<PAGE>

--------------------------------------------------------------------------------
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                                 UNITED STATES
                       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 DECEMBER 31, 1999

                                       OR

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

          FOR THE TRANSITION PERIOD FROM       , 19   TO      , 19  .

                        COMMISSION FILE NUMBER: 0-25482

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

                         EQUALNET COMMUNICATIONS CORP.
             (Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S>                                            <C>
                    TEXAS                                        76-0457803
         (State of Other Jurisdiction                         (I.R.S. Employer
      of Incorporation or Organization)                    Identification Number)
</TABLE>

                          1250 WOOD BRANCH PARK DRIVE
                              HOUSTON, TEXAS 77079
          (Address of Principal Executive Offices, Including Zip Code)

                                 (281) 529-4600
              (Registrant's Telephone Number, Including Area Code)

                                       NA
              (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   [X]    No   [_]

   There were 32,301,192 shares of the Registrant's $.01 par value common stock
outstanding as of February 8, 2000.

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

                          PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                         EQUALNET COMMUNICATIONS CORP.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                      June 30,    December 31,
                                                        1999          1999
                                                    ------------  ------------
                                                                  (Unaudited)
<S>                                                 <C>           <C>
                      ASSETS
Current Assets:
  Cash and equivalents............................. $    266,000  $    396,000
  Accounts receivable, trade.......................    7,873,000     5,212,000
  Other receivables................................      472,000            --
  Prepaid expenses and other.......................      401,000       315,000
                                                    ------------  ------------
  Total current assets.............................    9,012,000     5,923,000
                                                    ------------  ------------
Property and equipment.............................   20,801,000    22,351,000
Less accumulated depreciation and amortization.....   (8,368,000)  (10,089,000)
                                                    ------------  ------------
  Net property and equipment.......................   12,433,000    12,262,000
                                                    ------------  ------------
Customer acquisition costs, net....................    3,862,000     2,254,000
Other assets.......................................      407,000       313,000
                                                    ------------  ------------
    Total assets................................... $ 25,714,000  $ 20,752,000
                                                    ============  ============
         LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities
Accounts payable................................... $  3,991,000  $  5,303,000
Accrued liabilities................................    5,749,000     4,403,000
Current portion of long term debt--related party...      322,000       324,000
Current portion of long term debt..................    2,726,000     2,749,000
Debt in default....................................      558,000       558,000
Contractual obligations with regard to receivables
 sales agreement...................................    3,339,000     2,727,000
                                                    ------------  ------------
    Total current liabilities......................   16,685,000    16,064,000
                                                    ------------  ------------
Long term debt.....................................    5,301,000     4,384,000
Other long term liabilities........................           --       629,000
Commitments and contingencies
Stockholders' Equity (Deficit):
  Preferred stock..................................   16,153,000    16,433,000
  Common stock.....................................      284,000       320,000
  Treasury stock, at cost..........................     (232,000)     (232,000)
  Additional paid-in-capital.......................   46,840,000    48,275,000
  Stock warrants...................................    3,019,000     3,019,000
  Deferred compensation............................      (20,000)      (20,000)
  Accumulated deficit..............................  (62,316,000)  (68,120,000)
                                                    ------------  ------------
    Total stockholders' equity (deficit)...........    3,728,000      (325,000)
                                                    ------------  ------------
      Total liabilities and stockholders' equity
       (deficit)................................... $ 25,714,000  $ 20,752,000
                                                    ============  ============
</TABLE>

                See notes to consolidated financial statements.

                                       2
<PAGE>

                         EQUALNET COMMUNICATIONS CORP.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                             Three Months Ended          Six Months Ended
                                December 31,               December 31,
                          -------------------------  -------------------------
                              1998         1999          1998         1999
                          ------------  -----------  ------------  -----------
<S>                       <C>           <C>          <C>           <C>
Sales...................  $  7,618,000  $ 6,672,000  $ 16,011,000  $14,825,000
Cost of Sales...........     5,797,000    3,269,000    13,286,000    7,688,000
Bad Debt Expense........     3,667,000    2,500,000     4,063,000    2,678,000
                          ------------  -----------  ------------  -----------
Gross profit............    (1,846,000)     903,000    (1,338,000)   4,459,000
                          ------------  -----------  ------------  -----------
Selling, general, and
 administrative
 expenses...............     2,495,000    2,862,000     6,160,000    5,214,000
Depreciation and
 amortization...........     2,915,000    2,118,000     5,130,000    3,527,000
                          ------------  -----------  ------------  -----------
Operating loss..........    (7,256,000)  (4,077,000)  (12,628,000)  (4,282,000)
                          ------------  -----------  ------------  -----------
Other income (expense):
  Interest, net.........      (600,000)    (250,000)   (1,334,000)    (720,000)
  Other.................            --     (113,000)       17,000     (191,000)
                          ------------  -----------  ------------  -----------
                             (600,000)     (363,000)   (1,317,000)    (911,000)
                          ------------  -----------  ------------  -----------
Loss before income taxes
 and reorganization
 costs..................    (7,856,000)  (4,440,000)  (13,945,000)  (5,193,000)
Benefit for federal
 income taxes...........            --           --            --           --
Loss before
 reorganization costs...    (7,856,000)  (4,440,000)  (13,945,000)  (5,193,000)
Reorganization costs....       (71,000)          --      (143,000)          --
Net loss................  $ (7,927,000) $(4,440,000) $(14,088,000) $(5,193,000)
                          ============  ===========  ============  ===========
Preferred stock
 dividends and deemed
 distributions..........  $ (2,087,000) $  (551,000) $ (2,457,000) $  (611,000)
Net loss available to
 common shareholders....  $(10,014,000) $(4,991,000) $(16,545,000) $(5,804,000)
                          ============  ===========  ============  ===========
Net loss per share--
 basic and diluted......  $      (0.54) $     (0.17) $      (0.85) $     (0.20)
                          ============  ===========  ============  ===========
</TABLE>


                See notes to consolidated financial statements.

                                       3
<PAGE>

                         EQUALNET COMMUNICATIONS CORP.

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                         SIX MONTHS ENDED
                                                           DECEMBER 31,
                                                     -------------------------
                                                         1998         1999
                                                     ------------  -----------
<S>                                                  <C>           <C>
Operating activities:
 Net loss from continuing operations................ $(14,088,000) $(5,193,000)
 Adjustments to reconcile net loss to net cash used
  in operating activities:
  Depreciation and amortization.....................    5,191,000    3,527,000
  Interest charge on convertible debt issued at
   discount.........................................      450,000           --
  Provision for bad debt............................    4,063,000    2,678,000
  Common Stock issued for services..................           --       64,000
  Changes in working capital components:
   Accounts receivable, trade.......................   (3,470,000)     158,000
   Prepaid expenses and other current assets........       53,000      (86,000)
   Accounts payable and accrued liabilities.........    7,051,000      (34,000)
   Other, net.......................................           --      343,000
                                                     ------------  -----------
Net cash provided by (used in) operating
 activities.........................................     (750,000)   1,457,000
                                                     ------------  -----------
Investing activities:
 Purchases of property and equipment................     (121,000)    (121,000)
 Cash paid for acquisition..........................     (555,000)    (150,000)
 Proceeds from sale of equipment....................       75,000           --
                                                     ------------  -----------
Net cash used in investing activities...............     (601,000)    (271,000)
                                                     ------------  -----------
Financing activities:
 Proceeds from long-term debt.......................    2,923,000           --
 Repayments on long-term debt.......................   (4,887,000)    (894,000)
 Proceeds from convertible debt.....................    2,800,000           --
 Proceeds from sale of common stock.................           --      450,000
 Proceeds from exchange of common stock for
  preferred stock...................................      200,000           --
 Net proceeds (repayments) on contractual
  obligations with regard to receivable sales
  agreements........................................     (145,000)    (612,000)
                                                     ------------  -----------
 Net cash provided by (used in) financing
  activities........................................      891,000   (1,056,000)
                                                     ------------  -----------
Net increase (decrease) in cash.....................     (460,000)     130,000
Cash at beginning of period.........................      460,000      266,000
                                                     ------------  -----------
Cash at end of period............................... $         --  $   396,000
                                                     ============  ===========
</TABLE>


                See notes to consolidated financial statements.

                                       4
<PAGE>

                         EQUALNET COMMUNICATIONS CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)

NOTE 1--BASIS OF PRESENTATION

   The unaudited consolidated financial statements of Equalnet Communications
Corp. (the "Company") for the three and six month periods ended December 31,
1999 and 1998 have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis. Significant accounting
policies followed by the Company and its subsidiaries are disclosed in the
notes to the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1999. In the opinion of the
Company's management, the accompanying condensed consolidated financial
statements contain the adjustments, consisting of normal recurring accruals,
necessary to present fairly the consolidated position of the Company and its
consolidated subsidiaries at December 31, 1999, and the consolidated results of
their operations and cash flows for the periods ended December 31, 1999 and
1998. Operating results for the three and six months ended December 31, 1999
are not necessarily indicative of the results which may be expected for the
year ended June 30, 2000.

   We have reclassified certain prior period amounts to conform to the current
presentation.

NOTE 2--BANKRUPTCY FILINGS

   EqualNet Corporation ("EqualNet"), one of the Company's operating
subsidiaries, and EqualNet Wholesale Services ("Wholesale"), a wholly-owned
non-operating subsidiary of EqualNet filed voluntary petitions for relief under
Chapter 11 ("Chapter 11") of the United States Bankruptcy Code (the "Bankruptcy
Code") on September 10, 1998 in the United States Bankruptcy Court for the
Southern District of Texas, Houston, Texas. On October 2, 1998, Wholesale filed
its motion to convert its bankruptcy proceedings from a Chapter 11
reorganization to a Chapter 7 liquidation. Pursuant to the Bankruptcy Code,
EqualNet managed its assets and operated its business as a debtor-in-possession
pending confirmation of its reorganization plan, which plan was confirmed on
April 28, 1999 and consummated on May 28, 1999. The plan of reorganization
provided for the restructuring of amounts and repayment terms for secured and
unsecured creditors. In conjunction with the confirmation and consummation of
the reorganization plan, certain debts were reduced. As voting control of the
Company's common stock remained the same as a result of the confirmation of the
plan of reorganization, fresh start accounting was not used in accordance with
AICPA Statement of Position 90-7.

NOTE 3--DEBT

   USC Telecom defaulted on its note payable of approximately $0.6 million in
February 1999 and, accordingly, the corresponding debt is classified as debt in
default as of December 31, 1999 and June 30, 1999. As further discussed in Note
6, the Company entered into a settlement agreement with the note holder on
October 9, 1999 whereby the outstanding principal and accrued interest will be
paid by the issuance of a number of shares of the Company's unregistered common
stock.

   In November 1999, Netco Acquisition Corp. ("Netco"), the Company wholly
owned subsidiary, amended its note payable with Finova Capital Corporation.
Under the Second Amendment to the Loan and Security Agreement (the
"Agreement"), Netco modified the timing of certain payments of principal and
interest. Netco is current with its obligations under this Agreement.

NOTE 4--INCOME TAXES

   The Company recorded a valuation allowance amounting to the entire net
deferred tax asset balance at December 31, 1999, due to operating losses which
give rise to uncertainty as to whether the deferred tax asset is realizable.
The Company has recorded no income tax benefit for the period ended December
31, 1999.

NOTE 5--MANAGEMENT'S PLANS TO RETURN TO PROFITABILITY

   For the three and six month periods ended December 31, 1999 and 1998, the
Company reported pre-tax net operating losses, has a working capital
deficiency, and debt in default. The Company also has significant

                                       5
<PAGE>

                         EQUALNET COMMUNICATIONS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  (UNAUDITED)

amounts of debt due within the next twelve months. While the Company's
management is attempting to raise additional funds and/or refinance these
obligations, there is no guarantee additional financing will be available on
commercially reasonable or acceptable terms, or on terms which would not be
dilutive to stockholders, if at all. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Pre-tax net
operating losses were attributable to several internal and external factors.
Continued provisioning challenges through the end of calendar year 1998 led to
delayed billing and increased customer attrition. In addition, the Company
attempted to convert to a new customer management, billing, and rating system
in late fiscal year 1998 which proved to be unsuccessful. Simultaneous with the
Company's attempted conversion and implementation to this customer management,
billing, and rating system the Company acquired a significant customer base;
conversion problems adversely affected the Company's cash collections and, to a
greater extent, led to increased customer attrition.

   A significant portion of the Company's capital is provided by receivable
sales agreements with a third-party. Funding under these agreements are based
on specific accounts receivable eligibility requirements with the primary
factor being the collections history per account.

   The Company's management is continuing actions to strengthen the financial
position of the Company. New products are being developed to significantly
enhance sales and revenue, including (i) bundled minute long distance products
resembling cellular offerings, (ii) wholesale international rates for retail
customers (iii) pre-paid debit-cards, (iv) advertiser-sponsored long distance
and (v) the pursuit of acquisitions expected to be accretive to earnings. The
Company is also considering entering the wholesale international long distance
market and offering local service as a competitive local exchange carrier.
Additionally, the Company is evaluating several proposals for the resumption of
an agent program in order to increase its customer base, as well as negotiating
with several third parties for possible acquisitions to form strategic
alliances in order to maximize the utilization of the Company's
telecommunications switches (the "Switches").

   The Company believes the new product offerings noted above are particularly
significant to increasing the Company's revenues and returning to
profitability. Furthermore, management believes the Company must continue to
increase its innovation and not depend on competitive pricing alone in order to
become more competitive in the marketplace. Most of the new product offerings
noted above are pricing packages only and will not require a significant amount
of capital. Any new product offerings requiring technology advancements will
most likely come from strategic alliances or potential mergers. Financing for
potential strategic alliances or mergers is expected to come from the issuance
of the Company's common stock.

   In order to provide financing to support operations, the Company must also
continue to increase revenue generated from its existing resources. Specific
actions to maximize revenue generated by the switch network include (i) placing
dedicated customers on the network via connectivity to a local switch, (ii)
port leasing of switch assets and (iii) international product offerings
accessed through the switches. In addition, the Company is continuing to reduce
its primary carrier costs for its existing customer base. The Company continues
to make improvements in its billing and MIS systems to more accurately bill
customers, maximize customer revenue and ensure proper audit of vendor invoices
related to the cost of service. The Company has also implemented a cost
reduction program, and continues to refine these efforts, related to general,
administrative, and overhead expenditures. In addition to utilizing the
Switches to provide transmission of its customer traffic, the Company is
focusing on offering bundled services to its customers, mainly long-distance
service, Internet access, and local service.

                                       6
<PAGE>

                         EQUALNET COMMUNICATIONS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  (UNAUDITED)


   Management believes the plans discussed above are critical to returning the
Company to profitability. Additionally, the Company intends to seek possible
strategic alliances and business combinations in order to more rapidly
implement its plans for increasing the service offerings or for reducing costs
of the Company. Management is attempting to balance the cash flows from
operations to meet current needs, and is continuously seeking additionally
capital resources to fund the expansion of service offerings of the Company.
Should capital resource requirements to achieve management's plan to return to
profitability significantly exceed management's ability to meet those needs,
the Company's ability to return to profitability could be significantly delayed
or impaired.

NOTE 6--COMMITMENTS AND CONTINGENCIES

   On August 7, 1998, Robert H. Turner, the Company's former Chief Executive
Officer filed suit against the Company alleging an unspecified amount of
damages based upon an alleged breach of his employment contract and other
claims. Although the Company denies any wrongdoing or liability in the matter;
the Company has entered into negotiations with Mr. Turner. The Company believes
it has adequate reserves for this matter.

   On September 21, 1998, Cyberserve, Inc., WSHS Enterprises, Inc. and William
Stuart (collectively "Bluegate") filed suit against the Company and Netco
Acquisition LLC alleging damages for breach of contract and other alleged
claims. The matters originated with a letter of intent wherein the Company
proposed the purchase of certain assets of Cyberserve, Inc. and WSHS
Enterprises, Inc. subject to the performance of due diligence by the parties.
Bluegate and certain of its shareholders had threatened to sue the Company in
the event the proposed transaction was not consummated substantially in
conformity with the terms set forth in the Letter of Intent. The damages
Bluegate alleges it incurred were as a result of, among other things, the
claimed modification of its business to its detriment in anticipation of the
integration of its operations with those of EqualNet. It is impossible to
determine with any degree of certainty what, if any, liability Equalnet or any
of its subsidiaries may incur in this matter. The Company denies any wrongdoing
or liability in this matter and intends to vigorously defend itself against all
claims of the plaintiffs. This action is in the initial stage of discovery
proceedings. Accordingly, at this time the Company is unable to determine the
amount of the exposure, if any, under this action.

   On September 29, 1998, SA Telecommunications Incorporated asserted claims
pursuant to the Purchase Agreement against USC Telecom and the Company for
operating losses for the period from April 1, 1998--July 22, 1998, damages for
delayed or unbillable revenue, delivery of shares of the Company's Series C
Senior Preferred Stock, and other items. On December 28, 1998, the court signed
an order approving those claims in the amount of approximately $813,000. The
Company and USC Telecom disputed the monetary claims asserted by SA
Telecommunications in its demand and filed a notice of appeal of the court's
order in the proceedings. On October 9, 1999, SA Telecommunications, Greyrock
Business Credit, and the Company presented an agreement to the SA Telecom
bankruptcy court providing for the settlement of the SA Telecommunications
judgment and amounts owed to Greyrock. The agreement calls for the payment of
the remaining principal balance of the promissory note to Greyrock, plus
accrued but unpaid interest, by the issuance of a number of shares of the
Company's unregistered common stock valued at the lessor of $0.28 per common
share (as adjusted to account for any stock split) or the market price of the
unregistered common stock at the date registration of the shares is effective.
In addition, the agreement calls for satisfaction of the remaining obligation
to SA Telecommunications by the payment of $150,000 cash plus the issuance of
an amount of the Company's unregistered common stock equal to approximately
$660,000 valued at the lesser of $0.28 per common share (as adjusted to account
for any stock split) or the market price of the unregistered common stock at
the date registration of the shares is effective; the Company paid the cash
component of this agreement in October 1999.

                                       7
<PAGE>

                         EQUALNET COMMUNICATIONS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  (UNAUDITED)


   On December 15, 1999, Qwest Communications Corporation ("Qwest") filed suit
against RFC Capital Corporation ("RFC"), Equalnet Communications Corp., USC
Telecom, Inc., Brittan Communications International Corporation ("BCI") and Jim
G. Edwards in the Franklin County Common Pleas Court, Columbus, Ohio, (Cause
No. 99CVH-12-10638) alleging damages for breach of contract, fraud, conspiracy
to commit fraud and money owed through successor liability arising out of USC
Telecom's purchase of certain assets of BCI at a foreclosure sale conducted by
BCI's secured lender, RFC. Qwest is also seeking punitive damages. No specific
amount of either actual or punitive damages has been pled by Qwest. The Company
denies the allegations of Qwest as set forth in its petition. It is impossible
at this time to accurately determine the extent of either USC Telecom's or the
Company's exposure, if any, in these proceedings.

   On January 26, 2000, WorldCom Network Services, Inc. and MFS Telecom, Inc.
(collectively "WorldCom") filed suit against Equalnet Communications Corp. and
USC Telecom, Inc. in the United States District Court for the District of
Delaware (Cause No. 00-049) alleging damages under the filed rate doctrine of
the Communications Act of 1934, for breach of contract, quantum meruit and
unjust enrichment in the amount of $7,800,000 arising out of services allegedly
provided to customers acquired by USC Telecom from SA Telecommunications, Inc.
and its subsidiaries in their combined bankruptcy proceedings. The Company
denies the allegations of WorldCom as set forth in its petition. It is
impossible at this time to accurately determine the extent of either USC
Telecom's or the Company's exposure, if any, in these proceedings.

   EqualNet's reorganization plan required the Company to issue 3 million
shares of its Common Stock to the Unsecured Creditors' Trust (the Trust) for
the benefit of holders of unsecured claims who were non-insiders or affiliates
of the Company. The Trust may sell up to 375,000 shares of the Company's Common
Stock during each of the first four consecutive six month periods after the
effective date of the reorganization plan. Based upon the price and trading
volume, the Company may authorize the Trust to sell more than 375,000 shares of
Common Stock during any of the four six month periods. If the gross proceeds,
prior to commission, of the Trust's stock sales in any six month period are
less than the average price of $1 per share, then the Company shall pay the
trust an amount of cash to make up the difference between the actual sales
price and $1 per share. At any time during the four six month periods, but not
thereafter, the Company may elect to purchase for $1.50 per share, the entire
balance of shares of Common Stock held by the Trust. Since the effective date
of the reorganization plan, the Trust has sold shares of Common Stock for less
than $1. The Company believes it has adequate reserves for this matter.

   EqualNet's reorganization also calls for the Company to issue additional
shares of Common Stock of the Company should the average closing price of the
Company's stock, during the 25 consecutive trading days preceding the date that
is two years after the effective date of the reorganization be less than $1 per
share as defined Plan of Reorganization.

   From time to time the Company is involved in what it believes to be routine
litigation, or other legal proceedings that may be considered as part of the
ordinary course of its business. The Company does not believe that the adverse
determination of any such claims would have a material adverse effect on either
the results of operations or the financial condition of the Company.

                                       8
<PAGE>

                         EQUALNET COMMUNICATIONS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  (UNAUDITED)


NOTE 7--EARNINGS PER SHARE

   The following table sets forth the computation of basic and diluted earnings
per share:

<TABLE>
<CAPTION>
                                           Weighted
                                            Average    Per Share
                             Net Loss    Common Shares  Amount
                           ------------  ------------- ---------
<S>                        <C>           <C>           <C>
Three Months Ended
 December 31, 1999
Net loss.................. $ (4,440,000)
Dividends applicable to
 preferred stock.......... $   (551,000)
                           ------------
Basic and diluted EPS --
  Net loss applicable to
   common stock........... $ (4,991,000)  30,225,900    $(0.17)
                           ============   ==========    ======
Three Months Ended
 December 31, 1998
Net loss.................. $ (7,927,000)
Dividends applicable to
 preferred stock.......... $ (2,087,000)
                           ------------
Basic and diluted EPS --
  Net loss applicable to
   common stock........... $(10,014,000)  18,385,832    $(0.54)
                           ============   ==========    ======
Six Months Ended December
 31, 1999
Net loss.................. $ (5,193,000)
Dividends applicable to
 preferred stock.......... $   (611,000)
                           ------------
Basic and diluted EPS --
  Net loss applicable to
   common stock........... $ (5,804,000)  29,426,483    $(0.20)
                           ============   ==========    ======
Six Months Ended December
 31, 1998
Net loss.................. $(14,088,000)
Dividends applicable to
 preferred stock.......... $ (2,457,000)
                           ------------
Basic and diluted EPS --
  Net loss applicable to
   common stock........... $(16,545,000)  19,448,324    $(0.85)
                           ============   ==========    ======
</TABLE>

   The analysis above assumes there are no conversions of any securities during
the periods presented because there is a loss in each quarter and, as a result,
the effect of the conversion of any security would be anti-dilutive.

NOTE 8--ACQUISITIONS

   On November 1, 1999, one of the Company's wholly-owned subsidiaries acquired
certain assets of the Intelesis Group, Inc., a development stage company which
had been developing an advertiser-sponsored long distance service. The Company
paid total consideration of $150,000 cash, contributed a note receivable of
approximately $631,000, and issued approximately 900,000 shares of the
Company's common stock.

NOTE 9--EQUITY TRANSACTIONS

   In November 1999, the Company entered into an agreement with third-parties
to issue approximately 1.3 million shares of the Company's common stock for
approximately $450,000 cash.

   In November and December 1999, the Company redeemed 97 shares of its Series
D Preferred Stock in exchange for 482,060 shares of the Company's common stock.

   On December 19, 1999, the Company issued 229,120 shares of the Company's
common stock to a third-party for payment of professional services rendered
under the Independent Contractor Stock Option Plan.

   On December 31, 1999 the Company converted all of the 833,333 issued and
outstanding shares of its Series E Convertible Preferred Stock, valued at
$500,000, into 833,333 shares of the Company's common stock.

                                       9
<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 consolidated
financial statements of Equalnet Communications Corp. (the "Company") and notes
thereto included elsewhere in this report.

 Results of Operations

   Sales for the three months ended December 31, 1999 decreased $0.9 million,
or 12.4%, compared to sales of $7.6 million for the same period of the prior-
year. Sales decreased $1.2 million, or 7.4%, for the six month period ended
December 31, 1999 as compared to the same period of the prior-year. The decline
in revenues is primarily attributable to decreased per-minute long distance
charges and normal customer attrition, offset by new business.

   Gross margin increased $2.7 million, or 148.9%, for the three month period
ended December 31, 1999 as compared to the same period of the prior-year; gross
margin increased $5.8 million, or 433.3%, for the six month period ended
December 31, 1999 as compared to the same period of the prior-year. These
increases are primarily due to the decrease in the costs of the Company's
network of telecommunications switches which were not incurred in the current
periods, plus savings associated with renewed carrier contracts at decreased
prices.

   The net loss applicable to common stock for the three months ended December
31, 1999 was $4.9 million, compared to the $10.0 million loss for the
corresponding period in the prior-year. The net loss applicable to common stock
for the six month period ended December 31, 1999 was $5.8 million, compared to
the $16.5 million loss for the corresponding period in the prior-year.

 Gross Margin

   Cost of sales for the three month period ended December 31, 1999 decreased
$2.5 million, or 43.6%, as compared to the same period of the prior-year. Cost
of sales for the six month period ended December 31, 1999, decreased $5.6
million, or 42.1%, as compared to the same period of the prior-year. The
primary cause of these decreases were costs associated with the Company's
network of telecommunications switches which were not incurred in the current
periods, normal customer attrition, and savings associated with renewed carrier
contracts at decreased prices. Gross margin for the three months ended December
31, 1999, increased $2.7 million, or 148.9%, to a gross profit of $0.9 million.
This increase includes the non-cash writeoffs of uncollectable accounts of $2.5
million and $3.7 million for the three months ended December 31, 1999 and 1998,
respectively. Gross margin for the six months ended December 31, 1999 increased
$5.8 million, or 433.3%, to a gross profit of $4.5 million. This increase
includes the non-cash writeoffs of uncollectable accounts of $2.7 million and
$4.1 million for the six months ended December 31, 1999 and 1998, respectively.

 Selling, General and Administrative Expenses

   Selling, general, and administrative expenses increased $.4 million, or
14.7%, for the three months ended December 31, 1999, when compared to the same
period of the prior-year; this increase is primarily attributable to additional
salaries and miscellaneous expenses associated with the Company's new
advertiser-sponsored long distance program. Selling, general, and
administrative expenses for the six month period ended December 31, 1999
decreased $.9 million, or 18.4%, as compared to the corresponding period in the
prior-year. This decrease is directly attributable to the overall decreases in
the Company's infrastructure for the applicable periods.

 Depreciation and Amortization

   Depreciation and amortization decreased $0.8 million, or 27.3%, for the
three month period ended December 31, 1999, as compared to the $2.9 million for
the same period of the prior-year. Depreciation and

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<PAGE>

amortization decreased $1.6 million, or 31.2%, for the six month period ended
December 31, 1999, as compared to the $5.1 million for the same period in the
prior-year. These decreases are directly attributable to the "declining
balance" method for amortizing customer acquisition costs, which results in
accelerated depreciation amounts in the initial period of amortization as
compared to subsequent periods, as well as write-offs of customer acquisition
costs in the prior periods not incurred in the current periods.

 Liquidity and Capital Resources

   For the six months ended December 31, 1999, the Company's working capital
requirements for operations and capital expenditures (excluding acquisitions)
were funded through the use of internally-generated funds.

   The Company generated $1.5 million in cash flow from operations for the six
months ended December 31, 1999, compared to the $.8 million cash flow used in
operations for the same period of the prior-year. Cash flow deficits in the
same period of the prior-year were primarily attributable to operating losses
incurred by the Company.

   Cash used in investing activities was $0.3 million for the six months ended
December 31, 1999, compared to the $0.6 million used for the same period of the
previous year. Included in the cash used in investing activities for the
current period was $150,000 in connection with the purchase of certain assets
of a development-stage company which had been developing an advertiser-
sponsored long distance service.

   Net cash used in financing activities was $1.1 million for the six months
ended December 31, 1999, compared to the cash provided by financing activities
of $0.9 million for the same period of the prior-year. This difference is
primarily the result of the Company relying less on borrowings to fund
operations.

 Management's Plans to Return to Profitability

   For the three and six month periods ended December 31, 1999 and 1998, the
Company reported pre-tax net operating losses, has a working capital
deficiency, and debt in default. The Company also has significant amounts of
debt due within the next twelve months. While the Company's management is
attempting to raise additional funds and/or refinance these obligations, there
is no guarantee additional financing will be available on commercially
reasonable or acceptable terms, or on terms which would not be dilutive to
stockholders, if at all. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Pre-tax net operating losses
were attributable to several internal and external factors. Continued
provisioning challenges through the end of calendar year 1998 led to delayed
billing and increased customer attrition. In addition, the Company attempted to
convert to a new customer management, billing, and rating system in late fiscal
year 1998 which proved to be unsuccessful. Simultaneous with the Company's
attempted conversion and implementation to this customer management, billing,
and rating system the Company acquired a significant customer base; conversion
problems adversely affected the Company's cash collections and, to a greater
extent, led to increased customer attrition.

   A significant portion of the Company's capital is provided by receivable
sales agreements with a third-party. Funding under these agreements are based
on specific accounts receivable eligibility requirements with the primary
factor being the collections history per account.

   The Company's management is continuing actions to strengthen the financial
position of the Company. New products are being developed to significantly
enhance sales and revenue, including (i) bundled minute long distance products
resembling cellular offerings, (ii) wholesale international rates for retail
customers (iii) pre-paid debit-cards, (iv) advertiser-sponsored long distance
and (v) the pursuit of acquisitions expected to be accretive to earnings. The
Company is also considering entering the wholesale international long distance
market, and offering local service as a competitive local exchange carrier.
Additionally, the Company is evaluating several proposals for the resumption of
an agent program in order to increase its customer base, as well as negotiating
with several third parties for possible acquisitions to form strategic
alliances in order to maximize the utilization of the Company's
telecommunications switches (the "Switches").

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<PAGE>

   The Company believes the new product offerings noted above are particularly
significant to increasing the Company's revenues and returning to
profitability. Furthermore, management believes the Company must increase its
innovation and not depend on competitive pricing alone in order to become more
competitive in the marketplace. Most of the new product offerings noted above
are pricing packages only and will not require a significant amount of capital.
Any new product offerings requiring technology advancements will most likely
come from strategic alliances or potential mergers. Financing for potential
strategic alliances or mergers is expected to come from the issuance of the
Company's common stock.

   In order to provide financing to support operations, the Company must also
continue to increase revenue generated from its existing resources. Specific
actions to maximize revenue generated by the switch network include (i) placing
dedicated customers on the network via connectivity to a local switch, (ii)
port leasing of switch assets and (iii) international product offerings
accessed through the switches. In addition, the Company is continuing to reduce
its primary carrier costs for its existing customer base. The Company continues
to make improvements in its billing and MIS systems to more accurately bill
customers, maximize customer revenue and ensure proper audit of vendor invoices
related to the cost of service. The Company has also implemented a cost
reduction program, and continues to refine these efforts, related to general,
administrative, and overhead expenditures. In addition to utilizing the
Switches to provide transmission of its customer traffic, the Company is
focusing on offering bundled services to its customers, mainly long-distance
service, Internet access, and local service.

   Management believes the plans discussed above are critical to returning the
Company to profitability. Additionally, the Company intends to seek possible
strategic alliances and business combinations in order to more rapidly
implement its plans for increasing the service offerings or for reducing costs
of the Company. Management is attempting to balance the cash flows from
operations to meet current needs, and is continuously seeking additionally
capital resources to fund the expansion of service offerings of the Company.
Should capital resource requirements to achieve management's plan to return to
profitability significantly exceed management's ability to meet those needs,
the Company's ability to return to profitability could be significantly delayed
or impaired.

 Year 2000 Issue

   The Company successfully completed all work to resolve the potential impact
of year 2000 on the processing of date-sensitive information by the Company's
computerized information systems and equipment with embedded chips. The Company
has not experienced any material disruption from the year 2000 issue relating
to the century rollover. The Company will continue to monitor all critical
systems for the appearance of delayed year 2000 related issues, problems
relative to the leap year, and problems encountered through suppliers,
customers, and other third-parties with whom the Company deals.

   For substantially all of the Company's internal systems, the remediation
phase of its year 2000 activities were an incidental consequence of routine
updates to existing systems. Expenses incurred by the Company related to the
year 2000, which were not material, have been expensed as incurred and funded
from operations. A majority of these costs would have been incurred as part of
normal system and application upgrades.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

   In November 1999, the Company entered into an agreement with third-parties
to issue approximately 1.3 million shares of the Company's common stock for
approximately $450,000 cash.

   In November and December 1999, the Company redeemed 97 shares of its Series
D Preferred Stock in exchange for 482,060 shares of the Company's common stock.

   On December 19, 1999, the Company issued 229,120 shares of the Company's
common stock to a third-party for payment of professional services rendered
under the Independent Contractor Stock Option Plan.

   On December 31, 1999, the Company redeemed all of the 833,333 issued and
outstanding shares of its Series E Convertible Preferred Stock, valued at
$500,000, into 833,333 shares of the Company's common stock.

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<PAGE>

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

   None.

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

   None.

ITEM 5. OTHER INFORMATION

   None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

   a. Exhibits

<TABLE>
     <C>  <S>
     10.1 Asset Purchase Agreement by and among Freecaller Communications
          Corporation f/k/a Intelesis Acquisition Corp as Buyer, The Intelesis
          Group, Inc. as Seller, and Freecaller Communications Corporation as
          Assignor dated October 29, 1999.

     10.2 Amendment to Asset Purchase Agreement by and among Freecaller
          Communications Corporation f/k/a Intelesis Acquisition Corp as Buyer,
          The Intelesis Group, Inc. as Seller, and Freecaller Communications
          Corporation as Assignor dated November 18, 1999.

     27.1 Financial Data Schedule
</TABLE>

   b. Reports on Form 8-K

   None.

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<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.

                                          EQUALNET HOLDING CORP.

Date: February 14, 2000                   /s/ Michael P. Gallagher
   ---------------------                  ---------------------
                                          Michael P. Gallagher, Chief
                                           Financial Officer
                                            (duly authorized officer and
                                            principal financial officer)

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