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

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

      FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      FOR THE TRANSITION PERIOD FROM _______________ TO _______________


                           Commission file no. 0-23477


                                 ICON CMT CORP.
--------------------------------------------------------------------------------
             (Exact name of Registrant as Specified in Its Charter)


          Delaware                                      13-3603128
--------------------------------------------------------------------------------
(State or Other Jurisdiction of              (IRS Employer Identification No.)
Incorporation or Organization)                    


               1200 Harbor Boulevard, Weehawken, New Jersey 07087

             (Address of Principal Executive Offices with Zip Code)

      Registrant's Telephone Number Including Area Code:  (201) 601-2000

--------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes       No   X
                                       -----    -----

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required by Section 12, 13 or 15(d) of the  Securities  Exchange Act of
1934 subsequent to the  distribution  of securities  under a plan confirmed by a
court. Yes      No
          -----    -----

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

The  number  of  shares  of  common  stock  outstanding  as of May 8,  1998  was
15,054,967

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


<PAGE>



                                 ICON CMT CORP.

                                    FORM 10-Q

                      FOR THE QUARTER ENDED MARCH 31, 1998



PART I.     FINANCIAL INFORMATION                                           Page

Item 1.     Condensed Financial Statements

            Condensed Balance Sheet as of March 31, 1998 (unaudited)
            and December 31, 1997..............................................3

            Condensed Statement of Operations for the Three Months
            ended March 31, 1998 and March 31, 1997 (unaudited)................4

            Condensed Statement of Cash Flows for the Three Months
            ended March 31, 1998 and March 31, 1997 (unaudited)................5

            Notes to Condensed Financial Statements (unaudited)................6


Item 2.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations..........................................7

PART II.    OTHER INFORMATION

Item 2.     Changes in Securities and Use of Proceeds.........................15

Item 6.     Exhibits and Reports on Form 8-K..................................15

SIGNATURES....................................................................16


                                       -2-

<PAGE>




                                 ICON CMT CORP.
                             CONDENSED BALANCE SHEET
                    (In thousands, except per share amounts)



                                                        March 31,   December 31,
                                                          1998          1997
                                                       -----------  ------------
                                                       (Unaudited)

                                 Assets
Current assets:
   Cash and cash equivalents ...........................  $29,145        $ 1,011
   Accounts receivable, net of allowance of $356
      and $450, respectively ...........................    7,310          9,276
   Unbilled costs and accrued revenue ..................    1,194            981
   Inventories .........................................      103            104
   Prepaid expenses and other current assets ...........    2,183          2,329
                                                          -------        -------
         Total current assets ..........................   39,935         13,701
   Fixed assets, net ...................................    8,247          6,525
   Other noncurrent assets .............................      303            208
                                                          -------        -------
            Total assets ...............................  $48,485        $20,434
                                                          =======        =======

            Liabilities, Mandatorily Redeemable Convertible
              Preferred Stock and Stockholders' Equity

Current liabilities:
   Accounts payable ..............................        $ 7,756       $ 8,941
   Accrued expenses ..............................          3,687         4,096
   Short term borrowings .........................           --           1,000
   Deferred revenue ..............................            655           121
                                                          -------       -------
         Total current liabilities ...............         12,098        14,158
                                                          -------       -------
            Total liabilities ....................         12,098        14,158
                                                          -------       -------

Mandatorily  redeemable  10% PIK Series B  
       Convertible  Participating  Preferred
       Stock  ($.01 par  value;  415,000  shares  
       authorized,  none  issued  and
       outstanding at March 31, 1998,
       180,240 shares issued and outstanding at 
       December 31, 1997).........................             --        16,628
Mandatorily redeemable Series A Convertible  
       Participating Preferred Stock ($.01
       par value;  450,000  shares  authorized,  
       none issued and  outstanding at
       March 31, 1998, 422,607 shares
       issued and outstanding at 
       December 31, 1997).........................             --        10,601
Stockholders' equity:
   Preferred stock  ($.01 par value;
   1,000,000 shares authorized)...................             --            --
   Common stock ($.001 par value:  50,000,000
      shares authorized, 15,025,285 and 
      6,545,454 shares issued and outstanding)....             15             7
   Additional paid-in-capital.....................         61,725           498
   Accretion of mandatorily redeemable 
   preferred stock................................             --          (388)
   Accumulated deficit............................        (25,353)      (21,070)
                                                          --------      --------
     Total stockholders' equity (deficit).....             36,387       (20,953)
                                                          --------      --------
      Total liabilities, mandatorily redeemable                                 
       preferred stock and stockholders' equity...    $    48,485    $    20,434
                                                      ============   ===========


    The accompanying notes are an integral part of these financial statements


                                       -3-

<PAGE>



                                 ICON CMT CORP.
                        CONDENSED STATEMENT OF OPERATIONS
                                   (Unaudited)



                                                            For the Three Months
                                                               Ended March 31,
                                                            --------------------

                                                               1998         1997
                                                               ----         ----
                                                           (In thousands, except
                                                             per share amounts)

Revenues, net:
   Services
      Professional .....................................   $  5,833    $  3,207
      Communications ...................................      2,813         938
      Media ............................................         14          77
                                                           --------    --------
         Total services revenues .......................      8,660       4,222
                                                           --------    --------
      Products .........................................      9,056       4,795
                                                           --------    --------
         Total revenues, net ...........................     17,716       9,017
                                                           --------    --------

Cost of revenues:
   Services ............................................      6,241       3,137
   Products ............................................      7,986       3,813
                                                           --------    --------
         Total costs of revenues .......................     14,227       6,950
                                                           --------    --------

Gross profit ...........................................      3,489       2,067
                                                           --------    --------

Operating expenses:
   Sales and marketing .................................      3,639       2,095
   General and administrative ..........................      3,354       2,100
   Research and development ............................        576         277
   Depreciation and amortization .......................        330         180
                                                           --------    --------
         Total operating expenses ......................      7,899       4,652
                                                           --------    --------

Loss from operations ...................................     (4,410)     (2,585)
                                                           --------    --------

Other income (expense):
   Interest income .....................................        180          13
   Interest expense ....................................        (53)       (122)
                                                           --------    --------
         Total other income (expense) ..................        127        (109)
                                                           --------    --------

Loss before income taxes ...............................     (4,283)     (2,694)

Provision for income taxes .............................       --          (256)
                                                           --------    --------

Net loss ...............................................   $ (4,283)   $ (2,950)
                                                           ========    ========

Basic loss per share and diluted loss per share ........   $  (0.41)   $  (0.47)
                                                            ========    ========

Weighted average shares outstanding used for basic     
    loss per share and diluted loss per share ..........     10,974       6,545
                                                           ========    ========



    The accompanying notes are an integral part of these financial statements


                                       -4-

<PAGE>



                                 ICON CMT CORP.
                        CONDENSED STATEMENT OF CASH FLOWS
                                   (Unaudited)



                                                            For the Three Months
                                                               Ended March 31,
                                                            --------------------
                                                              1998        1997
                                                              ----        ----
                                                               (In thousands)
Cash flows from operating activities:
   Net loss .............................................  $ (4,283)   $ (2,950)
   Adjustments to reconcile net loss to net cash provided
      by (used in) operating activities:
         Depreciation and amortization ..................       843         401
         Deferred income taxes, net .....................      --           275
      Changes in assets and liabilities .................       745        (306)
                                                           --------    --------
            Net cash used in operating activities .......    (2,695)     (2,580)
                                                           --------    --------

Cash flows from investing activities:
   Capital expenditures .................................    (2,565)       (503)
                                                           --------    --------
            Net cash used in investing activities .......    (2,565)       (503)
                                                           --------    --------

Cash flows from financing activities:
   Proceeds from issuance of short-term notes ...........     1,772      12,035
   Net repayments of short-term notes ...................    (2,772)     (9,043)
   Net proceeds from issuance of common stock ...........    34,394        --
                                                           --------    --------
            Net cash provided by financing activities ...    33,394       2,992
                                                           --------    --------

Net increase (decrease) in cash .........................    28,134         (91)

Cash and cash equivalents at beginning of period ........     1,011         515
                                                           --------    --------

Cash and cash equivalents at end of period ..............  $ 29,145    $    424
                                                           ========    ========



    The accompanying notes are an integral part of these financial statements


                                       -5-

<PAGE>



                                 ICON CMT CORP.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
               (In thousands, except share and per share amounts)
                                   (Unaudited)


1.       Basis of Presentation

         The  accompanying  unaudited  financial  statements for the three month
periods  ended March 31, 1998 and 1997 have been  prepared  in  accordance  with
generally accepted accounting  principles for interim financial  information and
with  the   instructions  to  Form  10-Q  and  Article  10  of  Regulation  S-X.
Accordingly,  they do not include all of the information and footnotes  required
by generally accepted accounting  principles for complete financial  statements.
In the opinion of management,  all  adjustments,  consisting of normal recurring
accruals,  considered  necessary  for a fair  presentation  have been  included.
Operating  results  for the three  month  period  ended  March 31,  1998 are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 1998. For further  information,  refer to the financial  statements
and footnotes  thereto  included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.

2.       Initial Public Offering

         On  February  18,  1998,  Icon  CMT  Corp.  ("Icon"  or the  "Company")
completed its initial public offering (the "Offering"), selling 3,850,000 shares
of common stock at a price of $10.00 per share  providing  gross proceeds to the
Company of $38,500 and net proceeds,  after  deducting  underwriting  discounts,
commissions  and  offering  expenses  payable by the Company,  of  approximately
$34,394.

         Upon  completion  of the Offering,  common  shares  available for grant
under the  Company's  1995 Stock Option Plan were  increased  from  1,636,364 to
2,181,818.

         Upon  the  closing  of the  Offering,  all  outstanding  shares  of the
Company's  Series A and Series B Preferred  Stock converted into an aggregate of
4,629,831 shares of common stock.

3.       Loss Per Common Share

         Effective  December 31, 1997 the Company adopted  Financial  Accounting
Standard No. 128, "Earnings per Share" ("FAS 128"), which requires  presentation
of basic  earnings  per share  ("Basic  EPS")  and  diluted  earnings  per share
("Diluted  EPS") by all  entitles  that have  publicly  traded  common  stock or
potential  common stock (i.e.,  options,  warrants,  convertible  securities  or
contingent  stock  arrangements).  Basic  EPS is  computed  by  dividing  income
available to common stockholders by the weighted average number of common shares
outstanding  during  the  period.  Diluted  EPS  gives  effect  to all  dilutive
potential  common  shares  outstanding  during the period.  The  computation  of
Diluted  EPS does not assume  conversion,  exercise  or  contingent  exercise of
securities that would have an antidilutive effect on earnings.



                                       -6-

<PAGE>



         The  computation of basic loss per share and diluted loss per share for
the three months ended March 31, 1998 and 1997 was as follows:


                                                    Three Months Ended March 31,
                                                    ----------------------------
                                                          1998          1997
                                                          ----          ----

Net loss .........................................   $     (4,283) $     (2,950)
Accretion to liquidation value of Series A
   Preferred and Series B Preferred Stock ........           (202)         (148)
                                                     ------------   ------------
Loss available to common stockholders ............   $     (4,485) $     (3,098)
                                                     ============  ============

Weighted average shares outstanding used 
   for basic loss per share and diluted 
   loss per share .................................     10,973,811     6,545,454

Basic loss per share and diluted loss per share ..   $      (0.41) $      (0.47)
                                                     ============  ============



         At March 31, 1998,  outstanding options to purchase 1,330,096 shares of
common  stock,  with  exercise  prices  ranging  from $6.02 to $14.27  have been
excluded  from  the   computation   of  diluted  loss  per  share  as  they  are
antidilutive.  Outstanding warrants at March 31, 1998 to purchase 948,891 shares
of common stock,  with exercise  prices  ranging from $0.01 to $6.02,  were also
antidilutive and excluded from the computation of diluted loss per share.

4.       Discontinued Product Line

         In March 1998,  the Company  discontinued  its media  services  product
offerings.  The  Company  generated  revenues of $14 and $77 from the selling of
advertising  space on its new media  properties for the three months ended March
31,  1998 and 1997,  respectively.  The cost of revenues  associated  with media
services  for the three  months ended March 31, 1998 and 1997 was $548 and $463,
respectively.




                                       -7-

<PAGE>



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

         The  following  discussion  should  be read  in  conjunction  with  the
Condensed   Financial   Statements  included  elsewhere  in  this  Report.  This
discussion  contains  forward-looking  statements based on current  expectations
that involve risks and  uncertainties.  Actual results and the timing of certain
events may differ  significantly  from those  projected in such  forward-looking
statements due to a number of factors,  including  those set forth at the end of
this Item.

Overview

         Integration  Consortium,  Inc. ("ICI"), the Company's predecessor,  was
incorporated  in New York in February 1991.  Icon CMT Corp. was  incorporated in
Delaware  in  February  1995,  and ICI was merged with and into Icon in December
1995.  ICI was  primarily  engaged in the design,  marketing,  installation  and
on-going support of high-end  network-based  information management systems. ICI
also focused on developing,  customizing  and integrating  both  third-party and
proprietary software applications.

         In 1995,  recognizing  the emergence of internet  protocol  ("IP") as a
data transmission  standard,  the Company's  management  redefined the Company's
strategy to provide  end-to-end  solutions  that enable  corporate  customers to
implement  their  Internet,  intranet and  extranet  strategies.  The  Company's
revenues are primarily derived from the following  services and products:  (i) a
range  of  professional  services,  including  custom  application  and  website
development  and  design,   systems  integration  and  maintenance  and  support
services;  (ii) communications  services including  high-quality Internet access
and related services, such as web/server hosting and management, enhanced by the
Company's  proprietary  technologies;   and  (iii)  product  resales,  including
hardware and software sold as an integral part of systems design and integration
and as a means to sell integrated  communications and professional  services and
establish customer relationships.

         Statement of Operations

         The  Company  provides   professional  services  to  its  customers  to
facilitate  the  delivery  of their  information  and  applications  over Icon's
communications  infrastructure,  including  development,  design and integration
services and maintenance and support services. Revenues from development, design
and systems integration  contracts are recognized on a  percentage-of-completion
basis.  Maintenance  and support  services are typically  provided in accordance
with annual  agreements that are renewable at the discretion of the customer and
subject to change  annually.  Maintenance  and support  revenues are  recognized
ratably over the term of the respective agreement.

         Revenues  from  communications  services  are  generated  by  providing
Internet access and other related  communications  services,  such as web/server
hosting and management.  Communications services are generally provided based on
one-year or multi-year service agreements, which are renewable at the discretion
of the customer.  Communications  services revenues are recognized  ratably over
the term of the respective service agreement.

         As a result of the Company's implementation of its end-to-end solutions
strategy, services revenues (which incorporate professional,  communications and
media  services) have increased  historically  as a percentage of total revenue.
For the three months ended March 31, 1998 and 1997 services  revenues  consisted
of 49% and 47% of total net  revenues,  respectively.  The  increase in services
revenues  as a  percentage  of total net  revenues  is  expected  to continue to
increase  in the  future.  Historically,  the Company  generated  limited  media
revenues

                                       -8-

<PAGE>



from  selling  advertisement  space on its three  new-media  properties,  WordJ,
ChargedJ and SportsFan Online.  The Company has experienced  operating losses in
connection  with the ongoing  operation  of its media  properties  and, in March
1998, the Company announced that it would discontinue the ongoing  operations of
Word and  Charged.  In April,  the Company  announced  that  Zapata  Corporation
("Zapata")  had  purchased all of the assets of Word and Charged in exchange for
Zapata's  commitment to purchase no less than $2 million in  communications  and
professional  services over the next four years. Also, during the first quarter,
Icon  terminated its agreement with SportsFan  Radio Network,  and instead began
providing  consulting  services and  communications  services to SportsFan Radio
Network in connection with the ongoing operation of SportsFan Online.

         Historically  the  Company  has  experienced  relatively  stable  gross
margins on product  sales.  Over the same periods gross margins on services have
fluctuated as cost of revenues,  particularly on communications  services,  have
increased  in  advance  of  revenue  growth  for  such  services.   The  Company
anticipates that in the future services will provide greater  opportunities  for
increased gross margins.

         The  Company  generates  products  revenues  through the  reselling  of
computer  and  networking  hardware and  software,  including  network  servers,
routers,  firewall software and database management software.  Products revenues
are recognized upon shipment.

         Professional  services  cost of  revenues  consists  of the  labor  and
overhead costs for the personnel  performing  the service  including the cost of
project  management,  quality control and project review. Cost of communications
services  revenues  consists  primarily  of the cost to maintain and operate the
Company's  communications  infrastructure  and  customers'  hosted web  servers,
access   charges   from  Local   Exchange   Carriers  and  network  and  related
communications  facilities  costs,  depreciation of network equipment and rental
expenses for equipment  pursuant to operating  leases.  The Company  expects its
services revenues to continue to increase in dollar amount, while declining as a
percentage of services revenue as the Company expands its customer base and more
fully utilizes its communications infrastructure.  Cost of revenues for products
consists primarily of the Company's  acquisition cost of computer and networking
hardware and software that is purchased from the manufacturers' distributors.

         Selling and marketing expenses consist primarily of personnel expenses,
including  salary,  benefits,  commissions,  overhead  costs  and  the  cost  of
marketing programs, such as advertising,  trade shows and public relations.  The
Company expects selling and marketing expenses to continue to increase in dollar
amount in future years as the Company's  business  grows and as it increases its
presence at trade  shows,  increases  the size of its sales  force and  develops
additional  materials to reach a larger audience.  The Company expects marketing
expenses to decrease as a percentage  of total net revenues due to the fact that
initial  marketing  expenses,  such as development and preparation of collateral
materials, were incurred upon the expansion of business lines.

         General and  administrative  expenses  consist  primarily  of personnel
expense  and  professional  fees,  as well as rent  and  operating  costs of the
Company's facilities. The Company expects general and administrative expenses to
increase in dollar amount, reflecting the continued growth of its operations and
the costs  associated  with being a publicly  held  entity,  but to  decrease in
future years as a percentage of total net revenues.

         Research and development  expenses  consist  primarily of personnel and
related costs associated with the development of the Company's technologies. The
Company expects its research and development spending to continue to grow and to
increase  modestly as a percentage of total operating  expenses in future years.

                                       -9-

<PAGE>



The Company's  expectations  of  significant  revenue  growth are not dependent,
however, upon the success of ongoing future research and development activities.

         Other

         In  order  to  provide  nationwide  communications  services  including
Internet  access,  the Company entered into a three-year  agreement in June 1995
with  MFS  Datanet,  Inc.  ("MFS")  to  access  MFS'  nationwide  communications
facilities and related  communications  products and services.  The terms of the
agreement  provide  for the  Company to pay MFS  primarily  based on the average
bandwidth  of  the  Company's  traffic   transmitted  over  MFS'  communications
facilities. The Company recently extended this agreement through September 1999.
The Company  believes  that the  usage-based  pricing  plan  established  in the
agreement  has  allowed,  and  will  continue  to  allow,  the  Company  to grow
communications   services  revenues  without  incurring  the  full  fixed  costs
typically associated with building a nationwide network and Internet access. The
Company also believes  that, as the  utilization of its network  increases,  the
Company may elect to lease and install its own dedicated high speed  connections
between  nodes  and may rely  less on MFS'  communications  facilities  for data
transport.

         The Company,  which had been profitable prior to 1995, has incurred net
losses and negative cash flow from operations since  transitioning  its strategy
to provide end-to-end Internet solutions and expects to continue to operate at a
loss and  experience  negative cash flow at least  through  1998.  The Company's
attainment of profitability and positive cash flow is dependent upon its ability
to   substantially   grow  its  revenue  base  and  achieve  related   operating
efficiencies.

         The Company will continue to focus on growing its professional services
and communications services businesses,  which could require it to significantly
increase its expenses for personnel and marketing.

         The Company serves major customers in information intensive industries,
such as  financial  services,  telecommunications,  media and  travel.  Revenues
attributable  to Bear Stearns & Co. Inc.  comprised 56% and 49% of the Company's
total  net  revenues  for the  three  months  ended  March  31,  1998 and  1997,
respectively, and in each period represented a significant component of services
and products revenues.  No other customers represented over 10% of the Company's
total  net  revenues  in the  same  time  periods.  Management  expects  revenue
concentration to decline as the Company grows its services revenues.

         Historically,  the  Company  has  marketed  and sold its  services  and
products  through its direct sales force and through indirect  channels.  In May
1996,  the Company  entered  into an  arrangement  with Bell  Atlantic  Internet
Solutions,  Inc.  ("Bell  Atlantic  Internet  Solutions")  whereby Bell Atlantic
Internet  Solutions  agreed to provide  billing  services in connection with the
offering of the Company's  communications  services to requesting  Bell Atlantic
Internet Solutions  customers for both dedicated and switched access,  including
residential  customers.  Revenues from customers  acquired through Bell Atlantic
Internet  Solutions  represented 35% of communications  services revenues in the
first quarter of 1998. The Company  believes that revenues from this arrangement
will  continue  to grow at least  until  such time that Bell  Atlantic  Internet
Solutions or its affiliates,  including Bell Atlantic Corp.,  receive regulatory
relief from the FCC and state utility  commissions from various regulations that
affect the  offering of  advanced  telecommunications  and data  services by the
Regional Bell Operating  Companies and that this  relationship  will represent a
significant  element of the  Company's  distribution  strategy in Bell  Atlantic
Internet  Solutions'  southern region. In October 1997, the Company extended its
arrangement by entering into an updated Global Service  Provider  agreement with
Bell Atlantic Internet  Solutions to continue to make its services  available in
the  traditional  Bell  Atlantic  southern  region for  switched  and  dedicated
services and to expand the  Company's  reach with respect to dedicated  services
into the Bell Atlantic northern region  (previously NYNEX) through October 1999.
The  Company  currently  plans  that it will  make  its  services  available  to
requesting Bell Atlantic Internet  Solutions  business customers in the northern
region during 1998, subject to

                                      -10-
<PAGE>


certain  regulatory  approvals.  The Company also has agreements  with Totaltel,
Inc. and other resellers to resell the Company's communications services.

         The Company has  incurred  losses  since 1995 that have  generated  net
operating loss carry forwards of  approximately  $23.4 million at March 31, 1998
for federal and state income tax purposes. These carry forwards are available to
offset future  taxable income and expire in 2011 through 2013 for federal income
tax purposes.

Results of Operations

         Three Months Ended March 31, 1998 Compared to Three Months Ended 
         March 31, 1997

         Revenues.  Total net revenues  were $17.7  million for the three months
ended March 31, 1998,  an $8.7 million  increase over total net revenues of $9.0
million for the three months ended March 31, 1997.

         Professional  services  revenues were $5.8 million and $3.2 million for
the three months ended March 31, 1998 and 1997,  respectively,  representing  an
increase in 1998 of 82%. This increase was  attributable  to the growing  demand
for professional  services in its existing  customer base and the acquisition of
several new customers, a high renewal rate of existing maintenance contracts, an
increased number of systems engineers  available to perform these services and a
higher average billing rate per systems engineer.

         Communications services revenues were $2.8 million and $0.9 million for
the three months ended March 31, 1998 and 1997,  respectively,  representing  an
increase in 1998 of over 200%.  This increase was primarily  attributable to the
acquisition  of new customers and the  arrangement  with Bell Atlantic  Internet
Solutions under which the Company began  providing  service in the third quarter
of 1996. Revenues derived from the Bell Atlantic Internet Solutions  arrangement
comprised  35% of  communications  revenues for the three months ended March 31,
1998.

         Products  revenues  were $9.1  million  and $4.8  million for the three
months ended March 31, 1998 and 1997, respectively,  representing an increase of
89%.  This  increase was not as great as the  increase in services  revenues due
primarily to the transition of the Company's focus from its historical role as a
value-added reseller to providing IP network-related services.

         Cost of revenues.  Total cost of revenues  were $14.2  million and $7.0
million  for the  three  months  ended  March 31,  1998 and 1997,  respectively,
representing 80% and 77% of total net revenues, respectively.

         Services  cost of revenues  were $6.2  million and $3.1 million for the
three  months  ended  March 31,  1998 and 1997,  respectively.  This  growth was
primarily  attributable  to  the  hiring  of  additional  professional  services
personnel  and  contractors  and  the  continued   expansion  of  the  Company's
communications  infrastructure.  Such costs  decreased to 72% as a percentage of
services  revenues in the three  months  ended March 31,  1998,  from 74% in the
three months ended March 31, 1997.

         Products  cost of revenues  were $8.0  million and $3.8 million for the
three months ended March 31, 1998 and 1997,  respectively,  representing 88% and
80% of products  revenues  for the three  months  ended March 31, 1998 and 1997,
respectively.  The decrease in margin was due  primarily to a strategy to accept
selected  lower-margin  sales designed to promote increased  services revenue in
the future.

                                      -11-

 <PAGE>



         Selling and marketing. Selling and marketing expenses were $3.6 million
and  $2.1  million  for  the  three  months  ended  March  31,  1998  and  1997,
respectively.  The 74%  increase  for the three  months  ended  March  31,  1998
reflects  hiring of sales and  marketing  personnel  and  increased  spending on
advertising and trade shows.  Selling and marketing  expenses as a percentage of
total net  revenues  decreased  to 21% for the three months ended March 31, 1998
from 23% for the three months ended March 31, 1997.

         General and  administrative.  General and administrative  expenses were
$3.4  million  and $2.1  million for the three  months  ended March 31, 1998 and
1997,  respectively.  This  higher  level of  expenses  reflects  an increase in
personnel and  professional  fees necessary to manage the  financial,  legal and
administrative  aspects of the business,  as well as rent and operating costs of
the Company's facilities. General and administrative expenses as a percentage of
total net  revenues  decreased  to 19% for the three months ended March 31, 1998
from 23% for the three months ended March 31, 1997.

         Research and development.  Research and development  expenses were $0.6
million  and $0.3  million for the three  months  ended March 31, 1998 and 1997,
respectively.  This higher level of expense  reflects an overall increase in the
number of  personnel  required  to develop  new  technologies  that  enhance the
performance and reliability of the Company's network.

Liquidity and Capital Resources

         The Company had an  accumulated  deficit of $25.4  million at March 31,
1998 and has used cash of $18.4  million  in the  aggregate  to fund  operations
during 1996,  1997 and the  three-month  period  ended March 31, 1998.  Prior to
consummation  of the Offering,  the Company had satisfied its cash  requirements
primarily  through  the sale of  preferred  stock and  borrowings  under  credit
agreements. The Company's principal uses of cash are to fund operations, working
capital requirements and capital expenditures. At March 31, 1998 the Company had
$29.1 million in cash and cash equivalents and working capital of $27.8 million.
Net cash used in operating  activities for the three months ended March 31, 1998
and 1997 was approximately $2.7 million and $2.6 million, respectively. Net cash
used in investing activities for the three months ended March 31, 1997 and 1998,
was  approximately  $0.5 million and $2.6 million,  respectively.  For the three
months  ended March 31, 1997 and 1998,  cash of  approximately  $3.0 million and
$33.4 million, respectively, was provided by financing activities. Cash provided
by  financing  activities  for the three  months  ended March 31, 1998  includes
approximately  $34.4  million in net proceeds  from the issuance of common stock
from the Offering.

         On August 13, 1996, the Company  obtained a secured line of credit with
The CIT Group/Business  Credit,  Inc. ("CIT") for $10.0 million which expires on
August 13, 1998.  Borrowings under this line are secured by substantially all of
the  assets  of the  Company  and  are  limited  to a  specified  percentage  of
qualifying accounts receivable less outstanding  obligations of the Company owed
to CIT  including  outstanding  letters of credit.  Under this  secured  line of
credit,  the  Company  may not pay cash  dividends,  pledge any of its assets to
third parties,  borrow money from third parties,  lend money to third parties or
merge or  consolidate  with third parties  without CIT's prior written  consent.
Borrowings  under this line amounted to $1.0 million at December 31, 1997. There
were no borrowings  under the line of credit at March 31, 1998. The Company does
not currently expect that it will be necessary to use the secured line of credit
to meet its working capital and capital  expenditure  requirements.  Interest is
payable  monthly at an annual  rate  equal to the prime  rate plus one  percent.
Following a change in the prime rate, the rate adjusts on the first of the month
following  any change.  As of March 31, 1998,  there was $2.4 million  available
under the line.


                                     -12-

<PAGE>



         As of March 31, 1998,  trade payables and accrued  expenses to a vendor
in the amount of $5.0 million were secured by a lien on substantially all of the
Company's assets.

         The Company made capital investments in its network, network operations
center and other capital assets  totaling $2.6 million in the three months ended
March 31, 1998.  The Company  expects to make capital  investments to expand and
enhance  its  operations  totaling  approximately  $8.7  million  in  1998.  The
foregoing  expectation with respect to capital  investment is a  forward-looking
statement that involves risks and uncertainties and the actual amount of capital
investment could vary materially as a result of a number of factors.

         On February 18, 1998, the Company completed the Offering,  selling 3.85
million shares of Common Stock at a price of $10.00 per share,  providing  gross
proceeds  to the  Company of $38.5  millon  and net  proceeds,  after  deducting
underwriting  discounts,  commissions and estimated offering expenses payable by
the Company, of approximately $34.4 million.  Since the Company expects to incur
additional  operating  losses,  the Company intends to use the net proceeds from
the Offering to meet its short term capital  requirements.  The Company believes
that proceeds from the Offering will be sufficient to meet its anticipated  cash
needs for working capital and for the acquisition of capital  equipment  through
the end of 1998.  However,  there can be no assurance  that the Company will not
require  additional  financing within this time frame. The Company's forecast of
the period of time through  which its  financial  resources  will be adequate to
support its  operations is a  forward-looking  statement that involves risks and
uncertainties,  and actual results could vary materially as a result of a number
of factors. The Company may be required to raise additional funds through public
or private financing,  strategic relationships or other arrangements.  There can
be no assurance that such additional financing,  if needed, will be available on
terms attractive to the Company, or at all.  Furthermore,  any additional equity
financing may be dilutive to stockholders, and debt financing, if available, may
involve restrictive  covenants.  Strategic  arrangements,  if necessary to raise
additional funds, may require the Company to relinquish its rights to certain of
its technologies.

Recently Issued Accounting Standards

         In June 1997, the FASB issued Financial  Accounting  Standards No. 131,
"Disclosure  About  Segments of an  Enterprise  and Related  Information"  ("FAS
131"), which establishes  standards for the way that public business enterprises
report information about operating segments.  It also establishes  standards for
related  disclosures  about  products and services,  geographic  areas and major
customers.  FAS 131 is effective for fiscal years  beginning  after December 31,
1997.  The  adoption  of the  provisions  of FAS 131 is not  expected  to have a
material impact on the Company's existing disclosures.

Year 2000

         As reasonably necessary and appropriate,  the Company is in the process
of modifying or replacing software components that it uses so that such software
will properly recognize dates beyond December 31, 1999 ("Year 2000 Compliance").
The cost for such modifications and replacements is not expected to be material.
The Company has initiated formal communications with its significant vendors and
customers  to  determine  the extent  that Year 2000  Compliance  issues of such
parties may affect the Company.  There can be no  guarantee  that the systems of
such other companies will be timely converted,  or that their conversion will be
compatible with information included in the Company's systems without a material
adverse  effect on the  Company's  business,  financial  condition or results of
operations.

                                      -13-


<PAGE>



Disclosure Regarding Forward-Looking Information

         This report contains  forward-looking  statements within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange  Act of 1934,  as amended.  Forward-looking  statements  are  typically
identified by the words "believe,"  "expect,"  "intend,"  "estimate" and similar
expressions.  Those  statements  appear in a number of places in this report and
include statements  regarding the intent,  belief or current  expectation of the
Company or its directors or officers with respect to, among other things, trends
affecting the Company's  financial  conditions and results of operations and the
Company's business and growth strategies.  Such  forward-looking  statements are
not guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those projected,  expressed or implied in the
forward-looking  statements  as a result of various  factors  (such  factors are
referred to herein as "Cautionary Statements"), including but not limited to the
following:  (i) the Company's  limited operating history and history of negative
cash flow and operating  losses,  (ii) potential  fluctuations  in the Company's
quarterly operating results, (iii) the Company's concentration of revenues, (iv)
challenges  facing  the  Company  as it  experiences  rapid  growth  and (v) the
Company's  dependence  on  a  limited  number  of  suppliers.  The  accompanying
information contained in this report,  including the information set forth under
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations,"  identifies  important  factors that could cause such  differences.
Such  forward-looking  statements speak only as of the date of this report,  and
the Company  cautions  potential  investors not to place undue  reliance on such
statements.  The  Company  undertakes  no  obligation  to update  or revise  any
forward-looking  statements.  All  subsequent  written  or oral  forward-looking
statements  attributable  to the  Company  or  persons  acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.




                                      -14-


<PAGE>



                                     PART II
                                OTHER INFORMATION

Item 2.           Changes in Securities and Use of Proceeds

         On  February  12,  1998 (the  "Effective  Date"),  the  Securities  and
Exchange Commission declared effective the Company's  Registration  Statement on
Form S-1 (File No.  333-38339).  From the Effective Date through March 31, 1998,
the Company  incurred  expenses of  approximately  $2.7 million for underwriting
discounts and commissions and an estimated $1.4 million for other expenses. Such
payments  were direct or  indirect  payments  to persons  other than  directors,
officers or persons  owning 10% or more of the Company's  Common Stock.  The net
offering  proceeds to the Company were $34.4  million.  From the Effective  Date
through March 31, 1998, net offering  proceeds of: (i) $1.8 million was paid for
the construction of plant, buildings and facilities;  (ii) $1.8 million was used
for  repayment  of  indebtedness;  and (iii) $4.5  million  was used for working
capital and general  corporate  purposes.  Such payments were direct or indirect
payments to persons other than directors, officers or persons owning 10% or more
of the Company's Common Stock.

Item 6.           Exhibits and Reports on Form 8-K

         (a)      Exhibits


    Exhibit            Description
    -------            -----------
    27.1               Financial Data Schedule.

         (b)      Reports on Form 8-K

                  No reports on Form 8-K were  filed by the  Company  during the
period covered by this Report.


                                      -15-


<PAGE>



                                   SIGNATURES


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

Dated:  May 15, 1998




                                 By:            /s/ Scott A. Baxter
                                     -------------------------------------------
                                     Scott A. Baxter, President, Chief Executive
                                          Officer and Chairman of the Board



                                 By:           /s/ Kenneth J. Hall
                                     -------------------------------------------
                                     Kenneth J. Hall
                                        Senior Vice President, Chief Financial
                                        Officer and Treasurer


                                      -16-


<PAGE>



                                  EXHIBIT INDEX
                                  -------------


    Exhibit            Description                                          Page
    -------            -----------                                          ----

     27.1              Financial Data Schedule.



                                      -17-