<PAGE>   1
                       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, 2000

[ ]  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)
                            -------------------------

             DELAWARE                                        04-3430576
        (STATE OR OTHER                                   (I.R.S. EMPLOYER
JURISDICTION OF INCORPORATION)                           IDENTIFICATION NO.)

                               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
           Depositary Shares each representing 1/10 of a share of 7.5%
                 Series A Cumulative Convertible Preferred Stock
 7.5% Series A Cumulative Convertible Preferred 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 9, 2001 was $73,667,393. 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
9, 2001 was 63,442,766.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Specifically identified portions of the registrant's definitive proxy
statement to be filed in connection with the registrant's 2001 annual meeting of
stockholders (the "2001 Proxy Statement") are incorporated by reference into
Part III of this Form 10-K.

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                                TABLE OF CONTENTS

<TABLE>
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                                       PART I
Item 1.  Business ........................................................       1
Item 2.  Properties ......................................................      17
Item 3.  Legal Proceedings ...............................................      18
Item 4.  Submission of Matters to a Vote of Security Holders .............      18

                                      PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder
         Matters .........................................................      19
Item 6.  Selected Financial Data .........................................      20
Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations............................................      22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......      40
Item 8.  Financial Statements and Supplementary Data......................      40
Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.............................................      40

                                      PART III

Item 10. Directors and Executive Officers of the Registrant...............      41
Item 11. Executive Compensation...........................................      41
Item 12. Security Ownership of Certain Beneficial Owners and Management...      41
Item 13. Certain Relationships and Related Transactions...................      41

                                      PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.      42

SIGNATURES................................................................      44
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................      F-1
REPORT OF INDEPENDENT ACCOUNTANTS.........................................      F-2
</TABLE>
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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 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 "Risk
Factors" 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 data hosting
services. As of March 1, 2001, we served approximately 46,000 customers
representing in excess of 192,000 local access lines and 285,000 long distance
access lines.

     We provide communication services primarily to business customers located
on the East Coast of the United States. Our services include local exchange
service, long distance service, both broadband and narrowband Internet and
private line data services, web server and managed server hosting services. We
offer these services from a single company on a single bill directly to our
customers. As of March 1, 2001:

     -    We sell our services through a 401 person sales force located in 14
          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 600 members by year-end 2001.

     -    We sell our services in the following target markets: Connecticut,
          Florida, Georgia, Massachusetts, New Hampshire, New York, and Rhode
          Island and by year end 2001 intend to commence selling services in
          Maryland, New Jersey, Pennsylvania, Virginia, and Washington DC.

     -    We operate 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 and
          Washington, D.C. by year-end 2001.


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     -    We control and operate 27,221 digital fiber miles of long-haul and
          metropolitan fiber optic cable in our target markets.

     -    We have deployed and operate 110,000 square feet of Internet Data
          Center space to support both web server and managed server hosting
          services. These geographically diverse Internet Data Centers, all of
          which are connected to our fiber optic network, are located in
          Cambridge, Massachusetts, Braintree, Massachusetts, New York City,
          Miami and Newark, New Jersey.

     -    We were incorporated in Delaware in 1998. Our predecessor and wholly
          owned operating subsidiary, Network Plus, Inc. was incorporated in
          1990.

BUSINESS STRATEGY

     We have an aggressive growth strategy to become the provider of choice
offering one-stop local exchange services, long distance services, both
broadband and narrowband Internet and private line data services and web server
and managed server hosting services to small and medium-sized business customers
in our target markets, which include Connecticut, Florida, Georgia, Maryland,
Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island,
Virginia and Washington DC. Our future success will depend upon our ability to
successfully market, expand and run our network and provision services in our
target markets. We believe that our substantial operating history, existing
customer base, expansive network and sales force, and our experienced management
team, will enable us to effectively implement and execute our growth strategy.
The principal elements of our business strategy are to:

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

     A key to our growth is the continued implementation of our marketing plan
that emphasizes our comprehensive suite of telecommunications, broadband data,
and data hosting services on both a bundled and individual basis. To a large
extent, we believe 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 and
data requirements. 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
a bundled suite of 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 data hosting services
and increase customer retention.

  TARGET UNDERSERVED MARKETS

     We target small and medium-sized businesses and we seek to be among the
first to market integrated telecommunications and data services in many of our
markets, which include small and medium-sized communities in which there is
relatively little competition from integrated telecommunications and data
providers. We believe that small and medium-sized businesses have been


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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 competitive advantage.


  EXPAND GEOGRAPHIC REACH

     We currently service primarily the northeastern and southeastern regions of
the United States and during 2001 we intend to expand into the mid-Atlantic
region. Our plan is to establish a single contiguous network footprint from New
England to Florida. We believe that these three regions 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.

  CROSS-SELL SERVICES TO OUR EXISTING CUSTOMERS AND CAPTURE NEW CUSTOMERS

     As of March 1, 2001, we had approximately 46,000 customers representing in
excess of 192,000 local access lines and 285,000 long distance access lines. In
addition to capturing new customers, we believe that our ongoing customer
relationships, our comprehensive product suite and our focus on customer care
provide us with a significant opportunity to cross-sell local exchange service,
long distance service, both broadband and narrowband Internet and private line
data services, web server and managed server hosting services to our existing
customers.

  BUILD A CAPITAL-EFFICIENT NETWORK INFRASTRUCTURE

 We believe that operating our own network results in higher long-term operating
margins, greater control and an enhanced service quality. We intend to expand
our network where economically or strategically justifiable. As we expand our
infrastructure with fiber, switches, co-locations and Internet Data Centers, we
believe the portion of our customer's traffic that is carried on our network
("on-net") will increase. An important element of our network strategy is to
build our network to take advantage of our existing customer base, our sales
office coverage and our planned expansion in the mid-Atlantic region.

  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 periodically evaluate and 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 operations, finance and customer


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service. We believe that the quality, experience and teamwork of our management
team will be critical factors in the implementation of our growth strategy.

RETAIL SERVICE OFFERINGS

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

Voice Services               We offer a full range of local and long
                             distance voice services including voice mail,
                             directory assistance, call forwarding, conference
                             calling, return call hunting services, call
                             pick-up, repeat dialing and speed calling.

DSL, Internet and Data
Services                     Our digital subscriber line, or 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.

Internet Data Center
Services                     We offer a full range of web server and managed
                             server hosting services including shared server,
                             vertical rack space, cabinet units, cage and vault
                             space and managed NT and UNIX servers with both
                             burstable and guaranteed bandwidth.  These services
                             are offered in our geographically dispersed and
                             environmentally and technologically controlled
                             carrier class Internet Data Centers.

  INTERNATIONAL WHOLESALE SERVICES

     We offer international wholesale termination and transport services
primarily to major domestic and international telecommunications carriers. We
intend to build on our relationships with large domestic and international
carriers and to maintain the capacity needed to support our international
service offerings. In addition, we believe that providing comprehensive
international services lowers our cost of carrying international traffic and
results 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 and data services customized for the
increasingly convergent voice and data marketplace. Our sales force targets
small and medium-sized businesses that generally have telecommunications and
data


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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 data and Internet service providers have historically
concentrated their sales and marketing efforts on this business segment.

     Our sales and marketing approach is to build long-term business
relationships with our customers, with the intent of becoming the single-source
provider for all their telecommunications and data 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, 2001, we employed 401 direct sales representatives
working in sales offices throughout the northeastern, mid-Atlantic and
southeastern regions of the United States. By year-end 2001, we intend to
increase our direct sales force to approximately 600 sales representatives.

     We provide compensation incentives to our sales teams to sell to customers
within pre-assigned co-location areas. In doing so, the sales force is motivated
to sell to new customers that can be provisioned 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.

     AGENCY SALES. Our agency sales force markets our services to various
resellers, independent marketing representatives, associations and affinity
groups. This sales force seeks to locate established, high-quality organizations
with extensive distribution. We also sell our services on a wholesale basis to
resellers, who in turn sell such services at retail to their customers.


CURRENT CUSTOMER BASE

  RETAIL CUSTOMERS

     As of March 1, 2001, we provided service to approximately 46,000 customers
representing in excess of 192,000 local access lines and 285,000 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
customer care. We believe we are beginning to achieve name recognition in the
small and medium-sized business communities in which we operate.

  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.


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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 additional
switching or transport capacity, we will expand our network and migrate
customers onto our network. An important element in our 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 maintain greater control over our network operations and service
quality while increasing our ability to offer new products and services,
generate higher operating margins.


  INTEGRATED NETWORK ARCHITECTURE

     We provide services to our customers over an integrated network that
supports local exchange service, long distance, both broadband and narrowband
Internet and private line data services, web server 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, SONET fiber rings and our own SS7
service control points, or SCPs.

  REACHING THE CUSTOMER PREMISES -- UNBUNDLED NETWORK ELEMENTS

     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 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 DSL services, we provide our customer with a
specialized modem or access equipment 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 negotiate interconnection agreements with the incumbent local
exchange carrier in each of our targeted jurisdictions. We currently have
interconnection agreements with Verizon (formerly Bell Atlantic) in Connecticut,
the District of Columbia, Maine, Massachusetts, New Hampshire, New Jersey, New
York, Pennsylvania and Rhode Island, with Southern New England Telephone of
Connecticut, and with Bell South of Georgia and Florida. We are in the process
of negotiating an interconnection agreement with Verizon of Delaware, Maryland,
Vermont and Virginia.


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  CO-LOCATION FACILITIES

     Each UNE we deploy 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 central
office telephony equipment and in co-locations which we serve through fiber we
have deployed or we are deploying, digital access nodes or DSLAMS. As of March
1, 2001, we operate 127 co-locations in our targeted market and we intend to
deploy additional co-locations both on strategic and an opportunistic basis as
we expand into the Mid-Atlantic states.

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

  NETWORK ACCESS POINTS AND LOCAL SWITCHING PLATFORM

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

  LONG DISTANCE SWITCHING PLATFORM

     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. Where traffic concentration justifies we intend
to increase our long distance footprint through expanded tandem or end-office
trunking and deployment of additional points of presence.

  INTERNET DATA CENTERS

     As of March 1, 2001 we operate 110,000 square feet of carrier class
Internet Data Center space in seven geographically diverse data centers located
in New York City, Cambridge, Massachusetts, Braintree, Massachusetts, Newark,
New Jersey and Miami. By year-end 2001, we anticipate that this will increase to
250,000 square feet.

      Our Internet Data Centers are located on our backbone fiber routes and,
where possible, are co-located with our class 5 local switches. To support our
Internet Data Center 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
and both full and partitioned cabinets with locking front and rear doors and
managed servers running both NT or UNIX. Ancillary features of our Internet Data
Centers include always-available technicians, power and redundant power,
environmental and security controls.


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  FIBER AND TRANSPORT -- SONET RINGS AND DWDM

     As of March 1, 2001 we control and operate 3,152 route miles of fiber optic
cable, representing 27,221 digital fiber miles. Deployed in a SONET topology,
this fiber acts as our network backbone connecting our network elements through
a combination of long haul SONET rings and metropolitan rings. In the Northeast
our fiber serves major cities including the New York metropolitan area , White
Plains, Stamford, New Haven, New London, Providence, Boston, Nashua, Springfield
and Worcester. In the Southeast our fiber serves major cities including Atlanta,
Marietta, Roswell, Norcross, Miami, Ft. Lauderdale, Boca Raton, West Palm Beach,
Pompano Beach, Boyton Beach, Delray Beach and Deerfield Beach. In the
mid-Atlantic our fiber not only connects our northeast and southeast regions but
it will also serve major mid-Atlantic cities including Newark, Princeton,
Philadelphia, Baltimore and Washington, D.C.

     Where we have not acquired fiber optic cable through long-term leases, 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, Internet 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.


  NETWORK MANAGEMENT AND OPERATIONAL SUPPORT

     Our technical network interface is a fully redundant frame relay network
that enables us to monitor our network 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.

  MANAGEMENT INFORMATION SYSTEMS

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


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     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 complimented by additional software packages
provided by third-party vendors.


  CUSTOMER SERVICE

     We maintain an emphasis on customer care and provide 24-hours-per-day,
365-days-per-year customer support. 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.


  EMPLOYEES

     As of March 1, 2001, we had 920 employees. We also hire temporary employees
and independent contractors 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 2001. 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 Internet Data Center 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, 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 Internet Data Center 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 and name recognition
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.


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Implementation of the Telecommunications Act of 1996 (the "Telecommunications
Act") 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 Verizon in the northeast, or Bell South in the
southeast. These carriers, 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, 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 and Internet Data 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, in our target markets,
only Verizon-New York has succeeded in obtaining approval to provide long
distance service 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.


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     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.

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.


                                       11
<PAGE>   14
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 subject to the general requirement that our
charges and terms for our telecommunications services be "just and reasonable"
and that we not make any "unjust or unreasonable" discrimination in our charges
or terms. 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 Telecommunications Act, 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 interconnect with other telecommunications carriers

     - to establish reciprocal compensation arrangements for the transport and
       termination of telecommunications

     - to permit resale of services

     - to permit users to retain their telephone numbers when changing
       carriers

     - to provide dialing parity to competing providers of telephone exchange
       service and telephone toll service, and the duty to permit all such
       providers to have nondiscriminatory access to telephone numbers, operator
       services, directory assistance and directory listing, with no
       unreasonable dialing delays

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


                                       12
<PAGE>   15
     Incumbent local exchange carriers, such as the regional Bell operating
companies and affiliates of GTE (recently acquired by Verizon) and Sprint, are
also subject to additional requirements. These duties include, but are not
limited to, obligations of the incumbent local exchange carriers:

     - to interconnect their networks with competitors

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

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

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

     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 Supreme Court is also considering the pricing methodology the FCC
adopted to establish rates for unbundled network elements and resale. We cannot
predict the outcome of this proceeding.

     In its July 18, 2000 decision, the United States Court of Appeals for the
Eight Circuit also vacated the FCC's rule regarding the methodology for
calculating the discount rate at which incumbent local exchange carriers must
resell retail telecommunications services to competitors, and remanded that rule
to the FCC. That order is now final. As a result of this decision Network Plus
could experience reduced margins on the incumbent local exchange carrier
services that it resells. Network Plus and other carriers have challenged a
Verizon proposal to reduce the discount rate in Massachusetts, but it is
impossible to predict the outcome of this proceeding.

     The FCC adopted rules designed to make it easier and less expensive for
competitive local exchange carriers to obtain co-location at incumbent local
exchange carrier central offices by, among other things, restricting the
incumbent local exchange carriers' ability to prevent certain types of equipment


                                       13
<PAGE>   16
from being co-located and requiring incumbent local exchange carriers to offer
alternative co-location arrangements to competitive local exchange carriers. On
March 17, 2000, however, the United States Court of Appeals for the District of
Columbia vacated the FCC's rule regarding the types of equipment that incumbent
local exchange carriers are required to permit competitors to co-locate at their
central offices. The FCC is reconsidering its co-location rules in response to
the Court of Appeals decision. We cannot predict the outcome of these
proceedings or the effect they may have on our business.

     The Telecommunications Act also eliminates previous prohibitions on the
provision of long distance services by the regional Bell operating companies.
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 Verizon -- New York
had complied with the necessary statutory requirements for in-region authority.
On December 22, 1999, the FCC granted Verizon - New York's application to
provide long distance service to New York customers. Verizon -- New York is now
able to offer integrated local and long distance services in New York, which may
give Verizon a significant competitive advantage in marketing those services to
their existing local customers. Verizon-Massachusetts has an application pending
before the FCC to provide in-region interLATA services in Massachusetts that may
be approved during the first quarter of 2001. Verizon is expected to submit
applications to provide in-region interLATA services in other states during
2001.

     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 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.


                                       14
<PAGE>   17
     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. On May 31,
2000, the FCC adopted the proposal of the Coalition for Affordable Long Distance
Service that significantly restructured, and in some respects reduced, the
interstate access charges of incumbent local exchange carriers subject to price
cap regulation. These and related actions change access rates. When access rates
are reduced, the result is a lower cost of providing long distance service and,
to the extent we provide local access service to other competitive long distance
carriers, a reduction in our potential revenue. 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.

     The FCC has also granted local exchange carriers additional flexibility in
pricing their interstate special and switched access services on a central
office specific basis. In a series of decisions, the FCC pricing rules
restructured local exchange carrier switched transport rates in order to
facilitate competition for switched access. In addition, the FCC adopted rules
that required incumbent local exchange carriers to substantially decrease the
prices they charge for switched and special access, and changed how access
charges are calculated. These changes were intended to reduce access charges
paid by long distance carriers to local exchange companies and shift certain
usage-based charges to flat-rate, monthly per line charges. On August 5, 1999,
the FCC adopted an order granting price cap local exchange carriers additional
pricing flexibility. The order provides certain immediate regulatory relief of
price cap local exchange carriers and sets forth a framework of "triggers" to
provide those companies with greater flexibility to set rates for interstate
access services. The order also initiated a rulemaking to determine whether the
FCC should regulate the access charges of CLECs, such as us. On February 2,
2001, the D.C. Circuit upheld the FCC rules regarding pricing flexibility. The
FCC has recently granted pricing flexibility applications for switched access
services provided by BellSouth in a number of cities in its service territory,
for


                                       15
<PAGE>   18
dedicated transport and special access services provided by SBC entities in
certain cities, and for dedicated transport and special access services provided
by Verizon entities in certain cities. Sprint has an application for access
charge pricing flexibility pending at the FCC.


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 50 states.

     We have authority to provide competitive local exchange service in
California, Connecticut, Delaware, District of Columbia, Florida, Georgia,
Illinois, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North
Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee and Vermont. We
have an application pending to provide resold and network-based competitive
local exchange services in Virginia. 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


                                       16
<PAGE>   19
interconnection agreements with Verizon (formerly Bell Atlantic) in Connecticut,
the District of Columbia, Maine, Massachusetts, New Hampshire, New Jersey, New
York, Pennsylvania and Rhode Island, with Southern New England Telephone of
Connecticut, and with Bell South of Florida and Georgia. We are in the process
of negotiating an interconnection agreement with Verizon of Delaware, Maryland,
Vermont and Virginia.

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, who is a director and significant stockholder
and Robert T. Hale, Jr., who is an executive officer, director and significant
stockholder of Network Plus. In addition to the Quincy facility, we sublease an
80,000-square foot office building in Randolph, Massachusetts, which is owned by
a company wholly owned by Messrs. Hale and Hale, Jr. We lease several additional
sales offices, switching facilities and data centers. 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 2000 was approximately $5.8
million. Although our facilities are adequate at this time, we believe that we
will be required to lease additional facilities, including additional sales
offices, switching facilities and data centers, as a result of anticipated
growth.


                                       17
<PAGE>   20
ITEM 3. LEGAL PROCEEDINGS

     From time to time we are a party to routine litigation and proceedings in
the ordinary course of our 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 financial position, or results of operations or
cash flow.

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.

EXECUTIVE OFFICERS OF THE COMPANY

     The following table provides certain information regarding our executive
officers, including their ages, as of March 9, 2001:

<TABLE>
<CAPTION>
NAME                                        AGE       POSITIONS
----                                        ---       ---------
<S>                                         <C>       <C>
Robert T. Hale.......................        62       Chairman of the Board of
                                                      Directors
Robert T. Hale, Jr. .................        34       Chief Executive Officer,
                                                      President and Director
James J. Crowley.....................        36       Executive Vice President,
                                                      Chief Operating Officer,
                                                      Secretary and Director
Robert J. Cobuzzi....................        59       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
Ascent, an industry trade group, and has served as chairman of its Carrier
Committee since 1993 and served as chairman of its board from May 1995 to May
1997.

     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.

     ROBERT J. COBUZZI has served as executive vice president, chief financial
officer and treasurer since July 2000. He was employed at Kollmorgen
Corporation, a multinational manufacturer and seller of high performance
electronic motion control equipment, systems and services, from 1992 to 2000
most recently as Chief Financial Officer, Senior Vice President and Director.

     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.


                                       18
<PAGE>   21
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                               $62.63         $19.13
  Second Quarter                              $39.44         $10.00
  Third Quarter                               $16.31         $ 6.25
  Fourth Quarter                              $ 9.03         $ 1.69
2001
  First Quarter (through March 9, 2001)       $11.13         $ 2.13
</TABLE>


     As of March 9, 2001, there were 63,442,766 shares of common stock issued
and outstanding and held of record by 102 stockholders. The number of
stockholders of record does not include stockholders holding their shares in
"street name" or through broker or nominee accounts.

DIVIDEND POLICY

     In 1999 we paid an aggregate of three thousand dollars 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, contractual
restrictions in financing agreements 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.
See "Management Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources".


                                       19
<PAGE>   22
ITEM 6. SELECTED FINANCIAL DATA

     The following tables present our selected consolidated financial data for
the years ended December 31, 1996 through 2000. The statement of operations,
cash flows and balance sheet data for the years ending December 31, 1996 through
2000 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.

     We believe that earnings before interest, tax, depreciation and
amortization, ("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 accounting principles generally
accepted in the United States of America or as a measure of profitability or
liquidity. EBITDA consists of operating loss before depreciation, amortization
and 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.


                                       20
<PAGE>   23
     Long-term obligations consist of long-term capital lease obligations,
long-term note payable to stockholder and other long-term liabilities.



<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                -------------------------------------------------------------------------------
                                   2000              1999              1998             1997             1996
                                ---------         ---------         ---------         --------         --------
                                                      (In thousands, except per share data)
<S>                             <C>               <C>               <C>               <C>              <C>
STATEMENT OF
OPERATIONS DATA:
Revenues                        $ 235,956         $ 152,520         $ 105,545         $ 98,209         $ 75,135
Costs of services                 185,668           122,664            78,443           78,106           57,208
Selling, general
 and administrative               101,882            51,709            29,426           25,704           19,230
Depreciation and
 amortization                      29,963             8,564             2,037              994              533
                                ---------         ---------         ---------         --------         --------
Operating loss                    (81,557)          (30,417)           (4,361)          (6,595)          (1,836)
Interest income                     5,767             1,896               395               86               95
Interest expense                   (7,566)           (3,804)           (1,474)            (557)            (313)
Other income (loss), net           (1,947)              432               151            3,917            3,529
Provision (benefit) for
 Income taxes                          --              (961)              906              (42)             (60)
                                ---------         ---------         ---------         --------         --------
Net income (loss)                 (85,303)          (32,854)           (4,383)          (3,191)           1,415
Preferred stock
 dividends and
 accretion                         (7,514)          (10,725)           (2,005)              --               --
                                ---------         ---------         ---------         --------         --------
Net income (loss)
 applicable to
 common stockholders            $ (92,817)        $ (43,579)        $  (6,388)        $ (3,191)        $  1,415
                                =========         =========         =========         ========         ========
Net income (loss) per
 share applicable to
 common stockholders -
 basic and diluted              $   (1.57)        $   (0.87)        $   (0.14)        $  (0.07)        $   0.03
                                =========         =========         =========         ========         ========
Weighted average common
 shares outstanding -
 basic and diluted                 59,173            49,969            45,333           45,333           45,333
                                =========         =========         =========         ========         ========
</TABLE>


                                       21
<PAGE>   24
<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                             ---------------------------------------------------------------------------
                                2000             1999             1998            1997            1996
                             ---------         --------         --------         -------         -------
                                                              (In thousands)
<S>                          <C>               <C>              <C>              <C>             <C>
OTHER FINANCIAL DATA:
Capital expenditures         $ 195,022         $ 94,264         $ 10,919         $ 3,363         $ 2,135
EBITDA                         (53,541)         (21,421)          (2,173)         (1,684)          2,226
Net cash provided by
 (used for) operating
 activities                    (58,002)           3,702          (10,768)            184            (322)
Net cash used for
 investing activities         (201,713)         (51,221)          (1,402)         (3,474)           (644)
Net cash provided by
 financing activities          229,158           78,353           22,800           2,554           1,596
</TABLE>


<TABLE>
<CAPTION>
                                                              December 31,
                              ---------------------------------------------------------------------------
                                 2000             1999            1998             1997            1996
                              ---------         --------        --------         --------         -------
                                                            (In thousands)
<S>                           <C>               <C>             <C>              <C>              <C>
BALANCE SHEET DATA:
Cash and cash
 equivalents                  $  12,474         $ 43,031        $ 12,197         $  1,567         $ 2,303
Current assets                   84,098           76,292          31,050           28,521          19,771
Working capital
 (deficit)                      (20,400)           9,872          16,168           (3,128)          1,621
Property and
 equipment, net                 269,073          101,944          15,822            6,957           3,075
Total assets                    404,659          185,972          48,868           35,581          22,915
Long-term obligations            33,041           30,271           5,072            3,623             664
Redeemable 7.5%
 series A cumulative
 convertible preferred
 stock                          120,065               --              --               --              --
Redeemable series A
 preferred stock                     --               --          35,146               --              --
Total stockholders'
 equity (deficit)               147,055           89,281          (6,723)             309           4,101
</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 report contain
forward-looking information that involves risks and uncertainties. For this
purpose, any statement that is not a statement of historical fact is
forward-looking information, including without limitation statements concerning
the company's future capital requirements, sufficiency of available capital and
availability of additional financing. Without limiting the generality of the
foregoing, words


                                       22
<PAGE>   25
such as "believes," "anticipates," "expects" and similar expressions identify
forward-looking statements. The Company's actual results could differ materially
from those anticipated by such forward-looking information due to competitive
factors, risk associated with the Company's expansion plans and other factors
discussed below under "Risk Factors" 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

     The Company, founded in 1990, is a network-based communications provider
offering a comprehensive suite of telecommunications, broadband data, and
Internet Data Center hosting services. The Company's services include local and
long distance voice, high-speed data, Internet and web server and managed server
hosting. The Company currently utilizes digital subscriber line, or DSL,
technology to provide high-speed data and Internet access and provides local and
long distance services using traditional switched access, ATM, and other
technologies. The Company currently serves primarily small and medium-sized
business customers in the northeastern and southeastern regions of the United
States.

COMPARISON OF 1999 AND 2000

     REVENUES. Revenues increased $83.4 million, or 55%, to $236.0 million for
the year ended December 31, 2000 from $152.5 million in 1999. Approximately one
half of the increase was due to the $44.8 million increase in revenues from the
sale of local services, which totaled $59.3 million in 2000. Revenues from the
sale of local services contributed 25% of total revenues in 2000 compared to 10%
of total revenues in 1999. Local lines in service at December 31, 2000 increased
177% to 183,000 from 66,000 lines at December 31, 1999. Revenues generated from
data services, which included co-location and Internet Data Center hosting
services, DSL, Internet services and leasing of fiber-optic capacity, totaled
$25.1 million in 2000, an increase of $23.6 million over the prior year,
representing 11% of total revenues as compared to 1% of total revenues in 1999.
We expect revenues from local services and data services to continue to increase
as a percent of total revenues as we continue to focus on selling these
products.

     Revenues generated from international wholesale traffic, which results
from utilizing excess capacity on our long distance switches during off-peak
hours, increased $25.6 million as compared to 1999, to $87.0 million.
International wholesale traffic as a percent of total revenues declined to 37%
of total revenues in 2000, decreasing from 40% of total revenues during 1999.
Retail long distance revenues decreased $10.5 million to $64.6 million during
2000 representing 27% of total revenues compared to 49% of total revenues in
1999 despite an increase in minutes during 2000. 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 $63.0 million, or 51%, to
$185.7 million for the year ended December 31, 2000 from $122.7 million


                                       23
<PAGE>   26
in the prior year. The increase in total costs of services is due primarily to
the increase in total revenues of 55% in 2000 over 1999. As a percent of
revenues, total cost of services decreased to 79% for 2000 from 80% for 1999.
The cost of services as a percent of revenues was positively impacted by a shift
of services to local and data, which have lower costs of services as a percent
of revenue, but were offset by higher costs of services from international and
long distance traffic. As we continue to move our local services on our network,
increase data services and reduce our wholesales international and long distance
traffic, we expect cost of services as a percent of revenue to decrease. As the
deployment of our local network continues and the facilities become operational,
the costs associated with the co-location facilities, including rent, power and
access charges, are reflected in costs of services. These costs are generally
fixed and will result in fluctuations in margin in the future as these costs are
incurred for capacity which is not immediately utilized.

     SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $50.2 million, or 97%, to $101.9 million for 2000 from $51.7
million for 1999. As a percentage of revenues, selling, general and
administrative expenses increased to 43% for 2000 from 34% for 1999. We employed
930 people at December 31, 2000, compared with 577 at December 31, 1999,
resulting in an increase in payroll and related expenses of 98% for the year.
The sales organization increased by 137 people as compared to the prior period,
and we added 173 people to support the build-out of our local and data network.
We expect selling, general and administrative expenses to continue to increase
as a result of our growth in revenues and the expansion of the infrastructure to
support future growth. However, we believe these expenses as a percent of
revenue will begin to decline as our rate of network and infrastructure
expansion reduces relative to our projected revenue growth. Costs associated
with the co-location facilities including rent, power, access and leased line
charges for facilities which are not fully deployed are included in selling,
general and administrative expenses. We expect these charges will fluctuate
depending upon the number of co-location facilities becoming operational, at
which time the related costs are reclassified to costs of services.

     DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$21.4 million, or 250%, to $30.0 million during 2000 from $8.6 million in the
prior year. The increase is primarily due to additional local network
facilities, data services equipment and other telecommunications equipment to
support our network expansion. In particular, the southeastern local switching
and co-location equipment and northeastern data centers were put into service
and began depreciating during 2000. We expect 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
including the mid-Atlantic region.

     INTEREST. Interest expense net of interest income decreased slightly to
$1.8 million for 2000 from $1.9 million for 1999. The decrease in net interest
expense is primarily due to the investment of capital obtained from the common
and preferred stock offerings in April 2000. Offsetting the interest income from
the investment of capital was $2.5 million of amortization of issuance costs
resulting from the $225 million senior secured Credit Facility. Interest expense
is expected to dramatically increase as the amortization of issuance costs


                                       24
<PAGE>   27
associated with the $225 million senior secured Credit Facility are expensed and
as we begin drawing on this facility to fund the continued build-out of the
local network and operating activities.

     NET LOSS AND NET LOSS APPLICABLE TO COMMON STOCKHOLDERS. The contribution
from increased revenues was offset by an increase in selling, general and
administrative expenses, and depreciation and amortization expense, which
combined with a $2.5 million loss on an equity investment resulted in a net loss
of $85.3 million during 2000, compared to $32.9 million in 1999. During the
fourth quarter 2000, we wrote-off our entire equity investment of $2.5 million
in NorthPoint Communications Corp. common stock, as a result of their recent
bankruptcy filing.

     The effect of the net loss combined with the preferred stock dividends and
accretion to redemption value of $7.5 million during 2000 and $10.7 million
during 1999 resulted in net losses applicable to common stockholders of $92.8
million for 2000 compared to $43.6 million for 1999. Dividends payable on the
convertible preferred stock sold by us in our April 12, 2000 offering and our
anticipated increase in net losses will result in net losses applicable to
common stockholders in the future.

     EBITDA. EBITDA was negative $53.5 million for 2000 compared to negative
$21.4 million for 1999. Higher selling, general and administrative expenses due
to the rapid implementation of our local network and infrastructure to support
our growth as well as the $2.5 million charge related to the investment in
Northpoint offset the increased contribution from revenue.

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 represented 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 represented 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 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


                                       25
<PAGE>   28
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
was 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 was
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 LOSS APPLICABLE TO COMMON STOCKHOLDERS. As a result of the
increases in selling, general and administrative expenses, depreciation and
amortization, and net interest expense exceeding the increase in revenues net of
operating costs 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, related costs of services and
selling, general and administrative expenses due to the rapid implementation of
our local network and infrastructure to support future growth.


                                       26
<PAGE>   29
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, principally
businesses. The wholesale telecommunications segment provides international
transport and termination services. We 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>
                                                      2000            1999            1998
                                                    --------        --------        --------
                                                                (In thousands)
<S>                                                 <C>             <C>             <C>
Revenues:
 Retail telecommunications and data services        $148,995        $ 91,132        $ 75,506
 Wholesale telecommunications                         86,961          61,388          30,039
                                                    --------        --------        --------
Total revenues                                      $235,956        $152,520        $105,545
                                                    ========        ========        ========
Costs of services:
 Retail telecommunications and data services        $ 98,030        $ 65,255        $ 51,371
 Wholesale telecommunications                         87,638          57,409          27,072
                                                    --------        --------        --------
Total costs of services                             $185,668        $122,664        $ 78,443
                                                    ========        ========        ========
</TABLE>


                                       27
<PAGE>   30
QUARTERLY RESULTS

     The following tables set forth certain unaudited financial data for each of
the quarters in 2000 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,
                                     2000             2000             2000             2000
                                   --------         --------         --------         --------
                                                           (Unaudited)
                                                          (In thousands)
<S>                                <C>              <C>              <C>              <C>
Revenues                           $ 50,259         $ 54,427         $ 62,158         $ 69,112
Costs of services                    40,854           41,562           48,528           54,725
Selling, general and
 administrative                      20,053           27,490           27,443           26,895
Depreciation and
 amortization                         4,748            6,560            7,780           10,874
                                   --------         --------         --------         --------
Operating loss                      (15,396)         (21,185)         (21,593)         (23,382)
Interest income                         408            2,634            1,992              733
Interest expense                     (1,449)          (1,163)            (947)          (4,007)
Investment loss                          --               --               --           (2,500)
Other income (expense), net              28              (10)            (176)             711
                                   --------         --------         --------         --------
Net loss                           $(16,409)        $(19,724)        $(20,724)        $(28,445)
                                   ========         ========         ========         ========
</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 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           1,828               21           (2,608)             231
                                   --------         --------         --------         --------
Net loss                           $ (3,217)        $ (8,459)        $(10,505)        $(10,673)
                                   ========         ========         ========         ========
</TABLE>


                                       28
<PAGE>   31
We could experience quarterly variations in revenues and operating income (loss)
as a result of many factors, including:

     - the introduction of new services

     - actions taken by competitors or suppliers

     - 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

     Total assets were $404.7 million at December 31, 2000 compared to $186.0
million at December 31, 1999. Cash and cash equivalents were $12.5 million at
December 31, 2000 compared to $43.0 million at December 31, 1999. Net cash used
for operating activities was $58.0 million during 2000 as compared to net cash
provided by operating activities of $3.7 million during 1999. Capital
expenditures were $195.0 million for the year ended December 31, 2000.

     On September 27, 2000 we entered into a new senior Credit Facility
agreement with Goldman Sachs Credit Partners, Fleet Securities, DLJ Bridge
Finance and Fleet National Bank. This facility provides up to $225 million in
total principal based on eligible receivables and eligible net property as
defined by the agreement. This facility replaced the $60 million senior Credit
Facility, which we allowed to expire in June 2000. The proceeds from the new
$225 million Credit Facility are expected to be used for the purchase and
acquisition of telecommunications assets and to finance operating losses and
working capital. All borrowings under this facility are collateralized by
substantially all of the Company's assets. There were no borrowings outstanding
under this facility at December 31, 2000.

     The new senior Credit Facility agreement imposes operating and financial
restrictions on us. These restrictions affect, and in many cases limit, among
other things, our ability to:

     -  pay dividends or make distributions to our common stockholders

     -  incur additional indebtedness

     -  make investments or other restricted payments

     -  sell or dispose of assets


                                       29
<PAGE>   32
     On April 12, 2000, we sold in concurrent underwritten public offerings
(i)5,000,000 shares of common stock for aggregate net proceeds of $122.9 million
to us and $13.4 million to certain selling stockholders and (ii) 2,500,000
depository shares, each representing 1/10 of a share redeemable 7.5% Series A
Cumulative Convertible Preferred Stock, for aggregate net proceeds to us of
$119.8 million. Each depository share is initially convertible into 1.4368
shares of our common stock.

     Our strategic initiatives include the deployment of additional local
switches, the co-location of network equipment, the offering of new local 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.

     The Company currently anticipates that its available cash and Credit
Facility will be sufficient to meet its anticipated working capital and capital
expenditure requirements through fiscal 2001. In the event its operations are
not profitable or do not generate sufficient cash to fund the business, or if
the Company fails to comply with its restrictions and obligations under the
Credit Facility, which could result in a default that could limit the
availability of borrowings under the facility, the Company may have to
substantially reduce it level of operations. In addition, the Company may need
to raise additional capital to meet its needs after 2001, to fund more rapid
expansion, to develop new services and to enhance existing services in response
to competitive pressures, and to acquire complementary services, businesses or
technologies. However, the Company may not be able to obtain additional
financing on terms favorable to it, if at all. If adequate funds are not
available or are not available on terms favorable to the Company, its business,
results of operations and financial condition could be materially and adversely
affected.

     Our estimate of future capital requirements is a forward-looking
statement within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The actual amount and timing of our
future capital requirements may differ substantially from our estimate due to
factors such as the costs of building the mid-Atlantic region , capital
requirements and growth projections, cost overruns, changes in demand for our
services, regulatory, technological or competitive developments.

RECENTLY ISSUED ACCOUNTING STANDARD

     In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
effective January 1, 2001. SFAS 133 establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
also requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. In June 2000, the
FASB issued SFAS 138, which amended certain provisions of SFAS 133. This
pronouncement will not have a material impact on our financial position or
results of operations.


                                       30
<PAGE>   33
RISK FACTORS

WE HAVE A HISTORY OF NEGATIVE CASH FLOW AND SIGNIFICANT OPERATING LOSSES

     We had operating losses in each of the last five years and negative cash
flow from operating activities in 2000. In 2000, we had operating losses of
$81.6 million and cash flows used for operating activities of $58.0 million and
a loss of $1.57 per share applicable to common stockholders. We expect to incur
significant expenditures in connection with the continued acquisition,
development and expansion of our network infrastructure, product offerings,
information technology systems and employee base. As a result, we expect to
incur significant future operating losses and negative cash flow. If our
revenues do not increase significantly or the increase in our expenses is
greater than expected, we may not achieve or sustain profitability or generate
positive cash flow in the future.

WE MAY REQUIRE ADDITIONAL THIRD PARTY FINANCING

     Our ability to meet our projected growth will require substantial cash
resources. The anticipated expansion of our network infrastructure after 2001,
including the addition of co-locations, switches, Internet Data Centers and
other network elements, and our anticipated funding of negative cash flow from
operating activities after 2001, may require additional capital. The maturity of
our credit facility in mid-2002 may require additional capital. Furthermore, if
we acquire other businesses, we may require additional financing. Our ability to
satisfy future capital needs will depend upon the continued availability of our
credit and equipment lease facilities and cash from operations. If for any
reason our Credit Facility becomes unavailable or our ability to draw on this
facility is limited, including as a result of a breach by us of the financial or
other covenants contained in the Credit Facility, we may be required to seek
alternative financing or modify our business plan. Additional financing may
place significant limits on our financial and operating flexibility or may not
be available to us. Failure to obtain future financing when needed or on
acceptable terms could cause us to delay or abandon our development and
expansion plans and could materially adversely affect our growth and ability to
compete.

OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE NOT INDICATIVE OF FUTURE
PERFORMANCE AND ARE DIFFICULT TO FORECAST

     As a result of our limited operating history as a provider of broadband
data, telecommunications and data hosting services and the evolving nature of
the telecommunications and Internet industries, we may not be able to accurately
forecast our revenues. We do not believe that period-to-period comparisons of
our operating results are necessarily meaningful, or that investors should rely
upon them as indicators of future performance. In one or more future quarters,
our results of operations may fall below the expectations of securities analysts
and investors. This would likely materially adversely affect the trading price
of our stock.


                                       31
<PAGE>   34
WE CANNOT PREDICT MARKET ACCEPTANCE FOR OUR LOCAL, DSL, INTERNET AND DATA
HOSTING SERVICES

     The markets for Internet access, broadband data, including DSL, web and
managed server hosting and competitive local service are in the early stages of
development. We have limited experience providing these additional services and
can give no assurance that our services will receive market acceptance or that
prices and demand for these services will be sufficient to achieve or sustain
profitable operations. If the markets for our new services fail to develop, grow
more slowly than anticipated or become saturated with competitors, our success
in these markets could be materially adversely affected.

WE MAY BE UNABLE TO MANAGE RAPID GROWTH

     Our future operating performance will depend upon our ability to implement
and manage our growth effectively. Our rapid growth to date has placed, and in
the future will continue to place, a significant strain on our administrative,
operational, managerial and financial resources. Failure to attract and retain
additional qualified sales and other personnel, including management personnel
who can manage our growth effectively, or failure to successfully train or
integrate such personnel, could materially adversely affect our future operating
performance. To manage our growth effectively, we will also have to continue to
improve and upgrade operational, financial and accounting information systems,
controls and infrastructure, as well as control costs and maintain regulatory
compliance. The failure to adequately strengthen our financial controls and
systems or otherwise manage our growth could materially adversely affect our
business, prospects, financial condition and results of operations.

OUR FAILURE TO ACHIEVE OR SUSTAIN MARKET ACCEPTANCE AT DESIRED PRICING LEVELS
COULD IMPAIR OUR ABILITY TO ACHIEVE PROFITABILITY OR POSITIVE CASH FLOW

     Prices for telecommunications services have fallen historically, a trend we
expect will continue. Accordingly, we cannot predict to what extent we may need
to reduce our prices to remain competitive or whether we will be able to sustain
future pricing levels as our competitors introduce competing services or similar
services at lower prices. Our failure to achieve or sustain market acceptance at
desired pricing levels could impair our ability to achieve profitability or
positive cash flow, which would have a material adverse effect on our business,
prospects, financial condition and results of operations.

WE MAY BE UNABLE TO MEET OUR DEBT OBLIGATIONS

     We have a significant amount of indebtedness and our indebtedness will
increase as we begin to draw on our Credit Facility. Our ability to repay our
indebtedness will depend on our future operating performance, which will be
affected by prevailing economic conditions and financial, business and other
factors. Some of these factors are beyond our control. If we are unable to
service our indebtedness or other obligations, we will be forced to examine
alternative strategies. These strategies may include reducing or delaying
capital expenditures, restructuring or refinancing indebtedness or seeking
additional debt or equity financing. We can give no assurance that any of these
strategies could be effected on satisfactory terms.


                                       32
<PAGE>   35
     Our level of indebtedness could have important consequences to our
stockholders, including the following:

     - we will have significant and increasing cash interest expense and
       significant principal repayment obligations with respect to outstanding
       indebtedness

     - our degree of leverage and debt service obligations could limit our
       ability to plan for, and make us more vulnerable than some of our
       competitors to the effects of, an economic downturn or other adverse
       developments

     - we may need to dedicate cash flow from our operations to debt service
       payments, making these funds unavailable for other purposes

     - our ability to obtain additional financing in the future for working
       capital, capital expenditures, debt service requirements or other
       purposes could be impaired

     - we will have a competitive disadvantage relative to the other companies
       in our industry with less debt

OUR INDEBTEDNESS SUBJECTS US TO FINANCIAL AND OPERATING RESTRICTIONS

     Our senior Credit Facility imposes operating and financial restrictions on
us. These restrictions may limit our ability to:

     - incur additional indebtedness

     - issue stock of any subsidiaries

     - create liens on assets

     - pay dividends, redeem our proposed convertible preferred stock or make
       other distributions

     - sell assets

     - make capital expenditures

     - enter into sale and leaseback transactions

     - engage in mergers or acquisitions

     - make investments

     Failure to comply with any of these restrictions, including
pre-established levels of revenue, earnings before interest, taxes,
depreciation, and amortization (EBITDA), days sales outstanding (DSO) and access
lines, as defined by the agreement, could limit the availability of borrowings
or result in a default under our senior Credit Facility. For the year ended
December 31, 2000, the lenders agreed to amend a financial covenant to grant us
additional operating flexibility. We can give no assurance that we will obtain a
waiver or amendment for any future noncompliance.


                                       33
<PAGE>   36
OUR BUSINESS STRATEGY DEPENDS ON SECURING AND MAINTAINING INTERCONNECTION
AGREEMENTS WITH INCUMBENT LOCAL EXCHANGE CARRIERS

     We must enter into agreements for the interconnection of our network with
the networks of the incumbent local exchange carriers and other carriers
covering each market in which we intend to offer local service. Although we have
entered into interconnection agreements in a number of jurisdictions, we can
give no assurance that we will successfully renegotiate these agreements as they
are due to expire or negotiate additional agreements as we enter new markets.


WE DEPEND ON OUR SUPPLIERS AND OTHER SERVICE PROVIDERS

     TRANSMISSION FACILITIES. We lease a portion of our transport capacity. We
are dependent upon the availability of fiber optic transmission facilities owned
by interexchange carriers, incumbent local exchange carriers, Internet service
providers, competitive local exchange carriers and others who lease their fiber
optic networks to us. Many of these entities are, or may become, our
competitors. Integration of leased fiber mileage into our network will subject
us to the risk that the owners of the underlying facilities, who may be
competitors, will not maintain or will deny us access to these facilities. Some
of these providers are currently experiencing delays in the development of their
facilities, and we can give no assurance that we will be able to obtain use of
these facilities on a timely basis and in the quantities we require.

     DIGITAL SUBSCRIBER LINE SERVICES. DSL services depend on the quality of
copper lines and the maintenance of such lines by incumbent local exchange
carriers. We can give no assurance that we will be able to obtain copper lines
and the services we require from these carriers on a timely basis or on terms
and in quantities satisfactory to us.

     OTHER COMPONENTS. We also rely on other companies to supply key components
of our network infrastructure, including switching and networking equipment and
paging services. These components are only available in the quantities and
quality we require from sole or limited sources. From time to time we have
experienced delays or other problems in receiving these key components. We can
give no assurance that we will be able to obtain such services or facilities on
the scale and within the time frames required by us at an affordable cost, or at
all.

     CALL RECORDS. The accurate and prompt billing of our customers is
dependent upon the timeliness and accuracy of call detail records, including
those provided by carriers whose services we resell. We can give no assurance
that the current carriers will continue to provide, or that new carriers,
including incumbent local exchange carriers, will provide, accurate information
on a timely basis.


                                       34
<PAGE>   37
WE MAY FACE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS

     We may acquire other businesses that we believe will complement our
existing business. These acquisitions will likely involve some or all of the
following risks:

     - the difficulty of assimilating the acquired operations and personnel

     - the potential disruption of our ongoing business

     - the diversion of resources

     - the possible inability of management to maintain uniform standards,
       controls, procedures and policies

     - the possible difficulty of managing our growth and information systems

     - the risks of entering markets in which we have little experience

     - the potential impairment of relationships with employees or customers.

These transactions may be required for us to remain competitive. We can give no
assurance that we will be able to obtain required financing for such
transactions or that such transactions will occur.

COMPETITION IN OUR INDUSTRY IS INTENSE AND GROWING, AND WE MAY BE UNABLE TO
COMPETE EFFECTIVELY

     Our industry is highly competitive, and we expect competition to intensify
in the future. We do not have a significant market share in any of our markets.
Most of our actual and potential competitors have substantially greater
financial, technical, marketing and other resources, including brand or
corporate name recognition, than we do. Our success will depend upon our ability
to provide high-quality services at competitive prices. Any reduction in the
prices of long distance, local, VoDSL, DSL, data hosting or other services by
our competitors could materially adversely affect our business, prospects and
financial condition.

We also face the following competitive risks:

  OVERALL TELECOMMUNICATIONS MARKET

     A continuing trend towards business combinations and alliances in the
     telecommunications industry may create significant new competitors to us.
     We also face competition from fixed wireless services, wireless devices
     that do not require site or network licensing, cellular, personal
     telecommunications services, other commercial mobile radio service
     providers and Internet telephony. In addition, in February 1998, Federal
     Communications Commission rules went into effect that make it substantially
     easier for many foreign telecommunications companies to enter the U.S.
     telecommunications market. In the highly competitive international
     wholesale market, the routes that we can sell favorably are subject to
     change without notice, and it is very difficult to forecast revenue and
     associated margins. Loss of traffic could materially adversely affect our
     operating revenues.


                                       35
<PAGE>   38
  LONG DISTANCE SERVICES MARKET

     The long distance industry is characterized by a high level of customers
     attrition, or "churn". Our revenues have been, and are expected to continue
     to be, affected by churn. New price plans and simplified rate structures
     may continue to lower long distance prices. Also, we anticipate that a
     number of regional Bell Operating companies will seek authority to provide
     in-region long distance Services in 2001 and beyond. Regional Bell
     operating companies which receive authority to offer widespread in-region
     long distance services are in a position to offer single-source local and
     long distance services in direct competition with us.

  LOCAL SERVICES MARKET

     In the local telecommunications market, our primary competitor is currently
     the incumbent local exchange carrier serving each geographic area. An
     incumbent local exchange carrier is an established provider of dedicated
     and local telephone services to all or virtually all telephone subscribers
     within its service area. We also face competition in local markets from
     other new entrants, including long distance and other carriers, many of
     which have significantly greater financial resources than we do.

  DATA SERVICES AND WEB AND MANAGED SERVER HOSTING MARKETS

     The markets for data communications, web and managed server hosting and
Internet access services are extremely competitive and characterized by rapid
technological innovation. There are no substantial barriers to entry, and we
expect that competition will intensify in the future. We expect significant
competition from a large variety of companies, including long-distance service
providers, cable modem service providers, Internet service providers, on-line
service providers, wireless and satellite data service providers and other
companies focusing on DSL services.

WE MAY BE UNABLE TO ADAPT TO TECHNOLOGICAL CHANGE

     The telecommunications industry has been, and is likely to continue to be,
subject to:

     - rapid and significant technological change, including continuing
       developments in DSL technology, which does not presently have widely
       accepted standards

     - frequent introductions of new services and alternative technologies,
       including new technologies for providing high-speed data services

     - evolving industry standards.

     We expect that new products and technologies will emerge that may be
superior to, or may not be compatible with, some of our products or
technologies. Changes in technology could cause more competitors to enter the
industry, including the network-based local market and high-speed data transport
market in


                                       36
<PAGE>   39
which we compete. Also, technological changes, including advancements in
emerging wireline and wireless technologies and Internet services and
technologies, could result in lower retail rates for telecommunications
services. These changes could materially adversely affect our ability to price
services competitively or achieve profitability.

WE DEPEND ON INDEFEASIBLE RIGHTS-OF-USE, RIGHTS-OF-WAY AND SIMILAR AGREEMENTS

     We currently rely on, and may need to obtain additional indefeasible
rights-of-use, local franchises, permits, rights to utilize underground conduit
and aerial pole space and other rights-of-way. We would need to obtain these
rights from entities such as incumbent local exchange carriers, other utilities,
railroads, long distance companies, state highway authorities, local governments
and transit authorities. We can give no assurance that we, or the providers on
whom we depend, will be able to obtain and maintain the permits and rights we
may need on acceptable terms. Cancellation or non-renewal of these arrangements
could materially adversely affect our business in the affected area.

THE TELECOMMUNICATIONS ACT OF 1996 AND OTHER GOVERNMENT REGULATION COULD
ADVERSELY AFFECT US

     Telecommunications services are subject to significant regulation at the
federal, state, local and international levels. Delays in receiving required
regulatory approvals, or new legal requirements, may materially adversely affect
our business, financial condition, results of operations and prospects. In
particular, we face the following regulatory risks:

     - NEED TO COMPLY WITH FEDERAL REGULATIONS. The FCC has the authority to
       sanction us or revoke our authorization if we violate applicable law.

     - LEGAL AND ADMINISTRATIVE BURDEN OF COMPLIANCE WITH DIVERSE STATE
       REGULATIONS. Compliance with state regulations, challenges by third
       parties to our tariffs or complaints about our practices could cause us
       to incur substantial expenses.

     - DIFFICULTY PREDICTING THE IMPACT OF THE TELECOMMUNICATIONS ACT. We cannot
       predict how the FCC, state regulators, courts and the incumbent local
       exchange carriers will interpret and implement the relevant provisions of
       the Telecommunications Act.

     - CHANGES IN ACCESS CHARGES AND UNIVERSAL SERVICE. Changes in the
       regulations requiring incumbent local exchange carriers to provide equal
       access for the origination and termination of calls by long distance
       subscribers, or in the regulations governing access charge rates or
       universal service contribution, could materially adversely affect our
       business, prospects, financial condition and results of operations.

     - UNCERTAINTY OF THE EVOLVING REGULATORY ENVIRONMENT. There is considerable
       uncertainty regarding numerous regulatory issues in the
       telecommunications industry, including the legal status of complaints
       filed at the FCC to enforce interconnection agreements and the
       applicability of existing regulations to new technologies such as
       Internet telephony. We cannot predict the impact of these and other
       regulatory developments on our business.


                                       37
<PAGE>   40
WE DEPEND ON OUR BILLING, CUSTOMER SERVICE AND INFORMATION SYSTEMS

     Integrated management information and processing systems are vital to our
growth and our ability to monitor costs, bill customers, process customer orders
and operate efficiently. The cost of implementing these systems has been, and we
expect will continue to be, substantial.

     In addition, any of the following developments could materially adversely
affect our business condition, prospects or financial condition:

     - failure of vendors to deliver the required services or information in a
       timely and effective manner and at acceptable costs

     - our failure to adequately identify and integrate all of our information
       and processing needs

     - failure of our processing or information systems to perform as expected

     - our failure to upgrade systems as necessary and on a timely basis.

WE DEPEND ON THE PROMPT COLLECTION OF CUSTOMER PAYMENTS AND FACE RISKS RELATING
TO OUR CUSTOMERS' LIQUIDITY

     The failure of our customers to pay their bills in a timely manner or our
failure to accurately assess the creditworthiness of our customers and implement
adequate revenue assurance programs could materially adversely affect our
financial results.

WE MUST SECURE AND MAINTAIN PEERING ARRANGEMENTS WITH INTERNET SERVICE PROVIDERS

     We may need agreements, which are referred to as peering agreements, with
Internet service providers in order to exchange traffic with these providers
without being required to pay transmission costs. Failure to establish and
maintain peering relationships would cause us to incur additional operating
expenses or abandon certain elements of our strategy, which could materially
adversely affect our business condition, prospects and financial condition.

WE MAY BE UNABLE TO ATTRACT AND RETAIN MANAGEMENT PERSONNEL AND OTHER EMPLOYEES

     Our success depends to a significant extent upon the abilities and
continued efforts of our management team, particularly Robert T. Hale, Jr., our
chief executive officer and president, Robert T. Hale, the chairman of our
board, and other members of our senior management team. The loss of any of these
individuals could materially adversely affect our business, prospects and
financial condition. Our success will also depend upon our ability to hire and
retain additional personnel, including technical and sales personnel.
Competition for qualified personnel is intense. Difficulty in hiring and
retaining personnel could materially adversely affect our future operating
performance.


                                       38
<PAGE>   41
WE ARE SUBJECT TO THE RISK OF SYSTEM FAILURE AND SECURITY RISKS

     Our success in attracting and retaining customers requires us to provide
adequate network reliability, capacity and security. Our networks and the
networks upon which we depend are subject to physical damage, power loss,
capacity limitations, software defects, breaches of security by computer virus,
break-ins or otherwise and other factors. Any of these occurrences may cause
interruptions in service or reduced customer capacity. Interruptions in service,
capacity limitations or security breaches could materially adversely affect
future operating performance.

EXISTING STOCKHOLDERS CAN EXERT CONSIDERABLE CONTROL OVER US

     As of December 31, 2000 approximately 74% of our common stock was owned or
voted by Robert T. Hale, a director, and Robert T. Hale, Jr., an officer and
director. Consequently, management has considerable control over all of our
affairs and controls the election of all members of our board of directors and
the outcome of all corporate actions requiring stockholder approval. The
interests of our management may differ from those of other stockholders, and
non-management stockholders have limited control over our affairs.

PROVISIONS OF OUR CHARTER AND BY-LAWS COULD ADVERSELY AFFECT OUR STOCK PRICE

     Our certificate of incorporation and by-laws include provisions that may
discourage, delay or impede a change in control of Network Plus or prevent the
removal of incumbent directors, even if stockholders believe the action is in
their best interests. Among other things, the certificate of incorporation
provides for a classified board of directors. In addition, the certificate of
incorporation allows the board of directors to issue shares of preferred stock
and fix the rights, privileges and preferences of those shares without any
further vote or action by the stockholders. The rights of the holders of common
stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future, including the
stock issuable in our proposed convertible preferred stock offering. Any
issuance of preferred stock could make it more difficult for a third-party to
acquire control of Network Plus. In addition, our certificate of incorporation
and by-laws limit the manner in which directors may be nominated by the
stockholders and in which proposals may be made at stockholder meetings. We are
also subject to Section 203 of the Delaware general corporation law, which could
delay or prevent a change of control. To the extent that these provisions
discourage takeover attempts, they could deprive stockholders of opportunities
to realize takeover premiums for their shares or could depress the trading price
of our stock.

OUR STOCK PRICE IS EXTREMELY VOLATILE, AND INVESTORS MAY NOT BE ABLE TO RESELL
THEIR SHARES AT OR ABOVE THEIR PURCHASE PRICE

     The price at which our stock trades is likely to continue to be volatile
and may fluctuate widely due to factors such as:

     - our historical and anticipated quarterly and annual operating results


                                       39
<PAGE>   42
     - variations between our actual results and analyst and investor
       expectations or changes in financial estimates and recommendations by
       securities analysts

     - announcements by us or others and developments affecting our business

     - investor perceptions of our company and comparable public companies

     - conditions and trends in the telecommunications and Internet industries.

     In particular, the stock market has from time to time experienced
significant price and volume fluctuations affecting the stock of
telecommunications and Internet companies. Fluctuations may be unrelated or
disproportionate to company performance. These fluctuations may result in a
material decline in the trading price of our stock. In addition, fluctuation in
the market price of our stock could result in shareholder lawsuits, which
potentially could impact our business.

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

     Our consolidated financial statements, including our consolidated balance
sheets as of December 31, 2000 and 1999, consolidated statements of operations ,
consolidated statements of stockholders' equity, consolidated statements of cash
flows for each of the three years in the period ended December 31, 2000, and
notes of our consolidated financial statements, together with a report thereon
of PricewaterhouseCoopers LLP, dated March 21, 2001, are attached hereto as
pages F-1 through F-27.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.


                                       40
<PAGE>   43
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 "Directors and Nominees" and "Section 16(a) Beneficial
Ownership Reporting Compliance" appearing in the 2001 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" 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 2001 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 section captioned
"Certain Transactions" appearing in the 2001 Proxy Statement. Such information
is incorporated herein by reference.


                                       41
<PAGE>   44
PART IV

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

1(a) -- The following consolidated financial statements of Network Plus Corp.
and report of independent public accountants are included in Item 8 of this Form
10-K:

     Report of Independent Accountants

     Consolidated Balance Sheets
     December 31, 2000 and 1999

     Consolidated Statements of Operations
     Years Ended December 31, 2000, 1999 and 1998

     Consolidated Statements of Changes in Stockholders' Equity
     Years Ended December 31, 2000, 1999 and 1998

     Consolidated Statements of Cash Flows
     Years Ended December 31, 2000, 1999 and 1998

     Notes to Consolidated Financial Statements

2(a) 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

     Report of Independent Accountants on the Financial Statement Schedule

          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.

3(a) and (c) -- Exhibits

     The exhibits listed on the Exhibit Index hereto are filed with this report.


                                       42
<PAGE>   45
EXHIBIT INDEX

<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.

 3.3(4)       Certificate of Designation for 7.5% Series A Cumulative
              Convertible Preferred Stock.

 3.4(4)       Deposit Agreement for Depositary Shares representing 7.5% Series
              A Cumulative Convertible Preferred Stock, among the Company, the
              Depositary and the Holders from time to time of the Depositary
              Shares, dated as of April 6, 2000.

 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)       Net Lease by and between Network Plus Realty Trust, Landlord, and
              Network Plus, Inc., Tenant, dated July 1, 1993.

10.3A         First Amendment to Lease, dated January 31, 2001, by and between
              Robert T. Hale and Robert T. Hale, Jr. as trustees of Network
              Plus Realty Trust, Landlord, and Network Plus, Inc., Tenant.

10.4          Sublease by and between PACSCI Motion Control, Inc., Landlord,
              and Network Plus, Inc., Tenant, dated October 22, 1999.

10.5(6)       Lease between Network Plus, Inc. as Tenant, and Trucks Up LLC, as
              Landlord, dated August 31, 2000.

10.6+(6)      Credit and Guaranty Agreement, dated as of September 27, 2000,
              among the Company, Network Plus, Inc., various lenders (the
              "Lenders"), Goldman Sachs Credit Partners, L.P., as a Joint Lead
              Arranger, Book Runner and Syndication Agent, FleetBoston
              Robertson Stephens Inc., as a Joint Lead Arranger, DLJ Bridge
              Finance, Inc., as Documentation Agent, and Fleet National Bank,
              as Collateral Agent and Administrative Agent.

10.6A         First Amendment, dated as of February 9, 2001, by and among the
              Company, Network Plus, Inc., the Lenders, Goldman Sachs Credit
              Partners, L.P., as a Joint Lead Arranger, Book Runner and
              Syndication Agent, Fleet Securities, Inc., as a Joint Lead
              Arranger, DLJ Bridge finance, Inc., as Documentation Agent, and
              Fleet National Bank as Collateral Agent and Administrative Agent.

10.7(6)       Pledge and Security Agreement, dated as of September 27, 2000,
              between the Company, Network Plus, Inc. and Fleet National Bank,
              as Collateral Agent for the Secured Parties.

10.8          Form of Common Stock Purchase Warrant of the Company originally
              issued as of September 27, 2000 to the Lenders.

10.9+(2)      Master Lease Agreement, dated as of August 8, 1997, by and
              between Chase Equipment Leasing, Inc. and Network Plus, Inc., as
              amended.

10.10(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.

10.10A(5)     Letter agreement, dated March 9, 2000, by and between Comdisco,
              Inc. and Network Plus, Inc., amending the Master Lease Agreement,
              dated as of December 30, 1998, as amended, by and among Comdisco,
              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(6)      Separation Agreement and Release, dated as of July 12, 2000, by
              and between the Company and George C. Alex.

10.15         Promissory Note for $1.87 million from Robert T. Hale, Jr. to the
              Company, dated September 2, 1998.

21            Subsidiaries of the Registrant.

23            Consent of PricewaterhouseCoopers LLP.
</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.

(4)  Incorporated by reference to the Company's Form 8-A filed with the
     Securities and Exchange Commission on April 13, 2000.

(5)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended March 31, 2000.

(6)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended September 30, 2000.

+    Confidential treatment granted as to certain portions.

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


                                       43
<PAGE>   46
                                   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/ Robert J. Cobuzzi
                                        ------------------------------------
                                        Robert J. Cobuzzi
                                        Executive Vice President of Finance,
                                        Chief Financial Officer and
                                        Treasurer

Date: March 30, 2001

     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 30, 2001
---------------------------
Robert T. Hale


/s/ Robert T. Hale, Jr.         President, Chief Executive         March 30, 2001
---------------------------     Officer and Director
Robert T. Hale, Jr.            (Principal Executive Officer)


/s/ James J. Crowley            Executive Vice President, Chief    March 30, 2001
---------------------------     Operating Officer and Director
James J. Crowley


/s/ Robert J. Cobuzzi           Executive Vice President, Chief    March 30, 2001
---------------------------     Financial Officer and Treasurer
Robert J. Cobuzzi              (Principal Financial and
                                Accounting Officer)


/s/ David Martin                Director                           March 30, 2001
---------------------------
David Martin


/s/ Joseph McNay                Director                           March 30, 2001
---------------------------
Joseph McNay


/s/ Lawrence Strickling         Director                           March 30, 2001
---------------------------
Lawrence Strickling
</TABLE>


                                       44
<PAGE>   47
                               NETWORK PLUS CORP.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                  PAGE
                                                                  ----
<S>                                                               <C>
Report of Independent Accountants...........................       F-2
Consolidated Financial Statements:
  Consolidated balance sheets as of December 31, 2000 and
     1999...................................................       F-3
  Consolidated statements of operations for the years ended
     December 31, 2000, 1999 and 1998.......................       F-4
  Consolidated statements of stockholders' equity
     for the years ended December 31, 2000, 1999 and 1998...       F-5
  Consolidated statements of cash flows for the years ended
     December 31, 2000, 1999 and 1998.......................       F-6
Notes to Consolidated Financial Statements..................       F-7
</TABLE>


                                       F-1
<PAGE>   48
                        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 and cash
flows present fairly, in all material respects, the financial position of
Network Plus Corp. and its subsidiaries (the "Company") at December 31, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. 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 of America, 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 our opinion.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
March 30, 2001


                                       F-2
<PAGE>   49
                               NETWORK PLUS CORP.
                           CONSOLIDATED BALANCE SHEETS
                      (In Thousands, Except Per Share Data)


<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                      ---------------------------
                                                                                         2000              1999
                                                                                      ---------         ---------
<S>                                                                                   <C>               <C>
                         ASSETS
Current Assets:
  Cash and cash equivalents                                                           $  12,474         $  43,031
  Accounts receivable, net of allowance for doubtful
   accounts of $3,294 and $2,624, respectively                                           55,922            31,814
  Prepaid expenses                                                                        1,185               489
  Other current assets                                                                   14,517               958
                                                                                      ---------         ---------
    Total current assets                                                                 84,098            76,292
Property and equipment, net                                                             269,073           101,944
Other assets, net                                                                        51,488             7,736
                                                                                      ---------         ---------
    TOTAL ASSETS                                                                      $ 404,659         $ 185,972
                                                                                      =========         =========

      LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
          STOCK AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable                                                                    $  72,231         $  48,704
  Accrued liabilities                                                                    14,979             6,370
  Current portion capital lease obligations                                              17,288            11,346
                                                                                      ---------         ---------
    Total current liabilities                                                           104,498            66,420
Long-term capital lease obligations                                                      28,351            27,567
Long-term note payable to stockholder                                                     1,875             1,875
Other long-term liabilities                                                               2,815               829
Commitments                                                                                  --                --
Preferred stock, $.01 par value, 1,000 shares authorized:
 Redeemable Series A Cumulative Convertible Preferred Stock, 500 and no shares
 authorized, 250 and no shares issued and outstanding, respectively (aggregate
 liquidation preference of $127,566 at December 31, 2000)                               120,065                --

Stockholders' Equity:

Common Stock, $.01 par value, 150,000 shares authorized, 61,810 and 54,795
 shares issued and outstanding,
 respectively                                                                               618               548
Additional paid-in capital                                                              271,399           138,767
Stock subscription receivable                                                              (176)             (155)
Warrants                                                                                 15,634             4,405
Other comprehensive income                                                                   --               833
Accumulated deficit                                                                    (140,420)          (55,117)
                                                                                      ---------         ---------
    Total stockholders' equity                                                          147,055            89,281
                                                                                      ---------         ---------
    TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
     STOCK AND STOCKHOLDERS' EQUITY                                                   $ 404,659         $ 185,972
                                                                                      =========         =========
</TABLE>


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


                                       F-3
<PAGE>   50
                               NETWORK PLUS CORP.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In Thousands, Except Per Share Data)


<TABLE>
<CAPTION>
                                                              Year ended December 31,
                                                  ----------------------------------------------
                                                     2000              1999              1998
                                                  ---------         ---------         ---------
<S>                                               <C>               <C>               <C>
Revenues                                          $ 235,956         $ 152,520         $ 105,545
Operating expenses
  Costs of services                                 185,668           122,664            78,443
  Selling, general and
   administrative expenses                          101,882            51,709            29,426
  Depreciation and amortization                      29,963             8,564             2,037
                                                  ---------         ---------         ---------
                                                    317,513           182,937           109,906
                                                  ---------         ---------         ---------
Operating loss                                      (81,557)          (30,417)           (4,361)
Other income (expense)
  Interest income                                     5,767             1,896               395
  Interest expense                                   (7,566)           (3,804)           (1,474)
  Other income, net                                     553               432               151
  Loss on investment                                 (2,500)               --                --
                                                  ---------         ---------         ---------
                                                     (3,746)           (1,476)             (928)
                                                  ---------         ---------         ---------
Net loss before income taxes                        (85,303)          (31,893)           (5,289)
Provision (benefit) for income taxes                     --               961              (906)
                                                  ---------         ---------         ---------
Net loss                                            (85,303)          (32,854)           (4,383)
Preferred stock dividends and accretion
 of offering expenses and discount                   (7,514)          (10,725)           (2,005)
                                                  ---------         ---------         ---------
Net loss applicable to common stockholders        $ (92,817)        $ (43,579)        $  (6,388)
                                                  =========         =========         =========
Net loss per share applicable to common
 stockholders -- basic and diluted                $   (1.57)        $   (0.87)        $   (0.14)
                                                  =========         =========         =========
Weighted average shares outstanding
 - basic and diluted                                 59,173            49,969            45,333
                                                  =========         =========         =========
</TABLE>


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


                                       F-4
<PAGE>   51
                               NETWORK PLUS CORP.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                          Common
                                                                           Stock,
                                                              Shares       $0.01         Additional         Stock
                                                           Of Common         Par           Paid-In       Subscription
                                                              Stock         Value          Capital         Receivable     Warrants
                                                           ----------     -------        ----------      ------------     --------
<S>                                                         <C>           <C>            <C>             <C>              <C>
Balance at December 31, 1997                                  45,333         $453                --             --              --
 Comprehensive loss:
  Net loss                                                        --           --                --             --              --
 Distributions to stockholders                                    --           --                --             --              --
 Common stock dividends                                           --           --                --             --              --
 Issuance of 1,405 warrants                                       --           --                --             --        $  4,359
 Dividends on preferred stock                                     --           --                --             --              --
 Accretion of preferred stock to redemption value                 --           --                --             --              --
                                                              ------         ----         ---------          -----        --------
 Balance at December 31, 1998                                 45,333          453                --             --           4,359
 Comprehensive loss:
  Net loss                                                        --           --                --             --              --
  Unrealized investment gain                                      --           --                --             --              --

    Total comprehensive loss                                      --           --                --             --              --
 Distributions to stockholders                                    --           --                --             --              --
 Issuance of 23 Warrants                                          --           --                --             --              92
 Issuance of common stock in initial public offering           9,200           92         $ 135,504             --              --
 Common stock option exercises                                    96            1               628          $(155)             --
 Issuance of common stock in connection
  with acquisition                                               155            2             2,431             --              --
 Stock compensation charge                                        --           --               158             --              --
 Dividends on preferred stock                                     --           --                --             --              --
 Accretion of preferred to redemption value                       --           --                --             --              --
 Preferred stock dividend for premium paid
  on redemption of preferred stock                                --           --                --             --              --
 Common stock warrant exercise                                    11           --                46             --             (46)
                                                              ------         ----         ---------          -----        --------
Balance at December 31, 1999                                  54,795          548           138,767           (155)          4,405
 Comprehensive loss:
  Net loss                                                        --           --                --             --              --
 Receipt of stock subscription receivable                         --           --                --            155              --
 Issuance of common stock                                      4,510           45           123,270             --              --
 Issuance of 2,803 warrants                                       --           --                --             --          15,043
 Common stock option exercises                                   738            7             5,149           (176)             --
 Common stock warrant exercise                                 1,230           12             3,805             --          (3,814)
 Issuance of common stock under Employee Stock
  Purchase Plan                                                   46            1               557             --              --
 Stock compensation charge                                        --           --               171             --              --
 Dividends on redeemable convertible preferred stock              --           --            (7,199)            --              --
 Accretion of preferred stock to redemption value                 --           --              (315)            --              --
 Issuance of common stock for settlement of
  redeemable convertible preferred stock dividends               491            5             4,628             --              --
 Payable of common stock for settlement of redeemable
  convertible preferred stock dividends                           --           --             2,566             --              --
 Loss on investment                                               --           --                --             --              --
                                                              ------         ----         ---------          -----        --------
Balance at December 31, 2000                                  61,810         $618         $ 271,399          $(176)       $ 15,634
                                                              ======         ====         =========          =====        ========
</TABLE>


<TABLE>
<CAPTION>

                                                                  Other
                                                                 Compre-
                                                                 hensive          Accumulated                        Comprehensive
                                                                  Income            Deficit             Total              Loss
                                                                 --------         ----------          ---------      --------------
<S>                                                              <C>              <C>                 <C>            <C>
Balance at December 31, 1997                                           --          $    (144)         $     309
 Comprehensive loss:
  Net loss                                                             --             (4,383)            (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 to redemption value                                       (191)              (191)
                                                                  -------          ---------          ---------
 Balance at December 31, 1998                                          --            (11,535)            (6,723)
 Comprehensive loss:
  Net loss                                                             --            (32,854)           (32,854)         $(32,854)
  Unrealized investment gain                                      $   833                 --                833               833
                                                                                                                         --------
    Total comprehensive loss                                           --                 --                 --          $(32,021)
 Distributions to stockholders                                         --                 (3)                (3)         ========
 Issuance of 23 Warrants                                               --                 --                 92
 Issuance of common stock in initial public offering                   --                 --            135,596
 Common stock option exercises                                         --                 --                474
 Issuance of common stock in connection
  with acquisition                                                     --                 --              2,433
 Stock compensation charge                                             --                 --                158
 Dividends on preferred stock                                          --             (2,870)            (2,870)
 Accretion of preferred to redemption value                            --               (286)              (286)
 Preferred stock dividend for premium paid
  on redemption of preferred stock                                     --             (7,569)            (7,569)
 Common stock warrant exercise                                         --                 --                 --
                                                                  -------          ---------          ---------
Balance at December 31, 1999                                          833            (55,117)            89,281
 Comprehensive loss:
  Net loss                                                             --            (85,303)           (85,303)         $(85,303)
 Receipt of stock subscription receivable                              --                 --                155          ========
 Issuance of common stock                                              --                 --            123,315
 Issuance of 2,803 warrants                                            --                 --             15,043
 Common stock option exercises                                         --                 --              4,980
 Common stock warrant exercise                                         --                 --                  3
 Issuance of common stock under Employee Stock
  Purchase Plan                                                        --                 --                558
 Stock compensation charge                                             --                 --                171
 Dividends on redeemable convertible preferred stock                   --                 --             (7,199)
 Accretion of preferred stock to redemption value                      --                 --               (315)
 Issuance of common stock for settlement of
  redeemable convertible preferred stock dividends                     --                 --              4,633
 Payable of common stock for settlement of redeemable
  convertible preferred stock dividends                                --                 --              2,566
 Loss on investment                                                  (833)                --               (833)
                                                                  -------          ---------          ---------
Balance at December 31, 2000                                      $    --          $(140,420)         $ 147,055
                                                                  =======          =========          =========
</TABLE>


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

                                       F-5
<PAGE>   52
                               NETWORK PLUS CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                            ----------------------------------------------------
                                                              2000                  1999                 1998
                                                            ---------             ---------             --------
<S>                                                         <C>                   <C>                   <C>
Cash flows from operating activities:
 Net loss                                                   $ (85,303)            $ (32,854)            $ (4,383)
 Adjustments to reconcile net loss to net cash
  provided by (used for) operating activities:
   Depreciation and amortization                               29,963                 8,564                2,037
   Amortization of debt issuance costs                          2,457                    92                   --
   Loss on disposal of fixed assets                                88                    18                   --
   Deferred taxes                                                  --                   961                 (961)
   Interest payable on capital lease and note
    payable to stockholder                                        201                   158                   --
   Compensation expense related to issuance of
    stock options                                                 171                   158                   --
   Loss on investment                                           2,500                    --                   --
   Changes in assets and liabilities, net of
    effect of acquisition:
     Accounts receivable                                      (24,108)              (15,559)                 702
     Prepaid expenses                                            (696)                  271                 (345)
     Other current assets                                      (3,435)                  633               (1,479)
     Other assets                                                 (91)                 (299)                (718)
     Accounts payable                                           9,027                24,146               (6,043)
     Accrued liabilities                                        8,609                16,791                  422
     Other liabilities                                          2,615                   622                   --
                                                            ---------             ---------             --------
     Net cash provided by (used for) operating
      activities                                              (58,002)                3,702              (10,768)
Cash flows from investing activities:
 Capital expenditures                                        (176,167)              (52,337)             (10,902)
 Purchase of investment                                            --                (2,500)                  --
 Purchase of fiber capacity                                   (25,546)                   --                   --
 Proceeds from sale of Tel-Save common stock                       --                    --                9,500
 Business acquisitions                                             --                  (900)                  --
 Proceeds from sale and leaseback of fixed
  assets                                                           --                 4,516                   --
                                                            ---------             ---------             --------
     Net cash used for investing activities                  (201,713)              (51,221)              (1,402)
Cash flows from financing activities:
 Net payments on line of credit                                    --                    --               (4,510)
 Principal payments on capital lease obligations              (12,702)              (11,843)              (5,307)
 Principal payment of acquisition note payable                   (200)                   --                   --
 Proceeds from stockholder loan                                    --                    --                1,875
 Issuance costs associated with credit facility                (6,701)                   --                   --
 Payments on stockholder loans                                     --                    --               (1,755)
 Net proceeds from issuance of preferred stock                119,750                    --               37,500
 Payment on redemption of preferred stock                          --               (45,871)                  --
 Net proceeds from issuance of common stock                   129,011               136,070                   --
 Distribution to stockholders                                      --                    (3)              (5,003)
                                                            ---------             ---------             --------
     Net cash provided by financing activities                229,158                78,353               22,800
                                                            ---------             ---------             --------
Net increase (decrease) in cash                               (30,557)               30,834               10,630
Cash and cash equivalents at beginning of year                 43,031                12,197                1,567
                                                            ---------             ---------             --------
Cash and cash equivalents at end of year                    $  12,474             $  43,031             $ 12,197
                                                            =========             =========             ========
</TABLE>

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


                                       F-6
<PAGE>   53
                               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 telecommunications, broadband data,
and Internet data hosting services. The Company's bundled product offerings
include local and long distance voice services and high-speed data, Internet and
web server and managed server hosting services. The Company provides 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. All
revenues are billed and collected in U.S. dollars.

  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. 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.

     The Company's consolidated financial statements reflect the financial
position and results of operations of its wholly owned subsidiaries, Network
Plus, Inc. All intercompany transactions are eliminated in consolidation.

     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.

  Liquidity and Operations

     The Company currently anticipates that its available cash and Credit
Facility (See Note 8) will be sufficient to meet its anticipated working capital
and capital expenditure requirements through fiscal 2001. In the event its
operations are not profitable or do not generate sufficient cash to fund the
business, or if the Company fails to comply with its restrictions and
obligations under the Credit Facility, which could result in a default that
could limit the availability of borrowings under the facility, the Company may
have to substantially reduce its level of operations. In addition, the Company
may need to raise additional capital to meet its needs after 2001, to fund more
rapid expansion, to develop new services and to enhance existing services in
response to competitive pressures, and to acquire complementary services,
businesses or technologies. However, the Company may not be able to obtain
additional financing on terms favorable to it, if at all. If adequate funds are
not available or are not available on terms favorable to the Company, its
business, results of operations and financial condition could be materially and
adversely affected.


                                       F-7
<PAGE>   54
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


  Cash and 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, 2000
and 1999, $596 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. Costs incurred
in the repairing and maintaining of facilities and equipment are expensed as
incurred.

     The Company capitalizes costs associated with the design and
implementation of its internal use software. Capitalized internal software costs
generally include personnel costs incurred in the development, enhancement and
implementation of proprietary and purchased software packages. Through December
31, 2000, $5,351 of internal costs have been capitalized, the carrying value of
which is $4,316.

  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
basis for the existence of facts or circumstances, both internally and
externally, that may suggest impairment. The Company determines whether an


                                       F-8
<PAGE>   55
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


impairment has occurred based on undiscounted future cash flows and measures the
amount of the impairment based on the related future 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.

  Redeemable Preferred Stock

     The carrying value of redeemable preferred stock is increased by periodic
accretions so that the carrying amount will equal the redemption amount at the
mandatory redemption date. Such accretions are recorded as dividends, which
increase net loss applicable to common stockholders.

  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
and collection of the receivable is reasonably assured. Accounts receivable
includes 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 prior to the
reporting date. These amounts are billed subsequent to the reporting date and
are expected to be collected under standard terms offered to customers.

      Unbilled amounts were $19,501 and $13,295 at December 31, 2000, and 1999,
respectively.

     The Company transacts with customers for the sale of dark fiber-optic
capacity. When ownership in the dark fiber-optic cables transfer to the
customer, the Company accounts for such transactions as sales-type leases. All
other such transactions are recorded as either operating leases or service
arrangements. Sales-type leases accounted for approximately $4,000 of revenues
during fiscal 2000. Operating leases and service arrangements relating to
fiber-optic capacity transactions accounted for approximately $4,000 of
revenues.


                                       F-9
<PAGE>   56
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)

  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, power 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.

  Income Taxes

 Prior to September 3, 1998, the Company was 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.

     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 computations of basic and diluted loss per common share are based upon
the weighted average number of common shares outstanding and potentially
dilutive securities. Potentially dilutive securities include redeemable
cumulative 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 36%.

  Concentration of Risk

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
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.


                                      F-10
<PAGE>   57
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


Use of Estimates

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America, 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.



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 (9.5% at
December 31, 2000). Accrued interest on this loan, included in other long-term
liabilities, totaled $409 and $209 at December 31, 2000 and 1999, respectively.
Principal and interest will be payable July 31, 2003.

     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 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, Massachusetts 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 $941 to the trust in 2000, $849
in 1999 and $808 in 1998. Additionally, on March 1, 2000, the Company entered
into a 13 year lease for an 80,000 square foot office building in Randolph,
Massachusetts with a company that is wholly owned by the principal stockholders
of Network Plus. To date, the Company has incurred $857 for monthly rental fees
and $4,652 for leasehold improvements related to this facility.

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 $333, 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


                                      F-11
<PAGE>   58
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


base was amortized over a one-year period and was fully amortized as of December
31, 2000. The goodwill, which totaled $1,674, is being amortized over a
three-year period. Amortization expense during 2000 and 1999 was $606 and $50,
respectively.

     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,
2000 and 1999 had the transaction been consummated at the beginning of each
respective year.

     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. 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 was amortized over a six-month period. As of December 31, 2000, the value
of this customer base was fully amortized.

4. INVESTMENTS AND TRANSFER OF CUSTOMERS

In 1998, the Company received $9,500 as a final settlement of a 1995 transaction
whereby certain customers to whom it provided telecommunications services under
a resale agreement were transferred to Tel-Save Holdings, Inc. Following the
June 1998 settlement, there have been no additional transactions between the
parties.


5. PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                       December 31,
                                              Estimated         ---------------------------
                                             Useful Life            2000              1999
                                             -----------         --------          --------
<S>                                        <C>                   <C>               <C>
Network infrastructure and equipment         5 & 10 years        $162,665          $ 50,276
Computer equipment                            3-5 years            14,665             5,228
Office furniture and equipment                 7 years              3,783             1,975
Software                                       3 years             15,496             6,325
Motor vehicles                                 5 years                947               256
Leasehold improvements                     Shorter of term         28,684             7,959
                                             of lease or
                                            life of asset
Construction in progress                                           81,068            40,355
                                                                 --------          --------
                                                                  307,308           112,374
Less accumulated depreciation and
 Amortization                                                     (38,235)          (10,430)
                                                                 --------          --------
                                                                 $269,073          $101,944
                                                                 ========          ========
</TABLE>


                                      F-12
<PAGE>   59
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


Property and equipment under capital leases are as follows:

<TABLE>
<CAPTION>
                                                          December 31,
                                                -----------------------------
                                                  2000                 1999
                                                --------             --------
<S>                                             <C>                  <C>
Network infrastructure and equipment            $ 61,072             $ 34,770
Computer equipment                                 3,700                2,062
Motor vehicles                                       696                   99
Construction in Process                               14
                                                                        9,696
                                                --------             --------
                                                  65,482               46,627
Less accumulated amortization                    (15,893)              (4,004)
                                                --------             --------
                                                $ 49,589             $ 42,623
                                                ========             ========
</TABLE>

     Depreciation and amortization expense related to property and equipment for
the years ended December 31, 2000, 1999 and 1998 amounted to $27,805, $8,379 and
$2,037, respectively.


6. OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
                                           December 31,
                                    --------------------------
                                      2000              1999
                                    -------            ------
<S>                                 <C>                <C>
Prepaid fiber capacity              $39,707            $   --
Debt issuance costs, net              9,164               446
Rent deposits                         1,218               509
Intangible assets, net                1,071             3,286
Investment                               --             3,333
Other                                   328               162
                                    -------            ------
                                    $51,488            $7,736
                                    =======            ======
</TABLE>

Prepaid fiber capacity relates to payments made for long-haul transport
capacity. These fees were paid by the Company in exchange for a 20 year
indefeasible right to use pre-determined fiber routes connecting the
northeastern and southeastern regional networks. Based on the terms of the
agreement, these pre-determined routes may be changed at the option of the
Company. These fees are being amortized to operations over the 20 year service
period, of which $339 has been amortized in fiscal year 2000.


                                      F-13
<PAGE>   60
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)

      During 1999, the Company purchased common stock of NorthPoint
Communications, Inc. for $2.5 million. The securities were deemed to be
available-for-sale and, accordingly, to the extent considered temporary,
unrealized gains or losses in value were recorded as a component of Other
Comprehensive Income. At December 31, 2000, the Company's management determined
the $2.5 million impairment of this investment to be other than temporary and,
accordingly, a $2.5 million loss was recorded during 2000.


7. ACCRUED LIABILITIES


<TABLE>
<CAPTION>
                                                         December 31,
                                                  -------------------------
                                                    2000              1999
                                                  -------            ------
<S>                                               <C>                <C>
Accrued network service fees                      $ 4,859            $1,551
Deferred revenue                                    1,854               512
Accrued taxes, other than income taxes              1,572                --
Accrued payroll and related expenses                1,302             2,083
Other accrued liabilities                           5,392             2,224
                                                  -------            ------
                                                  $14,979            $6,370
                                                  =======            ======
</TABLE>

8. REVOLVING CREDIT AGREEMENTS AND LETTERS OF CREDIT

     On September 27, 2000, the Company entered into a Senior Secured Credit
Facility as amended, (the "Credit Facility"), with various lenders allowing for
maximum borrowings of $225 million. Subsequent to December 31, 2000 through
February 22, 2001, the Company has borrowed $55.0 million under the Credit
Facility. No amounts were outstanding at December 31, 2000. The Credit Facility
matures on June 30,2002, when all unpaid borrowings become immediately due.
Under this facility, the Company is entitled to borrowings not to exceed the sum
of (i) 80% of eligible accounts receivable, (ii) 70% of eligible unbilled
accounts, and (iii) 50% of eligible net property and equipment, as defined by
the agreement. Based on the terms of this agreement, the Company is subject to
various covenants, including the maintenance of certain financial ratios. The
Company is also required to maintain pre-established levels of revenue, earnings
before interest, taxes, depreciation, and amortization (EBITDA), days sales
outstanding (DSO) and access lines, as defined by the agreement. Additionally,
the Company is restricted as to the level of capital assets it may acquire
within any given quarter and is restricted from paying cash dividends. Failure
to comply with the restriction and covenant obligations under this Credit
Facility could result in a default. The lenders have a right, under events of
default, and an event deemed by the Lenders to be an adverse change in the
Company's business to terminate future borrowings under the Credit Facility and
require accelerated repayment of outstanding borrowings.

     On February 9, 2001, the Credit Facility was amended. Included in this
amendment was a provision to exclude the loss on the NorthPoint equity
investment recognized in 2000 from the calculation of EBITDA for purposes of
maintaining minimum EBITDA covenants as defined by the agreement. If this
amendment was not made, the Company would have not been in compliance with the
financial covenants under this facility.


                                      F-14
<PAGE>   61
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


     Borrowings under this facility are available in increments of $1 million,
with minimum proceeds of $5 million under each borrowing. The Company may choose
to classify each borrowing as either a base rate loan or a Eurodollar rate loan.

     Base rate loans accrue interest on unpaid principal at a rate per annum
equal to the applicable margin plus the greater of (i) the prime rate in effect
on such day and (ii) the federal funds effective rate in effect on such day plus
 .5 of 1% with changes effective daily. Interest payments on base rate loans are
due the last day of each fiscal quarter.

     Euro rate loans accrue interest on unpaid principal at a rate per annum
equal to the adjusted LIBOR rate plus the applicable margin. Changes become
effective and interest payments become due in accordance with the interest
period of one, two, three, or six months, as determined by the Company on the
borrowing date.

     The applicable margin as defined by the agreement is a percentage per
annum which increases on a quarterly basis beginning July 1, 2001. The initial
applicable margin for base rate loans and Euro rate loans is 4.00% and 6.50%,
respectively, through June 30, 2001. Beginning July 1, 2001 and the first day of
each quarter through maturity, the applicable margin on both the base rate loans
and Euro rate loans will increase in increments of 0.75%.

     In connection with the Credit Facility, the Company issued warrants
entitling the holders to purchase in aggregate 3,854,000 shares of the Company's
common stock at an exercise price of $7.01 per share. Upon entering the Credit
Facility, 72.73% of the warrants were exercisable, with 13.64% exercisable on a
pro rata basis with each amount drawn by the Company on the first $100,000 of
loans under the Credit Facility, and the remaining 13.63% exercisable at any
time on or after the date the amount drawn by the Company under the credit
agreement exceeds $100,000. These warrants were valued using a black-scholes
valuation model assuming an interest rate of 5.83%, volatility of 93%, no
dividends, and an estimated life of 3 years. The $15,043 value assigned to these
warrants along with $6,701 of other issuance costs is included in debt issuance
costs and is being accreted to interest expense on a straight-line basis through
the maturity date. At December 31, 2000, $10,123 and $9,164 of unamortized debt
issuance costs remains in other current and long-term assets, respectively.


                                      F-15
<PAGE>   62
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


The Company is obligated to pay a fee (the "commitment fee") for all unused
portions of this facility. The commitment fee is calculated on a quarterly basis
by multiplying the average daily unused commitments within each quarter by 0.50%
per annum and is due quarterly in arrears, beginning September 30, 2000. To
date, the Company has incurred $291 for this commitment fee, which is recorded
as interest expense. Additionally, the Company has agreed to pay a fee (the
"lenders fee") equal to 1.0% of requested borrowings, on each such borrowing
date.
     Along with this agreement, the Company has also entered into a pledge and
security agreement, pledging substantially all of the Company's assets of the
lenders as collateral.


9. DEBT AND CAPITAL LEASE OBLIGATIONS

     Debt and capital lease obligations consist of the following:

<TABLE>
<CAPTION>
                                              December 31,
                                     -----------------------------
                                       2000                 1999
                                     --------             --------
<S>                                  <C>                  <C>
Note payable                         $     --             $    200
Capital lease obligations              45,639               38,713
                                     --------             --------
                                       45,639               38,913
Less current portion                  (17,288)             (11,346)
                                     --------             --------
                                     $ 28,351             $ 27,567
                                     ========             ========
</TABLE>


                                      F-16
<PAGE>   63
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


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 2015 and require the payment of various operating costs including
condominium fees. Rental expense related to the leases for the years ended
December 31, 2000, 1999 and 1998 were $7,582, $3,058 and $1,263, 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>
2001                                                $ 19,392         $  9,531
2002                                                  12,765            9,806
2003                                                   8,461            9,733
2004                                                   4,232            9,698
2005                                                   1,719            9,668
Thereafter                                             9,819           74,135
                                                    --------         --------
Total minimum lease payments                        $ 56,388         $122,571
                                                                     ========
Less imputed interest                                (10,749)
                                                    --------
Present value of minimum lease payments               45,639
Less current portion                                 (17,288)
                                                    --------
Long-term capital lease obligations                 $ 28,351
                                                    ========
</TABLE>

11. 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
therefore, provided that the payment of dividends on the common stock or other
distributions are 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 the preferred stock will be
distributed to the holders of common stock ratably in proportion to the number
of shares held by them.


                                      F-17
<PAGE>   64
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


     On April 12, 2000, the Company completed an offering for the sale of
5,000,000 shares of common stock at a price of $29.00 per share, 490,196 of
which shares were sold by selling stockholders. The Company issued 4,509,804
shares of common stock in this offering resulting in proceeds to the Company of
$123,315, net of issuance costs and underwriting discounts of $7,469.

  Common Stock Dividends

     On September 2, 1998, the Company issued a $5,000 dividend to its
stockholders. Following receipt of the dividend, one stockholder loaned the
Company $1,875 (representing the distribution to that stockholder, net of the
estimated tax liability resulting from such distribution). Interest accrues at
prime rate. In accordance with the terms of the agreement, interest and
principal will be payable on July 31, 2003.

  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.

12. REDEEMABLE 7.5% SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK

     On April 12, 2000, the Company issued 2,500,000 depositary shares each
representing 1/10 of a share of Redeemable 7.5% Series A Cumulative Convertible
Preferred Stock ("Series A Preferred Stock"). In consideration for this
offering, the Company received cash proceeds of $119,750, net of issuance costs
and underwriting discounts of $5,250. Holders of Series A Preferred Stock have
no voting rights except upon the occurrence of a voting rights triggering event
as defined by the preferred stock terms.

  Conversion

     Each share of Series A Preferred Stock is convertible, at any time at the
option of the holder, into a number of common shares as determined by dividing
the liquidation preference plus all accrued and unpaid dividends, by the
conversion price. The conversion price, which is subject to adjustment to
prevent the dilution of the interest of the holders of the Series A Preferred
Stock, is equal to $34.80 at December 31, 2000.


                                      F-18
<PAGE>   65
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)

Liquidation

     Upon the event of voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company, each Series A Preferred Stockholder is
entitled to the liquidation preference plus any accumulated and unpaid
dividends. The liquidation preference is equal to the sum of $500 per share of
Series A Preferred Stock. Series A Preferred Stockholders have liquidating
preference ranking above common stockholders; however, they are not entitled to
participate in any distribution of the Company's assets beyond payment of
liquidation preference. The Company is not required to designate or set aside
any funds to protect the liquidation preference.

  Redemption

     Series A Preferred Stock may be redeemed, at the option of the Company,
beginning April 10, 2005, for each of the following five years, and thereafter,
at an amount equal to 103.75%, 103.00%, 102.25%, 101.50%, 100.75%, and 100.00%
of the liquidation preference, respectively. Redemption payment may be in the
form of cash or in the number of common shares determined by dividing the
redemption amount otherwise payable in cash by 95% of the average market price
for the 10 days following the redemption effective date.

     The Company will be required to redeem all of the outstanding shares of
Series A Preferred Stock on April 1, 2012 at a redemption price equal to 100% of
the liquidation preference, together with accumulated and unpaid dividends.
Accordingly, the Company is accreting the carrying value of the Series A
Preferred Stock to the redemption amount, on a straight-line basis over 12
years.

     Additionally, in the event of a change in control, unless the closing
price of common stock exceeds 105% of the effective conversion rate at the time
of announcement or unless all of the consideration received by holders of common
stock in the transaction giving rise to the change in control is publicly traded
common stock, the Company must at the option of each Series A Preferred
Stockholder, offer a payment in cash equal to 100% of the liquidation preference
plus all accumulated and unpaid dividends in exchange for all of the
then-outstanding shares of Series A Preferred Stock held by such stockholders.

  Dividends

     Holders of Series A Preferred Stock are entitled to receive dividends when
and if declared by the Company's Board of Directors. Dividends on the Series A
Preferred Stock are cumulative at a rate of 7.50% per annum, and are payable
quarterly in arrears in cash, common stock, or any combination thereof.
Dividends paid in common stock are payable in the number of shares calculated by
dividing the amount otherwise payable in cash by 95% of the arithmetic average
of the closing price of the Company's common stock for the 5 trading days
preceding the dividend payment date. The terms of the Credit Facility restrict
the Company from paying cash dividends. Through December 31, 2000, the Company
issued


                                      F-19
<PAGE>   66
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


491,100 shares of common stock for payment of Series A Preferred Stock dividends
and, accordingly, a premium of $454 associated with payment of dividends in
common shares has been recorded as an additional dividend.

     During December 2000, the Company declared a common stock dividend
totaling $2,566 to settle the accumulated but unpaid Series A Preferred Stock
dividend. Accordingly, at December 31, 2000, the Company has accounted for the
payable of common stock as an adjustment to additional paid-in-capital. The
Company issued 1,026,610 shares of common stock in January 2001 in payment of
this dividend.

13. 13.5% SERIES A CUMULATIVE PREFERRED STOCK

     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. 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 The 1998 Incentive Plan expires in July 2008, unless
sooner terminated by the Board.


                                      F-20
<PAGE>   67
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)

     On July 15, 1998, the Company adopted the 1998 Director Stock Option Plan
(as amended, 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 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. As of December 31, 2000, the
Company's two non-employee directors have received options to purchase a total
of 90,664 shares of common stock with a weighted average exercise price of $8.51
per share under the Director Plan. Additionally, the Company's two non-employee
directors have received options to purchase a total of 65,000 shares of common
stock under the 1998 Incentive Plan, with a weighted average exercise price of
$7.43 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, and compensation expense of $171 and $158 was recognized in 2000
and 1999, respectively. No compensation expense was recognized in 1998.

Stock option activity for the years ended December 31, 2000, 1999 and 1998 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
Options granted                               3,132,580               8.28
Options exercised                              (737,701)              6.99
Options cancelled                              (461,739)             15.21
                                              ---------
Shares under option, December 31, 2000         6,746,897              8.68
                                              =========
</TABLE>


                                      F-21
<PAGE>   68
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


The following table summarizes information about the stock options outstanding
at December 31, 2000.

<TABLE>
<CAPTION>
                                     Weighted-
                                      Average        Weighted-                        Weighted-
                     Number          Remaining        Average         Number           Average
  Exercise         Outstanding      Contractual       Exercise      Exercisable       Exercise
   Price           At 12/31/00      Life (Years)        Price        At 12/31/00        Price
-------------      -----------      -----------      ---------      -----------     -----------
<S>                <C>              <C>              <C>            <C>             <C>
$ 2.00- 2.72        1,266,910          10.0           $ 2.50           341,744         $ 2.50
  3.03- 4.41          905,324           5.6             3.60           481,486           3.85
  5.38- 8.03        1,523,577           7.6             6.67           489,336           6.64
  8.06-12.06        1,411,792           7.8            10.44           571,768          10.45
 12.25-53.75        1,639,294           9.1            16.60           322,693          16.87
------------        ---------         -----           ------         ---------         ------
$ 2.00-53.75        6,746,897           8.2           $ 8.68         2,207,027         $ 7.87
============        =========         =====           ======         =========         ======
</TABLE>

At December 31, 2000, 2,207,027 options were exercisable and the Company had an
aggregate of 1,873,226 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 2000, 1999 and 1998,
respectively: no dividends, 89%, 77% and 0% volatility, weighted average
risk-free rate of return of 5.0%, 6.0% and 6.3%, and an expected life of four to
five years for all grants. The weighted-average fair value of the stock options
granted in 2000, 1999 and 1998 was $5.52, $6.33 and $0.42, respectively.

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,
                                                      -------------------------------------------------
                                                        2000                 1999                1998
                                                      --------             --------             -------
<S>                                                   <C>                  <C>                  <C>
Net loss applicable to common stockholders            $(92,817)            $(43,579)            $(6,388)
Amortization of stock compensation expense              (6,313)                (754)               (168)
                                                      --------             --------             -------
Pro forma net loss applicable to common
  Stockholders                                        $(99,130)            $(44,333)            $(6,556)
                                                      ========             ========             =======
Pro forma net loss per share -- basic and
  Diluted                                             $  (1.68)            $  (0.89)            $ (0.14)
                                                      ========             ========             =======
</TABLE>


                                      F-22
<PAGE>   69
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


15. EMPLOYEE STOCK PURCHASE PLAN

     On June 9, 1999, the Company approved the 1999 Employee Stock Purchase Plan
(as amended the "ESPP"), 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 ESPP. The ESPP consists of semiannual offerings
beginning on January 1 and July 1 of each year. The first offering under the
ESPP commenced on January 1, 2000. Each offering under the ESPP 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 10% deducted from his or her regular salary for the
purpose of purchasing shares under the ESPP. 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,
                                                -------------------------------------------
                                                  2000               1999              1998
                                                --------            -----             -----
<S>                                             <C>                 <C>               <C>
Current taxes:                                  $     --            $  --             $  55
                                                ========            =====             =====
Deferred taxes:
  Federal                                       $     --            $ 983             $(880)
  State                                               --              (22)              (81)
                                                --------            -----             -----
     Total                                      $     --            $ 961             $(961)
                                                ========            =====             =====
Provision (benefit) for income taxes            $     --            $ 961             $(906)
                                                ========            =====             =====
</TABLE>


                                        F-23
<PAGE>   70
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


Deferred tax assets and liabilities consist of the following:

<TABLE>
<CAPTION>
                                                   December 31,
                                            -----------------------------
                                              2000                 1999
                                            --------             --------
<S>                                         <C>                  <C>
Accrued expenses                            $  5,785             $    500
Allowance for doubtful accounts                1,252                  997
Net operating loss carryforwards              36,635               11,479
Valuation allowance                          (40,744)             (12,295)
                                            --------             --------
Deferred tax assets                         $  2,928             $    681
                                            ========             ========
Depreciation                                $  2,928             $    681
                                            --------             --------
Deferred tax liabilities                    $  2,928             $    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,
                                                   -------------------------------------------------
                                                     2000                 1999                1998
                                                   --------             --------             -------
<S>                                                <C>                  <C>                  <C>
Tax at U.S. Federal income tax rate                $(29,003)            $(10,844)            $(1,798)
State income taxes, net of U.S. Federal
 income tax benefit                                      --                 (106)                 41
Recognition of deferred taxes upon
 Conversion from S Corp. to C Corp.                      --                   --                 349
Permanent timing differences and other                  554                 (384)                 32
S Corp. loss                                             --                   --                 470
Increase in valuation allowance                      28,449               12,295                  --
                                                   --------             --------             -------
Provision (benefit) for income taxes               $     --             $    961             $  (906)
                                                   ========             ========             =======
</TABLE>

     In September 1998, the Company terminated its S election, and subsequently
is filing its returns as a C Corporation. Prior to the termination, deferred
income taxes were provided for state tax purposes, for those states which tax S
corporation earnings.

     The Company has provided a valuation allowance for the full amount of its
net deferred tax assets since the realization of any future benefit from the
deductible temporary differences and net operating loss carryforwards cannot be
sufficiently assured at December 31, 2000 and 1999.

      The Company has available federal net operating loss carryforwards of
approximately $111,177, which will expire in various amounts in 2013 to 2015.


                                      F-24
<PAGE>   71
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


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
redeemable convertible preferred stock options and warrants.

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

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                              --------------------------------------------------------------
                                                  2000                     1999                     1998
                                              ------------             ------------             ------------
<S>                                           <C>                      <C>                      <C>
Net loss applicable to Network
  Plus Corp. common stockholders              $    (92,817)            $    (43,579)            $     (6,388)
Shares used in net loss per
  share -- basic and diluted                    59,173,000               49,969,000               45,333,000
                                              ============             ============             ============
Net loss per share applicable to
  common stockholders -- basic and
  diluted                                     $      (1.57)            $      (0.87)            $      (0.14)
                                              ============             ============             ============
</TABLE>

     Warrants for the purchase of 4,041,077, 1,416,666 and 1,405,333 shares of
common stock were not included in the 2000, 1999 and 1998 computations of
diluted net 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 2000, 1999 and 1998 periods.

Stock options for the purchase of 6,746,897, 4,813,757 and 3,378,698 shares of
common stock were not included in the 2000, 1999 and 1998 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,
or inclusion of such shares would have an anti-dilutive effect on net loss per
share.


                                      F-25
<PAGE>   72
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


     Shares of redeemable convertible preferred stock which are convertible
into an aggregate of 3,665,690 shares of common stock were not included in the
2000 computation of diluted net loss per share because inclusion of such shares
would have an anti-dilutive effect on net loss per share.


18. 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 years ended
December 31, 2000 and 1999.


19. 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 2000, 1999 or 1998.


20. SEGMENT INFORMATION

     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, principally businesses. 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.


                                      F-26
<PAGE>   73
                               NETWORK PLUS CORP.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                 (In Thousands, Except Share and Per Share Data)


<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                         ------------------------------------------------
                                                           2000                1999                1998
                                                         --------            --------            --------
<S>                                                      <C>                 <C>                 <C>
Revenues:
  Retail telecommunications and data services            $148,995            $ 91,132            $ 75,506
  Wholesale telecommunications                             86,961              61,388              30,039
                                                         --------            --------            --------
Total revenues                                           $235,956            $152,520            $105,545
                                                         ========            ========            ========
Costs of services:
  Retail telecommunications and data services            $ 98,030            $ 65,255            $ 51,371
  Wholesale telecommunications                             87,638              57,409              27,072
                                                         --------            --------            --------
Total costs of services                                  $185,668            $122,664            $ 78,443
                                                         ========            ========            ========
</TABLE>

21. SUPPLEMENTAL CASH FLOWS INFORMATION

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                       ------------------------------------------------
                                                          2000                 1999              1998
                                                       ---------            ---------            ------
<S>                                                    <C>                  <C>                  <C>
Cash paid during the year for:
  Interest                                             $   3,492            $   4,012            $1,114
                                                       =========            =========            ======
  Income taxes                                         $      --            $      --            $  111
                                                       =========            =========            ======
Noncash investing and financing activities:
     Fixed assets acquired under capital
       Leases                                          $  18,855            $  41,825            $   28
                                                       =========            =========            ======
     Accrued fiber capacity                            $  14,500            $      --            $   --
                                                       =========            =========            ======
     Dividends recorded on preferred stock,
      paid or to be paid in common stock               $   7,199            $      --            $   --
                                                       =========            =========            ======
     Note converted to customer list                   $      --            $     448            $   --
                                                       =========            =========            ======
     Common stock issued for purchase of
       Infohouse                                       $      --            $   2,432            $   --
                                                       =========            =========            ======
     Note issued for purchase of
       Infohouse                                       $      --            $     200            $   --
                                                       =========            =========            ======
</TABLE>


                                      F-27
<PAGE>   74
                               NETWORK PLUS CORP.
                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                             Additional
                                          Balance At         Charges To                             Balance
                                          Beginning          Costs and         Deductions           At End
Description                               Of Period           Expenses             (1)             Of Period
-----------                               ---------           --------             ---             ---------
<S>                                       <C>                <C>                <C>               <C>
Allowance for doubtful accounts:
Year Ended December 31, 2000                $ 2,624            $ 3,457            $2,787            $ 3,294
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

Tax valuation allowance:
Year ended December 31, 2000                $12,295            $28,449                --            $40,744
Year ended December 31, 1999                     --             12,295                --             12,295
</TABLE>

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

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



                                       S-1
<PAGE>   75
                        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(d) 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
March 30, 2001


                                       S-2