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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

                       FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

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

             FOR THE TRANSITION PERIOD FROM           TO

                       COMMISSION FILE NUMBER: 000-26313

                               NETWORK PLUS CORP.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

<TABLE>
<S>                                            <C>
                  DELAWARE                                      04-3430576
       (STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER IDENTIFICATION NO.)
                INCORPORATION)
</TABLE>

                              234 COPELAND STREET
                          QUINCY, MASSACHUSETTS 02169
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
                           -------------------------

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 786-4000
                           -------------------------
     Securities registered pursuant to Section 12(b) of the Act: None

     Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.01 per share

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

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

     The aggregate market value of outstanding shares of the Registrant's Common
Stock held by non-affiliates as of March 1, 2000 was $408,916,530. For this
purpose, any officer, director and known 5% stockholder is deemed to be an
affiliate.

     The number of shares of the registrant's Common Stock outstanding on March
1, 2000 was 55,069,441.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Specifically identified portions of the registrant's definitive proxy
statement to be filed in connection with the registrant's 2000 annual meeting of
stockholders (the "2000 Proxy Statement") are incorporated by reference into
Part III.
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     This Annual Report on Form 10-K includes "forward-looking statements",
including statements containing the words "believes", "anticipates", "expects"
and words of similar import. All statements other than statements of historical
fact included in this Annual Report including, without limitation, such
statements under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" and elsewhere herein, regarding the
Company or any of the transactions described herein, including the timing,
financing, strategies and effects of such transactions and the Company's growth
strategy and anticipated growth, are forward-looking statements. Important
factors that could cause actual results to differ materially from expectations
are disclosed in this Annual Report, including, without limitation, in
conjunction with the forward-looking statements in this Annual Report and under
the heading "Certain Factors That May Affect Future Operating Results" under
Item 7.

     Network Plus and the Network Plus logo are registered service marks, and
LOGOS is a service mark of Network Plus. All other trade names, trademarks and
service marks used herein are the property of their respective owners.

                                     PART I

ITEM 1. BUSINESS

OVERVIEW

     Network Plus is a network-based communications provider offering a
comprehensive suite of broadband data, telecommunications and e.Commerce hosting
services. Our services include local and long distance voice, high-speed data,
Internet and web and managed server hosting. We currently utilize digital
subscriber line, or DSL, technology to provide high-speed data and Internet
access and are a pioneer in providing local and long distance services using
voice over digital subscriber line, or VoDSL, technology. We currently serve
small and medium-sized business customers in the northeastern and southeastern
regions of the United States. During 2000, we intend to expand into the
mid-Atlantic region to establish a contiguous network footprint from New England
to Florida. As of December 31, 1999, we served approximately 45,000 customers
representing in excess of 66,000 local access lines and 225,000 long distance
access lines. We had total revenue of $152.5 million in 1999.

     We believe that our comprehensive suite of communications services and the
continuing expansion of our network enable us to acquire new customers,
cross-sell additional services to existing customers and improve our overall
margins. As of March 1, 2000, we:

     - Provide VoDSL, DSL and local exchange services directly to our customers
       by co-locating our network equipment in the central offices of incumbent
       local exchange carriers. As of March 1, 2000, we had 197 co-locations
       accepted and under construction, of which 42 are operational. We intend
       to expand our co-location network to approximately 220 co-locations in
       the northeastern and southeastern regions of the United States by
       year-end 2000 and to approximately 500 co-locations in the northeastern,
       mid-Atlantic and southeastern regions of the United States by year-end
       2001.

     - Sell our services through a 279 person sales force located in 12 sales
       offices throughout the northeastern and southeastern regions of the
       United States. To support our anticipated growth, we expect to expand our
       sales force to approximately 400 members by year-end 2000 located in 16
       sales offices in the northeastern, mid-Atlantic and southeastern regions
       of the United States. We plan to further expand our sales force to 500
       members by year-end 2001.

     - Operate Lucent 5ESS local exchange switches in Cambridge, Massachusetts,
       New York City, Atlanta and Miami, Nortel international and interexchange
       switches in Los Angeles and Quincy, Massachusetts and Nortel
       interexchange switches in Orlando and Chicago. We intend to deploy
       additional local exchange switches in New Jersey, Philadelphia,
       Washington, D.C. and Raleigh, North Carolina by year-end 2001.

     - Own 11,000 digital fiber miles of long-haul and metropolitan fiber optic
       cable. The fiber is configured in multiple synchronized optical network,
       or SONET, rings and is equipped with Lucent dense wave division
       multiplexing, or DWDM, technology allowing us to increase our network
       capacity to 16 OC-192s permitting data transmission rates of 400
       gigabytes per second. We intend to deploy an

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       additional 3000 route miles, representing approximately 19,000 additional
       digital fiber miles, by year-end 2001.

     - Have deployed and operate 27,000 square feet of carrier class e.Commerce
       data center space to support both web and managed server hosting
       services. By year-end 2000, we intend to expand to 116,000 square feet of
       e.Commerce data center space in geographically diverse centers located in
       Cambridge, Massachusetts, Quincy, Massachusetts, New York City, Miami and
       Atlanta. We intend to deploy an additional 150,000 square feet of
       e.Commerce data center space by year-end 2001, with additional centers
       located in Chicago, Philadelphia and Nashville.

     - Have deployed 20,000 square feet of e.Commerce "edge" data center space
       located in the central offices of incumbent local exchange carriers with
       an additional 21,000 square feet under construction. This edge space
       represents space that we sublease to other telecommunications companies.
       We expect to have deployed a total of 41,000 square feet of edge
       co-location space by year-end 2000 and a total of 65,000 square feet by
       year-end 2001.

BUSINESS STRATEGY

     We have an aggressive growth strategy to become the provider of choice
offering one-stop broadband data, telecommunications and e.Commerce hosting
services to small and medium-sized business customers in our target markets. Our
future success will depend upon our ability to implement this strategy. We
believe that our substantial operating history, existing customer base,
expansive network, LOGOS, our operational support system, and our experienced
management team, will enable us to effectively implement our growth strategy,
which includes the following:

  BE A SINGLE-SOURCE PROVIDER OF BROADBAND DATA, TELECOMMUNICATIONS AND
e.COMMERCE HOSTING SERVICES

     A key to our growth is the continued implementation of our marketing plan
that emphasizes our comprehensive suite of broadband data, telecommunications
and e.Commerce hosting services on both a bundled and individual basis. To a
large extent, the customers we target have not previously had the opportunity to
purchase bundled services from a single-source provider, and we believe that
they will prefer one source for all of their telecommunications requirements.
Additionally, we believe that our VoDSL and DSL-enabled services allow the small
and medium-sized businesses we target to obtain, for the first time, affordable
and reliable broadband data services which we believe are necessary for success
in the rapidly evolving world of business-to-business and business-to-consumer
e.Commerce. We provide bundled services, invoice these services on a single bill
and provide a single point of contact for customer service, product inquiries,
repairs and billing questions.

     We believe that our ability to provide bundled broadband data,
telecommunications and e.Commerce hosting services will enable us to better meet
the needs of our customers, penetrate our target markets, capture a larger
portion of our customers' total expenditures on telecommunications and
e.Commerce hosting services and increase customer retention. In addition, we
believe that our VoDSL technology will allow us to offer our comprehensive suite
of services at a bundled price that may be lower than many of our competitors
and lower than the price of purchasing those services separately.

  TARGET UNDERSERVED MARKETS

     We target small and medium-sized businesses. We seek to be among the first
to market integrated telecommunications services in many of our markets,
including small and medium-sized communities in which there is relatively little
competition from fully integrated network based telecommunications providers. We
believe that small and medium-sized businesses have been underserved by our
large competitors with respect to sales and customer service, and that our
integrated and comprehensive product suite and emphasis on customer support and
satisfaction provides us with a significant competitive advantage.

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  EXPAND GEOGRAPHIC REACH

     We currently service the northeastern and southeastern regions of the
United States. We intend to expand into the mid-Atlantic region and targeted
regions in the midwest. Our plan is to establish a single contiguous network
footprint from New England to Florida. We believe that the northeast,
mid-Atlantic and southeast are particularly attractive due to a number of
factors, including the population density in the northeast and mid-Atlantic, the
large number of rapidly growing metropolitan clusters in the southeast and the
relatively small number of significant competitors to the incumbent local
exchange carriers. In addition, we also intend to expand into other regions of
the United States as opportunities arise.

  CROSS-SELL LOCAL, DATA AND e.COMMERCE HOSTING SERVICES TO OUR EXISTING
CUSTOMERS

     As of December 31, 1999, we had approximately 45,000 customers representing
in excess of 66,000 local access lines and 225,000 long distance access lines.
We believe that our ongoing customer relationships, focus on customer care and
the competitive prices enabled by both our VoDSL technology and our bundled
services provide us with a significant opportunity to cross-sell local, DSL,
data and e.Commerce hosting services to our existing customers.

  BUILD A CAPITAL-EFFICIENT NETWORK INFRASTRUCTURE

     Our strategy is to expand our network where economically or strategically
justifiable. We believe that this strategy will result in higher long-term
operating margins, greater control of our network and enhance service quality.
As we expand our infrastructure with fiber, switches, co-locations and
e.Commerce data centers, the portion of our traffic that is carried on our
network will increase. In addition, we believe we will be able to defray a
significant portion of our co-location costs by subleasing our excess
co-location, or "edge", space to other network providers. An important element
of our network strategy is to build our network to take advantage of our
existing customer base, our sales office coverage in the northeastern and
southeastern regions of the United States and our planned sales force expansion
in the mid-Atlantic region. All of the approximately 500 co-locations that we
expect to have operational by year-end 2001 will be within the service areas of
our existing or planned sales offices.

  ACQUIRE AND RETAIN MARKET SHARE THROUGH OUR SALES FORCE AND CUSTOMER SERVICE

     We intend to expand our sales force to approximately 400 members by
year-end 2000 and to 500 by year-end 2001 to acquire and support a growing
customer base. Once we obtain a customer, we focus on providing superior
customer service. We believe that our sales and customer services processes have
resulted in a customer retention rate that is higher than many of our
competitors and differentiate us as a customer-focused telecommunications
provider, giving us a competitive advantage.

     We provide customer service 24 hours per day, 365 days per year. We also
provide each customer with personalized service through a single point of
contact for all product inquiries, repair needs and billing questions, which we
believe increases customer satisfaction.

     We provide incentives to our sales and customer support personnel through a
compensation structure that is designed to promote a high level of ongoing
customer care and retention. It also ensures that our sales staff remains
actively involved in the customer service process.

  LEVERAGE OUR CUSTOM-DESIGNED BACK OFFICE SYSTEMS

     We have deployed a custom-designed operational support system, which we
refer to as LOGOS. LOGOS shortens the time between a customer order and service
installation, reduces overhead costs and enables us to provide superior customer
service. We believe that LOGOS enhances our productivity and service quality and
provides us with a significant competitive advantage by:

     - automating many of the processes involved in moving a customer onto our
       network

     - automating the exchange of data with our trading partners through
       electronic bonding

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     - enabling single-call resolution of most customer inquiries

     - providing each of our departments with a universal view of all
       provisioning, billing, customer service, trouble ticket and collections
       activities for each customer

     - enabling customized service offerings, pricing and invoice formatting for
       each customer

     - enabling our customers to analyze traffic and usage patterns, track
       changes and pay invoices through a secure web interface to our LOGOS
       system, which we call the e.Command Center.

     Our operational support system also provides our management with timely
operational and financial data to direct network, sales and customer service
resources more efficiently. In addition, we are in the process of further
enhancing the electronic bonding of LOGOS to the operational support systems of
our key trading partners. This electronic exchange of data with both incumbent
local exchange carriers and other key trading partners will allow "flow-through"
provisioning, which will reduce the time necessary to order unbundled network
elements and enhance the quality control of the ordering process.

  EXPAND THROUGH STRATEGIC ACQUISITIONS AND ALLIANCES

     As part of our expansion strategy, we plan to consider strategic
acquisitions of, and alliances with, related or complementary businesses. We
believe that strategic acquisitions of, and alliances with, related or
complementary businesses may enable us to expand more rapidly by adding new
customers and services, network assets and experienced employees. These
acquisitions and alliances could be funded by cash, bank financing or the
issuance of debt or equity securities. We continuously evaluate and often engage
in discussions regarding various acquisition and alliance opportunities, but are
not currently a party to any agreement for a material acquisition or alliance.

  LEVERAGE THE EXPERIENCE OF OUR MANAGEMENT TEAM

     Our management team has significant experience in the telecommunications
industry in general and, in particular, in the critical functions of network
operations, sales and marketing, back office and operational support systems,
finance and customer service. Our management team has an average of
approximately ten years of experience in the telecommunications industry. We
believe that the quality, experience and teamwork of our management team will be
critical factors in the implementation of our growth strategy.

MARKET OPPORTUNITY

     We believe that the federal Telecommunications Act of 1996 and certain
state regulatory initiatives provide increased opportunities in the
telecommunications marketplace by opening local markets to competition and
requiring incumbent local exchange carriers to provide increased direct
interconnection to their competitors. According to the FCC, in 1998 the total
revenues for the telecommunications industry amounted to approximately $245
billion, of which approximately $105 billion was local service and approximately
$105 billion was long distance.

     A number of important trends are reshaping the U.S. telecommunications
industry, creating substantial market opportunity. These trends include:

     - increasing customer demand for high-speed broadband data services, such
       as Internet access and transport and personal computer-based applications

     - the emergence of business-to-business and business-to-consumer e.Commerce

     - continued consolidation among service providers to broaden their service
       offerings and technical capabilities.

     By leveraging customer relationships and bundling service offerings,
competitive local exchange carriers have begun to exploit a variety of
opportunities, including high-speed Internet access and transport, VoDSL, DSL,
local and wide-area network connectivity, managed network services, virtual
private networks, remote

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access and electronic commerce services. We believe that new entrants have an
excellent opportunity to establish themselves as leading providers of such
value-added services.

     High-speed data services and Internet connectivity have become important to
business due to the dramatic increase in Internet usage and the proliferation of
personal computer and Internet protocol-based applications. According to
International Data Corporation, an independent telecommunications and technology
research company, the number of Internet users worldwide reached approximately
144 million in 1998 and is forecasted to grow to approximately 602 million by
2003. The popularity of the Internet with consumers has also driven the rapid
growth in exploiting the Internet as a commercial medium, as businesses
establish websites, corporate intranets and extranets and implement electronic
commerce applications to expand their customer reach and improve their
telecommunications efficiency.

THE IMPORTANCE OF VODSL AND e.COMMERCE DATA CENTER SPACE

     The rapid growth of the Internet, the expansion of e.Commerce and the
introduction of new business applications have fueled increasing demand from
small and medium-sized businesses for advanced telecommunications and Internet
services. To meet this demand, we offer a comprehensive suite of voice,
broadband data and web and managed server hosting services. Our VoDSL technology
allows us to simultaneously provide small and medium-sized businesses with up to
16 telephone lines and an "always on" high-speed connection to the Internet at
speeds of up to 1.5 megabits per second over a single copper line.

     As more small and medium-sized businesses utilize the Internet to conduct
their business, the need for reliable and affordable broadband access and
guaranteed availability of e.Commerce web and server platforms will become
increasingly vital. It is often impractical for small and medium-sized
businesses to economically operate e.Commerce platforms on their own premises,
because adequate redundant bandwidth and e.Commerce web and server platforms are
often not available or are cost-prohibitive. We believe that our e.Commerce data
centers address this need by providing reliable and affordable broadband access
and guaranteed availability of e.Commerce web and managed server hosting
services.

SERVICE OFFERINGS

     We began offering local phone, DSL, e.Commerce hosting and VoDSL services
in mid-1998, mid-1999, December 1999 and January 2000, respectively. In 1999 we
had total revenue of $152.5 million. In 1999, aggregate revenues from our long
distance phone service accounted for approximately 89% of our total revenues,
and aggregate revenues from local phone, data and e.Commerce hosting services
accounted for approximately 11% of our total revenues.

  RETAIL SERVICE OFFERINGS

     Our retail services, which we offer on a stand-alone or bundled basis,
currently include the following:

VoDSL and Circuit-Switched
Local Services               We offer a full range of local exchange services
                             including voice mail, directory assistance, call
                             forwarding, conference calling, return call hunting
                             services, call pick-up, repeat dialing and speed
                             calling. Local services can be provided through
                             packet-based VoDSL facilities or traditional
                             circuit-switched facilities.

DSL, Internet and Data
Services                     Our DSL services provide an "always on" high-speed
                             local connection to the Internet and to private and
                             local area networks. Our DSL technology can
                             increase the data transfer rates of a standard
                             phone line by up to 25 times. We also offer both
                             dial-up and dedicated Internet access and private
                             line, frame relay, mail, news and domain name, or
                             DNS, services.

e.Commerce Hosting Services  We offer a full range of web and managed server
                             hosting services in geographically dispersed and
                             environmentally and technologically controlled
                             carrier class facilities with both redundant power
                             and Internet
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                             access. Our e.Commerce services include vertical
                             rack space, cabinet units, cage and vault space and
                             managed NT and UNIX servers with both burstable and
                             guaranteed bandwidth.

VoDSL and Circuit-Switched
Long Distance Services       We offer both domestic (interstate) and
                             international switched and dedicated long distance
                             services, including "1+" service along with global
                             termination to over 225 countries. We also offer a
                             variety of enhanced long distance features. Long
                             distance services can be provided through
                             packet-based VoDSL facilities or traditional
                             circuit-switched facilities.

VoDSL and Circuit-Switched
Toll-free Services           We offer a full range of switched and dedicated
                             domestic (interstate) toll-free services, including
                             toll-free origination and termination,
                             international toll-free origination from 60
                             countries, including Canada, and toll-free
                             directory assistance. We also provide enhanced
                             toll-free services through our advanced intelligent
                             network capabilities. Toll-free services can be
                             provided by packet-based VoDSL facilities or
                             traditional circuit-switched facilities.

Calling Card Services        We offer nationwide switched-access customized
                             calling card services. We offer our customers the
                             option of calling cards that are personalized,
                             branded or generic.

Paging Services              We offer advanced wireless paging services,
                             including digital and alphanumeric paging, personal
                             identification number services, voice mail, news
                             and sports feeds, and local or national geographic
                             coverage.

Custom Management Control
Features                     We offer customized management reporting features
                             including area code summaries, international
                             destination matrices, daily usage summaries, state
                             summaries, time of day summaries, duration
                             distribution matrices, exception reporting of long
                             duration calls, and incomplete and blocked call
                             reporting.

e.Command Center             We offer our customers a secure web interface into
                             LOGOS. Through our e.Command Center, customers have
                             access to analytical tools to help them manage and
                             control their communication cost and services, pay
                             invoices and track events. Customer access to our
                             e.Command Center is available 24 hours a days, 7
                             days a week.

  WHOLESALE "EDGE" CO-LOCATION SERVICES

     We currently have constructed 20,000 square feet of e.Commerce "edge" data
center space located in the central offices of incumbent local exchange
carriers, which by year-end 2000 we expect to expand to 41,000 square feet. This
edge space represents excess space that we sublease to other telecommunications
companies for the deployment of their network infrastructure. The provision of
these services enables us to defray a portion of our network build costs. By
year-end 2001, we expect to have deployed a total of 65,000 square feet of edge
co-location space.

  INTERNATIONAL WHOLESALE SERVICES

     We offer international wholesale termination and transport services
primarily to major domestic and international telecommunications carriers. We
believe our international wholesale service offering is a strategic element in
our overall plan to expand our network and to generate and retain customer
traffic. We intend to build on our relationships with large domestic and
international carriers to purchase increased capacity and to
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otherwise support our international service offerings. In addition, we expect
that providing comprehensive international services will lower our cost of
carrying international traffic and result in more attractive service offerings
in our core retail markets.

SALES AND MARKETING

  OVERVIEW

     Our sales force seeks to provide our existing and potential customers with
a comprehensive array of telecommunications services customized for the
increasingly convergent voice and data marketplace. Our sales force targets
small and medium-sized businesses that generally have telecommunications
expenditures of less than $10,000 per month. We believe that neither the
regional Bell operating companies, large long distance carriers nor the
nationally based e.Commerce and Internet service providers have historically
concentrated their sales and marketing efforts on this business segment, which
we believe represents a significant portion of the market. Additionally, we
believe that historically small and medium-size businesses have been
economically precluded from enjoying the benefits of broadband VoDSL and DSL
access and the enhanced business opportunities that broadband-enabled e.Commerce
provides. We believe we have established ourselves as a recognized provider of
high-quality, competitively priced telecommunications service with a reputation
for responsive customer care. We believe that our new e.Commerce data centers
and our VoDSL technology offerings enable us to better compete in, and more
rapidly penetrate, our targeted sales markets.

     Our sales and marketing approach is to build long-term business
relationships with our customers, with the intent of becoming the single-source
provider of all their telecommunications services. We train our sales force
in-house with a customer-focused program that promotes increased sales through
both customer attraction and customer retention.

  SALES CHANNELS

     DIRECT SALES.  Our direct sales force markets our retail services directly
to end users. As of March 1, 2000, we employed 269 direct sales representatives
working in 12 sales offices throughout the northeastern and southeastern regions
of the United States. By year-end 2000, we intend to employ approximately 400
direct sales representatives located in a total of 16 offices throughout the
northeast, mid-Atlantic and southeastern regions of the United States.

     Our direct sales force is headed by our senior vice president of sales, who
has been with us for approximately eight years. Each of our existing sales
offices is headed by a branch manager and is further sub-divided into smaller
sales teams, each of which is headed by a team leader who directly oversees the
day-to-day sales activities of his or her team and acts as a mentor to its
members. Teams generally consist of eight to 10 sales representatives.

     We provide compensation incentives to our sales teams to sell to customers
within pre-assigned co-location areas. In doing so, the salesforce is motivated
to sell to new customers that can be provisioned directly onto our network where
we realize higher margins.

     All new sales representatives are required to receive formal in-house
training, in which we expect them to gain a thorough knowledge of our services
and the telecommunications industry. After formal training, we permit sales
representatives to pursue customers but require them to participate in a
continuing mentoring program. We believe this philosophy is a competitive
advantage in the attraction and long-term retention of sales personnel.

     AGENCY SALES.  Our agency sales force markets our services to various
resellers, independent marketing representatives, associations and affinity
groups. This sales force locates established, high-quality organizations with
extensive distribution channels in order to market our telecommunications
services to both a broader geographic range and a greater number of potential
customers than could be reached by the direct sales force. We sell our services
on a wholesale basis to resellers, which in turn sell such services at retail to
their

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customers. We generally sell our services to independent marketing
representatives, associations and affinity groups on a retail basis.

     Our use of independent marketing representatives allows us to reduce our
marketing and other overhead costs. As compensation for their services,
independent marketing representatives generally receive a commission on their
sales. We employ stringent selection criteria and attempt to carefully monitor
and control the activities of our resellers and independent marketing
representatives to ensure compliance with laws, industry standards and company
policies. We believe that the number of complaints we have received regarding
the methods and practices of our agents is negligible in comparison with the
experience of many other telecommunications companies.

     We commenced sales through resellers and independent marketing
representatives in 1996, and as of March 1, 2000 we had five salespeople
dedicated to this market segment. In December 1999, sales through our reseller
and independent agent sales force accounted for approximately 10% of our
revenue.

     INTERNATIONAL WHOLESALE SALES.  Our international wholesale sales force
markets our international telecommunications services to both international and
domestic carriers. This group focuses on developing customer and vendor
relationships with the top-tier international carriers, as well as selected
financially stable second-tier carriers. As of March 1, 2000, we had five sales
people in this group.

  SALES FORCE COMPENSATION

     Our sales force compensation strategy provides focused incentives to sell
higher margin bundled on-net services. Additionally, we compensate all sales
personnel with both a salary and a residual commission structure based on each
customer's continued use of our services. The compensation of our sales staff is
therefore increasingly reliant over time on the retention of existing customers.
We believe that this "lifetime residual" motivates each sales person to remain
actively involved with customers and participate in the customer support
process. We believe this approach provides us with competitive advantages that
increase customer retention, increase cross-selling opportunities and reduce the
costs of customer service and support.

  MARKETING AND ADVERTISING

     We have begun marketing efforts in support of our VoDSL technology and the
rollout of our integrated voice, DSL and e.Commerce data services. Recent
marketing efforts include print ads, mailings and trade shows. We are also
actively involved in numerous charitable and community events, which we believe
increases our recognition in our target geographic regions.

CURRENT CUSTOMER BASE

  RETAIL CUSTOMERS

     As of December 31, 1999, we provided service to approximately 45,000
customers representing in excess of 66,000 local access lines and 225,000 long
distance access lines. We segment our customers by monthly revenue to ensure
that those customers generating higher monthly revenues experience a higher
level of proactive customer care. Because our customer base, to a large extent,
is concentrated around our sales offices, we believe we are beginning to achieve
name recognition in the small and medium-sized business communities in our core
sales areas. To further enhance our customers' experience, we have recently
deployed our e.Command Center, which allows our customers real-time access
through a secure web interface to our LOGOS operational support system.

  INTERNATIONAL WHOLESALE CUSTOMERS

     We provide international wholesale services to numerous national and
international telecommunications carriers. We strive to establish close working
relationships with our international wholesale customers. Once we interconnect
with a carrier customer, the carrier may utilize us on an as-needed basis,
depending upon the pricing offered by us and our competitors, as well as the
available capacity. We have been tested and approved as an authorized carrier
for, and included in the routing tables of, all of our international carrier
customers.

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NETWORK

  OVERVIEW

     We pursue a capital-efficient network deployment strategy that involves
owning switches while acquiring or leasing fiber optic transmission facilities
on an incremental basis to satisfy customer demand. Our strategy has been to
build a geographic concentration of customers before building, acquiring or
extending our network to serve that concentration of customers. As network
economics or strategic opportunities justify the deployment of our switching or
transport capacity, we expand our network and migrate customers onto our
network. An important element in our local, VoDSL and DSL network strategy is to
build our network to take advantage of our existing customer base and our
current and planned sales office coverage.

     We believe that, where economically or strategically justified, owning
network components, rather than relying on the facilities of third parties,
enables us to have more flexibility in meeting customer needs for new products
and services, generate higher operating margins, obtain origination and
termination fees from other carriers and maintain greater control over our
network operations and service quality.

  INTEGRATED NETWORK ARCHITECTURE

     We provide services to our customers over a single integrated network that
supports local and long distance voice services over VoDSL facilities or
traditional circuit facilities, high-speed data, including DSL, Internet and web
and managed server hosting services. We believe that the integrated design of
our local, long distance and data networks significantly reduces our cost of
providing services. Our integrated network architecture includes customer
premise equipment, unbundled network elements, co-locations located in the
central offices of incumbent local exchange carriers as well as carrier access
hotels, class 5 switches, gateway and long distance switches, digital subscriber
line access multiplexers, or DSLAMs, Internet protocol-based routers and
switches, application servers, asynchronous transfer mode, or ATM, switches,
synchronous optical network, or SONET, fiber rings, dense wave division
multiplexing, or DWDM, optronics for high capacity and high density transmission
and our own SS7 service control points, or SCPs.

  REACHING THE CUSTOMER PREMISES -- UNBUNDLED NETWORK ELEMENTS

     Our integrated network begins with our customer. To reach our customers, we
purchase or lease simple copper loops, or, if customer traffic justifies, T-1
facilities, as unbundled network elements, or UNEs, from the incumbent local
exchange carrier. By utilizing UNEs, we obtain access and termination revenues
as if we owned the copper loop to our customer and are able to rapidly connect
the customer directly to our co-location. We are also able to avoid the cost and
delay associated with deploying our own facilities to our customers' premises.
To support our VoDSL and high-speed DSL services, we provide our customer with a
modem that we connect to a digitally conditioned copper loop that we have
purchased or leased as a UNE. To enable us to purchase these UNEs, we have
successfully negotiated interconnection agreements with the incumbent local
exchange carrier in each of our targeted jurisdictions. We currently have
interconnection agreements with Bell Atlantic of Massachusetts, New Hampshire,
New York and Rhode Island, Southern New England Telephone of Connecticut, and
Bell South of Georgia and Florida. We anticipate entering into interconnection
agreements in our targeted mid-Atlantic expansion states by August 1, 2000.

  CO-LOCATION FACILITIES

     Each UNE we deploy, whether for local service or high-speed VoDSL and DSL
service, is a direct connection from our customer to one of our co-location
facilities located in the central office of the incumbent local exchange
carrier. Within each co-location facility we have deployed, or are deploying,
both Lucent digital access nodes to support switched voice services and DSLAMs
to support both VoDSL and our stand-alone high-speed and DSL service offerings.
By designing our co-locations in this manner we are able to allocate the
overhead costs associated with deploying co-locations across multiple products
and revenue streams. This co-location architecture can be extended to support
emerging applications as customer requirements dictate.

                                       10
<PAGE>   11

     Currently 42 co-locations of the 197 co-locations accepted and under
construction are operational. We expect to have approximately 220 co-locations
operational by year-end 2000 and a total of 500 co-locations operational by
year-end 2001. These co-locations, measured by the aggregate number of business
lines currently served by the local telephone company in these locations as of
December 1999, are set forth below.

<TABLE>
<CAPTION>
                                                    PLANNED            PLANNED           TOTAL AVAILABLE
                                                CO-LOCATIONS BY    CO-LOCATIONS BY       BUSINESS LINES
STATE                                            YEAR-END 2000      YEAR-END 2001      AS OF DECEMBER 1999
-----                                           ---------------    ---------------     -------------------
<S>                                             <C>                <C>                <C>
Connecticut.................................           27                 40                  641,461
Florida.....................................           71                 84                2,033,536
Georgia.....................................           24                 55                  844,703
New Hampshire...............................            7                  7                  129,045
Massachusetts...............................           48                 78                1,189,406
New York....................................           35                 90                3,516,539
Rhode Island................................            8                 12                  227,260
District of Columbia........................            0                  8                  581,692
Delaware....................................            0                  7                  162,123
Maryland....................................            0                 12                  942,873
New Jersey..................................            0                 33                1,800,970
Pennsylvania................................            0                 30                1,666,276
Virginia....................................            0                 15                  954,965
North Carolina..............................            0                 21                  895,224
South Carolina..............................            0                  8                  275,109
                                                      ---                ---               ----------
Total.......................................          220                500               14,690,849
</TABLE>

     Until we have deployed the necessary co-location facilities in a specific
geographical region, our DSL services utilize our underlying network or the
network of another DSL provider, and our local exchange services utilize the
underlying network of the incumbent or competitive local exchange carrier.

  NETWORK ACCESS POINTS AND LOCAL SWITCHING PLATFORM -- LUCENT 5ESS SWITCHES

     Our local switching platform consists of Lucent 5ESS digital switches in
Cambridge, Massachusetts, New York City, Atlanta and Miami. We intend to deploy
additional Lucent 5ESS digital switches in New Jersey, Philadelphia, Washington,
D.C. and Raleigh, North Carolina by year-end 2001. Each Lucent 5ESS switch acts
as a centralized switching node and data center for each co-location within the
footprint served by the switch. In addition, each of these centralized switching
nodes serves as an interconnection and concentration point between our VoDSL and
DSL data network and the Internet.

VoDSL PLATFORM AND DSL PLATFORM

     The rapid growth of the Internet, expansion of business-to-business and
business-to-consumer e.Commerce and the introduction of new business
applications have fueled increasing demand from small and medium-sized
businesses for access to voice, broadband data and web and managed server
hosting services. To meet this demand, we offer a comprehensive suite of bundled
voice, broadband data services and web and managed server hosting services over
our network infrastructure. Our VoDSL technology allows us to simultaneously
provide small and medium-sized businesses with up to 16 telephone lines and an
"always on" high-speed connection to the Internet at speeds of up to 1.5
megabits per second over a single existing copper line.

                                       11
<PAGE>   12


     Our VoDSL and DSL broadband network is a packet-based network. We are able
to dynamically upgrade and downgrade bandwidth and data transport speed on each
VoDSL and DSL connection to meet the changing needs of our customers. Because
customers are able to purchase broadband capacity and data transport speeds to
match their specific needs, we believe our customers will realize lower costs.
Our VoDSL solution also guarantees quality telephone service by prioritizing
telephone packets over data packets. The result of this prioritization is that
telephony traffic always receives the bandwidth it requires and data traffic
uses the remaining bandwidth.

  LONG DISTANCE SWITCHING PLATFORM -- NORTEL SWITCHES

     We have deployed Nortel DMS interexchange and international gateway
switches in Quincy, Massachusetts and Los Angeles and Nortel DMS interexchange
switches in Orlando and Chicago. We intend to increase our long distance
footprint through expanded tandem or end-office trunking, deployment of
additional points of presence and, where traffic concentration justifies,
deployment of additional switch facilities. Future long distance switch sites
potentially include Dallas, Denver and Seattle.

  e.COMMERCE DATA CENTERS

     We operate 27,000 square feet of carrier class e.Commerce data center space
to support both web and managed server hosting services. By year-end 2000, we
anticipate that this will increase to 116,000 square feet in geographically
diverse data centers located in New York City, Cambridge, Massachusetts, Quincy,
Massachusetts, Miami and Atlanta. We intend to deploy a total of 250,000 square
feet of e.Commerce data center space by year-end 2001, with additional centers
located in Chicago, Philadelphia and Nashville.

                                       12
<PAGE>   13

     Our e.Commerce data centers are, and our planned e.Commerce data centers
are expected to be, located on our major backbone fiber routes and co-located
with our class 5 local switches. To support our web and managed server hosting
services, we maintain redundant T-3 (45mb) circuits to the Internet ensuring
broadband availability. We lease 23" racks for traditional telephony equipment,
19" racks for open mounting of servers and data equipment. Full and partitioned
cabinets with locking front and rear doors and managed servers running both NT
or UNIX. Ancillary features of our e.Commerce data centers include always-
available technicians, power and redundant power, environmental and security
controls.

  FIBER AND TRANSPORT -- SONET RINGS AND DWDM

     In the northeast we control and operate, pursuant to two 20-year
indefeasible right-of-use agreements entered into in 1998, 625 route miles of
fiber optic cable, representing 1,830 digital fiber miles. Deployed in a SONET
topology, this fiber acts as the backbone connecting our northeast switching
nodes, e.Commerce data centers and co-location footprint. Additionally, this
fiber connects major markets throughout New England and the New York
metropolitan area including New York City, White Plains, Stamford, New Haven,
New London, Providence, Boston, Nashua, Springfield and Worcester.

     In the southeast we control and operate, pursuant to a 20-year indefeasible
right-of-use agreement, entered into in 1999, approximately 2,200 route miles of
fiber optic cable, representing 9,106 digital fiber miles. When fully deployed
and activated in a SONET topology, this fiber will act as the backbone
connecting our southeast switching nodes, e.Commerce data centers and
co-location footprint. Additionally, this fiber will connect major markets
throughout the southeast including Atlanta, Marietta, Roswell, Norcross, Miami,
Ft. Lauderdale, Boca Raton, West Palm Beach, Pompano Beach, Boyton Beach, Delray
Beach and Deerfield Beach.

     By year-end 2001, we intend to control and operate, pursuant to a 20 year
indefeasible right-of-use agreement, an additional 3,000 route miles of fiber
optic cable representing 19,000 digital fiber miles. When fully deployed and
activated in a SONET topology, this fiber will connect our northeast and
southeast SONET rings while simultaneously connecting our mid-Atlantic switching
nodes, e.Commerce data centers and co-location footprint. This fiber will
connect major markets throughout the mid-Atlantic and midwest including Newark,
Princeton, Philadelphia, Wilmington, Baltimore, Washington, D.C., Raleigh,
Charlotte, Atlanta, Birmingham, Nashville, Louisville, Cincinnati, Indianapolis,
Chicago, Cleveland and Pittsburgh.

     Throughout our SONET topology we have deployed Lucent's Wave Star OLS 400G
dense wavelength division multiplexing, or DWDM, technology. This enables our
DWDM SONET network to support up to 80 OC-48 (2.5 gigabytes per second)
channels, or 40 OC-192 (10 gigabytes per second) channels, or a mix of the two
signal speeds for a maximum optical throughput of 400 gigabytes per second.

     Where we have not acquired fiber optic cable, we lease long-haul network
transport capacity from major network-based carriers and local access from the
incumbent local carriers in their respective territories. We also use
competitive access provider facilities where available and economically
justified. Metropolitan area fiber rings or SONET services are generally leased
or, where economically justified, constructed to interconnect with our
co-locations, switching nodes, e.Commerce data centers and long haul SONET
backbone. To ensure seamless off-net termination and origination, we also
utilize interconnection agreements with major carriers.

  INTERNATIONAL FACILITIES

     In addition to being interexchange switches, the Nortel switches located in
Quincy, Massachusetts and Los Angeles are international gateway switches that
enable us to interconnect direct international routes with a number of U.S. and
foreign wholesale international carriers. This allows us to provide
state-of-the-art least-cost routing and network reliability for international
calling. These interconnected international carriers are also a source of
wholesale international traffic and revenue that enable us to provide
competitive international rates to our retail customers.

                                       13
<PAGE>   14

     To further support our international interconnections, we have entered into
leases or indefeasible right-of-use agreements for international submarine cable
facilities in several cable systems, including:

     - TAT-12/13 RIOJA, which spans the Atlantic Ocean

     - TPC-5, which spans the Pacific Ocean

     - Americas I, which connects various locations throughout the Caribbean

     - Guam-Philippines Cable System.

These arrangements support existing and planned interconnections with telephone
operating companies in foreign countries.

  SIGNALING SYSTEM 7 AND ADVANCED INTELLIGENT NETWORK ARCHITECTURE

     All our local and long distance switched services use SS7 network signaling
for enhanced network efficiencies and increased customer satisfaction. The SS7
signaling system reduces connect time delays, thereby enhancing overall network
efficiencies. For more advanced SS7 functions providing "network level logic",
we have deployed ServiceBuilder(TM), Nortel's next-generation advanced
intelligent network, or AIN, architecture, including Nortel's Service Management
System and Service Creation Environment. In tandem with the Nortel and Lucent
switches, ServiceBuilder allows us to deploy "designer" products and features
defined by the Bellcore AIN standard and including:

     - enhanced 800 Services, including AIN specific routing services

     - various "Follow me" services, including 500 number technology

     - customer dictated and provisioned class of service screening features

     - virtual private network services.

 NETWORK MANAGEMENT AND OPERATIONAL SUPPORT

     Our technical network interface is a fully redundant frame relay network
that enables us to monitor each network element from our network management and
surveillance center. Centralized electronic monitoring and control of our
network increase the security, reliability and efficiency of our operations and
allow us to avoid duplication of this function in each region. This consolidated
operations center also helps reduce our per-customer monitoring and customer
service costs.

     We have deployed Team Telecom International, or TTI's, enhanced network
management tool, Netrac. The Netrac software consists of several integrated
modules including configuration manager and inventory management, fault analysis
and monitoring, switch management, transmission management, SS7 management and
performance management. These modules automatically gather, log, filter, display
and report alarms and network events on a real-time basis no matter where they
occur in the network.

  NETWORK SECURITY

     Our network employs an "authorized access" architecture. Unlike many
telecommunications companies, which, we believe, allow universal access to their
network, we utilize an automatic number identification security screening
architecture that ensures only those users who have subscribed to our services
and have satisfied our credit and provisioning criteria are allowed access to
the network.

     We believe that this architecture allows us to better control bad debt and
fraud in a manner that is invisible and non-intrusive to the customer.
Additionally, this architecture allows us to manage network capacity better, as
unauthorized users cannot access and exploit the network.

                                       14
<PAGE>   15

MANAGEMENT INFORMATION SYSTEMS, ORDER ENTRY, PROVISIONING, BILLING AND CUSTOMER
SERVICE

  OVERVIEW

     We are committed to the implementation of integrated and scalable
operational support systems that enable "flow-through" service provisioning, the
highest possible level of customer support, accurate and timely billing and
web-based self-help.

     The cornerstone of our operational support system is a custom-designed
system we call LOGOS. LOGOS integrates important elements of our operations,
including convergent and integrated product management, service order entry,
provisioning, customer service, trouble ticket management, work flow and product
and rate management. LOGOS is an object-oriented C++ application that utilizes
the scalability and reliability of Oracle's relational database management
system. We believe that LOGOS provides us with a long-term competitive advantage
by enabling us to:

     - more rapidly implement VoDSL, DSL and switched local services in our
       markets

     - shorten the time between the receipt of a customer order and the
       generation of revenue

     - further focus on and increase the customized level of attention provided
       to each of our customers

     - accommodate significant customer growth.

     Features of LOGOS include:

     - a graphical user interface that presents to all users a convergent and
       universal view of all customer activity including integrated product
       suite provisioning, billing, customer service, trouble ticket and
       collections

     - a modular design that enables convergent service order entry,
       provisioning, customer service and billing and rate management for all
       products and services

     - electronic workflow and electronic routing of tasks and provisioning
       events

     - electronic scheduling of customer events and user defined actions and
       reminders

     - the ability to customize product and service offerings and pricing for
       individual customers and to bring new product and pricing plans to market
       quickly

     - significantly enhanced response times to customer inquiries

     - the ability to uniquely format and include customized management
       information on each individual invoice

     - interactive invoice imaging technologies that mirror each invoice sent to
       a customer

     - electronically routed trouble ticket technology

     - the ability of our customers to analyze traffic and usage patterns, track
       events and pay invoices through a secure web-enabled interface, which we
       call the e.Command Center.

  SERVICE ORDER ENTRY AND PROVISIONING

     We believe that an ongoing challenge for integrated telecommunications
providers will be to continually improve service, order entry and provisioning
systems. We will continue to identify and focus on implementing the best
provisioning practices in each of our markets to provide for the rapid and
seamless transition of customers from the network of the incumbent local
exchange carrier to our network. To support the provisioning of our services,
LOGOS is designed to automate ordering and provisioning tasks. Currently, LOGOS
has a convergent service order entry module that enables all service and work
orders to be entered from a single common interface. Once service orders are
entered, LOGOS has engineered electronic interfaces to our own network and the
networks of the carriers with whom we do business. Additionally, LOGOS has
engineered electronic customer account record exchange interfaces to Bell
Atlantic North and

                                       15
<PAGE>   16

South, Southern New England Telephone, GTE, Bell South, United Telephone,
Pacific Bell and Ameritech. To further enhance LOGOS we have contracted with
DSET Corporation to engineer our local service request, local number portability
and trouble ticket EDI "electronic bonding" gateways between LOGOS and our
trading partners. As of March 1, 2000, we are in the final phase of deploying
the local service request gateway to Bell Atlantic, which we believe will
further enhance our "flow through" provisioning by reducing the time needed by
us to order unbundled network elements and enhancing the quality control of the
ordering process. We expect to have the remaining DSET electronic gateways fully
implemented by year-end 2000. In addition to our relationship with DSET
Corporation, we have contracted with CommTech Corporation to engineer the
Internet protocol-based "electronic bonding" gateways between LOGOS and our
voice, VoDSL, DSL and other data network elements, which we believe will be
completed by July 2000.

  CUSTOMER SERVICE

     We maintain an emphasis on customer care to differentiate us from our
competitors. We provide 24-hours-per-day, 365-days-per-year customer support
primarily through our customer service department in Quincy, Massachusetts.
Experienced customer care representatives answer all customers' calls. Many of
our customer care representatives are cross-trained in the provisioning process.

     We monitor and measure the quality and timeliness of customer interaction
through quality assurance procedures. Pick-up times for incoming calls, lengths
of calls and other support information is automatically monitored by our
automated call distribution system. Our call distribution system also
prioritizes incoming support requests, assuring that our largest customers
receive support in the most expedient manner. In addition, our most
knowledgeable and experienced customer support representatives typically handle
the support requests from our largest customers.

     We believe that LOGOS has significantly enhanced the productivity of our
customer service personnel, reduces our response time and enables our customer
service representatives to become "solution providers" allowing single-call
resolution of customer inquiries. Additionally LOGOS's convergent architecture
allows each customer service representative to up-sell and cross-sell additional
products and services to our customers.

     In the event that a customer is experiencing difficulty with a particular
service, LOGOS has an extensive trouble ticket function that allows every user
of the system to see in real-time that a trouble condition exists. Additionally,
LOGOS electronically routes all trouble tickets to our network management and
surveillance center for prompt resolution. LOGOS permits each user to see the
resolution steps being taken with respect to a trouble ticket. We believe that
our ability to timely track and resolve trouble events and keep both the
customer and the customer service representative timely informed of its status
provides us with a strategic advantage.

     In the event that a customer has an inquiry with respect to an invoice,
LOGOS enables the customer service representative to view an identical image of
that invoice and promptly take any necessary corrective action.

     Customer support personnel are required to complete an intensive formal
in-house training program before interacting with customers and are required to
participate in a continuing mentor program. Customer support personnel are
expected to have a thorough knowledge of our services and to emphasize customer
satisfaction. The compensation of support personnel is in part dependent upon
the retention rate of their respective accounts. We have an established career
path for our customer support personnel who over time gain responsibility for
larger customers and management responsibilities.

     Our customer support department currently receives approximately 1,300
support calls per day. We also utilize four billing cycles per month, which
helps ensure that customer service calls will be staggered throughout each
month. As of March 1, 2000, we employed 68 people in customer support. We
anticipate that we will continue to hire additional customer support personnel
as the size of our customer base increases.

                                       16
<PAGE>   17

  BILLING

     We maintain within LOGOS all customer information, operational data,
accounts receivable information, rating rules, rating tables and tax tables
necessary for billing our customers. We collect and process on a daily basis all
usage information from our own network and from the networks of third-party
providers. The actual process of applying rating and taxing information to the
millions of individual message units generated each month, and of generating
invoice print files, is conducted by a third-party. Printing of invoices is
conducted by a high-speed print shop. To optimize both cash flow and internal
workflow, we currently utilize four billing cycles per month. Additional billing
cycles will be added as dictated by customer growth. To ensure the quality of
the billing process, we utilize strict quality control checks, including
boundary and statistical variation testing, sample pricing matrices and direct
sampling.

EMPLOYEES

     As of March 1, 2000, we had 667 employees. We also hire temporary employees
and independent computer programmers as needed. In connection with our growth
strategy, we anticipate hiring a significant number of additional personnel in
sales and other areas of our operations by year-end 2000. Our employees are not
unionized, and we believe our relations with our employees are good. Our success
will continue to depend in part on our ability to attract and retain highly
qualified employees.

COMPETITION

     We operate in the highly competitive telecommunications services industry.
We believe that the traditional distinctions between the local, long distance,
data, and Internet access markets and e.Commerce hosting providers are eroding.
Both new competitors and the incumbent providers are beginning to offer bundled
offerings similar to our own. The regional Bell operating companies and the
operating subsidiaries of GTE and Sprint dominate the local services market.
AT&T, MCI WorldCom and Sprint currently are the major competitors in the long
distance market. Existing telecommunications companies, cable companies and
newer companies such as Internet service providers and both national and
regionally based DSL providers and e.Commerce hosting providers compete in the
market to provide data and Internet services. We do not have a significant
market share in any segment of the market, and many of our existing and
potential competitors have financial resources significantly greater than our
own.

     Competition for our products and services is based on price, actual and
perceived quality, reputation, name recognition, network reliability, service
features, billing services and responsiveness to customers' needs.
Implementation of the Telecommunications Act of 1996 and the related trend
toward business combinations and alliances in the telecommunications industry
may create significant new competitors to us. The Telecommunications Act was
designed to eliminate most barriers to local competition and to permit the
regional Bell operating companies, if they demonstrate compliance with certain
pro-competitive conditions, to provide long distance services.

     Our primary competitors in local service markets are regional Bell
operating companies, such as Bell Atlantic in the New England region, or one of
the operating subsidiaries of GTE or Sprint. These carriers,

                                       17
<PAGE>   18

called incumbent local exchange carriers, provide dedicated and local telephone
services to most telephone subscribers within their respective service areas.
These providers have long-standing relationships with customers and regulatory
authorities at the federal and state levels.

     If future regulatory or court decisions afford incumbent local exchange
carriers increased rates for access or interconnection services, greater pricing
flexibility, the ability to refuse to offer particular services or network
elements on an unbundled basis, or other regulatory relief, such decisions could
have a material adverse effect on us.

     In addition, as permitted by the Telecommunications Act, AT&T, MCI WorldCom
and Sprint, the major competitors in the long distance market, each have begun
to offer local telecommunications services in major U.S. markets using their own
facilities or by resale of other providers' services. New competitive local
exchange carriers, cable television companies, electric utilities, microwave
carriers, wireless telephone system operators and large customers who build
private networks and both national and regional DSL providers also seek to
compete in the local services market. These entities, upon entering into
appropriate interconnection agreements or resale agreements, may offer
single-source local, long distance, DSL, VoDSL and e.Commerce hosting services
similar to those that we offer or propose to offer.

     Significant competition in the long distance market is expected to be
provided by incumbent local exchange carriers, including the regional Bell
operating companies. Prior to enactment of the Telecommunications Act, a federal
court order known as the modified final judgement prohibited regional Bell
operating companies from providing long distance service that originated, or, in
certain cases, terminated, in one of its in-region states, with several limited
exceptions. The limitations imposed on the regional Bell operating companies by
the modified final judgement will be lifted for each affected company if and
when it has satisfied certain statutory conditions specified in the
Telecommunications Act. The process for demonstrating compliance with the
statutory 14 point checklist of pro-competitive actions includes approval by the
relevant state regulatory authority and the FCC. To date, only Bell Atlantic-New
York has succeeded in obtaining approval from the state regulatory authority and
the FCC. As each regional Bell operating company is allowed to offer widespread
in-region long distance services, both the regional Bell operating company and
the largest long distance providers will be in a position to offer single-source
local and long distance service. Our success will depend upon our ability to
provide high-quality services at prices generally competitive with, or lower
than, those charged by our competitors.

     Although we believe small and medium-sized business customers are not
aggressively targeted by large companies such as AT&T, MCI WorldCom and Sprint,
our customers and potential customers may be targeted by these or other
providers in the future.

     Additional pricing pressure may come from carriers providing services
through Internet protocol transport, a packet-switched technology that currently
can be used to provide voice and data services at a cost that may be below that
of traditional circuit-switched local and long distance service. Although this
service currently is not regarded as comparable to traditional long distance
service, it could eventually be perceived as a substitute for traditional long
distance service and put pricing pressure on long distance rates. Any reduction
in long distance prices may have a material adverse effect on our results of
operations.

     We will also face competition from fixed and mobile wireless services
providers. The FCC has authorized cellular, personal telecommunications services
and other providers to offer wireless services to both fixed and mobile
locations. These providers can offer wireless local loop service and other
services to fixed locations, such as office and apartment buildings, in direct
competition with us and existing providers of traditional wireless telephone
service.

     In addition, FCC rules went into effect in February 1998 that make it
substantially easier for many foreign telecommunications companies to enter the
U.S. market, thus potentially further increasing the number of competitors.

     The market for data communications and Internet access services also is
extremely competitive. There are no substantial barriers to entry, and we expect
that competition will intensify in the future. Our success in selling these
services will depend heavily upon our ability to provide high-quality Internet
connections at competitive prices.

                                       18
<PAGE>   19

                             GOVERNMENT REGULATION

OVERVIEW

     Our communications common carrier services are subject to regulation by
federal, state and local government agencies. Most data and Internet services
are not subject to regulation, although telecommunications services used for
access to the Internet are regulated. Through our operating subsidiary, we hold
various federal, state and local regulatory authorizations for our regulated
service offerings. The FCC exercises jurisdiction over our facilities and
services to the extent those facilities are used to provide, originate or
terminate interstate domestic or international common carrier communications.
State regulatory commissions retain jurisdiction over carriers' facilities and
services to the extent they are used to originate or terminate intrastate common
carrier communications. Municipalities and other local government agencies may
require carriers to obtain licenses or franchises regulating use of public
rights-of-way necessary to install and operate their networks. The networks are
also subject to numerous local regulations such as building codes, franchises,
and rights-of-way licensing requirements. Many of the regulations issued by
these regulatory bodies may change and are the subject of various judicial
proceedings, legislative hearings and administrative proposals. We cannot
predict the results of any changes.

FEDERAL REGULATION

     The FCC regulates us as a non-dominant communications common carrier. Our
interstate domestic and international services are not subject to significant
federal regulation, although we are required to file tariffs with the FCC for
our common carrier services. We have obtained authority from the FCC to provide
international services between the United States and authorized foreign
countries. The FCC imposes prior approval requirements on transfers of control
and assignments of radio licenses and operating authorizations. The FCC has the
authority to condition, modify, cancel, terminate or revoke such licenses and
authorizations for failure to comply with federal laws or the rules, regulations
and policies of the FCC. The FCC may also impose fines or other penalties for
such violations. While we believe we are in compliance with applicable laws and
regulations, we cannot assure you that the FCC or third parties will not raise
issues with regard to our compliance.

     The FCC's role with respect to local telephone competition arises
principally from the federal Telecommunications Act of 1996, which became
effective on February 8, 1996. The Telecommunications Act preempts state and
local laws to the extent that they prevent competitive entry into the provision
of any telecommunications service and gives the FCC jurisdiction over important
issues related to local competition. However, state and local governments retain
authority over significant aspects of the provision of intrastate toll and local
telecommunications. The Telecommunications Act imposes a variety of new duties
on local exchange carriers, in order to promote competition in local exchange
and access services. Where we provide local services, we will be required to:

     - complete calls originated by competing carriers on a reciprocal basis

     - permit resale of services

     - permit users to retain their telephone numbers when changing carriers

     - provide competing carriers access to poles, ducts, conduits and
       rights-of-way at regulated prices.

     Incumbent local exchange carriers, such as the regional Bell operating
companies and affiliates of GTE and Sprint, are also subject to additional
requirements. These duties include obligations of the incumbent local exchange
carriers to:

     - interconnect their networks with competitors

     - offer co-location of competitors' equipment at their premises

     - make available elements of their networks (including network facilities,
       features and capabilities) on non-discriminatory, cost-based terms

     - offer wholesale versions of their retail services for resale at
       discounted rates.

                                       19
<PAGE>   20

     Collectively, these requirements recognize that local exchange competition
is dependent upon cost-based and non-discriminatory interconnection with and use
of incumbent local exchange carrier networks. Failure to achieve such
interconnection arrangements could have an adverse impact on our ability or that
of other entities to provide competitive local exchange services. Under the
Telecommunications Act, incumbent local exchange carriers are required to
negotiate in good faith with carriers requesting any or all of the above
arrangements. In addition, the FCC has adopted more specific rules to implement
these requirements. The U.S. Supreme Court affirmed the authority of the FCC to
establish rules governing interconnection. We believe that additional disputes
regarding interconnection issues and other related FCC actions are likely. In
particular, the U.S. Supreme Court remanded to the FCC issues regarding what
unbundled elements the FCC will require incumbent local exchange carriers to
make available to competitors. On November 5, 1999, the FCC released a decision
modifying the list of unbundled network elements that all incumbent local
exchange carries must offer to other carriers. This decision is under
reconsideration before the FCC and on appeal at the D.C. Circuit Court of
Appeals. We cannot predict the outcome of either proceeding. An adverse decision
could affect our local service product offerings.

     The Telecommunications Act also eliminates previous prohibitions on the
provision of long distance services by the regional Bell operating companies and
GTE's telephone operating company subsidiaries. The regional Bell operating
companies are permitted to provide long distance service outside those states in
which they provide local exchange service, known as "out-of-region long distance
service," upon receipt of any necessary state and federal regulatory approvals
that are otherwise applicable to the provision of intrastate or interstate long
distance service. Under the Telecommunications Act, the regional Bell operating
companies will be allowed to provide long distance service within the regions in
which they also provide local exchange service, known as "in-region service", on
a state-by-state basis upon specific approval of the FCC and satisfaction of
other conditions, including a checklist of requirements intended to open local
telephone markets to competition.

     When determining whether to approve the application of a regional Bell
operating company, the FCC must consult with the Department of Justice and the
respective state commission for which the regional Bell operating company is
requesting expanded regional long distance authority. To date, when notified
that the regional Bell operating company in their state intended to file an
application with the FCC, state commissions have investigated the regional Bell
operating company's compliance in order to provide the FCC with an opinion when
requested. The New York Public Service Commission found that Bell
Atlantic -- New York had complied with the necessary statutory requirements for
in-region authority. On December 22, 1999, the FCC granted Bell Atlantic -- New
York's application to provide long distance service to New York customers. Bell
Atlantic currently has a pending petition before the Massachusetts Department of
Telecommunications and Energy. If the Massachusetts Department of
Telecommunications and Energy determines that Bell Atlantic has satisfied the
statutory requirements, Bell Atlantic will seek approval from the FCC. Bell
Atlantic -- New York is now able to offer integrated local and long distance
services in New York, which may give Bell Atlantic a significant competitive
advantage in marketing those services to their existing local customers.

     The Telecommunications Act imposes restrictions on the regional Bell
operating companies in connection with their entry into certain portions of the
in-region long distance services market. Among other things, for the first three
years, unless this time period is extended by the FCC, the regional Bell
operating companies must pursue such activities only through separate
subsidiaries with separate books and records, financing, management and
employees. In addition, affiliate transactions with these subsidiaries must be
conducted on a non-discriminatory basis.

     An increasingly important element of providing competitive services is the
ability to offer customers high-speed broadband local connections. The FCC is
considering a proposal that would allow incumbent local exchange carriers to
offer these and other services through separate affiliates, in which case their
network elements for providing these services would not be made available to us
or other competitors. AT&T is entering into arrangements with and acquiring
cable companies to use their local networks for broadband telecommunications,
and several cable companies are offering broadband Internet access over their
network

                                       20
<PAGE>   21

facilities. If we are unable to meet future demands of our customers for
broadband local access services on a timely basis at competitive rates, we may
be at a significant competitive disadvantage.

     The FCC also regulates the interstate access rates charged by incumbent
local exchange carriers for the origination and termination of interstate long
distance traffic and DSL services. Those access rates make up a significant
portion of the cost of providing such services. The FCC has implemented changes
in interstate access rules that result in restructuring of the access charge
system and changes in access charge rate levels. On May 21, 1999, the U.S. Court
of Appeals (D.C. Circuit) sent the access rate formula back to the FCC for
further explanation regarding how certain factors were calculated. These and
related actions may change access rates. If the formula is upheld, and access
rates are reduced, the result will be a lower cost of providing long distance
service, especially to business customers. The impact of these new changes will
not be known until they are fully implemented over the next several years. In a
related proceeding, the FCC has adopted changes to the methodology by which
access has been used in part to subsidize universal telephone service and other
public policy goals. Telecommunications providers like us pay fees calculated as
a percentage of their revenues to support these goals. The full implications of
these changes also remain uncertain and subject to change.

     In addition, the FCC and the states are considering related questions
regarding the applicability of access charge and universal service fees to
Internet service providers. Currently, Internet service providers are not
subject to traditional access charges. Many incumbent local exchange carriers
and other parties have argued that access charges should be imposed on such
traffic. The FCC has not ordered Internet service providers to pay access
charges, but it is considering a variety of issues related to Internet and data
services, and we cannot predict how the FCC or the states may decide such
issues. If the FCC or state regulators decide to change rate structures for the
services we employ in a way that affects our services disproportionately to the
comparable services offered by competing carriers, such action could have a
material adverse affect on our business.

     In conjunction with its interconnection decisions, the FCC has granted
incumbent local exchange carriers additional flexibility in pricing their
interstate special and switched-access services on a central office-specific
basis. Under this pricing scheme, incumbent local exchange carriers may
establish pricing zones based on access traffic density and charge different
prices for central offices in each zone. We anticipate that the FCC will grant
incumbent local exchange carriers increasing pricing flexibility as the number
of interconnection agreements and competitors increases. The potential impact of
such pricing flexibility on us and other competitors is unclear at this time.

STATE REGULATION

     We provide intrastate common carrier services and are subject to various
state laws and regulations. Most public utility commissions require some form of
certification or registration. We must acquire such authority before commencing
service. In most states, we are also required to file tariffs or price lists
setting forth the terms, conditions and prices for services that are classified
as intrastate. We are required to update or amend these tariffs when we adjust
our rates or add new products and are subject to various reporting and record-
keeping requirements in these states.

     Many states also require prior approval for transfers of control of
certified carriers, corporate reorganizations, acquisitions of
telecommunications operations, assignment of carrier assets, carrier stock
offerings and incurrence of significant debt obligations.

     States generally retain the right to sanction a carrier or to revoke
certification if a carrier violates relevant laws or regulations. If any state
regulatory agency were to conclude that we are or were providing intrastate
services without the appropriate authority, the agency could initiate
enforcement actions, which could include the imposition of fines, a requirement
to disgorge revenues, or the refusal to grant the regulatory authority necessary
for the future provision of intrastate telecommunications services.

     We hold authority to provide intrastate long distance in all states except
Alaska and are in the process of obtaining intrastate toll authority in Alaska.

                                       21
<PAGE>   22

     We have authority to provide competitive local exchange service in
California, Connecticut, Florida, Georgia, Illinois, Maryland, Massachusetts,
New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island,
South Carolina, Tennessee and Vermont. We have applications pending to provide
resold and network- based competitive local exchange services in several other
states, including Virginia, Delaware and Washington, D.C. There can be no
assurance that we will receive the authorizations we seek currently or in the
future.

LOCAL INTERCONNECTION

     The Telecommunications Act imposes a duty upon all incumbent local exchange
carriers to negotiate in good faith with potential interconnectors to provide
interconnection to their networks, exchange local traffic, make unbundled
network elements available and permit resale of most local services. In the
event that negotiations do not succeed, we have a right to seek state public
utility commission arbitration of any unresolved issues. Arbitration decisions
involving interconnection arrangements in several states have been challenged
and appealed to Federal courts. We may experience difficulty in obtaining timely
incumbent local exchange carriers implementation of local interconnection
agreements, and we can provide no assurance we will offer local services in
these areas in accordance with our projected schedule, if at all. We have
entered into interconnection agreements with Bell Atlantic of Massachusetts, New
Hampshire, New York and Rhode Island, Southern New England Telephone of
Connecticut, and Bell South of Florida and Georgia. We have begun to negotiate
similar agreements in the other states where we have obtained status as a
competitive local carrier and anticipate obtaining the necessary interconnection
agreements for our targeted mid-Atlantic states by August 1, 2000.

LOCAL GOVERNMENT AUTHORIZATIONS

     For construction of our local networks, we are required to obtain street
use and construction permits and licenses or franchises to install and expand
our fiber optic networks using municipal rights-of-way. In some municipalities,
we may be required to pay license or franchise fees based on a percentage of
gross revenue or on a per linear foot basis, as well as post performance bonds
or letters of credit. We can provide no assurance that we will not be required
to post bonds or letters of credit in the future.

     In many markets, the incumbent local exchange carrier does not pay these
franchise fees or pays fees that are substantially less than those that we will
be required to pay. To the extent that competitors do not pay the same level of
fees as we do, we could be at a competitive disadvantage. The Telecommunications
Act provides, however, that any compensation extracted by states and localities
for use of public rights-of-way must be fair and reasonable, applied on a
competitively neutral and nondiscriminatory basis and be publicly disclosed by
the government entity.

                                SEGMENT RESULTS

     Certain segment results are incorporated herein by reference from "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Segment Results."

ITEM 2. PROPERTIES

PROPERTIES

     Our corporate headquarters are located in a 39,500-square foot facility in
Quincy, Massachusetts. We lease the Quincy facility from a realty trust whose
beneficiaries are Robert T. Hale and Robert T. Hale, Jr., each of whom is an
executive officer, director and significant stockholder of Network Plus. Also,
we are currently negotiating a long-term lease for our 80,000-square foot
Randolph, Massachusetts facility with a company wholly owned by Messrs. Hale and
Hale, Jr. We lease additional sales offices and switching facilities. Our
facilities are not segregated by the reportable segments identified in Item 7 of
this report. The aggregate amount we paid under our leases in 1999 was
approximately $3.1 million. Although our facilities are adequate at this time,
we believe that we will be required to lease additional facilities, including
additional sales offices and switching facilities, as a result of anticipated
growth.

ITEM 3. LEGAL PROCEEDINGS

     From time to time we are a party to routine litigation and proceedings in
the ordinary course of its business. We are not aware of any current or pending
litigation to which we are or may be a party that we believe could have a
material adverse effect on our results of operations or financial condition.

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

     No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

                                       22
<PAGE>   23

EXECUTIVE OFFICERS OF THE COMPANY

     The following table provides certain information regarding our executive
officers, including their ages, as of March 9, 2000:

<TABLE>
<CAPTION>
NAME                                   AGE                          POSITIONS
----                                   ---                          ---------
<S>                                    <C>   <C>
Robert T. Hale.......................  61    Chairman of the Board of Directors
Robert T. Hale, Jr. .................  33    Chief Executive Officer, President and Director
James J. Crowley.....................  35    Executive Vice President, Chief Operating Officer,
                                             Secretary and Director
George C. Alex.......................  40    Executive Vice President, Chief Financial Officer and
                                             Treasurer
</TABLE>

     ROBERT T. HALE is one of our co-founders and has served as chairman of our
board of directors since our inception in 1990. Mr. Hale is a founding member of
the Telecommunications Resellers Association and has served as chairman of its
Carrier Committee since 1993 and served as chairman of its board from May 1995
to May 1997. Mr. Hale was president of Hampshire Imports, the original importer
of Laura Ashley Womenswear to the United States and a manufacturer of exclusive
women's apparel, from 1968 to 1992.

     ROBERT T. HALE, JR., is one of our co-founders and has served as chief
executive officer, president and a director since our inception in 1990. He was
employed by U.S. Telecenters, a sales agent for NYNEX Corporation, from 1989 to
1990 and as a sales representative at MCI from 1988 to 1989.

     JAMES J. CROWLEY has served as executive vice president since 1994 and
became chief operating officer, secretary and a director in July 1998. He was an
attorney at Hale and Dorr LLP, a Boston law firm, from 1992 to 1994.

     GEORGE C. ALEX has served as executive vice president, chief financial
officer and treasurer since February 1999. From 1997 to 1998, Mr. Alex served as
the managing director and head of the telecommunications practice at Prudential
Securities. From 1994 to 1997, Mr. Alex was a director for Smith Barney where he
was responsible for clients in the emerging telecommunications sector.

     Officers serve at the discretion of the board of directors. Robert T. Hale,
Jr. is the son of Robert T. Hale. There are no other family relationships among
our executive officers and directors.

                                    PART II

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

     Our common stock began trading on the Nasdaq National Market on June 30,
1999, under the symbol "NPLS". The following table sets forth for the indicated
periods the high and low sale prices of our common stock as reported by the
Nasdaq National Market.

<TABLE>
<CAPTION>
                                                              HIGH      LOW
                                                              ----      ---
<S>                                                          <C>       <C>
1999
  June 30, 1999............................................  $30.56    $20.75
  Third Quarter............................................  $25.13    $12.00
  Fourth Quarter...........................................  $21.50    $10.00
2000
  First Quarter (through March 28, 2000)...................  $62.63    $19.13
</TABLE>


                                       23
<PAGE>   24

     As of March 1, 2000, there were 55,069,441 shares of common stock issued
and outstanding and held of record by 51 stockholders and no shares of preferred
stock issued or outstanding. The number of stockholders of record does not
include stockholders holding their shares in "street name" or through broker or
nominee accounts.

DIVIDEND POLICY

     On September 2, 1998, we paid a dividend to the holders of our common
stock, Robert T. Hale and Robert T. Hale, Jr., in the aggregate amount of $5.0
million, of which approximately $1.9 million was reinvested by Mr. Hale, Jr. in
the form of a loan to us. Excluding such dividends, in each of 1998 and 1999 we
paid an aggregate of $3,000 in dividends to enable the holders of our common
stock to pay taxes and related tax preparation expenses in respect of income
allocated to them as a result of our former status as an S corporation. We have
not paid any dividends since our initial public offering in June 1999.

     For the foreseeable future we intend to retain our earnings for our
operations and the expansion of our business and do not expect to pay dividends
on our common stock. The payment of any future dividends will be at the
discretion of our board of directors and will depend upon, among other factors,
our earnings, financial condition, capital requirements and general business
outlook at the time payment is considered. In addition, our ability to pay
dividends will depend upon the amount of distributions, if any, received from
Network Plus, Inc. or any of our future operating subsidiaries. Our credit
facility does, and any future indebtedness incurred by us may, restrict our
ability to pay dividends.

RECENT SALES OF UNREGISTERED SECURITIES

     On November 30, 1999, we issued 155,039 shares of Common Stock to
InfoHouse Inc., a New York corporation ("InfoHouse"), in partial consideration
of our acquisition of substantially all of the assets of InfoHouse.

     The securities issued in the foregoing transaction were offered and sold in
reliance upon exemptions set forth in Sections 3(b) and 4(2) of the Securities
Act, or Regulation D promulgated thereunder, relating to sales by an issuer not
involving a public offering. No underwriters or placement agents were involved
in the foregoing issuance of securities.

USE OF PROCEEDS

     In connection with our initial public offering of Common Stock, the
effective date of our registration statement on Form S-1 under the Securities
Act of 1933 (No. 333-79479) was June 29, 1999.

     During the quarter ended December 31, 1999, we used the net proceeds from
our initial public offering as follows:

<TABLE>
<S>                                                               <C>
     Purchase and installation of property and equipment           $12,200,000

     Working capital                                               $15,700,000
</TABLE>

     All amounts shown in the table above are estimates.

     The remaining net proceeds were invested in short-term financial
instruments.

     None of such uses involved direct or indirect payments to directors or
officers of Network Plus or their associates, 10% stockholders of Network Plus,
or affiliates of Network Plus.

ITEM 6.  SELECTED FINANCIAL DATA

     The following tables present our selected consolidated financial data for
the years ended December 31, 1995 through 1999. The statement of operations,
cash flows and balance sheet data for the years ending December 31, 1995 through
1999 have been derived from financial statements, including those included
elsewhere in this report. For periods prior to our formation in July 1998, the
financial data reflect the financial statements of Network Plus, Inc., our
wholly owned subsidiary, as it was our sole operating entity.
<PAGE>   25

     We believe that EBITDA is a useful financial performance measure for
comparing companies in the telecommunications industry in terms of operating
performance, leverage and ability to incur and service debt. EBITDA provides an
alternative measure of cash flow from operations. EBITDA should not be
considered in isolation from, or as a substitute for, net income (loss), net
cash provided by (used for) operating activities or other consolidated income or
cash flow statement data presented in accordance with generally accepted
accounting principles or as a measure of profitability or liquidity. EBITDA does
not reflect working capital changes and includes non-interest components of
other income (expense), most of which are non-recurring. These items may be
considered significant components in understanding and assessing our results of
operations and cash flows. EBITDA may not be comparable to similarly titled
amounts reported by other companies.

     Long-term obligations consist of long-term debt and capital lease
obligations, long-term note payable to stockholder long-term obligations and
other long-term liabilities.

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                             -------------------------------------------------
                                              1995      1996      1997       1998       1999
                                              ----      ----      ----       ----       ----
                                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                          <C>       <C>       <C>       <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................  $49,024   $75,135   $98,209   $105,545   $152,520
Costs of services..........................   35,065    57,208    78,106     78,443    122,664
Selling, general and administrative........   17,697    19,230    25,704     29,426     51,709
Depreciation and amortization..............      276       533       994      2,037      8,564
                                             -------   -------   -------   --------   --------
Operating loss.............................   (4,014)   (1,836)   (6,595)    (4,361)   (30,417)
Interest income............................      202        95        86        395      1,896
Interest expense...........................      (40)     (313)     (557)    (1,474)    (3,804)
Other income, net..........................    7,859     3,529     3,917        151        432
Provision for income taxes.................     (312)      (60)      (42)       906       (961)
                                             -------   -------   -------   --------   --------
Net income (loss)..........................  $ 3,695   $ 1,415   $(3,191)  $ (4,383)  $(32,854)
                                             =======   =======   =======   ========   ========
Preferred stock dividends and accretion....       --        --        --     (2,005)   (10,725)
Net income (loss) applicable to common
  stockholders.............................  $ 3,695   $ 1,415   $(3,191)  $ (6,388)  $(43,579)
                                             =======   =======   =======   ========   ========
Net income (loss) per share applicable to
  common stockholders -- basic and
  diluted..................................  $  0.08   $  0.03   $ (0.07)  $  (0.14)  $  (0.87)
                                             =======   =======   =======   ========   ========
Weighted average shares outstanding --basic
  and diluted..............................   45,333    45,333    45,333     45,333     49,969
                                             =======   =======   =======   ========   ========
</TABLE>

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                          ----------------------------------------------------
                                           1995       1996      1997        1998        1999
                                           ----       ----      ----        ----        ----
                                                             (IN THOUSANDS)
<S>                                       <C>        <C>       <C>        <C>         <C>
OTHER FINANCIAL DATA:
Capital expenditures....................  $   860    $2,135    $ 3,363    $ 10,919    $ 94,264
EBITDA..................................    4,121     2,226     (1,684)     (2,173)    (21,421)
Net cash provided by (used for)
  operating activities..................    2,463      (322)       184     (10,768)      3,702
Net cash provided by (used for)
  investing activities..................     (184)     (644)    (6,924)     (1,402)    (51,221)
Net cash provided by (used for)
  financing activities..................   (1,903)    1,596      6,004      22,800      78,353
</TABLE>

                                       25
<PAGE>   26

<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                        -------------------------------------------------
                                                         1995      1996      1997       1998       1999
                                                         ----      ----      ----       ----       ----
                                                                         (IN THOUSANDS)
<S>                                                     <C>       <C>       <C>       <C>        <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................  $ 1,673   $ 2,303   $ 1,567   $ 12,197   $ 43,031
Current assets........................................   16,441    19,771    28,521     31,050     76,292
Property and equipment, net...........................    1,507     3,075     6,957     15,822    101,944
Working capital (deficit).............................    2,369     1,621    (3,128)    16,168      9,872
Total assets..........................................   18,005    22,915    35,581     48,868    185,972
Long-term obligations.................................       11       664     3,623      5,072     30,271
Redeemable series A preferred stock...................       --        --        --     35,146         --
Redeemable     % series A cumulative convertible
  preferred stock.....................................       --        --        --         --         --
Total stockholders' equity (deficit)..................    3,922     4,101       309     (6,723)    89,281
</TABLE>

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

     The following discussion should be read in conjunction with our
consolidated financial statements, the related notes and the other financial
information appearing elsewhere in this report. In addition to historical
information, the following discussion and other parts of this prospectus contain
forward-looking information that involves risks and uncertainties. Our actual
results could differ materially from those anticipated by such forward-looking
information due to competitive factors, risks associated with our expansion
plans and other factors discussed below under "Certain Factors That May Affect
Future Results" and elsewhere in this report.

     For periods prior to our formation in July 1998, the financial data reflect
the financial statements of Network Plus, Inc., our wholly owned subsidiary, as
it was our sole operating entity.

OVERVIEW

     We began operations in 1990 as an aggregator of AT&T long distance
services, reselling AT&T-branded products primarily to small and medium-sized
businesses. While we were an aggregator of AT&T services, our customers were
billed and serviced by AT&T. We derived profits through 1993 by obtaining volume
discounts on bulk purchases of long distance services from AT&T and passing
along a portion of these discounts to our customers.

     In 1993, we entered into an agreement with Sprint Communications and in
1994 began to resell Sprint telecommunications services. As a reseller of
Sprint, we began provisioning, servicing and billing customers under the Network
Plus name. Volume discounts offered by Sprint enabled us to offer low-cost,
high-quality, long distance services at favorable rates to our customers. In
addition, by servicing our own customers, we were better able to meet their
needs and control costs.

     In mid-1996, in addition to provisioning customer traffic on Sprint's
network, we initiated the deployment of our long distance network. In so doing,
we began operating as a switch-based provider, switching customer traffic on our
own facilities, which we refer to as on-net traffic. Since 1997, we have also
leveraged our long distance network to sell wholesale services for international
traffic. Our decision to deploy switches was based on economic efficiencies
resulting from customer concentration and traffic patterns. Installation of
telephone switches was completed in Quincy, Massachusetts in June 1996, Orlando
in November 1997 and Chicago and Los Angeles in March 1999.

     In mid-1998, we began offering off-net local exchange services. In
mid-1999, we began the deployment of an integrated local, VoDSL and DSL network,
including customer premise equipment, unbundled network elements, co-locations
located in the central offices of incumbent local exchange carriers as well as
carrier access hotels, class 5 switches, gateway and long distance switches,
digital subscriber line access multiplexers, or DSLAMs, Internet protocol-based
routers and switches, application servers, asynchronous transfer mode,

                                       26
<PAGE>   27

or ATM, switches, synchronous optical network, or SONET, fiber rings and dense
wave division multiplexing, or DWDM, optronics for high capacity and high
density transmission. Installation of local telephone switches was completed in
Cambridge, Massachusetts in May 1999, New York City in August 1999, Miami in
December 1999 and Atlanta in March 2000.

     In mid-1998, we entered into two 20-year indefeasible right-of-use
agreements for approximately 625 route miles of fiber optic cable in the
northeast, representing 1,830 digital fiber miles. Deployed in a redundant SONET
topology, this fiber optic cable acts as the backbone connecting our northeast
switching nodes, e.Commerce data centers and co-location footprint.
Additionally, this fiber connects major markets throughout New England and the
New York metropolitan area including New York City, White Plains, Stamford, New
Haven, New London, Providence, Boston, Nashua, Springfield and Worcester.

     In late-1999, we entered into a 20-year indefeasible right-of-use agreement
for approximately 2,200 route miles of fiber optic cable, representing 9,106
digital fiber miles. When fully deployed and activated in a redundant SONET
topology, this fiber optic cable will act as the backbone connecting our
southeast switching nodes, e.Commerce data centers and co-location footprint.
Additionally, this fiber will connect major markets throughout the southeast
including Atlanta, Marietta, Roswell, Norcross, Miami, Ft. Lauderdale, Boca
Raton, West Palm Beach, Pompano Beach, Boyton Beach, Delray Beach and Deerfield
Beach.

     In 1999, through our acquisition of InfoHouse, we began offering both web
and managed server hosting services. We have deployed 27,000 square feet of
carrier class e.Commerce data center space and 20,000 square feet of e.Commerce
"edge" data center space located in incumbent local exchange carriers' central
offices. By year-end 2000 we expect to expand to 116,000 square feet of carrier
class space in six geographically diverse e.Commerce data centers and to 41,000
square feet of "edge" data center space.

     Our strategic initiatives include expanding our local, VoDSL, DSL and
e.Commerce data center network and migrating traffic onto that network. These
new services and our network expansion require significant investment in network
infrastructure and personnel, including expenses to hire and train new
personnel. We intend to continue to add services to maintain and enhance our
position as an integrated telecommunications provider and enabler of broadband
VoDSL and e.Commerce hosting services to small and medium-sized businesses. We
believe the expansion of our service offerings will improve customer retention
and market share, while simultaneously reducing overall transmission costs and
improving margins.

     We sell our services through a direct sales force, an agency sales force
and an international wholesale sales force. As we expand our network facilities,
we intend to increase our direct sales force to approximately 400 members by
year-end 2000. The investment in the sales force, the expansion of the existing
network and the addition of new and enhanced services will require significant
expenditures. We will incur a substantial portion of these expenses before we
realize related revenues. As we undertake these expansion plans and our revenue
base grows, we anticipate future periods of operating losses and negative cash
flows from operations.

COMPARISON OF 1998 AND 1999

     REVENUES.  Revenues increased $47.0 million, or 45%, to $152.5 million in
1999 from $105.5 million in 1998. The increase was primarily due to a 35%
increase in long distance revenues, which represent 89% of total revenues for
the period, resulting from services to new customers and increased revenues from
existing customers. Revenues generated from international wholesale traffic
which results from excess capacity on our long distance switches represent 70%
of the increase in revenues for the period. The resale of local service
contributed $13.6 million in revenues for the period, representing 27% of the
increase in total revenues for the period. We operate in a competitive market
for long distance service, which has experienced price erosion of the average
rate per minute from the prior year. We expect this price trend to continue in
the future.

     COSTS OF SERVICES.  Costs of services increased $44.2 million, or 56%, to
$122.7 million in 1999 from $78.4 million in 1998. As a percentage of revenues,
costs of services increased to 80% for 1999 from 74% for 1998. The increase was
primarily due to the increased volume of international wholesale traffic, which
has higher origination, transport and termination costs as compared to other
long distance traffic. In addition, we maintain rate agreements with various
local and long distance carriers for access, termination and transport

                                       27
<PAGE>   28

which are continually reviewed and negotiated based on changes in volume and
types of traffic. These changes to rate agreements may result in credits for
costs associated with prior traffic or reductions in current costs based on the
mix of traffic and rate. Cost of services is currently comprised exclusively of
carrier costs to originate, transport and terminate traffic for our network
switches. As the deployment of the local network continues and the facilities
become operational the costs associated with the co-location facilities
including rent and access charges will be reflected in cost of services. These
costs are generally fixed and will result in fluctuations in margin in the
future as a result of costs incurred for capacity which is not immediately
utilized in these co-locations.

     SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expenses increased $22.3 million, or 76%, to $51.7 million for 1999 from $29.4
million for 1998. As a percentage of revenues, selling, general and
administrative expenses increased to 34% for 1999 from 28% for 1998. We employed
577 people at December 31, 1999, compared with 403 at December 31, 1998,
resulting in a 63% increase in payroll and related expenses. The sales
organization increased by 19 people for the period, and we added 83 people to
support the build-out of our local network. Other selling, general and
administrative expenses increased as a result of our growth in revenues and the
expansion of the infrastructure to support future growth. Costs associated with
the co-location facilities including rent and access charges for facilities
which are not fully deployed are included in selling, general and administrative
expenses. When the facilities become operational the related costs are
reclassified to costs of services. To date these costs have been immaterial.

     DEPRECIATION AND AMORTIZATION.  Depreciation and amortization increased
$6.5 million, or 320%, to $8.6 million 1999 from $2.0 million for 1998. The
increase is primarily due to additional local network facilities, fiber,
computer and other telecommunications and data services equipment to support our
network expansion. In particular the Cambridge, Massachusetts and New York City
local switch equipment, the northeast fiber ring and the Los Angeles and Chicago
long distance switches, which were put into service during 1999, began
depreciating. We expect the depreciation and amortization expense to increase as
we bring additional local network facilities on-line and as we make additional
investments in our network and operational infrastructure.

     INTEREST.  Interest expense net of interest income increased $829,000, or
77%, to $1.9 million for 1999 from $1.1 million for 1998. The increase is
primarily due to interest paid on our capital lease obligations and outstanding
balances on the line of credit. We expect interest expense to increase as a
result of the continued financing of the local network buildout.

     NET LOSS AND NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS.  As a
result of the increases in revenues, operating expenses, depreciation and
amortization, and net interest expense noted above, we incurred a net loss of
$32.9 million for 1999 compared to $4.4 million in 1998.

     The effect of the preferred stock dividends of $10.7 million in 1999 and
$2.0 million in 1998 resulted in net loss applicable to common stockholders in
the years ended December 31, 1999 and 1998 of $43.6 million and $6.4 million,
respectively.

     EBITDA.  EBITDA was negative $21.4 million for the year ended December 31,
1999 compared to negative $2.2 million for the year ended December 31, 1998.
This decline was due to the changes in revenues, network development, operations
and selling, general and administrative expenses due to the rapid implementation
of our local network and infrastructure to support future growth.

COMPARISON OF 1997 AND 1998

     REVENUES.  Revenues increased 8% to $105.5 million for 1998 from $98.2
million for 1997. Revenues for 1997 included approximately $12.6 million from
two customers with whom we did not do business in 1998. Exclusive of the revenue
from these two former customers, revenue increased by 23% from period to period.
The components of revenues in each year reflect our initiative to become a
network-based services provider. In 1998, the revenue amounts also reflect the
impact on sales of diverting financial, management and training resources
towards the introduction of our local services. In 1998, on-net revenues and
on-net billed customer minutes were 63% and 54%, respectively, of total revenues
and minutes, as compared to 40% and 21%, respectively, in 1997.

                                       28
<PAGE>   29

     COSTS OF SERVICES.  Costs of services for 1998 totaled $78.4 million, an
increase of 0.4% from the $78.1 million incurred in the corresponding period in
1997. As a percentage of revenues, costs of services decreased to 74% in 1998
from 80% in 1997, reflecting the increase in on-net traffic, the reduced costs
of carrying off-net traffic and a reduction in costs of originating and
terminating traffic. Costs of originating and terminating traffic have declined
in part as a result of provisions mandated by the Telecommunications Act of
1996. Finally, increased competition in the long distance telecommunications
industry resulted in slightly lower pricing and margins in 1998, as compared to
1997.

     SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expenses increased by 15% to $29.4 million for 1998 from $25.7 million for 1997,
and increased as a percentage of revenues to 28% from 26% for the corresponding
periods. Within selling, general and administrative expenses, the largest
component is personnel and related expenses, which combines all wages and
salaries, along with commissions earned by our sales force. These expenses
increased by 26% from 1997 to 1998, reflecting an increase in the number of
employees. In April 1998, we commenced our initiative to expand our 96-member
sales force, and as of December 31, 1998 we had approximately doubled the size
of the sales force. Other expenses within selling, general and administrative
expenses increased as a result of our ongoing growth.

     DEPRECIATION AND AMORTIZATION.  Depreciation and amortization increased to
$2.0 million for 1998 from $1.0 million for 1997, reflecting our network build
out and capital additions for our internal computer systems.

     INTEREST.  Interest expense, net of interest income, increased to $1.1
million for 1998 from $471,000 for 1997. This increase resulted from interest on
capital leases entered into in the latter half of 1997 to finance network
additions and internal computer systems, interest incurred related to notes
payable entered into in December 1997, and additional interest related to higher
levels of revolving credit borrowings in 1998, offset somewhat by interest
earned on investments during the fourth quarter of 1998.

     OTHER INCOME (EXPENSE).  Other income totaled $151,000 in 1998 and $3.9
million in 1997. The $3.9 million in 1997 principally related to warrants.

     In 1995, we transferred certain customers to whom we provided long distance
and toll-free telecommunications services pursuant to certain AT&T resale
contracts to Tel-Save Holdings. Concurrent with the transfer, our obligations to
AT&T under the AT&T contracts were terminated without obligation or liability on
our part. Prior to the time of this transaction, there was no value recorded in
the financial statements related to these customers. In consideration of the
transfer, we received four separate warrants to purchase a total of 1,365,000
shares of Tel-Save common stock at an exercise price of $4.67 per share (after
reflecting stock splits through December 31, 1997). Each warrant vested
separately based on the retail revenue generated by Tel-Save with respect to the
transferred customers, which had to exceed specified levels for three
consecutive months. The warrants expired at various dates through 1997. In
addition to the warrant agreements, we were subject to a voting rights agreement
whereby Tel-Save retained the right to hold and vote the stock until we informed
Tel-Save that we wished to sell the stock. Upon receiving such notice from us,
Tel-Save was obligated either to purchase the stock at the price offered by us
or, alternatively, to deliver the common stock certificates to us.

     In 1996, we met the vesting requirements with respect to the first three
warrants. We met the vesting requirement for the first warrant at the end of the
third quarter of 1996, entitling us to purchase 600,000 shares of Tel-Save
common stock. We exercised this warrant and sold the related common stock, which
had previously been registered with the SEC, resulting in net proceeds and other
income of $1.4 million in the third quarter of 1996.

     We met the vesting requirements with respect to the second and third
warrants in November 1996. The second warrant entitled us to purchase 300,000
shares of Tel-Save common stock prior to January 8, 1997. The third warrant
entitled us to purchase 150,000 shares of Tel-Save common stock prior to June
10, 1997. We valued warrants upon vesting at approximately $2.1 million using
the Black-Scholes valuation model. The significant assumptions in the valuation
model were an interest rate of 5%, warrant lives reflecting the respective
expiration periods, expected volatility of 50% and no dividend rate. At December
31, 1996, we had not yet exercised the warrants and we classified them as
investments. The value of the warrants at

                                       29
<PAGE>   30

December 31, 1996 was the fair value recorded by us at the date of vesting. We
recognized other income of $2.1 million related to the second and third warrants
in the fourth quarter of 1996. On January 6, 1997, we exercised the second and
third warrants and paid Tel-Save the total exercise price of $2.1 million.

     We met the vesting requirement with respect to the fourth warrant in June
1997, entitling us to purchase 315,000 shares of Tel-Save common stock. We
valued the fourth warrant upon vesting at approximately $3.4 million using
Black-Scholes valuation model. The significant assumptions in the valuation
model were an interest rate of 5.1%, a warrant life reflecting the June 1997
expiration period, expected volatility of 50% and no dividend rate. On June 4,
1997, we exercised the warrant, paid Tel-Save the exercise price of $1.5 million
and recorded other income of approximately $3.4 million.

     On November 7, 1997, Tel-Save filed a registration statement with the SEC,
listing us as a selling shareholder with respect to 765,000 shares (the total
shares purchased by us, after reflecting stock splits, under the second, third
and fourth warrants). Following the registration of the common stock, we
intended to immediately sell the shares of Tel-Save, which had a market value of
approximately $16.6 million at that date, as we had done previously with respect
to the shares acquired upon exercise of the first warrant. Accordingly, all
activities necessary for the transfer of the certificates were completed, and we
issued a demand to Tel-Save for the common stock certificates or, alternatively,
requested that Tel-Save purchase the shares. Throughout the remainder of the
fourth quarter, Tel-Save refused to deliver the common stock certificates to us.

     In order to take physical possession of the Tel-Save common stock
certificates, we filed a lawsuit against Tel-Save in January 1998. On June 24,
1998, the parties signed a settlement agreement pursuant to which we received a
total of $9.5 million from Tel-Save. As part of the settlement, all 765,000
shares were either returned to or repurchased by Tel-Save. Following the June
1998 settlement, there are no continuing obligations between the parties.
Accordingly, we valued our investment in Tel-Save at December 31, 1997 at the
final negotiated payment. This settlement resulted in approximately $422,000 of
other income, recorded in the fourth quarter of 1997.

     INCOME TAXES.  In 1998, net income tax credits of $906,000 were recorded.
In September 1998, we converted from an S corporation to a C corporation, and a
$480,000 provision for deferred taxes was recorded to reflect the change in
status. Offsetting this provision were tax credits recorded at statutory rates
for both federal and state taxes. Prior to conversion, income taxes were
provided solely for state tax purposes. State income taxes in 1997 totaled
$42,000.

     NET INCOME (LOSS) AND NET INCOME (LOSS) APPLICABLE TO COMMON
STOCKHOLDERS.  As a result of the increases in revenues, operating expenses,
depreciation and amortization, and net interest expense noted above, we incurred
a net loss of $4.4 million in 1998, compared to a net loss of $3.2 million in
1997.

     In 1998, we accrued dividends to be paid in the form of additional shares
of series A preferred stock totaling $1.8 million and recorded $191,000 of
accretion of offering expenses and discount on this preferred stock. The
resulting net loss applicable to common stockholders in 1998 was $6.4 million.

     EBITDA.  EBITDA decreased to negative $2.2 million for 1998 from negative
$1.7 million for 1997. This decline was due to income in 1997 related to the
Tel-Save warrants, offset by increases resulting from changes in revenues,
network development, operations and selling, general and administrative expenses
discussed above.

SEGMENT RESULTS

     We have two reportable segments which management operates as distinct
market segments delineated by the customer base to whom services are provided.
The two customer base segments are: retail telecommunications and data services,
and wholesale telecommunications. We measure and evaluate our reportable
segments based on revenues and costs of services. The retail telecommunications
and data services segment provides local and long distance services, including
voice and data transport, and enhanced and custom calling features. In this
segment, we focus on selling these services to end user customers, such as
businesses and residences. The wholesale telecommunications segment provides
international transport and termination services. We

                                       30
<PAGE>   31

focus this segment on selling these services to large telecommunication carriers
who utilize our excess capacity to provide telephone voice services to their
customers.

<TABLE>
<CAPTION>
                                                           1997       1998       1999
                                                          -------   --------   --------
                                                                   (UNAUDITED)
                                                                 (IN THOUSANDS)
<S>                                                       <C>       <C>        <C>
Revenues:
  Retail telecommunications and data services...........  $95,338   $ 75,506   $ 89,758
  Wholesale telecommunications..........................    2,871     30,039     62,762
                                                          -------   --------   --------
Total revenues..........................................  $98,209   $105,545   $152,520
                                                          =======   ========   ========
Costs of services:
  Retail telecommunications and data services...........  $75,534   $ 51,371   $ 65,255
  Wholesale telecommunications..........................    2,572     27,072     57,409
                                                          -------   --------   --------
Total costs of services.................................  $78,106   $ 78,443   $122,664
                                                          =======   ========   ========
</TABLE>

QUARTERLY RESULTS

     The following tables set forth certain unaudited financial data for each of
the quarters in 1998 and 1999. This information has been derived from unaudited
financial statements that, in the opinion of management, reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of this quarterly information. The operating results for any
quarter are not necessarily indicative of results to be expected for any future
period. Income taxes are included in other income (expense), net.

<TABLE>
<CAPTION>
                                                                   QUARTER ENDED
                                                   ----------------------------------------------
                                                   MARCH 31,    JUNE 30,    SEPT. 30,    DEC. 31,
                                                     1998         1998        1998         1998
                                                   ---------    --------    ---------    --------
                                                                    (UNAUDITED)
                                                                   (IN THOUSANDS)
<S>                                                <C>          <C>         <C>          <C>
Revenues.........................................   $25,202     $27,103     $ 27,283     $ 25,957
Costs of services................................    18,836      19,992       20,406       19,209
Selling, general and administrative..............     5,544       6,391        8,164        9,327
Depreciation and amortization....................       468         483          498          588
                                                    -------     -------     --------     --------
Operating income (loss)..........................       354         237       (1,785)      (3,167)
Interest income..................................         3           9           50          333
Interest expense.................................      (285)       (293)        (203)        (693)
Other income (expense), net......................        12        (109)        (264)       1,418
                                                    -------     -------     --------     --------
Net income (loss)................................   $    84     $  (156)    $ (2,202)    $ (2,109)
                                                    =======     =======     ========     ========
</TABLE>

<TABLE>
<CAPTION>
                                                                   QUARTER ENDED
                                                   ----------------------------------------------
                                                   MARCH 31,    JUNE 30,    SEPT. 30,    DEC. 31,
                                                     1999         1999        1999         1999
                                                   ---------    --------    ---------    --------
                                                                    (UNAUDITED)
                                                                   (IN THOUSANDS)
<S>                                                <C>          <C>         <C>          <C>
Revenues.........................................   $33,581     $36,313     $ 39,381     $ 43,244
Costs of services................................    26,546      29,771       31,851       34,496
Selling, general and administrative..............    10,716      12,404       12,983       15,606
Depreciation and amortization....................       984       1,844        2,386        3,349
                                                    -------     -------     --------     --------
Operating income (loss)..........................    (4,665)     (7,706)      (7,839)     (10,207)
Interest income..................................       141          21          929          805
Interest expense.................................      (521)       (795)        (987)      (1,502)
Other income (expense), net......................       274         (21)      (2,608)         231
                                                    -------     -------     --------     --------
Net income (loss)................................   $(4,771)    $(8,459)    $(10,505)    $(10,673)
                                                    =======     =======     ========     ========
</TABLE>

                                       31
<PAGE>   32

     We could experience quarterly variations in revenues and operating income
(loss) as a result of many factors, including:

     - the introduction of new services by us

     - actions taken by competitors

     - the timing of the acquisition or loss of customers

     - the timing of additional selling, general and administrative expenses
       incurred to acquire and support new or additional business

     - changes in our revenue mix among our various service offerings.

Many of the factors that could cause such variations are outside of our control.
We plan our operating expenditures based on revenue forecasts, and a revenue
shortfall below such forecasts in any quarter could adversely affect our
operating results for that quarter.

LIQUIDITY AND CAPITAL RESOURCES

     Prior to 1994, we operated solely as an aggregator of AT&T services and
funded our growth principally with cash provided from operating activities. In
1994, we became a reseller of Sprint services, requiring additional funding to
support the development of an infrastructure to support provisioning, billing
and servicing of customers billed under the Network Plus name. We financed cash
requirements in 1994 and 1995 primarily by cash credits received in 1993 and
1994 under AT&T promotions and by transfers of AT&T contracts and customers to
other telecommunications companies in 1995.

     In 1996, we further expanded our infrastructure and began to deploy our own
network. To support 1996 cash requirements, we entered into a $7.0 million
revolving credit agreement and $1.0 million term loan with a bank to allow for
our initial purchase of network facilities, and entered into a financing
transaction involving the sale and lease back of the Quincy switch. Cash flows
in 1996 were supplemented by the exercise of Tel-Save warrants and the
subsequent sale of the underlying common stock.

     In 1997, we continued to expand our network and infrastructure. In
addition, we expended $3.6 million to exercise additional warrants for common
stock of Tel-Save. We met cash needs in 1997 through the addition of capital
leases, including a financing transaction involving the sale and lease back of
our Quincy, Massachusetts and Orlando switches, the use of a revolving credit
facility, the refinancing of a portion of our accounts payable to Sprint into a
short-term promissory note and receipt of loans totaling $1.8 million from our
stockholders. In May 1998, we entered into a $23.0 million revolving credit
agreement with Fleet National Bank. Borrowings under this line were used to
repay the Sprint note and the stockholder loan.

     In September 1998, we issued 40,000 units consisting of shares of 13.5%
series A cumulative preferred stock due 2009 and warrants, resulting in net
proceeds to us of $37.5 million. The proceeds were used to repay all amounts
owed under the May 1998 Fleet revolving credit facility, and the excess funds
were invested in cash equivalents.

     In October 1998, we entered into a loan agreement with Goldman Sachs Credit
Partners, an affiliate of Goldman Sachs, and Fleet. This senior credit facility
has a term of 18 months and is secured by our assets. Up to $60.0 million is
available based upon formulas using accounts receivables and collections.
Interest is payable monthly at one percent above the prime rate. This facility
requires us, among other things, to meet minimum levels of revenues and EBITDA
and debt to revenue ratios. As of December 31, 1999, there were no borrowings
under this line.

     In December 1998, we received an $81.0 million commitment for lease
financing from Comdisco for telecommunications and computer equipment, fiber,
hardware and software to be acquired through December 31, 1999. Depending on the
type of property, the lease term will either be for three or five years. All of
the leases to be entered into will contain purchase options upon conclusion of
the lease term. We entered into leases as of December 31, 1999 totaling $41.9
million, which included $4.0 million for the refinancing of

                                       32
<PAGE>   33

previously existing leases and $4.5 million received by the Company from the
Lessor for the sale and leaseback of equipment acquired by the Company.

     Prior to the 1998 series A preferred stock and warrant offering, we were an
S corporation and, as a result, did not pay corporate federal income taxes.
Instead, our stockholders were liable for their share of taxes in respect of our
taxable income. We had similar tax status in certain states that recognize S
corporation status. Accordingly, in each year prior to 1998 and for the 1998
period prior to September 1998 we distributed to our stockholders cash in
amounts sufficient to enable them to pay federal and state taxes on the portion
of our income attributable to the stockholders plus related tax preparation
expenses. For the years ended December 31, 1997, 1998, and 1999, we distributed
an aggregate of $601,000, $5.0 million and $3,000, respectively, to our
stockholders, which amounts include tax distributions.

     In 1999, we further expanded our network, operational infrastructure and
sales force. We met cash needs in 1999 through the addition of capital leases,
the use of our revolving credit facility and the net proceeds of $137 million
generated from the closing of our initial public offering of common stock in
July 1999. Additionally, we used approximately $46 million of the proceeds from
the initial public offering of our common stock to redeem our 13.5% series A
cumulative preferred stock due 2009 and $10 million to repay amounts owed under
our credit facility.

     In March 2000, we extended our Comdisco capital lease facility to make an
additional $29 million available for continued network expansion through
December 31, 2000. We have also amended our existing $60 million senior credit
facility to extend the maturity date until December 31, 2000.

     On March 8, 2000, we received a commitment from Goldman Sachs Credit
Partners to provide and syndicate new senior secured credit facilities in a
total principal amount of up to $225 million. The senior secured credit
facilities will consist of:

     - a revolving credit facility in the principal amount of up to $150
       million, and

     - a delayed draw term loan facility in the principal amount of up to $75
       million.

These senior secured credit facilities will replace our existing $60 million
senior credit facility and will be used for working capital purposes and the
purchase and acquisition of telecommunications assets. We expect these
facilities to become available on or about June 1, 2000.

     We are proposing to sell in concurrent underwritten public offerings (i)
shares of common stock for aggregate net proceeds of $217.1 million to us and
$23.6 million to certain selling stockholders and (ii) 2,500,000 depositary
shares, each representing 1/10 of a share of series A cumulative convertible
preferred stock, for aggregate net proceeds to us of $119.8 million. The shares
of convertible preferred stock will be convertible into shares of our common
stock. The offering of common stock is not contingent upon the closing of the
offering of the convertible preferred stock. The offering of convertible
preferred stock is contingent upon the closing of the offering of common stock.
The offerings could occur as early as April 2000. The definitive offering size,
price per share and dividend and conversion rates of the convertible preferred
stock will be determined prior to the effectiveness of the offerings. The
offerings are subject to market conditions and other factors and there can be no
assurance that either of these offerings will be completed on the proposed
terms, or at all.

     Total assets were $186.0 million at December 31, 1999 compared to $48.9
million at December 31, 1998. Cash and cash equivalents were $43.0 million at
December 31, 1999 compared to $12.2 million at December 31, 1998. Net cash
provided by operating activities was $3.7 million during 1999 as compared to net
cash used in operating activities of $10.8 million during 1998. Capital
expenditures were $94.3 million during 1999 and $10.9 million during 1998.

     Our strategic initiatives include the deployment of additional local and
long distance switches, the co-location of network equipment, the offering of
new services such as local exchange and data services, the expansion of our
sales force and other personnel, and significant investment in our information
technology systems. These initiatives will require a substantial amount of
capital for the installation of network switches and related equipment, fiber,
personnel additions and funding of operating losses and working capital.
                                       33
<PAGE>   34

     Our ability to meet our projected growth will require substantial cash
resources. The anticipated expansion of our network infrastructure through
year-end 2000 and in 2001, including the addition of co-locations, switches,
e.Commerce data centers and other network elements and our anticipated funding
of negative cash flow from operating activities through year-end 2000 and in
2001, will require approximately $475 million of capital. Furthermore, if we
acquire other businesses, we may require additional financing. We expect the
proceeds of our offering of common stock, the proceeds of our concurrent
convertible preferred stock offering, our current and proposed financing
arrangements and cash flow from operations to provide sufficient capital to
fully fund our business plan. In the event our proposed offerings are not
completed on the proposed terms or in accordance with the proposed schedule, we
expect that we will need to seek alternative sources of financing or modify our
business plan.

RECENTLY ISSUED ACCOUNTING STANDARD

     In June 1998, Statement of Financial Accounting Standard No. 133, or SFAS
133, "Accounting for Derivative Instruments and Hedging Activities", was issued,
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. We are required to adopt SFAS 133, as amended by SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Dates of FASB Statement 133," on a prospective basis for interim
periods and fiscal years beginning January 1, 2001. Had we implemented SFAS 133
in the current period, financial position and results of operations would not
have been affected.

     In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB No. 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB No. 101 did not impact the
Company's revenue recognition policies.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

     Exhibit 99 to this report, which is incorporated herein by reference,
describes certain factors that may affect our future results.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company does not believe that it faces any material risk exposure with
respect to derivative or other financial instruments that would require
disclosure under this item.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                               NETWORK PLUS CORP.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Accountants...........................   35
Consolidated Financial Statements:
  Consolidated balance sheets as of December 31, 1998 and
     1999...................................................   36
  Consolidated statements of operations for the years ended
     December 31, 1997, 1998 and 1999.......................   37
  Consolidated statements of stockholders' equity (deficit)
     for the years ended December 31, 1997, 1998 and 1999...   38
  Consolidated statements of cash flows for the years ended
     December 31, 1997, 1998 and 1999.......................   39
Notes to Consolidated Financial Statements..................   40
</TABLE>

                                       34
<PAGE>   35

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Network Plus Corp.:

     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows present fairly, in all material respects, the financial position
of Network Plus Corp. and its subsidiaries at December 31, 1998 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 28, 2000, except for the
   information presented in Note 24 for
   which the date is March 8, 2000

                                       35
<PAGE>   36

                               NETWORK PLUS CORP.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                                1998         1999
                                                                ----         ----
                                                                  (IN THOUSANDS,
                                                              EXCEPT PER SHARE DATA)
<S>                                                           <C>          <C>
                                       ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................  $ 12,197     $ 43,031
  Accounts receivable, net of allowance for doubtful
    accounts of $513 and $2,624, respectively...............    16,225       31,814
  Prepaid expenses..........................................       760          489
  Deferred taxes............................................       277           --
  Other current assets......................................     1,591          958
                                                              --------     --------
    Total current assets....................................    31,050       76,292
PROPERTY AND EQUIPMENT, NET.................................    15,822      101,944
OTHER ASSETS................................................       821        1,117
INTANGIBLE ASSETS, NET......................................        --        3,286
INVESTMENT..................................................        --        3,333
DEFERRED TAXES..............................................     1,175           --
                                                              --------     --------
    TOTAL ASSETS............................................  $ 48,868     $185,972
                                                              ========     ========

     LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
  Accounts payable..........................................  $ 11,402     $ 48,704
  Accrued liabilities.......................................     2,617        6,370
  Current portion capital lease obligations.................       863       11,346
                                                              --------     --------
    Total current liabilities...............................    14,882       66,420
LONG-TERM CAPITAL LEASE OBLIGATIONS.........................     3,147       28,188
LONG-TERM NOTE PAYABLE TO STOCKHOLDER.......................     1,875        1,875
DEFERRED TAXES..............................................       491           --
OTHER LONG-TERM LIABILITIES.................................        50          208
COMMITMENTS
REDEEMABLE PREFERRED STOCK
  13.5% Series A Cumulative Preferred Stock due 2009, $.01
    par value, 50 shares authorized, 40 shares and none
    issued and outstanding, respectively....................    35,146           --

                           STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock, $.01 par value, 150,000 shares authorized,
  45,333 and 54,795 shares issued and outstanding at
  December 31, 1998 and 1999, respectively..................       453          548
Additional paid-in capital..................................        --      138,767
Stock subscription receivable...............................        --         (155)
Warrants....................................................     4,359        4,405
Other Comprehensive Income..................................        --          833
Accumulated deficit.........................................   (11,535)     (55,117)
                                                              --------     --------
    Total stockholders' equity (deficit)....................    (6,723)      89,281
                                                              --------     --------
    TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND
      STOCKHOLDERS' EQUITY (DEFICIT)........................  $ 48,868     $185,972
                                                              ========     ========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                       36
<PAGE>   37

                               NETWORK PLUS CORP.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                             --------------------------------------
                                                                1997          1998          1999
                                                                ----          ----          ----
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                          <C>           <C>           <C>
Revenues...................................................   $ 98,209      $105,545      $152,520
Operating expenses
  Costs of services........................................     78,106        78,443       122,664
  Selling, general and administrative expenses.............     25,704        29,426        51,709
  Depreciation and amortization............................        994         2,037         8,564
                                                              --------      --------      --------
                                                               104,804       109,906       182,937
                                                              --------      --------      --------
Operating loss.............................................     (6,595)       (4,361)      (30,417)
Other income (expense)
  Interest income..........................................         86           395         1,896
  Interest expense.........................................       (557)       (1,474)       (3,804)
  Other income, net........................................      3,917           151           432
                                                              --------      --------      --------
                                                                 3,446          (928)       (1,476)
                                                              --------      --------      --------
Net loss before income taxes...............................     (3,149)       (5,289)      (31,893)
Provision (benefit) for income taxes.......................         42          (906)          961
                                                              --------      --------      --------
Net loss...................................................     (3,191)       (4,383)      (32,854)
Preferred stock dividends and accretion of offering
  expenses and discount....................................         --        (2,005)      (10,725)
                                                              --------      --------      --------
Net loss applicable to common stockholders.................   $ (3,191)     $ (6,388)     $(43,579)
                                                              ========      ========      ========
Net loss per share applicable to common
  stockholders -- basic and diluted........................   $  (0.07)     $  (0.14)     $  (0.87)
                                                              ========      ========      ========
Weighted average shares outstanding -- basic and diluted...     45,333        45,333        49,969
                                                              ========      ========      ========
Pro forma data:
Historical loss before income taxes........................   $ (3,149)     $ (5,289)     $(32,854)
Pro forma benefit for income taxes.........................     (1,094)       (1,904)           --
                                                              --------      --------      --------
Pro forma net loss.........................................     (2,055)       (3,385)      (32,854)
Historical preferred stock dividends and accretion of
  offering expenses........................................         --        (2,005)      (10,725)
                                                              --------      --------      --------
Pro forma net loss applicable to common stockholders.......   $ (2,055)     $ (5,390)     $(43,579)
                                                              ========      ========      ========
Pro forma net loss per share applicable to common
  stockholders -- basic and diluted........................   $  (0.05)     $  (0.12)     $  (0.87)
                                                              ========      ========      ========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                       37
<PAGE>   38

                               NETWORK PLUS CORP.

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
                                                   COMMON
                                                   STOCK,                                           OTHER
                                       SHARES OF   $0.01    ADDITIONAL      STOCK                  COMPRE-
                                        COMMON      PAR      PAID-IN     SUBSCRIPTION              HENSIVE
                                         STOCK     VALUE     CAPITAL      RECEIVABLE    WARRANTS   INCOME
                                       ---------   ------   ----------   ------------   --------   -------
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                    <C>         <C>      <C>          <C>            <C>        <C>
Balance at December 31, 1996.........   45,333      $453
 Net loss............................
 Distributions to stockholders.......
                                        ------      ----     --------       -----        ------     ----
 Balance at December 31, 1997........   45,333       453           --          --            --       --
 Net loss............................
 Distributions to stockholders.......
 Common stock dividends..............
 Issuance of 1,405 warrants..........                                                    $4,359
 Dividends on preferred stock........
 Accretion of preferred stock
  offering expenses and discount.....
                                        ------      ----     --------       -----        ------     ----
 Balance at December 31, 1998........   45,333       453           --          --         4,359       --
 Net loss............................
 Distributions to stockholders.......
 Issuance of 23 warrants.............                                                        92
 Issuance of common stock in initial
  public offering....................    9,200        92     $135,504
 Option exercise.....................       96         1          628        (155)
 Issuance of common stock in
  connection with acquisition........      155         2        2,431
 Deferred compensation charge........                             158
 Dividends on preferred stock........
 Accretion of preferred stock
  offering expenses and discount.....
 Preferred stock dividend for premium
  paid on redemption of preferred
  stock..............................
 Warrant exercise....................       11                     46                       (46)
 Unrealized investment gain..........                                                                833
 Comprehensive loss..................
                                        ------      ----     --------       -----        ------     ----
 Balance at December 31, 1999........   54,795      $548     $138,767       $(155)       $4,405     $833
                                        ======      ====     ========       =====        ======     ====

<CAPTION>

                                         RETAINED         TOTAL
                                         EARNINGS     STOCKHOLDERS'   COMPRE-
                                       (ACCUMULATED      EQUITY       HENSIVE
                                         DEFICIT)       (DEFICIT)       LOSS
                                       ------------   -------------   -------
                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                    <C>            <C>             <C>
Balance at December 31, 1996.........    $  3,648       $  4,101
 Net loss............................      (3,191)        (3,191)
 Distributions to stockholders.......        (601)          (601)
                                         --------       --------
 Balance at December 31, 1997........        (144)           309
 Net loss............................      (4,383)        (4,383)
 Distributions to stockholders.......          (3)            (3)
 Common stock dividends..............      (5,000)        (5,000)
 Issuance of 1,405 warrants..........                      4,359
 Dividends on preferred stock........      (1,814)        (1,814)
 Accretion of preferred stock
  offering expenses and discount.....        (191)          (191)
                                         --------       --------
 Balance at December 31, 1998........     (11,535)        (6,723)
 Net loss............................     (32,854)       (32,854)      (32,854)
 Distributions to stockholders.......          (3)            (3)
 Issuance of 23 warrants.............                         92
 Issuance of common stock in initial
  public offering....................                    135,596
 Option exercise.....................                        474
 Issuance of common stock in
  connection with acquisition........                      2,433
 Deferred compensation charge........                        158
 Dividends on preferred stock........      (2,870)        (2,870)
 Accretion of preferred stock
  offering expenses and discount.....        (286)          (286)
 Preferred stock dividend for premium
  paid on redemption of preferred
  stock..............................      (7,569)        (7,569)
 Warrant exercise....................                         --
 Unrealized investment gain..........                        833           833
                                                                      --------
 Comprehensive loss..................                                 $(32,021)
                                         --------       --------      ========
 Balance at December 31, 1999........    $(55,117)      $ 89,281
                                         ========       ========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                       38
<PAGE>   39

                               NETWORK PLUS CORP.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              -------------------------------
                                                               1997        1998        1999
                                                               ----        ----        ----
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>         <C>
Cash flows from operating activities:
  Net loss..................................................  $(3,191)   $ (4,383)   $(32,854)
  Adjustments to reconcile net loss to net cash provided by
     (used for) operating activities:
     Depreciation and amortization..........................      994       2,037       8,564
     Gain on disposal of fixed assets.......................       --          --          18
     Deferred taxes.........................................       --        (961)        961
     Interest payable on note payable to stockholder........       --          --         158
     Valuation of Tel-Save common stock warrants............   (3,837)         --          --
     Valuation of common stock warrants.....................       --          --          92
     Compensation expense related to issuance of stock
       options..............................................       --          --         158
     Changes in assets and liabilities, net of effect of
       acquisition:
     Accounts receivable....................................   (1,955)        702     (15,559)
     Prepaid expenses.......................................     (107)       (345)        271
     Other current assets...................................      (19)     (1,479)        633
     Other long-term assets.................................      (34)       (718)       (299)
     Accounts payable.......................................    8,022      (6,043)     24,146
     Accrued liabilities....................................      311         422      16,791
     Other liabilities......................................       --          --         622
                                                              -------    --------    --------
       Net cash provided by (used for) operating
          activities........................................      184     (10,768)      3,702
Cash flows from investing activities:
  Capital expenditures......................................   (3,363)    (10,919)    (52,337)
  Proceeds from sale of fixed assets........................        9          17          --
  Purchase of investment....................................       --          --      (2,500)
  Proceeds from sale of Tel-Save common stock...............       --       9,500          --
  Exercise of Tel-Save common stock warrants................   (3,570)         --          --
  Cash paid for acquisition.................................       --          --        (300)
  Transaction fees paid for acquisition.....................       --          --        (152)
  Issuance of note receivable...............................       --          --        (448)
  Proceeds from sale and leaseback of fixed assets..........    3,450          --       4,516
                                                              -------    --------    --------
       Net cash used for investing activities...............   (3,474)     (1,402)    (51,221)
Cash flows from financing activities:
  Net proceeds from (payments on) line of credit............    2,510      (4,510)         --
  Principal payments on capital lease obligations...........   (1,110)     (5,307)    (11,843)
  Proceeds from stockholder loan............................    1,755       1,875          --
  Payments on stockholder loans.............................       --      (1,755)         --
  Net proceeds from issuance of preferred stock and
     warrants...............................................       --      37,500          --
  Payment on redemption of preferred stock..................       --          --     (45,871)
  Net proceeds from issuance of common stock................       --          --     136,070
  Distribution to stockholders..............................     (601)     (5,003)         (3)
                                                              -------    --------    --------
       Net cash provided by financing activities............    2,554      22,800      78,353
                                                              -------    --------    --------
Net increase (decrease) in cash.............................     (736)     10,630      30,834
Cash at beginning of year...................................    2,303       1,567      12,197
                                                              -------    --------    --------
Cash at end of year.........................................  $ 1,567    $ 12,197    $ 43,031
                                                              =======    ========    ========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                       39
<PAGE>   40

                               NETWORK PLUS CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Business Activity

     Network Plus Corp. (the "Company") is a network-based communications
provider offering a comprehensive suite of broadband data, telecommunications
and e.Commerce hosting services. The Company's bundled product offerings include
local and long distance voice services and high-speed data, Internet and web and
managed server hosting services. Since 1990, the Company has provided its
services primarily to small and medium-sized businesses located in major markets
in the northeastern and southeastern regions of the United States. The Company
also provides international wholesale termination and transport services
primarily to major domestic and international telecommunication carriers.
Revenue is also derived from the sale of local and long distance services, data
and Internet services, toll-free services and calling card and paging services.
All revenues are billed and collected in U.S. dollars.

     The Company's ability to meet its projected growth will require substantial
cash resources. In the event the Company is unable to raise sufficient
additional capital, it intends to scale back and delay its anticipated network
and operational infrastructure expansion.

  Basis of Presentation

     On July 15, 1998, Network Plus Corp. was incorporated in the State of
Delaware. The stockholders of Network Plus, Inc. contributed 100% of their
shares to the Company, in return for an aggregate of 45,333,333 shares of the
common stock. Accordingly, Network Plus, Inc. became a wholly-owned subsidiary
of the Company.

     The Company's consolidated financial statements reflect the financial
position and results of operations of its wholly-owned subsidiary, Network Plus,
Inc. All intercompany transactions are eliminated in consolidation. For periods
prior to the formation of the Company on July 15, 1998, the financial statements
reflect the activities of Network Plus, Inc., as it was the sole operating
entity.

  Cash Equivalents

     All highly liquid cash investments with maturities of three months or less
at date of purchase are considered to be cash equivalents. At December 31, 1998
and 1999, $1,063 and $271, respectively, of cash equivalents are restricted for
use as collateral for outstanding letters of credit.

  Property and Equipment

     Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets.

     Leasehold improvements are amortized over the shorter of the lease term or
the estimated useful life of the improvements. Upon retirement or other
disposition of property and equipment, the cost and related depreciation are
removed from the accounts and the resulting gain or loss is reflected in
earnings.

     On January 1, 1999, the Company adopted the provisions of Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." Accordingly, the Company capitalizes costs
associated with the design and implementation of the Company's internal use
software. Capitalized external software costs include the actual costs to
purchase existing software from vendors. Capitalized internal software costs
generally include personnel costs incurred in the enhancement and implementation
of purchased software packages. Through December 31, 1999, $2.5 million of costs
have been capitalized in accordance with SOP 98-1.

                                       40
<PAGE>   41
                               NETWORK PLUS CORP.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

  Intangible Assets

     Intangible assets consist principally of goodwill and acquired customer
base.

     Goodwill represents the excess of purchase price over the fair value of the
net assets acquired and is being amortized using the straight-line method over
three years.

     Customer base represents the fair value of the customer base obtained in
acquisitions (see Note 3) and is being amortized using the straight-line method
over a period of 6 months to one year.

     The carrying value of the intangible assets is reviewed on a quarterly and
annual basis for the existence of facts or circumstances both internally and
externally that may suggest impairment. To date, no such impairment has
occurred. The Company determines whether an impairment has occurred based on
gross expected future cash flows and measures the amount of the impairment based
on the related future estimated discounted cash flows. The cash flow estimates
used to determine the impairment, if any, contain management's best estimates,
using appropriate and customary assumptions and projections at that time.

  Capital Leases

     Capital leases, those leases which transfer substantially all benefits and
risks of ownership, are accounted for as acquisitions of assets and incurrences
of obligations. Capital lease amortization is included in depreciation and
amortization expense, with the amortization period equal to the estimated useful
life of the assets. Interest on the related obligation is recognized over the
lease term at a constant periodic rate.

  Revenue Recognition and Accounts Receivable

     Telecommunication and related data services revenues and accounts
receivable are recognized when calls are completed or when services are
provided. Revenues related to nonrecurring installation and activation fees are
deferred and recognized over the period of the customer service contract. The
related direct costs are capitalized and recognized to expense over the period
of the customer service contract. To date, such fees and costs have been
immaterial. Accounts receivable include both billed and unbilled amounts, and
are reduced by an estimate for uncollectible amounts. Unbilled amounts result
from the Company's monthly billing cycles and reflect telecommunications
services provided in the 30 days prior to the reporting date. These amounts are
billed within 30 days subsequent to the reporting date and are expected to be
collected under standard terms offered to customers.

     Unbilled amounts were $8,563 and $13,295 at December 31, 1998, and 1999,
respectively.

  Costs of Services

     Costs of services include costs of origination, transport and termination
of traffic, exclusive of depreciation and amortization. Costs associated with
co-location facilities including rent and access charges for facilities which
are not operational are included in selling, general and administrative
expenses. When the facilities are considered operational the related costs are
included in costs of services. To date these costs included in selling, general
and administrative expenses have been immaterial.

  Income Taxes

     Effective March 1, 1992, the Company elected by the consent of its
stockholders to be taxed under the provisions of Subchapter S of the Internal
Revenue Code. Under those provisions, the Company did not pay corporate Federal
income taxes on its taxable income. Instead, the stockholders were liable for
individual income taxes on their share of the Company's taxable income.

                                       41
<PAGE>   42
                               NETWORK PLUS CORP.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

     The issuance of preferred stock on September 3, 1998 terminated the
Company's election to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Accordingly, subsequent to September 3, 1998, the Company
provides for and reports statutory Federal and state income taxes, as necessary.
These financial statements also present, on a pro forma basis, Federal and state
income taxes assuming the Company had been a C Corporation for all periods
presented.

     The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". SFAS
109 is an asset and liability approach that requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
In estimating future tax consequences, SFAS 109 generally considers all expected
future events other than enactment of changes in the tax law or rates.

  Earnings (Loss) Per Share

     The Company computes and reports earnings per share in accordance with the
provisions of SFAS No. 128, "Earnings Per Share". The computations of basic and
diluted earnings (loss) per common share are based upon the weighted average
number of common shares outstanding and potentially dilutive securities.
Potentially dilutive securities include convertible preferred stock, stock
options and warrants.

     Pro forma net loss per share reflecting the Company's conversion from an S
Corporation to a C Corporation is presented using an estimated effective income
tax rate of approximately 35% to 36%.

  Concentration of Risk

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable. In
addition, risk exists in cash deposited in banks that may, at times, be in
excess of FDIC insurance limits. The trade accounts receivable risk is limited
due to the breadth of entities comprising the Company's customer base and their
dispersion across different industries and geographical regions. The Company
evaluates the credit worthiness of customers, as appropriate, and maintains an
adequate allowance for potential uncollectible accounts.

  Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

  Reclassifications

     Certain amounts in the financial statements for prior years have been
reclassified to conform with the current year presentation. Such
reclassifications had no effect on previously reported results of operations.

2. RELATED PARTY TRANSACTIONS

     In September 1998, one of the Company's stockholders made a loan to the
Company for $1,875. Interest on the loan accrues at the prime rate (8.5% at
December 31, 1999). Accrued interest on this loan, included in other long-term
assets, totaled $50 and $209 at December 31, 1998 and December 31, 1999,
respectively. Principal and interest will be payable July 31, 2001.

     On December 31, 1997, the Company's stockholders made loans to the Company
totaling $1,755. Interest on the loans accrued at the prevailing prime rate and
was payable monthly. Interest expense related to

                                       42
<PAGE>   43
                               NETWORK PLUS CORP.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

these loans totaled $49 in 1998. There was no required period for principal
repayment. The loans were repaid in May 1998.

     Office space, located in Quincy is leased from a trust, the beneficiaries
of which are the principal stockholders of the Company. The Company makes
monthly rental and condominium fee payments to the trust of $71 relating to the
Quincy space. The Company paid $680 to the trust in 1997, $808 in 1998 and $849
in 1999. Additionally, the Company is currently negotiating a long-term lease
for an 80,000 square foot facility in Randolph, Massachusetts with a company
that is wholly owned by the principal stockholders of Network Plus.

3. ACQUISITIONS

     On November 30, 1999, the Company acquired certain assets of Infohouse Inc.
for cash of $300, a note payable of $200 and 155,039 shares of common stock of
the Company with a fair market value of $2,432. The transaction was accounted
for using the purchase method. The aggregate purchase price of $3,408 included
assumed liabilities of $476 which consisted primarily of capital leases. The
fair value of net tangible assets acquired was $385 which consisted primarily of
computer, network and communications equipment. The remaining purchase price was
allocated to customer base and goodwill. The $1,206 allocated to the customer
base is being amortized over a one year period and the goodwill is being
amortized over a three year period.

     On December 17, 1999, the Company acquired certain customers from a
reseller of the Company's services in exchange for the forgiveness of a $448
note receivable. In addition, the Company is committed to pay up to $211 if
specific customer retention targets are met. Should those payments be made, the
amounts will be capitalized as customer base and amortized over the expected
weighted-average remaining customer life. The transaction was accounted for
using the purchase method. The purchase price of $448 was allocated to the fair
value of the customer base, which is being amortized over a six month period.

     The results of operations of the acquired company would not have had a
material impact on the actual results reported for the year ended December 31,
1998 and 1999 had the transaction been consummated at the beginning of each
respective year.

4. INVESTMENTS AND TRANSFER OF CUSTOMERS

     In 1995, the Company transferred (the "Transfer") certain customers to whom
it provided long distance and toll free telecommunications services pursuant to
certain AT&T resale contracts (the "AT&T contracts") to Tel-Save Holdings, Inc.
("Tel-Save"). Concurrent with the Transfer, the Company's obligations to AT&T
under the AT&T contracts were terminated without obligation or liability on
behalf of the Company. Prior to the time of this transaction, there was no value
recorded in the financial statements related to these customers. In exchange for
the Transfer, the Company received four separate warrants to purchase a total of
1,365,000 shares of Tel-Save common stock at an exercise price of $4.67 per
share (after reflecting stock splits through December 31, 1997). Each warrant
vested to the Company separately based on the retail revenue generated by
Tel-Save with respect to the transferred customers, which had to exceed
specified levels for three consecutive months. The warrants expired at various
dates through 1997. In addition to the Warrant Agreements, the Company was
subject to a Voting Rights Agreement whereby Tel-Save retained the right to hold
and vote the stock until the point in time when the Company informed Tel-Save it
wished to sell the stock. Upon receiving such notice from the Company, Tel-Save
was obligated to either purchase the stock at the price offered by the Company
or, alternatively, was to deliver the common stock certificates to the Company.

     In 1996, the vesting requirements were met to exercise the first three
warrants. The vesting requirement for the first warrant was met at the end of
the third quarter of 1996, entitling the Company to purchase

                                       43
<PAGE>   44
                               NETWORK PLUS CORP.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

600,000 shares of Tel-Save common stock. The Company exercised this warrant and
sold the related common stock, which had previously been registered, resulting
in net proceeds and other income of $1,370 in the third quarter of 1996.

     The vesting requirements with respect to the second and third warrants were
met in November 1996. The second warrant entitled the Company to purchase
300,000 shares of Tel-Save common stock prior to January 8, 1997. The third
warrant entitled the Company to purchase 150,000 shares of Tel-Save Common stock
prior to June 10, 1997. The warrants were valued upon vesting at approximately
$2,093 using the Black-Scholes valuation model. The significant assumptions in
the valuation model were an interest rate of 5.1%, warrant lives reflecting the
respective expiration periods, expected volatility of 50% and no dividend rate.
At December 31, 1996, the warrants had not yet been exercised and were
classified as investments. The value of the warrants at December 31, 1996 was
the fair value recorded by the Company at the date of vesting. Other income of
$2,093 related to the second and third warrants was recognized in the fourth
quarter of 1996. On January 6, 1997, the Company exercised the second and third
warrants and paid Tel-Save the total exercise price of $2,100.

     The vesting requirement with respect to the fourth warrant was met in June
1997, entitling the Company to purchase 315,000 shares of Tel-Save common stock.
The fourth warrant was valued upon vesting at approximately $3,415 using
Black-Scholes valuation model. The significant assumptions in the valuation
model were an interest rate of 5.1%, a warrant life reflecting the June 1997
expiration period, expected volatility of 50% and no dividend rate. On June 4,
1997, the Company exercised the warrant, paid Tel-Save the exercise price of
$1,470 and recorded other income of approximately $3,415.

     On November 7, 1997, Tel-Save filed a registration statement with the SEC,
listing the Company as a selling shareholder with respect to 765,000 shares (the
total shares purchased by the Company, after reflecting stock splits, under the
second, third and fourth warrants). Following the registration of the common
stock, the Company intended to immediately sell the shares of Tel-Save, which
had a market value of approximately $16,600 at that date, as it had done
previously with the first warrant. Accordingly, all activities necessary for the
transfer of the certificates were completed and the Company issued a demand to
Tel-Save for the common stock certificates or, alternatively, requested that
Tel-Save purchase the shares. Throughout the remainder of the fourth quarter,
Tel-Save refused to deliver the common stock certificates to the Company.

     In order to take physical possession of the Tel-Save common stock
certificates, the Company filed a lawsuit against Tel-Save in January 1998. On
June 24, 1998, a settlement agreement was signed between the parties pursuant to
which the Company received a total of $9,500 from Tel-Save. As part of the
settlement, all 765,000 shares were either returned to or repurchased by
Tel-Save. Following the June 1998 settlement, there are no continuing
obligations between the parties. Accordingly, the Company's investment in
Tel-Save at December 31, 1997 was valued at the final negotiated payment. This
settlement resulted in approximately $422 of other income, recorded in the
fourth quarter of 1997.

                                       44
<PAGE>   45
                               NETWORK PLUS CORP.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

5. PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                           ESTIMATED      -------------------
                                                          USEFUL LIFE      1998        1999
                                                          -----------      ----        ----
<S>                                                      <C>              <C>        <C>
Network infrastructure and equipment...................  5 and 10         $13,247    $ 50,276
                                                         years
Computer equipment.....................................  3-5 years          3,145       5,228
Office furniture and equipment.........................  7 years            1,393       1,975
Software...............................................  3 years            1,245       6,325
Motor vehicles.........................................  5 years              201         256
Leasehold improvements.................................  Term of Lease        689       7,959
Construction in progress...............................                        --      40,355
                                                                          -------    --------
                                                                           19,920     112,374
Less accumulated depreciation and amortization.........                    (4,098)    (10,430)
                                                                          -------    --------
                                                                          $15,822    $101,944
                                                                          =======    ========
</TABLE>

     Property and equipment under capital leases are as follows:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            1998       1999
                                                            ----       ----
<S>                                                        <C>        <C>
Network infrastructure and equipment.....................  $ 3,837    $34,770
Computer equipment.......................................    1,527      2,062
Motor vehicles...........................................       55         99
Construction in Process..................................       --      9,696
                                                           -------    -------
                                                             5,419     46,627
Less accumulated amortization............................   (1,701)    (4,004)
                                                           -------    -------
                                                           $ 3,718    $42,623
                                                           =======    =======
</TABLE>

     Depreciation and amortization expense related to property and equipment for
the years ended December 31, 1997, 1998 and 1999 amounted to $994, $2,037 and
$8,379, respectively.

     In August 1997, upon review of the Company's experience and expectations
for upgrades and replacement of equipment, including information gathered during
the process of financing such equipment, the Company changed its estimate of the
useful life of its telecommunications equipment from 12 years to 5 years. The
Company also reviewed publicly available industry data on telecommunications
equipment, which confirmed that the estimate of useful lives of the Company's
telecommunications equipment, which was entirely switching equipment at that
time, reasonably approximated 5 years. The Company also assessed that there had
been no significant decline in the market value of its switching equipment since
purchased and that the market value exceeded the net book value of the equipment
at the time of the change in estimate. This was confirmed by the Company's
ability to enter into a sale and leaseback of the switches for the approximate
book value, completed at the same time as the change in estimate. During 1999,
the Company began purchasing fiber optic capacity, which is being depreciated
over its estimated useful life of 10 years.

     Depreciation expense in 1997 was approximately $136 more than what would
have otherwise been reported had the change in estimate not been made. Annual
depreciation expense related to these assets will be approximately $407 more
through 2002 than what would have otherwise been reported had the change not
been made.

                                       45
<PAGE>   46
                               NETWORK PLUS CORP.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

     In November 1997, the Company entered into a sale and leaseback of its
switching equipment. The equipment was sold at book value, which approximates
market value, and, consequently, no gain or loss was recorded on the sale. This
lease was refinanced, effective January 1, 1999. See Note 10.

6. INTANGIBLE ASSETS

     Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              --------------        USEFUL
                                                              1998     1999         LIVES
                                                              ----    ------    --------------
<S>                                                           <C>     <C>       <C>
Acquired customer base......................................  $ --    $1,654    6 to 12 months
Goodwill....................................................    --     1,817       3 years
Less accumulated amortization...............................    --      (185)
                                                              ----    ------
Intangible assets, net......................................  $ --    $3,286
                                                              ====    ======
</TABLE>

7. ACCRUED LIABILITIES

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                            -----------------
                                                             1998       1999
                                                             ----       ----
<S>                                                         <C>        <C>
Accrued payroll and related expenses......................  $   821    $2,083
Accrued agency commissions................................      285       817
Accrued professional services.............................      123       276
Customer deposits.........................................      142       428
Other accrued liabilities.................................    1,246     2,766
                                                            -------    ------
                                                            $ 2,617    $6,370
                                                            =======    ======
</TABLE>

8. REVOLVING CREDIT AGREEMENTS AND LETTERS OF CREDIT

     The Company had a revolving line of credit with Fleet National Bank
("Fleet") for borrowings up to $7,000, including letters of credit, which was
refinanced on May 1, 1998, as described below.

     On May 1, 1998, the Company entered into a senior credit agreement with
Fleet, which allowed for up to $23,000 of borrowings, based upon a percentage of
accounts receivable. This agreement had a term of three years, but was
terminated on October 7, 1998, upon entering into the Senior Credit Facility,
described below. Interest was payable monthly at Fleet's prime rate or available
LIBOR options. All outstanding notes payable were paid in full in May 1998 with
proceeds from the $23 million facility.

     On October 7, 1998, the Company entered into a loan agreement with Goldman
Sachs Credit Partners, L.P. and Fleet for a $60,000 senior credit facility (the
"Senior Credit Facility"), and concurrently terminated the $23,000 facility. The
Company formerly referred to the Senior Credit Facility as the "New Revolving
Credit Facility." The Senior Credit Facility has a term of 18 months. Under the
Senior Credit Facility, $30,000 of the $60,000 is immediately available, while
the additional $30,000 is available based upon a percentage of accounts
receivable. Interest is payable monthly at one percent above the prime rate
(9.50% at December 31, 1999). The Senior Credit Facility, as amended (see Note
24), requires the Company, among other things, to meet minimum levels of
revenues and earnings before interest, taxes, depreciation and amortization, and
debt to revenue ratios, places the Company in default in the event of a material
adverse change in the Company's business and restricts our ability to pay cash
dividends. Had the Senior Credit Facility not been amended, the Company would
not have been in compliance with the earnings before interest, taxes,
depreciation and amortization financial covenant at December 31, 1999. At
December 31, 1998 and

                                       46
<PAGE>   47
                               NETWORK PLUS CORP.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1999, there were no borrowings outstanding under the Senior Credit Facility. The
Senior Credit Facility, as amended, is collateralized by substantially all of
the assets of the Company. The maximum borrowings under this agreement in 1999
were $10,000.

     Letters of credit issued in the ordinary course of business totaled $271 as
of December 31, 1999, and were collateralized by a corresponding amount of cash
equivalents.

9. DEBT AND CAPITAL LEASE OBLIGATIONS

     Debt and capital lease obligations consist of the following:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                            -----------------
                                                             1998      1999
                                                             ----      ----
<S>                                                         <C>       <C>
Notes payable.............................................  $   --    $   200
Capital lease obligations.................................   4,010     39,334
                                                            ------    -------
                                                             4,010     39,534
Less current portion......................................    (863)   (11,346)
                                                            ------    -------
                                                            $3,147    $28,188
                                                            ======    =======
</TABLE>

     The Company's capital leases as of December 31, 1998 were refinanced
effective January 1, 1999 and the current and long-term portions of such leases
have been classified in accordance with the new lease terms. See Note 10.

10. LEASE COMMITMENTS

     The Company has entered into noncancellable operating leases for office
space in several locations in the United States. The leases have termination
dates through 2014 and require the payment of various operating costs including
condominium fees. Rental expense related to the leases for the years ended
December 31, 1997, 1998 and 1999 were $733, $1,263 and $3,058, respectively.

     Minimum lease payments for the next five years and thereafter are as
follows:

<TABLE>
<CAPTION>
                                                         CAPITAL     OPERATING
YEAR ENDED DECEMBER 31,                                   LEASES      LEASES
-----------------------                                  -------     ---------
<S>                                                      <C>         <C>
2000...................................................  $ 13,934      $2,937
2001...................................................    13,604       3,473
2002...................................................     8,310       3,603
2003...................................................     4,679       3,578
2004...................................................     1,205       3,212
Thereafter.............................................     6,699      22,820
                                                         --------     -------
Total minimum lease payments...........................  $ 48,431     $39,623
                                                                      =======
Less imputed interest..................................    (8,897)
                                                         --------
Present value of minimum lease payments................    39,534
Less current portion...................................   (11,346)
                                                         --------
Long-term capital lease obligations....................  $ 28,188
                                                         ========
</TABLE>

     In December 1998, the Company received an $81,000 commitment for equipment
lease financing for telecommunications equipment to be acquired through December
31, 1999. (See Note 23) Depending on the

                                       47
<PAGE>   48
                               NETWORK PLUS CORP.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

type of equipment acquired, the term of the lease is either three or five years.
All of the leases entered into contain bargain purchase options upon conclusion
of the lease term. Leases entered into as of December 31, 1999 totaled $41,930
and included $3,986 for refinancing of previously existing leases. Also included
in the new lease financing is an additional $4,516 received by the Company from
the lessor for the sale and leaseback of equipment acquired by the Company
during 1998.

     The Company has entered into certain agreements for the Indefeasible
Right-of-Use Fiber Strands. Based on the terms of these agreements, upon
acceptance of certain fiber installations, the Company will be liable for
additional payments of approximately $22,633.

11. INVESTMENT

     On March 23, 1999, the Company entered into a market development agreement
with NorthPoint Communications, Inc. ("NorthPoint") for a period of two years.
Under the terms of the agreement the Company will resell DSL products and
services to businesses currently reached by NorthPoint's infrastructure.
NorthPoint will provide co-marketing funds to launch this new service to the
Company's customers. At December 31, 1999, approximately $300 is due from
Northpoint under the co-marketing provision. In addition, the agreement contains
certain volume commitments that the Company must meet subject to non-usage
charges at the end of the term. The Company also made an equity investment of
$2.5 million in NorthPoint, which will be accounted for on a cost basis. The
securities are available-for-sale and, accordingly, unrealized gains or losses
in value are recorded as a component of Other Comprehensive Income.

12. STOCKHOLDERS' EQUITY

  Common Stock

     The amended certificate of incorporation of the Company authorizes the
issuance of up to 150,000,000 shares of $.01 par value common stock. The holders
of common stock are entitled to receive dividends when and if dividends are
declared by the Board of Directors of the Company out of funds legally available
therefor, provided that if any shares of preferred stock are at the time
outstanding, the payment of dividends on the common stock or other distributions
may be subject to the declaration and payment of dividends on outstanding shares
of preferred stock. Holders of common stock are entitled to one vote per share
on all matters submitted to a vote of the stockholders, including the election
of directors. Upon any liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or involuntary, any assets remaining after the
satisfaction in full of the prior rights of creditors and the aggregate
liquidation preference of any preferred stock then outstanding will be
distributed to the holders of common stock ratably in proportion to the number
of shares held by them.

  Preferred Stock

     Under the certificate of incorporation of the Company, the Board of
Directors has the authority to issue up to 1,000,000 shares of $.01 par value
preferred stock from time to time in one or more series with such preferences,
terms and rights as the Board of Directors may determine without further action
by the stockholders of the Company. Accordingly, the Board of Directors has the
power to establish the provisions, if any, relating to dividends, voting rights,
redemption rates, sinking funds, liquidation preferences and conversion rights
for any series of preferred stock issued in the future.

  Common Stock Dividends

     On September 2, 1998, the Board of Directors of the Company issued a $5,000
dividend to its stockholders. Following receipt of the dividend, one stockholder
loaned the Company $1,875 (representing the

                                       48
<PAGE>   49
                               NETWORK PLUS CORP.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

distribution to that stockholder, net of the estimated tax liability resulting
from such distribution). Interest accrues at prime rate. In accordance with an
extension agreement, interest and principal will be payable on July 31, 2001.

13. PREFERRED STOCK AND WARRANTS ISSUANCE

     On September 3, 1998, the Company issued 40,000 shares of 13.5% Series A
Cumulative Preferred Stock due 2009, warrants to purchase, for $.01 per share,
1,405,333 shares of the Company's common stock ("Initial Warrants") and rights
to receive warrants to purchase 2,720,000 shares of the Company common stock at
an exercise price of $.01 per share ("Contingent Warrants"), resulting in
proceeds to the Company of $37,500, net of issuance costs of $2,500. If the
Company had failed to comply with certain requirements, the Contingent Warrants
would have entitled the holders of the preferred stock to receive annually,
beginning on September 1, 1999, warrants to purchase approximately 6.16 shares
of the Company's common stock for each share of preferred stock. The Warrants
vest on September 1, 2000, subject to acceleration upon the occurrence of
certain events. A total value of $4,359 was ascribed to the Initial Warrants,
net of issuance costs of $290, and was accounted for as a separate component of
stockholders' equity. The value ascribed to the Initial Warrants was recorded as
a discount to the preferred stock, which was being accreted to the preferred
stock balance over the period from date of issuance through the date of
mandatory redemption (September 1, 2009). The value ascribed to the Contingent
Warrants was de minimis. On July 6, 1999, the Company redeemed all outstanding
shares of its 13.5% Series A Cumulative Preferred Stock due 2009 including all
accrued dividends for $46,371, and eliminated its obligation to issue the
contingent warrants. At redemption, the Company recorded a dividend of $7,569 to
reflect the difference between the redemption amount and the carrying amount of
the preferred stock. The difference was due to the value ascribed to the initial
warrants, discount attributed to offering expenses and redemption premium.

14. STOCK OPTION PLANS

     On July 15, 1998, the Company adopted the 1998 Stock Incentive Plan (the
"1998 Incentive Plan"). The 1998 Incentive Plan provides for the grant of
stock-based awards to employees, officers and directors of, and consultants or
advisors to, the Company. Under the 1998 Incentive Plan, the Company may grant
options that are intended to qualify as incentive stock options ("incentive
stock options") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), options not intended to qualify as incentive
stock options ("non-statutory options"), restricted stock and other stock-based
awards. Incentive stock options may be granted only to employees of the Company
or its subsidiaries. A total of 9,000,000 shares of common stock may be issued
upon the exercise of options or other awards granted under the 1998 Incentive
Plan. The number of shares with respect to which awards may be granted to any
employee under the 1998 Incentive Plan may not exceed 3,171,333 during any
calendar year. The exercisability of options or other awards granted under the
1998 Incentive Plan may, in certain circumstances, be accelerated in connection
with an Acquisition Event (as defined in the 1998 Incentive Plan). Options and
other awards may be granted under the 1998 Incentive Plan at exercise prices
that are equal to, less than or greater than the fair market value of the
Company's common stock, and the Board generally retains the authority to reprice
outstanding options. The 1998 Incentive Plan expires in July 2008, unless sooner
terminated by the Board.

     On July 15, 1998, the Company adopted the 1998 Director Stock Option Plan
(the "Director Plan"). Under the terms of the Director Plan, 22,666 shares of
common stock will be granted to each non-employee director upon his or her
initial election to the Board of Directors. Annual options to purchase 11,333
shares of common stock will also be granted to each non-employee director on the
date of each annual meeting of stockholders, or on August 1 of each year if no
annual meeting is held by such date. Options granted under the Director Plan
prior to December 31, 1998 vest in four equal annual installments beginning on
the first anniversary of the date of grant. The exercisability of these options
will be accelerated upon the occurrence of
                                       49
<PAGE>   50
                               NETWORK PLUS CORP.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

an Acquisition Event (as defined in the Director Plan). Options granted after
December 31, 1998 are fully vested upon issuance. The exercise price of options
granted under the Director Plan is equal to the fair market value of the common
stock on the date of grant. A total of 453,333 shares of common stock may be
issued upon the exercise of stock options granted under the Director Plan.
Pursuant to the Director Plan, the two non-employee directors each received an
option to purchase 33,999 shares of common stock with a weighted average
exercise price of $6.67 per share.

     The Company elected to adopt the disclosure only provision of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock Based
Compensation", for stock based compensation issued to employees. The Company
accounts for its stock based compensation issued to employees under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees" and,
in accordance with the recognition requirements set forth under this
pronouncement, no compensation expense was recognized in 1998 and compensation
expense of $158 was recognized in 1999.

     Stock option activity for the years ended December 31, 1998 and 1999 is as
follows:

<TABLE>
<CAPTION>
                                                            NUMBER      WEIGHTED-AVERAGE
                                                           OF SHARES     EXERCISE PRICE
                                                           ---------    ----------------
<S>                                                        <C>          <C>
Shares under option, December 31, 1997...................         --         $   --
Options granted..........................................  3,405,168         $ 7.25
Options cancelled........................................    (26,475)        $ 8.45
Shares under option, December 31, 1998...................  3,378,693         $ 7.24
Options granted..........................................  1,885,944         $12.66
Options exercised........................................    (95,509)        $ 6.59
Options cancelled........................................   (355,371)        $ 8.23
                                                           ---------         ------
Shares under option, December 31, 1999...................  4,813,757         $ 9.30
                                                           =========         ======
</TABLE>

     The following table summarizes information about the stock options
outstanding at December 31, 1999.

<TABLE>
<CAPTION>
                               WEIGHTED-
                                AVERAGE      WEIGHTED-
                               REMAINING      AVERAGE    WEIGHTED-AVERAGE                   WEIGHTED-AVERAGE
                  NUMBER      CONTRACTUAL    EXERCISE     FAIR VALUE AT       NUMBER        AVERAGE EXERCISE
EXERCISE PRICE  OUTSTANDING   LIFE (YEARS)     PRICE        GRANT DATE      EXERCISABLE   PRICE FOR EXERCISABLE
--------------  -----------   ------------   ---------   ----------------   -----------   ---------------------
<S>             <C>           <C>            <C>         <C>                <C>           <C>
$ 3.31 -  4.41   1,096,450         8.7        $ 3.55          $ 3.55          272,551            $ 3.55
  6.00 -  6.62   1,414,405         8.6          6.61            6.59          389,965              6.59
 10.81 - 16.33   1,602,852         8.7         11.63           11.20          321,203             11.20
 16.31 - 24.06     700,050        10.0         18.43           18.43               --                --
                 ---------                                                    -------
                 4,813,757         8.9        $ 9.30          $ 7.25          983,719            $ 7.25
                 =========                                                    =======
</TABLE>

     At December 31, 1999, 983,719 options were exercisable and the Company had
an aggregate of 4,544,067 shares available for future grant under its Stock
Incentive Plan and Director Stock Option Plan.

     For disclosure purposes, the fair value of each stock option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions used for stock options granted in 1998 and 1999,
respectively: no dividends, 0% and 77% volatility, weighted average risk-free
rate of return of 6.3% and 6.0%, and an expected life of four to five years for
all grants. The weighted-average fair value of the stock options granted in 1998
and 1999 was $0.42 and $6.33, respectively.

                                       50
<PAGE>   51
                               NETWORK PLUS CORP.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

     Under the above model, the total value of stock options granted in 1998 and
1999 was $1,436 and $11,934, respectively, which will be amortized ratably on a
pro forma basis over the four-year option vesting period.

     Had the company determined compensation expense for the stock-based
compensation plans in accordance with the fair value methodology prescribed by
SFAS 123, the Company's pro forma net loss and loss per share would have been:

<TABLE>
<CAPTION>
                                                            YEAR ENDED
                                                           DECEMBER 31,
                                                   ----------------------------
                                                    1997      1998       1999
                                                   -------   -------   --------
<S>                                                <C>       <C>       <C>
Net loss applicable to common stockholders.......  $(3,191)  $(6,388)  $(43,579)
Amortization of stock compensation expense.......  $    --   $  (168)  $   (754)
                                                   -------   -------   --------
Pro forma net loss applicable to common
  stockholders...................................  $(3,191)  $(6,556)  $(44,333)
                                                   =======   =======   ========
Pro forma net loss per share -- basic and
  diluted........................................  $ (0.07)  $ (0.14)  $  (0.89)
                                                   =======   =======   ========
</TABLE>

15. EMPLOYEE STOCK PURCHASE PLAN

     On June 9, 1999, the Stockholders approved the 1999 Employee Stock Purchase
Plan, which provides for the issuance of up to 2,500,000 shares of common stock.
Generally, all employees of Network Plus employed more than 20 hours per week,
including officers and directors who are employees, are eligible to participate
in the plan. The plan consists of semiannual offerings beginning on January 1
and July 1 of each year. The first offering under the plan commenced on January
1, 2000. Each offering under the plan will be six months in length. During each
offering, the maximum number of shares of common stock that may be purchased by
an employee is determined on the first day of the offering period under a
formula whereby 2,083 is multiplied by the number of months in the offering, and
the result is divided by the market value of a share of common stock on the
first day of the offering period. An employee may elect to have up to a maximum
of 5% deducted from his or her regular salary for the purpose of purchasing
shares under the plan. The price at which the employee's shares are purchased is
the lower of (1) 85% of the closing price of the common stock on the day that
the offering commences or (2) 85% of the closing price of the common stock on
the day that the offering terminates. The Board generally retains the authority
to change the timing of any offering.

16. INCOME TAXES

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

<TABLE>
<CAPTION>
                                                               YEAR ENDED
                                                              DECEMBER 31,
                                                              -------------
                                                              1998     1999
                                                              ----     ----
<S>                                                           <C>      <C>
Current taxes:
  Federal...................................................  $  --    $ --
  State.....................................................     55      --
                                                              -----    ----
     Total..................................................  $  55    $ --
                                                              =====    ====
Deferred taxes:
  Federal...................................................  $(880)   $983
  State.....................................................    (81)    (22)
                                                              -----    ----
     Total..................................................  $(961)   $961
                                                              -----    ----
Provision (benefit) for income taxes........................  $(906)   $961
                                                              =====    ====
</TABLE>

                                       51
<PAGE>   52
                               NETWORK PLUS CORP.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

     Deferred tax (assets) liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               1998       1999
                                                               ----       ----
<S>                                                           <C>       <C>
Accrued expenses............................................  $   82    $    500
Allowance for doubtful accounts.............................     195         997
Net operating loss carryforwards............................   1,175      11,479
Valuation allowance.........................................      --     (12,295)
                                                              ------    --------
Deferred tax assets.........................................  $1,452    $    681
                                                              ======    ========
Depreciation................................................  $  491    $    681
                                                              ------    --------
Deferred tax liabilities....................................  $  491    $    681
                                                              ======    ========
</TABLE>

     The provision (benefit) for income taxes differs from the amount computed
by applying the U.S. Federal income tax rate due to the following items:

<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                                                                 DECEMBER 31,
                                                              -------------------
                                                               1998        1999
                                                               ----        ----
<S>                                                           <C>        <C>
Tax at U.S. Federal income tax rate.........................  $(1,798)   $(10,844)
State income taxes, net of U.S. Federal income tax
  benefit...................................................       41        (106)
Recognition of deferred taxes upon conversion from S Corp.
  to C Corp.................................................      349          --
Permanent timing differences and other......................       32        (384)
S Corp. loss................................................      470          --
Increase in valuation allowance.............................       --      12,295
                                                              -------    --------
Provision (benefit) for income taxes........................  $  (906)   $    961
                                                              =======    ========
</TABLE>

     In September 1998, the Company converted from an S Corporation to a C
Corporation. Prior to conversion to a C Corporation, income taxes were provided
solely for state tax purposes. In accordance with the provisions of SFAS 109 the
Company has provided a full valuation allowance on the deferred tax assets.

     The Company continues to assess the realizability of its deferred tax asset
based upon relevant events and forecasts and may continue to establish valuation
allowances for some or all of deferred tax assets generated in the future.

17. NET INCOME (LOSS) PER SHARE

     The computations of basic and diluted earnings per common share are based
upon the weighted average number of common shares outstanding and potentially
dilutive securities. Potentially dilutive securities for the Company include
stock options and warrants.

     Pro forma net loss per share reflecting the Company's conversion from an S
Corporation to a C Corporation is presented using estimated effective income tax
rates and excludes a $480 tax provision for deferred payable recorded in the
third quarter of 1998 resulting from the conversion.

                                       52
<PAGE>   53
                               NETWORK PLUS CORP.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

     The following table sets forth the computation of basic and diluted income
(loss) per share:

<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                             --------------------------------------
                                                1997          1998          1999
                                                ----          ----          ----
<S>                                          <C>           <C>           <C>
Net income (loss) applicable to Network
  Plus Corp. common stock -- basic and
  diluted..................................  $   (3,191)   $   (6,388)   $  (43,579)
Shares used in net income (loss) per
  share -- basic and diluted...............  45,333,000    45,333,000    49,969,000
                                             ==========    ==========    ==========
Net income (loss) per share applicable to
  common stockholders -- basic and
  diluted..................................  $    (.07)    $    (.14)    $    (0.87)
                                             ==========    ==========    ==========
</TABLE>

     Warrants for the purchase of 1,405,333 and 1,416,666 shares of common stock
were not included in the 1998 and 1999 computations of diluted net income (loss)
per share because inclusion of such shares would have an anti-dilutive effect on
net loss per share, as the Company reported net losses in the respective 1998
and 1999 periods.

     Stock options for the purchase of 3,378,698 and 4,813,757 shares of common
stock were not included in the 1998 and 1999 computation of diluted net loss per
share because the exercise prices of those stock options are assumed to be at or
above the average fair value of the Company's common stock for 1998, and
inclusion of such shares would have an anti-dilutive effect on net loss per
share.


18. COMPREHENSIVE INCOME


     Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This Statement
establishes new rules for the reporting and display of comprehensive income.
There were no adjustments required to calculate comprehensive income for 1997,
1998 and an adjustment of 833,000 for 1999.


19. SIGNIFICANT CUSTOMER


     During the year ended December 31, 1998, the Company had one wholesale
customer that accounted for approximately 13% of the Company's revenue. No other
customer comprised greater than 10% of total revenue for the period ended
December 31, 1998. No customer comprised greater than 10% of total revenue for
the period ended December 31, 1999.


20. EMPLOYEE BENEFIT PLAN


     The Company sponsors a 401(k) and profit sharing plan (the "Plan") which is
open to all eligible employees under the Plan's provisions. The terms of the
Plan allow the Company to determine its annual profit sharing contribution.
There were no Company contributions to the Plan in 1999 or 1998.


21. NEW ACCOUNTING PRONOUNCEMENTS


     In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities", was
issued, which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company is required to adopt SFAS
133, as amended by SFAS 137, "Accounting for Derivative Instruments and Hedging

                                       53


<PAGE>   54
                               NETWORK PLUS CORP.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Activities -- Deferral of the Effective Dates of FASB Statement 133," on a
prospective basis for interim periods and fiscal years beginning January 1,
2001. Had the Company implemented SFAS 133 in the current period, financial
position and results of operations would not have been affected.


22. SEGMENT INFORMATION


     The Company has adopted SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS 131 establishes standards for the way
companies must determine and report information about operating segments in
their annual and interim reports.


     The Company has two reportable segments which management operates as
distinct sales organizations; these two segments are segregated by type of
customer base to whom services are provided. The two customer base types are:
retail telecommunications and data services, and wholesale telecommunications.
The Company measures and evaluates its two reportable segments based on revenues
and costs of services. The retail telecommunications and data services segment
provides local and long distance services including voice and data transport,
and enhanced and custom calling features. This segment focuses on selling these
services to end user customers, such as businesses and residences. The wholesale
telecommunications segment provides transport and termination services. This
segment focuses on selling these services to large communication carriers, who
utilize the Company's excess capacity to provide telephone voice services to
their customers.


<TABLE>
<CAPTION>
                                                         1997       1998       1999
                                                        -------   --------   --------
<S>                                                     <C>       <C>        <C>
Revenues:
  Retail telecommunications and data services.........   95,338     75,506     89,758
  Wholesale telecommunications........................    2,871     30,039     62,762
                                                        -------   --------   --------
Total revenues........................................  $98,209   $105,545   $152,520
                                                        =======   ========   ========
Costs of services:
  Retail telecommunications and data services.........   75,534     51,371     65,255
  Wholesale telecommunications........................    2,572     27,072     57,409
                                                        -------   --------   --------
Total costs of services...............................  $78,106   $ 78,443   $122,664
                                                        =======   ========   ========
</TABLE>

                                       54
<PAGE>   55
                               NETWORK PLUS CORP.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


23. SUPPLEMENTAL CASH FLOWS INFORMATION;



<TABLE>
<CAPTION>
                                                YEAR ENDED DECEMBER 31,
                                            -------------------------------
                                             1997        1998        1999
                                             ----        ----        ----
                                                    (IN THOUSANDS)
<S>                                         <C>        <C>         <C>
Cash paid during the year for:
  Interest................................  $   498    $  1,114    $  4,012
                                            =======    ========    ========
  Income taxes............................  $    15    $    111    $     --
                                            =======    ========    ========
Noncash investing and financing
  activities:
     Fixed assets acquired under capital
       leases.............................  $ 1,521    $     28    $ 41,825
                                            =======    ========    ========
     Preferred stock dividends
       paid-in-kind.......................  $    --    $  1,814    $  2,869
                                            =======    ========    ========
     Note converted to customer list......  $    --    $     --    $    448
                                            =======    ========    ========
     Common stock issued for purchase of
       Infohouse..........................  $    --    $     --    $  2,432
                                            =======    ========    ========
     Note issued for purchase of
       Infohouse..........................  $    --    $     --    $    200
                                            =======    ========    ========
</TABLE>



24. SUBSEQUENT EVENT



     On March 8, 2000, the Senior Credit Facility (see Note 8) was amended to
extend the termination date to December 31, 2000, and the equipment lease
financing described in Note 10 was extended to permit the purchase of
telecommunications equipment until December 31, 2000, in a principal amount of
up to $29 million.



     Also on March 8, 2000, the Company received a commitment from Goldman Sachs
Credit Partners ("GSCP") to provide and syndicate new senior credit facilities
in a total principal amount of up to $225 million. The new senior credit
facilities are subject to final negotiation and execution of definitive
documentation, as well as an event deemed by GSCP to be a material adverse
change in the Company's business.


                                       55
<PAGE>   56
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Except as provided below, information with respect to this item will appear
in the sections captioned "Election of Class I Director" and "Section 16(a)
Beneficial Ownership Reporting Compliance" appearing in the 2000 Proxy
Statement, and such information is incorporated herein by reference. Information
required by this item with respect to our executive officers may be found under
the section captioned "Executive Officers of the Company" in Part I of this
Annual Report on Form 10-K.

ITEM 11.  EXECUTIVE COMPENSATION

     Information with respect to this item will appear in the sections captioned
"Executive Compensation," "Director Compensation," "Compensation Committee
Interlocks and Insider Participation" and "Certain Transactions" appearing in
the 2000 Proxy Statement. Such information is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information with respect to this item will appear in the section captioned
"Beneficial Ownership of Common Stock" appearing in the 2000 Proxy Statement.
Such information is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information with respect to this item will appear in the sections captioned
"Compensation Committee Interlocks and Insider Participation" and "Certain
Transactions" appearing in the 2000 Proxy Statement. Such information is
incorporated herein by reference.

                                    PART IV

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

(a) 1 -- Financial Statements

Consolidated Balance Sheets
December 31, 1999 and 1998

Consolidated Statements of Operations
Years Ended December 31, 1999, 1998 and 1997

Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997

Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Years Ended December 31, 1999, 1998 and 1997

Notes to Consolidated Financial Statements

(a) 2 and (d) -- Financial Statement Schedules

     The following consolidated financial statement schedule of Network Plus
Corp. is filed on pages S-1 and S-2 hereto and is incorporated herein:

     Schedule II -- Valuation and Qualifying Accounts

                                       56
<PAGE>   57

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

     (b) Reports on Form 8-K

     None.

     (a) 3. and (c) -- Exhibits

<TABLE>
<CAPTION>
EXHIBIT                              DESCRIPTION
-------                              -----------
<S>          <C>
3.1(1)       Amended and Restated Certificate of Incorporation of the
             Company.
3.2(1)       Amended and Restated By-laws of the Company
4.1(2)       Exchange and Registration Rights Agreement dated as of
             September 1, 1998 between the Company and the Purchasers.
4.2(1)       Form of Common Stock Certificate
10.1(1)*     1998 Stock Incentive Plan, as amended.
10.2(1)*     1998 Director Stock Option Plan, as amended.
10.3+(2)     Agreement for the Provision of Fiber Optic Facilities and
             Services dated as of July 17, 1998 between the Company and
             Northeast Optic Network, Inc.
10.4+(2)     IRU Agreement dated as of July 17, 1998 between the Company
             and Qwest Communications Corporation.
10.5(2)      Net Lease by and between Network Plus Realty Trust,
             Landlord, and Network Plus, Inc., Tenant, dated July 1,
             1993.
10.6(2)      Interconnection Agreement Under Sections 251 and 252 of the
             Telecommunications Act of 1996, dated September 4, 1998, by
             and between New England Telephone and Telegraph Company
             d/b/a Bell Atlantic-Massachusetts and Network Plus, Inc.
10.7(2)      Loan and Security Agreement dated October 7, 1998 by and
             between Network Plus, Inc., as Borrower, Goldman Sachs
             Credit Partners L.P. and Fleet National Bank as Lenders,
             Fleet National Bank as Agent and Goldman Sachs Credit
             Partners L.P. as Syndication and Arrangement Agent.
10.7A(1)     Amendment to Loan and Security Agreement dated October 7,
             1998 by and between Network Plus, Inc. as Borrower, Goldman
             Sachs Credit Partners L.P. and Fleet National Bank as
             Lenders, Fleet National Bank as Agent and Goldman Sachs.
10.8+(2)     Master Lease Agreement, dated as of August 8, 1997, by and
             between Chase Equipment Leasing, Inc. and Network Plus,
             Inc., as amended.
10.9(3)      Master Agreement, dated December 30, 1998, by and between
             Comdisco, Inc. and Network Plus, Inc., along with Product
             Supplement dated December 30, 1998, Addendum dated December
             30, 1998 and Guarantee of Network Plus Corp. dated December
             30, 1998.
10.10+(1)    xDSL Joint Market Development Agreement dated as of March
             23, 1999 by and between NorthPoint Communications, Inc. and
             Network Plus, Inc.
10.11(1)*    Form of Incentive Stock Option Agreement under 1998 Stock
             Incentive Plan
10.12(1)*    Form of Stock Option Agreement under 1998 Director Stock
             Option Plan
10.13(1)*    Form of Incentive Stock Option Agreement with James J.
             Crowley under 1998 Stock Incentive Plan.
10.14*       Employment Agreement with George Alex.
21(2)        Subsidiaries of the Registrant.
23           Consent of PricewaterhouseCoopers LLP.
27           Financial Data Schedule.
99           Certain Factors Met May Affect Future Results.
</TABLE>

---------------
(1) Incorporated herein by reference to the Company Registration Statement on
    Form S-1, as amended (File No. 333-79479).

(2) Incorporated herein by reference to the Company's Registration Statement on
    Form S-1, as amended (File No. 333-64663).

(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
    the fiscal year ended December 31, 1998.

  + Confidential treatment granted as to certain portions.

  * Management contract on compensation plan on arrangement filed in response to
    Item 14(c) of Form 10-K.

                                       57
<PAGE>   58

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

                                          NETWORK PLUS CORP.

                                          By: /s/ George Alex
                                            ------------------------------------
                                            George Alex,
                                            Executive Vice President of Finance,
                                            Chief Financial Officer and
                                            Treasurer

Date: March 27, 2000

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                     SIGNATURE                                     TITLE                     DATE
                     ---------                                     -----                     ----
<S>                                                  <C>                                <C>

/s/ Robert T. Hale                                   Chairman of the Board              March 27, 2000
---------------------------------------------------
Robert T. Hale

/s/ Robert T. Hale, Jr.                              President, Chief Executive         March 27, 2000
---------------------------------------------------  Officer and Director (Principal
Robert T. Hale, Jr.                                  Executive Officer)

/s/ James J. Crowley                                 Executive Vice President Chief     March 27, 2000
---------------------------------------------------  Operating Officer and Director
James J. Crowley

/s/ George Alex                                      Executive Vice President, Chief    March 27, 2000
---------------------------------------------------  Financial Officer and Treasurer
George Alex                                          (Principal Financial and
                                                     Accounting Officer)

                                                     Director                           March 27, 2000
---------------------------------------------------
David Martin

                                                     Director                           March 27, 2000
---------------------------------------------------
Joseph McNay
</TABLE>

                                       58
<PAGE>   59

                               NETWORK PLUS CORP.
                                  SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               ADDITIONAL
                                                 BALANCE AT    CHARGES TO     DEDUCTIONS      BALANCE
                                                 BEGINNING     COSTS AND         FROM         AT END
DESCRIPTION                                      OF PERIOD      EXPENSES     REVENUES(1)     OF PERIOD
-----------                                      ----------    ----------    ------------    ---------
<S>                                              <C>           <C>           <C>             <C>
Allowance for doubtful accounts:
Year Ended December 31, 1999...................     $513        $ 3,048         $  937        $ 2,624
Year Ended December 31, 1998...................     $926        $ 1,931         $2,344        $   513
Year Ended December 31, 1997...................     $850        $ 4,104         $4,028        $   926
Valuation allowance:
Year ended December 31, 1999...................       --        $12,295             --        $12,295
</TABLE>

---------------
(1) Write-off of bad debts less recoveries.

                                       S-1
<PAGE>   60

                       REPORT OF INDEPENDENT ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and
Stockholders of Network Plus Corp.

     Our report on the consolidated financial statements of Network Plus Corp.
is included in this Form 10-K in Item 8. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in Item 14(b) of this Form 10-K.

     In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements as a whole, presents
fairly, in all material respects, the information required to be included
therein.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 28, 2000

                                       S-2
<PAGE>   61

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 EXHIBIT                              DESCRIPTION
 -------                              -----------
<C>           <S>
 3.1(1)       Amended and Restated Certificate of Incorporation of the
              Company.
 3.2(1)       Amended and Restated By-laws of the Company
 4.1(2)       Exchange and Registration Rights Agreement dated as of
              September 1, 1998 between the Company and the Purchasers.
 4.2(1)       Form of Common Stock Certificate
10.1(1)*      1998 Stock Incentive Plan, as amended.
10.2(1)*      1998 Director Stock Option Plan, as amended.
10.3+(2)      Agreement for the Provision of Fiber Optic Facilities and
              Services dated as of July 17, 1998 between the Company and
              Northeast Optic Network, Inc.
10.4+(2)      IRU Agreement dated as of July 17, 1998 between the Company
              and Qwest Communications Corporation.
10.5(2)       Net Lease by and between Network Plus Realty Trust,
              Landlord, and Network Plus, Inc., Tenant, dated July 1,
              1993.
10.6(2)       Interconnection Agreement Under Sections 251 and 252 of the
              Telecommunications Act of 1996, dated September 4, 1998, by
              and between New England Telephone and Telegraph Company
              d/b/a Bell Atlantic-Massachusetts and Network Plus, Inc.
10.7(2)       Loan and Security Agreement dated October 7, 1998 by and
              between Network Plus, Inc., as Borrower, Goldman Sachs
              Credit Partners L.P. and Fleet National Bank as Lenders,
              Fleet National Bank as Agent and Goldman Sachs Credit
              Partners L.P. as Syndication and Arrangement Agent.
10.7A(1)      Amendment to Loan and Security Agreement dated October 7,
              1998 by and between Network Plus, Inc. as Borrower, Goldman
              Sachs Credit Partners L.P. and Fleet National Bank as
              Lenders, Fleet National Bank as Agent and Goldman Sachs.
10.8+(2)      Master Lease Agreement, dated as of August 8, 1997, by and
              between Chase Equipment Leasing, Inc. and Network Plus,
              Inc., as amended.
10.9(3)       Master Agreement, dated December 30, 1998, by and between
              Comdisco, Inc. and Network Plus, Inc., along with Product
              Supplement dated December 30, 1998, Addendum dated December
              30, 1998 and Guarantee of Network Plus Corp. dated December
              30, 1998.
10.10+(1)     xDSL Joint Market Development Agreement dated as of March
              23, 1999 by and between NorthPoint Communications, Inc. and
              Network Plus, Inc.
10.11(1)*     Form of Incentive Stock Option Agreement under 1998 Stock
              Incentive Plan
10.12(1)*     Form of Stock Option Agreement under 1998 Director Stock
              Option Plan
10.13(1)*     Form of Incentive Stock Option Agreement with James J.
              Crowley under 1998 Stock Incentive Plan.
10.14*        Employment Agreement with George Alex.
21(2)         Subsidiaries of the Registrant.
23            Consent of PricewaterhouseCoopers LLP.
27            Financial Data Schedule.
99            Certain Factors That May Affect Future Results.
</TABLE>

---------------
(1) Incorporated herein by reference to the Company Registration Statement on
    Form S-1, as amended (File No. 333-79479).

(2) Incorporated herein by reference to the Company's Registration Statement on
    Form S-1, as amended (File No. 333-64663).

(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
    the fiscal year ended December 31, 1998.

+  Confidential treatment granted as to certain portions.

*  Management contract on compensation plan on arrangement filed in response to
   Item 14(c) of Form 10-K.