##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-Q

|           |  |                                                                                                                                     
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                                                     
|          
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD
    ENDED MARCH 31, 2003.
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934                                        

Commission file number 000-31105



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LEXENT INC.

(Exact name of registrant as specified in its
charter)


|                                                                                        |  |                                         
|--------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                |  | 13-3990223                              
|(State or other jurisdiction of
    incorporation or organization)                      |  | (I.R.S. Employer
    Identification No.)
|Three New York Plaza
    New York, New York(Address of principal executive
    offices) |  | 10004(Zip Code)                         

Registrants telephone number, including
area code:

212-981-0700


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 þ          No o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12 b-2 of the
Securities Exchange Act of
1934).     Yes o          No þ

Indicate the number of shares outstanding of each
of the issuers classes of common stock, as of the latest
practicable date. Common Stock, $.001 par value,
42,244,959 shares outstanding as of April 28, 2003.



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TABLE OF CONTENTS



|                              |                                                                                               |  |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                 
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                              | Item 4. Controls and Procedures                                                              
|PART II OTHER INFORMATION    
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 5. Other Information                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|CERTIFICATION                
|CERTIFICATION                



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##### Table of Contents



LEXENT INC. AND SUBSIDIARIES

TABLE OF CONTENTS

|                              |  |                                                                                                                                  |       |          |       | 
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------- | ----- | -------- | ----- | 
|                              |  |                                                                                                                                  |       | Page No.
|                              |  |                                                                                                                                  |       |         
|PART I. FINANCIAL INFORMATION
|Item 1.                       |  | Financial Statements                                                                                                             |       |          |       | 
|                              |  | Condensed Consolidated Balance Sheets as of
    March 31, 2003 (unaudited) and December 31, 2002                                 |       |          | 2     | 
|                              |  | Condensed Consolidated Statements of Operations
    (unaudited) for the Three Months Ended March 31, 2003
    and March 31, 2002 |       |          | 3     | 
|                              |  | Condensed Consolidated Statements of Cash Flows
    (unaudited) for the Three Months Ended March 31, 2003
    and March 31, 2002 |       |          | 4     | 
|                              |  | Notes to Condensed Consolidated Financial
    Statements (unaudited)                                                             |       |          | 5-11  | 
|Item 2.                       |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                        |       |          | 12-14 | 
|Item 3.                       |  | Quantitative and Qualitative Disclosures about
    Market Risk                                                                   |       |          | 14-15 | 
|Item 4.                       |  | Controls and Procedures                                                                                                          |       |          | 15    | 
|PART II. OTHER INFORMATION   
|Item 1.                       |  | Legal Proceedings                                                                                                                |       |          | 15    | 
|Item 5.                       |  | Other information                                                                                                                |       |          | 15-16 | 
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                                 |       |          | 16    | 
|Signatures                    |  |                                                                                                                                  | 17    |         
|Certifications                |  |                                                                                                                                  | 18-19 |         

1



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##### Table of Contents






PART I.

FINANCIAL INFORMATION




Item 1.Financial
Statements

LEXENT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE
SHEETS


|                                         |                                                                                                                                                                          |                                            |       |              |         |  |       |         |         | 
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ----- | ------------ | ------- |  | ----- | ------- | ------- | 
|                                         |                                                                                                                                                                          | March 31,                                  |       | December 31,
|                                         |                                                                                                                                                                          | 2003                                       |       | 2002        
|                                         |                                                                                                                                                                          |                                            |       |             
|                                         |                                                                                                                                                                          | (Unaudited)                                |       |             
|                                         |                                                                                                                                                                          |                                           
|                                         |                                                                                                                                                                          | (Dollars in thousands,                    
|                                         |                                                                                                                                                                          | except per share amounts)                 
|ASSETS                                  
|Current assets:                          |                                                                                                                                                                          |                                            |       |              |         |  |       |        
|                                         | Cash and cash equivalents                                                                                                                                                |                                            | $     | 26,101       |         |  | $     | 28,109  |        
|                                         | Certificate of deposit (restricted cash)                                                                                                                                 |                                            |       | 2,003        |         |  |       | 2,012   |        
|                                         | Available-for-sale investments                                                                                                                                           |                                            |       | 42,939       |         |  |       | 44,302  |        
|                                         | Receivables, net                                                                                                                                                         |                                            |       | 20,782       |         |  |       | 28,311  |        
|                                         | Prepaid expenses and other current assets                                                                                                                                |                                            |       | 549          |         |  |       | 2,048   |        
|                                         | Income taxes receivable                                                                                                                                                  |                                            |       | 14,750       |         |  |       | 14,750  |        
|                                         |                                                                                                                                                                          |                                            |       |              |         |  |       |        
|                                         |                                                                                                                                                                          | Total current assets                       |       |              | 107,124 |  |       |         | 119,532 | 
|Property and equipment, net              |                                                                                                                                                                          |                                            | 3,559 |              |         |  | 4,033 |        
|Other assets                             |                                                                                                                                                                          |                                            | 849   |              |         |  | 880   |        
|                                         |                                                                                                                                                                          |                                            |       |              |         |  |       |        
|                                         |                                                                                                                                                                          | Total assets                               |       | $            | 111,532 |  |       | $       | 124,445 | 
|                                         |                                                                                                                                                                          |                                            |       |              |         |  |       |        
|                                        
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                                                          |                                            |       |              |         |  |       |        
|                                         | Accounts payable                                                                                                                                                         |                                            | $     | 4,225        |         |  | $     | 7,494   |        
|                                         | Accrued liabilities                                                                                                                                                      |                                            |       | 3,170        |         |  |       | 6,229   |        
|                                         | Restructure reserve                                                                                                                                                      |                                            |       | 3,077        |         |  |       | 4,023   |        
|                                         | Billings in excess of costs and estimated
    earnings on uncompleted projects                                                                                           |                                            |       | 2,880        |         |  |       | 1,837   |        
|                                         | Provision for contract losses                                                                                                                                            |                                            |       | 3,082        |         |  |       | 3,472   |        
|                                         | Subordinated note payable to stockholder                                                                                                                                 |                                            |       | 1,582        |         |  |       | 1,582   |        
|                                         | Equipment and capital lease obligations                                                                                                                                  |                                            |       | 170          |         |  |       | 451     |        
|                                         |                                                                                                                                                                          |                                            |       |              |         |  |       |        
|                                         |                                                                                                                                                                          | Total current liabilities                  |       |              | 18,186  |  |       |         | 25,088  | 
|Subordinated note payable to stockholder |                                                                                                                                                                          |                                            |      |              |         |  | 396   |        
|Accrued liabilities  noncurrent         |                                                                                                                                                                          |                                            | 750   |              |         |  | 600   |        
|Restructure reserve  noncurrent         |                                                                                                                                                                          |                                            | 6,216 |              |         |  | 6,566 |        
|Equipment and capital lease obligations  |                                                                                                                                                                          |                                            | 39    |              |         |  | 70    |        
|                                         |                                                                                                                                                                          |                                            |       |              |         |  |       |        
|                                         |                                                                                                                                                                          | Total liabilities                          |       |              | 25,191  |  |       |         | 32,720  | 
|                                         |                                                                                                                                                                          |                                            |       |              |         |  |       |        
|Commitments and contingencies            |                                                                                                                                                                          |                                            |       |              |         |  |       |        
|Stockholders equity:                    |                                                                                                                                                                          |                                            |       |              |         |  |       |        
|                                         | Common stock, $.001 par value, 120,000,000 shares
    authorized, 42,236,959 and 42,168,396 shares outstanding at
    March 31, 2003 and December 31, 2002, respectively |                                            |       | 42           |         |  |       | 42      |        
|                                         | Additional paid-in capital                                                                                                                                               |                                            |       | 156,057      |         |  |       | 156,035 |        
|                                         | Deferred stock-based compensation                                                                                                                                        |                                            |       | (1,435       | )       |  |       | (2,126  | )      
|                                         | Accumulated other comprehensive income                                                                                                                                   |                                            |       | 2            |         |  |       | 105     |        
|                                         | Accumulated deficit                                                                                                                                                      |                                            |       | (68,325      | )       |  |       | (62,331 | )      
|                                         |                                                                                                                                                                          |                                            |       |              |         |  |       |        
|                                         |                                                                                                                                                                          | Total stockholders equity                 |       |              | 86,341  |  |       |         | 91,725  | 
|                                         |                                                                                                                                                                          |                                            |       |              |         |  |       |        
|                                         |                                                                                                                                                                          | Total liabilities and stockholders equity |       | $            | 111,532 |  |       | $       | 124,445 | 
|                                         |                                                                                                                                                                          |                                            |       |              |         |  |       |        

See accompanying notes to condensed consolidated
financial statements.

2



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##### Table of Contents



LEXENT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                            |                                     |                                   |        |        |       |   |        |        |       | 
|------------------------------------------- | ----------------------------------- | --------------------------------- | ------ | ------ | ----- | - | ------ | ------ | ----- | 
|                                            |                                     |                                  
|                                            |                                     | For the Three Months             
|                                            |                                     | Ended March 31,                  
|                                            |                                     |                                  
|                                            |                                     | 2003                              |        | 2002  
|                                            |                                     |                                   |        |       
|                                            |                                     |                                  
|                                            |                                     | (Dollars in thousands,           
|                                            |                                     | except per share                 
|                                            |                                     | amounts)                         
|                                            |                                     | (Unaudited)                      
|Revenues                                    |                                     | $                                 | 20,345 |        |       | $ | 31,313 |       
|Cost of revenues                            |                                     |                                   | 22,529 |        |       |   | 29,435 |       
|                                            |                                     |                                   |        |        |       |   |        |       
|                                            | Gross margin                        |                                   |        | (2,184 | )     |   |        | 1,878  |      
|                                            |                                     |                                   |        |        |       |   |        |       
|Operating expenses:                         |                                     |                                   |        |        |       |   |        |       
|                                            | General and administrative expenses |                                   |        | 2,854  |       |   |        | 4,432  |      
|                                            | Depreciation and amortization       |                                   |        | 513    |       |   |        | 1,289  |      
|                                            | Non-cash stock-based compensation*  |                                   |        | 681    |       |   |        | 1,021  |      
|                                            | Restructuring charges               |                                   |        |       |       |   |        | 1,441  |      
|                                            |                                     |                                   |        |        |       |   |        |       
|                                            |                                     | Total operating expenses          |        |        | 4,048 |   |        |        | 8,183 | 
|                                            |                                     |                                   |        |        |       |   |        |       
|Loss from operations                        |                                     |                                   | (6,232 | )      |       |   | (6,305 | )     
|Other income and expense:                   |                                     |                                   |        |        |       |   |        |       
|                                            | Interest expense                    |                                   |        | 34     |       |   |        | 76     |      
|                                            | Interest income                     |                                   |        | (259   | )     |   |        | (359   | )    
|                                            | Other (income) expense, net         |                                   |        | (51    | )     |   |        | 1,408  |      
|                                            |                                     |                                   |        |        |       |   |        |       
|                                            |                                     | Total other (income) expense, net |        |        | (276  | ) |        |        | 1,125 | 
|                                            |                                     |                                   |        |        |       |   |        |       
|Loss before income taxes                    |                                     |                                   | (5,956 | )      |       |   | (7,430 | )     
|Provision for (benefit from) income taxes   |                                     |                                   | 38     |        |       |   | (701   | )     
|                                            |                                     |                                   |        |        |       |   |        |       
|                                            | Net loss                            |                                   | $      | (5,994 | )     |   | $      | (6,729 | )    
|                                            |                                     |                                   |        |        |       |   |        |       
|Net loss per share:                         |                                     |                                   |        |        |       |   |        |       
|                                            | Basic and diluted                   |                                   | $      | (0.14  | )     |   | $      | (0.16  | )    
|                                            |                                     |                                   |        |        |       |   |        |       
|Weighted average common shares outstanding: |                                     |                                   |        |        |       |   |        |       
|                                            | Basic                               |                                   |        | 42,195 |       |   |        | 41,699 |      
|                                            |                                     |                                   |        |        |       |   |        |       
|                                            | Diluted                             |                                   |        | **     |       |   |        | **     |      



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|   |                                                                                                   
|-- | --------------------------------------------------------------------------------------------------
|*  | Substantially these amounts would have been
    classified as general and administrative expenses.
|  
|** | Anti-dilutive, therefore, not presented.                                                          

See accompanying notes to condensed consolidated
financial statements.

3



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##### Table of Contents



LEXENT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                         |                                                                                               |                                                                                |                                                         |        |        |        |        |        |        |       |  
|-------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------------- | ------ | ------ | ------ | ------ | ------ | ------ | ----- | -
|                                                         |                                                                                               |                                                                               
|                                                         |                                                                                               | For the Three Months                                                          
|                                                         |                                                                                               | Ended March 31,                                                               
|                                                         |                                                                                               |                                                                               
|                                                         |                                                                                               | 2003                                                                           |                                                         | 2002  
|                                                         |                                                                                               |                                                                                |                                                         |       
|                                                         |                                                                                               |                                                                               
|                                                         |                                                                                               | (Dollars in thousands)                                                        
|                                                         |                                                                                               | (Unaudited)                                                                   
|Cash flows from operating activities:                    |                                                                                               |                                                                                |                                                         |        |        |        |        |       
|                                                         | Net loss                                                                                      |                                                                                | $                                                       | (5,994 | )      |        | $      | (6,729 | )     
|                                                         | Adjustments to reconcile net loss to net cash
    (used in) provided by operating activities: |                                                                                |                                                         |        |        |        |        |        |       
|                                                         |                                                                                               | Restructuring charges                                                          |                                                         |        |       |        |        |        | 1,441  |      
|                                                         |                                                                                               | Depreciation and amortization                                                  |                                                         |        | 513    |        |        |        | 1,289  |      
|                                                         |                                                                                               | Provision for uncollectible accounts                                           |                                                         |        | (118   | )      |        |        | 237    |      
|                                                         |                                                                                               | Loss on investment/disposition of assets                                       |                                                         |        |       |        |        |        | 1,408  |      
|                                                         |                                                                                               | Provision for deferred taxes                                                   |                                                         |        |       |        |        |        | 2,253  |      
|                                                         |                                                                                               | Provision for contract losses                                                  |                                                         |        | (390   | )      |        |        |       |      
|                                                         |                                                                                               | Non-cash stock-based compensation                                              |                                                         |        | 681    |        |        |        | 1,021  |      
|                                                         | Changes in working capital items:                                                             |                                                                                |                                                         |        |        |        |        |        |       
|                                                         |                                                                                               | Receivables                                                                    |                                                         |        | 7,647  |        |        |        | 6,493  |      
|                                                         |                                                                                               | Prepaid expenses and other current assets                                      |                                                         |        | 1,499  |        |        |        | 632    |      
|                                                         |                                                                                               | Other assets                                                                   |                                                         |        | 31     |        |        |        | 403    |      
|                                                         |                                                                                               | Accounts payable                                                               |                                                         |        | (3,269 | )      |        |        | 178    |      
|                                                         |                                                                                               | Accrued liabilities                                                            |                                                         |        | (4,093 | )      |        |        | (3,856 | )    
|                                                         |                                                                                               | Income taxes payable and prepaid taxes                                         |                                                         |        |       |        |        |        | (1,245 | )    
|                                                         |                                                                                               | Billings in excess of costs and estimated
    earnings on uncompleted projects |                                                         |        | 1,043  |        |        |        | 764    |      
|                                                         |                                                                                               |                                                                                |                                                         |        |        |        |        |       
|                                                         |                                                                                               |                                                                                | Net cash (used in) provided by operating
    activities |        |        | (2,450 | )      |        |        | 4,289 |  
|                                                         |                                                                                               |                                                                                |                                                         |        |        |        |        |       
|Cash flows from investing activities:                    |                                                                                               |                                                                                |                                                         |        |        |        |        |       
|                                                         | Capital expenditures, net of equipment loans and
    capital leases                           |                                                                                |                                                         | (148   | )      |        |        | (300   | )     
|                                                         | Proceeds from renewal of certificate of deposit                                               |                                                                                |                                                         | 16     |        |        |        |       |       
|                                                         | Proceeds from sale of available-for-sale
    investments                                      |                                                                                |                                                         | 1,260  |        |        |        | 3,003  |       
|                                                         |                                                                                               |                                                                                |                                                         |        |        |        |        |       
|                                                         |                                                                                               |                                                                                | Net cash provided by investing activities               |        |        | 1,128  |        |        |        | 2,703 |  
|                                                         |                                                                                               |                                                                                |                                                         |        |        |        |        |       
|Cash flows from financing activities:                    |                                                                                               |                                                                                |                                                         |        |        |        |        |       
|                                                         | Proceeds from exercise of stock options and stock
    purchase plan                           |                                                                                |                                                         | 22     |        |        |        | 279    |       
|                                                         | Repayments of subordinated note payable to
    stockholder                                    |                                                                                |                                                         | (396   | )      |        |        | (396   | )     
|                                                         | Repayments of equipment loans and capital leases                                              |                                                                                |                                                         | (312   | )      |        |        | (420   | )     
|                                                         |                                                                                               |                                                                                |                                                         |        |        |        |        |       
|                                                         |                                                                                               |                                                                                | Net cash used in financing activities                   |        |        | (686   | )      |        |        | (537  | )
|                                                         |                                                                                               |                                                                                |                                                         |        |        |        |        |       
|Net (decrease) increase in cash and cash
    equivalents |                                                                                               |                                                                                | (2,008                                                  | )      |        |        | 6,455  |       
|Cash and cash equivalents at beginning of period         |                                                                                               |                                                                                | 28,109                                                  |        |        |        | 75,839 |       
|                                                         |                                                                                               |                                                                                |                                                         |        |        |        |        |       
|Cash and cash equivalents at end of period               |                                                                                               | $                                                                              | 26,101                                                  |        |        | $      | 82,294 |       
|                                                         |                                                                                               |                                                                                |                                                         |        |        |        |        |       
|Supplemental cash flow information:                      |                                                                                               |                                                                                |                                                         |        |        |        |        |       
|                                                         | Cash paid for:                                                                                |                                                                                |                                                         |        |        |        |        |        |       
|                                                         |                                                                                               | Interest                                                                       |                                                         | $      | 36     |        |        | $      | 83     |      
|                                                         |                                                                                               | Income taxes                                                                   |                                                         | $      | 20     |        |        | $      | 96     |      

See accompanying notes to condensed consolidated
financial statements.

4



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##### Table of Contents



LEXENT INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2003


(Unaudited)


The condensed consolidated financial statements
of Lexent Inc. and Subsidiaries (the Company)
included herein have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange
Commission (SEC). Certain information and footnote
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to SEC rules and regulations.
The condensed consolidated financial statements of the Company
reflect, in the opinion of management, all adjustments necessary
to present fairly the financial position of the Company at
March 31, 2003 and the results of its operations and cash
flows for the periods ended March 31, 2003 and
March 31, 2002. All adjustments are of a normal recurring
nature. These financial statements should be read in conjunction
with the annual financial statements and notes thereto for the
year ended December 31, 2002. The results of operations for
the three months ended March 31, 2003 are not necessarily
indicative of the results of operations to be expected for the
year ending December 31, 2003.

Certain amounts in the prior period have been
reclassified to conform with the current year presentation.

The Company received a letter, dated
March 3, 2003 from the Nasdaq Stock Market notifying the
Company that, as a result of the resignations of the four
independent Board of Directors, the Company does not currently
meet the independent director and audit committee requirements
for the continued listing on Nasdaq. Nasdaq rules require the
Company to have an audit committee composed of at least 3
independent directors.

On April 23, 2003, the Company received a
Nasdaq Staff Determination stating that the Companys
common stock is subject to delisting from the Nasdaq National
Market for failing to meet such requirements for continued
listing in accordance with Marketplace Rules 4350(c) and
4350(d)(2). The Company filed a request for a hearing before the
Nasdaq Listing Qualifications Panel to appeal the delisting
determination, and a hearing has been scheduled for May 29,
2003. The Companys common stock will continue to be traded
on the Nasdaq National Market pending the final decision by
Nasdaq. There can be no assurance that the Nasdaq Listing
Qualifications Panel will grant the Companys request for
continued listing on the Nasdaq National Market. In the event
the Companys common stock is delisted from the Nasdaq
Stock Market, the stock would then trade on the Nasdaqs
OTC Bulletin Board. The delisting of the Companys common
stock from the Nasdaq National Market could result in a
reduction in the market price and the liquidity of the
Companys common stock.

1.     Net Loss Per
Share

Net loss per share is computed by dividing net
loss by the weighted average number of common shares outstanding
for the period. Diluted loss per share reflects the potential
dilution of other securities by including in the weighted
average number of common shares outstanding for each period the
dilutive effect of stock options and shares issuable under the
employee stock purchase plan. Details of the calculations are as
follows:

|                                |  |                       |        |      |  |   |        |  
|------------------------------- |  | --------------------- | ------ | ---- |  | - | ------ | -
|                                |  |                      
|                                |  | Three Months Ended   
|                                |  | March 31,            
|                                |  |                      
|                                |  | 2003                  |        | 2002
|                                |  |                       |        |     
|                                |  |                      
|                                |  | (In thousands, except
|                                |  | per share amounts)   
|Net loss per share 
    basic: |  |                       |        |      |  |   |        |  
|Net loss                        |  | $                     | (5,994 | )    |  | $ | (6,729 | )
|                                |  |                       |        |      |  |   |        |  
|Weighted average shares  basic |  |                       | 42,195 |      |  |   | 41,699 |  
|                                |  |                       |        |      |  |   |        |  
|Net loss per share  basic      |  | $                     | (0.14  | )    |  | $ | (0.16  | )
|                                |  |                       |        |      |  |   |        |  

5



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##### Table of Contents



LEXENT INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                                |  |                       |        |      |  |   |        |  
|----------------------------------------------- |  | --------------------- | ------ | ---- |  | - | ------ | -
|                                                |  |                      
|                                                |  | Three Months Ended   
|                                                |  | March 31,            
|                                                |  |                      
|                                                |  | 2003                  |        | 2002
|                                                |  |                       |        |     
|                                                |  |                      
|                                                |  | (In thousands, except
|                                                |  | per share amounts)   
|Net loss per share 
    diluted:               |  |                       |        |      |  |   |        |  
|Net loss                                        |  | $                     | (5,994 | )    |  | $ | (6,729 | )
|                                                |  |                       |        |      |  |   |        |  
|Weighted average shares  basic                 |  |                       | 42,195 |      |  |   | 41,699 |  
|Dilutive effect of stock options                |  |                       | 358    |      |  |   | 1,121  |  
|Dilutive effect of employee stock purchase plan |  |                       |       |      |  |   | 4      |  
|                                                |  |                       |        |      |  |   |        |  
|Weighted average shares  diluted               |  |                       | 42,553 |      |  |   | 42,824 |  
|                                                |  |                       |        |      |  |   |        |  
|Net loss per share  diluted                    |  |                       | *      |      |  |   | *      |  



---



|  |                                                                                                                                                                                   
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Inclusion of common stock equivalent shares would
    result in an anti-dilutive net loss per share. As a result, the
    computation for diluted loss per share is not presented.

2.     Accumulated
Other Comprehensive Income

Comprehensive income includes net loss and
unrealized gains from available-for-sale investments, net of
income tax effect. The unrealized gains from available-for-sale
investments were $0.002 million and $0.1 million for
2003 and 2002, respectively.

Changes in the components of accumulated other
comprehensive income for 2003 and 2002 were as follows:

|                              |  |                 |      |               |  |   |      |  
|----------------------------- |  | --------------- | ---- | ------------- |  | - | ---- | -
|                              |  | Unrealized Gain |      | Accumulated  
|                              |  | on Available-   |      | Other        
|                              |  | for-Sale        |      | Comprehensive
|                              |  | Investments     |      | Income       
|                              |  |                 |      |              
|                              |  |                
|                              |  | (In thousands) 
|Balance, December 31, 2002    |  | $               | 105  |               |  | $ | 105  |  
|                              |  |                 |      |               |  |   |      |  
|Change for first quarter 2003 |  |                 | (103 | )             |  |   | (103 | )
|                              |  |                 |      |               |  |   |      |  
|Balance, March 31, 2003       |  | $               | 2    |               |  | $ | 2    |  
|                              |  |                 |      |               |  |   |      |  

3.     Certificate of
Deposit (Restricted Cash)

In August 2002, Lexent Metro Connect, LLC (
LMC), a wholly owned subsidiary of Lexent Inc.,
entered into a franchise agreement with the City of New York,
whereunder LMC will be permitted to construct, operate and
provide local high capacity telecommunications networks and
services. In connection therewith, the City of New York required
that LMC post $2.0 million to secure its obligations. LMC
provided the $2.0 million in the form of an unconditional
letter of credit. A certificate of deposit for $2.0 million
was pledged as collateral for the $2.0 million letter of
credit, and was renewed during the first quarter 2003.

6



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##### Table of Contents



LEXENT INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

4.     Receivables,
Net

|                                                                                                                               |  |                |        |              |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | ------ | ------------ |  | - | ------ | -
|                                                                                                                               |  | March 31,      |        | December 31,
|                                                                                                                               |  | 2003           |        | 2002        
|                                                                                                                               |  |                |        |             
|                                                                                                                               |  |               
|                                                                                                                               |  | (In thousands)
|Accounts receivable  billed to
    customers                                                                                  |  | $              | 17,539 |              |  | $ | 23,891 |  
|Unbilled receivables on completed projects
    accounted for under the completed contract method                               |  |                | 466    |              |  |   | 717    |  
|Costs and estimated earnings in excess of
    billings on projects accounted for under the
    percentage-of-completion method |  |                | 3,075  |              |  |   | 5,044  |  
|Costs of uncompleted projects accounted for under
    the completed contract method                                            |  |                | 699    |              |  |   | 661    |  
|Retainage                                                                                                                      |  |                | 3,282  |              |  |   | 2,638  |  
|                                                                                                                               |  |                |        |              |  |   |        |  
|                                                                                                                               |  |                | 25,061 |              |  |   | 32,951 |  
|Less allowance for uncollectible amounts                                                                                       |  |                | (4,279 | )            |  |   | (4,640 | )
|                                                                                                                               |  |                |        |              |  |   |        |  
|                                                                                                                               |  | $              | 20,782 |              |  | $ | 28,311 |  
|                                                                                                                               |  |                |        |              |  |   |        |  

The amounts written off against the allowance for
the three months ended March 31, 2003 and 2002 were
$0.2 million and $1.7 million, respectively.

Amounts retained by customers related to projects
that are progress-billed may be outstanding for periods that
exceed one year.

5.     Investments

Available-for-sale investments represents
investment grade securities backed by U.S. government, Federal
Agency bonds, and AA rated corporate notes that have maturities
in excess of 90 days.

6.     Employee Stock
Purchase Plan

At December 31, 2002, 39,457 shares were
issuable to employees based on payroll deductions of
$0.03 million through that date. Employees participating in
the Employee Stock Purchase Plan (ESPP) withdrew
their funds prior to the January 31, 2003 purchase. The
ESPP was terminated in January 2003.

7.     Related Party
Transactions

During the three months ended March 31,
2003, the Company repaid $0.4 million including interest
expense of $0.03 million on a subordinated note payable to
a common stockholder.

The Company leases buildings for office and
warehouse purposes in New York City and in South Plainfield, New
Jersey from entities owned by its two principal common
stockholders and another common stockholder. Rent expense for
these premises was $0.1 million for the three months ended
March 31, 2003.

In May 2000, the Company entered into a ten-year
lease for a garage and warehouse facility in Long Island City,
New York. Lease payments were $0.2 million for the three
months ended March 31, 2003. The facility is leased from an
entity owned by the Companys two principal common
stockholders.

On February 18, 2003, the Company announced
that it had received an offer from a buying group, which
included Hugh J. OKane, Jr. and Kevin M. OKane
(Buying Group), to purchase all outstanding shares
of the Company (not owned by the Buying Group) for $1.25 per
share (Offer). The Companys Board of Directors
currently consists solely of Hugh J. OKane, Jr. and
Kevin M. OKane. As a result of the absence of independent
members from the Companys Board of Directors, the Company
retained Rodman & Renshaw,

7



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##### Table of Contents



LEXENT INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Inc., a New York based investment banking firm as
an independent advisor to assist in evaluating and responding to
the Offer.

8.     Contingencies

From time to time, the Company is involved in
various suits and legal proceedings, which arise in the ordinary
course of business. Six (6) class action lawsuits were
filed during February and March 2003 in connection with an offer
received by the Company from a buying group, which included Hugh
J. OKane, Jr. and Kevin M. OKane, to purchase
all outstanding shares of the Company (not owned by the buying
group) for $1.25 per share. All of the lawsuits were filed in
Delaware State Court and named Lexent Inc., Hugh J.
OKane, Jr. and Kevin M. OKane as defendants.
One of the lawsuits also named, as defendants, several former
members of the Companys Board of Directors. The suits
allege, inter alia, that the offer is unfair and inadequate, the
buying group has engaged in self-dealing and has not acted in
good faith, and that the Company and its Board of Directors,
present and former, have breached their fiduciary duty to
shareholders. By Order, dated April 7, 2003, the six
(6) class action lawsuits were consolidated under the
caption In Re Lexent Inc. Shareholder Litigation. The
Complaint adopted in the consolidated action names only Lexent
Inc., Hugh J. OKane, Jr. and Kevin M. OKane as
defendants. The plaintiff seeks damages, including but not
limited to, enjoining the Company and the Buying Group from
proceeding with, consummating or closing the proposed
transaction. It is too early to assess the outcome of the above
referenced matters. Therefore, at present it cannot be
determined whether the ultimate outcomes of these matters will
have a material impact on the Companys financial position
or results of operations.

A shareholder class action suit filed on
October 26, 2001, Labansky, et al. v. Lexent Inc. et
al., in the Southern District of New York against the
Company, certain of its present and former senior executives and
its underwriters continues. All individual present and former
senior executive defendants have been dismissed from the case
without prejudice. The complaint alleges that the registration
statement and prospectus relating to the Companys initial
public offering contained material misrepresentations and/or
omissions in that those documents did not disclose that
(1) certain underwriters had solicited and received
undisclosed fees and commissions and other economic benefits
from some investors in connection with the distribution of the
Companys stock in the initial public offering; and
(2) certain underwriters had entered into arrangements with
some investors that were designed to distort and/or inflate the
market price for the Companys stock in the aftermarket
following the initial public offering. The suit against the
Company is part of a number of initial public offering
securities claims against multiple issuers and underwriters
presently pending before the Judge. No discovery has occurred in
the suit involving the Company. On February 19, 2003, U.S.
District Court Judge Scheindlin issued an opinion denying the
Motion to Dismiss the Section 11 claims against the Company
but granting said motion, without prejudice, with respect to the
Section 10 (b) (5) claims. As indicated in previous
filings, the Company intends to defend itself vigorously.
Management currently believes that the resolution of this
litigation will not have a material adverse impact on the
Companys financial position or the results of operations,
although the ultimate outcome of this matter cannot be
determined at this time.

On July 9, 2002, the Companys
subsidiary, Hugh OKane Electric Co., LLC
(HOK), was served with a Complaint filed in the
District of Maryland by several former employees, Yemele T.
William Nestor et al. v. Hugh OKane Electric Company,
LLC (Employee Action), alleging violations of
Title VII of the Civil Rights Act of 1964, as amended.
Plaintiffs in the Employee Action seek compensatory and punitive
damages. In addition, on September 9, 2002, HOK was served
with a second Complaint filed in the District of Maryland by the
U.S. Equal Employment Opportunity Commission on behalf of
other employees, Equal Employment Opportunity Commission v.
Hugh OKane Electric Company, LLC (EEOC
Action), alleging violations of Title VII of the
Civil Rights Act of 1964, as amended. The EEOC Action seeks
compensatory damages and injunctive relief. The Employee Action
and the EEOC Action arise from the same core of allegations. HOK

8



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##### Table of Contents



LEXENT INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

intends to defend itself vigorously in both
actions. HOKs Answers in both actions have been filed, and
limited discovery has been conducted in connection with
mediation proceedings. It is too early to assess the ultimate
outcomes of the above-referenced matters served upon the
Company. Therefore, at present, it cannot be determined whether
the ultimate outcome of these matters, individually or
cumulatively, will have a material impact on the Companys
financial position or results of operations.

On or about July 22, 2002, the Company was
served with a complaint in the Northern District of Illinois,
Annecca Inc. et al. v. Lexent Inc., brought by several
plaintiffs associated with U.S. Electric LLC, alleging that the
Companys decisions neither to complete the purchase of
U.S. Electric nor to employ certain of
U.S. Electrics principals constitute a breach of
contract. Plaintiffs seek damages for lost profits, salaries,
etc. The Company believes that the complaint is without merit
and will vigorously defend itself. The Companys Answer has
been filed, and the Company has asserted several counterclaims.
The parties are currently engaged in discovery. It is too early
to assess the ultimate outcome of the litigation. Therefore, at
present, it cannot be determined whether the ultimate outcome
will have a material impact on the Companys financial
position or results of operations.

HOK continues to be involved in litigation in the
Southern District of New York, U.S. Information Systems, Inc.
et al. v. International Brotherhood of Electrical Workers Local
Union 3, AFL-CIO et al., served on or about March 10,
2002, brought by three electrical contractors alleging a
conspiracy among certain other contractors (including HOK) and
the International Brotherhood of Electrical Workers, Local Union
Number 3, AFL-CIO (IBEW). The suit alleges
violations of the federal Sherman Antitrust Act and state laws
and claims that the defendants exercise market power restricting
the ability of plaintiffs, who employ workers from the
Communication Workers of America (CWA), from
performing telecommunications services work in the New York
metropolitan area. Plaintiffs seek treble damages. The Company
believes that this suit is part of an ongoing labor dispute
between the IBEW and the CWA and that the allegations against
HOK are without merit. HOK intends to defend itself vigorously
in this litigation. Discovery is complete, but it is too early
to assess the ultimate outcome of the litigation.
Notwithstanding, a damage judgment against HOK could have a
material adverse effect on the Companys business operating
results and financial condition.

9.     Stock Options
and Awards

During the three months ended March 31,
2003, there were no options granted to purchase common shares,
297,482 options were terminated and expired and 68,563 options
were exercised. As of March 31, 2003, options to purchase
4,759,722 common shares were outstanding.

Deferred stock-based compensation is recorded for
options and restricted stock grants for which the exercise or
sale prices are lower than the deemed fair values for financial
reporting purposes of the underlying common stock on the grant
date. Deferred stock-based compensation also includes the fair
value at grant date of options granted to non-employees and
options which were remeasured to fair value on the date
optionees status was changed from employee to consultant.
Deferred stock-based compensation is amortized to expense over
the vesting term of the options. To the extent that unvested
options are forfeited, the balance of unamortized deferred
stock-based compensation is reversed.

During the three months ended March 31, 2003
there was not any deferred stock-based compensation recorded and
$0.1 million, was recorded during the first quarter 2002.
Also during the three months ended March 31, 2003 and 2002,
$0.01 million and $3.8 million, respectively, was
reversed for unvested options, which were forfeited.

Amortization of deferred stock-based compensation
was $0.7 million and $1.0 million for the three months
ended March 31, 2003 and 2002, respectively. Deferred tax
benefits were recorded in the amount of $0.1 million for
the three months ended March 31, 2003 and 2002, in
connection with amortization of deferred

9



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LEXENT INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

stock-based compensation for nonqualified
options. With respect to such deferred tax benefits, to the
extent that nonqualified options are forfeited or are exercised
when the fair value of the stock is lower than the deemed fair
value of the stock for financial reporting purposes on the grant
date ($22.80 per share), a portion of such deferred tax benefits
would not be realized and such portion may be charged to
expense. During the first three months ended March 31, 2003
and 2002, $0.2 million and $2.4 million of deferred
tax assets was charged to expense in connection with forfeited
options, respectively. For the three months ended March 31,
2003 such charges were offset by a corresponding reduction in
the deferred tax asset valuation allowance.

In December 2002, the Financial Accounting
Standards Board (FASB), issued Statement of
Accounting Standards No. (SFAS) 148,
Accounting for Stock-Based Compensation 
Transition Disclosure, An Amendment of FASB Statement
No. 123. This statement provides alternative methods
of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of
Statement No. 123 to require more prominent and more
frequent disclosures in financial statements about the effects
of the stock-based compensation. The provisions of SFAS 148
are effective for fiscal years ending after December 15,
2002. The adoption did not have a material impact on the
Companys results of operations or financial position and
the additional required disclosures have been provided below.

The Company applies the Accounting Principles
Board Opinion No. (APB) 25 Accounting for
Stock Issued to Employees, and related interpretations, in
accounting for its stock-based compensation plans. Accordingly,
no compensation costs have been recognized for its stock option
plans and its stock purchase plan. Had compensation cost for the
Companys stock-based compensation plans been determined
based on the fair value at the grant dates for awards under
those plans consistent with SFAS 123, the Companys net
loss and loss per share would have been increased to the pro
forma amounts indicated below:

|                                                                                                                                                           |         |                       |        |       |   |   |        |       |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | --------------------- | ------ | ----- | - | - | ------ | ----- | -
|                                                                                                                                                           |         |                      
|                                                                                                                                                           |         | Three Months Ended   
|                                                                                                                                                           |         | March 31,            
|                                                                                                                                                           |         |                      
|                                                                                                                                                           |         | 2003                  |        | 2002 
|                                                                                                                                                           |         |                       |        |      
|                                                                                                                                                           |         |                      
|                                                                                                                                                           |         | (In thousands, except
|                                                                                                                                                           |         | amounts per share)   
|Net loss as reported                                                                                                                                       |         | $                     | (5,994 | )     |   | $ | (6,729 | )    
|Deduct: Total stock-based employee compensation
    expense determined under the fair value based method for all
    awards net of related tax
    effects |         |                       | (509   | )     |   |   | (564   | )    
|                                                                                                                                                           |         |                       |        |       |   |   |        |      
|Pro forma net loss                                                                                                                                         |         | $                     | (6,503 | )     |   | $ | (7,293 | )    
|                                                                                                                                                           |         |                       |        |       |   |   |        |      
|Basic and diluted net loss per share as reported:                                                                                                          |         |                       |        |       |   |   |        |      
|                                                                                                                                                           | Basic   |                       | $      | (0.14 | ) |   | $      | (0.16 | )
|                                                                                                                                                           |         |                       |        |       |   |   |        |      
|                                                                                                                                                           | Diluted |                       | $      | (0.14 | ) |   | $      | (0.16 | )
|                                                                                                                                                           |         |                       |        |       |   |   |        |      
|Basic and diluted pro forma net loss per share:                                                                                                            |         |                       |        |       |   |   |        |      
|                                                                                                                                                           | Basic   |                       | $      | (0.15 | ) |   | $      | (0.17 | )
|                                                                                                                                                           |         |                       |        |       |   |   |        |      
|                                                                                                                                                           | Diluted |                       | $      | (0.15 | ) |   | $      | (0.17 | )
|                                                                                                                                                           |         |                       |        |       |   |   |        |      

10.     Provision for
Restructuring Charges

In 2002, the Company recorded $9.1 million
in restructuring expense, primarily in connection with the
closing of eleven offices and reduction in its workforce. The
restructuring charges were comprised primarily of
$6.5 million for obligations under leases for premises
which the Company has vacated, $0.7 million for severance
and related contractual obligations for approximately fifteen
non-unionized personnel and executives in areas closed or scaled
back, and $2.3 million for write-offs of property and
equipment offset against a

10



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LEXENT INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

reversal of $0.4 million for the unused
restructure reserve for severance from 2001. During 2002 the
Company scaled back its expansion plans and closed a number of
offices, and changed its business plans to focus primarily on
its traditional markets, including the New York metropolitan
region, Washington D.C., and Florida.

A summary of the restructuring reserve at
March 31, 2003, is as follows:

|                                              |       |                   |       |               |  |             |   |                |  |   |      |        |   |   |       |       | 
|--------------------------------------------- | ----- | ----------------- | ----- | ------------- |  | ----------- | - | -------------- |  | - | ---- | ------ | - | - | ----- | ----- | 
|                                              |       | Reserve           |       |               |  |             |   | Reserve       
|                                              |       | Balance at        |       | Restructuring |  |             |   | Balance at    
|                                              |       | December 31, 2002 |       | Charges       |  |             |   | March 31, 2003
|                                              |       | (including        |       | Recorded in   |  | Amounts     |   | (including    
|                                              |       | noncurrent        |       | First Quarter |  | Charged to  |   | noncurrent    
|                                              |       | portion)          |       | of 2003       |  | the Reserve |   | portion)      
|                                              |       |                   |       |               |  |             |   |               
|                                              |       |                  
|                                              |       | (In thousands)   
|Severance and related contractual obligations |       | $                 | 639   |               |  | $           |  |                |  | $ | (398 | )      |   | $ | 241   |      
|Lease obligations                             |       |                   | 9,921 |               |  |             |  |                |  |   | (869 | )      |   |   | 9,052 |      
|Property and equipment                        |       |                   | 29    |               |  |             |  |                |  |   | (29  | )      |   |   |      |      
|                                              |       |                   |       |               |  |             |   |                |  |   |      |        |   |   |       |      
|                                              | Total |                   | $     | 10,589        |  |             | $ |               |  |   | $    | (1,296 | ) |   | $     | 9,293 | 
|                                              |       |                   |       |               |  |             |   |                |  |   |      |        |   |   |       |      

11.     Deferred
Income Taxes

Statement of Financial Accounting Standards
No. 109 Accounting for Income Taxes requires
that a valuation allowance be established when it is more
likely than not that all or a portion of deferred tax
assets will not be realized. Based on the Companys
performance in the past few years and the current challenging
economic environment that has negatively impacted the
Companys operating results, the Company concluded that it
was appropriate to establish a full valuation allowance for its
net deferred tax assets at December 31, 2002. The Company
is continuing to provide a full valuation allowance on future
tax benefits until it can substantiate a level of profitability
that demonstrates its ability to utilize the assets. Adjustments
to increase or decrease the valuation allowance are charged or
credited, respectively, to income tax expense. For the three
months ended March 31, 2003, the Company recorded a charge
to the provision for income taxes of approximately $38,000
primarily in connection with the state franchise taxes.

12.     Recent
Accounting Pronouncements

In December 2002, the Financial Accounting
Standards Board (FASB), issued Statement of
Accounting Standards No. (SFAS) 148,
Accounting for Stock-Based Compensation 
Transition Disclosure, An Amendment of FASB Statement
No. 123. This statement provides alternative methods
of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of
Statement No. 123 to require more prominent and more
frequent disclosures in financial statements about the effects
of the stock-based compensation. The provisions of SFAS 148 are
effective for fiscal years ending after December 15, 2002.
The Company adopted SFAS 148 during the quarter ended
December 31, 2002. The adoption did not have a material
impact on the Companys results of operations or financial
position and the additional required disclosures are provided in
Note 9 of Notes to Condensed Consolidated Financial
Statements.

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##### Table of Contents






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

The following discussion and analysis provides
information that should be read in conjunction with the
historical condensed consolidated financial statements,
including the notes thereto, included elsewhere in this
Form 10-Q.

Overview

We are an infrastructure services company, which
designs, deploys and maintains telecommunications, electrical,
life safety and other systems. We deliver a full spectrum of
services including engineering, program management, deployment
and installation in certain local metropolitan markets. Our
principal focus is to provide the expertise and resources our
customers need to design, build, and operate their
infrastructure systems. We generally offer our services
24 hours a day, 7 days a week.

During our most recent fiscal years, our
customers included primarily competitive local exchange
carriers, internet service providers and carriers
carriers. Given the current market conditions in the
telecommunications industry, we have taken steps to broaden our
customer base to include large enterprise customers, the real
estate community and government entities and to diversify our
service offerings to include systems integration, electrical
contracting, installation of security systems, and other
infrastructure services.

We have offices in New York City, Washington D.C.
metro, Boston metro, Long Island, and in the states of Florida,
North Carolina and New Jersey.

Our two largest customers in the first quarter of
2003 were a general contractor in the NY metro area and
AT&T. We generated 27.4% and 20.1%, respectively, of our
revenues from each of these customers for the quarter ended
March 31, 2003. Some of our key customers include IBM,
general contractors in the New York metro area, and the
Dormitory Authority of the State of New York.

Lexent was incorporated in Delaware in January
1998. Our wholly owned subsidiaries, Hugh OKane Electric
Co., LLC, National Network Technologies LLC, Lexent
Services, Inc., HOK Datacom, Inc., Lexent
Capital, Inc., and Lexent Metro Connect LLC, were
formed in June 1998, August 1998, May 2000, November 2000, July
2001 and March 2002, respectively. On August 22, 2002,
Lexent Metro Connect was awarded a 15 year Franchise for
Local High Capacity Telecommunications Services for the City of
New York, which expires on or about August 22, 2017, unless
terminated earlier.

In July 1998, Hugh OKane Electric
Co., Inc., our predecessor company, merged into Lexent, and
Lexent issued 22,716,600 shares of common stock to the
stockholders of our predecessor. Following the merger,
substantially all of our assets were contributed to our
subsidiary, Hugh OKane Electric Co., LLC, and that
entity also assumed all of the obligations of Lexent, including
those of our predecessor company.

On February 18, 2003, the Company announced
that it had received an offer from a buying group, which
included Hugh J. OKane, Jr. and Kevin M. OKane
(Buying Group), to purchase all outstanding shares
of the Company (not owned by the Buying Group) for $1.25 per
share (Offer). The Companys Board of Directors
currently consists solely of Hugh J. OKane, Jr. and Kevin
M. OKane. As a result of the absence of independent
members from the Companys Board of Directors, the Company
retained Rodman & Renshaw, Inc., a New York based investment
banking firm as an independent advisor to assist in evaluating
and responding to the Offer.

The Company received a letter, dated
March 3, 2003 from the Nasdaq Stock Market notifying the
Company that, as a result of the resignations of the four
independent Board of Directors, the Company does not currently
meet the independent director and audit committee requirements
for the continued listing on Nasdaq. Nasdaq rules require the
Company to have an audit committee composed of at least 3
independent directors.

On April 23, 2003, the Company received a
Nasdaq Staff Determination stating that the Companys
common stock is subject to delisting from the Nasdaq National
Market for failing to meet such requirements for continued
listing in accordance with Marketplace Rules 4350(c) and
4350(d)(2). The Company filed a request for a hearing before the
Nasdaq Listing Qualifications Panel to appeal the delisting
determination, and

12



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##### Table of Contents



a hearing has been scheduled for May 29,
2003. The Companys common stock will continue to be traded
on the Nasdaq National Market pending the final decision by
Nasdaq. There can be no assurance that the Nasdaq Listing
Qualifications Panel will grant the Companys request for
continued listing on the Nasdaq National Market. In the event
the Companys common stock is delisted from the Nasdaq
Stock Market, the stock would then trade on the Nasdaqs
OTC Bulletin Board. The delisting of the Companys common
stock from the Nasdaq National Market could result in a
reduction in the market price and the liquidity of the
Companys common stock.


Critical Accounting Policies

Please refer to the description of our
Critical Accounting Policies in the
Managements Discussion and Analysis section of our
Form 10-K for the year ended December 31, 2002.

Results of Operations



| |                                                      
| | -----------------------------------------------------
| | First Quarter 2003 Compared to First
    Quarter 2002

Revenues.Our
revenues decreased by 35% to $20.3 million in the first
quarter of 2003 from $31.3 million in the same period last
year. The decrease in revenues was primarily a result of lower
capital expenditures by several of our large telecommunications
customers due to changing conditions in the telecommunications
industry and the completion of the engineering, procurement and
construction contract in the 4th quarter of 2002.

Cost of revenues.Our cost of revenues represented 111%
of revenues in the first quarter of 2003 compared with 94% of
revenues in the same period last year. The increased percentage
was due in part to the cold winter causing a decrease in
productivity and delays in completing projects, the
establishment of job loss provisions due to revisions in
estimates on certain electrical contracting projects and in part
to pricing pressure. We anticipate that pricing pressure will
continue during 2003.

General and administrative expenses.Our general and administrative
expenses decreased 36% to $2.9 million in the first quarter
2003 from $4.4 million in the same period last year. The
decrease is attributed to a reduction in wages and related
benefits as a result of a headcount reduction, a reduction in
rent and facilities expenses and a reduction in travel and
related meals and entertainment.

Non-cash stock-based compensation.Amortization of deferred stock-based
compensation declined to $0.7 million in the first quarter
of 2003 from $1.0 million in the same period of last year.
The decrease was attributed to the decrease in the unamortized
balance of non-cash stock based compensation as a result of
resignations, terminations and fully amortized balances.

Interest expense.Interest expense in the first quarter of 2003 was
$0.03 million compared to $0.08 million in the same
period last year. The decrease was due primarily to a lower
average outstanding balance on equipment and vehicle loans and a
subordinated note payable to a stockholder.

Interest income.Interest income in the first quarter of 2003 was
$0.3 million compared to $0.4 million in the same
period last year. The decrease was due to lower average
prevailing interest rates during 2003.

Provision for income
taxes.Based upon our performance in
the past few years and the current challenging economic
environment that has negatively impacted our operating results,
we have established a full valuation allowance to fully offset
deferred tax assets, including those related to tax
carryforwards, at December 31, 2002 and to date, resulting
in no income tax benefit for financial reporting purposes for
the three months ended March 31, 2003. Additionally, in
2003, we recorded a charge to the provision of approximately
$38,000 in connection with state franchise taxes. During the
first quarter 2002, approximately $2.3 million of deferred tax
benefits were charged to expense as a result of forfeited
options.

Liquidity and Capital Resources

Net cash used by operations was $2.5 million
for the first three months ended March 31, 2003,
representing net collections of receivables offset by payments
made for accounts payable and accrued

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liabilities. Cash provided by investing
activities was $1.1 million, representing $1.3 million
of proceeds from the sale of investments, offset by
$0.1 million for capital expenditures. Net cash used in
financing activities was $0.7 million, comprised of
repayments of $0.3 million for equipment and capital leases
and $0.4 million of repayments on a subordinated note
payable to a stockholder.


We have no material commitments other than
installment obligations related to equipment purchases, leases
for facilities, computer equipment and vehicles, and a
subordinated note payable to a stockholder. We anticipate that
available cash and cash equivalents and cash flows from
operations will be sufficient to satisfy our working capital
requirements for the foreseeable future. Our future working
capital requirements and liquidity will depend upon many
factors, including our customers financial condition and
their ability to pay amounts owing to us, our ability to replace
the revenues previously derived from several of our large
telecommunications-carrier customers with revenue from other
customers, and our ability to reduce costs at a rate
commensurate with any reduction in revenues which we are unable
to replace with new revenues.

In connection with the restructuring plan
initiated during 2001, we recorded restructuring charges of
$9.1 million during the year ended December 31, 2002.
These charges primarily related to the expense associated with
certain lease obligations, the write-offs of property, equipment
and leasehold improvements, and severance costs related to our
organizational restructuring, partially offset by the reduction
to the 2001 accrual for restructuring costs. Refer to our
audited consolidated financial statements and notes thereto for
the year ended December 31, 2002 for further details and
components of these charges. During the three months ended
March 31, 2003, we had cash outflows of approximately
$1.3 million, related to the expenses associated with
certain lease obligations, property equipment and leasehold
improvements and severance that were accrued for as of
December 31, 2002. The current accrued liability for
additional cash outflows, related to the expense associated with
certain lease obligation and severance are payable as follows:
$2.7 million throughout the remainder of 2003,
$1.4 million during 2004, $1.2 million during 2005,
$0.7 million during 2006, $0.8 million during 2007,
2008, 2009 and 2010, and $0.1 million during 2011.

Impact of Recently Issued Accounting
Standards

In December 2002, the Financial Accounting
Standards Board (FASB), issued Statement of
Accounting Standards No. (SFAS) 148,
Accounting for Stock-Based Compensation 
Transition Disclosure, An Amendment of FASB Statement
No. 123. This statement provides alternative methods
of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of
Statement No. 123 to require more prominent and more
frequent disclosures in financial statements about the effects
of the stock-based compensation. The provisions of SFAS 148 are
effective for fiscal years ending after December 15, 2002.
We adopted SFAS 148 during the quarter ended December 31,
2002. The adoption did not have a material impact on our results
of operations or financial position and the additional required
disclosures are provided in Note 9 of Notes to
Condensed Consolidated Financial Statements.




Item 3.     Quantitative
and Qualitative Disclosures About Market Risk

Financial instruments, which potentially subject
the Company to credit risk, consist primarily of cash, cash
equivalents, available-for-sale investments, and trade
receivables. Cash balances may at times, exceed amounts covered
by FDIC insurance. The Company believes it mitigates its risk by
depositing cash balances with high quality financial
institutions that it believes are financially sound.
Recoverability is dependent upon the performance of the
institution. The Companys cash equivalents are diversified
and consist primarily of investment grade securities with
original maturities of three months or less. Investments are
made in obligations of high-quality financial institutions,
government and government agencies and corporations, thereby
reducing credit risk concentrations. Interest rate fluctuations
impact the carrying value of the portfolio.

Trade receivables are primarily short-term
receivables from telecommunications companies and general
contractor companies. To attempt to reduce credit risk, the
Company performs credit evaluations of its customers but does
not generally require collateral and, therefore, the majority of
its trade receivables are

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unsecured. Credit risk is affected by conditions
within the economy. The Company establishes an allowance for
doubtful accounts based upon its evaluation of factors
surrounding the credit risk of specific customers, historical
trends, and other information.


For the first quarter 2003, the Company had
revenues from two separate customers, which comprised 27% and
20%, respectively, of the Companys total revenues.

We currently do not own any investments in
publicly traded equity securities. Therefore, we do not
currently have any direct equity market price risk.

We currently do not have any international
operations, and we currently do not enter into forward exchange
contracts or other financial instruments with respect to foreign
currency. Accordingly, we currently do not have any foreign
currency exchange rate risk.

Forward Looking Statements

This Quarterly Report on Form 10-Q contains
both historical and forward-looking statements. All statements
other than statements of historical fact are, or may be deemed
to be, forward-looking statements within the meaning of
section 27A of the Securities Act of 1933 and
section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are only predictions and generally
can be identified by use of statements that include phrases such
as believe, expect,
anticipate, intend, plan,
foresee or other words or phrases of similar import,
including statements regarding the Companys planned appeal
of the Nasdaq notice of delisting and the outcome of such
appeal. Similarly, statements that describe the Companys
objectives, plans or goals also are forward-looking statements.
The Companys operations are subject to certain risks and
uncertainties that could cause actual results to differ
materially from those contemplated by the relevant
forward-looking statement. These risks are more fully outlined
in the Companys registration statement on Form S-1
and other SEC filings. The forward-looking statements included
herein are made only as of the date of this Quarterly Report on
Form 10-Q and the Company undertakes no obligation to
publicly update such forward-looking statements to reflect
subsequent events or circumstances. No assurances can be given
that projected results or events will be achieved.




Item 4.     Controls
and Procedures

Within the ninety days prior to the date of this
report, the Company carried out an evaluation, under the
supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the
Companys disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon that evaluation, the
Chief Executive Officer and the Chief Financial Officer
concluded that the Companys disclosure controls and
procedures are effective in timely alerting them to material
information relating to the Companys periodic SEC filings.
There have been no significant changes in the Companys
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of their
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.




PART II

OTHER INFORMATION






|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

See Note 8 to the unaudited interim
condensed consolidated financial statements.






|        |                  
|------- | -----------------
|Item 5. | Other Information

On February 18, 2003, the Company announced
that it had received an offer from a buying group, which
includes Hugh J. OKane, Jr. and Kevin M. OKane, to
purchase all outstanding shares of the Company not owned by the
buying group for $1.25 per share. The Companys Board of
Directors currently consists solely of

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Hugh J. OKane, Jr. and Kevin M.
OKane. As a result of the absence of independent members
from the Companys Board of Directors, Lexent retained
Rodman & Renshaw, Inc., a New York based investment-banking
firm, as an independent advisor to assist in evaluating and
responding to the offer. The evaluation by Rodman &
Renshaw is ongoing.


In addition, as previously announced, the Nasdaq
Stock Market has been reviewing the Companys eligibility
for continued listing on Nasdaq because the Company does not
currently meet the independent director and audit committee
requirements for continued listing on the Nasdaq Stock Market.
On April 23, 2003, the Company received a Nasdaq Staff
Determination stating that the Companys common stock is
subject to delisting from the Nasdaq National Market for failing
to meet such requirements for continued listing in accordance
with Marketplace Rules 4350(c) and 4350(d)(2). The Company
filed a request for a hearing before the Nasdaq Listing
Qualifications Panel to appeal the delisting determination, and
a hearing has been scheduled for May 29, 2003. The
Companys common stock will continue to be traded on the
Nasdaq National Market pending the final decision by Nasdaq.
There can be no assurance that the Nasdaq Listing Qualifications
Panel will grant the Companys request for continued
listing on the Nasdaq National Market. In the event the
Companys common stock is delisted from the Nasdaq Stock
Market, the stock would then trade on the Nasdaqs OTC
Bulletin Board. The delisting of the Companys common stock
from the Nasdaq National Market could result in a reduction in
the market price and the liquidity of the Companys common
stock.






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

Exhibits:



| |              |                                                                                                                               
| | ------------ | ------------------------------------------------------------------------------------------------------------------------------
| | Exhibit 99.1 | Certification Pursuant to 18 U.S.C.
    Section 1350, as adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002
|
| | Exhibit 99.2 | Certification Pursuant to 18 U.S.C.
    Section 1350, as adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002

Reports:

Reports on Form 8-K

On February 5, 2003, the Company announced
the resignation of L. White Matthews, III, from the Board
of Directors of the Company.

On February 13, 2003, the Company announced
the resignation of Kathleen Perone from the Board of Directors
of the Company.

On February 13, 2003, the Company announced
the resignation of Richard L. Schwob from the Board of Directors
of the Company.

On February 20, 2003, the Company announced
the resignation of Richard W. Smith from the Board of Directors
of the Company.

On March 4, 2003, the Company announced the
retention of Rodman & Renshaw, Inc., a New York based
investment-banking firm, as an independent advisor to assist in
evaluating and responding to the proposed buyout offer.

On March 12, 2003, the Company announced the
receipt of a letter from the Nasdaq Stock Market notifying the
Company that it does not currently meet the independent director
and audit committee requirements for continued listing on Nasdaq
and requesting information from the Company.

On April 28, 2003, the Company furnished an
8-K for the announcement of its earnings for the three months
ended March 31, 2003 and the receipt of a Nasdaq Staff
Determination stating that the Companys common stock is
subject to delisting from the Nasdaq National Market for failing
to meet the independent director and audit committee
requirements for continued listing in accordance with the rules
of the Nasdaq Stock Market.

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SIGNATURES

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

|                   |  |                                                                                                        
|------------------ |  | -------------------------------------------------------------------------------------------------------
|                   |  | By: /s/ KEVIN M. OKANEKevin M. OKane
    Chief Executive Officer, on
    behalf of Registrant        
|                  
|Dated: May 2, 2003 |  |                                                                                                        
|                  
|                   |  | By: /s/ NORMAN G. FORNELLANorman G. Fornella
    Executive Vice President & Chief Financial
    Officer
|                  
|Dated: May 2, 2003 |  |                                                                                                        

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CERTIFICATION

I, Kevin OKane, certify that:

1.     I have reviewed
this quarterly report on Form 10-Q of Lexent Inc.;

2.     Based on my
knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;

3.     Based on my
knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;

4.     The
registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this quarterly report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5.     The
registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrants auditors and the audit committee of
registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6.     The
registrants other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.



| |                                           
| | ------------------------------------------
| | /s/ KEVIN OKANE                          
| | Kevin OKane 
     Chief Executive Officer

Date: May 2, 2003

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CERTIFICATION

I, Norman Fornella, certify that:

1.     I have reviewed
this quarterly report on Form 10-Q of Lexent Inc.;

2.     Based on my
knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;

3.     Based on my
knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;

4.     The
registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this quarterly report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5.     The
registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrants auditors and the audit committee of
registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6.     The
registrants other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.



| |                                                       
| | ------------------------------------------------------
| | /s/ NORMAN G. FORNELLA                                
| |                                                       
| | Norman G. Fornella                                    
| | Executive Vice President & Chief Financial
    Officer

Date: May 2, 2003

19