisition of all or substantially all of the assets
     of any entity,

 .    make capital expenditures in excess of $32 million for the period from
     September 1, 1998 to March 31, 2000 and $87 million for the period from
     April 1, 2000 through September 1, 2001.

     Events of default under this credit facility include:

 .    failure to make payments on the loan,

 .    failure to observe various covenants,

                                      -17-
<PAGE>

 .    insolvency proceedings,

 .    the filing of any governmental liens in an amount exceeding $2 million,

 .    the filing of any judgment liens in an amount exceeding $2 million,

 .    default on a material agreement with obligations exceeding $2 million,

 .    payment of any subordinated indebtedness, except as specifically permitted,

 .    any material misrepresentation or misstatement in any warranty or
     representation,

 .    the limitation or termination of any guaranty, or

 .    the occurrence of a change of control, except in connection with the
     reorganization.


Cisco Capital Vendor Facility

     On October 14, 1998, we entered into a three-year vendor facility for up to
$25 million with Cisco Capital. We have agreed to a three year, $25 million
total volume purchase commitment of Cisco equipment and services. Cisco Capital
has agreed to advance funds as these purchases occur. We can also use the
facility for working capital costs associated with the integration and operation
of Cisco solutions and related equipment.

     Under the terms of the vendor facility and an intercreditor agreement
between Cisco Capital and GSCP, we have agreed to give Cisco Capital a senior
security interest in all products Cisco provides to us or other products
purchased with the proceeds of the first $15 million advanced under the facility
and a subordinate security interest in all of our other assets. We are required
to repay 5% of the outstanding amount of the first $15 million of indebtedness
advanced under the facility at the end of each of the ninth, tenth and eleventh
quarterly periods during the term of the facility. We are required to pay
interest on funds advanced under the facility at an annual rate of 12.5%. In
addition to other amounts, we are also required to pay a commitment fee of .50%
per annum on any unused amounts under the facility.

     This vendor facility limits or restricts, except as permitted under our
senior secured credit facility and other than other various exceptions, our
ability to: merge with or acquire all of the assets of any entity; sell or
dispose of assets; purchase or otherwise acquire the capital stock or assets of
any person, or extend any credit to any person; declare or pay any cash
dividends; or redeem or purchase any capital stock.

     This vendor facility also limits or restricts, among other things, our
ability to: incur additional indebtedness; amend, modify or waive some
provisions of our senior secured facility; voluntarily repay any subordinated
debt; or amend or modify any document or instrument governing subordinated debt.
Events of default under the vendor facility include:

 .    failure to make payments on the loan,

 .    any representation or warranty is incorrect when made or deemed made,

 .    failure to perform or observe our covenants,

 .    insolvency proceedings,

                                      -18-
<PAGE>

 .    failure to pay any amounts due or observe any covenants under our senior
     secured facility or other indebtedness in an amount over $2 million which
     failure results in the acceleration of such indebtedness,

 .    failure to pay under, or be in breach of, any other agreement with Cisco,
     Cisco Capital, or their subsidiaries,

 .    failure of any guarantor to perform or observe any covenant contained in
     any guaranty,

 .    any event of default in any other loan documents as defined therein,

 .    revocation of any consent, authorization or other approval necessary to
     enable us to borrow under the vendor facility,

 .    the occurrence of a change of control, as defined therein,

 .    any payment of indebtedness subordinated to the vendor facility, except as
     expressly permitted, and

 .    the entrance of various judgments against us.


Toronto Dominion (Texas), Inc. Facility

     In March 1999, we entered into a Loan Agreement with Toronto Dominion
(Texas), Inc., or TD, to provide an unsecured standby credit facility for up to
$30 million for capital expenditures and other general corporate purposes. Under
the terms of the this standby facility, as amended on June 30, 1999, $30 million
is immediately available. We must pay a commitment fee of $450,000. Additional
commitment fees are payable if the standby facility is still outstanding on the
dates six months, nine months and one year after the closing. In addition, we
pay a quarterly availability fee on unfunded amounts and a funding fee if we
draw on the standby facility. Draws under the standby facility will initially
bear interest at 7.00% over the three-month US Dollar deposit LIBOR rate and
increase quarterly thereafter. We issued warrants to purchase 69,216 shares of
CTC Communication's common stock at $11.8125 per share to TD as part of the
transaction and we may issue contingent warrants to purchase up to 573,913
shares of common stock at $11.8125 per share to TD if advances under the
facility are outstanding six months after the closing. We must repay draws with
the proceeds from future issuances of equity or debt securities or from future
bank financings.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Our exposure to financial risk, including changes in interest rates,
relates primarily to outstanding debt obligations. We utilize our senior secured
credit facility to fund a substantial portion of our capital requirements. This
facility bears interest at a variable interest rate, which is subject to market
changes. We have not entered into any interest rate swap agreements, or other
instruments to minimize our exposure to interest rate increases but will
investigate such options should changes in market conditions occur. We have not
had any derivative instruments in the past and do not plan to in the future,
other than possibly to reduce our interest rate exposure as described above.

     For purposes of specific risk analysis we use sensitivity analysis to
determine the impacts that market risk exposure may have on the fair value of
our outstanding debt obligations. To perform sensitivity analysis, we assess the
risk of loss in fair values from the impact of hypothetical changes in interest
rates on market sensitive instruments. We compare the market values for interest
risk based on the present value of future cash flows as impacted by the changes
in the rates. We selected discount rates for the present value computations
based on market interest rates in effect at March 31, 1999. We compared the
market values resulting from these computations with the market values of these
financial instruments at March 31, 1999. The differences in the comparison are
the hypothetical gains or losses associated with each type of risk. As a result
of our analysis we determined at March 31,

                                      -19-
<PAGE>

1999 a 10% decrease in the levels of interest rates with all other variables
held constant would result in an increase in the fair value of our fixed rate
debt obligations by approximately $1.9 million . A 10% increase in the levels of
interest rates with all other variables held constant would result in a decrease
in the fair value of our outstanding fixed rate debt obligations by
approximately $2.0 million. With respect to our variable rate debt obligations a
10% increase in interest rates would result in increased interest expense and
cash expenditures for interest of approximately $170,000 in fiscal 1999. A 10%
decrease in interest rates would result in reduced interest expense and cash
expenditures of approximately $170,000 in fiscal 1999.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


                            CTC Communications Corp.

                         Index to Financial Statements

<TABLE>
<S>                                                                       <C>
Audited Financial Statements and Schedule
Report of Independent Auditors...........................................  21
Balance Sheets as of March 31, 1999 and 1998.............................  22
Statements of Operations for the years ended March 31, 1999, 1998 and
 1997....................................................................  23
Statements of Stockholders' Equity (Deficit) for the years ended March
 31, 1999, 1998 and 1997.................................................  24
Statements of Cash Flows for the years ended March 31, 1999, 1998 and
 1997....................................................................  25
Notes to Financial Statements............................................  26
Schedule II--Valuation and Qualifying Accounts...........................  40
</TABLE>

                                      -20-
<PAGE>

                         Report of Independent Auditors

Board of Directors
CTC Communications Corp.

   We have audited the accompanying balance sheets of CTC Communications Corp.,
as of March 31, 1999 and 1998, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended March 31, 1999. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 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. We believe that our audits provide a reasonable basis
for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CTC Communications Corp. at
March 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended March 31, 1999, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.

                                          Ernst & Young LLP

July 14 1999, except for Notes 7 and 10
  as to which the date is June 30, 1999
Boston, Massachusetts

                                      -21-
<PAGE>

                            CTC Communications Corp.

                                 Balance Sheets

<TABLE>
<CAPTION>
                                                             March 31,
                                                      -------------------------
                                                          1999         1998
                                                      ------------  -----------
<S>                                                   <C>           <C>
                       Assets
Current Assets:
  Cash and cash equivalents.........................  $  2,254,258  $ 2,167,930
  Accounts receivable, less allowance for doubtful
   accounts of $1,717,000 and $492,000 in 1999 and
   1998, respectively...............................    19,200,931   17,288,183
  Prepaid commissions...............................     2,500,000      287,300
  Prepaid expenses and other current assets.........     1,022,198      504,436
  Amounts due from officers and employees...........        55,572       84,754
  Income taxes receivable...........................     2,313,070    2,190,339
                                                      ------------  -----------
Total current assets................................    27,346,029   22,522,942
Property and equipment:
  Property and equipment............................    49,417,689   13,376,970
  Accumulated depreciation and amortization.........   (10,615,766)  (6,837,683)
                                                      ------------  -----------
                                                        38,801,923    6,539,287
Deferred income taxes...............................       --         1,597,000
Deferred financing costs, net of amortization.......     3,229,865
Other assets........................................       104,085      108,885
                                                      ------------  -----------
                                                      $ 69,481,902  $30,768,114
                                                      ============  ===========
   Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
  Accounts payable and accrued expenses.............  $ 27,439,488  $ 8,372,476
  Accrued salaries and related taxes................     1,656,367      756,159
  Current portion of obligations under capital
   leases...........................................     3,230,077      231,796
  Current portion of notes payable..................     1,705,141    1,196,400
                                                      ------------  -----------
Total current liabilities...........................    34,031,073   10,556,831
Obligations under capital leases, net of current
 portion............................................     8,004,366    1,114,277
Notes payable to banks, net of current portion......    51,918,492    7,130,671
Commitments and contingencies
Series A Redeemable Convertible Preferred Stock, par
 value $1.00 per share; authorized 1,000,000 shares,
 726,631 and no shares issued and outstanding at
 March 31, 1999 and 1998, respectively (liquidation
 preference $18,640,023 at March 31, 1999)..........    12,671,797      --
Stockholders' equity (deficit)
  Common Stock, par value $.01 per share; authorized
   25,000,000 shares, 10,352,513 and 9,980,661
   shares issued and outstanding at March 31, 1999
   and 1998, respectively...........................       103,525       99,806
  Additional paid-in capital........................     8,386,816    5,245,704
  Deferred compensation.............................      (212,410)    (318,410)
  Retained earnings (deficit).......................   (45,390,732)   7,075,060
                                                      ------------  -----------
                                                       (37,112,801)  12,102,160
  Amounts due from stockholders.....................       (31,025)    (135,825)
                                                      ------------  -----------
Total stockholders' equity (deficit)................   (37,143,826)  11,966,335
                                                      ------------  -----------
                                                      $ 69,481,902  $30,768,114
                                                      ============  ===========
</TABLE>

                            See accompanying notes.

                                      -22-
<PAGE>

                            CTC Communications Corp.

                            Statements of Operations

<TABLE>
<CAPTION>
                                                Year Ended March 31,
                                        --------------------------------------
                                            1999         1998         1997
                                        ------------  -----------  -----------
<S>                                     <C>           <C>          <C>
Revenues:
  Telecommunications revenue........... $ 70,963,692  $16,171,716  $11,094,838
  Agency commission revenue............      --        24,775,420   29,195,261
                                        ------------  -----------  -----------
                                          70,963,692   40,947,136   40,290,099
Operating Costs and Expenses:
  Cost of telecommunications revenues
   (excluding depreciation and
   amortization).......................   61,865,904   14,038,565    8,709,122
  Selling, general and administrative
   expenses............................   52,521,397   29,488,097   23,076,819
  Depreciation and amortization........    3,778,083    1,417,866      742,895
                                        ------------  -----------  -----------
                                         118,165,384   44,944,528   32,528,836
                                        ------------  -----------  -----------
Income (loss) from operations..........  (47,201,692)  (3,997,392)   7,761,263
Other Income (Expense):
  Interest income......................      184,312      145,012      201,369
  Interest expense.....................   (5,825,328)    (106,465)     (17,753)
  Other................................       77,724      174,395       15,052
                                        ------------  -----------  -----------
                                          (5,563,292)     212,942      198,668
                                        ------------  -----------  -----------
Income (loss) before income taxes......  (52,764,984)  (3,784,450)   7,959,931
Income tax expense (benefit)...........   (1,527,000)  (1,286,760)   3,277,000
                                        ------------  -----------  -----------
Net income (loss)...................... $(51,237,984) $(2,497,690) $ 4,682,931
                                        ============  ===========  ===========
Net Income (Loss) per Common Share:
  Basic................................ $      (5.18) $     (0.25) $      0.49
  Diluted.............................. $      (5.18) $     (0.25) $      0.43
Weighted Average Number of Shares Used
 in Computing Net Income (Loss) per
 Common Share:
  Basic................................   10,130,701    9,886,000    9,600,000
  Diluted..............................   10,130,701    9,886,000   10,773,000
</TABLE>


                            See accompanying notes.

                                      -23-
<PAGE>

                            CTC Communications Corp.

                  Statements of Stockholders' Equity (Deficit)

<TABLE>
<CAPTION>
                             Common Stock       Additional                 Retained                 Amount
                         ---------------------   Paid-In      Deferred     Earnings    Treasury    Due From
                           Shares    Par Value   Capital    Compensation  (Deficit)     Stock    Stockholders    Total
                         ----------  ---------  ----------  ------------ ------------  --------  ------------ ------------
<S>                      <C>         <C>        <C>         <C>          <C>           <C>       <C>          <C>
Balance at March 31,
 1996...................  9,584,122  $ 95,841   $4,644,988   $      --   $  4,889,819  $     --   $(135,825)  $  9,494,823
 Issuance of stock
  pursuant to employee
  stock purchase plan...      8,714        87       70,088          --             --        --          --         70,175
 Exercise of employee
  stock options.........     36,571       366       43,378          --             --        --                     43,744
 Net income.............                                                    4,682,931                    --      4,682,931
                         ----------  --------   ----------   ---------   ------------  --------   ---------   ------------
Balance at March 31,
 1997...................  9,629,407    96,294    4,758,454          --      9,572,750        --    (135,825)    14,291,673
 Issuance of stock
  pursuant to employee
  stock purchase plan...      9,844        98       71,662          --             --        --          --         71,760
 Exercise of employee
  stock options.........    376,387     3,764      347,222          --             --        --          --        350,986
 Acquisition of treasury
  stock.................         --        --           --          --             --  (271,072)         --       (271,072)
 Retirement of treasury
  stock.................    (34,977)     (350)    (270,722)         --             --   271,072          --             --
 Deferred compensation..         --        --      339,088    (318,410)                      --          --         20,678
 Net loss...............         --        --           --          --     (2,497,690)       --          --     (2,497,690)
                         ----------  --------   ----------   ---------   ------------  --------   ---------   ------------
Balance at March 31,
 1998...................  9,980,661    99,806    5,245,704    (318,410)     7,075,060     --       (135,825)    11,966,335
 Issuance of stock
  pursuant to employee
  stock purchase plan...     14,700       147       98,252          --             --        --          --         98,399
 Exercise of employee
  stock options.........    366,482     3,665      235,806          --             --        --     (31,025)       208,446
 Acquisitions of
  treasury stock........         --        --           --          --             --  (107,462)         --       (107,462)
 Retirement of treasury
  stock.................     (9,330)      (93)    (107,369)         --             --   107,462          --             --
 Deferred compensation..         --        --           --     106,000             --        --          --        106,000
 Receipt of amounts due
  from stockholders.....         --        --           --          --             --        --     135,825        135,825
 Issuance of common
  stock purchase
  warrants..............         --        --    2,914,423          --             --        --          --      2,914,423
 Preferred stock
  dividend..............         --        --           --          --     (1,079,364)       --          --     (1,079,364)
 Accretion of offering
  costs related to
  redeemable convertible
  preferred stock.......         --        --           --          --        (28,000)       --          --        (28,000)
 Accretion of warrants
  related to Series A
  Redeemable Convertible
  Preferred Stock.......         --        --           --          --       (120,444)       --          --       (120,444)
 Net loss...............         --        --           --          --    (51,237,984)       --          --    (51,237,984)
                         ----------  --------   ----------   ---------   ------------  --------   ---------   ------------
Balance at March 31,
 1999................... 10,352,513  $103,525   $8,386,816   $(212,410)  $(45,390,732)       --   $ (31,025)  $(37,143,826)
                         ==========  ========   ==========   =========   ============  ========   =========   ============
</TABLE>


                            See accompanying notes.

                                      -24-
<PAGE>

                            CTC Communications Corp.

                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                Year Ended March 31,
                                        --------------------------------------
                                            1999         1998         1997
                                        ------------  -----------  -----------
<S>                                     <C>           <C>          <C>
Operating Activities:
  Net income (loss).................... $(51,237,984) $(2,497,690) $ 4,682,931
  Adjustments to reconcile net income
   (loss) to net cash provided by (used
   in) operating activities:
    Depreciation.......................    2,769,925    1,283,509      742,895
    Amortization.......................    1,008,158      134,357      --
    Interest related to warrants and
     certain fees......................    1,103,960      --           --
    Provision for doubtful accounts....    4,988,698    1,421,000      316,669
    Deferred income taxes..............    1,597,000   (1,068,760)    (289,000)
    Stock-based compensation...........      106,000       20,678      --
    Gain on sale of property and
     equipment.........................      --          (143,333)     --
  Changes in operating assets and
   liabilities:
    Accounts receivable................   (6,901,446)  (7,804,363)  (4,664,260)
    Prepaid commissions................   (2,212,700)     --           --
    Prepaid expenses and other current
     assets............................     (517,762)    (382,937)    (123,789)
    Amounts due from officers and
     employees.........................       29,182      --           --
    Income taxes receivable............     (122,731)  (2,152,579)      21,125
    Other assets.......................   (3,831,046)       4,800        4,800
    Accounts payable and accrued
     expenses..........................   19,067,013    3,466,394    2,657,149
    Accrued salaries and related
     taxes.............................      900,208      --           --
    Accrued income taxes...............      --          (225,948)     225,948
    Deferred revenue and other.........      --            (6,588)      (2,714)
                                        ------------  -----------  -----------
  Net cash provided by (used in)
   operating activities................  (33,253,525)  (7,951,460)   3,571,754
Investing Activity
  Additions to property and equipment..   (6,282,234)  (4,765,025)  (1,221,879)
                                        ------------  -----------  -----------
  Net cash used in investing activity..   (6,282,234)  (4,765,025)  (1,221,879)
Financing Activities
  Proceeds from issuance of Series A
   Redeemable Convertible Preferred
   Stock, net of offering costs........   11,861,321      --           --
  Proceeds from issuance of common
   stock...............................      230,408      151,674      113,919
  Amounts due from stockholders, net...      104,800      --           --
  Borrowings under notes payable.......   51,461,924    8,327,071      --
  Repayment of notes payable...........  (23,177,071)     --           --
  Repayment of capital lease
   obligations.........................     (859,295)     --           --
                                        ------------  -----------  -----------
 Net cash provided by financing
  activities...........................   39,622,087    8,478,745      113,919
                                        ------------  -----------  -----------
Increase (decrease) in cash and cash
 equivalents...........................       86,328   (4,237,740)   2,463,794
Cash and cash equivalents at beginning
 of year...............................    2,167,930    6,405,670    3,941,876
                                        ------------  -----------  -----------
Cash and cash equivalents at end of
 year.................................. $  2,254,258  $ 2,167,930  $ 6,405,670
                                        ============  ===========  ===========
Supplemental disclosure of cash flow
 information:
  Cash paid for interest............... $  2,666,613  $    57,886  $    16,253
  Cash paid (received) for income
   taxes............................... $ (3,001,000) $ 2,160,527  $ 3,318,000
Noncash investing and financing
 activities:
  Receipt of common stock in exercise
   of stock options.................... $    107,462  $   271,072  $      --
  Network and related equipment
   acquired under capital leases....... $ 10,747,665  $ 1,343,573  $      --
  Network and related equipment
   acquired under notes payable........ $ 19,010,820  $      --    $      --
  Common stock purchase warrants issued
   in connection with notes payable and
   Series A Redeemable Convertible
   Preferred Stock..................... $  2,914,423  $      --    $      --
</TABLE>

                            See accompanying notes.

                                      -25-
<PAGE>

                            CTC Communications Corp.

                         Notes to Financial Statements
                                 March 31, 1999

1. Nature of Business

 The Company

   CTC Communications Corp. (the "Company") is an integrated communications
provider ("ICP"), which offers voice and data services predominantly to medium
and larger-sized business customers in New England and New York State. Prior to
becoming an ICP in January 1998, the Company had been a sales agent for Bell
Atlantic Corp. ("Bell Atlantic") since 1984. The Company has also offered long
distance and data services under its own brand name since 1994. In late 1998,
the Company began deploying a packet-switched network in its existing markets.
The Company operates in a single industry segment providing telecommunication
service to medium to larger-sized business customers.

   As the Company continues to deploy its network, further penetrates its
existing region and expands into new markets throughout the Boston-Washington,
D.C. corridor, the Company will need significant additional capital. The
Company believes that proceeds available under the unsecured facility described
in Note 7 together with cash on hand and the amounts expected to be available
under its bank, lease and vendor financing arrangements will be sufficient to
fund its planned capital expenditures, working capital and operating losses for
at least the next 12 months. During this period the Company will seek to raise
additional capital through the issuance of debt or equity securities, the
timing of which will depend on market conditions. The Company may also seek to
raise additional capital through vendor financing, equipment lease financing or
bank loans.

   There can be no assurance that additional financing will be available on
terms acceptable to the Company when needed. The agreements governing its
existing indebtedness limit its ability to obtain debt financing. If the
Company is unable to obtain financing when needed, it may delay or abandon its
development and expansion plans. That could have a material adverse effect on
its business, results of operations and financial condition. The actual timing
and amount of its capital requirements may be materially affected by various
factors, including the timing and actual cost of the network, the timing and
cost of its expansion into new markets, the extent of competition and pricing
of telecommunications services by others in its markets, the demand by
customers for its services, technological change and potential acquisitions.

2. Summary of Significant Accounting Policies

 Cash and Cash Equivalents

   The Company considers all highly liquid investments with original maturities
of three months or less as cash equivalents.

 Property and Equipment

   Property and equipment are stated at cost less accumulated depreciation and
amortization. The Company accounts for internal use software under the
provisions of AICPA Statement of Position 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
Capitalization of costs commences when the preliminary project stage, as
defined under SOP 98-1, is completed. Amortization on a straight-line basis,
commences at the point that the software components have been subjected to all
significant testing phases and are substantially complete and ready for their
intended use. A significant portion of the network and related equipment costs
is subject to the risk of rapid technological change. Accordingly, the
Company's useful lives reflect this risk. Depreciation and amortization is
provided using the straight-line method over the following estimated useful
lives:

<TABLE>
     <S>                                                               <C>
     Furniture, fixture, and equipment................................ 3-5 years
     Network and related equipment.................................... 3-5 years
</TABLE>

                                      -26-
<PAGE>

                            CTC Communications Corp.

                   Notes to Financial Statements--(Continued)

   Leasehold improvements and assets under capital leases are amortized over
the lesser of the lease term or the useful life of the property, usually 3-5
years.

 Impairment of Long-Lived Assets


   In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS No. 121"), the Company reviews its long-lived
assets, including property and equipment, and identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. To determine
recoverability of its long-lived assets, the Company evaluates the probability
that future undiscounted net cash flows will be less than the carrying amount
of the assets. Impairment is measured at fair value. SFAS No. 121 had no effect
on the Company's financial statements.

 Revenue Recognition

   Telecommunications revenue is recognized as usage accrues. Agency revenue is
recognized when services are ordered and, if commissions are based on usage,
revenues are recognized as usage accrues. Provisions for cancellations are made
at the time revenue is recognized, and actual experience prior to the
developments described in Note 4 had consistently been within management's
estimates.

 Deferred Financing Costs

   In connection with certain financing arrangements consummated during fiscal
1999, the Company capitalized $3,835,846 of deferred financing costs. These
costs represent professional and debt origination fees and are being amortized
over the lives of the respective agreements. For the year ended March 31, 1999,
the Company recorded amortization of $605,981 related to deferred financing
costs.

 Income Taxes

   The Company provides for income taxes under the liability method prescribed
by SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred
income taxes are recognized for the future tax consequences of differences
between the tax and financial accounting bases of assets and liabilities at
each year end. Deferred income taxes are based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income (loss). Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized.

 Income (Loss) Per Share

   In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128 "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is similar to the previously reported
fully diluted earnings per share. All income (loss) per share amounts for all
periods have been presented, and where appropriate, restated to conform to the
SFAS No. 128 requirements.


 Risks and Uncertainties

  Concentration of Credit Risk

   Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of cash, cash equivalents and
accounts receivable. Concentration of credit risk with respect to accounts
receivable in fiscal 1999 was minimized by the large number of customers across
New England and New York State. The Company reduces its risk of loss through
periodic review of customer creditworthiness and generally does not require
collateral.

                                      -27-
<PAGE>

                            CTC Communications Corp.

                   Notes to Financial Statements--(Continued)


  Fair Value of Financial Instruments

   Under SFAS No. 107, "Disclosure About the Fair Value of Financial
Instruments," the Company is required to disclose the fair value of financial
instruments. At March 31, 1999 and 1998, the Company's financial instruments
consist of cash, cash equivalents, accounts receivable, accounts payable and
accrued expenses, and notes payable. The fair value of these financial
instruments, excluding the notes payable, approximates their cost due to the
short-term maturity of these financial instruments. Of the $55,622,700 total
notes payable, the carrying value of $34,288,388 approximates fair value due to
the variable interest rates on the note. The carrying value of the remaining
notes payable of $19,335,000 approximates fair value due to no material change
in interest rates since their issuance in fiscal 1999.

  Significant Estimates and Assumptions

   The financial statements have been prepared in conformity with generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make significant 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. Significant estimates and assumptions
made by management affect the Company's allowance for doubtful accounts,
cancellation of orders and certain accrued expenses. Actual results could
differ from those estimates.

 Accounting for Stock Options

   The Company grants stock options for a fixed number of shares to employees
with an exercise price at least equal to the fair value of the shares at the
date of the grant. The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25")
and related interpretations in accounting for its employee stock options
because the alternative fair value accounting provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB No. 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

   Stock options and other stock-based awards to non-employees are accounted
for based on the provisions of SFAS No. 123.

 Leases

   Leases, in which the Company is the lessee, which transfer substantially all
of the risks and benefits of ownership are classified as capital leases, and
assets and liabilities are recorded at amounts equal to the lesser of the
present value of the minimum lease payments or the fair value of the leased
properties at the beginning of the respective lease terms. Interest expense
relating to the lease liabilities is recorded to effect constant rates of
interest over the terms of the lease. Leases which do not meet such criteria
are classified as operating leases and the related rentals are charged to
expense as incurred.

 Recent Accounting Pronouncements

   During 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133") was issued. SFAS No. 133 requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. SFAS No. 133 is effective
beginning in 2000. The adoption of SFAS No. 133 is not expected to have a
material impact on the financial position or of results of operations of the
Company.

                                      -28-
<PAGE>

                            CTC Communications Corp.

                   Notes to Financial Statements--(Continued)


   Effective April 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131
superseded FASB Statement No. 14, "Financial Reporting for Segments of a
Business Enterprise." SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. SFAS 131
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131 did not affect
results of operations, financial position, or the footnote disclosure, as the
Company operates in a single industry segment. The Company will continue to
assess the impact of SFAS No. 131 and modify its reporting and disclosure
requirements if necessary.

3. Property and Equipment

   Property and equipment, at cost, and related accumulated depreciation and
amortization balances are as follows:

<TABLE>
<CAPTION>
                                                               March 31,
                                                        -----------------------
                                                           1999        1998
                                                        ----------- -----------
<S>                                                     <C>         <C>
Furniture, fixtures and equipment...................... $ 4,358,950 $ 3,246,237
Network and related equipment..........................  31,309,749   7,946,704
Leasehold improvements.................................   1,657,752     840,456
Assets under capital lease.............................  12,091,238   1,343,573
                                                        ----------- -----------
                                                         49,417,689  13,376,970
Less accumulated depreciation and amortization.........  10,615,766   6,837,683
                                                        ----------- -----------
                                                        $38,801,923 $ 6,539,287
                                                        =========== ===========
</TABLE>

4. Bell Atlantic Litigation

   In December 1997, the Company terminated its agency contract and filed suit
against Bell Atlantic in Federal District Court for breach of contract,
including the failure of Bell Atlantic to pay approximately $11,500,000 of
agency commissions owed to the Company. The Company also asserted violations by
Bell Atlantic of the antitrust laws and Telecommunications Act. On February 24,
1999 the Company settled the lawsuit. Under terms of the settlement, the
Company received cash and other consideration. As a result of the settlement
the Company wrote off approximately $1,500,000 of accounts receivable. In
connection with the litigation, the Company incurred $614,000 of legal costs as
of March 31, 1998 attributable to the collection effort to recover the Bell
Atlantic receivable. During fiscal 1999 the Company incurred $8,386,000 of
legal and other costs associated with the litigation.

5. Related-Party Transactions

   The installation of certain telecommunications equipment is generally
subcontracted to a company controlled by the Chairman of the Company. In
addition, equipment is purchased from this company. Amounts paid to this
company for hardware and services, based on fair market value, aggregated
$499,257, $232,775 and $97,190 during fiscal 1999, 1998 and 1997, respectively.

   The Company leases office space from trusts in which the Chairman is a
beneficiary. Rent expense for these facilities aggregated $125,904, $132,656
and $132,656 in fiscal 1999, 1998 and 1997, respectively. One of those leases
expired during fiscal 1999. The remaining lease expires during fiscal 2002.

   The Company subleases space to a company controlled by the Chairman of the
Company. Terms of the sublease are identical to those included in the Company's
lease. Sublease rental income totaled $106,293, $119,416 and $80,416 in fiscal
1999, 1998 and 1997, respectively.

                                      -29-
<PAGE>

                            CTC Communications Corp.

                   Notes to Financial Statements--(Continued)


6. Accounts Payable and Accrued Expenses

   Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                               March 31,
                                                         ----------------------
                                                            1999        1998
                                                         ----------- ----------
   <S>                                                   <C>         <C>
   Trade accounts payable............................... $17,788,702 $5,837,449
   Accrued cost of telecommunications revenue...........   5,475,143  1,171,119
   Sales tax payable....................................   3,829,809    688,033
   Bell Atlantic litigation expenses....................     --         614,000
   Other................................................     345,834     61,875
                                                         ----------- ----------
                                                         $27,439,488 $8,372,476
                                                         =========== ==========
</TABLE>

7. Financing Arrangements

   In July 1998, the Company consummated a $20,000,000 interim bank credit
facility (the "Interim Credit Facility"). In connection with this agreement,
the Company issued warrants with a fair value of $109,443 to purchase 55,555
shares of common stock to Spectrum Equity Investors II, L.P. in consideration
for the commitment by Spectrum that upon the Company's request on or before
June 30, 1999, Spectrum would purchase $5,000,000 of convertible preferred
stock. The fair value of the warrants is being amortized and included in
interest expense over the one-year term of commitment ending June 30, 1999.
Borrowings under the Interim Credit Facility were repaid by proceeds from a
revolving line of credit consummated in September 1998, as described below.

   In September 1998, the Company entered into a revolving line of credit
agreement (the "Revolving Line of Credit") with a consortium of lenders,
providing for a three year senior secured credit facility of up to $75,000,000.
Advances under the Revolving Line of Credit bear interest at the prime rate
plus 1.75% per annum. The outstanding debt is secured by all the Company's
assets excluding those acquired through purchase money financing. The Company
is required to pay a commitment fee of 0.5% per annum on any unused amounts
under the Revolving Line of Credit, as well as a monthly line fee of $150,000.
The availability of the initial $15,000,000 is not subject to specific
restrictions. However, the availability of the balance of $60,000,000 of the
Revolving Line of Credit is based upon trailing 120 day accounts receivable
collections, reducing to trailing 90 days of collections by March 31, 2000. The
Company paid a one-time up front fee of $2,531,250, representing 3.375% of the
facility. This one-time up front fee has been capitalized as deferred financing
costs and is being amortized as interest expense over the term of the Revolving
Line of Credit. A termination penalty of $1,500,000 applies during the first
eighteen months of the term of the Revolving Line of Credit. Warrants to
purchase an aggregate of 974,412 shares of the Company's common stock at an
exercise price of $6.75 per share were issued to the lenders in connection with
the transaction. The fair value of the warrants of $1,909,848 is being
amortized and included in interest expense over the three year term of the
Revolving Line of Credit. The Revolving Line of Credit provides for certain
financial and operational covenants, including, but not limited to, minimum
quarterly revenues, minimum earnings before interest, taxes, depreciation,
amortization, and non-recurring charges for rolling six-month periods, and a
minimum quarterly number of provisioned access line equivalents. As of March
31, 1999, the Company had availability under the Revolving Line of Credit of
$45,200,000. Aggregate outstanding borrowings were $36,145,000 at March 31,
1999. The terms of this Revolving Line of Credit require written consent prior
to declaring any cash dividends.

   In October 1998, the Company entered into a three year vendor financing
facility (the "Vendor Financing Facility"). Under the terms of the agreement,
the Company agreed to a $25,000,000 volume purchase commitment from this
vendor. The Vendor Financing Facility also provides that up to an aggregate of

                                      -30-
<PAGE>

                            CTC Communications Corp.

                   Notes to Financial Statements--(Continued)

$10,000,000 may be borrowed to pay for costs associated with the integration of
this vendor's equipment. Outstanding borrowings under the Vendor Financing
Facility are secured by all products purchased from the vendor, all products
purchased by the first $15,000,000 of the Vendor Financing Facility, and a
subordinated security interest in all other assets of the Company. Outstanding
borrowings bear interest at 12.5% per annum. The Company is also required to
pay a facility fee of $15,000 per month and a commitment fee of 0.50% per annum
on any unused amounts under the Vendor Financing Facility. The terms provide
for repayment, at the end of the ninth, tenth and eleventh quarterly periods,
of 5% of the lesser of the outstanding balance, as defined, of the Vendor
Financing Facility and $15,000,000. The remaining principal is due at the end
of the three year term. As of March 31, 1999, the Company had an outstanding
balance of $15,425,998 and availability of $9,574,002. The outstanding balance
at March 31, 1999 includes amounts due to suppliers of $2,926,000 financed
subsequent to that date. The terms of the Vendor Financing Facility restricts
the Company's ability to declare or pay any cash dividends.

   In March 1999, the Company entered into an unsecured credit facility (as
amended on June 30, 1999, the "Credit Facility") with a bank. Under this Credit
Facility, the Company may borrow $30,000,000. Additional commitment fees will
be due the bank if an outstanding balance exists on the dates six months, nine
months and one year after closing. The Company is required to pay a quarterly
availability fee of 1% of the unused balance as well as a fee on any advances.
Warrants to purchase 69,216 shares of the Company's common stock at an exercise
price of $11.8125 were issued in connection with the Credit Facility and
contingent warrants to purchase up to 573,913 shares of common stock at an
exercise price of up to $11.8125 per share may be issued to the lender if
advances under the Credit Facility are outstanding six months after the closing
date of the Credit Facility. The fair value of the warrants of $329,468 to
purchase 69,216 shares of common stock has been capitalized and is being
amortized ratably over the term of the Credit Facility as interest expense. In
the event the contingent warrants are issued, the fair value of the warrants at
that date will be determined and amortized over the then remaining term of the
Credit Facility as interest expense. Interest is payable based upon a variable
rate, which increases over the term of the agreement. The Credit Facility
expires June 2000. The terms of this Credit Facility require written consent
prior to declaring any cash dividends. The Credit Facility provides for certain
financial and operational covenants. No amounts were outstanding under this
facility at March 31, 1999.

   Notes payable, net of the unamortized discount of related warrants,
consisted of the following:

<TABLE>
<CAPTION>
                                                             March 31,
                                                      ------------------------
                                                         1999         1998
                                                      -----------  -----------
   <S>                                                <C>          <C>
   Revolving Line of Credit.......................... $34,288,388  $    --
   Revolving and working capital line of credit......     --         7,345,071
   Equipment line of credit..........................     --           982,000
   Vendor Financing Facility.........................  15,425,998      --
   Notes payable for network and related equipment...   3,909,247      --
                                                      -----------  -----------
                                                       53,623,633    8,327,071
   Less current portion..............................  (1,705,141)  (1,196,400)
                                                      -----------  -----------
                                                      $51,918,492  $ 7,130,671
                                                      ===========  ===========
</TABLE>

                                      -31-
<PAGE>

                            CTC Communications Corp.

                   Notes to Financial Statements--(Continued)

   Long-term debt matures as follows:

<TABLE>
   <S>                                                               <C>
   Year ending March 31:
    2000............................................................ $ 1,705,141
    2001............................................................   2,059,302
    2002............................................................  49,859,190
                                                                     -----------
                                                                     $53,623,633
                                                                     ===========
</TABLE>

8. Leases

   The Company leases office facilities under long-term lease agreements
classified as operating leases. The following is a schedule of future minimum
lease payments, net of sublease income, for operating leases as of March 31,
1999:

<TABLE>
<CAPTION>
                                                          Sublease
                                               Operating   Rental
                                                 Leases    Income       Net
                                               ---------- ---------  ----------
   <S>                                         <C>        <C>        <C>
   Year ending March 31:
    2000...................................... $2,094,925 $(109,897) $1,985,028
    2001......................................  2,007,121  (111,420)  1,895,701
    2002......................................  1,912,473  (111,420)  1,801,053
    2003......................................  1,668,232  (111,420)  1,556,812
    2004......................................    918,614  (111,420)    807,194
    Thereafter................................    273,990   (49,325)    224,665
                                               ---------- ---------  ----------
   Net future minimum lease payments.......... $8,875,355 $(604,902) $8,270,453
                                               ========== =========  ==========
</TABLE>

   Rental expense for operating leases aggregated $1,779,608, $1,121,916 and
$1,001,919 in fiscal 1999, 1998 and 1997, respectively. Sublease rental income
amounted to $106,293, $119,416 and $90,016 in fiscal 1999, 1998 and 1997,
respectively.

   The Company leases certain equipment under capital leases. At March 31,
1999, the Company has capitalized leased equipment totaling $12,091,238 with
related accumulated amortization of $955,831. Obligations under capital leases
mature as follows:

<TABLE>
   <S>                                                              <C>
   Year ending March 31:
    2000........................................................... $ 4,235,411
    2001...........................................................   4,260,012
    2002...........................................................   3,093,937
    2003...........................................................   1,527,344
    2004...........................................................      78,418
    Thereafter.....................................................     --
                                                                    -----------
                                                                     13,195,122
   Less amount representing interest...............................  (1,960,679)
                                                                    -----------
   Present value of minimum lease payments.........................  11,234,443
   Less current portion of obligations under capital leases........  (3,230,077)
                                                                    -----------
   Obligations under capital leases, net of current portion........ $ 8,004,366
                                                                    ===========
</TABLE>

                                      -32-
<PAGE>

                            CTC Communications Corp.

                   Notes to Financial Statements--(Continued)


9. Telecommunications Agreements

   On January 15, 1996, the Company entered into a four-year non-exclusive
agreement with a long-distance service provider for the right to provide long
distance service to the Company's customers at prices affected by volume
attainment levels during the term of the agreement. The Company is not
obligated to purchase any minimum levels of usage over the term of the
agreement, but rates may be adjusted due to the failure of achieving certain
volume commitments. These provisions had no effect on the financial statements
for the year ended March 31, 1999.

   On October 20, 1994, the Company entered into a three-year non-exclusive
agreement with a long-distance service provider for the right to provide long
distance service to the Company's customers at fixed prices by service during
the term of the agreement. On May 6, 1998, the Company entered into an
amendment to the agreement which extended the term of the agreement through
October 2000. On March 31, 1999, the Company entered into an amendment which
provides that the Company shall be liable for a minimum aggregate usage
commitment of $50,000,000. Based upon existing and expected usage, these
provisions had no effect on the financial statements for the year ended March
31, 1999.

   Prior to the execution of the agreements described above, and through March
31, 1999, the Company also had provided long distance service to customers
under an informal non-exclusive arrangement with another long distance service
provider. The Company is not obligated to purchase any minimum level of usage
and there are no other performance obligations.

   On January 8, 1999, the Company entered into agreements with two
communications companies for the provision of transmission and co-location
facilities for the Company's initial network build-out in New England and New
York State. The agreements, which total $11,600,000 of expenditures by the
Company over three years, provide for connectivity between the Company's 22
network hub sites and two fully redundant network operations centers.

10. Stockholders' Equity (Deficit)

   At March 31, 1999, 6,357,142 shares of common stock are reserved for future
issuance upon exercise of outstanding stock options and common stock purchase
warrants and conversion of outstanding preferred stock.

 Preferred Stock

   The dividends, liquidation preference, voting rights and other rights of
each series of preferred stock, when issued, are to be designated by the Board
of Directors prior to issuance.

   In April 1998, the Company completed a private placement of Series A
Redeemable Convertible Preferred Stock ("Series A") through the issuance of
666,666 shares of Series A with an initial liquidation amount per share of $18.
Proceeds to the Company aggregated $12,000,000 for the Series A and warrants to
purchase 133,333 shares of common stock at an exercise price of $9 per share.
Of the $12,000,000 in proceeds, $417,332 has been ascribed to the warrants and
$11,582,668 to the Series A. Each share of Series A accrues a cumulative
dividend equal to an annual rate of 9% of the $18 per share initial liquidation
amount per annum, compounded every six months, which has the effect of
increasing the Series A preference amount. The dividend is payable upon
redemption, liquidation, or conversion of the Series A.

   A majority of the Series A stockholders may require a redemption by the
Company after April 9, 2003. Upon liquidation, dissolution, or winding up of
the Company, including a 50% change in ownership, holders of Series A would be
entitled to receive the payment of a preferential amount before any payment is
made with

                                      -33-
<PAGE>

                            CTC Communications Corp.

                   Notes to Financial Statements--(Continued)

respect to any junior class of stock. The preferential payment would be equal
to the greater of the purchase price plus accrued dividends through the date of
payment or $25.41, unless the value of common stock into which the Series A
converts is higher, in which event the Series A would convert to common stock.

   On the date of issuance, 666,666 shares of the Series A were convertible
into 1,333,332 shares of common stock based on an initial Series A preference
amount of $18 per share and a conversion price of $9 per share. The number of
shares of common stock into which the Series A can be converted increases by an
amount equal to the quotient obtained by dividing (i) the amount by which the
Series A preference amount increases as a result of the accrued dividend by
(ii) $9.00. At March 31, 1999, 666,666 shares of Series A were convertible into
1,453,262 shares of common stock. In addition, the number of shares of common
stock into which Series A can be converted also adjusts upon certain dilutive
issuances of common stock or securities convertible into or exercisable for
common stock. The Series A also provides mandatory conversion by the Company if
the average closing trading price, as defined, is at least 300% of the highest
conversion price in effect prior to April 10, 2002 or is at least 100% of the
highest conversion price thereafter. In the event the mandatory conversion
occurs, the number of shares of common stock into which each share of Series A
will be converted will be calculated by dividing the greater of the Series A
preference amount or $21.39 by the conversion price in effect on the conversion
date. The conversion price of $9.00 is subject to adjustment based upon
certain issuances of common stock or securities convertible into or exercisable
for common stock below the conversion price and for stock splits, combinations,
dividends and similar events. In the event the mandatory conversion occurs, the
Company will recognize a $1.6 million dividend as of that date, representing
the intrinsic value of this contingent conversion feature. Prior to any
liquidation, dissolution, or winding up of the Company, the Series A would
automatically convert into common stock if the liquidation amount is less than
the amount the holder of Series A would have received had the holder converted
to common stock.

   Holders of Series A are entitled to a number of votes equal to the lesser of
1) the whole number of common stock they would receive if they converted their
Series A plus the number of warrants they hold that were issued in connection
with the issuance of Series A shares or 2) the number of shares of Series A
held multiplied by 2.476.

   On July 13, 1998, the Company received a commitment letter from a Series A
stockholder to purchase at the Company's option, an additional $5,000,000 of
preferred stock on the same terms and conditions as the Series A issued in
April 1998.  No shares of Series A were issued under this commitment letter
which expired on June 30, 1999.

 Common Stock Purchase Warrants

   As of March 31, 1999, the Company issued warrants in connection with the
issuance of the Series A and the financing arrangements disclosed in Note 7 to
purchase an aggregate of 1,288,071 shares of common stock at exercise prices
ranging from $6.75 to $11.81 with exercise periods extending through March
2009. The values of the warrants range from $1.96 to $4.76 and were determined
using a Black-Scholes pricing methodology. Significant assumptions include the
interest rate of 5.21%, an expected volatility of 50% and an expected life of
the warrants of 2.5 to 3 years.

 Employee Stock Purchase Plan

   The Company has an employee stock purchase plan (the "ESPP") which enables
participating employees to purchase Company shares at 85% of the lower of the
market prices prevailing on two valuation dates as defined in the ESPP.
Individuals can contribute up to 5% of their base salary. The Company made no
contributions to the ESPP during the three years in the period ended March 31,
1999. Indicated below is a summary of shares of common stock purchased by the
ESPP.

                                      -34-
<PAGE>

                            CTC Communications Corp.

                   Notes to Financial Statements--(Continued)


   In July 1998 and February 1999, the ESPP purchased 6,737 shares and 7,963
shares, respectively, at $6.69 per share.

   In July 1997, the ESPP purchased 5,438 shares at $6.48 per share and in
February 1998 the ESPP purchased 4,406 shares at $8.29 per share.

   In July 1996, the ESPP purchased 2,998 shares at $11.05 per share and in
February 1997, the ESPP purchased 5,716 shares at $6.48 per share.

 Stock Option Plans

   Under the terms of its Employees Incentive Stock Option Plan, as amended,
1985 Stock Option Plan, 1993 Incentive Stock Option Plan, 1996 Stock Option
Plan and 1998 Incentive Plan, (collectively, the "Plans"), the Company may
grant qualified and non-qualified incentive stock options for the purchase of
common stock to all employees and, except for the 1993 Stock Option Plan, to
members of the Board of Directors. The Plans generally provide that the option
price will be fixed by a committee of the Board of Directors but for qualified
incentive stock options will not be less than 100% (110% for 10% stockholders)
of the fair market value per share on the date of grant. Non-qualified options
are granted at no less than 85% (110% for 10% stockholders) of the fair market
value per share on the date of grant. No options have a term of more than ten
years and options to 10% stockholders may not have a term of more than five
years.

   In the event of termination of employment, other than by reason of death,
disability or with the written consent of the Company, all options granted to
employees are terminated. Vesting is determined by the Board of Directors.


   On March 20, 1998, the Board approved the repricing of options to purchase
1,175,500 shares of Common Stock with a new exercise price of $7.19 per share
($7.91 per share for 10% stockholders).

 Stock Based Compensation

   Pro forma information regarding net income (loss) and income (loss) per
common share is required by SFAS No. 123, and has been determined as if the
Company had accounted for its employee stock options granted under the Plans
and shares issued pursuant to the ESPP under the fair value method of SFAS No.
123. The fair value for these options and shares issued pursuant to the ESPP
was estimated at the dates of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions:

<TABLE>
<CAPTION>
                                            Options               ESPP
                                       -------------------  -------------------
                                       1999   1998   1997   1999   1998   1997
                                       -----  -----  -----  -----  -----  -----
<S>                                    <C>    <C>    <C>    <C>    <C>    <C>
Expected life (years).................  3.09   2.96   3.98   0.50   0.50   0.50
Interest rate.........................  4.82%  5.93%  6.28%  5.05%  5.43%  5.40%
Volatility............................ 83.69  85.14  87.88  91.23  64.67  93.03
Dividend yield........................  0.00   0.00   0.00   0.00   0.00   0.00
</TABLE>

   The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

                                      -35-
<PAGE>

                            CTC Communications Corp.

                   Notes to Financial Statements--(Continued)


   For purposes of pro forma disclosures, the expense related to estimated fair
value of the options is recognized over the options' vesting period. The
Company's pro forma net income (loss) and income (loss) per common share are as
follows:

<TABLE>
<CAPTION>
                                              1999         1998         1997
                                          ------------  -----------  ----------
<S>                                       <C>           <C>          <C>
Pro forma net income (loss).............  $(56,003,004) $(4,586,368) $4,094,000
Pro forma income (loss) per common share
 (Basic)................................  $      (5.65) $     (0.46) $     0.39
</TABLE>

   The effects on fiscal 1997, 1998 and 1999 pro forma net income (loss) and
income (loss) per common share of expensing the estimated fair value of stock
options and shares issued pursuant to the ESPP are not necessarily
representative of the effects on reporting the results of operations for future
years as the periods presented include only one, two and three years of option
grants under the Company's plans.

   A summary of the Company's stock option activity, and related information
for the years ended March 31 follows:

<TABLE>
<CAPTION>
                                 1999                1998                 1997
                          ------------------- -------------------- -------------------
                                     Weighted             Weighted            Weighted
                                     Average              Average             Average
                                     Exercise             Exercise            Exercise
                           Options    Price    Options     Price    Options    Price
                          ---------  -------- ----------  -------- ---------  --------
<S>                       <C>        <C>      <C>         <C>      <C>        <C>
Outstanding at beginning
 of year................  2,965,007   $5.50    1,953,112   $4.36   1,995,878   $4.01
  Options granted.......  1,297,000    8.65    2,791,000    7.11     280,539    9.67
  Options terminated....   (279,716)   6.49   (1,402,718)   8.36    (286,734)   7.54
  Options exercised.....   (366,482)   0.66     (376,387)    .93     (36,571)   1.20
                          ---------           ----------           ---------
Outstanding at end of
 year...................  3,615,809   $7.05    2,965,007   $5.50   1,953,112   $4.36
                          =========           ==========           =========
Exercisable at end of
 year...................    961,177              698,250             772,282
Weighted-average fair
 value of options
 granted during the
 year...................  $    4.80           $     4.01           $    6.43
</TABLE>

   The following table presents weighted-average price and life information
about significant option groups outstanding at March 31, 1999:

<TABLE>
<CAPTION>
                                           Options Outstanding                   Options Exercisable
                         ------------------------------------------------------- -------------------
                                     Weighted Average
                                        Remaining        Weighted                     Weighted
         Range             Number      Contractual       Average       Number          Average
    Exercise Prices      Outstanding   Life--Years    Exercise Price Exercisable   Exercise Price
    ---------------      ----------- ---------------- -------------- ----------- -------------------
<S>                      <C>         <C>              <C>            <C>         <C>
$ 0.90-1.10.............    129,261        0.5            $ 1.10       129,261         $ 1.10
  2.70-2.98.............    238,681        1.0              2.75       238,681           2.75
  5.25-5.75.............    213,000        4.4              5.72        32,500           5.75
  6.00-7.06.............    882,867        3.1              6.48        89,453           6.23
  7.19..................  1,034,500        2.6              7.19       301,498           7.19
  7.50-8.69.............    536,000        4.7              7.58        43,284           7.69
 10.12-11.25............    356,334        3.9             10.50        84,834          10.51
 12.37-13.00............     58,500        5.3             12.80             0           0.00
 15.00..................     83,333        3.9             15.00        20,833          15.00
 20.00..................     83,333        3.9             20.00        20,833          20.00
                          ---------                                    -------
                          3,615,809                                    961,177
                          =========                                    =======
</TABLE>

                                      -36-
<PAGE>

                            CTC Communications Corp.

                   Notes to Financial Statements--(Continued)


11. Benefit Plans

 Defined Contribution Plan (the "401(k) Plan")

   The Company maintains a defined contribution plan (the "401(k) Plan") which
covers all employees who meet certain eligibility requirements and complies
with Section 401(k) of the Internal Revenue Code ("IRC"). Participants may make
contributions to the 401(k) Plan up to 15% of their compensation, as defined
under the terms of the 401(k) Plan, up to the maximum established by the IRC.

   The Company may make a matching contribution of an amount to be determined
by the Board of Directors, but subject to a maximum of 6% of compensation
contributed by each participant. Company contributions vest ratably over three
years. Company contributions to the 401(k) Plan were $358,100, $310,788 and
$230,079 in fiscal 1999, 1998 and 1997, respectively.

12. Income (Loss) Per Share

   Income (loss) per common share has been calculated as follows:

<TABLE>
<CAPTION>
                                              1999         1998         1997
                                          ------------  -----------  -----------
<S>                                       <C>           <C>          <C>
Numerator:
  Net income (loss).....................  $(51,237,984) $(2,497,690) $ 4,682,931
  Less preferred stock dividends and
   accretion to redemption value of
   preferred stock......................    (1,227,808)     --           --
                                          ------------  -----------  -----------
  Equals: numerator for Basic and
   Diluted income (loss) per common
   share................................  $(52,465,792) $(2,497,690) $ 4,682,931
Denominator:
  Denominator for Basic income (loss)
   per common share-weighted average
   shares...............................    10,130,701    9,886,000    9,600,000
  Effect of employee stock options......       --           --         1,173,000
                                          ------------  -----------  -----------
Denominator for Diluted income (loss)
 per common share.......................    10,130,701    9,886,000   10,773,000
                                          ------------  -----------  -----------
Basic income (loss) per common share....  $      (5.18) $      (.25) $       .49
                                          ============  ===========  ===========
Diluted income (loss) per common share..  $      (5.18) $      (.25) $       .43
                                          ============  ===========  ===========
</TABLE>

13. Income Taxes

   The provision (benefit) for income taxes consisted of the following:

<TABLE>
<CAPTION>
                                              1999         1998         1997
                                           -----------  -----------  ----------
<S>                                        <C>          <C>          <C>
Current:
  Federal................................. $(3,124,000) $  (218,000) $2,660,000
  State...................................     --           --          906,000
                                           -----------  -----------  ----------
                                            (3,124,000)    (218,000)  3,566,000
Deferred tax provision (benefit)..........   1,597,000   (1,068,760)   (289,000)
                                           -----------  -----------  ----------
                                           $(1,527,000) $(1,286,760) $3,277,000
                                           ===========  ===========  ==========
</TABLE>

                                      -37-
<PAGE>

                           CTC Communications Corp.

                  Notes to Financial Statements--(Continued)

   Significant components of the Company's deferred tax liabilities and assets
as of March 31, are as follows:

<TABLE>
<CAPTION>
                                                          1999         1998
                                                      ------------  ----------
<S>                                                   <C>           <C>
Deferred tax assets:
  Depreciation....................................... $    --       $   64,000
  Bell Atlantic litigation costs.....................      --          249,000
  Bad debt allowance.................................      695,000     960,000
  Accruals and allowances, other.....................       40,000     305,000
  Net operating loss carryforward....................   22,560,000      96,000
                                                      ------------  ----------
Total deferred tax asset.............................   23,295,000   1,674,000
Deferred tax liability:
  Prepaid expenses...................................       (8,000)    (38,000)
  Cash value of life insurance.......................      (38,000)    (39,000)
  Depreciation.......................................     (784,000)     --
                                                      ------------  ----------
Total deferred tax liability.........................     (830,000)    (77,000)
                                                      ------------  ----------
Net deferred tax asset before valuation allowance....   22,465,000   1,597,000
Valuation allowance..................................  (22,465,000)     --
                                                      ------------  ----------
Net deferred tax asset............................... $    --       $1,597,000
                                                      ============  ==========
</TABLE>

   Management has provided a valuation allowance against deferred tax assets
as it is more likely than not that the Company will not realize these assets.

   At March 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $55,700,000, which may be used to reduce future
income tax liabilities, and expire through 2014. Changes in the Company's
ownership will subject the net operating loss carryforwards and tax credits to
limitations pursuant to Sections 382 and 383 of the IRC.

   The income tax expense is different from that which would be obtained by
applying the enacted statutory federal income tax rate to income (loss) before
income taxes. The items causing this difference are as follows:

<TABLE>
<CAPTION>
                                              1999         1998         1997
                                          ------------  -----------  ----------
<S>                                       <C>           <C>          <C>
Tax (benefit) at U.S. statutory rate....  $(17,940,000) $(1,286,760) $2,706,000
State income taxes, net of federal bene-
 fit....................................       --           --          552,000
Valuation allowance and other...........    16,413,000      --           19,000
                                          ------------  -----------  ----------
                                          $ (1,527,000) $(1,286,760) $3,277,000
                                          ============  ===========  ==========
</TABLE>


14. Subsequent Events

   Subsequent to year end, the Company filed a Registration Statement on Form
S-1 with the Securities and Exchange Commission for the purpose of registering
the sale by the Company of up to 3,725,000 shares of common stock.

   Subsequent to year end the Company initiated a statutory reorganization in
which the Company intends to merge, subject to shareholder approval, with a
newly formed holding company, CTC Group. In connection with the
reorganization, shareholders will have appraisal rights under Massachusetts
law to which they are otherwise not entitled. If the reorganization is
consummated and stockholders exercise their appraisal rights, the Company
would be required by law to acquire their shares for cash at their appraised
value. Management believes this will not have a material effect on the
Company's financial condition.

                                      -38-
<PAGE>

                            CTC Communications Corp.

                   Notes to Financial Statements--(Continued)


15. Quarterly Information (Unaudited)

   A summary of operating results and net income (loss) per share for the
quarterly periods in the two years ended March 31, 1999 is set forth below:

<TABLE>
<CAPTION>
                                                  Quarter Ended
                         -------------------------------------------------------------------
                           June 30    September 30  December 31     March 31       Total
                         -----------  ------------  ------------  ------------  ------------
<S>                      <C>          <C>           <C>           <C>           <C>
Year ended March 31,
 1999
Total revenues.......... $12,835,685  $ 14,516,189  $ 19,024,531  $ 24,587,287  $ 70,963,692
Net loss................  (8,029,000)  (10,732,624)  (11,480,025)  (20,996,335)  (51,237,984)
Net loss per share--
 Basic..................        (.81)        (1.10)        (1.18)        (2.07)        (5.18)
Net loss per share--
 Diluted................        (.81)        (1.10)        (1.18)        (2.07)        (5.18)

Year ended March 31,
 1998
Total revenues.......... $11,658,954  $ 11,845,097  $ 11,155,646  $  6,287,439  $ 40,947,136
Net income (loss).......   1,374,000     1,244,000       506,000    (5,621,690)   (2,497,690)
Income (loss) per
 share--Basic...........         .13           .13           .05          (.56)         (.25)
Income (loss) per
 share--Diluted.........         .14           .12           .05          (.56)         (.25)
</TABLE>

   The first two quarters of fiscal year 1998 net income per share amounts have
been restated to comply with SFAS No.128.

   The fiscal 1999 quarterly net loss and net loss per share for the quarters
ended June 30, September 30, and December 31, 1998 disclosed above are different
than previously reported on the Company's quarterly reports on Form 10-Q as a
result of certain year end adjustments. As a result, net loss and net loss per
share increased by $98,000 and $.02, for the quarter ended June 30, 1998,
decreased by $251,000 and $.03 for the quarter ended September 30, 1998 and
decreased by $517,000 and $.02 for the quarter ended December 31, 1998.

                                      -39-
<PAGE>

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                            CTC COMMUNICATIONS CORP.

<TABLE>
<CAPTION>
                           Col. A     Col. B     Col. C     Col. D        Col. E
                         ---------- ---------- ---------- ----------    ----------
                                    Additions
                                       (1)        (2)
                         Balance at Charged to Charged to               Balance at
                         Beginning  Costs and    Other                    End of
      Description        of Period   Expenses   Accounts  Deductions      Period
      -----------        ---------- ---------- ---------- ----------    ----------
<S>                      <C>        <C>        <C>        <C>           <C>
Year ended March 31,
 1999:
  Allowance for doubtful
   accounts.............  $492,000  $4,988,698    $--     $3,763,698    $1,717,000

Year ended March 31,
 1998:
  Allowance for doubtful
   accounts.............  $377,000  $1,421,000    $--     $1,306,000(a) $  492,000

Year ended March 31,
 1997:
  Allowance for doubtful
   accounts.............  $190,215  $  316,669    $--     $  129,884(a) $  377,000
</TABLE>
--------
(a) Bad debts written off, net of collections.

   All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.

                                      -40-
<PAGE>

                                    PART IV

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

  (a)  The following documents are filed as part of this report:

     (1)  Financial Statements:

          Balance Sheets as of March 31, 1999 and 1998.

          Statements of Operations for the years ended March 31, 1999, 1998 and
          1997.

          Statements of Stockholders' Equity for the years ended December 31,
          1999, 1998 and 1997.

          Statements of Cash Flows for the years ended December 31, 1999, 1998
          and 1997.

          Notes to Financial Statements

     (2)  Financial Statement Schedules:

          Schedule II - Valuation and Qualifying Accounts

     (3)  Exhibits:

          The following Exhibits are either filed herewith or have heretofore
          been filed with the Securities and Exchange Commission and are
          referred to and incorporated herein by reference to such filings.

Exhibit No.                        Title

2.1  Amended and Restated Agreement and Plan of Reorganization dated as of
     March 1, 1999 among CTC Communications Group, Inc., CTC Communications
     Corp. and CTC-Newco, Inc. (9)
3.1  Restricted Articles of Organization, as amended (4)
3.2  Amended and Restated By-Laws (4)
4.1  Form of Common Stock Certificate (3)
9.1  Voting Agreement dated April 10, 1998 among Robert Fabbricatore and
     certain of his affiliates and Spectrum (5)
10.1 1996 Stock Option Plan, as amended (1)
10.2 1993 Stock Option Plan (3)
10.3 Employee Stock Purchase Plan (2)
10.4 Lease for premises at 360 Second Ave., Waltham, MA (3)
10.5 Sublease for premises at 360 Second Ave., Waltham, MA (3)

                                      -41-
<PAGE>

10.6    Lease for premises at 110 Hartwell Ave., Lexington, MA (3)
10.7    Lease for premises at 120 Broadway, New York, NY (3)
10.8    Agreement dated February 1, 1996 between NYNEX and CTC Communications
        Corp. (3)
10.9    Agreement dated May 1, 1997 between Pacific Bell and CTC Communications
        Corp. (3)
10.10   Agreement dated January 1, 1996 between SNET America, Inc. and CTC
        Communications Corp. (3)
10.11   Agreement dated June 23, 1995 between IXC Long Distance Inc. and CTC
        Communications Corp., as amended (3)
10.12   Agreement dated August 19, 1996 between Innovative Telecom Corp. and CTC
        Communications Corp. (3)
10.13   Agreement dated October 20, 1994 between Frontier Communications
        International, Inc. and CTC Communications Corp., as amended (3)
10.14   Agreement dated January 21, 1997 between Intermedia Communications Inc.
        and CTC Communications Corp. (3)
10.15   Employment Agreement between CTC Communications Corp. and Steven Jones
        dated February 27, 1998 (5)
10.16   Securities Purchase Agreement dated April 10, 1998 among CTC
        Communications Corp. and the Purchasers named therein (4)
10.17   Registration Rights Agreement dated April 10, 1998 among CTC
        Communications Corp. and the Holders named therein (4)
10.18   Form of Warrant dated April 10, 1998 (4)
10.19   Loan and Security Agreement dated as of September 1, 1998 by and between
        CTC Communications Corp., Goldman Sachs Credit Partners L.P. and Fleet
        National Bank (6)
10.20   Agreement with Cisco Systems Capital Corp. dated as of October 14, 1998
        (7)
10.21   Warrant dated July 15, 1998 issued to Spectrum (8)
10.22   Lease for premises at 220 Bear Hill Rd., Waltham, MA (8)
10.23   Warrant dated September 1, 1998 issued to Goldman Sachs & Co. (8)
10.24   Warrant dated September 1, 1998 issued to Fleet National Bank (8)
10.25   1998 Incentive Plan (1)
10.26   Loan Agreement dated as of March 15, 1999 by and between CTC
        Communications Corp, TD Dominion (Texas), Inc. and TD Securities (USA),
        Inc. (9)
10.27   Warrant dated March 24, 1999 issued to Toronto Dominion (Texas), Inc.
        (9)
10.28   Amendment to Resale Agreements dated July 1, 1999 between Bell Atlantic
        and the Company (10)
23      Consent of Ernst & Young LLP (11)
27      Financial Data Schedule (12)
99      Risk Factors (11)


(1)     Incorporated by reference to an Exhibit filed as part of CTC
        Communications Corp. Registration Statement on Form S-8 (File No. 333-
        68767).

(2)     Incorporated by reference to an Exhibit filed as part of CTC
        Communications Corp. Registration Statement on Form S-8 (File No. 33-
        44337).

(3)     Incorporated by reference to an Exhibit filed as part of CTC
        Communications Corp. Annual Report on Form 10-K for the Fiscal Year
        Ended March 31, 1997.

(4)     Incorporated by reference to an Exhibit filed as part of CTC
        Communications Corp. Current Report on Form 8-K dated May 15, 1998.

(5)     Incorporated by reference to an Exhibit filed as part of CTC
        Communications Corp. Annual Report on Form 10-K for the Fiscal Year
        Ended March 31, 1998.

                                      -42-
<PAGE>

(6)     Incorporated by reference to an Exhibit filed as part of CTC
        Communications Corp. Current Report on Form 8-K dated October 2, 1998.

(7)     Incorporated by reference to an Exhibit filed as part of CTC
        Communications Corp. Current Report on Form 8-K dated November 6, 1998.

(8)     Incorporated by reference to an Exhibit filed as part of CTC
        Communications Corp. Quarterly Report on Form 10-Q for the quarter ended
        September 30, 1998.

(9)     Incorporated by reference to an Exhibit filed as part of CTC
        Communications Corp. Registration Statement on Form S-1 (File No. 333-
        77709).

(10)    Incorporated by reference to an Exhibit filed as part of CTC
        Communications Corp. Current Report on Form 8-K dated July 9, 1999.

(11)    Filed herewith.

(12)    Filed previously.

        (4)  Reports on Form 8-K

        The Company filed the following reports on Form 8-K during the quarter
        ended March 31, 1999:


        Date                   Items Reported

1.      January 11, 1999       Announcement of Agreements with Level 3
                               Communications and NorthEast Optic Network.

2.      January 19, 1999       Announcement of Maine Public Utilities Commission
                               and Rhode Island Public Utilities Commission
                               rulings.

3.      January 20, 1999       Announcement of third quarter access line
                               equivalents

4.      February 2, 1999       Announcement of addition of Mr. Carl Redfield to
                               the Company's Board of Directors

5.      March 11, 1999         Announcement of settlement of Bell Atlantic
                               litigation

                                      -43-
<PAGE>

                                  SIGNATURES

     PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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 ON THIS 15TH DAY OF
JULY 1999.

                                     Ctc Communications Corp.

                                     By: /s/ John D. Pittenger
                                         ------------------------------
                                         Executive Vice President