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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-K





(Mark One)

|x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | -------------------------------------------------------------------------------

For the fiscal year ended December 31, 2008

OR



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | -----------------------------------------------------------------------------------

Commission file number 000-24661





FiberNet Telecom Group, Inc.

(Name of Registrant in Its Charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 52-2255974                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|220 West 42ndStreet, New York, NY                              |  | 10036                               
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          

(212) 405-6200

(Issuers Telephone Number, Including Area Code)





Securities registered under
Section 12(b) of the Exchange Act:

Common Stock, par value $.001 per share

(Title of Class)

Securities
registered under Section 12(g) of the Exchange Act: None





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ̈ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes  ̈ No x

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated filer  ̈ Accelerated filer  ̈ Non-accelerated
filer  ̈ Smaller reporting company x

Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ̈ No x

The aggregate market value of the registrants voting and non-voting common stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is
an affiliate) computed by reference to $8.44, the price at which the common stock was last sold, or the average bid and asked price of the common stock, as of the last business day of the registrants most recently completed second fiscal
quarter, was $41,307,823.

As of March 18, 2009, the registrant had 7,687,567 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Certain information required in Part III of this Annual Report on Form 10-K is incorporated from the Registrants
Proxy Statement for the Annual Meeting of Stockholders to be held on June 9, 2009.









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PART I



|ITEM 1. | BUSINESS
|------- | --------

Overview

We provide complex interconnection services enabling the exchange of voice, video and data traffic between multiple global networks. We own and operate
integrated colocation facilities and diverse transport routes in the gateway markets of New York/New Jersey, Los Angeles, Chicago and Miami. Our network infrastructure and facilities are designed to provide comprehensive broadband interconnectivity
for the worlds largest network operators, including leading domestic and international telecommunications carriers and service providers. We operate with the reliability and resiliency to deliver core network backbone services for mission
critical requirements.

In our network-neutral colocation facilities, we provide racks, cabinets and customized caged spaces for our
customers to deploy networking equipment and establish network points of presence. The facilities are located in the key carrier hotels of our gateway markets. A carrier hotel is an industrial or commercial building in which a network operator
houses its networking equipment. We also provide redundant power systems, environmental controls and security for customers colocation needs at these network aggregation points.

Within and between our facilities, we provide transport services that enable our customers to directly interconnect with each other over our networks.
Our interconnection services include optical and electrical cross-connections and peering, lit connectivity, wavelengths and dark fiber services. We provide high bandwidth services ranging from 1.5 megabits per second (Mbps) to 10.0 gigabits per
second (Gbps).

Our networks provide these interconnection and transport services utilizing multiple domestic and international
transmission protocols. These include TDM and SONET, the North American standards, and PDH and SDH, the international standards. Our networks also support the transmission of Ethernet, Internet Protocol (IP) and VoIP services, as well as the
conversion of communications traffic between protocols.

In addition, we provide professional services to assist in our customers
deployment of network infrastructure and to extend the reach of our transport services beyond our gateway markets.

Industry Background

Due in large part to the advent of the Internet and innovations in optical technology, there has been significant advancements in communication
services. Growth in bandwidth intensive applications and services has driven additional demand for transmission capacity. The number of national and international communication networks has increased, and businesses and consumers are increasingly
relying on these networks to enable new means of communications and to conduct mission critical operations. A greater emphasis has also been placed on network resiliency, security and speed. The demand for seamless transmission of voice, video and
data traffic both locally and globally has driven the need for the efficient and reliable interconnection of these numerous independent networks.

Network operators and providers have focused on interconnecting their networks in large metropolitan areas with high densities of communications traffic. By establishing their main network points of presence in gateway cities, they can
exchange traffic with the greatest number of other communications companies in the most efficient manner. Within these markets, network operators have centered their points of presence in carrier hotels, or other large Internet data centers, to
benefit from proximity to other operators and from a controlled, organized operating environment. Typically, long-haul fiber-optic networks were built to function as transport links between these metropolitan locations worldwide. Communications
traffic is aggregated at the core of metropolitan networks and transferred onto long-haul networks for transmission to other metropolitan points.



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Networks in metropolitan areas serve to transport the traffic delivered by global networks between
carriers points of presence. There are numerous technically complex issues involved in developing and operating networks in metropolitan areas to enable the interconnection and exchange of traffic from multiple network operators. They include:



| |  |  | Diverse traffic. Communications traffic is generated by a large number of end-users served by a variety of service providers. As a result, data coming into a
gateway market are transmitted in multiple protocols using different technology platforms.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Complex architecture. The infrastructure of interconnection networks must reach a multitude of locations to access network points of presence in dense urban
areas and to interconnect the networks of service providers so that they may exchange communications traffic.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Rights of way. Installing new broadband networks requires the use of numerous rights of way, which are controlled by many different public and private
entities in each metropolitan area. Securing access to riser systems in carrier hotels and data centers to install vertical infrastructure between floors is particularly difficult.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Needs of Telecommunications Service Providers in Gateway Metropolitan Areas

Service providers are seeking gateway network capabilities that allow them to rapidly and cost-effectively interconnect their networks with each other in a highly reliable manner. In particular, they seek:



| |  |  | End-to-End Connectivity to Multiple Locations. Service providers establish points of presence for their networking equipment in carrier hotels in
metropolitan areas. Because of the myriad of national and international telecommunications networks, the number of points of presence in major gateway markets is extensive. Network connectivity must extend directly to a significant number of these
points of presence so that service providers may efficiently exchange communications traffic.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reliable, High-Capacity Network. Service providers desire a broadband network with the robust transmission capacity to maximize the speed of their services
and with a reliable quality of service to ensure the delivery of their traffic. Further, to offer a full range of services, providers are seeking a network that can incorporate multiple transmission protocols and new technologies.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Rapid Provisioning of Services. Service providers require a network provider that has deployed an extensive network and offers the necessary advanced network
management systems and processes to rapidly provision circuits. Speed to market is a critical factor when managing the changing requirements of communications traffic.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our Solution

We design, install and operate networks and facilities to provide complex
interconnection services that are scalable, reliable and secure to domestic and international communications service providers. In the gateway markets in which we operate, our customers rely on us for the mission-critical exchange of communications
traffic across their core metropolitan backbones.

Full Range of Services. Our transport services provide high-bandwidth
connectivity to carriers between their major points of presence. We offer these services via multiple transmission protocols, including both domestic and international standards, as well as utilizing emerging standards and technologies. We offer
services to extend the range of connectivity beyond our gateway markets, providing a single-source solution for our customers networking requirements.

We also offer colocation services at facilities in key carrier hotels and Internet data centers. Colocation refers to the ability of a carrier to locate its networking equipment in another service providers
facilities. These colocation facilities provide network operators with an interconnection point where they can terminate their traffic and transfer it onto our high-capacity networks.



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Extensive Network Reach. We have deployed significant network infrastructure in our gateway
markets to establish connectivity to an extensive number of service providers, enabling us to exchange traffic between many other carriers. We believe that the reach of our network, particularly our vertical infrastructure in carrier hotels, is a
competitive advantage in that our customers are able to interconnect with many other carriers networks through a single interconnection to our network.

Network Architecture. To provide high quality network services to our customers, we have deployed what we believe to be advanced optical and electrical network architecture. Features of this network
architecture include:



| |  |  | the use of optical networking equipment that can transmit data at the speeds up to 40.0 Gbps or can provide multiple optical wavelengths for data transmission;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | dense wave division multiplexing equipment that is capable of increasing the transmission capacities of each fiber-optic strand in our network;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an open architecture that supports new broadband technologies and multiple domestic and international transmission protocols, including SONET, SDH, Ethernet, IP,
VoIP and protocol conversions between different standards, to meet our customers evolving demands; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | multiple fibers laid in interconnecting circles, or ring architectures, over which traffic can be routed in a different direction or to a different fiber if there
is a break in one of the rings, creating networks that are fully redundant and self-healing.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Rapid Provisioning of
Services. Our optical network gives us the ability to provision new circuits in as little as three business days through our centralized Network Operations Center, or NOC. As a result, we are able to allocate network capacity rapidly to meet our
customers bandwidth requirements. Our customers can order capacity with minimal lead-time enabling them to quickly provision new services. We believe that this provisioning capability is a key factor in our customers decisions to order
our services.

Our goal is to be the preferred facilities-based provider of network interconnection services in our markets. We serve
select major carrier hotels in our markets with end-to-end connectivity that enables our customers to utilize advanced services and applications to rapidly interconnect their own networks. Our focused strategy for achieving these goals includes the
following key elements:

Establish our position as a leading provider of interconnectivity within and between carrier hotels. We
have deployed fiber optic transport infrastructure in eight major carrier hotels in New York City, two major carrier hotels in New Jersey, one major carrier hotel on Long Island, five major carrier hotels in Los Angeles, one major carrier hotel in
Chicago, and one major carrier hotel in Miami. By establishing our presence in multiple carrier hotels, we hope to expand the geographic reach of our networks and increase the size of our customer base. In addition, this presence increases our
ability to interconnect with other service providers, thereby increasing our potential customer base and revenue opportunities with existing customers.

Strengthen and expand upon our relationships with customers. We believe that our end-to-end connectivity is a compelling service offering to our customers. We intend to promote:



| |  |  | our open architecture that supports multiple transmission protocols;
| | - |  | --------------------------------------------------------------------



| |  |  | our ability to provide interconnectivity to multiple carriers and network operators;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | our rapid provisioning time;
| | - |  | ----------------------------



| |  |  | our ability to increase transport capacity rapidly to meet our customers needs; and
| | - |  | ------------------------------------------------------------------------------------



| |  |  | the carrier-class reliability and resiliency of our networks.
| | - |  | -------------------------------------------------------------



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We believe that our strategy provides for a broad customer base. Our potential customers are domestic
network operators, including incumbent carriers and competitive service providers, international communications companies, Internet service providers, application service providers and other Internet-related companies.

Develop the platforms to offer new services to our customers. We believe that, as technology continues to develop, there are potential
opportunities to provide new services to our customers. To keep pace with this anticipated demand, we intend to continue to ensure that our network architecture provides the connectivity, scalability, performance and flexibility necessary for the
rapid introduction of new services. We regularly test equipment with the intention of adopting new technologies that can be integrated into our network to improve performance and decrease the cost of operating our network.

Our Services

Our services include the following:

Transport Services

Our transport
services are delivered over an open architecture to support multiple technologies. We provide optical wavelengths and broadband circuits with capacity ranging from 1.5 Mbps to 10.0 Gbps. We offer transport services utilizing different transmission
protocols, including the SONET and TDM protocols used primarily in North America and the international protocols, SDH and PDH. We also provide Ethernet and IP connections from 10.0 Mbps to one Gbps.

On-Net Transport. We provide interconnectivity via our optical and electrical transport networks within and between carrier hotels and other
network aggregation points. We offer intra-building connectivity, as a lit service and on dark fiber, for transport between floors of these buildings, and we offer comprehensive inter-building connectivity as a lit service between these buildings
within a metropolitan area.

Off-Net Transport. We provide our customers with off-net connectivity on networks that we do not own.
Customers purchase these services from us to benefit from our network design, provisioning and management expertise. We sell this connectivity to our customers and order the underlying circuits from other telecommunications carriers. We offer
off-net transport in markets that we currently serve, other metropolitan markets that we do not serve with our own networks, and on a long-haul basis to connect metropolitan areas. We offer these services as part of a turnkey solution to our
customers, providing them with a single point of contact to order additional network capacity and to manage ongoing network operations.

Meet-Me-Room Cross Connections. In New York City, we operate the 60 Hudson Street Meet-Me-Room, located in one of the premier carrier hotels in the world. A centralized, carrier-class cross connection facility, the 60 Hudson Street
Meet-Me-Room enables us to offer our customers a single facility within the carrier hotel where they can cross connect, or privately peer, with one another in a secure, rapid and cost-effective manner via optical, coaxial and copper terminations.

Hubbing Services.Our hubbing services consolidate and aggregate traffic by grooming high bandwidth circuits to lower bandwidth
circuits for efficient distribution over our networks. Customers can obtain multiple, lower bandwidth end links more cost-effectively than by purchasing those circuits individually, also saving equipment and maintenance costs. We also provide
hubbing services that include protocol conversion capabilities to interconnect domestic and international traffic.

Ethernet and IP Data
Services. On our networks in New York City, we provide native metro Ethernet transport and Dedicated Internet Access services. Ethernet transport provides dedicated and switched, committed bandwidth over point-to-point and point-to-multipoint
connections for Ethernet hubs and virtual private networks. Our Dedicated Internet Access services utilize multiple, diverse connections to Tier 1 Internet backbones. These services can be purchased in granular increments with burstable and flat
rate billing plans to scale with our customers network growth needs. All of our colocation facilities are Ethernet and IP enabled.



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Global Gateway Services. We offer global gateway services through our carrier-grade technology
platform that enables communications providers to exchange VoIP traffic. It is built on an Ethernet switching architecture, incorporating gateway functionality and switch partitioning capabilities. The platform enables the migration of legacy voice
traffic to an IP environment and also exchanges domestic and international voice traffic between legacy systems.

Colocation Services

In our network-neutral colocation facilities in key carrier hotels, we provide our customers with a secure, reliable location to house their networking
equipment and to establish network interconnections with a choice of other networks. We offer our standardized racks and cabinets or customized cages of colocation space, with redundant supplies of AC and DC power to operate their equipment. These
highly conditioned facilities have backup generators, fire protection capabilities, industrial heating, ventilation and air conditioning systems and security systems.

We also offer additional services, including remote hands services, which are provided by our professional services organization, Availius. Through our remote hands services, customers have 24-hour access to our
trained technicians to assist in network equipment deployment, routine maintenance and troubleshooting. We also assist in the design and deployment of our customers installations, as well as their ongoing maintenance.

Communications Access Management

In certain
commercial office buildings, we manage the communications access and infrastructure for the buildings. We enter into agreements with service providers so that they may provide services to tenants in the buildings.

Network Design and Architecture

We have and will
continue to design, develop and construct networks and facilities for interconnectivity in our markets. Our networks have five components: carrier hotel facilities, meet-me-rooms, metropolitan transport networks, FiberNet In-Building Networks
(FINs) and a NOC.

Carrier Hotel Facilities

A carrier hotel facility is an environmentally controlled, secure site within a carrier hotel that is designed to house carrier transmission and networking equipment. At these facilities we establish the
interconnection of our metropolitan transport networks with other service providers networks. This interconnection of networks enables us to transfer other carriers traffic onto our networks and provide transport services to them. In
addition to utilizing our carrier hotel facilities to interconnect with service providers, we also provide colocation and other ancillary services at certain of these facilities.

Our primary carrier hotel facilities in the New York metropolitan area are located in 60 Hudson Street and 111 Eighth Avenue in New York City, and 165
Halsey Street in Newark, New Jersey. We have established eight other secondary carrier hotel facilities in New York City, Long Island and New Jersey, which we have connected to 60 Hudson Street, 111 Eighth Avenue and 165 Halsey Street via our
metropolitan transport networks. Our primary carrier hotel facility in Los Angeles is located at 707 Wilshire Boulevard. We have four secondary carrier hotel facilities in Los Angeles. We also have secondary carrier hotel facilities in Chicago and
Miami. By establishing our presence in multiple carrier hotels we increased our ability to interconnect with other service providers, thereby increasing our potential customer base and revenue opportunities with existing customers. We continually
monitor and evaluate each of our markets to assess the viability of our existing facilities and to determine if the development of additional facilities is warranted. At our primary sites we offer colocation facilities in addition to transport and
interconnection services. In certain of our secondary carrier hotel facilities, we have colocated in other carriers facilities.



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Meet-Me-Room

Our 60 Hudson Street Meet-Me-Room offers standardized colocation cabinets and customized cages for carriers to house their telecommunications equipment in a secure, environmentally controlled environment. All of the colocation units are
connected to a central cross connection area within the 60 Hudson Street Meet-Me-Room with optical, coaxial or copper terminations, allowing our customers to connect their networks in an organized, rapid and cost-efficient manner with carrier-class
reliability.

Occupants of our 60 Hudson Street Meet-Me-Room have access to our vertical in-building network within the building and to our
metropolitan transport networks, which connect to other carrier hotels.

Metropolitan Transport Networks

We acquire dark fiber rights, install our own optical transmission equipment to light the fiber and then provide lit circuits to customers for the
transport of their traffic. We light the dark fiber in ring configurations with optical networking gear, establishing connectivity between our carrier hotel facilities and other buildings on our networks, including certain commercial office
properties. Our intersecting rings are interconnected at two hub locations for maximum survivability and disaster recovery capability.

Our
networks typically transmit data at 2.5 Gbps (OC-48) and at times up to 10.0 Gbps (OC-192). We use dense wave division multiplexing technology to increase capacity on our networks. Dense wave division multiplexing can increase the bandwidth of a
single fiber-optic strand by transmitting signals on up to 40 different wavelengths of light on a single fiber, therefore enabling the transmission of up to 40 times more information on an existing fiber-optic strand.

Our existing metropolitan transport networks consist of OC-48 and OC-192 SONET and protocol independent rings deployed in midtown Manhattan, downtown
Manhattan, New York/Long Island, New York/New Jersey and Los Angeles.

FiberNet In-Building Networks (FINs)

Our FINs are advanced central distribution networks that we deploy in certain carrier hotels and commercial office properties to provide communications
transport within the building. The design specifications for our FINs are tailored to each building and we are committed to building the most secure, reliable fiber-optic systems that adhere to the highest technical standards in the industry. We
strive to provide a system that is flexible, expandable, and able to meet the needs of our customers.

The FIN is often deployed in the
buildings vertical riser system to provide connectivity to multiple floors. By often deploying over one hundred strands of fiber in dual risers, our FINs allow for redundant fiber paths in ring architecture to ensure reliability and
scalability. Horizontal lateral conduits from the riser system can then be deployed to establish direct connectivity to the network point of presence in the customers suite or premise.

By extending our networks vertically in riser systems and laterally into customers suites, we are able to provide a maximum means of end-to-end
connectivity to our customers. We have constructed our FINs in 6 carrier hotels in New York and Los Angeles and in 20 commercial office properties in New York and Chicago.

Network Operations Center

We monitor and manage traffic on our networks from our NOC located in
Newark, New Jersey at a location that is physically diverse from our core network assets. Our NOC is responsible for proactively managing all network and customer incidents, and it uses a combination of network monitoring and provisioning tools to
handle most incidents remotely.



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It enables us to provision connectivity to any point on our networks and to provide timely customer
support and maintenance from a centralized location. Our networks are monitored and maintained 24 hours a day, 365 days a year by our trained technical staff. The NOC has been constructed to ensure survivability. It has its own back-up power systems
and emergency support capabilities.

Sales and Marketing Strategy

Sales. We sell our services through our direct sales force. Our sales team is comprised of representatives that have significant expertise in and knowledge of the communications market. By using a direct sales
strategy, we provide the personal attention and high quality of service that our customers require. To a lesser degree, we also utilize an alternate sales channel of agents to sell our services to certain customers.

Marketing. Our marketing strategy is focused on building relationships with our customers. We believe that all segments of our customer base
benefit from targeted public relations efforts, promotional materials, event marketing, and personal selling techniques. In addition, we have marketing activities directed specifically to each of our constituent markets. These activities include
supporting industry organizations, participating in conferences, tradeshows and seminars, preparing personalized presentations and engaging in direct marketing.

Customers

We have a broad customer base. Our technologically advanced network infrastructure meets the needs not just of
small- and medium-sized network users but also global carriers and service providers. Our customers include domestic incumbent carriers and competitive service providers, as well as Internet service providers and Internet-related companies. Because
the flexibility of our networks allows us to interconnect with domestic subsidiaries of internationally based customers, we have made significant progress in growing the international segment of our customer base. We provide our services to many
Post Telephone and Telegraph administrations, or PTTs. These are the communication service providers that had monopolies in their respective countries, where markets are increasingly being deregulated, such as in Europe as well as other parts of the
world.

As of December 31, 2008, our customers included AT&T, Bell Canada, British Telecom, Cable & Wireless, China
Telecom, China Netcom, Deutsche Telekom, France Telecom, KPN, Level 3, NTT America, Qwest, Reliance, Sprint, Tata Communications, TeliaSonera and Verizon. We enter into contracts with our customers with terms ranging from one month to 15 years.

Many of our customers made sizable investments building new communication networks, multiplying the amount of available transmission
capacity. However, the expected demand for broadband connectivity was not realized in many segments of the market. Although applications for telecommunications network capacity have been developed, the actual demand to date for capacity from those
applications did not meet industry expectations. As a result, this unrealized demand for bandwidth created significant excess capacity, depressing the market for communications services. There was an industry-wide slowdown in capital spending and a
large number of industry-related bankruptcy filings and business failures in recent years, which contributed to the financial distress that many companies in the telecommunications industry experienced. While the number of bankruptcies has declined,
we believe that other customers may file for bankruptcy or experience other financial distress in the future.

Competition

The market for our services is very competitive. Our competitors include established and new communications companies.

Local Telephone Companies. In New York City and Los Angeles, we face significant competition from the incumbent carriers (ILECs) that
currently dominate local communications markets, and CLECs, or competitive



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local exchange carriers, which are increasing their market penetration for local communications services. ILECs, including Verizon, have several competitive
advantages over us, including an established brand name, extensive network infrastructure and significant capital resources. As a result of the Telecommunications Act of 1996, ILECs are required to provide other carriers with access to end users via
their existing networks. This type of access is in direct competition to our services. Moreover, ILECs also sell wholesale connectivity, which competes with our transport services. Various other competitive communications providers also own
communications infrastructure in our markets and in the long-haul market segment. Many of these carriers currently compete with us, and such competition may increase in the future.

Other Communications Providers. Certain other integrated communications providers have deployed their own extensive network infrastructure in our
markets to provide communications services to our potential customer base. These include, but are not limited to, AT&T, Sprint, Level 3, Qwest, tw telecom and XO Communications. These companies operate networks on which they offer retail and
wholesale services. Consequently, they directly compete with us. We also compete directly with other providers of colocation services and data center facilities. These include, but are not limited to, Equinix and Switch and Data. Many of these
companies also have several competitive advantages over us, including established brand names, extensive network infrastructure and significant capital resources.

Our History

FiberNet Telecom, Inc. was organized under the laws of the State of Delaware on August 10, 1994. On
November 24, 1997, Desert Native Designs Inc., an existing public company incorporated in the State of Nevada, acquired FiberNet Telecom, Inc. pursuant to an agreement and plan of merger dated as of the same date. Upon consummation of the
merger, FiberNet Telecom, Inc. became a wholly owned subsidiary of Desert Native Designs, Inc., which subsequently changed its name to FiberNet Telecom Group, Inc. On February 4, 2000, we reincorporated in Delaware.

On July 31, 2000, we consummated a corporate reorganization in order to acquire Devnet L.L.C. As a result of this reorganization, we became a
holding company that directly owns all of the outstanding common stock of FiberNet Operations, Inc., a Delaware corporation and 96% of the outstanding membership interests in Devnet L.L.C., a Delaware limited liability company. FiberNet Operations
directly owns all of the outstanding common stock of FiberNet Telecom, Inc., a Delaware corporation, and the remaining 4% of Devnet. In November 2005, we created a new subsidiary, Availius, LLC. FiberNet Telecom, Inc. owns all of the outstanding
membership interests in Local Fiber, LLC, FiberNet Equal Access, LLC and Availius, LLC, all of which are New York limited liability companies. We conduct our primary business operations through our operating subsidiaries, Local Fiber, FiberNet Equal
Access, Availius and Devnet.

Regulation of FiberNet

General Regulatory Environment

Some of our communications services are subject to federal, state and local regulations that
affect our product offerings, competition, demand, costs and other aspects of our operations. We believe that other communications services we offer are not subject to such regulation. For example, providers of Internet services generally are not
subject to regulation. The regulation of the communications industry is changing rapidly at both the federal and state levels and varies from state to state. To the extent that our offerings are treated as telecommunications services, federal and
state regulation would apply to those offerings. Our operations are also subject to a variety of environmental, safety, health and other governmental regulations. We cannot guarantee that we have properly determined which of our services are subject
or not subject to state and federal communications regulation. We also are unable to guarantee that current or future regulatory, judicial or legislative actions will not have a material adverse effect on our operations or financial condition, or
that domestic or international regulators or third parties will not raise material issues with regard to our compliance or



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noncompliance with applicable regulations. Current and future regulatory, judicial, or legislative actions may have a material adverse effect on our
operations, profitability and business results.

Many, if not most, of our customers are also subject to federal, state and local
regulations. Current or future regulatory, judicial or legislative actions may have a material adverse effect on our customers operations or financial condition, which in turn could negatively affect our own operations, profitability and
business results.

Federal Regulation

Federal regulation has a great impact on the communications industry and has undergone major changes in the last twelve years as the result of the enactment of the Telecommunications Act of 1996, which amended the Communications Act of
1934, as amended (the Act).

Our services are provided through our operating subsidiaries, Local Fiber, Equal Access, Availius,
and Devnet. The services offered by our subsidiaries fall into one of two categories:



| |  |  | telecommunications services or common carriage; and
| | - |  | ---------------------------------------------------



| |  |  | non-telecommunications services, which can include private telecommunications.
| | - |  | ------------------------------------------------------------------------------

We believe that Local Fiber operates as a telecommunications carrier under the Act. We believe that Equal Access and Devnet do not operate as
telecommunications carriers as defined by the Act, because to the extent they provide telecommunications, we believe they do so on a private carrier basisnot as a telecommunications carrieras explained below. Certain
regulations associated with each type of offering are described below. Although the law establishing regulatory requirements is often unclear, our telecommunications services and telecommunications generally are subject to a lower degree of federal
and state regulation than those of dominant carriers such as the incumbent local exchange carriers (ILECs), including the Verizon and AT&T local telephone companies.

The following is a summary of certain federal and regulations affecting the communications industries and a description of relevant state and local laws.
It does not purport to be a complete summary of all present and proposed legislation and regulations pertaining to our operations or those of our customers.

Telecommunications Services

One of our subsidiaries, Local Fiber, is regulated as a telecommunications carrier
because it provides telecommunications directly to the public for a fee, or to such class of users as to be effectively available to the public. Telecommunications carriers are subject to extensive federal regulations that may impose substantial
administrative and other burdens on our operations.

Obligations to Contribute to Federal Funds and Pay Regulatory Fees.As a
competitive provider of local (also known as a competitive local exchange carrier or CLEC) and long distance telecommunications services, Local Fiber is subject to federal telecommunications regulation, including, but not limited to the obligation
to contribute to numerous funds to the extent it provides interstate telecommunications services or obtain numbers for end user customers. These funds include, first and foremost, the FCCs universal service fund. This fund was established to
ensure the availability of affordable basic telecommunications services to high cost, low-income users, and access to advanced telecommunications and Internet services by schools and libraries and rural healthcare providers. The rate of assessment
is approximately 9.5% of gross interstate and, generally speaking, international end-user telecommunications revenues for the first quarter of 2009, and may be higher in subsequent quarters and years. The FCC is reviewing its current universal
service assessment, contribution, and recovery rules. Congress may also implement changes to the federal universal service fund contribution and impose requirements which could affect our obligations. Changes to the universal service rules could
affect our revenues adversely. FCC rules also require that telecommunications carriers contribute to various other funds,



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which are also based on a percentage of our gross intrastate, interstate, and/or international telecommunications revenues, depending on the particular fund.
Our contribution obligations historically have been small because our customer base has been predominately carriers that essentially resell our servicesrather than end users. To the extent our carrier customers or their customers must
contribute to the universal service fund, we are exempted from contributing based on the revenues from these customers. Our contribution obligations could increase should Local Fiber or any of our other subsidiaries provide larger volumes of
telecommunications to end users, or begin to provide such offerings.

We are also subject to federal regulatory fees which are set and
assessed annually by the FCC on the interstate and international telecommunications we provide.

Complaints and Enforcement Proceedings
Regarding Compliance with the Act and FCC Regulations.Local Fiber is required to comply with a number of other federal regulatory requirements. Third parties may file complaints against us at the FCC for violations of the Act or the FCCs
regulations. The FCC may also investigate our compliance and commence enforcement actions on its own initiative for violations of FCC rules and the Act. Certain statistical reporting requirements may also apply to our services. Although compliance
with these regulatory requirements imposes certain administrative burdens, similarly situated competitors are subject to comparable regulatory obligations. If Local Fiber or any other subsidiary fails to comply with applicable FCC or other federal
regulations, that failure may lead to enforcement proceedings, fines or forfeitures that could have a material adverse effect on our operations or financial condition or to complaint proceedings leading to monetary awards for damages and changes to
the way we conduct our business, which could have a material adverse affect on our business operations and profitability.

Local
Exchange Carrier Regulation. The Act imposes a number of access and interconnection requirements on telecommunications carriers, an expanded set of requirements on all local exchange providers, including CLECs, and finally the most comprehensive
set of such obligations on ILECs. CLECs compete with the ILECs for local subscribers of telecommunications services. As discussed under our State Regulation section below, Local Fiber provides local transport services and has obtained
authorization as a CLEC to provide telecommunications services in the states of New York, New Jersey and California. As a CLEC, Local Fiber is subject to any requirement imposed by the FCC that is generally applicable to local exchange carriers or
LECs. However, because of the nature of Local Fibers service offerings, not all CLEC obligations will apply to us. In addition, LEC regulations affect us indirectly to the extent that they have a direct effect on our carrier customers. The FCC
often considers changes to its access and interconnection rules, and Congress routinely considers changes to the Act, which if passed, could enlarge or diminish Local Fibers access and interconnection rights and obligations and/or those of our
customers.

Under the Act, all telecommunications carriers must interconnect directly or indirectly with the facilities of other
telecommunications carriers, offer certain services for resale, provide number portability and dialing parity, provide access to rights-of-way and establish reciprocal compensation arrangements for the transport and termination of traffic. In
addition to these general duties, ILECs, but not CLECs, have additional obligations to provide cost-based interconnection at any technically feasible point, allow access to certain portions of their network at cost-based rates, and provide
colocation to requesting carriers pursuant to specific standards. Changes to these requirements that diminish the interconnection rights of our companies or those of our customers could have a material adverse effect on our operations or financial
condition or those of our customers.

The FCC has also adopted guidelines for implementing the interconnection and local competition
provisions of the Act. In order to foster competition in the local exchange market, the FCC initially required ILECs to offer unbundled access to certain portions of their communication networks (known as unbundled network elements) to CLECs at
cost-based rates. The FCC, over the past eight years, has significantly reduced the number of network elements ILECs must make available on an unbundled basis to their competitors, such as Local Fiber and many of our customers. Although Local Fiber
does not rely solely on network elements purchased from ILECs to provide its services, the FCC has limited Local Fibers ability to obtain the unbundled elements of the



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ILECs networks at cost-based rates that Local Fiber requires to provide service to its customers. In addition, the FCC is reviewing its pricing regime
for network elements. Any changes to the pricing scheme for network elements or changes to the list of network elements that must be made available on an unbundled basis in our operating territories may adversely affect Local Fibers revenues
and operating margins. To the extent our customers purchase unbundled network elements from the ILEC, revisions regarding access to ILEC network elements or the pricing of those network elements, could affect the growth opportunities for some of our
customers and thus the demand for our services.

Under the Act, state commissions have jurisdiction and authority, consistent with the Act
and the FCCs rules, to arbitrate and review negotiations between ILECs and CLECs regarding the prices that ILECs charge CLECs and other terms and conditions related to interconnection, unbundled network elements, colocation and resale. In
setting these prices, state commissions must use a forward-looking cost methodology as required by the FCC, and later upheld by the Supreme Court. State commissions have the authority to modify their decisions regarding the prices and other terms
and conditions related to interconnection, unbundled network elements, colocation and resale. If the state commissions take such actions in the future, it could have a material adverse impact on our expenses and operating margins, or those of our
customers.

As part of its ongoing examination of the competitive marketplace, the FCC is currently examining several other
competition-related issues, including whether to adopt a set of performance measures and standards that could improve enforcement of ILECs wholesale obligations under the Act. The outcome of these proceedings may affect the rates, terms or
conditions of our service offerings, and result in increased competition from ILECs with respect to some of our services, any or all of which could have a material adverse impact on our business operations and financial condition.

Intercarrier Compensation.The FCC has also adopted rules regarding how telecommunications carriers compensate each other for the transport and
termination of telecommunications traffic. In the 1980s the Commission established the access charge regime, which it has modified many times since then, and continues to examine, by which local exchange carriers assess access charges against
interexchange carriers for the origination and termination of interexchange calls on their networks. In 1996, the FCC adopted its basic rules for reciprocal compensation between carriers for the transport and termination of local traffic. In April
2001, the FCC issued an order limiting the amount of compensation to be paid to terminate some traffic bound for Internet Service Providers (ISP-bound traffic) and eliminating compensation for other ISP-bound traffic. On appeal, the
federal court found that the FCC did not adequately support its findings regarding reciprocal compensation for ISP-bound traffic and remanded the FCCs order back to the FCC for further consideration, although it allowed the FCCs rules to
remain in effect. The FCC, in late 2009, issued its remand order largely keeping in place the previous rules, with some modifications, but offering a different regulatory rationale. In addition, and more comprehensively, the FCC is exploring methods
to drastically modify and unify reciprocal compensation and access charges, both interstate and intrastate, such that, after a transition period, intercarrier compensation rate levels would be much lower than they are today. No decision has been
adopted at this time, and it is unclear whether and to what extent the FCC will act to modify the current regime of intercarrier compensation. Our revenues and operating margins, and those of our carrier customers, may be materially adversely
affected by FCC and court decisions on compensation matters.

Broadband Services and Forbearance.The FCC also has issued decisions
regarding the regulation of broadband services provisioned by ILECs and the appropriate regulatory treatment under the Act for a wireline carriers offering of broadband Internet access services. In September 2005, the FCC determined that
wireline broadband Internet access services provided over a providers own facilities is an information service and therefore, at a providers election, no longer subject to traditional common carrier regulation, including regulations
requiring access by competitors. In March 2006, the FCC failed to act on a petition for forbearance filed by Verizon which asked the FCC to forbear from applying traditional common carrier regulation to certain of its high-capacity broadband
services. The FCCs inaction on the merits meant procedurally that the Verizon petition was deemed granted, meaning that Verizon is able to offer these services subject to very limited



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regulation. The deemed granted status of Verizons petition has been upheld by the federal appeals court for the District of Columbia
Circuit. Other major facilities based broadband services carriers, including AT&T, have filed similar forbearance requests with the FCC and received varying levels of deregulation of their broadband service offerings. Other forbearance petitions
are pending regarding ILEC obligations to adhere to other pro-competition regulations, such as petitions by Verizon and Qwest for forbearance from obligations to offer unbundled network elements at cost-based rates to competitors carriers in certain
of their geographic markets. The foregoing decisions regarding broadband services, and any rulings issued in the future regarding forbearance from other regulatory obligations that currently apply to our competitors, may result in increased
competition from ILECs and/or CLECs with respect to some of our services and those of our customers, may adversely impact our capacity, and our customers ability, to operate profitably, and may affect the rates, terms or conditions of our
service offerings and of wholesale inputs to those offerings.

Special Access Services.In 1999, the FCC established a framework for
lifting rate regulation of ILEC special access services at the metropolitan statistical area in two phases as competition reached specified trigger levels in those areas. A federal appeals court upheld the FCCs decision. Following the 1999 FCC
ruling, special access service rate regulation has been lifted in numerous areas, providing substantial pricing flexibility to ILECs in many major markets in which they operate for their private line and dedicated transport offerings. This has
increased the ILECs ability to respond swiftly to their competitors and enter into special pricing arrangements with others subject to minimal regulation. This ruling permits ILECs in many instances to utilize contract arrangements for the
provision of dedicated services similar to the way in which we and our customers offer these same types of services. As a result of pricing flexibility for ILECs, we and our customers face greater competition with respect to the services they
provide. The FCC is currently considering the adoption of performance measures and standards for ILEC-provisioned special access services, and thus, the ILECs special access services may face greater regulation in the future, but there is no
guarantee when the FCC will act or whether its decision will lead to material changes affecting our business or our ability to compete.

Access to Multi-Tenant Properties.Two of our subsidiaries, Equal Access and Devnet generally secure multi-year license agreements with commercial real estate owners for the exclusive right to lease intra-building fiber capacity to
third parties, principally telecommunications carriers that wish to provide services to tenants. Under current FCC regulations, real estate owners have the right to control wiring within or on their premises, as well as the access to such wiring,
beyond the demarcation point, which is the point at which telecommunications carriers seeking to serve the customers in the buildings terminate their facilities and the facilities subject to the owners control begin. The demarcation point in a
multi-tenant building is typically at a minimum point of entry to the building such as the basement. These FCC rules allow the real estate owners or managers to install and maintain their own inside wiring or to contract with companies, such as
Equal Access or Devnet, to maintain wiring on their behalf.

As of March 16, 2009, there was no federal legal requirement that owners
or managers of privately owned commercial office buildings or residential multi-tenant buildings or environments must give access to any requesting provider of telecommunications services. If laws or regulations are enacted that effectively require
building owners to give inside wiring access to all requesting telecommunications providers on nondiscriminatory terms, then Equal Accesss and Devnets ability to secure and maintain exclusive inside wiring contracts may be inhibited,
which could have a material adverse affect on their operations and financial condition. Local Fiber has both rights and obligations under the foregoing requirements since it is a telecommunications carrier.

Under FCC regulations, telecommunications carriers, such as Local Fiber, are prohibited from entering into or enforcing exclusive contracts with owners
and landlords of commercial and residential multi-tenant buildings or environments for the provision of telecommunications services to tenants. Because we believe Equal Access and Devnet are not telecommunications carriers (seeNon-Telecommunications Services and Regulation, below), we believe that the FCCs decision does not apply to them or the arrangements they reach with owners of multi-tenant properties. The FCCs decisions also require local
exchange carriers and other utilities, such as



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Local Fiber, to provide other telecommunications carriers and cable service providers reasonable and non-discriminatory access to conduits and rights-of-way
that the carriers and utilities own or control. We believe that these requirements and the right to access the rights-of-way owned or controlled by utilities do not apply directly to Equal Access or Devnet because they are not telecommunications
carriers or utilities. However, these requirements apply to telecommunications carriers and utilities that hold access rights independent of those held by Equal Access and Devnet in multi-tenant properties and also apply to Equal Accesss and
Devnets telecommunications carrier customers. Depending on how these rules are interpreted, these requirements may facilitate the entry into buildings in which we offer our services by our competitors or those of our customers, by permitting
such entities to gain access through the separate access rights that currently are, or in the future may be, held by local exchange carriers or other utilities in the same buildings. We cannot guarantee that the FCCs rules will be interpreted
regarding this requirement in the buildings served by our subsidiaries in a manner that does not have a material adverse effect on Equal Access or Devnet. Further, if either Equal Access or Devnet were found to be a telecommunications carrier, such
a finding could have a material adverse affect on the validity of central terms of its contracts with property owners and could have a material adverse effect on our subsidiarys operations and financial condition.

The FCC also established procedures to enable multi-tenant property owners to require that the provider of wireline telecommunications services to the
property move the demarcation point to the minimum point of entry, if the demarcation point is not already located there, or to obtain clarification where the demarcation point is. The minimum point of entry is defined as either the closest
practicable point to where the wiring crosses a property line or the closest practicable point to where the wiring enters a multi-tenant building or buildings. We believe the FCCs procedures to allow owners to move the demarcation point upon
request and to clarify the location of the demarcation point in multi-tenant properties do not place an obligation on Equal Access or Devnet because we believe that none of these entities is a provider of wireline telecommunications services. We
cannot guarantee whether the FCCs implementation of its demarcation point procedures or the consequences to our subsidiaries resulting from a building owners decision to locate the demarcation point at the minimum point of entry or to
not make such a request will not have a material adverse effect on our subsidiaries operations or financial condition.

Customer
Proprietary Network Information.FCC rules protect the privacy of certain information about customers that communications carriers, including Local Fiber, acquire in the course of providing communications services. Such protected information,
known as Customer Proprietary Network Information (CPNI), includes information related to the quantity, technological configuration, type, destination and the amount of use of a communications service. Certain states have also adopted
state-specific CPNI rules. The FCCs rules require carriers to implement policies to notify customers of their rights, take reasonable precautions to protect CPNI, notify law enforcement agencies if a breach of CPNI occurs and file a
certification with the FCC stating that its policies and procedures ensure compliance. We filed our most recent compliance certificate with the FCC on February 17, 2009, stating that we use our subscribers CPNI in accordance with
applicable regulatory requirements. However, if a federal or state regulatory body determines that we have implemented the FCCs requirements incorrectly, we could be subject to fines or penalties. Additionally, the FCC is considering whether
additional security measures should be adopted to prevent the unauthorized disclosure of sensitive customer information held by telecommunications companies.

Communications Assistance for Law Enforcement Act. The Communications Assistance for Law Enforcement Act (CALEA) requires telecommunications providers to provide law enforcement officials with call
content and call identifying information under a valid electronic surveillance warrant, reserve a sufficient number of circuits for use by law enforcement officials in executing lawful electronic surveillance and adopt and adhere to specific system
security policies and record keeping requirements. In 2005, the FCC concluded that CALEA also applies to facilities-based broadband Internet access providers and providers of interconnected VoIP. As a telecommunications network operator, we are
subject to these requirements and we believe we are compliance.



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State Regulation

The Act generally prohibits state and local governments from enforcing any law, rule or legal requirement that prohibits or has the effect of prohibiting any person from providing any interstate or intrastate
telecommunications service. However, states generally retain the ability to regulate the entry and rates of providers of intrastate telecommunications and may adopt regulations necessary to preserve universal service (for example, many states have
established their own universal service funds supplementing the federal fund), protect public safety and welfare, ensure the continued quality of telecommunications services and safeguard the rights of consumers.

Local Fiber must obtain and maintain certificates of authority from regulatory bodies in states where it offers intrastate telecommunications subject to
requirements that vary by state. Local Fiber is currently authorized as a CLEC to provide intrastate services in New York, New Jersey and California, and may seek additional authority in other states. In most states, telecommunications providers
must also file and obtain prior regulatory approval of tariffs for its regulated intrastate services. We believe that our other subsidiaries, Equal Access, Availius and Devnet, do not require state certification in order to provide their offerings.
Certificates of authority can generally be conditioned, modified or revoked by state regulatory authorities for failure to comply with state law or regulations. Fines and other penalties also may be imposed for such violations. Delays in receiving
required regulatory approvals in other states could also have a material adverse effect on us. We cannot guarantee that regulators or third parties will not raise material issues with regard to our compliance or non-compliance with state laws or
regulations, including tariffing requirements, where we have communications-related operations.

State regulatory commissions generally
regulate the rates ILECs charge for intrastate services, including intrastate access services paid by providers of intrastate long distance services. Intrastate access rates affect the costs of carriers providing intrastate long distance services
and the demand for our services and those that other carriers, including our customers, provide. A state may also impose telecommunications taxes and fees for state-level universal service and other programs on providers of services within that
state.

Regulation of access by telecommunications providers to multi-tenant buildings, including the regulation of the rights of
telecommunications providers to have exclusive access to multi-tenant buildings, has been adopted in certain states. For example, regulations in California, Connecticut, Texas and Massachusetts generally require commercial real estate owners to
provide nondiscriminatory access to requesting telecommunications providers that have customers within a building, and limit what the real estate owner may charge for such access. Massachusetts has rules that also require owners or controllers of
rights-of-way, including owners of commercial buildings and certain multi-tenant dwellings, to provide non-discriminatory access to a carrier upon a tenants request. The California Public Utilities Commissions rules prohibit carriers
from entering, on a prospective basis, into exclusive access agreements with property owners that would restrict the access of other carriers to the property or discriminate against the facilities of other carriers. Other states, such as Nebraska
and Ohio, have adopted similar exclusive contract prohibitions. New York also is considering the adoption of legislation that would protect telecommunications companies from discrimination when deploying facilities in multi-tenant buildings.
Although these requirements generally permit telecommunications carriers to install their own inside wiring, there is no requirement that real estate owners allow such carriers to use existing inside wiring. Thus, in certain states,
telecommunications carriers are permitted to construct inside wiring within buildings even if a provider such as Equal Access or Devnet already has existing facilities. However, some of these state requirements have been challenged, and therefore,
we cannot predict how these rules will be interpreted. The foregoing requirements regarding access by telecommunications providers to multi-tenant buildings, and other requirements not described above that exist now or may be adopted in the future,
may be interpreted or applied in a manner that adversely affects the ability of our subsidiaries Local Fiber, Equal Access and Devnet to provide their services as they do today, and may have an adverse affect on our operations and financial
condition.



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Local Regulation

In addition to federal and state laws, local governments exercise legal authority that may affect our operations. For example, local governments retain the authority to license, and receive compensation for, access by
telecommunications carriers to public rights-of-way pursuant to franchise or similar arrangements, subject to the limitation that local governments may not take actions that prohibit or have the effect of prohibiting the provision of
telecommunications services. Local governments may collect fair, reasonable and non-discriminatory compensation for such access. Local authorities affect the timing, costs, and procedural requirements associated with the use of public rights-of-way.
These regulations and other local actions related to the public rights-of-way, and changes thereto, may have an adverse effect on our business to the extent Local Fiber, our other subsidiaries or our customers require access to such public
rights-of-way. In addition, local governments may impose telecommunications taxes and surcharges on the operations of telecommunications providers, such as Local Fiber.

Non-Telecommunications Services

We believe certain of our subsidiaries, Equal Access, Availius and
Devnet, are not subject to telecommunications carrier regulation. Unlike telecommunications carriers, Equal Access and Devnet do not hold their offerings out to the general public for a fee. Moreover, Equal Access and Devnet do not occupy or use
public rights-of-way that may trigger local franchise regulation. Instead, Equal Access and Devnet have entered into exclusive agreements with building owners to provide or manage intra-building fiber capacity to telecommunications carriers on a
private carrier basis through customer specific arrangements. As such, Equal Access and Devnet merely provide the in-building capacity over which other providers, incorporating their own facilities and equipment or those of third parties, may offer
telecommunications and telecommunications services to tenants, including services that allow the tenants to reach any point on the public telephone system. While we believe we are correct in our assessment that Equal Access and Devnet are not
subject to federal or state regulation as a result of their provision of telecommunications, there is no guarantee that the regulators would agree. As explained above, seeAccess to Multi-Tenant Properties in the Federal
Regulation Section and see the State Regulation Section, federal and state regulation places certain limits on the existence or enforcement of exclusive contractual rights in multi-tenant properties related to telecommunications capacity.

Availius is an intellectual capital and resource company that leverages FiberNets expertise and implementation capabilities to
provide turn-key results for network, infrastructure and wide-ranging business needs. Availius offers full-service capabilities to sophisticated network operators and data facility users, and gives clients access to strategic direction and
experienced personnel for overall project execution and management services.

Equal Access and Devnet are subject to numerous local
regulations such as building and electrical codes, licensing requirements and construction requirements. These regulations vary on a city-by-city and county-by-county basis.

Liability for Internet Content

There have been various statutes, regulations and court cases
relating to liability of Internet service providers and other on-line service providers for information carried on or through their services or equipment, including in the areas of copyright, indecency, obscenity, defamation and fraud. The laws in
this area are unsettled and there may be new legislation and court decisions that may affect our services and expose us to liability to the extent we provide Internet access or other Internet-related services.

Other Regulations

Our operations are subject to
various federal, state, local and foreign environmental, safety and health laws and governmental regulations. These laws and regulations govern matters such as the generation, storage,



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handling, use and transportation of hazardous materials, the emission and discharge of hazardous materials into the atmosphere, the emission of
electromagnetic radiation, the protection of wetlands, historic sites and endangered species and the health and safety of our employees.

Although we monitor compliance with environmental, safety and health laws and regulations, we cannot ensure that our operations have been or will be in complete compliance with these laws and regulations. We may be subject to fines or other
sanctions imposed by governmental authorities if we fail to obtain certain permits or violate the laws and regulations. We do not expect any capital or other expenditures for compliance with laws, regulations or permits relating to the environment,
safety and health to be material in 2009.

In addition, our business may be subject to environmental laws requiring the investigation and
cleanup of contamination at sites we own or operate or at third party waste disposal sites. These laws often impose liability even if the owner or operator did not know of, or was not responsible for, the contamination. Although we operate numerous
sites in connection with our operations, we are not aware of any liability relating to contamination at these sites or third party waste disposal sites that could have a material adverse effect on our business or financial condition.

Employees

As of December 31, 2008, we had 73
employees, including 48 in engineering and network operations, 15 in sales and marketing and 10 in finance and administration. We have not experienced any work stoppages and consider our relations with our employees to be good.



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|Item 1A. | RISK FACTORS
|-------- | ------------

Factors Affecting our Business Condition

In addition to the other information and factors included in this report, the following factors should be considered in evaluating
our business and future prospects:

We have and may continue to experience operating losses and net losses.

We may not achieve or sustain operating income or net income in the future. Since our inception we have incurred operating losses and net losses both on
an annual and quarterly basis. We may continue to incur operating losses and net losses in 2009. In 2007, we had an operating loss of $1.9 million and a net loss of $4.9 million. In 2008, we had an operating loss of $0.1 million and a net loss
of $1.7 million.

You should also be aware that our financial and operational performance depends upon a number of factors, many of
which are beyond our control. These factors include:



| |  |  | the economic and competitive conditions in the communications and networking industries;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | increased operating costs or pricing pressures we may experience;
| | - |  | -----------------------------------------------------------------



| |  |  | the passage of legislation or other regulatory developments that may adversely affect us;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | changes in technologies creating alternatives to our services or making our services and networks obsolete;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | delays in implementing any strategic projects; and
| | - |  | --------------------------------------------------



| |  |  | our ability to operate our networks in a reliable and cost-effective manner.
| | - |  | ----------------------------------------------------------------------------

The sector in which we operate is highly competitive.

We will encounter risks and difficulties
frequently experienced by companies in rapidly evolving markets. We are at a competitive disadvantage to larger, more established competitors. We face competition from many entities with significantly greater financial resources, well-established
brand names and larger customer bases. The entities that compete with us include wireless service providers, local telephone companies, long distance companies, competitive access providers, competitive local exchange carriers and competitive
colocation providers. The numerous companies that compete in our markets expose us to severe price competition for our services. We anticipate that these competitive disadvantages may persist or even intensify for the foreseeable future. If
additional competitors focus on our market, there may be intensified price competition which could have a material adverse effect on our business. Additionally, we may experience an increased number of service disconnections.

In the communications industry, continued pricing pressure from our competitors and an excess of network capacity may continue to cause prices for our services to
decline.

Throughout the year, we continued to experience decreases in the prices of certain of our services. We anticipate that prices
for broadband network services, in general, may continue to decline due primarily to the following:



| |  |  | price competition as various service providers continue to sell services at greatly reduced prices to absorb significant excess capacity in existing networks and
continue to install additional networks that compete with our networks;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | recent technological advances that permit substantial increases in the transmission capacity and more efficient utilization of both new and existing networks; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | strategic alliances, consolidations or similar transactions that increase customers purchasing power.
| | - |  | ------------------------------------------------------------------------------------------------------



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Capital markets are currently experiencing a period of disruption and instability, which has had and could continue to
have a negative impact on the availability and cost of capital.

The general disruption in the U.S. capital markets has impacted the
broader worldwide financial and credit markets and reduced the availability of debt and equity capital for the market as a whole. These global conditions could persist for a prolonged period of time or worsen in the future. Our ability to access
capital or the capital markets may be restricted at a time when we would like, or need, to access such capital, which could have an impact on our flexibility to react to changing economic and business conditions. The resulting lack of available
credit, lack of confidence in the financial sector, or increased volatility in the financial markets could materially and adversely affect the availability or cost of obtaining credit, debt financing or equity financing.

The current economic conditions and financial market turmoil could adversely affect our business and results of operations.

The global credit markets, capital markets, and domestic and international economies have been experiencing a period of substantial turmoil and
uncertainty, characterized by unprecedented intervention by the U.S. federal government and the failure, bankruptcy, or sale of various financial and other institutions. We believe the current economic conditions and financial market turmoil could
adversely affect our operations, business and prospects, as well as our ability to obtain and manage our liquidity. If these circumstances persist or continue to worsen, our future operating results could be adversely affected, particularly
relative to our current expectations.

Many of our customers and vendors have experienced financial difficulties and have filed or may file for
bankruptcy protection.

In the past few years, general economic weakness severely impacted the telecommunications industry. The expected
demand for broadband connectivity was not realized in many segments of the market. As a result, there was an industry-wide slowdown in capital spending and a large number of industry-related bankruptcy filings. Many of our customers and vendors
experienced financial distress, and some of them filed for bankruptcy protection.

We have contracts with communications providers that
have filed for relief from creditors under the Bankruptcy Code, as well as contracts with other communications providers who may still yet file for bankruptcy protection. As a result, there is concern that some of our customers or vendors will not
perform their obligations under our contracts with them because, in bankruptcy proceedings, the debtor, or trustee, as the case may be, has the right to reject certain contracts.

In the past, bankruptcy courts have determined that certain of our contracts with our customers constitute executory contracts, and the contracts were
rejected. As a result, we received an unsecured claim for damages against the debtors, and all rights and privileges under the contracts were terminated, including payment for services rendered. There can be no assurance that additional customers or
vendors will not seek bankruptcy protection and that additional contracts will not be terminated.

In the future, we may require additional capital to
fund the further development of our networks and operation of our business.

Although we have substantially completed the build-out of
our networks, we may selectively expand our facilities and networks in the future to respond to the following:



| |  |  | an increasing number of customers;
| | - |  | ----------------------------------



| |  |  | a specific customer demand;
| | - |  | ---------------------------



| |  |  | demand for greater network capacity or colocation space;
| | - |  | --------------------------------------------------------



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| |  |  | the replacement of inadequate or malfunctioning network elements;
| | - |  | -----------------------------------------------------------------



| |  |  | changes in our customers service requirements; or
| | - |  | --------------------------------------------------



| |  |  | technological advances.
| | - |  | -----------------------

In order to
do so, we may need to raise additional funds through public or private equity or debt financings. If we raise funds through the issuance of equity securities, the ownership percentage of our then-current stockholders will be diluted and the holders
of new equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. If additional funds are raised through another bank credit facility or the issuance of debt securities, the holders of such
indebtedness would have rights senior to the rights of the holders of our equity, and the terms of this indebtedness could impose restrictions on our ability to incur additional indebtedness, which could impede the successful execution of our
business plan.

In addition, there can be no assurance that we will be able to successfully consummate any such financing on acceptable
terms, or at all. Our inability to obtain additional financing, as needed, could have a material adverse effect on our business. We do not have any off-balance sheet financing arrangements, nor do we anticipate entering into any.

We must maintain our existing agreements for space in major carrier hotels or our business will be harmed.

Our business depends in large part upon our ability to lease space in carrier hotels to establish carrier hotel facilities where we can locate our
networking equipment and interconnect with our customers. At a minimum, to provide our services in a particular metropolitan area, we must obtain and maintain space in the major carrier hotels in that area. There may be significant competition for
space in major carrier hotels. Our inability to obtain additional space, or our inability to renew existing leases, would negatively impact our operations and have a material adverse effect on our business.

We may not be able to increase the number of our significant customers.

Historically, we have experienced significant disconnections of services by our customers and decreases in the prices of our services. In order to realize anticipated revenues and cash flows, we endeavor to obtain
long-term commitments from new customers, as well as expand our relationships with current customers. This need is more critical as a wholesale carrier because our potential customers are a limited number of service providers. Therefore, it is
essential for us to succeed at establishing and expanding customer relationships.

If we cannot maintain the scalability, reliability and speed of our
network, potential customers will not use our services.

Our ability to manage a substantial amount of traffic on our networks while
maintaining superior service is critical to the operations of our business. There is no assurance that our network will be able to maintain current quality of service as the number of our customers and amount of traffic grow. Our failure to maintain
such level of service would significantly reduce customer demand for our services and have a material adverse effect on our business.

Service
interruptions on our networks could expose us to liability or cause us to lose customers.

Our operations depend on our ability to
prevent or mitigate any damages from power losses, network failures, transmission cable cuts or natural disasters. The failure of any equipment or facility on our networks could result in the interruption of service until we make the necessary
repairs or install replacement equipment. If service is not restored in a timely manner, agreements with our customers may obligate us to provide credits or other remedies to them, which would reduce our revenues or increase our expenses, and we may
be exposed to



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litigation from our customers. Service disruptions could also damage our reputation with customers, causing us to lose existing customers or to have
difficulty attracting new ones. Many of our customers communications needs are extremely time sensitive, and delays in delivery may cause significant losses to a customer using our networks. Our circuits may also contain undetected design
defects or faults that, despite our testing, may be discovered only after our services are in use.

The occurrence of a natural disaster or act of
terrorism in close proximity to our facilities would substantially harm our business.

The substantial majority of our facilities are
located within the New York metropolitan area, with the remainder located in Los Angeles. In particular, our facilities located at 60 Hudson Street and 111 Eighth Avenue in New York City and 165 Halsey in Newark, New Jersey are critical to our
business. Given the concentration of our facilities, the loss of one of our facilities through the occurrence of a natural disaster, fire or flood, or an act of terrorism would have a material adverse effect on our business, results of operations
and financial condition. We may not carry sufficient insurance to compensate us for losses caused by such an occurrence, and we may not be able to operate our business after the loss of one of our facilities.

We may not be able to manage the growth of our operations.

We have rapidly and significantly expanded our operations. We anticipate that further expansion will be required to grow our customer base and successfully implement our business strategy. Our future performance depends in part upon our
ability to manage our growth effectively. We may not be able to implement management information and control systems in an efficient and timely manner, and our current personnel and systems may not be adequate to support our future operations. If we
are unable to manage our growth effectively, our business will suffer.

Our business may be harmed if our information support systems are not further
developed.

Sophisticated information processing systems, including provisioning, accounting and network management, are vital to our
growth and our ability to achieve operating efficiencies. Our plans for the development and implementation of these systems rely largely upon acquiring products and services from third party vendors and integrating those products and services. We
may be unable to implement these systems on a timely basis or at all, and these systems may not perform as expected. A failure of these systems could substantially impair our ability to provide services, send invoices and monitor our operations. We
may also be unable to maintain and upgrade our operational support systems as necessary.

We license key software from third parties.

We rely on software licensed from third parties, including applications that are integrated with internally developed software and used in our services.
Most notably, we license Oracle M6. These third-party technology licenses may not continue to be available to us on commercially reasonable terms, or at all, and we may not be able to obtain licenses for other existing or future technologies that we
desire to integrate into our services. Although we believe that there are alternative suppliers for the software that we rely upon, it could take a significant period of time to establish relationships with alternative suppliers and integrate their
software into our services. The loss of any of our relationships with these suppliers could have a material adverse effect on our business.

We depend
on key personnel.

We are highly dependent upon the efforts of our senior management team, none of whom currently has an employment
agreement with us. The death or departure of any of our key personnel could have a material adverse effect on our business.



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We may become the subject of litigation.

In addition to claims that may arise in the normal course of our business, certain stockholders may sue us in connection with our financing activities.
The resolution of such a claim could be costly and time-consuming. Any litigation, even if we are successful, could result in substantial costs and diversion of resources and management attention. An adverse determination in any litigation could
also subject us to significant liability, under the judgment of a court or by default.

Alternative technologies pose competitive threats.

In addition to fiber-optic technology, there are other technologies that can be used instead of our networks to provide more capacity
and speed than traditional copper wire transmission technology, such as digital subscriber lines, or DSL, and wireless technologies. Furthermore, other new technologies may be developed that provide more capacity, reliability, scalability and speed
than the fiber-optic technology we deploy. The development of new technologies or the significant penetration of alternative technologies into our target markets may reduce the demand for our services and consequently could have a material adverse
effect on our business.

We have outstanding debt that may limit our ability to borrow additional money, restrict the use of our cash flows and
constrain our business strategy. We may not be able to meet our existing debt obligations.

As of March 18, 2009, we had total
outstanding debt of $14.5 million and $5.7 million of outstanding letters of credit. In addition, we have $0.3 million of availability in our revolving line of credit, $3.5 million of availability in a capital expenditure term facility and $5.0
million in a stock repurchase term facility, subject to compliance with the terms of the credit agreement. As a result of this debt and debt that we may incur in the future, we will need to devote a portion of our available cash towards debt service
payments. In addition, our ability to borrow additional money is restricted by our current debt arrangements. Furthermore, we have agreed to terms in the credit agreement (which governs our credit facility) that expose us to certain risks and
limitations, including the following:



| |  |  | principal amortization payments are made quarterly beginning on July 1, 2008 and extend through maturity in 2012;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | we have made affirmative financial covenants that we will breach if our financial results do not meet our expectations; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | we have agreed to certain negative covenants that may cause us to make choices regarding the operation of our business that we would not otherwise make.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

You should be aware that our ability to repay or refinance our debt depends on our successful financial and operating
performance and on our ability to implement our business strategy successfully. There can be no assurance that our future cash flows and capital resources will be sufficient to repay our existing indebtedness and any indebtedness we may incur in the
future. Further, our borrowings under our credit facility are secured by substantially all of our assets, and our obligations under our facility are guaranteed by our subsidiaries. In the event that we are unable to repay our debts, we may be forced
to reduce or delay any current network expansion projects, sell some of our assets, obtain additional equity capital or refinance or restructure our debt. If we are unable to meet our debt service obligations or comply with our covenants, we would
be in default under our existing debt agreements, which would accelerate the repayment of our indebtedness. Our failure to achieve certain financial results would also violate our credit agreement, potentially accelerating the outstanding balance of
our debt for immediate payment. To avoid a default, we may need waivers from third parties, which might not be granted.

Legislation and government
regulation could adversely affect us.

We are subject to federal, state and local regulatory and taxing authorities that affect our
services. (See generallyRegulation of FiberNet, above.) Changes in the regulatory and taxing environment through



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regulatory proceedings or new legislation could affect our operating results by increasing the competition from other companies, decreasing our revenue,
increasing our costs and impairing our ability to offer services. Certain communications services are subject to significant regulation and taxation at the federal, state, and local level. The Federal Communications Commission, or FCC, regulates
telecommunications carriers providing intrastate, interstate and international services. State public utility commissions exercise jurisdiction over intrastate communications services. The FCC and state public utility commissions do not regulate
most enhanced services, which are generally services that involve more than the pure transmission of customer provided information, although there are many issues related to whether particular services are telecommunications or enhanced services,
such as interconnected voice over Internet protocol (VoIP) services. Our subsidiary, Local Fiber, LLC, is regulated as a telecommunications carrier by the FCC by virtue of its provision of telecommunications directly to the public for a fee. Local
Fiber, LLC is also subject to several states regulatory authority for the intrastate local and long distance services it provides. As a regulated carrier, Local Fiber, LLC is subject to extensive federal, state and local communications
regulations, which include the payment of all applicable regulatory assessments, including contributions to federal and applicable state universal funding mechanisms.

We believe that our other subsidiaries, Equal Access, Availius and Devnet, do not provide telecommunications services or other offerings that would subject them to state or federal communications regulation.

Many of our competitors and customers, especially ILECs, are also subject to federal and state regulations.

The regulation and taxation of the communications industry can change rapidly on both the state and federal level and varies from state to state.
Material regulatory and legislative changes are often difficult to anticipate. Although we believe the services we provide today, other than those telecommunications services provided by Local Fiber, LLC, are not subject to regulation or obligations
imposed on other telecommunications or telecommunications services by the FCC or state public utility commissions in those states where we have business operations, regulators could conclude that such services are subject to existing regulation, and
changes in regulation or new legislation may impose regulation or new taxation on our non-regulated services or increased regulatory or tax-related burdens on our telecommunications services.

As an access provider of telecommunications and telecommunications services and of Internet access services, we may incur liability for information
disseminated through our networks. The law relating to the liability of access providers and Internet services companies for information carried on or disseminated through their networks is not yet settled. Although we have not been sued for
information carried on our networks, it is possible that we could be. Federal and state statutes have been directed at imposing liability on service providers for aspects of content carried on their networks. There may be new legislation and court
decisions that may affect our services and expose us to potential liability. As the law in this area develops, the potential imposition of liability for information carried on and disseminated through our networks could require us to implement
measures to reduce our exposure to such liability, which may require the expenditure of substantial resources or the discontinuation of certain products, services or offerings. Any significant costs that we incur as a result of such measures, any
reduction or discontinuation of products, services or offerings, or the imposition of liability could have a material adverse effect on our business.

For additional discussion of the risks associated with regulation and legislation, see generallyRegulation of FiberNet, above.

Our principal stockholders, directors and executive officers currently control a significant percentage of the voting rights of our stock, and this may limit your ability to affect the outcome of any stockholder
vote or exercise any influence over our business.

The concentration of ownership of our common stock may have the effect of delaying,
deferring or preventing a change in control, merger, consolidation, or tender offer that could involve a premium over the price



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of our common stock. Currently, our executive officers, directors and greater-than-five-percent stockholders and their affiliates, in the aggregate,
beneficially own approximately 63% of our outstanding common stock. These stockholders, if they vote together, are able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions and matters.

Anti-takeover provisions could prevent or delay a change of control that stockholders may
consider favorable.

Provisions in our certificate of incorporation, our bylaws and Delaware law could delay or prevent a change of
control or change in management that would provide stockholders with a premium to the market price of their common stock. The authorization of undesignated preferred stock, for example, gives our board the ability to issue preferred stock with
voting or other rights or preferences that could impede the success of any attempt to change control of the company. In addition, we have adopted a change in control plan providing severance benefits for members of senior management in the event of
a change in control. This severance-related plan may delay or prevent a change in our management team and may render more difficult an unsolicited merger of other change in control event. If a change of control or change in management is delayed or
prevented, this premium may not be realized, or the market price of our common stock could decline.

Holders of our common stock will not receive a
return on their shares until they sell them because we do not plan to pay cash dividends on our shares.

We have neither declared nor
paid any dividends on our common stock and do not anticipate paying cash dividends in the future. We currently intend to retain any earnings to fund our operations and future growth. Furthermore, our credit facility currently prohibits, and the
terms of any future debt agreements or preferred stock will likely restrict, the payment of cash dividends on our common stock.

Our stock price is
likely to be highly volatile.

The trading price of our common stock has been highly volatile. Failure to meet market expectations in
our financial results could cause our stock price to decline. Moreover, factors that are not related to our operating performance could cause our stock price to decline. The stock market has recently experienced significant price and volume
fluctuations that have affected the market prices for securities of technology and communications companies. Consequently, you may experience a decrease in the market value of your common stock, regardless of our operating performance or prospects.

We could issue a substantial number of additional shares of common stock, which could adversely affect the trading price of our common stock.

We have approximately 0.5 million shares of common stock subject to issuance upon exercise of outstanding stock options and
warrants. We cannot predict the effect, if any, that future sales of shares of common stock, or the availability of shares of common stock for future sale, will have on the market price of our common stock. Sales of substantial amounts of common
stock (including shares issued upon the exercise of stock options or warrants), or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None



|ITEM 2. | PROPERTIES
|------- | ----------

Our principal offices are located at 220 West 42ndStreet New York, New York, where we sublease an aggregate of
approximately 11,833 rentable square feet comprising the entire 13thfloor. The term for these



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premises expires in March 2017. Our NOC is located at Gateway Center in Newark, New Jersey, where we occupy 7,987 square feet under a lease that expires in
2010. We have also leased facilities at major carrier hotels in New York, New York. These facilities are located at 60 Hudson Street and 111 Eighth Avenue. At 60 Hudson Street, we have two leases covering an aggregate of 41,174 square feet. The
lease at 60 Hudson Street for space on the 19thfloor and 12thfloor expires in 2022. The lease at 60 Hudson Street for the Meet-Me-Room expires in 2015. The lease at 111 Eighth Avenue is for 5,672 square feet and expires in 2015. In Newark, New Jersey, we lease a 49,000 square
foot communications hub and colocation facility located at 165 Halsey Street, which expires in 2016. Additionally, we lease space in carrier hotels at 600 South Federal Street in Chicago, Illinois, consisting of 6,588 square feet, under a lease that
expires in 2015, and at 707 Wilshire Boulevard in Los Angeles, California, consisting of 7,465 square feet, under a lease that expires in 2010. We also lease space for other network-related facilities and in the basements of certain commercial
office buildings for our central equipment rooms. We regularly evaluate our requirements for additional colocation space, and we review our current leases to determine if it is in our best interest to continue with such leases.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

We are not currently a party to
any material legal proceedings.



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

No matters were submitted to a vote of our security holders during the fourth quarter of 2008.



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PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ------------------------------------------------------------------------------------------------------------

Market Information

Our common stock is traded on the
Nasdaq Capital Market under the ticker symbol FTGX.

The following table sets forth the high and low sales prices for each
quarter for our common stock as reported on the Nasdaq Capital Market System from January 1, 2007 through December 31, 2008:



|                            |  |      |       |      |   |      |  |     |      |  |   |     
|--------------------------- |  | ---- | ----- | ---- | - | ---- |  | --- | ---- |  | - | ----
|                            |  | 2008 |       | 2007
|                            |  | High |       | Low  |   | High |  | Low
|Quarter ending March 31     |  | $    | 8.91  |      | $ | 7.12 |  | $   | 9.90 |  | $ | 6.15
|Quarter ending June 30      |  | $    | 9.52  |      | $ | 6.70 |  | $   | 9.75 |  | $ | 7.20
|Quarter ending September 30 |  | $    | 11.54 |      | $ | 8.34 |  | $   | 8.69 |  | $ | 7.39
|Quarter ending December 31  |  | $    | 10.50 |      | $ | 5.40 |  | $   | 8.40 |  | $ | 7.55

Holders of Common Stock

As of March 18, 2009, there were 78 holders of record of our common stock and, according to our estimates, approximately 3,300 beneficial owners of
our common stock.

Dividends

We have
not paid any dividends with respect to our common stock and do not expect to pay dividends on our common stock in the foreseeable future. Any future dividends will be declared at the discretion of our Board of Directors and will depend, among other
things, upon our financial condition, capital requirements, earnings and liquidity. Our credit facility currently prohibits, and future debt agreements and preferred stock will likely restrict, the payment of cash dividends on our common stock.

Securities Authorized for Issuance under Equity Compensation Plans

Equity Compensation Plan Information

as of December 31, 2008



|                                                           |  |                                                                                             |  |                                                                             |        |                                                                                                                                             |       
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ------ | ------------------------------------------------------------------------------------------------------------------------------------------- | ------
|Plan Category                                              |  | Number of Securities tobe Issued Upon Exercise ofOutstanding Options,Warrants and
Rights(a) |  | Weighted-AverageExercise Price ofOutstanding Options,Warrants and Rights(b) |        | Number of SecuritiesRemaining Available for Future Issuance
UnderEquity Compensation Plans(Excluding Securities Reflected in Column (a))(c)
|Equity compensation plans approved by security holders     |  | 136,367                                                                                     |  | $                                                                           | 119.49 |                                                                                                                                             | 66,266
|Equity compensation plans not approved by security holders |  | 255,819                                                                                     |  | $                                                                           | 1.93   |                                                                                                                                             |      

We have authorized the issuance of equity securities under the compensation plans described below
without the approval of stockholders. No additional options, warrants or rights are available for issuance under any of these plans, except for additional shares which may become purchasable under warrants with anti-dilution protection as noted
below.

Richard E. Sayers Stock Option Agreement, dated March 22, 1999, provided common stock purchase options to
Mr. Sayers, a director, to purchase 833 shares at $562.50 per share, with an expiration date of March 22, 2009.



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Lease Amendment Warrants, dated October 29, 2004, provided common stock purchase
warrants to 60 Hudson Owner LLC (successor to Westport Communications, LLC) in connection with the amendment of our leases at 60 Hudson Street, to purchase an aggregate of 254,986 shares of our common stock at a purchase price of $0.10 per
share, with an expiration date of September 1, 2009. These warrants were exercised on January 8, 2009.

Sales of Unregistered Securities

There are no recent sales of unregistered securities during the period covered by this report which have not been previously disclosed in
our public filings.

Issuer Purchases of Equity Securities



|                                      |  |                                |  |                            |      |                                                                                |        |                                                                                   |   |          
|------------------------------------- |  | ------------------------------ |  | -------------------------- | ---- | ------------------------------------------------------------------------------ | ------ | --------------------------------------------------------------------------------- | - | ---------
|Period*                               |  | Total Number ofSharesPurchased |  | AveragePrice Paid perShare |      | Total Number of SharesPurchased as Part of PubliclyAnnounced Plans or Programs |        | Maximum Dollar Value ofShares that May Yet
bePurchased Under the Plans orPrograms
|October 1, 2008 to October 31, 2008   |  | 37,846                         |  | $                          | 7.62 |                                                                                | 37,846 |                                                                                   | $ | 3,486,179
|November 1, 2008 to November 30, 2008 |  | 17,662                         |  | $                          | 6.60 |                                                                                | 17,662 |                                                                                   | $ | 3,369,103
|December 1, 2008 to December 31, 2008 |  | 18,212                         |  | $                          | 7.50 |                                                                                | 18,212 |                                                                                   | $ | 3,232,025



|* | On November 6, 2007, we publicly announced the authorization to repurchase up to $5.0 million of our common stock. On May 15, 2008, we publicly announced the authorization
to increase the repurchase up to $7.5 million of our common stock. The plan is set to expire on June 30, 2009.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Certain Facts That May Affect Future Results of Operations

This report contains certain
forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on managements current expectations and are subject to a number of factors and uncertainties that could cause
actual results to differ materially from those described in the forward-looking statements. Investors are cautioned that there can be no assurance that actual results or business conditions will not differ materially from those projected or
suggested in such forward-looking statements as a result of various factors, including, but not limited to, those discussed below. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of
new information, future events or otherwise.

Overview

We own and operate integrated colocation facilities and diverse transport routes in the gateway markets of New York/New Jersey, Los Angeles, Chicago and Miami, designed to provide comprehensive broadband inter
connectivity enabling the exchange of traffic over multiple networks. Our customized connectivity infrastructure provides an advanced, high bandwidth, fiber-optic solution to support the demand for network capacity and to facilitate the
interconnection of multiple carriers and customers networks.

Factors Affecting Future Operations

Revenues. We generate revenues from selling network capacity, colocation and related services to other communications service providers. Revenues
are derived from four general types of services:



| |  |  | On-net transport services.Our transport services include the offering of broadband circuits on our metropolitan transport networks and FiberNet in-building
networks, or FINs. Over our metropolitan transport networks, we can provision circuits from one of our carrier hotel facilities to another carrier hotel facility or to an on-net building via an interconnection with our FIN in that building. We can
also provision circuits vertically between floors in a carrier hotel facility or an on-net building. In addition, we provide other interconnection services, including hubbing to aggregate lower bandwidth endlink circuits into a single, higher
bandwidth circuit as well as protocol and signaling conversion to exchange traffic between domestic and international circuits and next generation Ethernet, IP and VoIP technologies.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Off-net transport services. We provide our customers with circuits on networks that we do not own. Customers purchase these services from us to benefit from
our network design, provisioning and management expertise. We sell this connectivity to our customers by ordering the underlying circuits from other wholesale telecommunications carriers. By bundling these services with our on-net transport services
and colocation services, we are able to provide a full range of network services to our customers.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Colocation services. Our colocation services include providing customers with customized cages, cabinets and racks to locate their communications and
networking equipment at certain of our carrier hotel facilities in a secure, technical operating environment. We can also provide our customers with colocation services in the central equipment rooms of certain of our commercial office buildings.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Communications access management services.Our access management services entail providing our customers with access to provide their retail communications
services to tenants in certain commercial office buildings.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our revenues are typically generated on a monthly recurring
basis under contracts with our customers. The terms of these contracts can range from month-to-month to 15 years in length. Our customers typically elect to



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purchase network services for an initial contract period of one year with month-to-month renewals. All of our revenues are generated in the United States of
America.

Our services are typically sold under fixed price agreements. In the case of transport services, we provide an optical circuit or
other means of connectivity for a fixed price. Revenues from transport services are not dependent on customer usage or the distance between the origination point and termination point of a circuit. The pricing of colocation services is based upon
the size of the colocation space or the number of colocation units, such as cabinets, provided to the customer. Revenues from access management services are typically determined by the square footage of the commercial office properties to which a
customer purchases access. We have experienced price declines for some of our services over the past year due to industry trends, with transport services experiencing the greatest decreases. Our operating results may continue to be impacted by
decreases in the prices of certain of our services.

We believe that the majority of the growth in our revenues will come from our existing
customers. While we continue to add additional customers, particularly domestic subsidiaries of internationally based carriers, we believe the number of companies that are potential customers is not increasing due to industry consolidation.
Consequently, our growth in revenue is largely dependent on the underlying growth of our customers businesses and their need for our services.

The growth of our on-net transport and colocation revenues is also dependent in part upon our ability to provide additional services in our existing facilities and our current markets. We are currently expanding our
colocation footprint in the New York City market, and over the long term, we intend to derive additional colocation revenues, as well as increased transport revenues, from this expansion. As a result, within each of our facilities and markets, our
revenues will depend upon the demand for our services, the competition that we face and our customer service.

We typically begin our sales
cycle by entering into a master services agreement. This document outlines the legal and business terms, operating specifications and commercial standards that are required of us by the customer. After entering into the master service agreement,
customers can order specific services from us through individual sales orders.

Customers primarily purchase services from us when their
requirements mandate an immediate need for additional services, either for their own internal network use or for access to their customers or other vendors. As their demand for network connectivity or colocation grows, we benefit by providing new
services to them. We also experience disconnections of services, as customers groom their networks to eliminate excess capacity or adjust their changing network requirements. This loss of revenues may negatively impact our financial results.

Our on-net transport services primarily provide network core connectivity to our customers, enabling them to exchange traffic between
their own points of presence or from one of their points of presence to that of another carrier or service provider. These services accounted for 45.7% of our total revenues in 2008. We can provide on-net transport services utilizing multiple
transmission protocols, including North American standards, international standards and new technologies, such as Ethernet, IP and VoIP. Our ability to provide service using varying standards, as well as to interconnect traffic between standards, is
an important factor in the growth of our on-net transport business.

Another key factor in the growth of our on-net transport business is
the large number of nodes on our network and the resulting number of carriers that we can interconnect with. It is important for us to be able to exchange traffic directly with many other carriers in order to offer the greatest value to our
customers, by enabling a single interconnection with us to deliver connectivity to a significant number of other carriers. Additionally, the scalability of our network architecture allows us to increase transport capacity to a greater degree than is
possible with our other services, yielding incremental operating leverage from our existing infrastructure and facilities. We are able to expand capacity in part due to technological advancements in fiber optics, such as dense wave division
multiplexing, or DWDM.



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Our off-net transport services constitute network connectivity that we provide to our customers,
utilizing circuits that we purchase from other wholesale telecommunications carriers. These services produced 31.1% of our total revenues in 2008. In providing these services to our customers, we manage all aspects of the service delivery, including
network design, procurement, installation, monitoring and troubleshooting. Our ability to bundle these services with our other offerings allows our customers to utilize a single vendor for their network requirements. We offer these services in
markets that we currently serve with our own infrastructure, in other metropolitan markets that we do not serve with our own networks, and on a long-haul basis to connect metropolitan areas, significantly increasing our addressable market beyond the
metropolitan markets in which we own network infrastructure and facilities.

Historically, our transport services have been negatively
impacted by customers disconnecting higher-bandwidth circuits and replacing them with lower-bandwidth circuits to more efficiently manage the access costs of their networks. The new transport services that we are providing typically are also for
lower-bandwidth circuits, as our customers expand their network connections on a more prudent basis. The growth in transport revenues that we have experienced on a quarterly basis in 2007 and 2008 is a result of an increase in the number of circuits
that we have provisioned, which more than offset disconnections and price declines. In the future, we anticipate generating significantly more of our revenues from transport services than from the other services we provide.

Our colocation services produced 22.3% of our total revenues in 2008 and have been the fastest growing portion of our business. Colocation revenues are
generally stable in nature, as customers tend to maintain a more consistent need for a location to house their networking equipment and therefore typically enter into three to five years contracts for colocation services. Upon purchasing colocation
space from us, customers secure their network equipment in our highly conditioned facilities and establish connectivity to exchange traffic with other networks. Our facilities maintain rigorous standards for power, cooling, security, reliability and
other environmental controls. It is the physical constraints of available colocation space in our facilities and our competitors facilities that have created a favorable market environment for colocation services. The growth prospects of our
colocation services are a function of the space that we have available to sell to our customers. Many of our existing colocation facilities are approaching stabilized occupancy rates. As a result, we constructed a new 11,000 square foot facility at
60 Hudson Street in New York City. We also converted 8,000 square feet of currently unoccupied colocation space at our location at 165 Halsey Street in Newark, New Jersey into an Internet-grade facility with enhanced power capacity to also expand
our offering capabilities.

Our access management services business accounted for 0.9% of our total revenues in 2008 and has been steadily
declining. We expect that trend to continue. The revenues that we are generating from this type of service are from long-term contracts entered into in prior years. We do not expect to sign any new contracts for access management in the near future.
The remaining terms of our existing access management service contracts range from a month-to-month basis to expiration in 2012.

Cost
of Services. Cost of services is associated with the operation of our networks and facilities. The largest component of our cost of services is the occupancy expenses at our carrier hotel facilities and commercial office buildings. These
occupancy expenses primarily represent rent expense, utility costs and license fees under direct leases with landlords. They also include charges for colocation space in other carriers facilities and cross connection fees to interconnect our
networks with other carriers networks. Most of our license agreements for our commercial office buildings require us to pay license fees to the owners of these properties. In addition, our two leases at 60 Hudson Street in New York City
require us to pay license fees. These license fees typically are calculated as a percentage of the revenues that we generate in each particular building. In addition, we incur off-net connectivity charges for the costs of purchasing connectivity
from other wholesale telecommunications carriers to provide our customers with transport services on networks that we do not own. As we provide additional off-net transport services, we will purchase more connectivity from other carriers. Other
specific costs of services include maintenance and repair costs. With the exception of off-net connectivity charges and license



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fees, we do not anticipate that cost of services will change commensurately with any change in our revenues as our cost of services is generally fixed in
nature.

Selling, General and Administrative Expenses. Selling, general and administrative expenses include all of our personnel
costs, stock related costs, occupancy costs for our corporate offices, insurance costs, professional fees, sales and marketing expenses and other miscellaneous expenses. Personnel costs, including wages, benefits and sales commissions, are our
largest component of selling, general and administrative expenses. Stock related expenses relate to the granting of stock options and restricted stock to our employees. We make equity grants to our employees in order to attract, retain and
incentivize qualified personnel. These costs are non-cash charges that are amortized over the vesting term of each employees equity agreement, based on the fair value on the date of the grant. We do not allocate any personnel cost relating to
network operations or sales activities to our cost of services. We had 73 employees as of December 31, 2008 compared to 68 as of December 31, 2007. Prospectively, we believe that our personnel costs will increase moderately. Professional
fees, including legal and accounting expenses and consulting fees, represent the second largest component of our selling, general and administrative expenses. These legal and accounting fees are primarily attributed to our required activities as a
publicly traded company, such as SEC filings and financial statement audits, and could increase prospectively due to the enhanced regulations regarding corporate governance and compliance matters. Other costs included in selling, general and
administrative expenses, such as insurance costs, occupancy costs related to our office space, and marketing costs, may increase due to changes in the economic environment and telecommunications industry.

Depreciation and Amortization. Depreciation and amortization expense includes the depreciation of our network equipment and infrastructure,
computer hardware and software, office equipment and furniture, and leasehold improvements, as well as the amortization of certain deferred charges. We commence the depreciation of network related fixed assets when they are placed into service and
depreciate those assets over periods ranging from three to 20 years.

Critical Accounting Policies

Our significant accounting policies are described in Note 2 to the consolidated financial statements included in Item 8 of this Form 10-K. Our
discussion and analysis of financial condition and results from operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
The preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. We
evaluate the estimates that we have made on an on-going basis. These estimates have been based upon historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. We believe our most critical accounting policies include revenue recognition, an allowance for doubtful accounts, the impairment of long-lived assets and the recognition of deferred tax assets and
liabilities.

Revenue Recognition

We
recognize revenues when earned as services are provided throughout the life of each sales order with a customer. The majority of our revenues are invoiced on a monthly recurring basis under sales orders that are typically one year in length. Certain
of our contracts require us to invoice our customers for the periods ranging from one year to the full term of the contract. We record deferred revenue for the amount of an invoice that has been paid and not recognized as revenue.

Allowance for Doubtful Accounts

We continuously
monitor collections and payments from our customers and maintain an allowance for doubtful accounts based upon our historical experience and any specific customer collection issues that we have



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identified. While such credit losses have historically been within our expectations, there can be no assurance that we will continue to experience the same
level of credit losses that we have in the past. A number of our customers filed for bankruptcy or were otherwise in financial distress. A significant change in the liquidity or financial position of any one of these customers or a deterioration in
the economic environment or telecommunications industry, in general, could have a material adverse impact on the collectability of our accounts receivable and our future operating results, including a reduction in future revenues and additional
allowances for doubtful accounts. If we determine that collection of a receivable is not reasonably assured, we fully reserve the receivable and reverse that reserve only when collection becomes reasonably assured, which is generally upon receipt of
payment.

Impairment of Long-Lived Assets

We assess the fair value and recoverability of our long-lived assets, whenever events and circumstances indicate the carrying value of an asset may not be recoverable from estimated undiscounted future cash flows expected to result from its
use and eventual disposition. In doing so, we make assumptions and estimates regarding future cash flows and other factors to make our determination. The fair value of our long-lived assets is dependent upon the forecasted performance of our
business, changes in the telecommunications industry and the overall economic environment. When we determine that the carrying value of our long-lived assets may not be recoverable, we measure any impairment based upon a forecasted discounted cash
flow method. If these forecasts are not met, we may have to record additional impairment charges not previously recognized.

Recognition of Deferred Tax
Assets and Liabilities

We recognize deferred tax assets and liabilities based on the differences between the financial statement
carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based upon historical losses, projected future taxable income and the expected timing of
the reversals of existing temporary differences. As a result of this review, we have established a full valuation allowance against our deferred tax assets.

Effective January 1, 2007, we adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN No. 48). FIN No. 48 clarifies the accounting for
uncertainty in income taxes recognized in our financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes, FIN No. 48 requires us to determine whether it is more likely than not that a tax
position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, we must measure the tax position to determine the amount to recognize in the financial statements. The
application of income tax law is inherently complex. Laws and regulation in this area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures.
Interpretations of and guidance surrounding income tax laws and regulations change over time. As such, changes in our subjective assumptions and judgments can materially affect amounts recognized in the balance sheets and statements of income. At
the adoption date of January 1, 2007, we had no unrecognized tax benefits which would affect our effective tax rate if recognized. At December 31, 2008, we had no unrecognized tax benefits. We classify interest and penalties arising from
the underpayment of income taxes in the statement of income under selling, general and administrative expenses. As of December 31, 2008, we had no accrued interest or penalties related to uncertain tax positions. The tax years 2000 through 2008
remain open to examination by all taxing jurisdictions to which we are subject.



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Results of Operations

Fiscal Year Ended December 31, 2008 Compared to Fiscal Year Ended December 31, 2007

Revenues. Revenues for
the fiscal year ended December 31, 2008 were $58.3 million as compared to $49.8 million for the fiscal year ended December 31, 2007. We increased the number of our customers from 254 at the end of 2007 to 299 at the end of 2008, primarily
with the addition of domestic subsidiaries of internationally based carriers. We believe that there are greater opportunities to serve domestic subsidiaries of foreign telecommunications companies in our gateway markets, as domestic carriers
consolidate and rationalize. Revenues were generated by providing transport, colocation and communications access management services to our customers and are quantified as follows:



|                          |  |                                |        |      |   |        |  |   |       |  
|------------------------- |  | ------------------------------ | ------ | ---- | - | ------ |  | - | ----- | -
|                          |  | For the year endedDecember 31, |        |      |  
|(amounts in thousands)    |  | 2008                           |        | 2007 |   | Change | 
|On-net transport revenue  |  | $                              | 26,617 |      | $ | 24,128 |  | $ | 2,489 |  
|Off-net transport revenue |  |                                | 18,151 |      |   | 14,675 |  |   | 3,476 |  
|Colocation revenue        |  |                                | 12,978 |      |   | 10,344 |  |   | 2,634 |  
|Access revenue            |  |                                | 547    |      |   | 630    |  |   | (83   | )
|                          |  |                                |        |      |   |        |  |   |       |  
|Total Revenue             |  | $                              | 58,293 |      | $ | 49,777 |  | $ | 8,516 |  
|                          |  |                                |        |      |   |        |  |   |       |  

The majority of our transport and colocation services are provided within and between our carrier
hotel facilities in the New York/New Jersey market. On-net transport revenues increased as we provided a greater number of circuits to our customers. The growth in new on-net transport services more than offset the disconnections and price decreases
that we have experienced. Off-net transport revenues increased over the same period last year as we continued to leverage our current customer base by providing services outside our gateway markets of New York/New Jersey and Los Angeles. Colocation
revenues increased as we licensed additional caged space, cabinets and racks in our facilities. Our network infrastructure has significant capacity to provide additional transport connectivity, and we also have the network capabilities to deliver
connectivity utilizing new technologies, such as Ethernet and IP services. Our access management services business has been steadily declining, and we expect that trend to continue throughout 2009. The revenues that we are generating from this type
of service are from long-term contracts entered into in prior years. The remaining terms of our existing access management service contracts range from month-to-month to expiration in 2012. We do not expect to sell any additional access services,
and we believe our existing contracts for access services may not be renewed when they expire.

For fiscal years 2008 and 2007, there were
no individual customers that accounted for over 10.0% of our total revenues.

Cost of Services. Cost of services, associated with
the operation of our networks and facilities, were $29.4 million in 2008, compared to $25.5 million in 2007. The majority of our cost of services is occupancy expenses, consisting of rent, license fees, and utility costs for our carrier hotel
facilities, on-net buildings and off-net buildings. Other cost of services includes off-net connectivity charges and maintenance and repair costs.



|                                       |  |                                |        |      |   |        |  |   |      
|-------------------------------------- |  | ------------------------------ | ------ | ---- | - | ------ |  | - | -----
|                                       |  | For the year endedDecember 31, |        |     
|(amounts in thousands)                 |  | 2008                           |        | 2007 |   | Change
|Occupancy expenses                     |  | $                              | 15,607 |      | $ | 14,454 |  | $ | 1,153
|Off-net connectivity charges           |  |                                | 12,852 |      |   | 10,372 |  |   | 2,480
|Maintenance and repair and other costs |  |                                | 908    |      |   | 693    |  |   | 215  
|                                       |  |                                |        |      |   |        |  |   |      
|Total Cost of Services                 |  | $                              | 29,367 |      | $ | 25,519 |  | $ | 3,848
|                                       |  |                                |        |      |   |        |  |   |      



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Occupancy expenses represented 53.1% of cost of services or $15.6 million in 2008, an increase of $1.2
million as compared to 56.7% or $14.5 million in 2007. This increase was due to increases in colocation and cross-connection charges associated with new order installations in existing facilities and an increase in utility usage. On March 1,
2007, we entered into a lease modification with the landlord of the building located at 60 Hudson Street, New York, New York to lease an additional 11,315 square feet of space and to extend the term of the lease to July 2022. During the fourth
quarter of 2008, we determined that we should reverse approximately $0.6 million of previously accrued (but disputed) occupancy expenses because the applicable statutes of limitations had expired. Consequently, we have recorded a one-time reversal
of these expenses in the accounts where they were originally recorded in prior years.

Off-net connectivity charges were 43.8% of cost of
services or $12.9 million in 2008, compared to 40.6% of the cost of services or $10.4 million in 2007. We expect these connectivity charges to increase commensurately with our increase in revenues from off-net transport.

Maintenance and repair and other costs were 3.1% or $0.9 million of cost of services in 2008, compared to 2.7% or $0.7 million in 2007. These costs will
continue to represent a relatively small and fixed component of cost of services.

Selling, General and Administrative Expenses.
Selling, general and administrative expenses for the year ended December 31, 2008 were $19.0 million compared to $16.8 million for 2007. Personnel costs represented 61.8% or $11.7 million of selling, general and administrative expenses in 2008
compared to 63.7% or $10.7 million for 2007. Professional fees in 2008 and 2007 were $1.5 million. Marketing expenses in 2008 were $0.1 million compared to $0.2 million in 2007. During the fourth quarter of 2008, we recorded $0.6 million for bad
debt expense and an accrual for professional services in consideration of the current market environment.

Stock related expenses for the
years ended December 31, 2008 and 2007 were $1.6 million and $1.1 million, respectively. This non-cash expense relates to the amortization of restricted stock and stock options granted to our employees. The restricted shares that were granted
prior to 2006 become unrestricted on the tenth anniversary of the grant date, while the restricted shares granted during 2006 and thereafter become unrestricted on the fourth anniversary of the grant date, and the related expenses are amortized on a
straight-line basis over their respective restricted period. All other selling, general and administrative items, which include insurance and operating expenses, were $4.1 million for the year ended December 31, 2008 and $3.3 million for the
year ended December 31, 2007.

Loss on Early Extinguishment of Debt. During the year 2007, we recorded a charge of $1.1 million
related to the early extinguishment of our former credit facility on March 21, 2007, including the write-off of unamortized financing related charges that were associated with the former credit facility.

Depreciation and Amortization. Depreciation and amortization expense for 2008 was $10.0 million, compared to $9.4 million for 2007.

Interest Income. Interest income for the year ended December 31, 2008 was $0.1 million, compared to $0.2 million for 2007. Interest income is
generated from our cash balances, which are invested in short-term, highly liquid investments at variable rates of interest.

Interest
Expense. Interest expense for the year ended December 31, 2008 was $1.4 million, compared to $1.8 million for the year ended December 31, 2007. On March 21, 2007, we entered into a new credit facility with a floating interest rate
of LIBOR plus 350 basis points on drawn balances. Our interest rate was 5.35% as of December 31, 2008. Also included in interest expense is the amortization of original issuance discounts and deferred charges that amounted to $0.2 million and
$0.4 million for the year ended December 31, 2008 and 2007, respectively.



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Liquidity and Capital Resources

To date, we have financed our operations through revenues collected from our customers, the issuance of equity securities in private transactions and by
arranging credit facilities. We incurred a loss from operations and a net loss for 2008 of $0.1 million and $1.7 million, respectively, compared to a loss from operations and a net loss of $1.9 million and $4.9 million, respectively, for 2007.
During 2008, cash provided by operating activities was $10.6 million, and cash purchases of property, plant and equipment were $8.7 million, compared to cash provided by operating activities of $6.9 million and $3.8 million of cash purchases of
property, plant and equipment for 2007.

For the year ended December 31, 2008, we used $0.5 million in net cash for financing related
activities. For the year ended December 31, 2007, we used $0.7 million in net cash for financing activities. We believe we will be able to generate sufficient cash flow from operations in order to sustain our current and long-term operations. .
In 2009, we expect to invest approximately $4.0 million in general capital expenditures and $1.5 million in colocation expansion projects.

On March 21, 2007, we entered into a Credit Agreement with Capital Source Finance LLC pursuant to which we and our subsidiaries established a $25.0 million credit facility (the Credit Facility), consisting of (i) a
$14.0 million term loan, (ii) a $6.0 million revolving loan and letter of credit facility and (iii) a $5.0 million capital expenditure loan facility, which was unfunded at closing. The $14.0 million term loan was used to pay off our former
credit facility, which was set to mature in March 2008. The Credit Facility bears interest at floating rates, depending on the type of borrowing and based on either a Prime Rate or LIBOR Rate, as such terms are defined under the Credit Facility. The
$14.0 million term loan is repayable in increasing quarterly installments commencing in July 2008. The Credit Facility matures in March 2012. The Credit Facility is secured by a first lien on all of our and our subsidiaries existing and future
real assets and personal property. The Credit Facility is guaranteed by us and certain of our subsidiaries, and contains restrictive covenants, operating restrictions and other terms and conditions.

On November 7, 2007, we entered into an Amended and Restated Credit Agreement by and among us, our subsidiaries, CapitalSource Finance LLC and
CapitalSource CF LLC pursuant to which we and our subsidiaries established a new $5.0 million loan facility (the New Loan) solely to enable us to repurchase outstanding shares of our capital stock pursuant to our stock repurchase
program, which is described below. The New Loan, which was unfunded at closing, supplements and is made a part of our existing $25.0 million Credit Facility described above. The New Loan bears interest at floating rates, depending on the type of
borrowing and based on either a Prime Rate or LIBOR Rate, as such terms are defined under the Credit Facility. The applicable margin based upon a LIBOR Rate is 4.50%, and the applicable margin based on a Prime Rate is 3.25%. In addition, the parties
adjusted certain of the financial covenants under the Credit Facility. The New Loan will be payable in equal quarterly installments of 3.75% of the principal amount commencing in April 2010, with the entire Credit Facility maturing in March 2012.

On November 8, 2007, we announced that our Board of Directors had authorized the repurchase of up to $5.0 million of our common
stock, either through open market purchases or in privately negotiated transactions. On May 15, 2008, we announced that our Board of Directors had authorized the increase of our stock repurchase program to $7.5 million from $5.0 million. The
timing and amount of the shares to be repurchased will be based on market conditions and other factors, including price, corporate and regulatory requirements and alternative investment opportunities. Any shares repurchased in the program will be
cancelled. The repurchase program is scheduled to terminate on June 30, 2009, and may be modified or discontinued at any time. As of December 31, 2008, 527,125 shares of our common stock had been purchased in the repurchase program at an
average price of $8.07. As of December 31, 2008, the remaining maximum dollar value of share that may yet be purchased under the program is $3.2 million.

As of December 31, 2008, we had $13.3 million of indebtedness outstanding under our Credit Facility and $5.7 million of outstanding letters of credit. In addition, we had $0.3 million of availability on a
revolving loan



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facility, $5.0 million of availability in a capital expenditure loan facility and $5.0 million of availability under the New Loan, which is solely to enable
us to repurchase outstanding shares of our capital stock pursuant to our previously announced stock repurchase program subject to compliance with the terms of the credit agreement. The interest rate on our outstanding borrowings under the Credit
Facility are variable at LIBOR plus 350 basis points on the term loan, at LIBOR plus 300 basis points on the revolving loan facility and at LIBOR plus 350 basis points on the capital expenditure loan facility. We were in full compliance with all of
the covenants contained in the Credit Facility as of December 31, 2008. Our financial covenants include minimum consolidated EBITDA (as defined in the credit agreement underlying the Credit Facility), maximum capital expenditures, minimum fixed
charge coverage ratio, maximum leverage ratio and minimum consolidated interest coverage ratio. The compliance levels and calculation of such levels with respect to those covenants are as defined in the Credit Facility, which is on file with the
Securities and Exchange Commission. Non-compliance with any of the covenants, requirements, or other terms and conditions under the credit agreement constitutes an event of default and potentially accelerates the outstanding balance of the Credit
Facility for immediate payment. On January 16, 2009 we made a draw of $1.5 million under our capital expenditure loan facility.

We
spent $8.7 million in capital expenditures during 2008, of which $3.3 million was primarily for the implementation of customer orders and general network improvements, including the purchase of network equipment to increase capacity and to
interconnect with customers. We also spent $3.4 million related to our colocation expansion projects at 60 Hudson Street and at 165 Halsey Street in Newark, New Jersey and $2.0 million related to our national network expansion projects. Our capital
expenditures totaled $3.8 million in 2007. We may expend additional capital for the selected expansion of our network infrastructure, depending upon market conditions, customer demand and our liquidity and capital resources.

On January 16, 2009, we borrowed $1.5 million under the term loan for capital expenditures related to certain upgrades to our 165 Halsey Street
colocation facility.

During the year ended December 31, 2008, 41,500 shares of restricted stock were issued. During the year ended
December 31, 2008, 8,330 shares of restricted stock were returned to us as the result of employee terminations. During the year ended December 31, 2007, 2,400 shares of restricted stock were returned to us as the result of employee
terminations.

As of March 18, 2009, we had approximately 7.7 million shares of common stock outstanding, or approximately
8.1 million shares of common stock outstanding on a fully diluted basis, assuming the exercise of all outstanding options and warrants.

From time to time, we may consider private or public sales of additional equity or debt securities and other financings, depending upon market conditions, in order to provide additional working capital or finance the continued operations of
our business, and we may also consider potential strategic alternatives, such as acquisitions or the sale of all or a portion of our business, although there can be no assurance that we would be able to successfully consummate any such financing or
other transaction on acceptable terms, if at all. For additional disclosure and risks regarding future financings and funding our ongoing operations, please see the subsection entitled, In the future, we may require additional capital to
fund the further development of our networks and operation of our business, in the section entitled Factors Affecting our Business Condition. We do not have any off-balance sheet financing arrangements, except for
outstanding letters of credit, nor do we anticipate entering into any.

Commitments and Contingent Liabilities

Our obligations and commitments to make future payments under contracts primarily include scheduled reductions in the availability of our credit facility
and payments under our operating leases.



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The chart below identifies our outstanding contractual obligations and commitments as of
December 31, 2008.



|                                                    |  |                                       |        |      |   |        |  |      |        |      |   |        |  |            |        |  |   |       |  |   |       
|--------------------------------------------------- |  | ------------------------------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | ---------- | ------ |  | - | ----- |  | - | ------
|                                                    |  | Payments Due by Period (in thousands)
|Contractual Obligation                              |  | Total                                 |        | 2009 |   | 2010   |  | 2011 |        | 2012 |   | 2013   |  | Thereafter
|Mandatory Repayments and Reductions of Indebtedness |  | $                                     | 13,300 |      | $ | 1,750  |  | $    | 2,450  |      | $ | 5,250  |  | $          | 3,850  |  | $ |      |  | $ |      
|Operating Leases(1)                                 |  |                                       | 79,371 |      |   | 9,991  |  |      | 9,199  |      |   | 8,615  |  |            | 8,777  |  |   | 8,869 |  |   | 33,920
|                                                    |  |                                       |        |      |   |        |  |      |        |      |   |        |  |            |        |  |   |       |  |   |       
|Total Contractual Obligations                       |  | $                                     | 92,671 |      | $ | 11,741 |  | $    | 11,649 |      | $ | 13,865 |  | $          | 12,627 |  | $ | 8,869 |  | $ | 33,920
|                                                    |  |                                       |        |      |   |        |  |      |        |      |   |        |  |            |        |  |   |       |  |   |       



|(1) | Includes estimated future license fees for carrier hotel facilities. License fees are typically calculated as a percentage of the revenues we generate in the respective facility, as
per our lease agreement with the facility.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On August 17, 2006, we adopted the FiberNet Telecom Group, Inc. Change in
Control Plan (the Plan). Pursuant to the terms of the Plan, members of senior management are entitled to certain benefits upon a termination of employment (other than a termination by FiberNet for Cause or by an employee
without Good Reason as such terms are defined in the Plan) that occurs within one year after a Change in Control event (as defined in the Plan). Specifically, each Vice President and Senior Vice President shall be entitled to a cash
payment of 50% of his or her current base salary and the President shall be entitled to a cash payment of 100% of his or her current base salary, plus a pro-rated portion of his or her annual bonus. We shall also pay the premiums for continued
health care coverage for six months for each Vice President and Senior Vice President and for twelve months for the President.

In
addition, the Plan provides that if the benefits payable in connection with a Change in Control event are subject to an Excise Tax (as defined in the Plan), then (i) for the President, we agree to make such individual whole by making a gross-up
payment, such that the net total amount of benefits actually received is equal to those benefits calculated as if only standard income taxes, and not the Excise Tax, had applied, and (ii) for each Vice President and Senior Vice President, we
shall pay to such individual the greater of (A) the total value of the benefits payable if reduced to avoid triggering the Excise Tax or (B) the total value of the benefits payable even if the Excise Tax applies, such that the net total
amount of benefits actually received by such individual is maximized.

Recently Issued Accounting Pronouncements

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS
162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting
principles. SFAS 162 is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles. We do not believe that the adoption of SFAS 162 will have a material impact on our consolidated financial Statements.

In
April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). FSP FAS 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used
in determining the useful life of recognized intangible assets under FASB Statement No. 142, Goodwill and Other Intangible Assets. This new guidance applies prospectively to intangible assets that are acquired individually or with a
group of other assets in business combinations and asset acquisitions. FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008 and as such, we will adopt FSP FAS 142-3 in
fiscal year 2009. Early adoption is prohibited. We are currently evaluating the impact, if any, that FSP FAS 142-3 will have on our consolidated financial Statements.



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In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statementsan Amendment of ARB No. 51 (SFAS 160). SFAS 160 will significantly change the financial accounting and reporting of noncontrolling (or minority) interests in consolidated financial statements and is
effective as of the beginning of an entitys first fiscal year that begins after December 15, 2008. We do not expect the implementation of SFAS 160 to have a material effect on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 establishes a framework
for measuring fair value in GAAP, and expands disclosures about fair value measurements providing a single definition of fair value, which should result in increased consistency and comparability in fair value measurements. This statement applies
under other accounting pronouncements that require or permit fair value measurements. In February 2008, the FASB issued FSPs No. 157-1 and No. 157-2, which, respectively, remove leasing transactions from the scope of SFAS 157 and
defer its effective date for one year relative to certain nonfinancial assets and liabilities. As a result, the application of the definition of fair value and related disclosures of SFAS 157 (as impacted by these two FSPs) was effective for us
beginning January 1, 2008 on a prospective basis with respect to fair value measurements of (a) nonfinancial assets and liabilities that are recognized or disclosed at fair value in the Companys financial statements on a recurring
basis (at least annually) and (b) all financial assets and liabilities. This adoption did not have a material impact on our consolidated financial statements. The remaining aspects of SFAS 157 for which the effective date was deferred
under FSP No. 157-2 have been evaluated and we do not expect them to have a material impact on our consolidated financial statements. The effects of these remaining aspects of SFAS 157 are to be applied by us to fair value measurements
prospectively beginning January 1, 2009.



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|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS



|                                                        |  |     
|------------------------------------------------------- |  | ----
|                                                        |  | Page
|Report of Independent Registered Public Accounting Firm |  | 39  
|Consolidated Balance Sheets                             |  | 40  
|Consolidated Statements of Operations                   |  | 41  
|Consolidated Statements of Stockholders Equity         |  | 42  
|Consolidated Statements of Cash Flows                   |  | 43  
|Notes to Consolidated Financial Statements              |  | 44  



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of FiberNet Telecom Group, Inc.:

We have audited the accompanying consolidated balance sheets of FiberNet Telecom Group, Inc. (FiberNet or the Company) as of December 31, 2008 and December 31, 2007, and the related
consolidated statements of operations, changes in stockholders equity and cash flows for each of the two years ended December 31, 2008. These consolidated financial statements are the responsibility of FiberNets management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of FiberNet Telecom Group, Inc., as of December 31, 2008, and December 31, 2007, and the results of their operations and their cash flows for each of the two years ended
December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.



/s/    FRIEDMAN LLPEast Hanover, New Jersey March 18, 2009




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FIBERNET TELECOM GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in
thousands, except per share amounts)



|                                                                                                                          |  |                  |          |   |                  |   |          |  
|------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                          |  | December 31,2008 |          |   | December 31,2007 |  
|ASSETS                                                                                                                    |  |                  |          |   |                  |   |          |  
|Current Assets:                                                                                                           |  |                  |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                 |  | $                | 5,992    |   |                  | $ | 8,220    |  
|Accounts receivable, net of allowance of $861 and $361                                                                    |  |                  | 4,841    |   |                  |   | 3,818    |  
|Prepaid expenses                                                                                                          |  |                  | 587      |   |                  |   | 612      |  
|                                                                                                                          |  |                  |          |   |                  |   |          |  
|Total current assets                                                                                                      |  |                  | 11,420   |   |                  |   | 12,650   |  
|Property, plant and equipment, net                                                                                        |  |                  | 52,579   |   |                  |   | 54,921   |  
|Other Assets:                                                                                                             |  |                  |          |   |                  |   |          |  
|Deferred charges, net of accumulated amortization of $362 and $160                                                        |  |                  | 665      |   |                  |   | 845      |  
|Goodwill                                                                                                                  |  |                  | 1,613    |   |                  |   | 1,613    |  
|Other assets                                                                                                              |  |                  | 900      |   |                  |   | 883      |  
|                                                                                                                          |  |                  |          |   |                  |   |          |  
|Total other assets                                                                                                        |  |                  | 3,178    |   |                  |   | 3,341    |  
|                                                                                                                          |  |                  |          |   |                  |   |          |  
|TOTAL ASSETS                                                                                                              |  | $                | 67,177   |   |                  | $ | 70,912   |  
|                                                                                                                          |  |                  |          |   |                  |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                      |  |                  |          |   |                  |   |          |  
|Current Liabilities:                                                                                                      |  |                  |          |   |                  |   |          |  
|Accounts payable                                                                                                          |  | $                | 3,064    |   |                  | $ | 3,553    |  
|Accrued expenses                                                                                                          |  |                  | 5,572    |   |                  |   | 7,227    |  
|Notes payablecurrent portion                                                                                             |  |                  | 1,750    |   |                  |   | 700      |  
|Deferred revenuescurrent portion                                                                                         |  |                  | 1,200    |   |                  |   | 1,282    |  
|                                                                                                                          |  |                  |          |   |                  |   |          |  
|Total current liabilities                                                                                                 |  |                  | 11,586   |   |                  |   | 12,762   |  
|Long-Term Liabilities:                                                                                                    |  |                  |          |   |                  |   |          |  
|Notes payable                                                                                                             |  |                  | 11,550   |   |                  |   | 13,300   |  
|Deferred revenues, long-term                                                                                              |  |                  | 3,578    |   |                  |   | 3,351    |  
|Other long-term liabilities                                                                                               |  |                  | 2,783    |   |                  |   | 2,201    |  
|                                                                                                                          |  |                  |          |   |                  |   |          |  
|Total long-term Liabilities                                                                                               |  |                  | 17,911   |   |                  |   | 18,852   |  
|                                                                                                                          |  |                  |          |   |                  |   |          |  
|Total liabilities                                                                                                         |  |                  | 29,497   |   |                  |   | 31,614   |  
|Commitments and contingent liabilities                                                                                    |  |                  |          |   |                  |   |          |  
|Stockholders Equity:                                                                                                     |  |                  |          |   |                  |   |          |  
|Common stock, $0.001 par value, 2,000,000,000 shares authorized and 7,422,918 and 7,554,309 shares issued and outstanding |  |                  | 7        |   |                  |   | 8        |  
|Additional paid-in-capital                                                                                                |  |                  | 445,238  |   |                  |   | 445,368  |  
|Deferred rent (warrants)                                                                                                  |  |                  | (1,213   | ) |                  |   | (1,386   | )
|Accumulated deficit                                                                                                       |  |                  | (406,352 | ) |                  |   | (404,692 | )
|                                                                                                                          |  |                  |          |   |                  |   |          |  
|Total stockholders equity                                                                                                |  |                  | 37,680   |   |                  |   | 39,298   |  
|                                                                                                                          |  |                  |          |   |                  |   |          |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                |  | $                | 67,177   |   |                  | $ | 70,912   |  
|                                                                                                                          |  |                  |          |   |                  |   |          |  



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



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FIBERNET TELECOM GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)



|                                                             |  |                         |        |   |      |   |        |  
|------------------------------------------------------------ |  | ----------------------- | ------ | - | ---- | - | ------ | -
|                                                             |  | Year Ended December 31, |       
|                                                             |  | 2008                    |        |   | 2007 |  
|Revenues                                                     |  | $                       | 58,293 |   |      | $ | 49,777 |  
|Operating expenses:                                          |  |                         |        |   |      |   |        |  
|Cost of services (exclusive of items shown separately below) |  |                         | 29,367 |   |      |   | 25,519 |  
|Selling, general and administrative expense                  |  |                         | 18,971 |   |      |   | 16,780 |  
|Depreciation and amortization                                |  |                         | 10,024 |   |      |   | 9,419  |  
|                                                             |  |                         |        |   |      |   |        |  
|Total operating expenses                                     |  |                         | 58,362 |   |      |   | 51,718 |  
|                                                             |  |                         |        |   |      |   |        |  
|Loss from operations                                         |  |                         | (69    | ) |      |   | (1,941 | )
|Loss on early extinguishment of debt                         |  |                         |       |   |      |   | (1,146 | )
|Interest income                                              |  |                         | 97     |   |      |   | 226    |  
|Interest expense                                             |  |                         | (1,442 | ) |      |   | (1,823 | )
|                                                             |  |                         |        |   |      |   |        |  
|Net loss before provision for income taxes                   |  |                         | (1,414 | ) |      |   | (4,684 | )
|Provision for income taxes                                   |  |                         | (246   | ) |      |   | (254   | )
|                                                             |  |                         |        |   |      |   |        |  
|Net loss                                                     |  | $                       | (1,660 | ) |      | $ | (4,938 | )
|                                                             |  |                         |        |   |      |   |        |  
|Net loss per sharebasic and diluted                         |  | $                       | (0.22  | ) |      | $ | (0.66  | )
|Weighted average shares outstandingbasic and diluted        |  |                         | 7,484  |   |      |   | 7,428  |  



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



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FIBERNET TELECOM GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(in thousands, except per share amounts)



|                                   |  |              |   |  |                                   |      |   |              |   |         |                    |  |   |        |   |  |   |          |   |  |   |        |  
|---------------------------------- |  | ------------ | - |  | --------------------------------- | ---- | - | ------------ | - | ------- | ------------------ |  | - | ------ | - |  | - | -------- | - |  | - | ------ | -
|                                   |  | Common Stock |   |  | AdditionalPaid inCapitaland Other |      |   | DeferredRent |   |         | AccumulatedDeficit |  |   | Total  |  
|                                   |  | Shares       |   |  | Amount                            |      |   |              |   |        
|Balance at December 31, 2006       |  | 7,144,465    |   |  | $                                 | 7.1  |   |              | $ | 444,327 |                    |  | $ | (1,559 | ) |  | $ | (399,755 | ) |  | $ | 43,020 |  
|Restricted stock surrendered       |  | (2,400       | ) |  |                                   | (0.0 | ) |              |   |        |                    |  |   |       |   |  |   |         |   |  |   |       |  
|Restricted stock grants            |  | 261,440      |   |  |                                   | 0.3  |   |              |   |        |                    |  |   |       |   |  |   |         |   |  |   |       |  
|Warrants Exercised                 |  | 237,093      |   |  |                                   | 0.2  |   |              |   | 626     |                    |  |   |       |   |  |   |         |   |  |   | 626    |  
|Common stock repurchase            |  | (86,288      | ) |  |                                   | (0.1 | ) |              |   | (693    | )                  |  |   |       |   |  |   |         |   |  |   | (693   | )
|Deferred compensation amortization |  |             |   |  |                                   |     |   |              |   | 1,109   |                    |  |   |       |   |  |   |         |   |  |   | 1,109  |  
|Deferred rent amortization         |  |             |   |  |                                   |     |   |              |   |        |                    |  |   | 173    |   |  |   |         |   |  |   | 173    |  
|Net loss                           |  |             |   |  |                                   |     |   |              |   |        |                    |  |   |       |   |  |   | (4,938   | ) |  |   | (4,938 | )
|                                   |  |              |   |  |                                   |      |   |              |   |         |                    |  |   |        |   |  |   |          |   |  |   |        |  
|Balance at December 31, 2007       |  | 7,554,309    |   |  | $                                 | 7.5  |   |              | $ | 445,369 |                    |  | $ | (1,386 | ) |  | $ | (404,692 | ) |  | $ | 39,298 |  
|Restricted stock surrendered       |  | (8,330       | ) |  |                                   | (0.0 | ) |              |   |        |                    |  |   |       |   |  |   |         |   |  |   |       |  
|Restricted stock grants            |  | 41,500       |   |  |                                   | 0.0  |   |              |   |        |                    |  |   |       |   |  |   |         |   |  |   |       |  
|Warrants Exercised                 |  | 71,429       |   |  |                                   | 0.1  |   |              |   | 189     |                    |  |   |       |   |  |   |         |   |  |   | 189    |  
|Common stock repurchase            |  | (440,837     | ) |  |                                   | (0.4 | ) |              |   | (3,574  | )                  |  |   |       |   |  |   |         |   |  |   | (3,575 | )
|Issuance of common stock           |  | 204,847      |   |  |                                   | 0.2  |   |              |   | 1,612   |                    |  |   |       |   |  |   |         |   |  |   | 1,613  |  
|Deferred compensation amortization |  |             |   |  |                                   |     |   |              |   | 1,642   |                    |  |   |       |   |  |   |         |   |  |   | 1,642  |  
|Deferred rent amortization         |  |             |   |  |                                   |     |   |              |   |        |                    |  |   | 173    |   |  |   |         |   |  |   | 173    |  
|Net loss                           |  |             |   |  |                                   |     |   |              |   |        |                    |  |   |       |   |  |   | (1,660   | ) |  |   | (1,660 | )
|                                   |  |              |   |  |                                   |      |   |              |   |         |                    |  |   |        |   |  |   |          |   |  |   |        |  
|Balance at December 31, 2008       |  | 7,422,918    |   |  | $                                 | 7.4  |   |              | $ | 445,238 |                    |  | $ | (1,213 | ) |  | $ | (406,352 | ) |  | $ | 37,680 |  
|                                   |  |              |   |  |                                   |      |   |              |   |         |                    |  |   |        |   |  |   |          |   |  |   |        |  



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



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FIBERNET TELECOM GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                                      |  |                         |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                      |  | Year Ended December 31, |        
|                                                                                                      |  | 2008                    |         |   | 2007 |  
|Cash flows from operating activities:                                                                 |  |                         |         |   |      |   |         |  
|Net loss                                                                                              |  | $                       | (1,660  | ) |      | $ | (4,938  | )
|Adjustments to reconcile net loss to net cash provided by operating activities:                       |  |                         |         |   |      |   |         |  
|Depreciation and amortization                                                                         |  |                         | 10,024  |   |      |   | 9,419   |  
|Stock related expense                                                                                 |  |                         | 1,642   |   |      |   | 1,109   |  
|Deferred rent expense (warrants)                                                                      |  |                         | 173     |   |      |   | 173     |  
|Loss on early extinguishment of debt                                                                  |  |                         |        |   |      |   | 1,146   |  
|Other non-cash expenses                                                                               |  |                         | 1,255   |   |      |   | 460     |  
|Change in assets and liabilities:                                                                     |  |                         |         |   |      |   |         |  
|Increase in accounts receivable                                                                       |  |                         | (1,562  | ) |      |   | (710    | )
|Decrease in prepaid expenses                                                                          |  |                         | 25      |   |      |   | 44      |  
|(Increase) decrease in other assets                                                                   |  |                         | (66     | ) |      |   | 58      |  
|Decrease in accounts payable                                                                          |  |                         | (115    | ) |      |   | (535    | )
|Increase in accrued expenses and other long-term liabilities                                          |  |                         | 737     |   |      |   | 1,475   |  
|Increase (decrease) in deferred revenue                                                               |  |                         | 146     |   |      |   | (841    | )
|                                                                                                      |  |                         |         |   |      |   |         |  
|Cash provided by operating activities                                                                 |  |                         | 10,599  |   |      |   | 6,860   |  
|Cash flows from investing activities:                                                                 |  |                         |         |   |      |   |         |  
|Capital expenditures                                                                                  |  |                         | (8,719  | ) |      |   | (3,798  | )
|Common stock repurchase                                                                               |  |                         | (3,575  | ) |      |   | (693    | )
|Long-term investment                                                                                  |  |                         |        |   |      |   | (250    | )
|                                                                                                      |  |                         |         |   |      |   |         |  
|Cash used in investing activities                                                                     |  |                         | (12,294 | ) |      |   | (4,741  | )
|Cash flows from financing activities:                                                                 |  |                         |         |   |      |   |         |  
|Proceeds from warrants exercise                                                                       |  |                         | 189     |   |      |   | 626     |  
|Payment of financing costs of debt financings                                                         |  |                         |        |   |      |   | (1,167  | )
|Repayment of debt financing                                                                           |  |                         |        |   |      |   | (14,160 | )
|Proceeds from debt financing                                                                          |  |                         |        |   |      |   | 14,000  |  
|Payment of financing costs of debt financings                                                         |  |                         | (22     | ) |      |   |        |  
|Repayment on notes payable                                                                            |  |                         | (700    | ) |      |   |        |  
|                                                                                                      |  |                         |         |   |      |   |         |  
|Cash used in financing activities                                                                     |  |                         | (533    | ) |      |   | (701    | )
|                                                                                                      |  |                         |         |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                                                  |  |                         | (2,228  | ) |      |   | 1,418   |  
|Cash and cash equivalents at beginning of year                                                        |  |                         | 8,220   |   |      |   | 6,802   |  
|                                                                                                      |  |                         |         |   |      |   |         |  
|Cash and cash equivalents at end of year                                                              |  | $                       | 5,992   |   |      | $ | 8,220   |  
|                                                                                                      |  |                         |         |   |      |   |         |  
|Supplemental disclosures of cash flow information:                                                    |  |                         |         |   |      |   |         |  
|Interest paid                                                                                         |  | $                       | 1,497   |   |      | $ | 1,435   |  
|Income taxes paid                                                                                     |  |                         | 200     |   |      |   | 108     |  
|Acquisition of property, plant, and equipment not paid                                                |  |                         | 930     |   |      |   | 919     |  
|Amounts attributable to acquisition of Gateway Colocation recognized in goodwill and accrued expenses |  |                         |        |   |      |   | 1,613   |  



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



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FIBERNET TELECOM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.
ORGANIZATION AND OPERATIONS

FiberNet Telecom Group, Inc. (hereinafter referred to as the Company or FiberNet)
is a communications service provider focused on providing complex interconnection services enabling the exchange of voice, video and data traffic between global networks. The Company owns and operates integrated colocation facilities and diverse
transport routes in the gateway markets of New York/New Jersey, Los Angeles, Chicago and Miami. FiberNets network infrastructure and facilities are designed to provide comprehensive broadband interconnectivity for the worlds largest
network operators, including leading domestic and international telecommunications carriers, service providers and enterprises. The Company delivers core network backbone services for mission critical requirements.

FiberNet is a holding company that owns all of the outstanding common stock of FiberNet Operations, Inc. (Operations), a Delaware corporation
and an intermediate level holding company, and 96% of the outstanding membership interests of Devnet L.L.C. (Devnet), a Delaware limited liability company. Operations owns all of the outstanding common stock of FiberNet Telecom, Inc.
(FTI), a Delaware corporation, and the remaining 4% of Devnet. FTI owns all of the outstanding membership interests of Local Fiber, LLC (Local Fiber), a New York limited liability company, and all of the outstanding
membership interests of FiberNet Equal Access, LLC (Equal Access), also a New York limited liability company. FTI also owns all of the outstanding membership interests of Availius, LLC (Availius), a New York limited liability
company. The Company conducts its primary business operations through its operating subsidiaries, Devnet, Availius, Local Fiber and Equal Access.

The Company has agreements with other entities, including telecommunications license agreements with building landlords, interconnection agreements with other telecommunications service providers and leases with carrier hotel property
owners. FiberNet also has entered into contracts with suppliers for the components of its telecommunications networks.

Under
FiberNets current operating plan, including its credit facility (see Note 5), the Company does not anticipate requiring any additional external sources of capital to fund its operations in the near term.

However, from time to time, the Company may consider private or public sales of additional equity or debt securities and other financings, depending upon
market conditions, in order to provide additional working capital or finance the continued operations of our business, and we may also consider potential strategic alternatives, such as acquisitions or the sale of all or a portion of our business.
The Company does not have any off-balance sheet financing arrangements, except for outstanding letters of credit.

2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Basis of Presentation

The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Operations, Devnet, FTI, Equal Access, Availius and Local Fiber and have been prepared in accordance with accounting principles generally
accepted in the United States of America. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of
Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from those estimates.



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FIBERNET TELECOM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



During the fourth quarter of 2008, the Company determined that it should reverse approximately $0.6
million of previously accrued (but disputed) occupancy expenses because the applicable statutes of limitations had expired. Consequently, the Company has recorded a one-time reversal of these expenses in the accounts where they were originally
recorded in prior years.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments with an original maturity of three months or less when purchased. The carrying amount approximates fair value because of the short maturity of the
instruments.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, once placed in service. The estimated lives are as
follows:



|                              |  |                                                          
|----------------------------- |  | ---------------------------------------------------------
|Computer software             |  | 3 Years                                                  
|Computer equipment            |  | 3 Years                                                  
|Office equipment and fixtures |  | 5 Years                                                  
|Leasehold improvements        |  | 15 Years or remaining life of lease, whichever is shorter
|Network equipment             |  | 10 Years                                                 
|Network infrastructure        |  | 20 Years                                                 

Maintenance and repairs are expensed as incurred. Improvements are capitalized as additions to
property, plant and equipment.

Impairment of Long-Lived Assets

The Company reviews the carrying value of long-lived assets for impairment in accordance with Statement of Financial Accounting Standard (SFAS) No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS No. 144) whenever events and circumstances indicate the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual
disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss would be recognized equal to an amount by which the carrying value exceeds the fair value of the assets.

Revenue Recognition

FiberNet generates revenues from
selling network capacity and related services to other communications service providers. The Company recognizes revenues when earned as services are provided throughout the life of each sales order with a customer. The majority of the Companys
revenues are generated on a monthly recurring basis under contracts of various lengths, ranging from one month to fifteen years. Most of the Companys services are purchased for a contract period of one year. Revenue is recognized over the
service contract period for all general services. If the Company determines that collection of a receivable is not reasonably assured, it defers the revenue and recognizes it at the time collection becomes reasonably assured, which is generally upon
receipt of payment. Deferred revenues consist primarily of payments received in advance of revenue being earned under the service contracts.



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FIBERNET TELECOM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Allowance for Doubtful Accounts

The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from customers failure to make payments. Management determines the estimate of the allowance for
uncollectible accounts receivable by considering a number of factors, including: (1) historical experience; (2) aging of the accounts receivable; and (3) specific information obtained by the Company on the financial condition and the
current creditworthiness of its customers.

Fair Value of Financial Instruments

The Company estimates that the carrying value of its financial instruments approximates fair value, as all financial instruments are short term in nature
or bear interest at variable rates.

Effective January 1, 2008, the Company adopted Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. The
standard utilizes a fair value hierarchy which is categorized into three levels based on the inputs to the valuation techniques used to measure fair value. The standard does not require any new fair value measurements, but discusses valuation
techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flows) and the cost approach (cost to replace the service capacity of an asset or replacement cost).

Goodwill

Cost in excess of net assets of an acquired
business, principally goodwill, is accounted for under SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 142 requires goodwill and certain intangible assets no longer be amortized, but
instead be reviewed for recoverability. The Company performs its annual impairment test in December. The Company also tests for impairment if an event occurs that is more likely than not to reduce the fair value of the Company below its book value.

Deferred Charges

Deferred charges
include the cost to access buildings and deferred financing costs. Costs to access buildings are being amortized over 12 years, which was the term of the related contracts at their inception. Deferred financing costs are amortized over the term of
the related credit facility.

Earnings Per Share

Basic earnings per share has been computed using the weighted average number of shares outstanding during the period. Diluted earnings per share is computed by including the dilutive effect on common stock that would
be issued assuming conversion of stock options, warrants and other dilutive securities. Options, warrants and other securities did not have an effect on the computation of diluted earnings per share for the years ended December 31, 2008 and
2007, as they were anti-dilutive due to the fact that the Company was in a loss position for the respective periods.

Concentration of Credit Risk

The Company provides trade credit to its customers. The Company performs ongoing credit evaluations of its customers financial
conditions, in an attempt to mitigate this risk. As of December 31, 2008, one customer accounted for 24.5% of the Companys total accounts receivable. As of December 31, 2007, one customer accounted for 32.3% of the Companys
total accounts receivable.



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FIBERNET TELECOM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



For each of the years ended December 31, 2008 and 2007, there was no individual customer that
accounted for more than 10% of the Companys total revenues.

The Company continuously monitors collections and payments from its
customers and maintains an allowance for doubtful accounts based upon its historical experience and any specific customer collection issues that are identified. While such credit losses have historically been within the Companys expectations,
there can be no assurance that the Company will continue to experience the same level of credit losses that it has in the past. A significant change in the liquidity or financial position of any one of these customers or a further deterioration in
the economic environment or telecommunications industry, in general, could have a material adverse impact on the collectability of the Companys accounts receivable and its future operating results, including a reduction in future revenues and
additional expenses from increases in the allowance for doubtful accounts.

Stock Based Compensation

The Company makes equity grants comprising of stock options or shares of restricted stock to its employees as part of its employee equity incentive plan.
As of December 31, 2008, the Company had approximately 1.6 million shares authorized under the plan. Stock options are typically granted to vest in three equal annual installments, commencing on the grant date, and expire ten years from
the date of grant. Restricted stock is typically granted with a four year period before it becomes unrestricted. Equity grants under the plan are made at the discretion of the Compensation Committee of the Board of Directors.

Accounting for Income Taxes

The Company accounts for
income taxes in accordance with SFAS No. 109, Accounting for Income Taxes (SFAS No. 109) which requires the use of the liability method of accounting for deferred income taxes. Under this method, deferred income
taxes represent the net tax effect of temporary differences between carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Additionally, if it is more likely than not that some portion
or all of a deferred tax asset will not be realized, a valuation allowance is required to be recognized.

Effective January 1, 2007,
the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN No. 48). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in a
companys financial statements in accordance with SFAS No. 109. FIN No. 48 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of
the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. At December 31, 2008, the Company had no unrecognized tax benefits. As of
December 31, 2008, the Company had no accrued interest or penalties related to uncertain tax positions. The tax years 2000 through 2008 remain open to examination by all taxing jurisdictions to which the Company is subject.

Reclassifications

Certain balances have been
reclassified in the consolidated financial statements to conform to current year presentation. Specifically, income taxes previously included in selling, general and administrative expenses were reclassified to the provision for income taxes.



47



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FIBERNET TELECOM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Segment Reporting

The Company is a single segment operating company providing telecommunications services. Revenues were generated by providing transport, colocation and communications access management services to customers. All of
our revenues are generated in the United States of America.

Recently Issued Accounting Pronouncements

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS
162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting
principles. SFAS 162 is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles. The Company does not believe that the adoption of SFAS 162 will have a material impact on its consolidated financial Statements.

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). FSP FAS 142-3 amends the factors an entity should consider in developing renewal or extension
assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, Goodwill and Other Intangible Assets. This new guidance applies prospectively to intangible assets that are acquired
individually or with a group of other assets in business combinations and asset acquisitions. FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008 and as such, the
Company will adopt FSP FAS 142-3 in fiscal year 2009. Early adoption is prohibited. The Company is currently evaluating the impact, if any, that FSP FAS 142-3 will have on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statementsan Amendment of ARB
No. 51 (SFAS 160). SFAS 160 will significantly change the financial accounting and reporting of noncontrolling (or minority) interests in consolidated financial statements and is effective as of the beginning of an
entitys first fiscal year that begins after December 15, 2008. The Company does not expect the implementation of SFAS 160 to have a material effect on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 establishes a framework
for measuring fair value in GAAP, and expands disclosures about fair value measurements providing a single definition of fair value, which should result in increased consistency and comparability in fair value measurements. This statement applies
under other accounting pronouncements that require or permit fair value measurements. In February 2008, the FASB issued FSPs No. 157-1 and No. 157-2, which, respectively, remove leasing transactions from the scope of SFAS 157 and
defer its effective date for one year relative to certain nonfinancial assets and liabilities. As a result, the application of the definition of fair value and related disclosures of SFAS 157 (as impacted by these two FSPs) was effective for the
Company beginning January 1, 2008 on a prospective basis with respect to fair value measurements of (a) nonfinancial assets and liabilities that are recognized or disclosed at fair value in the Companys financial statements on a
recurring basis (at least annually) and (b) all financial assets and liabilities. This adoption did not have a material impact on the Companys consolidated financial statements. The remaining aspects of SFAS 157 for which the
effective date was deferred under FSP No. 157-2 have been evaluated and the Company does not expect them to have a material impact on its consolidated financial statements. The effects of these remaining aspects of SFAS 157 are to be applied by
the Company to fair value measurements prospectively beginning January 1, 2009.



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FIBERNET TELECOM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



3. EQUITY INCENTIVE PLAN

On January 1, 2006, the Company adopted SFAS No. 123(R), applying the modified prospective method. Prior to the adoption of SFAS No. 123(R), the Company applied the provisions of APB No. 25, in
accounting for its stock-based awards, and accordingly, recognized no compensation cost for its stock plans other than for its restricted stock awards. Under the modified prospective method, SFAS No. 123(R) applies to new awards and to awards
that were outstanding as of December 31, 2005 that are subsequently vested, modified, repurchased or cancelled. The Company recognizes the cost of all employee stock awards on a straight-line basis over their respective vesting period, net of
estimated forfeitures.

During 2008, the Company issued 41,500 shares of restricted stock that will become unrestricted four years after
the grant date. The Company determined the fair value of the restricted stock granted during 2008 to be $0.4 million. During 2007, the Company issued 261,440 shares of restricted stock that will become unrestricted four years after the grant date.
The Company determined the fair value of the restricted stock granted during 2007 to be $1.9 million.

The Black-Scholes option-pricing
model is used to value options when issued. The expected volatility assumption used is based solely on historical volatility, calculated using the daily price changes of the Companys common stock over the most recent period equal to the
expected life of the stock option on the date of grant. The risk-free interest rate is determined using the implied yield for zero-coupon U.S. government issues with a remaining term equal to the expected life of the stock option. The Company does
not currently intend to pay cash dividends, and thus assumes a 0% dividend yield. The expected life of an option is calculated using the simplified method set out in SEC Staff Accounting Bulletin No. 107, Share Based Payment, using
the vesting term of three years and the contractual term of ten years. The simplified method defines the expected life as the average of the contractual term of the options and the weighted average vesting period for all option tranches.

As part of the requirements of SFAS No. 123(R), the Company is required to estimate potential forfeitures of stock grants and adjust compensation
cost recorded accordingly. The forfeiture rate was estimated based on relevant historical forfeitures. The estimate of forfeitures will be adjusted over the requisite service period to the extent that the actual forfeitures differ, or are expected
to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods.

A summary of stock option activity within the Companys stock-based compensation plans for the year ended December 31, 2008 is
as follows:



|                                 |  |                 |   |  |                               |          |                                                 |     |                          |   |        
|-------------------------------- |  | --------------- | - |  | ----------------------------- | -------- | ----------------------------------------------- | --- | ------------------------ | - | -------
|                                 |  | Number ofShares |   |  | WeightedAverageExercise Price |          | WeightedAverageRemainingContractualTerm (Years) |     | AggregateIntrinsic Value
|Outstanding at January 1, 2008   |  | 140,063         |   |  | $                             | 145.66   |                                                 |     |                          |   |        
|Granted                          |  |                |   |  |                               |         |                                                 |     |                          |   |        
|Exercised                        |  |                |   |  |                               |         |                                                 |     |                          |   |        
|Forfeited                        |  | (3,696          | ) |  | $                             | 1,111.51 |                                                 |     |                          |   |        
|                                 |  |                 |   |  |                               |          |                                                 |     |                          |   |        
|Outstanding at December 31, 2008 |  | 136,367         |   |  | $                             | 119.49   |                                                 | 5.8 |                          | $ | 629,428
|                                 |  |                 |   |  |                               |          |                                                 |     |                          |   |        
|Exercisable at December 31, 2008 |  | 111,367         |   |  | $                             | 145.83   |                                                 | 5.4 |                          | $ | 419,678
|                                 |  |                 |   |  |                               |          |                                                 |     |                          |   |        



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##### Table of Contents

FIBERNET TELECOM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



A summary of stock option activity within the Companys stock-based compensation plans for the
year ended December 31, 2007 is as follows:



|                                 |  |                 |   |  |                               |        |                                                 |     |                          |   |        
|-------------------------------- |  | --------------- | - |  | ----------------------------- | ------ | ----------------------------------------------- | --- | ------------------------ | - | -------
|                                 |  | Number ofShares |   |  | WeightedAverageExercise Price |        | WeightedAverageRemainingContractualTerm (Years) |     | AggregateIntrinsic Value
|Outstanding at January 1, 2007   |  | 142,070         |   |  | $                             | 151.58 |                                                 |     |                          |   |        
|Granted                          |  |                |   |  |                               |       |                                                 |     |                          |   |        
|Exercised                        |  |                |   |  |                               |       |                                                 |     |                          |   |        
|Forfeited                        |  | (2,007          | ) |  | $                             | 564.74 |                                                 |     |                          |   |        
|                                 |  |                 |   |  |                               |        |                                                 |     |                          |   |        
|Outstanding at December 31, 2007 |  | 140,063         |   |  | $                             | 145.66 |                                                 | 6.6 |                          | $ | 439,519
|                                 |  |                 |   |  |                               |        |                                                 |     |                          |   |        
|Exercisable at December 31, 2007 |  | 90,063          |   |  | $                             | 225.36 |                                                 | 5.5 |                          | $ | 146,519
|                                 |  |                 |   |  |                               |        |                                                 |     |                          |   |        

The aggregate intrinsic value for stock options outstanding and exercisable is defined as the
difference between the market value of the Companys stock as of the end of the period and the exercise price of the stock options.

The following is a summary of nonvested stock option activity:



|                               |  |                 |   |  |                                     |     
|------------------------------ |  | --------------- | - |  | ----------------------------------- | ----
|                               |  | Number ofShares |   |  | WeightedAverageGrant-DateFair Value
|Nonvested at December 31, 2007 |  | 50,000          |   |  | $                                   | 2.11
|Granted                        |  |                |   |  |                                     |    
|Vested                         |  | (25,000         | ) |  |                                     | 2.11
|Forfeited                      |  |                |   |  |                                     |    
|                               |  |                 |   |  |                                     |     
|Nonvested at December 31, 2008 |  | 25,000          |   |  | $                                   | 2.11
|                               |  |                 |   |  |                                     |     



|                               |  |                 |   |  |                                     |     
|------------------------------ |  | --------------- | - |  | ----------------------------------- | ----
|                               |  | Number ofShares |   |  | WeightedAverageGrant-DateFair Value
|Nonvested at December 31, 2006 |  | 75,339          |   |  | $                                   | 2.17
|Granted                        |  |                |   |  |                                     |    
|Vested                         |  | (25,339         | ) |  |                                     | 2.08
|Forfeited                      |  |                |   |  |                                     |    
|                               |  |                 |   |  |                                     |     
|Nonvested at December 31, 2007 |  | 50,000          |   |  | $                                   | 2.11
|                               |  |                 |   |  |                                     |     

At December 31, 2008, there was approximately $31,000 of total unrecognized compensation cost
related to nonvested stock options. The cost is expected to be recognized over a weighted average period of 0.6 years.



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FIBERNET TELECOM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table summarizes information about stock options outstanding as of December 31,
2008:



|                        |  |                            |  |                                          |  |                               |          |                            |         |                               |     |                               |   |         
|----------------------- |  | -------------------------- |  | ---------------------------------------- |  | ----------------------------- | -------- | -------------------------- | ------- | ----------------------------- | --- | ----------------------------- | - | --------
|                        |  | Options Outstanding        |  | Options Exercisable                     
|Range of Exercise Price |  | Outstandingas of12/31/2008 |  | Weighted-AverageRemainingContractualLife |  | Weighted-AverageExercisePrice |          | Exercisableas of12/31/2008 |         | Weighted-AverageRemainingLife |     | Weighted-AverageExercisePrice
|$0.00-$5.00             |  | 75,000                     |  | 7.6                                      |  | $                             | 2.11     |                            | 50,000  |                               | 7.6 |                               | $ | 2.11    
|$5.01-$20.00            |  | 35,261                     |  | 4.6                                      |  | $                             | 11.40    |                            | 35,261  |                               | 4.6 |                               | $ | 11.40   
|$20.00-$100.00          |  | 14,120                     |  | 3.0                                      |  | $                             | 96.00    |                            | 14,120  |                               | 3.0 |                               | $ | 96.00   
|$100.01-$1,000.00       |  | 6,308                      |  | 0.9                                      |  | $                             | 449.10   |                            | 6,308   |                               | 0.9 |                               | $ | 449.10  
|$1,000.01-$6,050.90     |  | 5,678                      |  | 1.2                                      |  | $                             | 2,033.36 |                            | 5,678   |                               | 1.2 |                               | $ | 2,033.36
|                        |  |                            |  |                                          |  |                               |          |                            |         |                               |     |                               |   |         
|Total                   |  | 136,367                    |  | 5.8                                      |  | $                             | 119.49   |                            | 111,367 |                               | 5.4 |                               | $ | 145.83  
|                        |  |                            |  |                                          |  |                               |          |                            |         |                               |     |                               |   |         

The Company also grants restricted stock awards to its employees. Restricted stock awards are
valued at the closing market value of the Companys common stock on the day of the grant, and the total value of the award is recognized as expense ratably over the vesting period of the employees receiving the grants. During the year ended
December 31, 2008, the Company granted 41,500 shares of restricted stock that will become unrestricted four years after the grant date. During the year ended December 31, 2007, the Company granted 261,440 shares or restricted stock.

As of December 31, 2008, the total amount of unrecognized compensation expense related to restricted stock awards was approximately
$4.3 million, which is expected to be recognized over a weighted-average period of approximately 3.1 years. The Company recognized compensation expense of approximately $1.6 million during 2008 on existing restricted stock awards.

During the year ended December 31, 2008, 8,330 shares of restricted stock were returned to the Company as the result of employee terminations, and
during the year ended December 31, 2007, 2,400 shares of restricted stock were returned. All shares of restricted stock granted before 2006 become unrestricted on the tenth anniversary of the grant date, or on the fourth anniversary for
restricted stock granted during and after 2006. Stock options vest in three equal annual installments, commencing on the issuance date, subject to the terms and conditions of the Equity Incentive Plan. As of December 31, 2008 and 2007 the
outstanding shares of restricted stock totaled 1,387,478 and 1,386,718, respectively.

For the year ended December 31, 2008 and 2007,
total stock-based compensation was $1.6 million and $1.1 million, respectively.



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FIBERNET TELECOM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following (dollars in thousands):



|                                                   |  |                  |         |   |                  |   |         |  
|-------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | -
|                                                   |  | December 31,2008 |         |   | December 31,2007 |  
|Computer software                                  |  | $                | 993     |   |                  | $ | 1,037   |  
|Computer equipment                                 |  |                  | 985     |   |                  |   | 887     |  
|Leasehold improvements                             |  |                  | 31      |   |                  |   | 31      |  
|Office equipment and furniture                     |  |                  | 417     |   |                  |   | 348     |  
|Network equipment and infrastructure               |  |                  | 118,755 |   |                  |   | 110,549 |  
|                                                   |  |                  |         |   |                  |   |         |  
|Total                                              |  |                  | 121,181 |   |                  |   | 112,852 |  
|Accumulated depreciation                           |  |                  | (68,602 | ) |                  |   | (58,715 | )
|                                                   |  |                  |         |   |                  |   |         |  
|Property, plant and equipment, net of depreciation |  | $                | 52,579  |   |                  | $ | 54,137  |  
|Construction-in-progress                           |  |                  |        |   |                  |   | 784     |  
|                                                   |  |                  |         |   |                  |   |         |  
|Total Property, plant and equipment, net           |  | $                | 52,579  |   |                  | $ | 54,921  |  
|                                                   |  |                  |         |   |                  |   |         |  

Depreciation expense on property, plant and equipment was $9.9 million and $9.3 million for the
years ended December 31, 2008 and 2007, respectively.

5. CREDIT FACILITY

On March 21, 2007, the Company entered into a Credit Agreement by and among the Company, its subsidiaries and CapitalSource Finance LLC pursuant to
which the Company and its subsidiaries established a $25.0 million credit facility (the Credit Facility), consisting of (i) a $14.0 million term loan, (ii) a $6.0 million revolving loan and letter of credit facility and
(iii) a $5.0 million capital expenditure loan facility, which was unfunded at closing. The $14.0 million term loan was used to pay off the Companys existing credit facility with Deutsche Bank A.G. discussed below, which was set to mature
in March 2008. The Credit Facility bears interest at floating rates, depending on the type of borrowing and based on either a Prime Rate or LIBOR Rate, as such terms are defined under the Credit Facility. Borrowing on the $14.0 million term loan are
payable in increasing quarterly installments commencing in July 2008. The Credit Facility matures in March 2012. Please refer to Note 7 for a schedule of repayment of borrowings under the Credit Facility. The Credit Facility is secured by a
first lien on all of the Companys and its subsidiaries existing and future real assets and personal property. The Credit Facility is guaranteed by the Company and certain of its subsidiaries, and contains restrictive covenants, operating
restrictions and other terms and conditions. The Credit Agreement prohibits the payment of cash dividends on common stock. As of December 31, 2008, the outstanding balance under the Credit Facility was $13.3 million. In addition, as of
December 31, 2008, the Company had $5.7 million of outstanding letters of credit and $0.3 million of availability under its revolving loan credit facility, again subject to compliance with the terms of the credit agreement. As of
December 31, 2008, the interest rate on its outstanding borrowings under the facility was at 5.35%. There were no events of default under its credit agreement.

On November 7, 2007, the Company entered into an Amended and Restated Credit Agreement by and among the Company, its subsidiaries, CapitalSource Finance LLC and CapitalSource CF LLC pursuant to which the Company
and its subsidiaries established a new $5.0 million loan facility (the New Loan) solely to enable the Company to repurchase outstanding shares of its capital stock pursuant to its recently announced stock repurchase program. The New
Loan, which was unfunded at closing, supplements and is made a part of the Companys existing $25.0 million Credit Facility. The New Loan will bear interest at floating rates, depending on the type of borrowing and based on either a Prime Rate
or LIBOR Rate, as such terms are defined under the



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FIBERNET TELECOM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Credit Facility. The applicable margin based upon a LIBOR Rate is 4.50%, and the applicable margin based on a Prime Rate is 3.25%. In addition, the parties
adjusted certain of the financial covenants under the Credit Facility. The New Loan will be payable in equal quarterly installments of 3.75% of the principal amount commencing in April 2010, with the entire Credit Facility maturing in March 2012.

The Company recorded a charge of $1.1 million related to the early extinguishment of its former credit facility on March 21, 2007,
including the write-off of unamortized financing related charges that were associated with the former credit facility.

6. EQUITY TRANSACTIONS

On November 8, 2007, the Company announced that its Board of Directors had authorized the repurchase of up to $5.0 million of the
Companys common stock, either through open market purchases or in privately negotiated transactions. On May 15, 2008, the Company announced that its Board of Directors had authorized the increase of the Companys stock repurchase
program to $7.5 million from $5.0 million. The timing and amount of the shares to be repurchased will be based on market conditions and other factors, including price, corporate and regulatory requirements and alternative investment opportunities.
Any shares repurchased in the program will be cancelled. The repurchase program is scheduled to terminate on June 30, 2009, and may be modified or discontinued at any time. As of December 31, 2008, the Company repurchased 527,125 shares of
common stock for an average price of $8.07 per share, and had approximately $3.2 million available for future repurchases. As of December 31, 2007, the Company repurchased 86,288 shares of common stock for an average price of $8.00 per share,
and had approximately $4.3 million available for future repurchases.

7. COMMITMENTS AND CONTINGENCIES

The Company has entered into various operating lease agreements for office space and other space relating to the Companys operations. Occupancy
expense for the years ended December 31, 2008 and 2007 was approximately $15.6 million and $14.5 million, respectively.

Estimated future minimum notes payable and operating lease payments are as follows (dollars in thousands):



|                                                    |  |                                       |        |      |   |        |  |      |        |      |   |        |  |            |        |  |   |       |  |   |       
|--------------------------------------------------- |  | ------------------------------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | ---------- | ------ |  | - | ----- |  | - | ------
|                                                    |  | Payments Due by Period (in thousands)
|Contractual Obligation                              |  | Total                                 |        | 2009 |   | 2010   |  | 2011 |        | 2012 |   | 2013   |  | Thereafter
|Mandatory Repayments and Reductions of Indebtedness |  | $                                     | 13,300 |      |   | 1,750  |  | $    | 2,450  |      | $ | 5,250  |  | $          | 3,850  |  | $ |      |  | $ |      
|Operating Leases(1)                                 |  |                                       | 79,371 |      |   | 9,991  |  |      | 9,199  |      |   | 8,615  |  |            | 8,777  |  |   | 8,869 |  |   | 33,920
|                                                    |  |                                       |        |      |   |        |  |      |        |      |   |        |  |            |        |  |   |       |  |   |       
|Total Contractual Obligations                       |  | $                                     | 92,671 |      | $ | 11,741 |  | $    | 11,649 |      | $ | 13,865 |  | $          | 12,627 |  | $ | 8,869 |  | $ | 33,920
|                                                    |  |                                       |        |      |   |        |  |      |        |      |   |        |  |            |        |  |   |       |  |   |       



|(1) | Includes estimated future license fees for carrier hotel facilities. License fees are typically calculated as a percentage of the revenues the Company generates in the respective
facility, as per its lease agreement with the facility.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company had $5.7 and $5.4 million in outstanding letters of
credit as of December 31, 2008 and December 31, 2007, respectively.

On August 17, 2006, the Company adopted the FiberNet
Telecom Group, Inc. Change in Control Plan (the Plan). Pursuant to the terms of the Plan, members of senior management are entitled to certain benefits upon a termination of employment (other than a termination by FiberNet for
Cause or by an employee without Good



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FIBERNET TELECOM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Reason as such terms are defined in the Plan) that occurs within one year after a Change in Control event (as defined in the Plan). Specifically, each
Vice President and Senior Vice President shall be entitled to a cash payment of 50% of his or her current base salary and the President shall be entitled to a cash payment of 100% of his or her current base salary, plus a pro-rated portion of his or
her annual bonus. FiberNet shall also pay the premiums for continued health care coverage for six months for each Vice President and Senior Vice President and for twelve months for the President.

In addition, the Plan provides that if the benefits payable in connection with a Change in Control event are subject to an Excise Tax (as defined in the
Plan), then (i) for the President, FiberNet agrees to make such individual whole by making a gross-up payment, such that the net total amount of benefits actually received is equal to those benefits calculated as if only standard income taxes,
and not the Excise Tax, had applied, and (ii) for each Vice President and Senior Vice President, FiberNet shall pay to such individual the greater of (A) the total value of the benefits payable if reduced to avoid triggering the Excise Tax
or (B) the total value of the benefits payable even if the Excise Tax applies, such that the net total amount of benefits actually received by such individual is maximized.

The Company and its subsidiaries, in the normal course of business, may become party to any number of judicial, regulatory and administrative
proceedings. The Companys management does not believe that any material liability will be imposed as a result of any of these matters.

8. STOCK
RESERVED FOR FUTURE ISSUANCE

In addition to shares of common stock underlying outstanding stock options, the Company has reserved for
future issuance additional shares of common stock relating to outstanding warrants. As of December 31, 2008, the Company had outstanding warrants exercisable into approximately 0.5 million shares of common stock at exercise prices ranging
from $0.10 to $2.64 per share.

9. INCOME TAXES

The Company accounts for income taxes in accordance with the provisions of SFAS No. 109. During 2008 and 2007 the Company did not record a current or deferred federal income tax provision because the Company had losses for federal
income tax purposes. The Company has recorded a full valuation allowance, as it does not expect to realize the benefits of the net operating tax losses generated in those years.

A reconciliation of the actual income tax (provision)/benefit and the tax computed by applying the U.S. federal rate (34%) to the loss from
continuing operations, before income taxes, for the two years ended December 31, 2008 and 2007 follows (dollars in thousands):



|                                                       |  |                        |        |   |      |   |        |  
|------------------------------------------------------ |  | ---------------------- | ------ | - | ---- | - | ------ | -
|                                                       |  | Year EndedDecember 31, |       
|                                                       |  | 2008                   |        |   | 2007 |  
|Computed tax at federal statutory rate                 |  | $                      | (564   | ) |      | $ | (1,679 | )
|State and local tax, net of federal income tax benefit |  |                        | 1,384  |   |      |   | (971   | )
|Other                                                  |  |                        | (54    | ) |      |   | 20     |  
|Change in valuation allowance                          |  |                        | (1,012 | ) |      |   | 2,376  |  
|                                                       |  |                        |        |   |      |   |        |  
|                                                       |  | $                      | (246   | ) |      | $ | (254   | )
|                                                       |  |                        |        |   |      |   |        |  



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FIBERNET TELECOM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The tax effects of temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities, for the two years ended December 31, 2008 and 2007, consist of the following (dollars in thousands):



|                                                             |  |                        |         |   |      |   |         |  
|------------------------------------------------------------ |  | ---------------------- | ------- | - | ---- | - | ------- | -
|                                                             |  | Year EndedDecember 31, |        
|                                                             |  | 2008                   |         |   | 2007 |  
|Deferred tax assets/(liabilities):                           |  |                        |         |   |      |   |         |  
|Deferred expenses                                            |  | $                      | 296     |   |      | $ | 235     |  
|Deferred rent                                                |  |                        | 1,106   |   |      |   | 910     |  
|Capital loss                                                 |  |                        | 59      |   |      |   | 61      |  
|Deferred revenue                                             |  |                        | 1,410   |   |      |   | 1,364   |  
|Restructuring charges                                        |  |                        | 674     |   |      |   | 696     |  
|Stock options                                                |  |                        | 6,280   |   |      |   | 5,816   |  
|Depreciation and impairment of property, plant and equipment |  |                        | (1,443  | ) |      |   | (2,223  | )
|Goodwill                                                     |  |                        | 5,481   |   |      |   | 6,439   |  
|AMT credit                                                   |  |                        | 75      |   |      |   |        |  
|Net operating loss                                           |  |                        | 78,233  |   |      |   | 80,077  |  
|Bad debts                                                    |  |                        | 350     |   |      |   | 158     |  
|Valuation allowance                                          |  |                        | (92,521 | ) |      |   | (93,533 | )
|                                                             |  |                        |         |   |      |   |         |  
|Net deferred tax asset/(liability)                           |  | $                      |        |   |      | $ |        |  
|                                                             |  |                        |         |   |      |   |         |  

The temporary differences described above represent differences between the tax basis of assets or
liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled.

During the tax years ended December 31, 2008 and 2007, a valuation allowance for the full amount of the net deferred tax asset was recorded. The
valuation allowance represents the portion of tax net operating loss carryforwards and other items for which it is more likely than not that the benefit of such items will not be realized. Based upon the level of historical losses and projections
for the future taxable periods, it is more likely than not that the Company will not realize the benefit of the deferred tax asset.

As of
December 31, 2008, the Company had net operating loss carryforwards for federal income tax purposes of approximately $204 million substantially all of which are subject to a de minimus annual limitation on future utilization under
Section 382 of the Internal Revenue Code of 1986. These tax loss carryforwards begin expiring in 2012.

Section 382 imposes
limitations on the availability of a companys net operating losses after a more than 50 percentage point ownership change occurs. The Company believes that the most recent ownership changes occurred during the years ended December 31,
2003 and 2002. The amount of the Companys net operating losses incurred prior to the ownership change is limited based on the value of the company on the date of the ownership change.



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FIBERNET TELECOM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



10. QUARTERLY INFORMATION (dollars in thousands, except per share data) (unaudited)



|                                                      |  |               |        |   |              |   |        |                   |  |   |                  |   |  |   |        |  
|----------------------------------------------------- |  | ------------- | ------ | - | ------------ | - | ------ | ----------------- |  | - | ---------------- | - |  | - | ------ | -
|                                                      |  | March 31,2008 |        |   | June 30,2008 |   |        | September 30,2008 |  |   | December 31,2008 |  
|Revenues                                              |  | $             | 13,556 |   |              | $ | 14,405 |                   |  | $ | 14,910           |   |  | $ | 15,422 |  
|Net (loss) gain from operations                       |  |               | (244   | ) |              |   | (305   | )                 |  |   |                 |   |  |   | 480    |  
|Net loss                                              |  |               | (614   | ) |              |   | (667   | )                 |  |   | (306             | ) |  |   | (73    | )
|Net loss per sharebasic and diluted                  |  | $             | (0.08  | ) |              | $ | (0.09  | )                 |  | $ | (0.04            | ) |  | $ | (0.01  | )
|Weighted average shares outstandingbasic and diluted |  |               | 7,578  |   |              |   | 7,501  |                   |  |   | 7,432            |   |  |   | 7,436  |  



|                                                      |  |                   |        |   |              |   |        |                   |  |   |                  |   |  |   |        |  
|----------------------------------------------------- |  | ----------------- | ------ | - | ------------ | - | ------ | ----------------- |  | - | ---------------- | - |  | - | ------ | -
|                                                      |  | March 31,2007 (a) |        |   | June 30,2007 |   |        | September 30,2007 |  |   | December 31,2007 |  
|Revenues                                              |  | $                 | 11,634 |   |              | $ | 12,060 |                   |  | $ | 12,501           |   |  | $ | 13,582 |  
|Net (loss) gain from operations                       |  |                   | (720   | ) |              |   | (693   | )                 |  |   | (568             | ) |  |   | 40     |  
|Net loss                                              |  |                   | (2,397 | ) |              |   | (1,040 | )                 |  |   | (919             | ) |  |   | (582   | )
|Net loss per sharebasic and diluted                  |  | $                 | (0.33  | ) |              | $ | (0.14  | )                 |  | $ | (0.12            | ) |  | $ | (0.08  | )
|Weighted average shares outstandingbasic and diluted |  |                   | 7,271  |   |              |   | 7,353  |                   |  |   | 7,411            |   |  |   | 7,616  |  



|(a) | Includes a $1.1 million loss on early extinguishment of debt
|--- | ------------------------------------------------------------

11.
ACQUISITION OF GATEWAY COLOCATION

On January 30, 2004, the Company completed the acquisition of the operating assets of
gateway.realty.new jersey.llc, also known as Gateway Colocation. The transaction was structured as an acquisition of assets, and the purchase agreement included an earn-out payment based upon the achievement of certain financial
objectives with respect to the revenues generated by the facility, which if attained would be paid in shares of the Companys common stock. On March 22, 2006, the Company entered into an amendment to the purchase agreement. The terms of
the amendment extend the duration of the earn-out provision for an additional twenty-four months retroactive to January 30, 2006. On January 31, 2008, the Company received written notice from Gateway Colocation exercising their
rights under the earn out provision and FiberNet, in accordance with such provisions, issued to Gateway Colocation 204,847 shares of its common stock on February 5, 2008. FiberNet recorded goodwill of $1.6 million as of
December 31, 2007 to account for the fair value of the earn-out.

12. SUBSEQUENT EVENTS

On January 16, 2009, the Company borrowed $1.5 million under the term loan for capital expenditures related to certain upgrades to its 165 Halsey
Street colocation facility.



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

None.



|ITEM 9A(T). | CONTROLS AND PROCEDURES
|----------- | -----------------------



| | (a) | Evaluation of Disclosure Controls and Procedures
| | --- | ------------------------------------------------

Our
management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2008. The term disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by a company in the reports that it files and submits under the Exchange Act is accumulated and communicated to the companys management, including its principal
executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of December 31, 2008, our chief executive officer and chief
financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

The Audit Committee of the Board
of Directors, which is composed solely of independent directors, meets regularly with our independent registered public accounting firm, Friedman LLP, and representatives of management to review accounting, financial reporting, internal control and
audit matters, as well as the nature and extent of the audit effort. The Audit Committee is responsible for the engagement of the independent auditors. The independent auditors have free access to the Audit Committee.



| | (b) | Managements Responsibility for Financial Statements
| | --- | ----------------------------------------------------

Our management is responsible for the integrity and objectivity of all information presented in this report. The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United
States of America and include amounts based on managements best estimates and judgments. Management believes the consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements fairly
represent the Companys consolidated financial position and results of operations for the periods and as of the dates stated therein.



| | (c) | Managements Annual Report of Internal Control over Financial Reporting
| | --- | -----------------------------------------------------------------------

The management of FiberNet Telecom Group, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined by Rules 13a15(f) and 15(d)-15(f) under the Securities
and Exchange Act of 1934. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principals
generally accepted in the United States of America.

Our internal control over financial reporting includes those policies and procedures
that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors
of the Company; and (3) provide



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reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a
material effect on the financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can
only provide reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time.

With the participation of our chief executive officer and chief financial officer, management conducted an evaluation of the effectiveness of the system
of internal control over financial reporting based on the framework in Internal Control-Integrated Framework, published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management
determined that our system of internal control over financial reporting was effective as of December 31, 2008.



| | (d) | Report of Independent Registered Public Accounting Firm
| | --- | -------------------------------------------------------

This annual report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the
Companys registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only managements report in this annual report.



| | (e) | Changes in Internal Controls.
| | --- | -----------------------------

There were no changes in our
internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during the fourth quarter of our last fiscal year that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None.



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PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

The response to this item is incorporated by reference from the discussion responsive thereto under the captions Management, Section 16(a) Beneficial Ownership Reporting Compliance and Code of Conduct and
Ethics in our Proxy Statement for the 2009 Annual Meeting of Stockholders, which we will file with the SEC within 120 days after our December 31, 2008 fiscal year end.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The response to this item
is incorporated by reference from the discussion responsive thereto under the caption Summary Compensation Table in our Proxy Statement for the 2009 Annual Meeting of Stockholders, which we will file with the SEC within 120 days after
our December 31, 2008 fiscal year end.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The response to this item is incorporated by reference from the discussion responsive thereto under the caption Security Ownership of Certain
Beneficial Owners and Management in our Proxy Statement for the 2009 Annual Meeting of Stockholders, except for the information required by Regulation S-K, Item 201(d), which is set forth under Item 5 of this report, which we will
file with the SEC within 120 days after our December 31, 2008 fiscal year end.



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------

The response to this item is incorporated by reference from the discussion responsive thereto under the captions Certain Relationships and Related Transactions, Potential Payments Upon a Termination
or Change in Control and The Board of Directors in our Proxy Statement for the 2009 Annual Meeting of Stockholders, which we will file with the SEC within 120 days after our December 31, 2008 fiscal year end.



|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES
|-------- | --------------------------------------

The
response to this item is incorporated by reference from the discussion responsive thereto under the caption Ratification of Independent Public Accountants in our Proxy Statement for the 2009 Annual Meeting of Stockholders, which we will
file with the SEC within 120 days after our December 31, 2008 fiscal year end.



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PART IV



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------

(a)
Financial Statements

(1) and (2) See Index to Consolidated Financial Statements and Supplemental
Schedules at Item 8 of this Annual Report on Form 10-K.

Schedules not included herein are omitted because they
are not applicable or the required information appears in the Consolidated Financial Statements or Notes thereto.

(3) Exhibits



|            |  |                                                                                                                                                                                                                                                                                                                                                                
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Name                                                                                                                                                                                                                                                                                                                                                   
|2.1         |  | Agreement and Plan of Reorganization, dated as of June 2, 2000, by and among us, FiberNet Holdco, Inc., FiberNet Merger Sub, Inc., Devnet Merger Sub, LLC, Devnet L.L.C. and
FP Enterprises L.L.C. (excluding the annexes, schedules and exhibits thereto) (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K, filed on June 8, 2000).
|            | 
|3.1         |  | Certificate of Incorporation, dated May 17, 2000 (incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-1, filed on August 15, 2001).                                                                                                                                                                                               
|            | 
|3.2         |  | Certificate of Amendment to Certificate of Incorporation, dated July 31, 2000 (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form S-1, filed on
August 15, 2001).                                                                                                                                                                  
|            | 
|3.3         |  | Certificate of Designation of Series C Preferred Stock, dated July 31, 2000 (incorporated by reference to Exhibit 3.3 to our Registration Statement on Form S-1, filed on August 15,
2001).                                                                                                                                                                    
|            | 
|3.4         |  | Certificate of Designation of Series D Preferred Stock, dated July 31, 2000 (incorporated by reference to Exhibit 3.4 to our Registration Statement on Form S-1, filed on August 15,
2001).                                                                                                                                                                    
|            | 
|3.5         |  | Certificate of Designation of Series E Preferred Stock, dated July 31, 2000 (incorporated by reference to Exhibit 3.5 to our Registration Statement on Form S-1, filed on August 15,
2001).                                                                                                                                                                    
|            | 
|3.6         |  | Certificate of Designation of Series F Preferred Stock, dated July 31, 2000 (incorporated by reference to Exhibit 3.6 to our Registration Statement on Form S-1, filed on August 15,
2001).                                                                                                                                                                    
|            | 
|3.7         |  | Certificate of Designation of Series H Preferred Stock, dated July 31, 2000 (incorporated by reference to Exhibit 3.7 to our Registration Statement on Form S-1, filed on August 15,
2001).                                                                                                                                                                    
|            | 
|3.8         |  | Certificate of Designation of Series I Preferred Stock, dated July 31, 2000 (incorporated by reference to Exhibit 3.8 to our Registration Statement on Form S-1, filed on August 15,
2001).                                                                                                                                                                    
|            | 
|3.9         |  | Certificate of Designation of Series J Preferred Stock, dated December 6, 2001 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K, filed on December 7,
2001).                                                                                                                                                                        
|            | 
|3.10        |  | Amended and Restated By-Laws of the Company adopted August 17, 2000 (incorporated by reference to Exhibit 3.9 to our Registration Statement on Form S-1, filed on September 8, 2000).                                                                                                                                                                          
|            | 
|3.11        |  | Certificate of Amendment to Certificate of Incorporation, dated October 25, 2002 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed on November 1,
2002).                                                                                                                                                                      
|            | 
|3.12        |  | Certificate of Amendment to Certificate of Incorporation, dated May 8, 2003 (incorporated by reference to Exhibit 3.12 to our Quarterly Report on Form 10-Q, filed on May 12, 2003).                                                                                                                                                                           
|            | 
|3.13        |  | Certificate of Amendment to Certificate of Incorporation, dated May 24, 2005 (incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q, filed on August 15,
2005).                                                                                                                                                                        
|            | 
|4.1         |  | Form of Certificate for our Common Stock (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-1, filed on August 15, 2000).                                                                                                                                                                                                       



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|            |  |                                                                                                                                                                                                                                                           
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Name                                                                                                                                                                                                                                              
|4.2         |  | Stockholders Agreement, dated as of October 30, 2002, by and among us and the stockholders listed therein (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K,
filed on November 1, 2002).                                        
|            | 
|4.3         |  | Investors Rights Agreement, dated as of October 30, 2002, by and among us and the investors listed therein (incorporated by reference to Exhibit 4.2 to our Current Report on Form
8-K, filed on November 1, 2002).                                      
|            | 
|4.4         |  | Registration Rights Agreement, dated as of October 30, 2002, by and among us and the stockholders listed therein (incorporated by reference to Exhibit 4.3 to our Current Report on Form
8-K, filed on November 1, 2002).                                 
|            | 
|4.7         |  | First Amended and Restated Stockholders Agreement, dated as of November 11, 2002, by and among us and the stockholders listed therein (incorporated by reference to Exhibit 4.1 to our
Current Report on Form 8-K, filed on November 12, 2002).           
|            | 
|4.8         |  | First Amended and Restated Investors Rights Agreement, dated as of November 11, 2002, by and among the Company and the investors listed therein (incorporated by reference to
Exhibit 4.2 to our Current Report on Form 8-K, filed on November 12, 2002).
|            | 
|4.10        |  | Registration Rights Agreement, dated as of January 10, 2003, by and among us and the stockholders listed therein (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to our
Current Report on Form 8-K/A, filed on January 16, 2003).            
|            | 
|4.13        |  | Registration Rights Agreement, dated as of January 30, 2004, by and among us, Local Fiber, L.L.C. and gateway.realty.new jersey.llc (incorporated by reference to Exhibit 4.1 to our
Current Report on Form 8-K, filed on February 6, 2004).              
|            | 
|4.14        |  | Registration Rights Agreement, dated as of January 30, 2004, by and among us and the stockholders listed therein (incorporated by reference to Exhibit 4.2 to our Current Report on Form
8-K, filed on February 6, 2004).                                 
|            | 
|4.16        |  | Warrant Agreement by and between 60 Hudson Owner LLC (successor to Westport Communications LLC) and us, dated as of October 29, 2004 (incorporated by reference to Exhibit 4.27 to
our Annual Report on Form 10-K, filed on March 30, 2005).              
|            | 
|4.17        |  | Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 4.28 to our Annual Report on Form 10-K, filed on March 30, 2005).                                                                                                          
|            | 
|4.18        |  | Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 4.29 to our Annual Report on Form 10-K, filed on March 30, 2005).                                                                                                       
|            | 
|4.19        |  | Form of Restricted Stock Agreement (incorporated by reference to Exhibit 4.30 to our Annual Report on Form 10-K, filed on March 30, 2005).                                                                                                                
|            | 
|4.20        |  | Registration Rights Agreement, dated March 22, 2006, by and among us and the entities identified therein as the Banks (incorporated by reference to Exhibit 4.31 to our Annual Report on
Form 10-K, filed on March 30, 2006).                             
|            | 
|4.21        |  | Registration Rights Agreement, dated March 22, 2006, by and among us and the entities identified therein as the Investors (incorporated by reference to Exhibit 4.32 to our Annual Report
on Form 10-K, filed on March 30, 2006).                         
|            | 
|4.22        |  | Warrant Agreement, dated March 22, 2006, by and among us and the entities identified therein as the Banks (incorporated by reference to Exhibit 4.33 to our Annual Report on Form 10-K,
filed on March 30, 2006).                                         



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|            |  |                                                                                                                                                                                                                                                                                                                         
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Name                                                                                                                                                                                                                                                                                                            
|4.23        |  | Form of Warrant to purchase our Common Stock at a purchase price of $2.64 per share, issued in connection with the Common Stock Purchase Agreement, dated March 22, 2006 (incorporated by
reference to Exhibit 4.34 to our Annual Report on Form 10-K, filed on March 30, 2006).                                        
|            | 
|4.24        |  | Form of Warrant to purchase our Common Stock at a purchase price of $2.64 per share, issued in connection with the Twentieth Amendment to the Amended and Restated Credit Agreement, dated as
of March 22, 2006 (incorporated by reference to Exhibit 4.35 to our Annual Report on Form 10-K, filed on March 30, 2006). 
|            | 
|10.1        |  | Office Lease Agreement, between Hudson Telegraph Associates and us, dated as of February 17, 1998 (incorporated by reference to our Quarterly Report on Form 10-QSB, filed on
November 16, 1998).                                                                                                                       
|            | 
|10.2        |  | Agreement of Lease, between 570 Lexington Company, L.P. and us, dated as of August 3, 1998 (incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-QSB filed on
May 15, 1998).                                                                                                                    
|            | 
|10.3**      |  | Private Network Agreement, dated as of November 30, 1999 between us and Metromedia Fiber Network Services, Inc. (incorporated by reference to Exhibit 10.9 to our Annual Report on Form
10-KSB, filed on March 30, 2000).                                                                                               
|            | 
|10.4        |  | Master Purchase Agreement, dated as of December 31, 1999 between us and Nortel Networks Inc. (incorporated by reference to Exhibit 10.16 to our Registration Statement on Form S-1, filed
on September 8, 2000).                                                                                                        
|            | 
|10.5        |  | Lease Agreement, dated February 29, 2000 between 111 Eighth Avenue LLC and us (incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-KSB, filed on March 30,
2000).                                                                                                                                
|            | 
|10.6        |  | Assignment and Assumption Agreement, dated as of August 11, 2000 by and between us and FiberNet Operations, Inc. (incorporated by reference to Exhibit 10.2 to our Current Report on Form
8-K, filed on August 15, 2000).                                                                                               
|            | 
|10.7        |  | Amendment Number 1 to Master Purchase Agreement, effective as of June 22, 2000 between us and Nortel Networks Inc. (incorporated by reference to Exhibit 10.50 to our Registration
Statement on Form S-1, filed on September 8, 2000).                                                                                  
|            | 
|10.8        |  | Agreement of Lease, between 60 Hudson Owner LLC (successor to Westport Communications, LLC) and us, dated as of April 1, 2001, including amendments dated January 30,
2002, November 7, 2002 and April 1, 2003 (incorporated by reference to Exhibit 10.57 to our Quarterly Report on Form 10-Q, filed on May 12, 2003).
|            | 
|10.9        |  | Amendment of Lease, between 60 Hudson Owner LLC (successor to Westport Communications, LLC) and us, dated as of October 31, 2003 (incorporated by reference to Exhibit 10.58 to our
Quarterly Report on Form 10-Q, filed on November 12, 2003).                                                                         
|            | 
|10.10       |  | Asset Purchase Agreement, dated as of December 31, 2003, by and among us, Local Fiber, LLC and gateway.realty.new jersey.llc (incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K, filed on February 6, 2004).                                                                                  
|            | 
|10.11       |  | Common Stock Purchase Agreement, dated as of January 30, 2004, by and among us and certain investors listed therein (incorporated by reference to Exhibit 10.2 to our Current Report on
Form 8-K, filed on February 6, 2004).                                                                                           
|            | 
|10.12       |  | Amendment of Lease, by and between Hudson Telegraph Associates, L.P. and FiberNet Equal Access LLC, dated as of October 29, 2004 (incorporated by reference to Exhibit 10.65 to our Annual
Report on Form 10-K, filed on March 30, 2005).                                                                               



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|            |  |                                                                                                                                                                                                                                                                                         
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Name                                                                                                                                                                                                                                                                            
|10.13*      |  | Executive Compensation Arrangements (incorporated by reference to Exhibit 10.72 to our Annual Report on Form 10-K, filed on March 30, 2005).                                                                                                                                            
|            | 
|10.14       |  | Common Stock Purchase Agreement, dated as of March 22, 2006, by and among us and each of the purchasers identified therein (incorporated by reference to Exhibit 10.83 to our Annual
Report on Form 10-K, filed on March 30, 2006).                                                     
|            | 
|10.15       |  | First Amendment to the Asset Purchase Agreement, dated as of March 22, 2006, by and among us, Local Fiber, LLC and gateway.realty.new jersey.llc. (incorporated by reference to Exhibit
10.84 to our Annual Report on Form 10-K, filed on March 30, 2006).                              
|            | 
|10.16*      |  | Change in Control Plan (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed on November 2, 2006).                                                                                                                                                     
|            | 
|10.17       |  | Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q, filed on November 2, 2006).                                                                                                                                         
|            | 
|10.18       |  | Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q, filed on November 2, 2006).                                                                                                                                   
|            | 
|10.19       |  | Amendment of Lease, between 60 Hudson Owner LLC (successor to Westport Communications LLC) and us, dated as of January 11, 2007 (incorporated by reference to Exhibit 10.20 to our Annual
Report on Form 10-K, filed on April 2, 2007).                                                 
|            | 
|10.20       |  | Amendment of Lease, between 60 Hudson Owner LLC (successor to Hudson Telegraph Associates, L.P., formerly known as Hudson Telegraph Associates) and us, dated as of March 1, 2007
(incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on March 6, 2007).
|            | 
|10.21       |  | Amendment of Lease, between 60 Hudson Owner LLC (successor to Westport Communications LLC) and us, dated as of March 2, 2007 (incorporated by reference to Exhibit 10.22 to our Annual
Report on Form 10-K, filed on April 2, 2007).                                                    
|            | 
|10.22       |  | Credit Agreement between CapitalSource Finance LLC and us, dated as of March 21, 2007 (incorporated by reference to Exhibit 10.23 to our Annual Report on Form 10-K, filed on
April 2, 2007).                                                                                           
|            | 
|10.23       |  | Amendment of Lease, between 60 Hudson Owner LLC (successor to Westport Communications LLC) and us, dated as of April 4, 2007 (incorporated by reference to Exhibit 10.1 to our Quarterly
Report on Form 10-Q, filed on May 15, 2007).                                                   
|            | 
|10.24*      |  | 2003 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on July 11, 2007).                                                                                                                                           
|            | 
|10.25       |  | Amended and Restated Credit Agreement between CapitalSource Finance LLC and us, dated as of November 7, 2007 (incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K,
filed on November 8, 2007).                                                                  
|            | 
|10.26*      |  | Amended and Restated 2007 Board of Directors Compensation Plan as adopted on August 20, 2007 (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed on
November 8, 2007).                                                                               
|            | 
|10.27*      |  | Amended and Restated 2008 Board of Directors Compensation Plan as adopted on July 29, 2008 (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed on
August 5, 2008).                                                                                   



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|            |  |                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Name                                                                                                                                                                                               
|10.28       |  | Sublease Agreement between Esquire Deposition Services, LLC and us dated as of October 7, 2008 (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed on
October 30, 2008).
|            | 
|14          |  | Corporate Code of Conduct and Ethics (incorporated by reference to Exhibit 14 to our Annual Report on Form 10-K, filed on March 30, 2004).                                                                 
|            | 
|16.1        |  | Deloitte & Touche LLP Acknowledgement Letter (incorporated by reference to Exhibit 16.1 to our Current Report on Form 8-K, filed on July 13, 2007).                                                        
|            | 
|23.1***     |  | Consent of AccountantsFriedman LLP.                                                                                                                                                                       
|            | 
|31.1***     |  | Certification of Principal Executive Officer.                                                                                                                                                              
|            | 
|31.2***     |  | Certification of Principal Financial Officer.                                                                                                                                                              
|            | 
|32.1***     |  | Section 906 Certification.                                                                                                                                                                                 



|* | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------

|** | Confidential treatment has been requested for portions of this exhibit. These portions have been omitted and filed separately with the Commission.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------

|*** | Filed herewith.
|--- | ---------------



64



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##### Table of Contents

SIGNATURES

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



| |  |                              |  |                                      
| |  | ---------------------------- |  | -------------------------------------
| |  | FIBERNET TELECOM GROUP, INC.
| |  |                             
| |  | By:                          |  | /s/    JON A.
DELUCA                 
| |  | Name:                        |  | Jon A. DeLuca                        
| |  | Title:                       |  | President and Chief Executive Officer
| |  |                             
| |  | Date:                        |  | March 18, 2009                       

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



|                                                           |  |                                                                                  |  |               
|---------------------------------------------------------- |  | -------------------------------------------------------------------------------- |  | --------------
|Name                                                       |  | Title                                                                            |  | Date          
|/s/    JON A.
DELUCA Jon A. DeLuca                         |  | Director, President and Chief Executive Officer (Principal Executive Officer)    |  | March 18, 2009
|                                                           |  |                                                                                 
|/s/    CHARLES S.
WIESENHART JR. Charles S. Wiesenhart
Jr. |  | Chief Financial Officer and Vice President-Finance (Principal Financial Officer) |  | March 18, 2009
|                                                           |  |                                                                                 
|/s/    ROBERT E. LABLANC
Robert E. LaBlanc                 |  | Director, Chairman                                                               |  | March 18, 2009
|                                                           |  |                                                                                 
|/s/    RICHARD E. SAYERS Richard E. Sayers                 |  | Director, Vice Chairman                                                          |  | March 18, 2009
|                                                           |  |                                                                                 
|/s/    TIMOTHY P. BRADLEY Timothy P. Bradley               |  | Director                                                                         |  | March 18, 2009
|                                                           |  |                                                                                 
|/s/    OSKAR BRECHER Oskar Brecher                         |  | Director                                                                         |  | March 18, 2009
|                                                           |  |                                                                                 
|/s/    ADAM M. BRODSKY Adam M. Brodsky                     |  | Director                                                                         |  | March 18, 2009
|                                                           |  |                                                                                 
|/s/    ROY (TREY) D. FARMER
III Roy (Trey) D. Farmer III   |  | Director                                                                         |  | March 18, 2009
|                                                           |  |                                                                                 
|/s/    MICHAEL S. LISS Michael S. Liss                     |  | Director                                                                         |  | March 18, 2009
|                                                           |  |                                                                                 
|/s/    CHARLES J. MAHONEY Charles J. Mahoney               |  | Director                                                                         |  | March 18, 2009



65