<PAGE>

                       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, 2001

                                       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        (I.R.S. Employer Identification No.)
    Incorporation or Organization)

          570 Lexington Avenue, New York, NY              10022
       (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: None

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

                     Common Stock, par value $.001 per share
                                (Title of Class)

         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 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 definite proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         The aggregate market value of the registrant's voting stock held by
non- affiliates of the registrant (without admitting that any person whose
shares are not included in such calculation is an affiliate) on February 25,
2002, was $6,629,204, based on the last sale price as reported by the Nasdaq
National Market System.

         The number of shares outstanding of the registrant's common stock, as
of February 25, 2002, was 62,246,264 shares of Common Stock, $.001 par value.

                      Documents Incorporated by Reference:

         Portions of the Registrant's Definitive Proxy Statement for its 2002
Annual Meeting of Stockholders are incorporated by reference into Part III of
this report.

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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

Overview

     We deploy, own and operate fiber-optic networks designed to provide
comprehensive broadband connectivity for data, voice and video transmission to
service providers in major metropolitan areas. These networks provide an
advanced, high bandwidth fiber-optic solution to support the demand for network
capacity in the local loop. We provide optical transport within and between
carrier hotels, which are facilities where service providers exchange and route
communications traffic, as well as optical transport from carrier hotels to
tenants in commercial office buildings. Our networks support multiple
transmission protocols including synchronous optical network, or SONET,
Ethernet, Frame Relay, asynchronous transfer mode, or ATM and Internet Protocol,
or IP. We are currently operating in the three gateway markets of New York,
Chicago and Los Angeles.

Industry Background

Increased Communications Traffic and Demand for Network Capacity

     Over the past several years, there has been significant growth in the use
of communications services, including Internet access, electronic commerce,
streaming video and virtual private networks. As a result of the deregulation of
the communications industry, these broadband applications are being provided by
a number of new service providers. This rapid increase in bandwidth intensive
data applications and providers of these services has resulted in additional
demand for transmission capacity on communications networks and additional
significant capacity to the national telecom infrastructure. In addition, more
businesses are relying on communications services to conduct mission critical
operations, increasing the need for greater network reliability, security and
speed.

     In the past year, however, general economic weakness has severely impacted
the telecom industry in particular. The expected demand for broadband
connectivity has not been realized in many segments of the market. As a result
there has been an industry-wide slowdown in capital spending and a large number
of industry related bankruptcy filings, which have contributed to the financial
distress that many companies in the communication industry are currently
experiencing.

The Local Loop Bottleneck

     The deployment of communications network infrastructure consists of two
separate segments.

     Long-Haul Networks. Demand for transmission capacity was initially most
acute between metropolitan areas. As a result, long-haul fiber-optic networks
were built to function as transport links for vast amounts of traffic between
metropolitan locations worldwide. Communications traffic is aggregated at the
edge of metropolitan networks and transferred onto long-haul networks for
transmission to other metropolitan points. These long-haul networks typically
terminate at carrier hotels in metropolitan locations, where traffic is routed
onto local metropolitan networks.

     Local Loop Networks. The role of networks in metropolitan areas is to
transport large volumes of traffic delivered by long-haul networks, as well as
traffic generated in the local loop, between carrier interconnection points and
end-user locations. Existing metropolitan networks mainly consist of copper
infrastructure installed by incumbent local exchange carriers, or ILECs, and
regional Bell operating companies, or RBOCs. These legacy networks were built
for voice traffic and cannot support the increasing volumes of data intensive
traffic being generated in the local loop. This same infrastructure was deployed
to connect the central equipment rooms of commercial office buildings to
metropolitan networks and to provide connectivity within buildings, from central
equipment rooms to the individual tenant offices. In contrast to this legacy
infrastructure, most tenants within individual commercial offices have deployed
high-capacity local area networks, or LANs, which have abundant network
capacity.

     There are numerous technically complex issues involved in building out
local loop networks to increase capacity and extend connectivity in metropolitan
areas:

     .    Diverse traffic. Data on local loop networks is generated by a large
          number of end-users served by a variety of service providers. As a
          result, metropolitan traffic is transmitted in multiple protocols
          using different technology platforms.

     .    Complex architecture. The infrastructure of local loop networks must
          reach a multitude of locations to access end-users in dense urban
          areas.

     .    Rights of way. Installing fiber-optic networks requires the use of
          numerous rights of way, which are controlled by many different public
          and private entities in each metropolitan area.

     These complexities have impeded the deployment of additional bandwidth
capacity in the local loop. As a result, a bottleneck has developed in many
major metropolitan areas. This bottleneck is the result of insufficient network
capacity starting at the carrier interconnection point, which is the entry point
to the local loop, and extending all the way to the tenants' LANs in office
buildings.

Needs of Metropolitan Service Providers

     Service providers are seeking a local loop network that allows them to
rapidly and cost-effectively provide their communications services to end-users.
In particular, they seek:

     End-to-End Fiber Connectivity. Service providers establish points of
presence for their networking equipment in metropolitan areas. Network
connectivity must extend from these points of presence directly to the end-users
of their communications services. In addition, service providers need to
interconnect with other service providers to exchange communications traffic.

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         Carrier Neutral Transport Services. Traditionally, service providers
have relied on ILECs and RBOCs for metropolitan transport. However, in addition
to providing network transport, both the ILECs and RBOCs provide communications
services directly to end-users. This puts service providers at a competitive
disadvantage. Unless these service providers undertake the time-consuming and
costly construction of their own proprietary networks, they are dependent on
their competitors' networks for transport.

         Advanced, High-Capacity Network. Service providers desire a broadband
network with the highest possible transmission capacity to ensure the speed of
their service. Further, in order to offer a full range of services, providers
are seeking a network that can incorporate multiple transmission protocols and
new technologies. To ensure the quality of these services, providers also
require reliable and secure connectivity.

         Rapid Provisioning of Services. Service providers need a network
provider that has lit network elements and the necessary advanced network
management systems to rapidly provision circuits. Currently, much of the fiber
in metropolitan networks is dark fiber, which is inoperative until lit by
installing optical networking equipment. Lighting dark fiber can be expensive
and time consuming. Service providers can significantly decrease the time and
cost to provision services to end-users by obtaining capacity from a network
provider that offers lit network capacity.

Needs of Building Owners

         In-Building Communications Infrastructure. We believe that having
technologically advanced communications infrastructure in a commercial office
building may give property owners a sales advantage in attracting and retaining
quality tenants and increases the market value of the building. Many tenants in
commercial office buildings are sophisticated, bandwidth-intensive enterprises.
We believe that building owners may need to provide state-of-the-art
communications infrastructure capable of delivering high-bandwidth
communications services for these tenants. The communications infrastructure
should be readily accessible to all tenants without limiting their choice of
service providers.

         Overall Management of Communications Infrastructure. While upgrading
the communications infrastructure and maximizing tenant choice for broadband
services is a priority for building owners, the overall management of this
process is time consuming and complicated. Many building owners desire a partner
to manage the process of upgrading the infrastructure and the relationships with
individual service providers seeking access to the tenants in the building.

         Some service providers have provided a partial solution to building
owners' needs by entering into contractual agreements to upgrade existing
in-building communications infrastructures. These arrangements typically allow
the service provider to install its proprietary network in the building and
provide retail communications services to the tenants. While this is one method
of developing in-building infrastructure, it can potentially make tenants
captive to a single broadband service provider, which may be undesirable for
both tenants and the building owners. We believe that it would be preferable for
a third party to install an in-building communications infrastructure,
accessible to all service providers wanting to provide communications services
to the building's tenants.

Our Solution

         We are focused on owning and operating fiber-optic networks that
provide superior carrier neutral capacity to service providers in metropolitan
areas, replicating and expanding the geographic and physical penetration of the
ILECs' networks. We are designing, installing and operating local loop networks
to provide wholesale end-to-end, broadband connectivity that is scalable,
reliable and secure. In these and other markets, we also enter into strategic
partnerships with building owners and managers pursuant to which we manage the
communications access and infrastructure in their buildings. The following are
key elements of our solution:

         Full Range of Services. In our markets, our carrier point facilities,
metropolitan transport networks and FiberNet in-building networks, or FINs, will
offer service providers cost-effective access to complete optical local loop
networks. Our carrier-to-carrier transport services provide fiber-optic
connectivity to carriers between and within carrier hotels. Our
carrier-to-customer transport services provide fiber-optic transport between
carrier points and on-net buildings in which we have deployed our FINs. By
offering both of these transport services, we believe that we can meet a service
providers' end-to-end connectivity needs.

         In addition, we provide access management services to property owners
and managers of buildings that are not on our metropolitan transport network,
which we refer to as our off-net buildings. In these buildings we deploy network
infrastructure and coordinate service providers' access to that infrastructure.
In addition, we provide ongoing management services that enable building owners
to outsource the management of their communications infrastructure and services.

         We also offer colocation services at certain of our carrier point
facilities and on-net and off-net buildings. Colocation refers to the ability of
a carrier to locate its networking equipment in another carrier's facilities.
These colocation facilities provide service providers with a network
interconnection point where they can terminate their traffic and transfer it
onto our high-capacity networks.

         State-of-the-Art Network Architecture. In order to provide high quality
local loop network services to our customers, we are deploying what we believe
to be the most advanced all-optical local loop network architecture available.
Features of this state-of-the-art network architecture include:

         .     the use of optical networking equipment that can transmit data at
               the highest speeds currently commercially available;


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

         .     an open architecture that supports new broadband technologies and
               multiple transmission protocols, including SONET, Ethernet,

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                   Frame Relay, ATM and IP, to meet our service provider
                   customers' evolving demands;

              .    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; and

              .    optical networks that enable our customers to monitor
                   services on our networks as if the networks were their own.

         Rapid Provisioning of Services. Our optical local loop network gives us
the ability to remotely provision new circuits within ten 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' growing 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 work with us.

         Superior Value Proposition for Property Owners. We manage the
communications infrastructure in our on-net and off-net buildings. We provide
significant value to property owners by ensuring that each of these buildings
has a readily accessible communications infrastructure that supports broadband
communications solutions, such as high-speed Internet access and streaming
video. Our in-building communications infrastructure and access management
services are appropriate for properties of varying size, class and location and
provide a comprehensive solution to owners of real estate portfolios. Owners of
both our on-net and off-net buildings benefit from the increased desirability of
their buildings to existing and prospective tenants. Further, offering our
services on a wholesale basis allows tenants a range of alternatives in their
choice of service providers.

Our Strategy

         Our goal is to be the preferred facilities-based provider of wholesale
metropolitan fiber-optic network capacity in our markets. We intend to serve
select, commercial office properties and major carrier hotels in our markets
with carrier neutral, end-to-end, optical connectivity that enables our
customers to provide next generation services and applications to end-users and
to rapidly interconnect their own networks. Our strategy for achieving these
goals includes the following key elements:

         Establish our position as a leading provider of connectivity to carrier
hotels. We have deployed fiber optic transport infrastructure in ten major
carrier hotels in New York City, four major carrier hotels in Los Angeles and
one major carrier hotel in Chicago. By establishing our presence in multiple
carrier hotels, we hope to expand the geographic reach of our networks and
increase the size of our addressable market. 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.

         Develop our position as a leading operator of meet-me-rooms within
carrier hotels. We intend to open meet-me-rooms in major carrier hotels to
provide our carrier customers with a central location to cross connect with one
another in a secure, rapid and cost-efficient manner. To date, we have
established a meet-me room in 60 Hudson Street, one of the premier carrier
hotels in the world.

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

         .    our carrier-neutral position;

         .    our open architecture that supports multiple transmission
              protocols;

         .    our ability to provide services to multiple broadband carriers,
              including long-haul fiber providers, wireless carriers and
              building local exchange carriers, or BLECs, in our on-net and
              off-net buildings;

         .    our rapid provisioning time;

         .    our ability to increase transport capacity rapidly to meet our
              customers' needs; and

         .    the carrier-class reliability of our networks.

         We believe that due to our wholesale strategy we have a broader
potential customer base than our competitors. Our potential customers include
ILECs, RBOCs, competitive local exchange carriers, or CLECs, BLECs,
inter-exchange carriers, or IXCs, Internet service providers, or ISPs,
application service providers, or ASPs, and integrated communications providers,
or ICPs. We intend to strengthen our relationships with our existing customers
and actively market our service offerings to this broad range of new customers.
As of December 31, 2001, we had 88 customers, including 360networks,
Arbinet-thexchange, AT&T, BellSouth, Broadwing, Cogent Communications, Con
Edison Communications, Deutsche Telekom, Dynegy, Flag Telecom, France Telecom,
Genuity, Level 3, Network Plus, NTT/Verio, Qwest, Sprint, Universal Access,
Verizon, Winstar, XO Communications and Yipes.

         Develop the platforms that enable our customers to offer new
revenue-generating communications services to their end-users. We believe that
as technology continues to develop, there will potentially be opportunities for
our customers to provide new services. To keep pace with this anticipated
demand, we will 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 networks to improve
performance and decrease the cost of operating our network.

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Our Services

         Our services are designed to provide communications transport and
colocation within our markets, and communications access management and
infrastructure in markets nationwide:

Transport

         Our transport services consist of T-1 through OC-192 circuits, 10
Base-T, 100 Base-T and gigabit Ethernet connections and optical wavelengths. We
also offer vertical dark fiber in certain of our carrier hotel facilities and
our on-net and off-net buildings.

         Carrier-to-Carrier Transport. We provide carrier-to-carrier transport
by building optical transport facilities within and between carrier hotels. We
offer carrier-to-carrier connectivity ranging from transport between floors of a
carrier hotel, to comprehensive connectivity between carrier hotels within a
metropolitan area.

         Carrier-to-Customer Transport. Our carrier-to-customer transport
services provide our customers with connectivity from the carrier hotels where
their communications traffic is aggregated to their end-user customers in our
on-net buildings. We transport their data from carrier hotels, via our
metropolitan transport networks, to the central equipment rooms that we
establish in the basements of our on-net buildings. Once in the central
equipment room, the data is transferred from our metropolitan transport network
onto our FIN and routed to the appropriate floor of the on-net building, where
the end-user is located.

         Meet-Me-Room Cross Connections. At 60 Hudson Street, one of the premier
carrier hotels in the world, our meet-me-room provides a centralized,
carrier-class cross connection facility. This facility enables us to offer our
customers a single room within the carrier hotel where they can cross connect
with one another in a secure, rapid and cost-effective manner.

Colocation

         In select carrier hotels and buildings, we offer our customers racks,
cabinets, or cages where they can locate their networking equipment. We also
offer ancillary services, including AC/DC power, fire protection, security,
network maintenance and heating, ventilation and air conditioning, or HVAC.

Communications Access Management

         In certain on-net and off-net buildings, we obtain the exclusive right
to manage the communications access and infrastructure for the buildings. We
then enter into agreements with service providers giving them non-exclusive
rights to provide services to tenants in the buildings. The term of our
contracts with service providers typically ranges from one month to one year.

Network Design and Architecture

         We have and will continue to design, develop and construct networks for
carrier-to-carrier and carrier-to-customer transport in our markets. Our
networks have five components: carrier point facilities, meet-me-rooms,
metropolitan transport networks, FINs and a NOC.

Carrier Point Facilities

         Carrier point facilities are environmentally controlled, secure sites
within a carrier hotel, 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 local loop networks and provide transport services to them. In addition to
utilizing our carrier point facilities to interconnect with service providers,
we also offer colocation and other ancillary services at certain of these
facilities.

         Our primary carrier point facilities in New York City are located in 60
Hudson Street and 111 8th Avenue. We have established eight other secondary
carrier point facilities in New York City, Long Island and New Jersey, which we
have connected to both 60 Hudson Street and 111 8th Avenue via our metropolitan
transport networks. Our primary carrier point facility in Chicago is located at
600 South Federal Street, and our primary carrier point facility in Los Angeles
is located at 707 Wilshire Boulevard. Until recently, we had five secondary
carrier point facilities in Los Angeles. Due to the economic slowdown and a
rationalization of our facilities and network infrastructure, we have recently
closed two of these facilities. 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. Although we have no present plans to add additional carrier
point facilities, 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. The cost of constructing a primary
carrier point facility generally ranges from $3 million to $5 million, and a
secondary carrier point facility, without colocation facilities, generally
ranges from $500,000 to $1.5 million. In certain of our secondary carrier point
facilities, we have colocated in other carriers' facilities.

Meet-Me-Room

         Our meet-me-room at 60 Hudson Street offers standardized colocation
cabinets and customized cages for carriers to house their mission critical
telecommunications equipment in a secure, environmentally controlled
environment. All of the colocation units are connected to a central

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cross connection area within the 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 meet-me-room have access to our vertical in-building
network within 60 Hudson Street and to our metropolitan transport network, which
connects them with other carrier hotels and our on-net buildings. We are
exploring opportunities to develop additional meet-me-rooms in 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 carriers for the
transport of traffic in the out-of-building local loop. We light the dark fiber
in ring configurations with optical networking gear, establishing connectivity
between carrier point facilities and our on-net buildings.

         Our existing metropolitan transport networks consists of OC-48 and
OC-192 SONET rings deployed in midtown Manhattan, downtown Manhattan, New
York/Long Island, New York/New Jersey, Chicago and Los Angeles. In the future,
we may establish additional metropolitan transport networks in additional
markets, if we determine that there is a need for additional capacity.

         Our networks typically transmit data at 2.5 gigabits per second, or
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 32 different wavelengths of light on a
single fiber, therefore enabling the transmission of up to 32 times more
information on an existing fiber-optic strand.

FiberNet In-Building Networks

         Our FIN is an advanced central distribution network that we deploy in
our on-net buildings to provide communications transport within the building. We
have a team of highly trained and experienced communications professionals and
engineers that design and oversee the installation of our FINs. This team
performs a thorough analysis of each commercial building that we have targeted,
including an assessment of available space to house equipment in the building
and install fiber cables in the vertical shafts, or risers, the adequacy of the
power supply, and the diversity of fiber-optic entrance conduits from our
metropolitan transport network. The standard design specifications for our FINs
are then tailored to each building. After a thorough evaluation process we
select a bonded and licensed general contractor to perform construction. A
member of our engineering staff oversees all of the construction in order to
maintain and enforce our strict construction standards.

         The total cost for installing a FIN typically ranges from approximately
$400,000 to $1,000,000. 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 and expandable and able
to meet the needs of our customers. To date, we have constructed our FINs in 20
buildings in New York and Chicago. We are not currently considering the
deployment of additional FINs.

    Our in-building fiber-optic network infrastructure consists of:

    .    Direct and diverse routing to metropolitan transport network. Our
         metropolitan transport network enters an on-net building at one or two
         discrete points and interconnects with the FIN in our central equipment
         room in the basement of the building. Diverse routing and
         interconnection in the building basement enables the seamless transfer
         of traffic between the FIN and our high-bandwidth metropolitan
         transport network. We offer dedicated bandwidth without
         over-subscription directly between the tenants' premises and the
         carrier point facilities, so that our customers avoid congestion or a
         bottleneck, as traffic is transmitted from our FINs to our
         out-of-building metropolitan transport networks.

    .    Central equipment room. We usually lease approximately 100 to 1,500
         square feet in the basement of our on-net buildings to establish a
         central equipment room, where we install and manage communications
         networking equipment. Here we connect the FIN to our metropolitan
         transport network, linking the on-net building to all of our other
         points of presence. The equipment in this facility aggregates and
         disseminates traffic to and from the building. The central equipment
         rooms are built to our carrier point specifications with power supplies
         and HVAC systems for environment control.

    .    Redundant, vertical riser system. We configure, install, own and manage
         a fiber-optic network in the building's vertical riser system. We
         believe our FINs are designed to ensure reliability and scalability. By
         deploying over one hundred strands of fiber in dual risers, our FINs
         allow for redundant fiber paths in a ring architecture. Our FINs
         generally extend from the central equipment room in the basement of the
         building throughout the building.

Network Operations Center

         We monitor and manage traffic on our networks from our NOC located in
Newark, New Jersey using Portal, Preside and MetaSolv TBS software. Our NOC
enables us to provision circuits 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, 7 days a week. Our
customers are also able to monitor their traffic on our networks using our
network management technology.

Real Estate

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         On-net buildings. In buildings that we have identified as on-net
buildings, we sign a license agreement with the building owner or manager for
the installation of a FIN. Our licenses generally give us the exclusive right to
install and operate a central distribution system to provide wholesale transport
services in the building. However, ILECs and RBOCs may resell their existing
infrastructure, which they have the right to upgrade, in the building, and other
communications providers may deploy their own infrastructure to provide retail
services to any tenant requesting services from the provider. In addition, in
some instances service providers may have pre-existing license agreements in our
buildings, which allow these providers to install and possibly expand their
network infrastructure in our buildings. Our typical on-net license agreement
has an initial term of 15 years, with renewal options of up to 10 years. We have
installed FINs in 20 on-net buildings. We have licenses to build FINs in a total
of 35 buildings, although we do not presently plan on installing any additional
FINs.

         Off-net buildings. In buildings that we select as off-net buildings, we
enter into license agreements with the owners or managers for the exclusive
right to manage access and infrastructure in the building. The agreement does,
however, allow for the continuation of any pre-existing communications service
agreements between the building owner or manager and other communications
providers for the installation of communications networks in the building. Our
typical off-net license agreement is for an initial term of five years, with
renewal options of up to 15 years. Once the license agreement has been executed,
we enter into agreements with communications service providers, giving them
non-exclusive access to provide services in the building. We currently have
contracts to manage the communications infrastructure in approximately 165
off-net buildings, after recently terminating our agreements for approximately
20 other off-net buildings that we determined were no longer economically
viable.

Sales and Marketing Strategy

         Sales. We sell network access to other service providers through our
direct sales force. Our sales team is comprised of representatives that have
significant expertise in, and knowledge of, the wholesale communications market.
Several of our sales representatives have had extensive work experience with
British Telecom, AT&T and other major carriers. By using a direct sales
strategy, we provide the personal attention and high quality of service that our
customers require.

         Marketing. Our marketing strategy is focused on building relationships
with our customers, our real estate partners, and tenants in our on-net and
off-net buildings. We believe that all segments benefit from targeted
advertising, 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:

         .   Service Providers. We support industry organizations, participate
             in conferences, tradeshows and seminars, prepare personalized
             presentations and engage in direct marketing.

         .   Real Estate Community. We belong to and sponsor membership
             associations, trade shows, conferences and other special events.

         .   Tenant Appreciation Programs. We circulate a quarterly newsletter
             to tenants in our buildings, and co-sponsor in-building events with
             carriers that sell directly to tenants. We believe that if tenants
             are aware of the capacity, reliability and security of our FINs,
             they will be more likely to select carriers using our networks to
             provide their communications services.

Customers

         We have a broad target customer base that includes ILECs, RBOCs, CLECs,
IXCs, ISPs, ASPs and ICPs. Our technologically advanced fiber-optic
infrastructure meets the needs not just of small- and medium-sized business
end-users, but also large corporate end-users. This expands the size of our
addressable market beyond that of traditional CLECs, which are generally focused
on the small- and medium-sized business market opportunity. We enter into
contracts with our customers with terms ranging from one month to five years.

         During the recent downturn in the telecommunications industry, a large
number of our customers have experienced significant financial distress.
Customers that have filed for bankruptcy include 360networks, Advanced Radio
Telecom, Arch Communications, Ardent Communications, Enron Broadband Services,
Espire Communications, Global Broadband, Global Crossing, iaxis, Network Plus,
Teligent and Winstar. In addition, we believe that other customers may file for
bankruptcy in the future.

Transport and Colocation Customers

         We target service providers seeking cost-effective, flexible, reliable,
broadband network connectivity in the local loop. The increase in communications
traffic and data intensive applications and the deregulation of the
telecommunications industry has resulted in rapid growth in the number of
service providers operating in the local loop market. Many of these providers do
not have their own metropolitan networks and rely on us for transport in the
local loop. Our customer base also includes providers that have their own local
networks, but do not have sufficient bandwidth to meet their customers' needs or
are seeking shorter installation intervals and will benefit from our faster
provisioning times. We also generate transport-traffic through agreements with
our colocation customers. Typically, if a service provider colocates its
networking equipment at our facilities, our agreement with them will include a
minimum commitment to use our transport services.

         Our transport and colocation customers are typically:

         .   service providers that have significant bandwidth demands between
             carrier points for the aggregation of their network traffic. These
             customers need to interconnect high-capacity circuits with other
             service providers' networks. These carriers typically include
             national and international long-haul carriers;

                                       6

<PAGE>

         .   service providers requiring connectivity to their retail customers
             in our on-net buildings; and

         .   service providers requiring a secure technical operating
             environment in which to locate their communications and networking
             equipment.

         As of December 31, 2001, our transport and colocation customers
included:

         .   360networks                            .   Genuity
         .   Arbinet-thexchange                     .   Level 3 Communications
         .   Bell Canada                            .   Network Plus
         .   BellSouth                              .   NTT/Verio
         .   Broadwing                              .   Qwest
         .   Deutsche Telekom                       .   Sprint
         .   Dynegy                                 .   Universal Access
         .   FLAG Telecom                           .   Verizon Communications
         .   France Telecom

Access Management Customers

         Our access management customers include facilities-based providers that
want access to our on-net and off-net buildings to provide communications
services to tenants in the building. As of December 31, 2001, our access
customers included:

         .   AT&T                                   .   Teligent
         .   Cogent Communications                  .   Winstar
         .   Con Edison Communications              .   XO Communications
         .   IntelliSpace                           .   Yipes
         .   QwestLink

Competition

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

         Local Telephone Companies. In New York City, Chicago and Los Angeles,
we face significant competition from ILECs and RBOCs, which currently dominate
local communications markets, and CLECs, which are increasing their market
penetration for local communications services. ILECs, including Verizon
Communications, have several competitive advantages over us, which include
established brand names, reputation and significant capital. 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 in the local loop, which competes with our local loop transport
services. Various other competitive communications providers also own
communications infrastructure in the local loop. Some of these carriers
currently compete with us in the market for providing broadband transmission
capacity in the local loop, and such competition may increase in the future.

         Other In-Building Communications Providers. Certain integrated
communications providers are deploying their own network infrastructure in
commercial office properties in our markets to provide communications services
to tenants. These include, but are not limited to, Intermedia, RCN Telecom
Services, Riser Management Corporation, Teligent, Winstar and XO Communications.
These companies build out networks on which they offer only their own services.
Consequently, they could indirectly compete against us by not utilizing our FIN
to gain connectivity to tenants. Additionally, many of these companies are
seeking to establish license agreements with building owners to gain access to
the buildings. Some companies have agreements whereby the building owners will
not allow other communications providers to install a central distribution
system in their buildings. These type of agreements reduce the number of
buildings available for installation of our FINs. We have competed and will
continue to compete with some of these companies for license agreements with
owners of target buildings.

         Metropolitan Network Providers. Many of the leading communications
companies, including AT&T, WorldCom, Sprint, Level 3, Qwest, Time Warner Telecom
and Universal Access, have constructed or are constructing fiber-optic networks
within metropolitan areas. These companies utilize their networks for their own
transmission requirements and in certain circumstances provide excess network
capacity to other carriers. Other communications companies, such as Con Edison
Communications, Metromedia Fiber Network, Looking Glass Networks and Telseon,
build metropolitan dark fiber networks that are leased or sold to other carriers
and large corporate users. In addition, these companies could begin to build
their own in-building networks. We compete directly and indirectly with these
companies in New York City, Chicago and Los Angeles.

         Fixed Wireless Service Providers. We may lose potential customers to
fixed wireless service providers. Fixed wireless service providers can provide
high- speed inter-building communications services using microwave or other
facilities or satellite earth stations on building rooftops. Some of these
providers have targeted small- and medium-sized business customers and have
business strategies that are similar to ours. These providers include Winstar,
Teligent, Sprint, WorldCom and XO Communications.

Our History

                                       7

<PAGE>

         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 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. FiberNet
Telecom, Inc. owns all of the outstanding membership interests in Local Fiber,
L.L.C. and FiberNet Equal Access, LLC, both New York limited liability
companies. We conduct our primary business operations through our operating
subsidiaries, Local Fiber, FiberNet Equal Access and Devnet.

Regulation of FiberNet

General Regulatory Environment

         We are subject to federal, state and local regulations that affect our
product offerings, competition, demand, costs and other aspects of our
operations. The regulation of the communications industry varies from state to
state and is changing rapidly. 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
current or future regulatory, judicial or legislative activities 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 noncompliance with applicable
regulations.

Federal Regulation

         Federal regulation has a great impact on the communications industry
and has undergone major changes in the last five years as the result of the
enactment of the Telecommunications Act of 1996. The Telecommunications Act is
the most comprehensive reform of the nation's communications laws since the
Communications Act was enacted in 1934.

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

         .   telecommunications services or common carriage; and

         .   non-telecommunications services.

         Certain regulations associated with each type of offering are described
below. Although the law establishing regulatory requirements is often unclear,
we expect that our telecommunications services are subject to a lower degree of
federal regulation than those of dominant carriers such as the RBOCs.

Telecommunications Services

         One of our subsidiaries, Local Fiber, is regulated as a
telecommunications carrier because it can provide telecommunications services
directly to the public on a nondiscriminatory basis subject to standardized
rates, terms and conditions. A telecommunications service, as defined by the
Communications Act, means the offering of telecommunications for a fee directly
to the public, or to such class of users as to be effectively available to the
public, regardless of the facilities used. Telecommunications is defined, as the
transmission between and among points specified by the user of information of
the user's choosing without change in the form or content of the information as
sent. Telecommunications carriers are subject to extensive federal, state and
local telecommunications regulation that may impose substantial administrative
and other burdens on operations.

         General Obligations of All Telecommunications Carriers. As a
competitive provider of local telecommunications services, Local Fiber is
subject to federal telecommunications regulation, including, but not limited to:

         .   rate regulation;

         .   reporting requirements;

         .   special assessments;

         .   access charges;

         .   the obligation not to charge unreasonable rates or engage in
             unreasonable practices;

         .   the obligation to not unreasonably discriminate in service
             offerings; and

         .   the obligation to allow resale of regulated telecommunications
             services.

         In addition, telecommunications carriers must contribute to the FCC's
universal service fund, a fund that was established to ensure the

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<PAGE>

availability of affordable basic telecommunications services. The rate of
assessment is approximately 6.8% of gross interstate end-user telecommunications
revenues for the first quarter of 2002, and may be higher in subsequent years.
FCC rules also require that telecommunications carriers contribute to various
other funds.

         Local Fiber is also 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 Communications Act or the FCC's regulations. Certain
statistical reporting requirements may also apply. Although compliance with
these regulatory requirements imposes certain administrative burdens, similarly
situated competitors are subject to comparable regulatory obligations.

         Local Exchange Carrier Regulation. The Telecommunications Act imposes a
number of access and interconnection requirements on telecommunications carriers
and on all local exchange providers, including CLECs, and imposes additional
requirements on ILECs. CLECs compete with the ILECs for local subscribers of
telecommunications services. As discussed under our state regulation section,
Local Fiber provides only local transport services and has obtained
authorization as a CLEC to provide telecommunications services in the state of
New York. However, because of the nature of Local Fiber's service offerings, not
all CLEC obligations will apply to us. As a CLEC in New York, Local Fiber is
subject to the FCC's regulatory structure favoring CLEC entry into the local
market, however, it is also subject to any requirement imposed by the FCC that
is generally applicable to local exchange carrier, or LECs. In addition, LEC
regulations affect us to the extent that they have a direct affect on our
carrier customers.

         All telecommunications carriers must interconnect with the facilities
of other telecommunications carriers and may not install features that will
interfere with the interoperability of networks. Accordingly, all ILECs must
permit their competitors to interconnect with their facilities directly and all
CLECs must permit any other telecommunications carrier to interconnect with
their facilities either directly or indirectly. All LECs, including CLECs, also
have a duty to:

         .    not unreasonably limit the resale of their services;

         .    provide number portability, if technically feasible, which will
              allow a customer to retain its existing phone number if it
              switches its local exchange carrier;

         .    provide dialing parity to competing providers and
              nondiscriminatory access to telephone numbers, directory
              assistance, operator services and directory listings;

         .    provide access to poles, ducts, conduits and rights-of-way; and

         .    establish reciprocal compensation arrangements for the transport
              and termination of communications.

         Other Federal Communications Regulations. In addition to the general
duties of all LECs, ILECs have the following additional duties:

         .    interconnect with any requesting telecommunications carrier at any
              technically feasible point within their networks, on
              nondiscriminatory terms, at prices based on cost (which may
              include a reasonable profit) and provide service equal in quality
              to that provided to their customers or the ILEC itself;

         .    provide any requesting telecommunications carrier unbundled access
              to network elements at any technically feasible point at just,
              reasonable and nondiscriminatory rates, terms and conditions;

         .    offer retail services to a requesting telecommunications carrier
              at wholesale prices;

         .    provide reasonable public notice of changes in the network or the
              information necessary to use the network or which affect
              interoperability; and

         .    provide for physical colocation for requesting telecommunications
              carriers, under certain circumstances.

         Physical colocation is an offering by an ILEC that enables another
telecommunications carrier to enter the ILEC's premises to install, maintain and
repair its own equipment that is necessary for interconnection or access to the
ILEC's network elements.

                The FCC also adopted guidelines for implementing the
interconnection and local competition provisions of the Telecommunications Act.
In order to foster competition in the local exchange market, the FCC required
ILECs to offer access to their communications networks to CLECs at cost-based
rates. All of these regulations affect the growth opportunities for some of our
customers and thus the demand for our services.

         Appeal of the FCC's decision implementing the interconnection and local
competition provisions of the Telecommunications Act have resulted in the review
of certain FCC rules by the U.S. Supreme Court. On January 25, 1999, the Supreme
Court largely reversed an Eighth Circuit decision and reestablished the validity
of many of the FCC rules that earlier had been vacated by the Eighth Circuit.

         On remand from the Supreme Court, the Eighth Circuit issued a decision
on July 18, 2000. The Eighth Circuit's decision, among other things, vacated and
remanded the FCC's rule that forward-looking costs used to calculate the rates
at which ILECs may charge CLECs for network elements be based on the most
efficient network model. The use of a forward-looking cost model was affirmed,
however. The Supreme Court has agreed to hear the appeal of the decision.

         The Supreme Court's January 25, 1999 decision also remanded the list of
network elements ILECs must offer to CLECs to the FCC for

                                       9

<PAGE>

further consideration of the necessity of each one under the statutory standard.
On November 5, 1999, the FCC released an order largely retaining its list of
unbundled network elements, but eliminating the requirement that ILECs provide
unbundled access to local switching for customers with four or more lines in the
densest parts of the top 50 Metropolitan Statistical Areas in most
circumstances, and the requirement to provide operator services and directory
assistance. The FCC further required ILECs to offer dark fiber as an unbundled
network element on both a local loop and interoffice transport basis. This
availability of dark fiber from ILECs as an unbundled network element could be
in addition to other sources of dark fiber already available in the market. In
the event we offer dark fiber service, it is possible that the availability of
dark fiber from ILECs as an unbundled network element could affect the demand
for our services and the pricing of our services.

         The FCC, however, is currently reviewing its policies concerning
unbundled network elements, including whether to modify the list of unbundled
network elements to reduce the number of elements ILECs must offer to
competitors. Moreover, the FCC is currently looking at whether combinations of
unbundled network elements should be made available for the sole or primary
purpose of providing exchange access service. Likewise, in response to a joint
petition filed by the ILECs, the FCC is considering whether to remove high
capacity loops and dedicated transport from the list of unbundled network
elements. The outcome of the FCC's review could adversely affect our ability to
obtain the elements of the ILECs' networks we require to provide service to our
customers. In addition, to the extent our customers buy unbundled network
elements from the ILEC, any court or FCC revisions of the interconnection and
local competition provisions of the Telecommunications Act, including access to
unbundled network elements or pricing, could affect the growth opportunities for
some of our customers and thus demand for our services. On the other hand, the
elimination of high capacity loops and dedicated transport as unbundled network
elements could also enhance our ability to compete because the ILEC will no
longer be required to offer such services at cost.

         As part of its ongoing examination of the competitive marketplace, the
FCC is currently examining several other competition-related issues. First, the
FCC is considering whether to adopt a set of performance measures and standards
that could improve enforcement of ILECs' wholesale obligations under the Act.
Second, the FCC is considering how to regulate broadband services provisioned by
ILECs. Finally, the FCC is looking at the appropriate regulatory treatment under
the Act for a wireline carrier's offering of broadband telecommunications
services bundled with information services. The outcome of these proceedings may
affect the rates, terms or conditions of our service offerings.

         On December 9, 1999, the FCC ordered ILECs to offer line sharing
arrangements that will permit competing carriers to offer digital subscriber
line services over the same copper loop facilities used by the ILECs to provide
voice telephone service. On January 19, 2001, the FCC clarified that line
sharing applies to the entire loop, even where a portion of the loop consists of
fiber facilities. The FCC also ordered ILECs to permit competing carriers to
self-provision or partner with a data carrier. The FCC is currently considering
issues related to line sharing over fiber facilities. The prices that carriers
charge for these line sharing arrangements will be determined by state utility
commissions. If these prices are set at low levels, it could allow our
competitors to offer low-cost alternatives to our service and put downward
pressure on our prices for transport services.

         In addition to the numerous decisions to implement the
Telecommunications Act, in August 1999, the FCC issued an Order that provided
substantial new pricing flexibility to ILECs. The pricing flexibility applies
primarily to special access and dedicated transport. An appeals court recently
upheld the FCC's decision. This ruling will ultimately permit ILECs to utilize
contract arrangements for the provision of dedicated services similar to the way
in which we offer these same types of services. As a result of this new pricing
flexibility for ILECs, we could face greater competition with respect to the
services we provide. The FCC, however, 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.

State Regulation

         The Communications 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 retain jurisdiction to adopt
regulations necessary to preserve universal service, 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
services on a common carrier basis. In most states, telecommunications providers
must also file and obtain prior regulatory approval of tariffs for its regulated
intrastate services. 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. Local Fiber is currently authorized as a CLEC to provide intrastate
services in New York and may seek additional authority in other states. Delays
in receiving required regulatory approvals in other states could also have a
material adverse effect on us. We cannot assure you that regulators or third
parties will not raise material issues with regard to our compliance or
non-compliance with applicable laws or regulations.

         State regulatory commissions generally regulate the rates RBOCs 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 demand for our
services and those that other carriers provide. Under the Communications Act,
state commissions have jurisdiction to arbitrate and review negotiations between
local telephone companies and CLECs regarding the prices local telephone
companies charge CLECs for interconnection 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. A state may also impose
telecommunications taxes and fees for state-level universal service and other
programs on providers of services within that state.

Local Regulation

         In addition to federal and state laws, local governments exercise legal
authority that may affect Local Fiber's operations. For example, local
governments retain the authority to license public rights-of-way, subject to the
limitation that local governments may not prohibit the provision of
telecommunications services. Local authorities affect the timing and costs
associated with the use of public rights-of-way. These regulations may have an
adverse effect on our business to the extent Local Fiber requires access to such
public rights-of-way.

                                       10

<PAGE>

Non-Telecommunications Services

         Our subsidiaries, Equal Access and Devnet are not subject to
telecommunications carrier regulation. Unlike a telecommunications carrier,
Equal Access and Devnet do not hold their offerings out to the public generally
for a fee. Moreover, Equal Access and Devnet do not use public rights-of-way
that may trigger local regulation. Equal Access and Devnet generally enter into
exclusive agreements with building owners to provide or manage intra-building
fiber capacity to telecommunications carriers on a private contractual basis. As
such, Equal Access and Devnet merely provide the in-building capacity over which
telecommunications service providers may provide telecommunications services,
including access to the public telephone system that enables a tenant to reach
any point on the public telephone system. However, certain proposals have been
made before Congress and the FCC that could have an adverse impact on Equal
Access' and Devnet's exclusive contractual rights, in certain buildings, to
provide such capacity.

Regulation of Equal Access and Devnet

         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.

         Equal Access and Devnet generally secure multi-year license agreements
with real estate owners for the exclusive right to lease intra-building fiber
capacity to third parties. Under current FCC regulations, commercial real estate
owners have the right to control wiring within their premises, beyond the
demarcation point at which telecommunications carriers terminate their
facilities. The demarcation point is typically at a minimum point of entry to
the building such as the basement. These 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.
If laws or regulations are enacted that effectively require building owners to
give inside wiring access to all requesting telecommunications providers on
nondiscriminatory terms, Equal Access' and Devnet's ability to secure and
maintain exclusive inside wiring contracts may be inhibited.

         As of December 31, 2001, there was no federal legal requirement that
owners or managers of privately owned commercial office buildings give access to
competitive providers of telecommunications services. However, the FCC is
currently considering such a requirement and these types of requirements have
been adopted in certain states. For example, requirements 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 recently added new 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 recently ruled that carriers cannot enter, 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. 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 have
existing facilities. However, some of these state requirements have been
challenged, and therefore, we cannot predict how these rules will be
interpreted.

         Federal laws and regulations concerning building access have been
considered in the past and may be adopted in the future. On June 10, 1999, the
FCC initiated an inquiry into riser access in multiple tenant environments and
requested comment on the following issues:

         .   the FCC's tentative conclusion that utilities must allow
             telecommunications and cable service providers access to rooftop
             and other rights-of-way and utility shaft conduits in multiple
             tenant environments on just, reasonable and nondiscriminatory
             rates, terms and conditions; and

         .   whether incumbent local telephone companies should make available
             unbundled access to riser cable and wiring within multiple tenant
             environments.

         On October 25, 2000, the FCC released its decision to promote
competition between telecommunication carriers by regulating access to multiple
tenant buildings. The FCC's decision will bar telecommunications carriers from
entering into exclusive contracts with commercial building owners in the future.
Because Equal Access and Devnet are not "telecommunications carriers," the FCC's
decision does not apply to them or their dealings with building owners. The
FCC's decision will also require local exchange carriers and other utilities
within multiple tenant buildings to provide other telecommunications carriers
and cable service providers reasonable and non-discriminatory access to conduits
and rights-of-way located in customer buildings and campuses, to the extent such
conduits and rights-of-way are owned or controlled by the utility. This
requirement will not apply directly to Equal Access or Devnet because they are
not telecommunications carriers or utilities. However, this requirement may
apply to telecommunications carriers and utilities holding separate access
rights to those of Equal Access and Devnet in FiberNet buildings, and it may
also apply to Equal Access' and Devnet's telecommunications carrier customers.
Depending on how these rules are interpreted, these requirements may facilitate
our competitors' entry into buildings in which we offer our services by
permitting our competitors to gain access through the separate access rights
currently held by local exchange carriers or other utilities in the same
buildings. We cannot predict how the FCC's rules will be interpreted regarding
this requirement or what, if any, effect such an interpretation would have on
Equal Access or Devnet. The FCC also established procedures to enable building
owners to request that the incumbent local exchange carrier move the demarcation
point, the point at which the telecommunications network wiring under the
incumbent local exchange carrier's control ends and wiring under building
owner/end-user control begins, to the minimum point of entry. 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. The FCC's procedures to clarify the
demarcation point in multi-tenant buildings do not place an obligation on Equal
Access, Devnet or Local Fiber, because none of these entities are incumbent
local exchange carriers. However, we cannot predict the FCC's implementation of
its demarcation point procedures or the consequences

                                       11

<PAGE>

resulting from a building owner's decision to locate the demarcation point at
the minimum point of entry.

         Many parties have petitioned the FCC for reconsideration of its
building access order and the FCC is currently considering those requests. In
addition, the FCC has also issued a further notice requesting comments on, among
other things, whether:

         .    the prohibition on exclusive access contracts in commercial
              buildings should be extended to residential buildings;

         .    to apply retroactively the bar on exclusive contracts in
              commercial or residential buildings;

         .    to prevent carriers from obtaining other preferential benefits
              from building owners, such as exclusive marketing; and

         .    it has authority to prevent a local exchange carrier from
              providing service to a building, if the owner of the building
              unreasonably prevents competing carriers from gaining access to
              potential customers located in the building.

         In addition, legislation has recently been introduced in the U.S. House
of Representatives that covers similar issues concerning access to building
risers and rights-of-way. Legislation was enacted on October 23, 2000, which
increases access for competitive carriers in buildings where the federal
government is the owner or tenant. We cannot predict the outcome of the FCC's
proceeding or of any legislation, nor what effect, if any, it may have on our
business.

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.

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, 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 2002.

         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, 2001, we had 108 employees, including 70 in network
operations, 26 in sales and marketing and 12 in finance and administration.
During fiscal 2001, we significantly downsized the number of our employees from
194 to 108. The reduction in headcount impacted all departments of our company.
We have not experienced any work stoppages and consider our relations with our
employees to be good.

                                       12

<PAGE>

ITEM 2. DESCRIPTION OF PROPERTIES

         Our principal offices are located at 570 Lexington Avenue, in New York,
New York where we lease an aggregate of approximately 12,195 square feet, of
which we are currently subleasing approximately 5,100 square feet. The term for
these premises expires in 2008. We also lease additional office space in Garden
City, New York consisting of 3,800 square feet under a lease that expires in
2005. In addition, we have office space in Rochester, New York, our former
headquarters, which we are currently subleasing. We lease 15,000 square feet
under a lease that expires in 2005. 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. Our warehouse facility is located in Long Island City, New York. We
lease 6,500 square feet under a lease that expires in 2005. We have also leased
facilities at major carrier hotels in New York, New York. These facilities are
located at 60 Hudson Street and at 111 Eighth Avenue. At 60 Hudson Street we
have two leases covering an aggregate of 30,039 square feet, both of which
expire in 2015. The lease at 111 Eighth Avenue is for 5,672 square feet and
expires in 2015. Additionally, we lease space in carrier hotels at 600 South
Federal Street in Chicago consisting of 6,588 square feet under a lease that
expires in 2015, and at 707 Wilshire Boulevard in Los Angeles 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 our on-net buildings
for our central equipment rooms. We do not intend to lease additional space in
the next 12 months, and we are evaluating all of 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

         None.

                                     PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Price Range of Our Common Stock

         On April 27, 2000, our common stock began trading on the Nasdaq
National Market System under the ticker symbol "FTGX". Prior to that time, our
common stock was quoted on the OTC Bulletin Board under the same ticker symbol.

         The following table sets forth the high and low sales prices for each
quarter for our common stock as reported on the NASD Electronic Bulletin Board
from January 1, 2000 through April 27, 2000 and as reported on the Nasdaq
National Market System from April 28, 2000 through December 31, 2001:

<TABLE>
<CAPTION>
                                                         2001                    2000
                                                         ----                    ----

                                                 High           Low        High        Low
                                                 ----           ---        ----        ---

<S>                                             <C>           <C>        <C>        <C>
Quarter ending March 31 .....................   $7.188        $2.375     $25.500    $13.250
Quarter ending June 30 ......................   $3.060        $0.960     $18.000     $8.750
Quarter ending September 30 .................   $1.150        $0.150     $18.750    $12.125
Quarter ending December 31 ..................   $0.510        $0.110     $16.250     $3.750
</TABLE>

         As of February 25, 2002, there were approximately 192 holders of record
of our common stock and, according to our estimates, approximately 4,000
beneficial owners of our common stock.

         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.

Recent Sales of Unregistered Securities

         Conversion of Preferred Stock and Conversion Warrants. On December 6,
2001, all of our outstanding shares of series C, D, E and F preferred stock were
converted into shares of our common stock. In addition, the holder of our series
H and I preferred stock converted all of its series I preferred stock and
373,947 shares, or 79%, of its series H preferred stock into shares of our
common stock. Accordingly, as a result of the conversion of the series C, D, E,
F, H and I preferred stock into common stock, we issued an aggregate of
20,647,551 shares of common stock to stockholders who held shares of series C,
D, E, F, H and I preferred stock and cancelled an aggregate of 1,534,221 shares
of series C, D, E, F, H and I preferred stock. In connection with the conversion
of the series C, D, E and F preferred stock, the holders of such preferred stock
received, in the aggregate, warrants to purchase 985,000 shares of our common
stock at an exercise price of $0.55 per share for a term of five years from the
date of issuance. We recorded a non-cash preferred stock dividend of $0.3
million, representing the fair value of the warrants issued, as determined using
the Black-Scholes option model.

         Credit Facility Warrants. On April 11, 2000, we issued warrants to
purchase 1,513,842 shares of our common stock, and on July 31, 2000, we issued
warrants to purchase 425,000 shares of our common stock, both with an exercise
price of $18.062 per share, in connection with

                                       13

<PAGE>

our $75.0 million senior secured credit facility. On December 18, 2000, we
issued an additional 504,614 warrants with an exercise price of $17.062 and
re-priced the warrants issued on April 11, 2000 and July 31, 2000 from $18.062
to an exercise price of $17.062, per the terms of our credit facility. On
February 9, 2001, we amended this credit facility, increasing it to $105.0
million, and issued warrants to purchase an additional 454,409 shares of our
common stock at an exercise price of $8.00 per share. In addition, as part of
the amendment of our credit facility all warrants previously issued to our
lenders were replaced with warrants to purchase an equivalent number of shares
of our common stock at an exercise price of $8.00 per share. On April 27, 2001,
we replaced 300,000 warrants to an exercise price of $0.01. On December 7, 2001,
in connection with our sale of series J preferred stock, we replaced all
warrants previously issued to our lenders to purchase shares of our common stock
at an exercise price of $8.00 per share with warrants to purchase an equivalent
number of shares of our common stock at an exercise price of $0.50 per share.

         Options and Warrants. During the year ended December 31, 2001,
employees, former employees and consultants exercised options to purchase 1,731
shares of common stock all with an exercise price of $3.95. During the year
ended December 31, 2001, holders of warrants exercised warrants for 108,849
shares of common stock with exercise prices ranging from $0.50 to $0.67 and a
weighted average exercise price of $0.65. During the year ended December 31,
2001, we granted options to purchase an aggregate of 7,673,929 shares of common
stock to employees, directors and consultants with exercise prices ranging from
$0.32 to $6.19 and at a weighted average exercise price of $0.40 per share.

         The securities issued in the foregoing transactions were either (i)
offered and sold in reliance upon exemptions from the Securities Act of 1933
("Securities Act") registration requirements set forth in Sections 3(b) and 4(2)
of the Securities Act, and any regulations promulgated thereunder, relating to
sales by an issuer not involving any public offering, or (ii) in the case of
certain options to purchase shares of common stock and shares of common stock
issued upon the exercise of such options, such offers and sales were made in
reliance upon an exemption from registration under Rule 701 promulgated under
Section 3(b) of the Securities Act. No underwriters were involved in the
foregoing sales of securities.

ITEM 6. SELECTED FINANCIAL DATA

         You should read the selected financial data presented below, in
conjunction with our consolidated financial statements, the notes to those
consolidated financial statements and the management's discussion and analysis
of financial condition and results of operations section appearing elsewhere in
this report on Form 10-K. In particular, please refer to Note 16 - Restatement
of the notes to the consolidated financial statements for information regarding
our restatement of the 1999 financial statements.

         The consolidated statement of operations data for the fiscal year ended
June 30, 1997 and the consolidated balance sheet data as of June 30, 1997 have
been derived from our consolidated financial statements, which have been audited
by Mendelsohn Kary Bell & Natoli, P.C., independent public accountants. The
consolidated statement of operations data for the years ended December 31, 1998,
1999 (as restated), 2000 and 2001 and the consolidated balance sheet data as of
December 31 1998, 1999 (as restated), 2000 and 2001 have been derived from our
consolidated financial statements which have been audited by Arthur Andersen
LLP, independent public accountants, and appear elsewhere in this report on Form
10-K. The consolidated statement of operations data for the six months ended
December 31, 1997 and the consolidated balance sheet data as of December 31,
1997 have been derived from unaudited consolidated financial statements. Our
historical results are not necessarily indicative of the operating results to be
realized in the future.

                                       14

<PAGE>

<TABLE>
<CAPTION>

                                                                                    Consolidated Financial Data
                                                                              (in thousands, except per share amounts)


                                                                   Six Months
                                                      Year Ended     Ended
                                                       June 30,    December 31,             Year Ended  December 31,
                                                      ------------ ---------------------------------------------------------------
                                                       1997 (1)         1997        1998         1999         2000         2001
                                                      ------------ ------------  ----------   ------------ -----------  ----------
                                                                    (unaudited)               (restated)(2)
<S>                                                         <C>            <C>          <C>          <C>    <C>          <C>
Statement of Operations Data:
Revenues ..........................................         $--            $--          $--          $--    $  13,117    $  31,195
Operating expenses:
  Cost of services (exclusive of items shown
  separately below) ..............................           --             --           --           --        5,388       13,801
  Selling, general and administrative
  expenses ........................................         374            395        2,817        7,355       27,072       32,917
  Stock related expense for selling,
  general, and administrative matters ............           --             --          128          803        8,468       (1,172)
  Non-recurring expenses .........................           --             --           --        4,304           --           --
  Impairment of property, plant and
  equipment .......................................          --             --           --           --           --       51,848
  Impairment of goodwill ..........................          --             --           --           --           --       56,467
  Depreciation and amortization ...................          --              2           28          520        7,652       15,319
                                                      ---------      ---------    ---------    ---------    ---------    ---------
Total operating expenses ..........................         374            397        2,973       12,982       48,580      169,180
                                                      ---------      ---------    ---------    ---------    ---------    ---------
Loss from operations ..............................        (374)          (397)      (2,973)     (12,982)     (35,463)    (137,985)
Interest income (expense), net ....................          --             26          156       (1,356)      (5,657)      (8,594)
Interest expense from beneficial
conversion ........................................          --             --           --      (15,870)          --           --
                                                      ---------      ---------    ---------    ---------    ---------    ---------
Net loss before extraordinary item ................        (374)          (371)      (2,817)     (30,208)     (41,120)    (146,579)
Extraordinary loss on early
extinguishments of debt............................          --             --           --           --           --       (7,398)
                                                      ---------      ---------    ---------    ---------    ---------    ---------
Net loss ..........................................        (374)          (371)      (2,817)     (30,208)     (41,120)    (153,977)
Preferred stock dividends .........................          --             --           --         (757)      (8,113)      (1,080)
Preferred stock-beneficial conversion..............          --             --           --         (100)     (27,766)     (23,109)
                                                      ---------      ---------    ---------    ---------    ---------    ---------
Net loss applicable to common
stockholders ......................................   $    (374)     $    (371)   $  (2,817)   $ (31,065)   $ (76,999)   $(178,166)
                                                      =========      =========    =========    =========    =========    =========
Net loss applicable to common
stockholders per share:
   Basic and diluted ..............................   $  (0.025)   $    (0.025)   $   (0.18)   $   (1.85)   $   (2.60)   $   (4.34)
Weighted average common shares
outstanding:
   Basic and diluted ..............................      15,000         15,000       15,847       16,798       29,651       41,065

                                                       As June 30,                          As of December 31,
                                                      ------------   -------------------------------------------------------------
                                                        1997 (1)        1997         1998         1999         2000         2001
                                                      ------------   ---------    ---------    ---------    ---------    ---------
                                                                    (unaudited)               (restated)(2)
Balance Sheet Data:

Cash and cash equivalents .........................   $       2      $   5,146    $     257    $   9,512    $   1,582    $   3,338
Other current assets ..............................           1              4          309          160       14,990        3,359
Property, plant and equipment, net ................          --             92        5,397       55,177      126,114      109,837
Total assets ......................................         103          5,374        6,328       77,588      227,165      136,587
Long-term liabilities .............................          --             --           --          956       46,559       89,403
Total stockholders' equity ........................        (241)         4,645        1,912       68,252      144,283       24,348

</TABLE>

(1)  At the end of our fiscal year ended June 30, 1997, we changed our fiscal
     year end to December 31.

(2)  See Footnote 16 to the notes of the consolidated financial statements for a
     discussion of the restatement of our financial results for the fiscal year
     ended December 31, 1999.

<PAGE>

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

Overview

         We deploy, own and operate fiber-optic networks designed to provide
comprehensive wholesale, broadband connectivity for data, voice and video
transmission in major metropolitan areas. These networks provide an advanced,
high-bandwidth, fiber-optic solution to support the demand for network capacity
in the local loop. We believe that our end-to-end connectivity, carrier-neutral
position, rapid provisioning time and carrier-class reliability will make us the
preferred carrier's carrier for transport services in our markets.

         From our inception through December 31, 1999, we were a development
stage enterprise. During this period, we had no commercial operations and did
not record any revenues. We engaged principally in organizational and
developmental activities, including formulating our business plan, developing
strategic relationships with vendors and property owners, gaining access to
capital for future growth, hiring personnel, purchasing equipment, and deploying
our communications networks. In the first quarter of fiscal 2000, we began
providing services in the New York City market. We are no longer a development
stage enterprise for financial reporting purposes.

         We began operating our first metropolitan network in January 2000 in
New York City, and we began deploying our infrastructure in Chicago and Los
Angeles in the fourth quarter of 2000. As of December 31, 2001, we had
accomplished the following:

         .   We can provide fiber-optic transport services in ten major carrier
             hotels in the New York metropolitan area, including 60 Hudson
             Street and 111 Eighth Avenue, four major carrier hotels in Los
             Angeles and one major carrier hotel in Chicago.

         .   We are operating our advanced, vertical in-building networks, known
             as FiberNet In-Building Networks, or FINs, in 13 office buildings
             in New York City and seven in Chicago.

         .   We had exclusive license agreements that give us the right to
             manage communications access and infrastructure in approximately
             165 other office buildings nationwide.

         .   We had 88 customers and entered into 114 interconnection agreements
             with existing and potential customers, establishing the basis for
             purchase orders from them.

         We have experienced significant operating losses, net losses and
negative cash flows from operating activities. We expect to continue to
experience such losses and negative cash flows as we continue to operate our
business. We also have a limited operating history. Consequently, prospective
investors have limited operating history and financial data upon which to
evaluate our performance.

         The telecommunications industry is currently experiencing a period of
uncertainty and rationalization. Many companies in our industry are in financial
distress, and some of our largest customers have filed for bankruptcy. We have
been negatively impacted by the general economic environment and by the
difficulties that are impacting our industry. Most significantly, customer
contracts and services have been cancelled, resulting in a loss of recurring
revenues to us. We are unable to determine the extent to which additional
contracts or services that we provide to our customers will be cancelled, and we
cannot forecast our ability to replace those cancelled contracts with new
contracts. As a result, our revenues, business operations and liquidity may
continue to be negatively affected by the market environment.

Factors Affecting Future Operations

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

         .   Transport services. Our transport services include the offering
             of broadband circuits on our metropolitan transport networks and
             FINs. Over our metropolitan transport networks, we can provision
             circuits from one of our carrier point facilities to another
             carrier point 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 point
             facility or an on-net building.

         .   Colocation services. Our colocation services include providing
             customers with the ability to locate their communications and
             networking equipment at our carrier point 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 on-net and off-net buildings. Typically, if a
             customer colocates its equipment at our facilities, our agreement
             with them may include a minimum commitment to use our transport
             services.

         .   Communications access management services. Our access management
             services include providing our customers with the non-exclusive
             right to market and provide their retail services to tenants in
             our on-net and off-net buildings. Customers typically enter into
             an agreement with us to gain access to all or a significant
             number of our properties. For certain of on-net and our off-net
             buildings, we have the exclusive right to manage communications
             access. Once a customer has entered into an agreement with us for
             access services, we typically require that customer to utilize
             our in-building networking infrastructure for connectivity to
             their retail customers, if such networking infrastructure is
             available.

         Our revenues are generated on a monthly recurring basis under contracts
with our customers. These terms of these contracts can range from month-to-month
to five years in length. During 2001 we experienced a trend of entering into
shorter term contracts with our customers. Previously, our customers typically
entered into contracts with terms of three to five years. Increasingly, our
customers are electing to purchase services on a month-to-month basis or for a
contracted period of only one year.


                                       16

<PAGE>

         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. The pricing of all of our services have
declined significantly over the past year, although we believe not to the extent
that the pricing in other segments of the telecommunications market.

         The growth of our revenues is dependent upon our ability to provide
additional services in our existing facilities. We also believe that the
majority of the growth in our revenues will come from our existing customers.
Consequently, our growth in revenues is dependent on the underlying growth of
our customers' businesses and their need for our services within the facilities
that we already operate. We continue to add additional customers. However, we
believe the number of companies that are potential customers is decreasing, due
to the industry environment. In addition, we currently do not anticipate
expanding our network infrastructure to other carrier point facilities or on-net
buildings and off-net buildings. Within each of our existing facilities, 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 non-binding
business services agreement with a customer. This agreement establishes our
mutual interest in exploring a business relationship and the general parameters
upon which we will proceed. As a next step, we execute a telecommunications
services agreement, also known as an interconnection agreement. This is a
technical document that outlines the engineering specifications and operating
standards that are required of us by the customer. With the technical
requirements complete, we finalize a sales contract. Customers can order a
specific circuit or colocation space, or, alternatively, they can purchase
general availability on our networks or in our facilities by establishing
minimum revenue commitments on a recurring basis.

         Currently our colocation and access services produce approximately
one-third of our revenues. In the future we anticipate generating significantly
more of our revenues from transport services than from colocation or access
management services. The scalability of our network architecture allows us to
increase transport capacity to a greater degree than is possible with our
colocation and access services.

         Direct Costs. Direct costs are associated with the operation of our
networks and facilities. The largest component of our direct costs is the
occupancy expenses at our carrier point facilities, on-net buildings and off-net
buildings. Because we have entered into long-term leases or colocation
agreements for the facilities, we do not expect to experience a significant
change in occupancy expenses based upon our current deployment of network
infrastructure. Other specific costs include maintenance and repair costs and
utility costs. Our license agreements for our on-net and off-net buildings
require us to pay license fees to the owners of these properties. In addition,
our lease for our meet-me-room at 60 Hudson Street in New York City also
requires us to pay a license fee. These license fees typically are calculated as
a percentage of the revenues that we generate in each particular building. Other
than our license fees, our direct costs are generally fixed in nature. We do not
anticipate that direct costs will change commensurately with any change in our
revenues.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses generally include all of our personnel 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. We have reduced the number of our employees
from 194 at the beginning of 2001 to 108 as of December 31, 2001, and our
personnel costs have decreased significantly. Prospectively, we do not
anticipate significant changes in headcount, and we believe that our personnel
costs will increase moderately. We do expect our insurance costs to increase
materially upon our annual renewals as a result of increases in coverage
premiums.

         Stock Related Expense. Stock related expense relates to the granting of
stock options to our employees. We grant stock options to our employees as a
form of equity-based compensation to attract, retain and incentivize qualified
personnel. These costs are non-cash charges that are amortized over the vesting
term of each employee's option agreement. Certain options granted to employees
are accounted for using variable plan accounting. Under variable plan
accounting, the stock related expense is adjusted for changes in the market
price of the underlying common stock.

         Depreciation and Amortization. Depreciation and amortization expense
includes the depreciation of our network equipment and infrastructure, computer
hardware and software, furniture and fixtures, and leasehold improvements, as
well as the amortization of goodwill and 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.
As a result of the impairments to goodwill and fixed assets that we recorded
during 2001, depreciation and amortization expense may decrease going forward.

Significant 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.
The preparation of the 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. On an
on-going basis, we evaluate the estimates that we have made. 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 difference assumptions or conditions. We believe our
most critical accounting policies include revenue recognition, an allowance for
doubtful accounts, the impairment of long-lived assets including goodwill and
the recognition of deferred tax assets and liabilities.

         We recognize revenues when earned as services are provided throughout
the life of each contract with a customer. The majority of our revenues are
invoiced on a monthly recurring basis under long-term contracts, typically one
to five years 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 not
been recognized as revenue. Deferred revenue is recorded for the full value of
the contract at contract inception, only if we are

                                       17

<PAGE>
contractually entitled to invoice the customer for the full value of the
contract and the customer is obligated to pay such invoice, thereby creating a
corresponding account receivable for us.

         We have in the past entered into reciprocal agreements with four of our
customers, whereby we purchase services from them. The services provided and
obtained through these agreements are priced at fair value as of the date of the
agreement. We recognized the transport and colocation revenues from these
agreements in accordance with our stated revenue recognition policy, and we
concurrently recorded the expenses for colocation services as direct costs in
our statements of operations. None of the expenses associated with our
reciprocal agreements are capitalized. All of the costs are expensed as
incurred. Reciprocal agreements accounted for $2.2 million, or 17%, of revenues
in 2000 and $2.2 million of our direct costs. In 2001 reciprocal agreements
accounted for $5.2 million, or 17%, of revenues and $5.4 million of our direct
costs. In 2001, we terminated two of our reciprocal agreements, and in 2002 we
anticipate terminating one additional reciprocal agreement. Consequently, we
believe that revenues and expenses recorded under reciprocal agreements will
decrease significantly in 2002.

         We continuously monitor collections and payments from our customers and
maintain allowances for doubtful accounts based upon our historical experience
and any specific customer collection issues that we have 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 significant number of our customers have filed for
bankruptcy or are otherwise in significant financial distress. In addition, our
revenues and accounts receivable are concentrated in a relatively few number of
customers. 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 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 defer the revenue and recognize it at the time collection becomes
reasonably assured, which is generally upon receipt of cash.

         We assess the fair value and recoverability of our long-lived assets,
including goodwill, whenever events and circumstances indicate the carrying
value of an asset may not be recoverable from estimated 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 and goodwill 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 and goodwill 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.

         During 2001, we performed an assessment of the goodwill related to our
acquisition of Devnet, LLC, pursuant to SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Devnet had entered into exclusive license agreements to manage communications
access to commercial office properties, and we associated the goodwill resulting
from the acquisition primarily to those agreements. We made this determination
based upon significant negative industry and economic trends. In 2001, a change
in the business environment resulted in significantly less demand for
telecommunications access to commercial office properties, and the number of
potential customers seeking these services diminished greatly. Consequently, we
revised our forecasted cash flows from Devnet and determined that the decline in
the market conditions within this market segment was material and other than
temporary. After using an undiscounted cash flow model of the future cash flows
forecasted to be generated from business activities in the commercial office
properties underlying the license agreements and determining there was an
impairment, we used a discounted cash flow model to determine the size of the
impairment. As a result, we recorded a charge of $56.5 million during the third
quarter of 2001 to reduce goodwill associated with the purchase of Devnet. The
charge was based on the amount by which the carrying amount of these assets
exceeded their fair value. During 2001, we recorded approximately $3.1 million
of amortization of goodwill relating to Devnet.

         In December 2001, the Company revised its business plan and conducted
extensive reviews of its assets and operations in connection with amending the
Credit Facility (See Note 7). Based on the reviews, the Company has recorded an
asset impairment of approximately $51.8 million to reflect the Company's revised
business plan and current state of the markets in which the Company operates. Of
this amount, $40.4 million relates to assets held for use, and $11.4 million
represents assets to be disposed of.

         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.

Restatement of Financial Statements

     We restated our consolidated financial statements for the year ended
December 31, 1999 to record a beneficial conversion feature of $7.9 million in
connection with the issuance of our senior secured convertible notes on May 7,
1999 and to reduce the beneficial conversion feature on the conversion of our
series D, E and F preferred stock to zero. In 1999, we were a development-stage
company and did not record any revenue. Other than with respect to the
consolidated financial statements for the year ended December 31, 1999, this
restatement has no impact on our assets or total stockholders' equity, and it
resulted in a corresponding increase to additional paid-in-capital and a
decrease in preferred stock and accumulated deficit. The change increased net
loss by $7.9 million and decreased net loss applicable to common shareholders by
$41.2 million. These changes decreased net loss applicable to common
stockholders per share by $2.45. The change has no impact on our cash flows. We
originally did not record a beneficial conversion relating to the issuance of
the senior secured convertible notes, assuming a $1.50 market value per share.
The restatement assumes a $4.94 market value per share. Also, we incorrectly
recorded a beneficial conversion of $49.2 million on the subsequent conversion
of our senior secured convertible notes issued during 1999 into preferred stock.
The restated financial statements include the correction of these errors.

Results of Operations

Fiscal Year Ended December 31, 2001 Compared to Fiscal Year Ended
December 31, 2000

         Revenues. Revenues for the fiscal year ended December 31, 2001 were
$31.2 million as compared to $13.1 million for the fiscal year ended December
31, 2000. Revenues were generated by providing transport, colocation and
communications access management services to our

                                       18

<PAGE>

customers. We recognized $19.6 million in transport services in 2001, up from
$9.3 million in 2000. This increase was primarily a result of strong demand for
high bandwidth circuits within and between our carrier hotel facilities.
Revenues from colocation and other services increased to $5.5 million in 2001
from $2.2 million in 2000, and revenues from communications access management
services grew to $6.1 million in 2001 from $1.6 million in 2000. Prospectively,
we expect transport services to grow at a faster rate than colocation and access
management services. Our network infrastructure has significant capacity to
provide additional broadband transport connectivity. However, our colocation
facilities are approaching more stabilized utilization rates. We do not expect
our access management services to grow significantly. Many companies that would
have potentially purchased these services from us are in financial distress, and
the demand for those companies' services has not met with industry expectations.

         During 2001, three customers, 360networks, Network Plus and Qwest,
accounted for approximately 53.3% of our revenues. In 2000, these customers
accounted for 70.8% of revenues. Two of those companies, 360networks and Network
Plus, have filed for bankruptcy. Once a customer has filed for bankruptcy, we
recognize revenues from that customer only upon the receipt of payment. Our
revenues for 2001 were not impacted by the bankruptcy of Network Plus because
the company filed for bankruptcy subsequent to year end. Prospectively, we
expect these customers to represent a significantly lower percentage of our
revenues.

         Reciprocal agreements accounted for $5.2 million, or 17%, of revenues
in 2001, up from $2.2 million, or 17%, of revenues in 2000. In 2001, we
terminated two of our reciprocal agreements, and in 2002 we anticipate
terminating one additional reciprocal agreement. We believe that revenues under
reciprocal agreements will decrease significantly in 2002.

         Direct Costs. Direct costs, associated with the operation of our
networks and facilities, were $13.8 million in 2001, compared to $5.4 million in
2000. The majority of our direct costs are occupancy expenses, consisting of
rent and utility costs, for our carrier hotel facilities, on-net buildings and
off-net buildings. Other direct costs include license fees, maintenance and
repair costs, and professional fees. The increase in direct costs was primarily
the result of the addition of new facilities in 2001 and incorporating a full
year's expenses for facilities added in 2000. We do not expect direct costs to
increase significantly in 2002 since we do not anticipate adding many new
facilities. Reciprocal agreements accounted for $5.4 million of our direct costs
in 2001 and $2.2 million of our direct costs in 2000.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 2001 were $32.9 million compared to $27.1 million
for 2000. The initial increase in expenses resulting from the expansion of our
operations in the first half of 2001 was partially offset in the second half of
the year by our aggressive cost savings initiatives to reduce corporate overhead
in line with our current outlook for business activity. Cost reductions were
realized in nearly all components of selling, general and administrative
expenses, including advertising and marketing costs, professional fees and
travel and entertainment expenses. The greatest decrease in overhead came in
personnel costs, as we reduced headcount from 194 employees at the beginning of
2001 to 108, as of December 31, 2001. In accordance with EITF Issue 94-03,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring), an
accrual of approximately $62,000 for severance benefits not yet paid at December
31, 2001 was recorded. Based upon the realization of these cost savings, we
expect selling, general and administrative expenses to decrease in 2002.

         Stock Related Expense. Stock related expense for 2001 was $(1.2)
million, compared to $8.5 million for 2000. This non-cash expense relates to the
granting of stock options to employees. The amount for the current period
reflects a reversal of a previously recorded expense. This reversal is due to a
decline in the price per share of our common stock since the beginning of the
current period.

         In December 2000 we repriced stock options for certain of our executive
officers, resulting in variable plan accounting in accordance with FASB
Interpretation (FIN) No. 44, Accounting for Certain Transactions Involving Stock
Compensation, from the date of modification. The additional intrinsic value was
determined on the date of modification using the then market price of the common
stock. The additional compensation cost was recognized over the period from the
date of modification to the date the awards vest. The additional compensation
cost has been adjusted in subsequent periods for changes in the market price.
After the awards vested, adjustments to compensation cost for changes in the
market price were recognized immediately. In subsequent periods, the market
price declined, resulting in negative compensation cost being recognized. In
accordance with FIN 44, illustration 3(g), income (negative expense) has been
recognized up to the amount of expense previously recognized in prior periods
relating specifically to the modified awards.

         Impairment of property, plant and equipment. In December 2001, the
Company recorded an asset impairment of $51.8 million to reflect the Company's
revised business plan and the current state of the market. No impairment of
property, plant and equipment was recorded in 2000.

         Impairment of goodwill. In 2001, we recorded a non-cash, non-recurring
charge for the impairment of goodwill, relating to our acquisition of Devnet,
LLC in the amount of $56.5 million. We recorded this write down of goodwill in
accordance with Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." No impairment of goodwill was recorded in 2000.

         Depreciation and Amortization. Depreciation and amortization expense
for 2001 was $15.3 million, compared to $7.7 million for 2000. This increase
resulted from the commencement of the depreciation of certain network related
fixed assets that were placed into service, as well as amortization of goodwill
from the purchase of Devnet.

         Interest Expense, Net. Interest expense, net for 2001 was $8.6 million,
compared to $5.7 million in 2000. Interest expense increased due to additional
borrowings under our senior secured credit facility to fund the buildout of our
networks, operating losses and working capital.

         Extraordinary loss on early extinguishment of debt. In 2001, we
recorded a non-cash charge of $7.4 million related to an early extinguishment of
debt from the modification of our credit facility on February 9, 2001. We did
not record such a charge in 2000.

                                       19

<PAGE>

         Preferred Stock Dividends. In 2001, we paid non-cash dividends on our
series D, E, F, H and I preferred stock of $1.1 million in the form of
additional shares of each respective series of preferred stock, which are
convertible into shares of common stock, compared to $8.1 million of dividends
in 2000. We also recorded beneficial conversion charges of $23.1 million and
$27.8 million upon the issuance of three new series of preferred stock issued
during fiscal 2001 and 2000, respectively. The amounts of the dividends and the
beneficial conversion charge assume the market price per share of the underlying
common stock, as of the date the dividends are paid or the charge is incurred,
in accordance with EITF Issue 98-05, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratio." The
significant decrease in the amount of preferred dividends was therefore a result
of a decline in the public market price of our common stock. The liquidation
value of the dividends paid in 2001 was $5.3 million, compared to $3.0 million
for dividends paid in 2000.

         Net Loss Applicable to Common Stockholders. We reported a net loss
applicable to common stockholders of $178.2 million in 2001 compared to a loss
of $77.0 million in 2000. The increase in the net loss applicable to common
stockholders is a result of the aforementioned changes in our operations.

Fiscal Year Ended December 31, 2000 Compared to Fiscal Year Ended
December 31, 1999

         Revenues. Revenues for the fiscal year ended December 31, 2000 were
$13.1 million as compared to the fiscal year ended December 31, 1999 in which we
had no commercial operations and did not generate any revenues. Revenues were
generated by providing transport, colocation and communications access
management services to our customers. We recognized $9.3 million in transport
services, $2.2 million in colocation services and $1.6 million in communications
access management and other services during the period. During this period, two
customers, 360networks and Qwest, accounted for approximately 61.5% of our
revenues. We expect such customer concentration to diminish as we expand our
operations.

         Direct Costs. Direct costs for fiscal 2000 were $5.4 million,
associated with the operation of our networks and facilities. These costs
included building license fees, maintenance and repair costs, rent expense at
carrier point facilities and on-net and off-net buildings, and related utility
costs. During fiscal 1999, we did not record any direct costs because we were
not offering services during that period.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 2000 were $27.1 million compared to $7.4 million for
1999. This increase was the result of the rapid expansion of our operations. We
have experienced significant growth in personnel costs, marketing and
advertising expenses, and network construction overhead to support our business
strategy. The number of significant transactions that we undertook during fiscal
2000 also resulted in significant professional fees.

         Stock Related Expense. Stock related expense for 2000 was $8.5 million.
This non-cash expense relates to the granting of stock options to employees. We
incurred $0.8 million of stock related expense for 1999.

         Depreciation and Amortization. Depreciation and amortization expense
for fiscal 2000 was $7.7 million, compared to $0.5 million for fiscal 1999, an
increase of $7.2 million. This increase resulted from the commencement of the
depreciation of certain network related fixed assets that were placed into
service, as well as amortization of goodwill from the purchase of Devnet. During
fiscal 2000, we aggressively deployed our network assets to execute our business
strategy.

         Interest Expense, Net. Interest expense, net for fiscal 2000 was $5.7
million, compared to $1.4 million for fiscal 1999, an increase of $4.3 million.
Interest expense increased as a result of additional interest expense in 2000
due to borrowings under our senior secured credit facility to fund the buildout
of our networks, operating losses and working capital.

         Preferred Stock Dividends. During fiscal 2000, we recorded preferred
stock dividends of $8.1 million in non-cash dividends on the series D, E, F, H
and I preferred stock of $8.1 million in the form of additional shares of each
respective series of preferred stock, which are convertible into shares of
common stock. The liquidation value of the dividends paid was $3.0 million. We
also recorded a preferred stock-beneficial conversion charge of $27.8 million
upon the issuance of three new series of preferred stock issued during fiscal
2000. During 1999, we recorded $0.8 million of preferred dividends related to
our series D, E and F preferred stock. We also recorded a preferred
stock-beneficial conversion charge of $0.1 million related to the issuance of
the series C preferred stock. The amounts of the dividends and the beneficial
conversion charge assume the market price per share of the underlying common
stock, as of the date the dividends are paid or the charge is incurred.

         Net Loss Applicable to Common Stockholders. We reported a net loss
applicable to common stockholders of $77.0 million for fiscal 2000 compared to a
loss of $31.1 million for fiscal 1999, an increase of $45.9 million. The
increase in the net loss applicable to common stockholders is a result of the
aforementioned changes in our operations and the beneficial conversion charge of
$27.8 million.

Liquidity and Capital Resources

         As a result of our developmental activities and the deployment of our
networks and facilities, we have incurred significant losses from inception to
date. We expect such losses to continue, as we further execute our business plan
and expand our operations. Consequently, we have been dependent upon external
sources of capital to fund our operations. Prospectively, we will continue to
incur losses and will not be able to fund our operations with internally
generated funds. Therefore, we will require additional, external capital. We are
subject to unforeseen capital requirements,failure of market acceptance, failure
to establish and maintain business relationships, competitive disadvantages
against larger and more established companies and negative trends in our
industry and the economy.

         To date, we have financed our operations through direct equity
investments from our stockholders, the issuance of additional debt and equity
securities in private transactions and by arranging a senior secured credit
facility with a group of lenders. We incurred an EBITDA loss (as defined below)
and a net loss applicable to common stockholders for fiscal 2001 of $15.5
million and $178.2 million, respectively, compared to

                                       20

<PAGE>

$19.3 million and $77.0 million, respectively, for fiscal 2000. During fiscal
2001, cash used to fund operating activities was $22.0 million, and cash
purchases of property, plant and equipment were $46.7 million, compared to $12.6
million and $74.7 million, respectively, for fiscal 2000.

         During fiscal 2001, we received $70.5 million in net cash proceeds from
financing activities. Net proceeds from the issuance of equity securities during
fiscal 2001 were $25.8 million. On February 2, 2001, we completed a $28.2
million directed public offering of our common stock under our existing shelf
registration statement. We issued 6,440,000 shares of common stock at a purchase
price of $4.375 per share as well as warrants to purchase an additional
1,288,000 shares at an exercise price of $6.56 per share with a term of three
years.

         On December 7, 2001, we completed another directed public offering
under our existing shelf registration statement. We issued 360 shares of our
series J preferred stock at a purchase price of $10,000 per share, as well as
warrants to purchase up to 10,212,701 shares of common stock at an exercise
price of $0.30 per share with a term of five years. The total proceeds to us
from this offering were $3.6 million, before offering expenses. In addition,
subject to certain conditions, the stock purchase agreement for this offering of
series J preferred stock contemplates two additional closings in which we may
sell in the aggregate an additional $5.7 million of series J preferred stock to
the initial purchasers. We may opt out of one or both of these subsequent
closings upon payment of cash consideration and upon approval of our lenders
under our senior secured credit facility. Although we currently intend to
consummate the two additional closings, there can be no assurance that we will
be able to do so. Our inability to complete either of these closings could have
a material adverse affect on our liquidity and capital resources and would
constitute an event of default under our senior secured credit facility.

         The purchasers of our series J preferred stock are not obligated to
participate in the second or third closings contemplated by the stock purchase
agreement between us and them if, among other things, our existing shelf
registration statement is no longer effective, we have breached any of our
representations or warranties contained in the stock purchase agreement, we have
failed to maintain EBITDA positive results on a monthly basis beginning in
December 2001, or we have not obtained stockholder approval authorizing upon
conversion of the issued and outstanding series J preferred stock the issuance
of in excess of 19.99% of the number of shares of common stock outstanding on
the closing date of the first series J preferred stock closing.

         As of February 28, 2002 we are eligible to sell an additional $118.2
million of common stock, preferred stock, debt securities and warrants under our
existing shelf registration statement. Upon filing of this annual report we are
no longer eligible to use our shelf registration statement for the issuance of
such securities. As a result, we will be required to file new registration
statements with regard to any further registered issuances, if any, of our
securities, and there can be no assurance that such registration statements will
be declared effective. Subject to certain conditions, the stock purchase
agreement we entered into with the purchasers of our series J preferred stock
contemplates two additional closings in which we may sell in the aggregate an
additional $5.7 million of our securities to the purchasers. Accordingly, as a
result of the expiration of our shelf registration statement, we will need to
implement alternate means in order to complete the second and third closings,
should we elect to do so, of which there can be no assurance.

         On February 9, 2001, we increased our existing credit facility with
Deutsche Bank AG New York Branch, Deutsche Banc Alex. Brown Inc., First Union
Investors, Inc., First Union Securities, Inc., Toronto Dominion (USA) Securities
Inc. and other lenders from $75.0 million to $105.0 million. The maturity of the
credit facility was extended to six years from four and one-half years, and the
initial interest rate was lowered to LIBOR + 4.5% from LIBOR + 6.0%. In
connection with this amended credit facility, we issued warrants to purchase an
additional 454,409 shares of our common stock at a purchase price of $8.00 per
share with a term expiring April 11, 2005. In addition, as part of the amendment
of our credit facility, all warrants issued under the original credit agreement
were replaced with new warrants to purchase an equivalent amount of our common
stock at a purchase price of $8.00 per share. On April 27, 2001, in connection
with a waiver and agreement under our credit facility, warrants to purchase
300,000 shares of our common stock at a purchase price of $8.00 per share held
by Deutsche Banc Alex.Brown were replaced with new warrants to purchase an
equivalent amount of our common stock at a purchase price of $0.01 per share.
Also, on December 10, 2001 we amended the credit facility to reflect the
issuance of the series J preferred stock and related matters. In connection with
this amendment, all warrants previously issued under the credit agreement were
replaced with new warrants to purchase an equivalent amount of our common stock
at a purchase price of $0.50 per share.

         As of February 28, 2002 the outstanding borrowings under our credit
facility were $96.0 million, and the weighted average interest rate on our
outstanding borrowings under the facility was 6.9%. Outstanding letters of
credit under the credit facility totaled $7.3 million. As a result, we had $1.7
million available to draw under the credit facility. We were in full compliance
with all of the covenants contained in the credit agreement underlying the
facility. Our access to the additional availability under the credit facility is
subject to our compliance with the covenants, and other terms and conditions, in
the credit agreement. Material financial covenants monitored on a quarterly
basis include minimum requirements for cumulative revenues and EBITDA, a maximum
limitation on capital expenditures, and compliance with ratios of total debt to
consolidated capitalization and total debt to property, plant and equipment, net
of accumulated depreciation. In addition, the second and third closings for the
issuance of the series J preferred are required under the credit agreement.
Non-compliance with any of these covenants, requirements, or other terms and
conditions, constitutes an event of default under the credit agreement,
prohibiting access to any additional funds available under the credit facility
and potentially accelerating the outstanding balance for immediate payment.

         On January 2, 2002 we entered into an interest rate swap transaction
with Deutsche Bank AG for a notional amount of $25.0 million and a term of two
years. Pursuant to this transaction, we are obligated to make quarterly interest
payments at a fixed, annual interest rate of 3.7%. Because such interest rate
excludes the applicable margin of 4.5% that we pay on our credit facility, the
total interest rate for us on this swap transaction is 8.2%. As part of this
agreement, Deutsche Bank AG is obligated to pay to us on a quarterly basis a
floating rate of interest based upon LIBOR with a designated maturity of three
months.

         On December 7, 2001 we issued a promissory note in the amount of $2.3
million to Nortel Networks Inc., a related party, as consideration for accounts
payable previously due and owing for equipment and services. The note bears
interest at an annual rate of 14% and is payable in eight monthly installments
of approximately $300,000 beginning in January 2002. As of February 28, 2002 the
outstanding balance on the note was $1.8 million. We believe the terms of this
transaction are no less favorable than could be received from an independent,
third party.

         We anticipate spending approximately between $7.0 and $9.0 million in
capital expenditures during 2002, primarily for the implementation of customer
orders. We have substantially completed the deployment of our FINs, carrier
hotel facilities and metropolitan transport

                                       21

<PAGE>

networks. 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.

         Our obligations and commitments to make future payments under contracts
primarily include scheduled reductions in the availability of our credit
facility, principal payments on our note payable and capital lease obligations,
and payments under our operating leases.

         The chart below identifies our outstanding contractual obligations and
commitments as of February 25, 2002.


<TABLE>
<CAPTION>
                                                 Payments Due by Period (in thousands)
      Contractual           ----------------------------------------------------------------------------------
       Obligation              Total        2002         2003          2004         2005        Thereafter
                             --------      -------      -------      -------       -------      ----------
<S>                          <C>           <C>          <C>          <C>           <C>           <C>
Mandatory Repayments and
Reductions of Indebtedness   $107,321      $2,321       $7,875       $28,875       $28,875        $39,375

Capital Lease Obligations       873          347          314          212           --             --


Operating Leases              110,385      11,644       10,574        9,383         9,320         69,464


Other Obligations               49           49           --            --           --             --
                             ========      =======      =======      =======       =======       ========


Total Contractual
Obligations                  $218,628      $14,361      $18,763      $38,470       $38,195       $108,839
</TABLE>

         Our planned operations continue to require additional capital to fund
equipment purchases, engineering and construction costs, marketing costs,
administrative expenses and other operating activities. Although we reported
that we generated positive EBITDA for the month of December 2001 and expect to
continue to do so in 2002, there can be no assurance that we will be able to
achieve such a result prospectively. We cannot fund our operating and investing
activities with internally generated cash flows. We continue to require external
sources of capital. The availability of funds from our credit facility and the
expected closings of our series J preferred stock are critical to our liquidity.
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 finance the continued operations of our business. There can be no
assurance that we will be able to successfully consummate any such financing on
acceptable terms, or at all. We do not have any off-balance sheet financing
arrangements, nor do we anticipate entering into any.

         EBITDA, as discussed above, is defined as net loss before income taxes
and minority interest, interest expense, interest income, depreciation and
amortization, stock related expense and other non-cash, non-recurring charges.
EBITDA is commonly used in the communications industry and by financial
analysts, and others who follow the industry, to measure operating performance.
EBITDA should not be construed as an alternative to operating income or cash
flows from operating activities, both of which are determined in accordance with
generally accepted accounting principles, or as a measure of liquidity. Because
it is not calculated under generally accepted accounting principles, our EBITDA
may not be comparable to similarly titled measures used by other companies.

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, the
following: the difficulty inherent in operating an early-stage company in a new
and rapidly evolving market; our history of operating losses and accumulated
deficit; our limited financial resources and uncertainty as to the availability
of additional capital to fund our operations on acceptable terms, if at all; our
success in obtaining additional carrier hotel lease agreements and license
agreements with building owners; growth in demand for our services; the
frequency of service interruptions on our networks; the potential development by
competitors of competing products and technologies; restrictions imposed on us
as a result of our debt; and changes in the regulatory environment. As a result,
our future operations involve a high degree of risk. 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.

ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Our exposure to financial market risk, including changes in interest
rates, relates primarily to our credit facility and marketable security
investments. Borrowings under our credit facility bear interest at floating
rates, based upon LIBOR or a base rate plus an applicable margin. As a result,
we are subject to fluctuations in interest rates. A 100 basis point increase in
LIBOR would increase our annual interest expense by less than $1.0 million per
year. As of February 28, 2002, we had borrowed $96.0 million under our credit
facility. Of that amount we are subject to fluctuations in interest rates on an
outstanding balance of $71.0 million, with a current weighted average interest
rate of 6.4%.

         On January 2, 2002 we entered into an interest rate swap transaction
with Deutsche Bank AG for a notional amount of $25.0 million and a term of two
years. Pursuant to this transaction, we are obligated to make quarterly interest
payments at a fixed, annual interest rate of 3.7%. Because such interest rate
excludes the applicable margin of 4.5% that we pay on our credit facility, the
total interest rate for us on this swap transaction is 8.2%. As part of this
agreement, Deutsche Bank AG is obligated to pay to us on a quarterly basis a
floating rate of interest based upon LIBOR with a designated maturity of three
months.

                                       22

<PAGE>

         We generally place our marketable security investments in high credit
quality instruments, primarily U.S. government obligations and corporate
obligations with contractual maturities of less than one year. We operate only
in the United States, and all sales have been made in U.S. dollars. We do not
have any material exposure to changes in foreign currency exchange rates.

















                                       23

<PAGE>

ITEM 8. FINANCIAL STATEMENTS

                        CONSOLIDATED FINANCIAL STATEMENTS

                                TABLE OF CONTENTS

                                                                            Page

Report of Independent Public Accountants..................................   25

Consolidated Balance Sheets...............................................   26

Consolidated Statements of Operations.....................................   27

Consolidated Statements of Stockholders' Equity...........................   28

Consolidated Statements of Cash Flows.....................................   29

Notes to Consolidated Financial Statements................................   30




















                                       24

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To FiberNet Telecom Group, Inc.:

     We have audited the accompanying consolidated balance sheets of FiberNet
Telecom Group, Inc. and subsidiaries (a Delaware corporation) as of December 31,
2001 and 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 2001, 2000
and 1999, as restated - See Note 16. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the 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. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes 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.

     We have also audited the adjustments described in Note 16 that were applied
to restate the 1999 financial statements. In our opinion, such adjustments are
appropriate and have been properly applied.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FiberNet
Telecom Group, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for the years ended December
31, 2001, 2000 and 1999, as restated, in conformity with accounting principles
generally accepted in the United States.

                                                  /S/   ARTHUR ANDERSEN LLP
                                                      Arthur Andersen LLP

New York, New York
February 28, 2002






                                       25

<PAGE>

                          FIBERNET TELECOM GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                             December 31,   December 31,
                                                                                                2001           2000
                                                                                               -------        ------
<S>                                                                                         <C>             <C>
                                            ASSETS

Current Assets:
     Cash and cash equivalents .................................................            $   3,338        $  1,582
     Accounts  receivable,  net of  allowance  of $2,245 and $454 at
      December 31, 2001 and 2000, respectively .................................                2,659          14,030
     Prepaid expenses and other ................................................                  700             960
                                                                                            ---------        --------
          Total current assets .................................................                6,697          16,572
Property, plant and equipment, net .............................................              109,837         126,114
Other Assets:
     Goodwill,  net of accumulated  amortization of $1,159 and $2,696 at
      December 31, 2001 and 2000, respectively .................................                7,509          69,057
     Deferred charges, net of accumulated amortization of $1,937 and $679 at
      December 31, 2001 and 2000, respectively .................................               12,099          14,293
     Other assets ..............................................................                  445           1,129
                                                                                            ---------        --------
          Total other assets ...................................................               20,053          84,479
                                                                                            ---------        --------
TOTAL ASSETS ...................................................................             $136,587        $227,165
                                                                                            =========        ========

                           LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
     Accounts payable ..........................................................            $   6,742        $ 11,119
     Accrued expenses ..........................................................                7,452          10,590
     Deferred revenues .........................................................                6,071          14,381
     Capital lease obligation--current portion .................................                  250             233
     Note payable, affiliate ...................................................                2,321              --
                                                                                             --------        --------
          Total current liabilities ............................................               22,836          36,323
Long-Term Liabilities:
     Notes payable, less original issue discount of $6,071 and $4,164 at
      December 31, 2001 and 2000, respectively .................................               88,929          45,836
     Capital lease obligation ..................................................                  474             723
                                                                                             --------        --------
          Total liabilities ....................................................              112,239          82,882
Stockholders' Equity:
     Common stock, $.001 par value, 150,000,000 and 50,000,000 shares authorized
      and 61,572,613 and 33,238,346 shares issued and outstanding at December 31, 2001
      and 2000, respectively ...................................................                   62              33
     Series C voting preferred stock $.001 par value, none and 83,688 shares
      issued and outstanding at December 31, 2001 and 2000, respectively (Preference
      in involuntary liquidation value, $1.50 per share) .......................                   --             135
     Series D preferred stock $.001 par value, none and 322,704 shares issued
      and outstanding at December 31, 2001 and 2000, respectively (Preference in
      involuntary liquidation value, $15.00 per share) .........................                   --           6,195
     Series E preferred stock $.001 par value, none and 317,853 shares issued
      and outstanding at December 31, 2001 and 2000, respectively (Preference in
      involuntary liquidation value, $15.00 per share) .........................                   --           7,344
     Series F preferred stock $.001 par value, none and 376,202 shares issued
      and outstanding at December 31, 2001 and 2000, respectively (Preference in
      involuntary liquidation value, $30.00 per share) .........................                   --          13,874
     Series H preferred stock $.001 par value, 100,556 and 440,544 shares issued
      and outstanding at December 31, 2001 and 2000, respectively (Preference in
      involuntary liquidation value, $100.00 per share) ........................                17,096         64,568
     Series I preferred stock $.001 par value, none and 64,431 shares issued and
      outstanding at December 31, 2001 and 2000, respectively (Preference in
      involuntary liquidation value, $120.00 per share) ........................                   --           8,969
     Series J preferred stock $.001 par value, 356 and no shares issued and
      outstanding at December 31, 2001 and 2000, respectively (Preference in
      involuntary liquidation value, $10,000.00 per share) .....................                 7,063             --
     Subscription receivable from Series J preferred stock .....................                (5,700)            --
     Additional paid-in-capital and other ......................................               295,649        154,821
      Accumulated deficit ......................................................              (289,822)      (111,656)
                                                                                             ---------      ---------
          Total stockholders' equity ...........................................                24,348        144,283
                                                                                             ---------      ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .....................................             $ 136,587      $ 227,165
                                                                                             =========      =========
</TABLE>

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



                                       26

<PAGE>

                          FIBERNET TELECOM GROUP, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                                Year Ended December 31,
                                                                -----------------------
                                                          2001          2000            1999
                                                          ----          ----            ----
                                                                               As restated -
                                                                                 see Note 16
<S>                                                    <C>            <C>            <C>
Revenues .........................................     $  31,195      $  13,117      $      --
Operating expenses:
 Cost of services (exclusive of items shown
 separately below) ...............................        13,801          5,388             --
 Selling, general and administrative expense
 excluding stock related expense .................        32,917         27,072          7,355
 Stock related expense for selling, general,
 and administrative matters ......................        (1,172)         8,468            803
 Non-recurring expenses ..........................            --             --          4,304
 Impairment of property, plant and equipment .....        51,848             --             --
 Impairment of goodwill ..........................        56,467             --             --
 Depreciation and amortization ...................        15,319          7,652            520
                                                       ---------      ---------      ---------
Total operating expenses .........................       169,180         48,580         12,982
                                                       ---------      ---------      ---------
Loss from operations .............................      (137,985)       (35,463)       (12,982)
Interest expense, net ............................        (8,594)        (5,657)        (1,356)
Interest expense from beneficial conversion ......            --             --        (15,870)
                                                       ---------      ---------      ---------
Loss from operations before income taxes .........      (146,579)       (41,120)       (30,208)
Income Taxes .....................................            --             --             --
                                                       ---------      ---------      ---------
Loss before extraordinary item ...................      (146,579)       (41,120)       (30,208)
Extraordinary loss on early extinguishment of debt        (7,398)            --             --
                                                       ---------      ---------      ---------
Net loss .........................................      (153,977)       (41,120)       (30,208)
Preferred stock dividends ........................        (1,080)        (8,113)          (757)
Preferred stock - beneficial conversion ..........       (23,109)       (27,766)          (100)
                                                       ---------      ---------      ---------
Net loss applicable to common
  stockholders ...................................     $(178,166)     $ (76,999)     $ (31,065)
                                                       =========      =========      =========
Net loss applicable to common stockholders per
  share--basic and diluted........................     $   (4.34)     $   (2.60)     $   (1.85)
Weighted average common shares
  outstanding - basic and diluted ................        41,065         29,651         16,798
</TABLE>



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


                                       27

<PAGE>

                          FIBERNET TELECOM GROUP, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    (in thousands, except per share amounts)
                           (as restated - see Note 16)


<TABLE>
<CAPTION>
                                                     Preferred Stock                  Common Stock
                                                --------------------------    --------------------------

                                                   Shares         Amount         Shares         Amount
                                                -----------    -----------    -----------    -----------
<S>                                             <C>            <C>            <C>            <C>
Balance at December 31, 1998 ..................      80,000    $         0     16,000,000    $        16
                                                ===========    ===========    ===========    ===========
Redemption of Series B Preferred Stock ........     (80,000)          --             --             --
Issuance of Series C Preferred Stock ..........     133,333            210           --             --
Issuance of warrants and beneficial
  conversion in connection with May 1999 Notes         --             --             --             --
  Beneficial conversion from issuance of
  September and October 1999 Notes ............        --             --             --             --
Conversion of Senior Secured Convertible
  Notes to common stock, net ..................        --             --       13,826,868             14
Exchange of common stock for preferred stock:
    Issuance of Series D Preferred Stock ......     309,143          4,637     (3,091,430)            (3)
    Issuance of Series E Preferred Stock ......     291,926          4,379     (2,919,260)            (3)
    Issuance of Series F Preferred Stock ......     345,515         10,365     (3,455,243)            (3)
Series D Preferred Stock dividends ............       1,030            140           --             --
Series E Preferred Stock dividends ............       1,946            265           --             --
Series F Preferred Stock dividends ............       2,304            279           --             --
Beneficial conversion on preferred stock
  dividends ...................................        --             --             --             --
Exercise of warrants to common stock ..........        --             --          220,000           --
Issuance of common stock for purchase of
  MFN dark fiber, minority interest and
  Other .......................................        --             --        5,351,529              5
Deferred compensation .........................        --             --             --             --
Stock compensation to consultants and
  employees ...................................        --             --             --             --
Other .........................................        --             --             --             --
Net loss applicable to common stockholders ....        --             --             --             --
                                                -----------    -----------    -----------    -----------
Balance at December 31, 1999 ..................   1,085,197         20,275     25,932,464             26
                                                ===========    ===========    ===========    ===========
Redemption of Series C Preferred Stock ........     (49,645)           (75)        49,645           --
Issuance of common stock, net .................        --             --        4,150,342              4
Issuance of Series H Preferred Stock, net .....     426,333         63,799           --             --
Issuance of Series I Preferred Stock, net .....      62,500          8,850           --             --
Series D Preferred Stock dividends ............      12,531          1,418           --             --
Series E Preferred Stock dividends ............      23,981          2,700           --             --
Series F Preferred Stock dividends ............      28,383          3,230           --             --
Series H Preferred Stock dividends ............      14,211            769           --             --
Series I Preferred Stock dividends ............       1,931            119           --             --
Exercise of options and warrants to purchase
  common stock ................................        --             --        3,105,895              3
Issuance of warrants in connection with bank
  financing ...................................        --             --             --             --
Stock compensation to employees ...............        --             --             --             --
Deferred compensation .........................        --             --             --             --
Other .........................................        --             --             --             --
Net loss applicable to common stockholders ....        --             --             --             --
                                                -----------    -----------    -----------    -----------
Balance at December 31, 2000 ..................   1,605,422        101,085     33,238,346             33
                                                ===========    ===========    ===========    ===========
Direct issuance of common stock, Feb 2001 .....        --             --        6,440,000              6
Issuance of warrants in connection with bank
  financing ...................................        --             --             --             --
Series D Preferred Stock dividends ............      12,123             96           --             --
Series E Preferred Stock dividends ............      22,802            184           --             --
Series F Preferred Stock dividends ............      27,445            219           --             --
Series H Preferred Stock dividends ............      33,959            264           --             --
Series I Preferred Stock dividends ............       4,885             38           --             --
Exercise of options and warrants to purchase
  common stock ................................        --             --          110,580              1
Beneficial conversion on Repricing of
  Series H ....................................        --           16,254           --             --
Beneficial conversion on Repricing of
  Series I ....................................        --            4,766           --             --
Issuance of warrants in connection
  with conversions ............................        --             --             --             --
Conversion of Series C Preferred Stock ........     (83,688)          (135)        83,688           --
Conversion of Series D Preferred Stock ........    (334,827)        (6,291)     3,348,268              3
Conversion of Series E Preferred Stock ........    (340,655)        (7,528)     3,406,563              3
Conversion of Series F Preferred Stock ........    (403,647)       (14,093)     4,036,477              4
Conversion of Series H Preferred Stock ........    (373,947)       (63,990)     8,547,360              9
Conversion of Series I Preferred Stock ........     (69,316)       (13,773)     1,901,253              2
Issuance of Series J Preferred Stock, Net .....         360          7,094        327,273              1
Subscription Receivable on Series J Preferred
  Stock .......................................        --           (5,700)          --             --
Beneficial conversion on Series J
Conversion of Series J Preferred Stock ........          (4)           (31)       132,805           --
Stock compensation to employees ...............        --             --             --             --
Net loss applicable to common stockholders ....        --             --             --             --
                                                -----------    -----------    -----------    -----------
Balance at December 31, 2001 ..................     100,912    $    18,459     61,572,613    $        62
                                                ===========    ===========    ===========    ===========



<CAPTION>
                                                  Additional
                                                   Paid in
                                                   Capital
                                                     and       Accumulated
                                                    Other        Deficit        Total
                                                    -----        -------       --------
<S>                                             <C>            <C>            <C>
Balance at December 31, 1998 ..................       5,466    $    (3,568)   $     1,914
                                                ===========    ===========    ===========
Redemption of Series B Preferred Stock ........        --             --             --
Issuance of Series C Preferred Stock ..........        --             --              210
Issuance of warrants and beneficial
 conversion in connection with May 1999 Notes        13,990           --           13,990
 Beneficial conversion from issuance of
 September and October 1999 Notes .............       7,930           --            7,930
Conversion of Senior Secured Convertible
  Notes to common stock, net ..................      20,709           --           20,723
Exchange of common stock for preferred stock:
    Issuance of Series D Preferred Stock ......      (4,634)          --             --
    Issuance of Series E Preferred Stock ......      (4,376)          --             --
    Issuance of Series F Preferred Stock ......     (10,362)          --             --
Series D Preferred Stock dividends ............        --             --              140
Series E Preferred Stock dividends ............        --             --              265
Series F Preferred Stock dividends ............        --             --              279
Beneficial conversion on preferred stock
  dividends ...................................          72           --               72
Exercise of warrants to common stock ..........         147           --              147
Issuance of common stock for purchase of
  MFN dark fiber, minority interest and
  Other .......................................      43,972           --           43,977
Deferred compensation .........................      (4,290)          --           (4,290)
Stock compensation to consultants and
  employees ...................................      13,764           --           13,764
Other .........................................         220            (24)           196
Net loss applicable to common stockholders ....        --          (31,065)       (31,065)
                                                -----------    -----------    -----------
Balance at December 31, 1999 ..................      82,608        (34,657)        68,252
                                                ===========    ===========    ===========
Redemption of Series C Preferred Stock ........          75           --             --
Issuance of common stock, net .................      46,213           --           46,217
Issuance of Series H Preferred Stock, net .....       4,836           --           68,635
Issuance of Series I Preferred Stock, net .....        --             --            8,850
Series D Preferred Stock dividends ............        --             --            1,418
Series E Preferred Stock dividends ............        --             --            2,700
Series F Preferred Stock dividends ............        --             --            3,230
Series H Preferred Stock dividends ............        --             --              769
Series I Preferred Stock dividends ............        --             --              119
Exercise of options and warrants to purchase
  common stock ................................       6,345           --            6,348
Issuance of warrants in connection with bank
  financing ...................................       6,139           --            6,139
Stock compensation to employees ...............       4,040           --            4,040
Deferred compensation .........................       2,732           --            2,732
Other .........................................       1,833           --            1,833
Net loss applicable to common stockholders ....        --          (76,999)       (76,999)
                                                -----------    -----------    -----------
Balance at December 31, 2000 ..................     154,821       (111,656)       144,283
                                                ===========    ===========    ===========
Direct issuance of common stock, Feb 2001 .....      24,800           --           24,806
Issuance of warrants in connection with bank
  financing ...................................       7,148           --            7,148
Series D Preferred Stock dividends ............        --             --               96
Series E Preferred Stock dividends ............        --             --              184
Series F Preferred Stock dividends ............        --             --              219
Series H Preferred Stock dividends ............        --             --              264
Series I Preferred Stock dividends ............        --             --               38
Exercise of options and warrants to purchase
  common stock ................................        --             --                1
Beneficial conversion on repricing of
  Series H ....................................        --             --           16,254
Beneficial conversion on repricing of
  Series I ....................................        --             --            4,766
Issuance of warrants in connection
  with conversions ............................         279           --              279
Conversion of Series C Preferred Stock ........         135           --             --
Conversion of Series D Preferred Stock ........       6,288           --             --
Conversion of Series E Preferred Stock ........       7,525           --             --
Conversion of Series F Preferred Stock ........      14,089           --             --
Conversion of Series H Preferred Stock ........      63,982           --             --
Conversion of Series I Preferred Stock ........      13,771           --             --
Issuance of Series J Preferred Stock ..........       1,861           --            8,956
Subscription Receivable on Series J Preferred
  Stock .......................................          --           --           (5,700)
Beneficial conversion on Series J .............       2,091                         2,091
Conversion of Series J Preferred Stock ........          31           --             --
Stock compensation to employees ...............      (1,172)          --           (1,172)
Net loss applicable to common stockholders ....        --         (178,166)      (178,166)
                                                -----------    -----------    -----------
Balance at December 31, 2001 .................. $   295,649    $  (289,822)   $    24,348
                                                ===========    ===========    ===========
</TABLE>


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

                                       28

<PAGE>

                          FIBERNET TELECOM GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                                 -----------------------
                                                               2001                  2000                  1999
                                                               ----                  ----                  ----
                                                                                              As restated - see
                                                                                                        Note 16
<S>                                                        <C>                   <C>                   <C>
Cash flows from operating activities:
   Net loss applicable to common
     stockholders ...................................      $(178,166)            $ (76,999)            $ (31,065)
   Adjustments to reconcile net loss to
     net cash used in operating activities:
     Depreciation and Amortization ..................         15,319                 7,652                   520
     Preferred stock dividends ......................          1,080                 8,113                   757
     Interest expense from beneficial conversion ....           --                    --                  15,870
     Preferred stock dividends and
       beneficial conversion ........................         23,109                27,766                   100
     Stock related expense ..........................         (1,172)                8,468                   803
     Non-recurring expense...........................           --                    --                   3,704
     Impairment of Property, plant and
       equipment ....................................         51,848                  --                    --
     Impairment of Goodwill .........................         56,467                  --                    --
     Extraordinary loss on early
       extinguishment of debt .......................          7,398                  --                    --
     Other non-cash expenses ........................          4,545                 3,193                 3,709
   Change in assets and liabilities:
     (Increase) decrease in accounts
       receivable, prepaid expenses and
       other assets .................................          9,686               (15,386)                  140
     Increase (decrease) in accounts
       payable and accrued expenses .................        (12,144)               24,630                   157
                                                           ---------             ---------             ---------
Cash used in operating activities ...................        (22,030)              (12,563)               (5,305)
                                                           ---------             ---------             ---------
Cash flows from investing activities:
   Capital expenditures .............................        (46,737)              (74,677)              (10,827)
   Investment in Devnet, net of cash ................           --                 (17,896)                 --
                                                           ---------             ---------             ---------
Cash used in investing activities ...................        (46,737)              (92,573)              (10,827)
                                                           ---------             ---------             ---------
Cash flows from financing activities:
   Net proceeds from issuance of debt
     financing ......................................         45,000                45,016                25,331
   Net proceeds from issuance of equity
     securities .....................................         25,756                52,393                   200
   Repayment of capital lease obligation ............           (233)                 (203)                 (144)
                                                           ---------             ---------             ---------
Cash provided from financing activities .............         70,523                97,206                25,387
                                                           ---------             ---------             ---------
Net increase (decrease) in cash .....................          1,756                (7,930)                9,255
Cash at beginning of period .........................          1,582                 9,512                   257
                                                           ---------             ---------             ---------
Cash at end of period ...............................      $   3,338             $   1,582             $   9,512
                                                           =========             =========             =========

Supplemental disclosures of cash
  flow information:
   Interest paid ....................................      $   6,732             $   2,589             $     110
   Income taxes paid ................................           --                    --                    --
Non-cash financing activities:
   Issuance of common stock and options
     to acquire Devnet ..............................           --               $  39,842                  --
   Issuance of common stock to acquire
     MFN dark fiber and minority interest ...........           --                    --               $  43,450
   Issuance of capitalized stock options ............           --                    --               $   7,115
   Capital expenditures financed through
     capital leases .................................           --                    --               $   1,303
</TABLE>



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

                                       29

<PAGE>

                          FIBERNET TELECOM GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION AND OPERATIONS

     FiberNet Telecom, Inc. ("Original FiberNet") was organized under the laws
of the State of Delaware on August 10, 1994. On November 24, 1997, an existing
public company, Desert Native Design, Inc. ("DND"), acquired Original FiberNet,
pursuant to an agreement and plan of merger dated that date (the "Original
Merger"). To effect the Original Merger, DND effectuated a 3.5 for 1 forward
stock split, which entitled DND shareholders to 3.5 shares of DND stock for
every one share held by them and issued 11,500,000 shares of common stock and
80,000 Series B Preferred Stock in exchange for all of the outstanding shares of
Original FiberNet. Upon consummation of the Original Merger, Original FiberNet
became a wholly-owned subsidiary of DND, which subsequently changed its name to
FiberNet Telecom Group, Inc., a Nevada corporation ("FiberNet Nevada"). For
accounting purposes, the acquisition was treated as a recapitalization of DND
with Original FiberNet as the acquirer (reverse acquisition). On December 9,
1999, FiberNet Nevada changed its state of incorporation to Delaware
(hereinafter referred to as "FiberNet" or the "Company").

     FiberNet is an all-optical facilities-based communications provider focused
on providing wholesale broadband connectivity for data, voice and video
transmission on its state-of-the-art fiber optic networks in major metropolitan
areas. The Company offers an advanced high bandwidth, fiber optic solution to
support the demand for network capacity in the intra-city market, or local loop.
The Company has established operations in the New York, Chicago and Los Angeles
metropolitan areas.

     FiberNet is holding a company that owns all of the outstanding common stock
of FiberNet Operations Inc., a Delaware corporation and an intermediate level
holding company, and Devnet L.L.C. ("Devnet"), a Delaware limited liability
company. FiberNet Telecom Operations, Inc. owns all of the outstanding common
stock of FiberNet Telecom Inc., a Delaware corporation. FiberNet Telecom, Inc.
owns all of the outstanding membership interests of Local Fiber, L.L.C. ("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. The Company conducts its primary business
operations through its operating subsidiaries, Devnet, Local Fiber and Equal
Access.

     The Company was a development stage enterprise through December 31, 1999.
During the fiscal quarter ended March 31, 2000, the Company began offering its
services to customers and recognizing revenues.

     The Company has agreements with other entities, including
telecommunications license agreements with on-net 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.
These contracts and agreements are critical to the Company's ability to execute
its business strategy and operating plan.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles 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


                                       30

<PAGE>

reporting period. Actual results could differ from those estimates.

     The Company's operations and ability to grow may be affected by numerous
factors, including the difficulty inherent in operating an early-stage company
in a new and rapidly evolving market; its history of operating losses and
accumulated deficit; its limited financial resources and uncertainty as to the
availability of additional capital to fund its operations on acceptable terms,
if at all; its success in obtaining additional carrier hotel lease agreements
and license agreements with building owners; growth in demand for its services;
the frequency of service interruptions on its networks; the potential
development by competitors of competing products and technologies; restrictions
imposed on it as a result of its debt; and changes in the regulatory
environment. The failure of the Company to achieve certain operational results
would violate certain debt covenants thereby potentially accelerating the
outstanding balance for immediate payment.

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 ..................3-5  Years
        Computer equipment .................3-5  Years
        Office equipment and fixtures ......5-10 Years
        Leasehold improvements .............9-15 Years
        Network equipment ..................5-10 Years
        Network infrastructure .............5-20 Years

     Maintenance and repairs are expensed as incurred. Long-term 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 including
goodwill and property, plant and equipment for impairment 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. See
Notes 4 and 6.

Revenue Recognition

     FiberNet generates revenues from selling network capacity and related
services to other communications service providers. The majority of the
Company's revenues are generated on a monthly recurring basis under contracts of
various lengths, ranging from one month to five years. Revenue is recognized
over the service contract period for all general services. Deferred revenues
consist primarily of payments received in advance of revenue being earned under
the service contracts. Most of its customers are obligated to make minimum
payments for the utilization of its networks and facilities. Customers may elect
to purchase additional services in excess of minimum contractual requirements.

     Revenues are derived from three general types of services:

     Transport services. FiberNet's transport services include the offering of
broadband circuits on its metropolitan transport networks and in-building
networks. The Company also offers vertical dark fiber in certain of its carrier
hotel facilities and on-net and off-net buildings. The meet-me-room facility
offers customers a single room within the carrier hotel to cross connect.


                                       31

<PAGE>

     Colocation facility services. FiberNet's colocation services include
providing customers with the ability to locate their communications and
networking equipment at its carrier point facilities in a secure technical
operating environment. The Company also can provide its customers with
colocation services in the central equipment rooms of certain of its on-net
buildings. If a customer purchases colocation services, the Company typically
requires the customer to make a minimum commitment for transport services, as
well.

     Communications access management services. FiberNet's access management
services include providing its customers with the non- exclusive right to market
and provide their retail services to tenants in its on-net and off-net
buildings. Customers typically enter into an agreement with the Company to gain
access to all or a significant number of its properties. For all of its off-net
buildings and some of its on-net buildings, the Company has the exclusive right
to manage communications access. Once a customer has entered into an agreement
with the Company for access services, FiberNet typically requires that customer
to utilize its in-building network infrastructure for connectivity to end-user
tenants.

     The Company has four reciprocal agreements. The services provided and
obtained through these agreements were priced at fair market value as of the
date of the agreements and are included in revenues and direct costs in the
accompanying consolidated statements of operations. The Company leased
colocation facilities under these agreements and the total amount expensed for
services rendered under the reciprocal agreements in fiscal 2001 was
approximately $5,383,000, compared to approximately $2,240,000 in fiscal 2000.
The Company recorded revenues for the provision of metropolitan transport
services and colocation space in carrier hotels of approximately $5,240,000 in
fiscal 2001 from these reciprocal agreements, compared to approximately
$2,186,000 in fiscal 2000.

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101 ("SAB 101"), which addresses accounting policies
to be applied in the recognition, presentation and disclosure of revenues from
contract partnerships, in financial statements filed with the SEC. SAB 101
defers revenue recognition for certain payments previously received into future
accounting periods. The Company's financial statements reflect the accounting
guidance in SAB 101 for all periods presented.

Fair Value of Financial Instruments

     The Company estimates that the carrying value of its financial instruments
approximates fair value.

Goodwill and Intangibles

     Cost in excess of net assets of acquired business, principally goodwill, is
amortized on the straight-line method over 15 years. Other intangible assets
include the cost to access buildings and deferred financing costs. Costs to
access buildings are amortized over 15 years, which represents the term of the
related contracts. Deferred financing costs are amortized over the term of the
credit facility. Please see Note - 6, Impairment of Goodwill for a discussion of
the impairment of the goodwill associated with the Company's acquisition of
Devnet.

Earnings Per Share

     Basic earnings per share have been computed using the weighted average
number of shares 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. Dilutive
options, warrants and other securities did not have an effect on the computation
of diluted earnings per share in 2001, 2000 and 1999, as they were
anti-dilutive.

Concentration of Credit Risk.

     The Company has concentration of credit risk among its customer base. The
Company performs ongoing credit evaluations of its larger customers' financial
condition. As of December 31, 2001 and 2000, one customer accounted for 19.4%
and two customers in the aggregate accounted for 25.6% of the Company's total
accounts receivable, respectively.

                                       32

<PAGE>

     For the year ended December 31, 2001 and 2000, three customers in the
aggregate accounted for 53.3% and two customers in the aggregate accounted for
61.5% of the Company's total revenue, respectively. In 2001 and 2000 the Company
recorded $2.6 million and $0.5 million of bad debt expense; $0.9 million was
written off in 2001. The Company has an allowance for doubtful accounts of $2.2
million and $0.5 million as of December 31, 2001 and 2000, respectively.

Stock Option Plan

     The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25), and, accordingly, recognizes expense for stock option grants to the extent
that the estimated fair value of the stock exceeds the exercise price of the
option at the measurement date. Stock option grants to non-employees are
accounted in accordance with Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation". The resulting
expense is charged against operations ratably over the vesting period of the
options.

Accounting for Income Taxes

     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
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.

Accounting for Derivative Instruments

     The Company accounts for derivative instruments in accordance with SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", as amended.
SFAS No. 133 establishes standards of accounting and reporting for derivative
instruments and hedging activities, and requires that all derivatives be
recognized on the balance sheet at fair value. Changes in the fair value of
derivatives that do not meet the hedge accounting criteria are to be reporting
in earnings. The adoption of SFAS No. 133 did not have a material impact on the
Company's consolidated financial statements, as the Company has not entered into
any derivative instrument contracts for the years ended December 31, 2001, 2000
and 1999.

Reclassifications

     Certain balances have been reclassified in the consolidated financial
statements to conform to current year presentation.

Segment Reporting

     The Company is a single segment operating company providing
telecommunications services.

Recent Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations", applicable for fiscal years beginning after
December 15, 2001. SFAS No. 141 establishes new standards of accounting for
business combinations, eliminating the use of the pooling-of-interests method
and requires that the purchase method be used for business combinations
initiated at June 30, 2001.

     In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", applicable for fiscal years beginning after December 15, 2001. SFAS No.
142 establishes new standards of accounting for goodwill and intangible assets
obtained in an acquisition. The amortization of goodwill for previous
acquisitions will cease upon adoption of SFAS Nos. 141 and 142 on January 1,
2002. We do not expect the adoption of SFAS No. 142 to have a material impact on
the consolidated financial statements of the Company.

     In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." The Statement

                                       33

<PAGE>

requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the entity capitalizes a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted to
its then present value, and the capitalized cost is depreciated over the useful
life of the related asset. Upon settlement of the liability, an entity either
settles the obligation for its recorded amount or incurs a gain or loss upon
settlement. The Statement is effective for fiscal years beginning after June 15,
2002, with earlier application encouraged. The Company does not expect the
adoption of the Statement to have a material impact on its results of
operations.

     In October, 2001 the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The Statement replaces SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," although it retains the impairment testing
methodology used in SFAS No. 121. The accounting and reporting provisions of
Accounting Principals Board Opinion (APB) 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," are
superceded by SFAS No. 144, except that the Statement preserves the requirement
of APB 30 to report discontinued operations separately from continuing
operations. The Statement covers a variety of implementation issues inherent in
SFAS No. 121, unifies the framework used in accounting for assets to be disposed
of and discontinued operations, and broadens the reporting of discontinued
operations to include all components of an entity with operations that can be
distinguished from the rest of the entity and that will be eliminated from the
ongoing operations of the entity in a disposal transaction. The Statement is
effective for fiscal years beginning after December 15, 2001. FiberNet adopted
SFAS No. 144 on January 1, 2002. The Company does not expect the adoption of
SFAS No. 144 to have a material impact on our financial statements.


                                       34

<PAGE>

                          FIBERNET TELECOM GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3.   PROPERTY, PLANT AND EQUIPMENT

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

                                                   December 31,     December 31,
                                                      2001             2000
                                                      ----             ----

        Computer software .........................     $178           $2,963
        Computer equipment ........................      293            1,926
        Leasehold improvements ....................       30            1,111
        Office equipment and furniture ............      146              810
        Network equipment and infrastructure ......  120,523           71,322
                                                    --------        ---------
        Total .....................................  121,170           78,132
        Accumulated depreciation ..................  (15,758)          (4,894)
                                                    --------        ---------
                                                     105,412           73,238
        Construction in progress ..................    4,425           52,876
                                                    --------        ---------
        Property, plant and equipment, net ........ $109,837         $126,114
                                                    --------        ---------


     Depreciation expense on property, plant and equipment was $10,864, $4,458
and $407 for the years ended December 31, 2001, 2000 and 1999, respectively.

4.   IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

     The Company reviews the carrying value of these assets for impairment
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 December 2001, the Company revised its business plan and conducted
extensive reviews of its assets and operations in connection with amending the
Credit Facility (See Note 7). The Company used an undiscounted forecasted
cash flow model to determine if there was an impairment based on the cash flows
expected to be generated from these assets, and used a discounted cash flow
model to measure the impairment. As a result of this analysis, the Company has
recorded an asset impairment of approximately $51.8 million based on the amount
by which the carrying amount of these assets exceeded their fair value. Of this
amount, $40.4 million relates to assets held for use, and $11.4 million
represents assets to be disposed of.

5.   ACQUISITION

     On April 2, 2000, FiberNet acquired approximately 3% of the Devnet
membership interests for a purchase price of $3 million. On July 31, 2000,
FiberNet acquired the remaining 97% of the membership interests of Devnet not
already beneficially owned by the Company pursuant to the Agreement and Plan of
Reorganization, dated as of June 2, 2000. Devnet's operations are included in
FiberNet's results of operations for the period from July 31, 2000 through
December 31, 2000. Devnet managed the communications access and infrastructure
for approximately 40 million square feet of class A commercial real estate in
major markets nationwide. In connection with the acquisition, the Company issued
3,461,162 shares of its common stock and paid approximately $15 million in
exchange for approximately 97% of the membership interests in Devnet. The
acquisition was accounted for under the purchase method of accounting. The
Company allocated the purchase price of approximately $60 million to the assets
and liabilities of Devnet. Initially, the amount allocated to goodwill was being
amortized over 15 years using the straight-line method, however, see Note - 6
Impairment of Goodwill for a discussion of the impairment of the goodwill
associated with this acquisition. In connection with the acquisition, the
Company paid an aggregate of $500,000 to related parties for financial advisory
services.


                                       35

<PAGE>

     FiberNet's proforma results of operations assuming the Devnet acquisition
occured on January 1, 2000, would have been as follows (dollars in thousands,
except per share data):

                                                                    December 31,
                                                                       2000
                                                                       ----

         Revenues ..................................................  $14,606
         Net loss applicable to common shareholders ................ $(82,597)
         Net loss applicable to common shareholders per share -
               basic and diluted ...................................  $(2.55)



6.   IMPAIRMENT OF GOODWILL

     During 2001, the Company evaluated the carrying value of certain long-lived
assets and acquired equity investments, consisting primarily of goodwill
resulting from the Company's acquisition of Devnet. Pursuant to APB Opinion No.
16, "Business Combinations", the purchase price was determined and goodwill was
recorded based on the stock price at the time the merger agreement was executed
and announced. The Company reviews the carrying value of long-lived assets
including goodwill and property, plant and equipment for impairment 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.

     An assessment of the goodwill related to the Devnet acquisition was
performed pursuant to SFAS No. 121, due to the negative industry and economic
trends affecting certain of the Company's current operations and expected future
sales, as well as the general decline in the valuations of telecommunications
companies. The conclusion of that assessment was that the decline in market
conditions within the telecommunications industry was significant and other than
temporary.

     Devnet had entered into exclusive license agreements to manage
communications access to commercial office properties, and the company
associated the related goodwill primarily to those agreements. The Company used
an undiscounted forecasted cash flow model to determine if there was an
impairment based on the cash flows expected to be generated from business
activities in the commercial office properties underlying the license agreements
and used a discounted cash flow model to measure the impairment. As a result,
the Company recorded a charge of $56.5 million during the third quarter of 2001
to reduce goodwill associated with the purchase of Devnet. The charge was based
on the amount by which the carrying amount of the asset exceeded its fair
value.

7.   NOTES PAYABLE

Note Payable - Affiliate

     On December 7, 2001 the Company issued a promissory note in the amount of
$2.3 million to Nortel Networks Inc., a related party, as consideration
for accounts payable previously due and owing for equipment and services. The
note bears interest at an annual rate of 14% and is payable in eight monthly
installments of approximately $300,000 beginning in January 2002. The Company
believes the terms of this transaction are no less favorable than could be
received from an independent, third party.

Senior Secured Credit Facility

     On April 11, 2000, the Company entered into a $75.0 million Senior Secured
Credit Facility (the "Credit Facility") with Deutsche Bank AG New York Branch,
Deutsche Bank Securities Inc., Toronto Dominion (Texas), Inc. and Nortel. In
addition to the initial lenders, First Union National Bank, Bank One Capital
Corporation and IBM Credit Corporation are currently lenders under the Credit
Facility. FiberNet used the funds available under the Credit Facility for the
acquisition and construction of its network infrastructure and for general
corporate purposes. The Credit Facility had a term of four and one-half years,
consisting of revolving credit availability for the first 18 months and a term
loan for the remaining three years. The Credit Facility is secured by the
Company's assets, except for the assets pledged in connection with its capital
lease obligations,


                                       36

<PAGE>

and contains certain restrictive covenants customary for a financing of this
type. As of December 31, 2001 and 2000, $95.0 and $50.0 million was outstanding
under the Credit Facility, respectively. This amount is included in notes
payable in the accompanying balance sheet net of an original issue discount of
$6.1 million and $4.2 million at December 31, 2001 and 2000, respectively. This
discount represents the fair value of warrants to purchase approximately 1.5
million shares of common stock of the Company at an exercise price of $18.062
per share, with an expiration date of April 11, 2005, issued to the lenders in
connection with the Credit Facility.

     On December 18, 2000, the Company issued 504,614 additional warrants to its
lending group at an exercise price of $17.062 and re-priced the warrants issued
on April 11, 2000 from $18.062 to an exercise price of $17.062. The discount is
being amortized over the term of the Credit Facility. The fair value of the
warrants was estimated on the date of issuance using the Black-Scholes option
pricing model. The transaction was evaluated in accordance with the guidance in
EITF Issue 96-19, "Debtor's Accounts for a Modification or Exchange of Debt
Instruments." The value on December 18, 2000 of the cash flows under the terms
of the revised debt instrument as compared to the cash flows under the original
debt instrument resulted in a difference that was "not substantially" different.
An adjustment was made to the original issue discount, initially recorded in
connection with the issuance of the warrants, and to additional paid-in-capital
(APIC) to reflect the new exercise price of those warrants.

     On February 9, 2001, the Company amended the Credit Facility to increase
the availability thereunder to $105.0 million and to the extend the maturity
thereof to six years. In connection with this amended credit facility, the
Company issued warrants to purchase an additional 454,409 shares of its common
stock, with an expiration date of April 11, 2005, at an exercise price of $8.00
per share. In addition, all warrants issued under the original credit agreement
were replaced with warrants to purchase an equivalent amount of the Company's
common stock, with an expiration date of April 11, 2005, at an exercise price of
$8.00 per share. The transaction was evaluated in accordance with EITF 96-19,
and it was determined that a substantial modification of terms had been made. As
such, the transaction was accounted for, and reported in the same manner as, an
extinguishment, and the Company recorded a $7.4 million charge for the
extraordinary loss from extinguishment of debt, representing deferred financing
fees and the original issue discount relating to the previous Credit Facility.

     Also, on April 27, 2001, in connection with a waiver and agreement under
our credit facility, warrants to purchase 300,000 shares of our common stock at
a purchase price of $8.00 per share held by Deutsche Banc Alex.Brown were
replaced with new warrants to purchase an equivalent amount of our common stock
at a purchase price of $0.01 per share.

     The Company valued the warrants at each issuance and pricing date using the
Black-Scholes valuation model and recorded a debit to original issue discount
with a credit to APIC for the warrant's value.

     In connection with the Company's sale of its Series J preferred stock, on
December 7, 2001, it entered into an amendment of its Credit Facility with its
lenders pursuant to which the lenders consented to the sale of the series J
preferred stock and adjusted certain covenants contained in the credit agreement
underlying the Credit Facility. Additionally, all warrants outstanding issued to
the lenders under the Credit Facility were replaced with warrants with identical
terms other than with respect to a reduction of the exercise price to $0.50.

     Material financial covenants monitored on a quarterly basis include minimum
requirements for cumulative revenues and EBITDA, a maximum limitation on capital
expenditures, and compliance with ratios of total debt to consolidated
capitalization and total debt to property, plant and equipment, net of
accumulated depreciation. In addition, the second and third closings for the
issuance of the Series J preferred are required under the credit agreement.
Non-compliance with any of these covenants, requirements, or other terms and
conditions, constitutes an event of default under the credit agreement,
prohibiting access to any additional funds available under the credit facility
and potentially accelerating the outstanding balance for immediate payment.

     Minimum Cumulative Net Revenues ("Net Revenues") which is defined as GAAP
revenue plus deferred revenue recorded on the balance sheet requires the Company
to have Net Revenues from January 1, 2000 to December 31, 2001 of $49.1 million.
The Company's Net Revenues from January 1, 2000 to December 31, 2001 was $50.4
million. The covenant requires Net Revenues from January 1, 2000 to March 31,
2002, June 30, 2002, September 30, 2002, and December 31, 2002 to be at least
$55.3 million, $63.4 million, $73.2 million and $84.9 million, respectively.

May Convertible Notes

     On May 7, 1999 (the "Closing Date"), the Company entered into a securities
purchase agreement with certain investors, including Signal Capital Partners,
L.P., Trident Telecom Partners LLC and Concordia Telecom Management,


                                       37

<PAGE>

L.L.C., for the sale of $14.1 million of securities, consisting of $13.9 million
aggregate amount of 4% to 8% Senior Secured Convertible Notes due 2004 (the "May
Convertible Notes") and 133,333 shares of convertible Series C preferred stock
with an aggregate redemption value of $0.2 million, or $1.50 per share, (the
"Series C preferred stock," together with the May Convertible Notes, the
"Securities"). The Securities were convertible into shares of the Company's
common stock at a conversion price of $1.50 per share. The May Convertible Notes
were secured by, among other things, a pledge by the Company of the shares of
common stock of its wholly-owned subsidiaries. Together with the sale of the May
Convertible Notes, the Company issued approximately 7.9 million warrants to
purchase common stock to the purchasers of the May Convertible Notes (the
"Warrants"). The Warrants are exercisable at $0.67 to $1.50 per share and expire
five years after the Closing Date.

     The Series C preferred stock, May Convertible Notes and the Warrants were
recorded at $0.1 million, $8.0 million, and $6.0 million, respectively. The
proceeds allocated to the Securities and Warrants were based on the relative
fair value of each security. The fair values of the Securities were determined
based upon the then quoted stock price of $4.94, and the number of common shares
that the Securities are convertible into. The Warrants were valued using the
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 4.8%, expected dividend yield of 0%, expected life of 5 years,
and expected volatility of 88%.

     In connection with the issuance of the May Convertible Notes and the
related Warrants, the Company recorded an original issue discount on the May
Convertible Notes in the amount of approximately $6.0 million, which represents
the proceeds allocated based on the relative fair value of the Warrants. The
original issue discount was amortized over the five-year life of the May
Convertible Notes. Certain financing costs related to the issuance of the May
Convertible Notes were capitalized as deferred charges and amortized over the
five-year life of the May Convertible Notes.

     In connection with this transaction, the Company recorded a non-recurring,
non-cash charge for a beneficial conversion feature in the amount of
approximately $7.9 million, to reflect the market price of the common stock on
the date of issuance. See Note 16.

September Convertible Notes

     On September 28, 1999, the Company entered into another securities purchase
agreement with certain investors, including Signal Equity Partners, L.P.
(formerly Signal Capital Partners, L.P.) and Waterview Partners, L.P., an
affiliate of Georgica Advisors LLC, for the sale of $7.8 million of 8% Senior
Secured Convertible Notes due 2004. On October 19, 1999, the Company issued an
additional $4.7 million of 8% Senior Secured Convertible Notes due 2004 to
certain other investors, for a total of $12.5 million (the "September
Convertible Notes"). The September Convertible Notes were convertible into
shares of the Company's common stock at a conversion price of $3.00 per share,
subject to anti-dilution adjustments. The September Convertible Notes were
secured by, among other things, a pledge by the Company of the shares of common
stock of its wholly-owned subsidiaries. In connection with this transaction, the
Company recorded a non-recurring, non-cash charge for a beneficial conversion
feature in the amount of $7.9 million, to reflect the market price of the common
stock as of the dates of issuance thereof.

     In connection with the issuance of $7.8 million of the September
Convertible Notes on September 28, 1999, certain financing costs, totaling
approximately $135,000, were capitalized as deferred charges and amortized over
the five-year life of those September Convertible Notes.

Conversion of May and September Convertible Notes

     On November 30, 1999, holders of the Company's May Convertible Notes and
September Convertible Notes converted their principal and accrued interest into
shares of common stock. Subsequently, certain holders of the 4% May Convertible
Notes exchanged their common stock for Series D preferred stock, certain holders
of the 8% May Convertible Notes exchanged their common stock for Series E
preferred stock and certain holders of the September Convertible Notes exchanged
their common stock for Series F preferred stock (See note 11 - Preferred Stock).

     The Company did not record any beneficial conversion charge related to the
conversion of the May and September Convertible Notes into common shares and
then into preferred stock because the fair value of the common shares of $7.25
per share, the quoted market price on the date of conversion, equals the fair
value of the common shares into which the Series D


                                       38

<PAGE>

preferred stock, Series E preferred stock and Series F preferred stock can be
converted.

8.   COMMITMENTS AND CONTINGENCIES

     The Company has entered into an equipment leasing agreement requiring the
payment of $1.0 million over a five-year period that commenced August 1999. The
present value of this amount has been included as capital lease obligation on
the consolidated balance sheets as of December 31, 2001 and 2000.

     The Company also 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, 2001, 2000 and 1999 was approximately $14.2
million, $6.0 million, and $0.8 million, respectively.

     Estimated future minimum operating and capital lease payments are as
follows (in thousands):


                                        Operating       Capital
                                        ---------       -------

       2002 ............................. $11,644          $347
       2003 .............................  10,574           314
       2004 .............................   9,383           212
       2005 .............................   9,320            --

       2006 and thereafter ..............  69,464            --
       Less: interest component .........      --          (149)
                                         --------        ------
       Total ............................$110,385          $724
                                         ========        ======


     On December 31, 1999, the Company entered into a master purchase agreement
with Nortel Networks Inc., a related party, giving it the right to purchase
optical networking equipment and related services at predetermined volume-based
pricing. On June 22, 2000, the Company amended its master purchase agreement
with Nortel to expand the scope of this agreement from $60.0 million to $260.0
million and to extend the term of the agreement to 2002.

     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.

9.   STOCK OPTIONS

     In December 1999, the Company adopted an employee equity participation
program (the "1999 Stock Option Plan") covering 4,500,000 shares of common stock
of the Company to advance the growth and success of FiberNet by enabling
employees, directors and consultants to acquire a proprietary interest in the
Company. The Board of Directors administered the 1999 Stock Option Plan. All
employees were eligible to receive awards under the 1999 Stock Option Plan, at
the Board's discretion. Options granted pursuant to the 1999 Stock Option Plan
(i) are either nonqualified options and/or incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, (ii)
have a term of ten years and (iii) typically vest on an annual basis over three
years. The Company's previous Employee Equity Participation Program was
terminated during 1999.

     On May 23, 2000, FiberNet's board of directors approved, and on July 27,
2000 the Company's stockholders ratified, the adoption of an equity incentive
plan (the "Equity Incentive Plan"), which amends and restates the Company's 1999
Stock Option Plan, covering 10,000,000 shares of common stock of the Company. On
June 5, 2001, the Company's stockholders ratified an increase in the number of
shares available under the Equity Incentive Plan to 12,644,000. The Equity
Incentive Plan provides for the grant of incentive stock options, non-qualified
stock options and other performance and non-performance based equity awards,
including restricted stock, performance awards, stock appreciation rights, or
SARs, and other types of awards based on the Company's common stock. During the
fiscal year ended December 31, 2001, the Company granted approximately 6.4
million options under the Equity Incentive Plan, at an average exercise price of
approximately $0.40 per share, with a vesting period of up to three years.

                                       39

<PAGE>

     The Company accounts for stock options under APB Opinion No. 25. During the
years ended December 31, 2001, 2000 and 1999, the Company granted stock options
to employees with exercise prices below the market price on the date of the
grant. Additionally, on December 21, 2000, the Company repriced certain options
previously granted to three of its executive officers, resulting in variable
plan accounting in accordance with FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation (FIN 44), from the date of
modification. These options were originally granted in 1999 and 2000 at exercise
prices of $4.00, $3.75, $6.00 and $9.31 per share, and were repriced at an
exercise price of $1.00 per share for certain members of the senior management
team and $6.00 per share for all other options repriced. The additional
intrinsic value was determined on the date of modification using the then market
price of the common stock. The additional compensation cost was recognized over
the period from the date of modification to the date the awards vest. The
additional compensation cost has been adjusted in subsequent periods for changes
in the market price. After the awards vested, adjustments to compensation cost
for changes in the market price were recognized immediately. In subsequent
periods, the market price declined resulting in negative compensation cost being
recognized. In accordance with FIN 44, expense reduction has been recognized up
to the amount of the expense previously recognized in prior periods relating
specifically to the modified awards. As such the Company recorded compensation
expense to employees of approximately $(1.2) million, $8.5 million, and $0.8
million for those years, respectively.

     If the Company had calculated stock option compensation expense as
prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company's net loss and net loss per share would have been the following pro
forma amounts:

<TABLE>
<CAPTION>

                                                                       2001         2000          1999
                                                                       ----         ----          ----

<S>                                                                  <C>            <C>         <C>
Net loss applicable to common stockholders ..... As reported         $178,166       $76,999     $31,065
                                                 Pro forma           $181,019       $85,688     $32,945


Net loss per share applicable to common stockholders
  basic and diluted ............................ As reported          $ (4.34)      $ (2.60)    $ (1.85)
                                                 Pro forma            $ (4.41)      $ (2.89)    $ (1.96)
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants in December 31, 2001, 2000 and 1999: risk-free interest rates of 4.875%,
5.2% and 5.5%, respectively, expected dividend yields of 0%, expected life of
six years to expiration and expected volatility of 159%, 96% and 88%,
respectively.

Transactions during the years ended December 31, 2001, 2000 and 1999,
respectively, involving stock options are summarized as follows:

<TABLE>
<CAPTION>

                                                    2001                          2000                         1999
                                        --------------------------    --------------------------     -------------------------
                                                                                        Average                       Average
                                         Number of        Average      Number of         Option      Number of        Option
                                          Shares        Option Price    Shares         Price Per      Shares           Price
                                          ------         Per Share      ------           Share        ------         Per Share
                                                         ---------                       -----                       ---------
<S>                                      <C>             <C>           <C>             <C>           <C>             <C>
Options outstanding at the begin-
   ning of the period ...........        9,775,727       $    6.42     5,870,167       $    2.92     1,268,834       $    3.05
Granted .........................        7,673,929            0.40     5,969,893            9.16     5,969,333            3.30
Exercised .......................         (103,452)           3.95    (1,600,000)           2.06            --              --
Terminated ......................       (2,092,942)           9.41      (464,333)          12.35    (1,368,000)           4.67
                                        ----------       ---------    ----------      ----------     ---------       ---------
Options outstanding at the end of
   Year .........................       15,253,262            3.00     9,775,727            6.42     5,870,167            2.92
                                        ----------       ---------    ----------      ----------     ---------       ---------
Exercisable at end of year ......        7,833,182            3.64     4,894,904            3.70     5,004,834            2.69
                                        ----------       ---------    ----------      ----------     ---------       ---------
Weighted average fair value of
   options granted ..............                        $    0.38                     $    9.76                     $    3.76
</TABLE>

     The following table summarizes information about stock options outstanding
as of December 31, 2001:

<TABLE>
<CAPTION>

                          OPTIONS OUTSTANDING                                                 OPTIONS EXERCISABLE
--------------------------------------------------------------------------------      --------------------------------------
                         Outstanding      Weighted-Average                                  Exercisable
       Range of             as of            Remaining          Weighted-Average               as of        Weighted-Average
   Exercise Prices       12/31/2001       Contractual Life       Exercise Price              12/31/2001      Exercise Price
<S>                      <C>              <C>                   <C>                    <C>                  <C>

 $0.0000 - $ 2.0170      9,665,858              9.4                 $0.5729                  4,034,536            $0.9211
 $2.0171 - $ 4.0340      1,532,517              8.0                 $3.6003                    995,217            $3.5837
 $4.0341 - $ 6.0510      2,026,668              7.7                 $5.2107                  1,820,837            $5.1651
 $6.0511 - $ 8.0680         44,167              7.6                 $7.6800                     18,503            $7.7956
 $8.0681 - $10.0850        917,169              7.7                 $9.2687                    424,187            $9.2254
$10.0851 - $12.1020         88,000              8.4                $11.3928                     42,668           $11.2896
$12.1021 - $14.1190        380,048              6.0                $13.0870                    234,722           $13.1041
$14.1191 - $16.1360        476,501              8.1                $14.9204                    178,841           $14.9309
$16.1361 - $18.1530         58,334              1.3                $16.4029                     19,671           $16.4154
$18.1531 - $20.1700         64,000              6.9                $19.4550                     64,000           $19.4550
                      ------------       ----------              ----------                -----------          ---------
                        15,253,262              8.7                 $2.9989                  7,833,182            $3.6436
</TABLE>

Stock Option Grants to Non-Employees

     During 2000, the Company granted 76,000 stock options to certain
consultants for services rendered in connection with the design, development and
construction of the Company's telecommunications network infrastructure. As a
result, the Company recorded approximately $3.3 million of property, plant and
equipment for the year ended December 31, 2000, which represents the fair value
of the options granted. The Company also granted stock options to


                                       40

<PAGE>

     Tishman Speyer Properties, L.P. ("TSP") in connection with the master
license agreement. As a result, the Company recorded approximately $3.8 million
of deferred charges for the year ended December 31, 1999, which represents the
fair value of the options granted. In addition, the Company granted stock
options with a one-year vesting period to outside consultants for
pre-acquisition due diligence services. As a result, the Company recognized
approximately $658,000 of compensation expense, which is included in general and
administrative expense in the accompanying statement of operations for the year
ended December 31, 1999.

     On May 26, 2000, FiberNet entered into an amended and restated agreement
with TSP. As partial consideration for this amended and restated agreement, TSP
terminated the prior master license agreement and surrendered the warrant in
equal access. Under the agreement, the Company will issue up to 1.6 million
shares of its Common Stock to TSP as the Company enters into license agreements
for the deployment and operation of its in-building networks in certain
commercial office properties owned or managed by TSP. As of December 31, 2001,
approximately 700,000 shares have been issued under the agreement for a total
value of $6.4 million, based on fair market value on the date of issuance. This
amount is included in deferred charges on the accompanying balance sheet and is
being amortized over 15 years, the term of the underlying license agreement. In
a related transaction, TSP exchanged a warrant it held for membership interests
in Equal Access, an indirect wholly-owned subsidiary of FiberNet. This exchange
had no impact on the financial statements of the Company since TSP did not
perform under the master license agreement, and the Company received no benefit
from the agreement. Consequently, TSP never earned any portion of the warrant
and no costs were capitalized related to this warrant.

10.   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 and convertible securities. As of December 31,
2001, the Company had outstanding (i) warrants exercisable into approximately
20.0 million shares of common stock at exercise prices ranging from $0.01 to
$6.56 per share and (ii) convertible preferred stock convertible into
approximately 19.7 million shares of common stock with a conversion price of
$1.31 for Series H preferred stock and a conversion price for the Series J
preferred stock equal to 90% of the average of the five lowest volume weighted
average prices for the Company's common stock during the 15 trading days
immediately prior to the date of conversion, provided that such average price
shall not be less than $.20 nor greater than $.50.

11.   PREFERRED STOCK

Series C Voting Preferred Stock

     On May 7, 1999 the Company issued approximately 133,000 shares of Series C
voting preferred stock. Each share is entitled to 117.03 votes to be voted at
any meeting of shareholders. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the corporation, the holders of
shares of the Series C voting preferred stock then outstanding, shall be
entitled to be paid, out of the assets of the Company available for distribution
to its stockholders, whether from capital, surplus or earnings, before any
payment shall be made in respect of the Company's common stock in an amount
equal to $1.50 per share. Each holder of each share of Series C voting preferred
stock shall have the right to convert such share for one share of common stock
at a conversion price of $1.50 per share, subject to adjustment. The holders of
the Series C voting preferred stock shall be entitled to share in any dividends
declared and paid by the Company to the common stock on a ratable basis. In
connection with this transaction, the Company recorded a non-recurring, non-cash
charge for a beneficial conversion feature in the amount of $0.1 million, to
reflect the market price of the common stock on the date of issuance.

Series D, E and F Preferred Stock

     On November 30, 1999 the Company issued approximately (i) 309,000 shares of
Series D preferred stock, (ii) 292,000 shares of Series E preferred stock and
(iii) 346,000 shares of Series F preferred stock. The shares of Series D, E and
F preferred stock are entitled to voting rights at any meeting of shareholders.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up of the corporation, the holders of shares of the Series D, E and F
preferred stock then outstanding, will be entitled to be paid, out of the assets
of the Company available for distribution to its stockholders, whether from
capital, surplus or earnings, before any payment shall be made in respect of the
Company's common stock an amount equal to $15.00, $15.00 and $30.00 per share,
respectively. Each holder of each share of Series D, E and F preferred stock
will have the right to convert such share for ten shares of common stock at
conversion prices of $1.50, $1.50 and $3.00 per share, respectively, subject to
adjustment. The holders of the Series D, E and F preferred stock


                                       41

<PAGE>

are entitled to receive dividends at a rate of 4%, 8% and 8% per annum,
respectively. Such dividends are payable semi-annually, and at the option of the
Company, in cash or in additional shares of the respective series of Series D, E
or F preferred stock.

Series G, H and I Preferred Stock

     On June 30, 2000, the Company issued and sold 2,000,000 shares of Series G
preferred stock to Nortel in a private placement for an aggregate purchase price
of $20.0 million. Each share of Series G preferred stock was convertible into
one share of common stock of FiberNet at $10.00 per share, subject to
anti-dilution adjustments. In connection with this transaction, the Company
recorded a nonrecurring non-cash charge for a beneficial conversion feature in
the amount of $14.0 million to reflect the market price of the common stock as
of the date of the issuance.

     On July 31, 2000 the Company issued and sold 426,333 shares of Series H
preferred stock, $.001 par value per share (the "Series H preferred stock") to
Nortel in a private placement for an aggregate purchase price consisting of
$22.5 million in cash plus the cancellation by Nortel of the 2,000,000 shares of
the Series G preferred stock, including all accrued and unpaid dividends
thereon. Each share of Series H preferred stock is convertible into ten shares
of common stock at $10.00 per share, subject to anti-dilution adjustments. This
amount is reflected in the accompanying balance sheet net of the value of
warrants to purchase 425,000 shares of common stock of the Company issued in
connection with this transaction. The value of these warrants was estimated on
the date of issuance using the Black-Scholes option pricing model. In connection
with this transaction, the Company recorded a nonrecurring non-cash charge for
the beneficial conversion feature in the amount of $12.3 million to reflect the
market price of the common stock as of the date of the issuance.

     On August 11, 2000 FiberNet issued and sold 62,500 shares of Series I
preferred stock to Nortel in a private placement for an aggregate purchase price
of $7.5 million. Each share of Series I preferred stock is convertible into ten
shares of common stock at $12.00 per share, subject to anti-dilution
adjustments. The Company recorded a beneficial conversion charge of $1.5 million
in connection with this issuance. To date, Nortel has invested a total of $50.0
million in preferred stock of the Company.

Conversion of Series C, D, E, F, H and I Preferred Stock

     On December 6, 2001, all of the Company's outstanding shares of Series C,
D, E and F preferred stock were converted into shares of the Company's common
stock. In addition, the holder of the Company's Series H and I preferred stock
converted all of its Series I preferred stock and 373,947 shares, or 79%, of its
Series H preferred stock into shares of the Company's common stock.

     Accordingly, as a result of the conversion of the Series C, D, E, F, H and
I preferred stock into common stock, the Company issued an aggregate of
20,647,551 shares of common stock to stockholders who held shares of Series C,
D, E, F, H and I preferred stock and cancelled an aggregate of 1,534,221 shares
of Series C, D, E, F, H and I preferred stock. The common stock issued pursuant
to such conversion is not registered under the Securities Act of 1933 and,
therefore, may only be sold pursuant to an applicable exemption from
registration, if any, under the Securities Act of 1933. In connection with the
conversion of the Series C, D, E and F preferred stock, the holders of such
preferred stock received, in the aggregate, warrants to purchase 985,000 shares
of the Company's common stock. The Company recorded a non-cash preferred stock
dividend of $0.3 million, representing the fair value of the warrants issued, as
determined using the Black-Scholes option model. These warrants have an exercise
price of $0.55 and an expiration date of 5 years from the date of issuance.

     In February 2001, the conversion price of the Series H and Series I was
reduced to $4.38, in accordance with the original terms of the issuance
transactions. Additionally, in connection with the conversion of the Series H
and I preferred stock, the conversion price of the remaining 100,000 shares of
Series H preferred stock will be reduced to $1.31. The Company recorded a
beneficial conversion charge of $21.0 million as a result of the reduction of
the conversion price.

Series J Preferred Stock

     On December 7, 2001, the Company consummated a directed public offering of
360 shares of a new series of preferred stock, designated Series J preferred
stock for an aggregate purchase price of $3.6 million, under the Company's
existing shelf registration statement. Pursuant to the stock purchase agreement,
the


                                       42

<PAGE>

Company also issued to the purchasers two series of warrants, Series A and B, to
purchase up to 10,211,701 shares of the Company's common stock having an
expiration date five years from the date of issuance and at an exercise price of
$0.30 per share, all of which are subject to adjustment in certain circumstances
and 4,509,902 of which, representing the Series B warrants, are subject to
certain vesting conditions. In addition, subject to certain conditions, the
stock purchase agreement includes two additional closings for the sale of an
additional $5.7 million of the Company's Series J preferred stock to the
purchasers. The Company may opt out of one or both of these subsequent closings
upon payment of cash consideration and upon approval of the Company's lenders
under its senior secured credit facility. The Company also paid $0.3 million
and issued 327,273 shares of its common stock to the placement agent for the
sale of the Series J preferred stock.

     The Company may redeem any or all of the currently outstanding shares of
Series J preferred stock for 150% of the purchase price of such stock. In
addition, under certain circumstances, the Company must redeem any outstanding
Series J preferred stock in exchange for either 100% or 150% of the purchase
price, depending upon the event that transpires. Furthermore, subject to certain
adjustments, the Series J preferred stock is convertible into the number of
shares of common stock equal to 90% of the average of the five lowest volume
weighted average prices for the Company's common stock during the 15 trading
days immediately prior to the date of conversion, provided that such average
price shall not be less than $0.20 nor greater than $0.50 for the Series J
preferred stock issued at the first closing. Other than with respect to matters
directly affecting the rights, preferences and privileges of the Series J
preferred stock, the terms of the Series J preferred stock do not provide voting
rights to the holders thereof.

     As the purchasers have made a firm committment to participate in the two
additional closings totaling $5.7 million, the transaction has been accounted
for as a subscription receivable from Series J preferred stock. The Series J
preferred stock is reflected in the accompanying balance sheet net of the
relative fair value of warrants to purchase 5,701,799 shares of common stock of
the Company issued in connection with this transaction. The value of these
warrants was estimated on the date of issuance using the Black-Scholes option
pricing model. In connection with this transaction, the Company recorded a
non-recurring non-cash charge for a beneficial conversion feature in the amount
of $2.1 million to reflect the market price of the common stock as of the date
of the issuance.

12.   RELATED PARTY TRANSACTIONS

     During 2000, the Company made payments to Petrocelli Electric Co., a
related party, of approximately $38,000 for consulting and contracting services
rendered, respectively. Mr. Santo Petrocelli, former Chairman of the Company, is
the President and Chief Executive Officer of Petrocelli Electric Co. and
Petrocelli Electrical Services and the principal of SMFS, Inc., a stockholder in
the Company. Other consulting fees to related parties for the years ended
December 31, 2001 and 2000 included approximately: (i) none and $70,665 to
Richard D. Sayers, a director of the Company, (ii) $10,417 and $103,957 to Frank
Chiaino, a former officer of the Company, (iii) none and $250,000 to Signal
Equity Management Corporation, of which Timothy P. Bradley, a director of the
Company, is the president, and (iv) none and $250,000 to Waterview Advisors
L.L.C., of which William Vrattos, a former director of the Company, was the
managing director, respectively.

     The Company capitalized in property, plant and equipment amounts paid for
services from Petrocelli Electrical Services, a related party, of approximately
$628,000 and $70,000 during 2001 and 2000, respectively. Additionally, the
Company expensed approximately $140,000 of consultant fees from this related
party during 1999. As of December 31, 2001 and 2000, the Company had a payable
to Petrocelli Electrical Services of approximately $268,000 and $31,000,
respectively.

     The Company capitalized services of approximately $57,000 of consulting
services from Landtel Telecommunications, a related party, during 1999.
Additionally, the Company expensed approximately $120,000, $128,831 and $57,000
of consultant fees from this related party during 2001, 2000 and 1999,
respectively. Mr. Joseph Tortoretti is the majority stockholder of Landtel
Telecommunications and a principal of LTJ Group, Inc., a stockholder of the
Company.



                                       43

<PAGE>

     The Company capitalized in property, plant and equipment amounts paid for
services from Nortel, a shareholder, of approximately $7.4 million and $31.4
million during 2001 and 2000, respectively. As of December 31, 2001 the Company
had a Note Payable to Nortel for approximately $2.3 million. See Note 7. As of
December 31, 2000, the Company had a trade payable to Nortel Networks Inc. of
approximately $2.3 million.

13.   INCOME TAXES

     A reconciliation of the actual income tax (provision) benefit and the tax
computed by applying the U.S. federal rate (35%) to the loss from continuing
operations, before income taxes for the three years ended December 31, 2001,
2000 and 1999 follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                   2001           2000        1999
                                                                 --------      ---------    --------

<S>                                                              <C>           <C>          <C>
Computed tax at statutory rate                                   $(51,303)      $(14,392)   $(10,573)
State and local, net of federal income tax benefit                 (7,329)            --      (1,510)
Interest expense from beneficial conversion                            29         (2,056)      6,348
Other                                                                  --            614        (30)
Change in valuation allowance                                      58,603         15,834       5,765
                                                                 --------      ---------    --------
                                                                 $   --         $   --        $  --
                                                                 ========      =========    ========




Deferred Taxes:                                                    2001           2000        1999
                                                                  -------      ---------    --------

Deferred expenses                                                    $933        $1,700      $ 4,466
Stock options                                                       4,359         4,828        1,441
Depreciation and impairment of property, plant and equipment       12,163          (180)         (14)
Goodwill impairment                                                29,319            --           --
Net operting loss                                                  35,447        13,820        3,862
Bad debts                                                             898           188           --
Valuation allowance                                              (83,119)       (20,356)      (9,755)
                                                                 --------      ---------    --------
Net deferred tax asset                                           $   --         $   --       $   --
                                                                 ========      =========    ========
</TABLE>

     As of December 31, 2001, the Company has federal income tax net operating
loss carryforwards of approximately $89 million. The federal tax loss
carryforwards begin expiring in 2012. Full valuation allowances have been
recorded against all temporary differences.

     During 2001, 2000 and 1999 the Company did not record a current or deferred
federal tax provision.

14. METROMEDIA FIBER NETWORK SERVICES, INC. PRIVATE NETWORK AGREEMENT

     Pursuant to a Private Network Agreement dated as of December 17, 1999 and
other related agreements by and between Metromedia Fiber Network Services, Inc.
("MFN") and the Company ("the Network Agreement"), the Company issued five
million shares at an assumed price of $8.69 per share. As part of the Network
Agreement, the Company issued four million shares (of the total five million) to
acquire an exclusive right of use of dark fiber in multiple markets for a total
price of approximately $34.8 million. This amount has been reflected in the
accompanying consolidated financial statements as property, plant and equipment.
As part of the remaining part of the Network Agreement, the Company issued one
million shares (of the total five million) to repurchase a 10% membership
interest in Local Fiber, LLC held by MFN. The transaction was recorded as a
purchase business combination. The Company recorded approximately $8.7 million
of goodwill in the accompanying consolidated financial statements, which will be
amortized over a period of 15 years.

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


                                       44

<PAGE>

<TABLE>
<CAPTION>

                               March 31,      June 30,     September 30,   December 31,
                               ---------      --------     -------------   ------------
                                2001(a)         2001         2001(b)        2001(c)
                                -------         ----         -------        -------
<S>                            <C>            <C>            <C>            <C>
Revenues                       $  7,374       $  8,156       $  7,674       $  7,991
Loss from Operations             (8,410)        (7,724)       (65,616)       (56,235)
Net loss before                 (10,536)        (9,807)       (67,905)       (58,331)
extraordinary item
Net loss                        (17,934)        (9,807)       (67,905)       (58,331)

Net loss applicable to
common shareholders             (39,684)        (9,690)       (67,976)       (60,816)

Net loss applicable to
common shareholders per
share - basic and diluted      $  (1.06)      $  (0.24)      $  (1.70)      $  (1.49)

<CAPTION>

                               March 31,      June 30,     September 30,   December 31,
                               ---------      --------     -------------   ------------
                                2001(a)         2001         2001(b)        2001(c)
                                -------         ----         -------        -------
<S>                            <C>            <C>            <C>            <C>
Revenues                       $    111       $  1,656       $  4,599       $  6,751

Loss from Operations             (7,254)        (6,236)        (7,024)       (14,949)

Net loss before                  (7,205)        (7,509)        (8,650)       (17,756)
extraordinary item
Net loss                         (7,205)        (7,509)        (8,650)       (17,756)

Net loss applicable to
common shareholders             (10,056)       (24,189)       (26,167)       (16,587)

Net loss applicable to
common shareholders per
share - basic and diluted      $  (0.38)      $  (0.86)      $  (0.84)      $  (0.51)
</TABLE>

     (a) The Company recorded a charge of $7.4 million related to an early
extinguishment of debt related to the modification of its Credit Facility. In
addition, the Company recorded a charge for a beneficial conversion feature of
$21.7 million in connection with the reset of the conversion price of the Series
H and Series I preferred stock from $10 and $12 per share, respectively, to
$4.38 per share. See Note 11. This beneficial conversion feature was not
reflected in the Form 10-Q filed for the first quarter of 2001. On February 2,
2001, the Company completed a $28.2 million directed public offering of common
stock under the shelf registration statement. The Company issued 6,440,000
shares of common stock at a purchase price of $4.375 per share as well as
warrants to purchase an additional 1,288,000 shares at an exercise price of
$6.56 per share with a term of three years. The fair value of the warrants was
calculated using the Black-Scholes option pricing model.

     (b) The Company recorded a $56.5 million charge for the impairment of
goodwill relating to the acquisition of Devnet.

     (c) The Company recorded a $51.8 million charge for the impairment of
certain long-lived assets. In addition, the Company recorded a beneficial
conversion feature of $2.1 million related to the issuance of Series J preferred
stock.

     (d) The Company recorded a $14.0 million beneficial conversion feature
related to the issuance of Series G preferred stock.

     (e) The Company acquired Devnet on July 31, 2000. The acquisition was
accounted for under the purchase method of accounting. The Company also recorded
a beneficial conversion feature of $13.8 million in connection with the issuance
of Series H and Series I preferred stock.

16.  RESTATEMENT

     The Company restated its consolidated financial statements for the year
ended December 31, 1999 to record a beneficial conversion feature of $7.9
million in connection with the issuance of the May Convertible Notes and to
reduce the beneficial conversion feature on the conversion of the Series D, E
and F preferred stock to zero. In 1999, the Company was a development-stage
company and did not record any revenue. Other than with respect

                                       45

<PAGE>

to the consolidated financial statements for the year ended December 31, 1999,
this restatement has no impact on the Company's assets or total stockholders'
equity and it resulted in a corresponding increase to additional paid-in-capital
and a decrease in preferred stock and accumulated deficit. The change increased
net loss by $7.9 million and decreased net loss applicable to common
shareholders by $41.2 million. These changes decreased net loss applicable to
common stockholders per share by $2.45. The change has no impact on the
Company's cash flows. The Company originally did not record a beneficial
conversion relating to the issuance of the May 1999 convertible notes, assuming
a $1.50 market value per share. The restatement assumes a $4.94 market value per
share. Also, the Company incorrectly recorded a beneficial conversion of $49.2
million on the subsequent conversion of the May Convertible Notes and the
September Convertible Notes into preferred stock in 1999. The restated financial
statements include the correction of these errors.

17.  SUBSEQUENT EVENT

     On January 2, 2002, the Company entered into an interest rate swap
transaction with Deutsche Bank AG for a notional amount of $25.0 million and a
term of two years. Pursuant to this transaction, the Company is obligated to
make quarterly interest payments at a fixed, annual interest rate of 3.7%.
Because such interest rate excludes the applicable margin of 4.5% that is paid
on the Credit Facility, the total interest rate on this swap transaction is
8.2%. As part of this agreement, Deutsche Bank AG is obligated to pay the
Company on a quarterly basis, a floating rate of interest based upon LIBOR with
a designed maturity of three months.

18.  NON-RECURRING EXPENSES

     During 1999, the Company recorded non-recurring expenses of $4.3 million,
comprised of a $3.7 million non-cash charge in selling, general and
administrative costs, relating to a prospective settlement of certain
litigation, and $0.6 million, relating to the decommission of the Company's
Lucent 5ESS-2000 telecommunication switch located at its facility at 60 Hudson
Street in New York, New York. The Company did not record any significant
non-recurring expenses for fiscal 2000 or fiscal 2001.


                                       46

<PAGE>

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

        None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The response to this item is incorporated by reference from the discussion
responsive thereto under the captions "Management" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in our Proxy Statement for the
2002 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

     The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Executive Compensation" in our Proxy
Statement for the 2002 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Share Ownership" in our Proxy Statement
for the 2002 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The response to this item is incorporated by reference from the discussion
responsive thereto under the captions "Certain Relationships and Related
Transactions" and "Executive Compensation--Employment Agreements, Termination of
Employment and Change of Control Arrangements" in our Proxy Statement for the
2002 Annual Meeting of Stockholders.



                                       47

<PAGE>

                                     PART IV

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

(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).

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).

4.2    Form of Warrant to purchase our Common Stock at a purchase price of $0.67
       per share, issued in connection with a private placement on May 7, 1999
       (incorporated by reference to Exhibit 4.2 to our Registration Statement
       on Form S-1, filed on August 15, 2000).

4.3    Form of Warrant to purchase our Common Stock at a purchase price of $1.50
       per share, issued in connection with a private placement on May 7, 1999
       (incorporated by reference to Exhibit 4.3 to our Registration Statement
       on Form S-1, filed on August 15, 2000).

4.4    Amended and Restated Stockholders Agreement, dated as of January 31,
       2001, between us, Signal Equity Partners, L.P. (formerly known as Signal
       Capital Partners, L.P.), as the Majority in Interest of the Purchasers,
       and Nortel Networks Inc., amending and restating the Stockholders
       Agreement dated as of May 7, 1999, 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 February 2, 2001).

4.5    Registration Rights Agreement, dated as of May 7, 1999 by and among us
       and the stockholders listed therein (incorporated by reference to Exhibit
       I of Schedule 13D, filed on May 17, 1999 with respect to our Common
       Stock).

4.6    Registration Rights Agreement, dated as of June 30, 2000, between us and
       Nortel Networks Inc. (incorporated by reference to Exhibit 4.1 to our
       Form 8-K filed on July 11, 2000).

4.7    Third Limited Waiver and Agreement, dated February 9, 2001, between us,
       Deutsche Banc Alex.Brown Inc., Deutsche Bank Securities Inc. and Toronto
       Dominion (Texas), Inc. (incorporated by reference to Exhibit 4.1 to our
       Current Report on Form 8-K, filed on February 15, 2001).

4.8    Warrant Agreement, dated February 9, 2001, between us and First Chicago
       Investment Corporation (incorporated by reference to Exhibit 4.2 to our
       Current Report on Form 8-K, filed on February 15, 2001).


                                       48

<PAGE>

4.9    First Limited Waiver and Agreement, dated as of February 9, 2001, between
       us and First Union Investors, Inc. (incorporated by reference to Exhibit
       4.3 to our Current Report on Form 8-K, filed on February 15, 2001).

4.10   Form of Warrant Agreement to purchase our Common Stock at a purchase
       price of $6.56 per share, issued in connection with a public offering on
       February 1, 2001 (incorporated by reference to Exhibit 4.1 to our Current
       Report on Form 8-K, filed on February 5, 2001).

4.11   Form of Series A Warrant to purchase our Common Stock at a purchase price
       of $.30 per share, issued in connection with a public offering on
       December 7, 2001 (incorporated by reference to our Current Report on Form
       8-K, filed on December 7, 2001).

4.12   Form of Series B Warrant to purchase our Common Stock at a purchase price
       of $.30 per share, issued in connection with a public offering on
       December 7, 2001 (incorporated by reference to our Current Report on Form
       8-K, filed on December 7, 2001).

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   Securities Purchase Agreement, dated as of May 7, 1999 by and among us
       and the purchasers listed therein (incorporated by reference to Exhibit A
       of Schedule 13D, filed on May 17, 1999 with respect to our Common Stock).

10.4   Securities Purchase Agreement, dated as of September 28, 1999 by and
       among us and the purchasers listed therein (incorporate by reference to
       Exhibit N of Schedule 13D/A, filed on October 14, 1999 with respect to
       our common stock).

10.5   First Amendment, dated as of September 28, 1999 to the Security Agreement
       dated as of May 7, 1999 from us and our subsidiaries to the Collateral
       Agent listed therein (incorporated by reference to Exhibit 4.5 of our
       Current Report on Form 8-K, filed on October 5, 1999).

10.6   First Amendment, dated as of September 28, 1999 to the Guaranty Agreement
       dated as of May 7, 1999 made by us, FiberNet Equal Access, L.L.C. and
       Local Fiber, LLC (incorporated by reference to Exhibit 4.6 of our Current
       Report on Form 8-K, filed on October 5, 1999).

10.7   First Amendment, dated as of September 28, 1999 to the Pledge Agreement
       dated as of May 7, 1999 between us and the Collateral Agent listed
       therein (incorporated by reference to Exhibit 4.7 of our Current Report
       on Form 8-K, filed on October 5, 1999).

10.8   First Amendment, dated as of September 28, 1999 to the Parent Pledge
       Agreement dated as of May 7, 1999 between us and the Collateral Agent
       listed therein (incorporated by reference to Exhibit 4.8 of our Current
       Report on Form 8-K, filed on October 5, 1999).

10.9   Conversion and Exchange Agreement, dated as of November 30, 1999
       (incorporated by reference to Exhibit S of Schedule 13D, filed on
       December 2, 1999 with respect to our common stock).

*10.10 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 10-KSB, filed on March 30, 2000).

10.11  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).

10.12  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 10-KSB, filed on March 30, 2000).

10.13  Employment Agreement, dated as of January 18, 2000 between us and Lance
       L. Mickel (incorporated by reference to Exhibit 10.17 to our Registration
       Statement on Form S-1, filed on September 8, 2000).

10.14  Note in favor of Deutsche Bank AG New York Branch, dated as of April 11,
       2000 (incorporated by reference to Exhibit 4.15 to our Quarterly Report
       on Form 10-QSB, filed on May 15, 2000).

10.15  Note in favor of Nortel Networks Inc., dated as of April 11, 2000
       (incorporated by reference to Exhibit 4.16 to our Quarterly Report on
       Form 10-QSB, filed on May 15, 2000).

10.16  Note in favor of Toronto Dominion (Texas), dated as of April 11, 2000
       (incorporated by reference to Exhibit 4.17 to our Quarterly Report on
       Form 10-QSB, filed on May 15, 2000).

10.17  Note in favor of First Union National Bank, dated as of July 31, 2000
       (incorporated by reference to Exhibit 10.23 to our Registration Statement
       on Form S-1, filed on September 8, 2000).

10.18  Securities Purchase Agreement, dated as of June 30, 2000 between us and
       Nortel Networks Inc. (incorporated by reference to Exhibit 10.1 to our
       Current Report on Form 8-K, filed on July 11, 2000).

10.19  Securities Purchase Agreement, dated as of July 28, 2000 between us and
       Nortel Networks Inc. (incorporated by reference to Exhibit 10.2 to our
       Current Report on Form 8-K, filed on August 4, 2000).

10.20  Securities Purchase Agreement, dated as of August 11, 2000 between us and
       Nortel Networks Inc. (incorporated by reference to Exhibit 10.1 to our
       Current Report on Form 8-K, filed on August 15, 2000).

10.21  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).


                                       49

<PAGE>

10.22  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).

10.23  Common Stock and Warrant Purchase Agreement, dated as of February 1, 2001
       by and among us and the Purchasers listed therein (incorporated by
       reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on
       February 5, 2001).

10.24  Amended and Restated Credit Agreement, dated February 9, 2001 among
       FiberNet Operations, Inc., Devnet L.L.C., Deutsche Bank AG New York
       Branch, First Union Investors, Inc., Toronto Dominion (USA) Securities
       Inc. and Deutsche Banc Alex. Brown (incorporated by reference to Exhibit
       10.1 to our Current Report on Form 8-K, filed on February 15, 2001).

10.25  Amended and Restated FiberNet Security Agreement, dated as of February 9,
       2001 between FiberNet Operations, Inc. and Deutsche Bank AG New York
       Branch (incorporated by reference to Exhibit 10.2 to our Current Report
       on Form 8-K, filed on February 15, 2001).

10.26  Amended and Restated Devnet Security Agreement, dated as of February 9,
       2001 between Devnet L.L.C. and Deutsche Bank AG New York Branch
       (incorporated by reference to Exhibit 10.3 to our Current Report on Form
       8-K, filed on February 15, 2001).

10.27  Amended and Restated Parent Security Agreement, dated as of February 9,
       2001 between us and Deutsche Bank AG New York Branch (incorporated by
       reference to Exhibit 10.4 to our Current Report on Form 8-K, filed on
       February 15, 2001).

10.28  Amended and Restated Subsidiary Security Agreement (FiberNet Telecom),
       dated as of February 9, 2001 between FiberNet Telecom, Inc. and Deutsche
       Bank AG New York Branch (incorporated by reference to Exhibit 10.5 to our
       Current Report on Form 8-K, filed on February 15, 2001).

10.29  Amended and Restated Subsidiary Security Agreement (Equal Access), dated
       as of February 9, 2001 between FiberNet Equal Access, L.L.C. and Deutsche
       Bank AG New York Branch (incorporated by reference to Exhibit 10.6 to our
       Current Report on Form 8-K, filed on February 15, 2001).

10.30  Amended and Restated Subsidiary Security Agreement (Local Fiber), dated
       as of February 9, 2001 between Local Fiber L.L.C. and Deutsche Bank AG
       New York Branch (incorporated by reference to Exhibit 10.7 to our Current
       Report on Form 8-K, filed on February 15, 2001).

10.31  Amended and Restated Parent Pledge Agreement (Devnet), dated as of
       February 9, 2001 between us and Deutsche Bank AG New York Branch with
       respect to 96.386% of the membership interests of Devnet L.L.C.
       (incorporated by reference to Exhibit 10.8 to our Current Report on Form
       8-K, filed on February 15, 2001).

10.32  Amended and Restated Parent Pledge Agreement (FiberNet Operations), dated
       as of February 9, 2001 between us and Deutsche Bank AG New York Branch
       with respect to all of the capital stock of FiberNet Operations, Inc.
       (incorporated by reference to Exhibit 10.9 to our Current Report on Form
       8-K, filed on February 15, 2001).

10.33  Amended and Restated Parent Pledge Agreement (FiberNet Telecom/Devnet),
       dated as of February 9, 2001 between FiberNet Operations, Inc. and
       Deutsche Bank AG New York Branch with respect to 3.614% of the membership
       interests of Devnet L.L.C. and all of the capital stock of FiberNet
       Telecom, Inc. (incorporated by reference to Exhibit 10.10 to our Current
       Report on Form 8-K, filed on February 15, 2001).

10.34  Amended and Restated FiberNet Telecom Pledge Agreement (Equal Access),
       dated as of February 9, 2001 between FiberNet Telecom, Inc. and the
       Administrative Agent with respect to all of the membership interests of
       FiberNet Equal Access, L.L.C. (incorporated by reference to Exhibit 10.11
       to our Current Report on Form 8-K, filed on February 15, 2001).

10.35  Amended and Restated FiberNet Telecom Pledge Agreement (Local Fiber),
       dated as of February 9, 2001 between FiberNet Telecom, Inc. and Deutsche
       Bank AG New York Branch with respect to all of the membership interests
       of Local Fiber L.L.C. (incorporated by reference to Exhibit 10.12 to our
       Current Report on Form 8-K, filed on February 15, 2001).

10.36  Amended and Restated Parent Guaranty Agreement, dated as of February 9,
       2001 executed and delivered by us to Deutsche Bank AG New York Branch
       (incorporated by reference to Exhibit 10.13 to our Current Report on Form
       8-K, filed on February 15, 2001).

10.37  Amended and Restated Subsidiary Guaranty Agreement (FiberNet Telecom),
       dated as of February 9, 2001 executed and delivered by FiberNet Telecom,
       Inc. to Deutsche Bank AG New York Branch (incorporated by reference to
       Exhibit 10.14 to our Current Report on Form 8-K, filed on February 15,
       2001).

10.38  Amended and Restated Subsidiary Guaranty Agreement (Equal Access), dated
       as of February 9, 2001 executed and delivered by FiberNet Equal Access,
       L.L.C. to Deutsche Bank AG New York Branch (incorporated by reference to
       Exhibit 10.15 to our Current Report on Form 8-K, filed on February 15,
       2001).

10.39  Amended and Restated Subsidiary Guaranty Agreement (Local Fiber), dated
       as of February 9, 2001 executed and delivered by Local Fiber L.L.C. to
       Deutsche Bank AG New York Branch (incorporated by reference to Exhibit
       10.16 to our Current Report on Form 8-K, filed on February 15, 2001).

10.40  Stock Purchase Agreement, dated as of December 7, 2001, by and among us
       and the Purchasers listed therein (incorporated by reference to our
       Current Report on Form 8-K, filed on December 7, 2001).

10.41  Third Amendment, dated as of December 10, 2001,among FiberNet Operations,
       Inc. Devnet L.L.C. and Deutsche Bank AG New York Branch, to the Amended
       and Restated Credit Agreement, dated as of February 9, 2001.

10.42  Promissory Note, dated December 7, 2001, between the Company and Nortel
       Networks Inc.

21.1   Our Subsidiaries (incorporated by reference to Exhibit 21.1 to our
       Registration Statement on Form S-1, filed on August 15, 2000).

23.1   Consent of Arthur Andersen LLP.

23.2   Consent of Mendelsohn Kary Bell & Natoli LLP.


                                       50

<PAGE>

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

(b)  Reports on Form 8-K

     On December 7, 2001, we filed a Current Report on Form 8-K under Item 5
regarding the conversion by certain of our stockholders of their Series
C,D,E,F,H and I Preferred Stock and our sale of Series J Preferred Stock.



                                       51

<PAGE>

                                   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/   MICHAEL S. LISS
                             ----------------------------------------------
                             Name:   Michael S. Liss
                             Title:  President and Chief Executive Officer


Date: February 28, 2002

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

<TABLE>
<CAPTION>

                  Name                                  Title                           Date
        ------------------------             -----------------------------         -----------------

<S>                                                                                             <C>
          /S/ MICHAEL S. LISS                Director, President and Chief         February 28, 2002
--------------------------------------             Executive Officer
            Michael S. Liss                  (Principal Executive Officer)


           /S/ JON A. DELUCA                    Chief Financial Officer            February 28, 2002
--------------------------------------       (Principal Accounting Officer)
             Jon A. DeLuca

        /S/ TIMOTHY P. BRADLEY                          Director                   February 28, 2002
--------------------------------------
          Timothy P. Bradley

         /S/ STEVEN G. CHRUST                           Director                   February 28, 2002
--------------------------------------
           Steven G. Chrust

        /S/ PHILIP L. DIGENNARO                         Director                   February 28, 2002
--------------------------------------
          Philip L. DiGennaro

     /S/ ROY (TREY) D. FARMER III                       Director                   February 28, 2002
--------------------------------------
       Roy (Trey) D. Farmer III

        /S/ CHARLES J. MAHONEY                          Director                   February 28, 2002
--------------------------------------
          Charles J. Mahoney

         /S/ RICHARD D. SAYERS                          Director                   February 28, 2002
--------------------------------------
           Richard D. Sayers
</TABLE>


                                       52

<PAGE>

                                  EXHIBIT INDEX

The following exhibits are filed with this Annual Report on Form 10-K:

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).

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).

4.2    Form of Warrant to purchase our Common Stock at a purchase price of $0.67
       per share, issued in connection with a private placement on May 7, 1999
       (incorporated by reference to Exhibit 4.2 to our Registration Statement
       on Form S-1, filed on August 15, 2000).

4.3    Form of Warrant to purchase our Common Stock at a purchase price of $1.50
       per share, issued in connection with a private placement on May 7, 1999
       (incorporated by reference to Exhibit 4.3 to our Registration Statement
       on Form S-1, filed on August 15, 2000).

4.4    Amended and Restated Stockholders Agreement, dated as of January 31,
       2001, between us, Signal Equity Partners, L.P. (formerly known as Signal
       Capital Partners, L.P.), as the Majority in Interest of the Purchasers,
       and Nortel Networks Inc., amending and restating the Stockholders
       Agreement dated as of May 7, 1999, 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 February 2, 2001).

4.5    Registration Rights Agreement, dated as of May 7, 1999 by and among us
       and the stockholders listed therein (incorporated by reference to Exhibit
       I of Schedule 13D, filed on May 17, 1999 with respect to our Common
       Stock).

4.6    Registration Rights Agreement, dated as of June 30, 2000, between us and
       Nortel Networks Inc. (incorporated by reference to Exhibit 4.1 to our
       Form 8-K filed on July 11, 2000).

4.7    Third Limited Waiver and Agreement, dated February 9, 2001, between us,
       Deutsche Banc Alex.Brown Inc., Deutsche Bank Securities Inc. and Toronto
       Dominion (Texas), Inc. (incorporated by reference to Exhibit 4.1 to our
       Current Report on Form 8-K, filed on February 15, 2001).

4.8    Warrant Agreement, dated February 9, 2001, between us and First Chicago
       Investment Corporation (incorporated by reference to Exhibit 4.2 to our
       Current Report on Form 8-K, filed on February 15, 2001).

4.9    First Limited Waiver and Agreement, dated as of February 9, 2001, between
       us and First Union Investors, Inc. (incorporated by reference to Exhibit
       4.3 to our Current Report on Form 8-K, filed on February 15, 2001).

4.10   Form of Warrant Agreement to purchase our Common Stock at a purchase
       price of $6.56 per share, issued in connection with a public offering on
       February 1, 2001 (incorporated by reference to Exhibit 4.1 to our Current
       Report on Form 8-K, filed on February 5, 2001).

4.11   Form of Series A Warrant to purchase our Common Stock at a purchase price
       of $.30 per share, issued in connection with a public offering on
       December 7, 2001 (incorporated by reference to our Current Report on Form
       8-K, filed on December 7, 2001).

                                       53

<PAGE>

4.12   Form of Series B Warrant to purchase our Common Stock at a purchase price
       of $.30 per share, issued in connection with a public offering on
       December 7, 2001 (incorporated by reference to our Current Report on Form
       8-K, filed on December 7, 2001).

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   Securities Purchase Agreement, dated as of May 7, 1999 by and among us
       and the purchasers listed therein (incorporated by reference to Exhibit A
       of Schedule 13D, filed on May 17, 1999 with respect to our Common Stock).

10.4   Securities Purchase Agreement, dated as of September 28, 1999 by and
       among us and the purchasers listed therein (incorporate by reference to
       Exhibit N of Schedule 13D/A, filed on October 14, 1999 with respect to
       our common stock).

10.5   First Amendment, dated as of September 28, 1999 to the Security Agreement
       dated as of May 7, 1999 from us and our subsidiaries to the Collateral
       Agent listed therein (incorporated by reference to Exhibit 4.5 of our
       Current Report on Form 8-K, filed on October 5, 1999).

10.6   First Amendment, dated as of September 28, 1999 to the Guaranty Agreement
       dated as of May 7, 1999 made by us, FiberNet Equal Access, L.L.C. and
       Local Fiber, LLC (incorporated by reference to Exhibit 4.6 of our Current
       Report on Form 8-K, filed on October 5, 1999).

10.7   First Amendment, dated as of September 28, 1999 to the Pledge Agreement
       dated as of May 7, 1999 between us and the Collateral Agent listed
       therein (incorporated by reference to Exhibit 4.7 of our Current Report
       on Form 8-K, filed on October 5, 1999).

10.8   First Amendment, dated as of September 28, 1999 to the Parent Pledge
       Agreement dated as of May 7, 1999 between us and the Collateral Agent
       listed therein (incorporated by reference to Exhibit 4.8 of our Current
       Report on Form 8-K, filed on October 5, 1999).

10.9   Conversion and Exchange Agreement, dated as of November 30, 1999
       (incorporated by reference to Exhibit S of Schedule 13D, filed on
       December 2, 1999 with respect to our common stock).

*10.10 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 10-KSB, filed on March 30, 2000).

10.11  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).

10.12  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 10-KSB, filed on March 30, 2000).

10.13  Employment Agreement, dated as of January 18, 2000 between us and Lance
       L. Mickel (incorporated by reference to Exhibit 10.17 to our Registration
       Statement on Form S-1, filed on September 8, 2000).

10.14  Note in favor of Deutsche Bank AG New York Branch, dated as of April 11,
       2000 (incorporated by reference to Exhibit 4.15 to our Quarterly Report
       on Form 10-QSB, filed on May 15, 2000).

10.15  Note in favor of Nortel Networks Inc., dated as of April 11, 2000
       (incorporated by reference to Exhibit 4.16 to our Quarterly Report on
       Form 10-QSB, filed on May 15, 2000).

10.16  Note in favor of Toronto Dominion (Texas), dated as of April 11, 2000
       (incorporated by reference to Exhibit 4.17 to our Quarterly Report on
       Form 10-QSB, filed on May 15, 2000).

10.17  Note in favor of First Union National Bank, dated as of July 31, 2000
       (incorporated by reference to Exhibit 10.23 to our Registration Statement
       on Form S-1, filed on September 8, 2000).

10.18  Securities Purchase Agreement, dated as of June 30, 2000 between us and
       Nortel Networks Inc. (incorporated by reference to Exhibit 10.1 to our
       Current Report on Form 8-K, filed on July 11, 2000).

10.19  Securities Purchase Agreement, dated as of July 28, 2000 between us and
       Nortel Networks Inc. (incorporated by reference to Exhibit 10.2 to our
       Current Report on Form 8-K, filed on August 4, 2000).

10.20  Securities Purchase Agreement, dated as of August 11, 2000 between us and
       Nortel Networks Inc. (incorporated by reference to Exhibit 10.1 to our
       Current Report on Form 8-K, filed on August 15, 2000).

10.21  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).

10.22  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).

10.23  Common Stock and Warrant Purchase Agreement, dated as of February 1, 2001
       by and among us and the Purchasers listed therein (incorporated by
       reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on
       February 5, 2001).

10.24  Amended and Restated Credit Agreement, dated February 9, 2001 among
       FiberNet Operations, Inc., Devnet L.L.C., Deutsche Bank AG New York
       Branch, First Union Investors, Inc., Toronto Dominion (USA) Securities
       Inc. and Deutsche Banc Alex. Brown (incorporated by reference to Exhibit
       10.1 to our Current Report on Form 8-K, filed on February 15, 2001).

                                       54

<PAGE>

10.25  Amended and Restated FiberNet Security Agreement, dated as of February 9,
       2001 between FiberNet Operations, Inc. and Deutsche Bank AG New York
       Branch (incorporated by reference to Exhibit 10.2 to our Current Report
       on Form 8-K, filed on February 15, 2001).

10.26  Amended and Restated Devnet Security Agreement, dated as of February 9,
       2001 between Devnet L.L.C. and Deutsche Bank AG New York Branch
       (incorporated by reference to Exhibit 10.3 to our Current Report on Form
       8-K, filed on February 15, 2001).

10.27  Amended and Restated Parent Security Agreement, dated as of February 9,
       2001 between us and Deutsche Bank AG New York Branch (incorporated by
       reference to Exhibit 10.4 to our Current Report on Form 8-K, filed on
       February 15, 2001).

10.28  Amended and Restated Subsidiary Security Agreement (FiberNet Telecom),
       dated as of February 9, 2001 between FiberNet Telecom, Inc. and Deutsche
       Bank AG New York Branch (incorporated by reference to Exhibit 10.5 to our
       Current Report on Form 8-K, filed on February 15, 2001).

10.29  Amended and Restated Subsidiary Security Agreement (Equal Access), dated
       as of February 9, 2001 between FiberNet Equal Access, L.L.C. and Deutsche
       Bank AG New York Branch (incorporated by reference to Exhibit 10.6 to our
       Current Report on Form 8-K, filed on February 15, 2001).

10.30  Amended and Restated Subsidiary Security Agreement (Local Fiber), dated
       as of February 9, 2001 between Local Fiber L.L.C. and Deutsche Bank AG
       New York Branch (incorporated by reference to Exhibit 10.7 to our Current
       Report on Form 8-K, filed on February 15, 2001).

10.31  Amended and Restated Parent Pledge Agreement (Devnet), dated as of
       February 9, 2001 between us and Deutsche Bank AG New York Branch with
       respect to 96.386% of the membership interests of Devnet L.L.C.
       (incorporated by reference to Exhibit 10.8 to our Current Report on Form
       8-K, filed on February 15, 2001).

10.32  Amended and Restated Parent Pledge Agreement (FiberNet Operations), dated
       as of February 9, 2001 between us and Deutsche Bank AG New York Branch
       with respect to all of the capital stock of FiberNet Operations, Inc.
       (incorporated by reference to Exhibit 10.9 to our Current Report on Form
       8-K, filed on February 15, 2001).

10.33  Amended and Restated Parent Pledge Agreement (FiberNet Telecom/Devnet),
       dated as of February 9, 2001 between FiberNet Operations, Inc. and
       Deutsche Bank AG New York Branch with respect to 3.614% of the membership
       interests of Devnet L.L.C. and all of the capital stock of FiberNet
       Telecom, Inc. (incorporated by reference to Exhibit 10.10 to our Current
       Report on Form 8-K, filed on February 15, 2001).

10.34  Amended and Restated FiberNet Telecom Pledge Agreement (Equal Access),
       dated as of February 9, 2001 between FiberNet Telecom, Inc. and the
       Administrative Agent with respect to all of the membership interests of
       FiberNet Equal Access, L.L.C. (incorporated by reference to Exhibit 10.11
       to our Current Report on Form 8-K, filed on February 15, 2001).

10.35  Amended and Restated FiberNet Telecom Pledge Agreement (Local Fiber),
       dated as of February 9, 2001 between FiberNet Telecom, Inc. and Deutsche
       Bank AG New York Branch with respect to all of the membership interests
       of Local Fiber L.L.C. (incorporated by reference to Exhibit 10.12 to our
       Current Report on Form 8-K, filed on February 15, 2001).

10.36  Amended and Restated Parent Guaranty Agreement, dated as of February 9,
       2001 executed and delivered by us to Deutsche Bank AG New York Branch
       (incorporated by reference to Exhibit 10.13 to our Current Report on Form
       8-K, filed on February 15, 2001).

10.37  Amended and Restated Subsidiary Guaranty Agreement (FiberNet Telecom),
       dated as of February 9, 2001 executed and delivered by FiberNet Telecom,
       Inc. to Deutsche Bank AG New York Branch (incorporated by reference to
       Exhibit 10.14 to our Current Report on Form 8-K, filed on February 15,
       2001).

10.38  Amended and Restated Subsidiary Guaranty Agreement (Equal Access), dated
       as of February 9, 2001 executed and delivered by FiberNet Equal Access,
       L.L.C. to Deutsche Bank AG New York Branch (incorporated by reference to
       Exhibit 10.15 to our Current Report on Form 8-K, filed on February 15,
       2001).

10.39  Amended and Restated Subsidiary Guaranty Agreement (Local Fiber), dated
       as of February 9, 2001 executed and delivered by Local Fiber L.L.C. to
       Deutsche Bank AG New York Branch (incorporated by reference to Exhibit
       10.16 to our Current Report on Form 8-K, filed on February 15, 2001).

10.40  Stock Purchase Agreement, dated as of December 7, 2001, by and among us
       and the Purchasers listed therein (incorporated by reference to our
       Current Report on Form 8-K, filed on December 7, 2001).

10.41  Third Amendment, dated as of December 10, 2001,among FiberNet Operations,
       Inc. Devnet L.L.C. and Deutsche Bank AG New York Branch, to the Amended
       and Restated Credit Agreement, dated as of February 9, 2001.

10.42  Promissory Note, dated December 7, 2001, between the Company and Nortel
       Networks Inc.

21.1   Our Subsidiaries (incorporated by reference to Exhibit 21.1 to our
       Registration Statement on Form S-1, filed on August 15, 2000).

23.1   Consent of Arthur Andersen LLP.

23.2   Consent of Mendelsohn Kary Bell & Natoli LLP.

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


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