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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 _______________

                                    FORM 10-K

  [X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2002

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

                        COMMISSION FILE NUMBER 000-27525


                                  DSL.NET, INC.
             ------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


           DELAWARE                                               06-1510312
-------------------------------                                ----------------
(STATE OR OTHER JURISDICTION OF                                (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)                                 IDENTIFICATION
                                                                    NUMBER)


545 LONG WHARF DRIVE, NEW HAVEN, CONNECTICUT        06511        (203) 772-1000
--------------------------------------------      ----------     ---------------
 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)         (ZIP CODE)     (TELEPHONE NO.)


        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE


           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:


                    COMMON STOCK, PAR VALUE $.0005 PER SHARE

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

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

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [_]   No [X]

     The aggregate market value of the common stock held by non-affiliates of
the registrant, as of the last business day of the registrant's most recently
completed second fiscal quarter, was approximately $9,819,759 (based on the
closing price of the registrant's Common Stock of $0.36 per share). The number
of shares outstanding of the registrant's Common Stock, par value $.0005 per
share, as of March 18, 2003, was 64,937,899.


                       DOCUMENT INCORPORATED BY REFERENCE

     The registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
2002. Portions of such proxy statement are incorporated by reference into Part
III of this Form 10-K.

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<PAGE>
                                  DSL.NET, INC.

                           ANNUAL REPORT ON FORM 10-K

                          YEAR ENDED DECEMBER 31, 2002

                                TABLE OF CONTENTS


                                                                        Page No.
Part I

Item 1.    Business.........................................................   2
Item 2.    Properties.......................................................  14
Item 3.    Legal Proceedings................................................  14
Item 4.    Submission of Matters to a Vote of Security Holders..............  15


Part II

Item 5.    Market for Registrant's Common Equity and Related Stockholder
           Matters..........................................................  15
Item 6.    Selected Consolidated Financial Data.............................  18
Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations........................................  21
Item 7A.   Quantitative and Qualitative Disclosure About Market Risk........  56
Item 8.    Financial Statements and Supplementary Data......................  57
Item 9.    Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure.........................................  99


Part III

Item 10.   Directors and Executive Officers of the Registrant...............  99
Item 11.   Executive Compensation...........................................  99
Item 12.   Security Ownership of Certain Beneficial Owners and Management...  99
Item 13.   Certain Relationships and Related Transactions...................  99
Item 14    Controls and Procedures..........................................  99


Part IV

Item 15.   Exhibits, Financial Statement Schedule, and Reports on Form 8-K.. 101


SIGNATURES.................................................................. 105





                                        1
<PAGE>
                                     PART I

ITEM 1.  BUSINESS

     THIS BUSINESS SECTION AND OTHER PARTS OF THIS ANNUAL REPORT ON FORM 10-K
CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE SET FORTH IN "ITEM 7 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS
ANNUAL REPORT ON FORM 10-K. EXISTING AND PROSPECTIVE INVESTORS ARE CAUTIONED NOT
TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS
OF THE DATE HEREOF. WE UNDERTAKE NO OBLIGATION, AND DISCLAIM ANY OBLIGATION, TO
UPDATE OR REVISE THE INFORMATION CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K,
WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR CIRCUMSTANCES OR
OTHERWISE.

GENERAL

     DSL.net, Inc. ("DSL.net" or the "Company") provides high-speed data
communications, Internet access and related services to small and medium sized
businesses throughout the United States, primarily utilizing digital subscriber
line, or DSL, technology. Our networks enable data transport over existing
copper telephone lines at speeds of up to 2.0 megabits per second. We were
organized in 1998 as a corporation under the laws of the State of Delaware.

     We sell directly to businesses, primarily through our own direct sales
channel. We deploy our own local DSL equipment primarily in select second and
third tier cities, as well as in some first tier cities. As of March 5, 2003, we
operated equipment in 394 cities. In certain markets where we have not deployed
our own equipment, we utilize the local DSL facilities of other carriers to
provide service.

     In addition to a number of high-speed, high-performance DSL-based Internet
connectivity solutions specifically designed for business, our product offerings
include T1 service, Web hosting, domain name system management, enhanced e-mail,
on-line data backup and recovery services, firewalls, nationwide dial-up
services and virtual private networks. Our services offer customers high-speed
digital connections and related services at prices that are attractive compared
to the cost and performance of alternative data communications services.

     In January 2003, we acquired the majority of Network Access Solutions
Corporation's ("NAS") operations and assets for approximately $14,000,000,
consisting of $9,000,000 in cash and a $5,000,000 note. The acquired NAS assets
include operations and equipment in approximately 300 central offices extending
from Virginia to Massachusetts, and include approximately 11,500 subscriber
lines. We expect that the acquired NAS assets and operations will have a
significant impact on our future operating results.

THE DSL.NET SOLUTION

     We provide small and medium sized businesses, as well as branch offices of
large businesses, with high-speed Internet access and data services, primarily
using DSL technology. Key elements of our solution are:

                                        2
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     HIGH-SPEED CONNECTIONS. We offer Internet access at speeds of up to 2.0
megabits per second. Our network is designed to provide data transmission at the
same speed to and from the customer, known as symmetrical data transmission, and
is also capable of providing service at different speeds to and from the
customers, known as asymmetrical data transmission. We believe that symmetrical
data transmission is best suited for business applications, because business
users require fast connections both to send and receive information, and to host
advanced services and applications.

     COMPLETE BUSINESS SOLUTION. We offer our customers a single point of
contact for a complete solution that includes all of the necessary equipment and
services to establish and maintain digital data communications. Our services
include high-speed Internet access, Web hosting, domain name system management,
enhanced e-mail, on-line data backup and recovery services, firewalls,
nationwide dial-up services and virtual private networks. Our network is
designed to enable us to individually configure each customer's service
remotely.

     ALWAYS-ON CONNECTIONS. With our service, customers can access the Internet
continuously without having to dial into the network for each use. These
"always-on" connections provide customers with the ability to readily access the
Internet and transfer information. We charge our customers a flat fee per month
for connectivity service rather than billing them based on usage.

     ATTRACTIVE VALUE PROPOSITION. Our DSL and T-1 services offer customers
high-speed digital connections at prices that are attractive compared to the
cost and performance of alternative data communications services, such as
multiple dial-up connections, ISDN or frame relay lines. We believe that our
services also increase the productivity of network users by decreasing the time
they spend connecting to the Internet and waiting for information downloads and
transfers.

     CUSTOMER SUPPORT. We provide customer support 24 hours a day, seven days a
week. This support is important to many of our small and medium sized business
customers because they do not typically have dedicated internal support staff.
With our remote monitoring and troubleshooting capabilities, we continuously
monitor our network. This enables us to identify and address network problems
promptly, thus enhancing network quality, service and performance.

OUR SERVICES

     As part of our service offerings, we function as our customers' Internet
service provider and deliver a range of Internet-based, value-added solutions.
Our services currently include all necessary equipment, software and lines
required to establish and maintain a digital Internet connection. Our primary
services include high-speed Internet access, e-mail, domain name system
management and Web hosting. Other services provided by DSL.net include
firewalls, on-line data backup and recovery services, nationwide dial-up
services and virtual private networks that connect customers' various offices.
Our network is designed to enable us to individually configure each customer's
service remotely.

     Customers typically pay an installation charge and a monthly fee for our
service. The monthly fee includes all phone line charges, general Internet
access services, e-mail, and domain name system management, including the
issuance of Internet Protocol (IP) addresses for customers who wish to assign
fixed IP addresses to their network computers. Customers generally contract for
our services for a minimum of one year and are billed for services on a monthly
basis.

                                        3
<PAGE>
CUSTOMERS

     Our target customers are primarily small and medium sized businesses. We
sell to these customers primarily on a direct basis. In particular, we believe
the following market segments are especially attractive prospective customers:

o    businesses currently using other high-speed data communications services,
     such as ISDN and frame relay services;

o    professional or service-based firms that have multiple Internet service
     provider dial-up accounts and phone lines;

o    branch office locations that require transmission of large files between
     locations; and

o    businesses that use data-intensive applications, such as financial
     services, technology, and publishing.

     No customer accounted for more than 5% of our total revenue during the
years ended December 31, 2000, 2001 and 2002.

SALES AND MARKETING

     Our marketing professionals have developed a methodology to identify the
businesses that we believe would most likely benefit from our services. Once we
identify businesses in a specific market, we employ a targeted local marketing
strategy utilizing a variety of mediums but primarily focused on direct mail and
opt-in e-mail. Through inbound and outbound telesales campaigns, we utilize
internal sales professionals to sell our services to prospective customers. We
also partner with local information technology professionals, application
service providers and marketing partners to assist in the sale of our services.

CUSTOMER ACQUISITIONS

     In addition to our internal sales and marketing efforts, and our reseller
and referral channels, we have grown our customer base by acquiring end users of
other Internet service providers and companies offering broadband access.

     We continuously identify and evaluate acquisition candidates, and in many
cases engage in discussions and negotiations regarding potential acquisitions.
Acquisition candidates include both individual subscriber lines and whole
businesses. Our discussions and negotiations may not result in acquisitions.
Further, if we make any additional acquisitions, we may not be able to operate
any acquired assets or businesses profitably or otherwise successfully implement
our expansion strategy. We intend to continue to seek additional opportunities
for further acquisitions, a strategy which we believe represents a distinct
opportunity to accelerate our growth.

CUSTOMER SUPPORT AND OPERATIONS

     Our customer support professionals serve as an information repository to
our customers and work to streamline the ordering, installation and maintenance
processes associated with data communications and Internet access. They provide
our customers with a single point of contact for implementation, maintenance and
operations support.

                                        4
<PAGE>
     IMPLEMENTATION. We manage the implementation of our service for each
customer. In areas where we have installed our own local DSL facilities, we
lease the copper telephone lines from the local telephone company. These lines
run from our equipment located in the telephone company's central office to our
customer. We test these lines to determine whether they meet our specifications
and work with the local telephone company to correct any problems identified by
our testing. In other areas, we utilize the local DSL facilities of other
carriers, and work with these carriers to provide the DSL service. In both
cases, field service technicians install the modem or router purchased or leased
from us and any necessary wiring at our customers' offices and test the modem or
router and connection over our network to confirm successful installation.

     MAINTENANCE. Our network operations center provides network surveillance
for all equipment in our network. We are able to detect and correct many of our
customers' maintenance problems remotely, often before our customer is aware of
the problem. Customer-initiated maintenance and repair requests are managed and
resolved primarily through our customer service department. Our information
management system, which generates reports for tracking maintenance problems,
allows us to communicate maintenance problems from the network operations center
to our customer service center 24 hours a day, seven days a week.

     OPERATIONS SUPPORT SYSTEMS. Our operations support systems are intended to
improve many of our business processes, including customer billing, service
activation, inventory control, customer care reports and maintenance reports.
They have been designed to provide us with accurate, up-to-date information in
these areas. Additional enhancements of these systems, including improved
electronic and on-line ordering tools, were made in 2002. We believe that our
operations support systems provide us with the flexibility to support additional
customers and additional services.

OUR NETWORK

     Our network has been designed to deliver reliable, secure and scaleable
high-speed, high-performance Internet access and data communication services.

     NETWORK DESIGN.

     The key design principles of our network are:

     o    INTELLIGENT END-TO-END NETWORK MANAGEMENT. Our network is designed to
          allow us to monitor network components and customer traffic from a
          central location. We can perform network diagnostics and equipment
          surveillance continuously. From our network operations center, we have
          visibility across our entire network, allowing us to identify and
          address network problems quickly and to provide quality service and
          performance.

     o    CONSISTENT PERFORMANCE WITH THE ABILITY TO EXPAND. We have designed
          our network to leverage the economics of DSL technology, to grow with
          our business and to provide consistent performance. We also use
          asynchronous transfer mode equipment in our network, which implements
          high-speed, high volume transmission of data.

     o    SECURITY. Our network is designed to reduce the possibility of
          unauthorized access and to allow our customers to safely transmit and
          receive sensitive information and applications. The modems and routers
          we install on our customers' premises are designed to work in
          conjunction with installed security systems and network servers in an
          effort to provide safe connections to the Internet and a secure
          operating environment.

                                        5
<PAGE>
     NETWORK COMPONENTS.  The primary components of our network are:

     o    MODEMS, ROUTERS AND ON-SITE CONNECTIONS. We purchase modems and
          routers and provide either of them to our customers, depending on
          their specific needs and contractual service agreements. We configure
          the modem or router and arrange for the installation of the modem or
          router along with the on-site wiring needed to connect the modem or
          router to the copper telephone line. In areas where we have deployed
          our own local facilities, we either perform these services ourselves
          or we contract with independent field service organizations to perform
          these services on our behalf. In areas where we utilize the local
          facilities of other carriers, these other carriers provide these
          installation services. We will either provide or sell customer premise
          equipment (modem or router) to our customers. When we provide the
          customer premise equipment, we charge the customer for the use of this
          equipment as part of our monthly service fee. These modems and routers
          are capitalized and depreciated over their estimated useful life of
          three years. Such equipment remains our exclusive property. When we
          sell customer premise equipment (modem or router) to the customer, we
          recognize the revenue from the sale and expense the cost of this
          equipment at the time of sale.

     o    COPPER TELEPHONE LINES. In areas where we have deployed our own local
          DSL facilities, we lease a copper telephone line running to each
          customer from our equipment in the local telephone company's central
          office under terms specified in our interconnection agreements with
          these companies. In areas where we utilize the local DSL facilities of
          other carriers, the carrier leases the telephone line from the local
          telephone company.

     o    CENTRAL OFFICE COLLOCATION. Through our interconnection agreements, we
          secure space to locate our equipment in certain central offices of
          traditional local telephone companies and offer our services from
          these locations. These collocation spaces are designed to offer the
          same high reliability and availability standards as the telephone
          companies' own central office spaces. We install the equipment
          necessary to provide high-speed DSL or T1 service to our customers in
          these spaces. We have continuous access to these spaces to install and
          maintain our equipment located in these central offices. In markets
          where we have not deployed our own equipment, we utilize the local
          facilities installed in central offices by other carriers, to provide
          high-speed connections to our customers.

     o    CONNECTION TO THE INTERNET. Network traffic gathered at each of our
          central offices is routed to one of our regional hubs and then to the
          Internet. In certain areas where we offer service from more than one
          central office, network traffic is routed from each central office in
          that area to a local hub which aggregates its traffic along with the
          traffic from the other central offices located in that area and routes
          the traffic to a regional hub. At our regional hubs, we also connect
          to other carriers' networks via high-speed connections. Our hubs
          contain extra equipment and backup power to provide backup facilities
          in the event of an equipment failure and are actively monitored from
          our network operations center. We lease space for our hubs in
          facilities designed to host network equipment. Our hubs are connected
          to one another via high-speed data communications lines. We have
          agreements with WorldCom, AT&T and other carriers to provide this
          service. Internet connectivity is provided by a combination of public
          and private peering and transit arrangements. We have a presence at
          seven of the largest and newest national "network access points" to
          facilitate this high-performance, high-volume external connectivity.

                                        6
<PAGE>
     o    NETWORK OPERATIONS CENTER. Our network is managed from our network
          operations center located in New Haven, Connecticut, which is
          supplemented by our newly acquired facilities in Herndon, Virginia. We
          provide network management 24 hours a day, seven days a week. This
          enhances our ability to address performance and service issues before
          they affect our customers. From the network operations center, we can
          monitor the performance of individual subscriber lines and the
          equipment and circuits in our network.

COMPETITION

     We face competition from many companies with significantly greater
financial resources, well-established brand names and large installed customer
bases. We expect that the level of competition in our markets may intensify in
the future. We expect competition from:

     OTHER DSL PROVIDERS. A number of competitive carriers, including Covad
Communications, Speakeasy, Inc. and New Edge Networks, offer DSL and T1 services
to residential and business customers. The 1996 Telecommunications Act
specifically grants competitive telecommunications companies, including other
DSL providers, the right to negotiate interconnection agreements with
traditional telephone companies, including interconnection agreements which may
be identical in all respects to, or more favorable than, our agreements.

     INTERNET SERVICE PROVIDERS. Several national and regional Internet service
providers, including UUNET, EarthLink and MegaPath, offer high-speed access
capabilities, along with other products and services. These companies generally
provide Internet access to residential and business customers through a host of
methods, including DSL and T1.

     TRADITIONAL LOCAL TELEPHONE COMPANIES. Many of the traditional local
telephone companies, including BellSouth, SBC Communications, Qwest and Verizon,
are deploying DSL-based services, either directly or through affiliated
companies. These companies have established brand names, possess sufficient
capital to deploy DSL equipment rapidly, have their own copper telephone lines
and can bundle digital data services with their existing voice services to
achieve a competitive advantage in serving customers. In addition, these
companies also offer high-speed data communications services that use other
technologies, including T1 services. We depend on these traditional local
telephone companies to enter into agreements for interconnection and to provide
us access to individual elements of their networks. Although the traditional
local telephone companies are required to negotiate in good faith in connection
with these agreements, future interconnection agreements may contain less
favorable terms and result in a competitive advantage to the traditional local
telephone companies.

     NATIONAL LONG DISTANCE CARRIERS. National long distance carriers, such as
AT&T, Sprint, Williams and WorldCom, have deployed large-scale data networks,
sell connectivity to businesses and residential customers, and have high brand
recognition. They also have interconnection agreements with many of the
traditional local telephone companies, and many offer competitive DSL and T1
services.

     OTHER FIBER-BASED CARRIERS. Companies such as Allegiance and Choice One
have extensive fiber networks in many metropolitan areas, primarily providing
high-speed data and voice circuits to small and large corporations. They also
have interconnection agreements with the traditional local telephone companies
under which they have acquired collocation space in many large markets, and some
offer competitive DSL and T1 services.

     CABLE MODEM SERVICE PROVIDERS. Cable modem service providers, such as AT&T,
Comcast and RCN, offer high-speed Internet access over cable networks primarily
to residential consumers. Where deployed, these networks provide high-speed
local access services, in some cases at speeds higher than DSL service. They
typically offer these services at lower prices than our services, in part by
sharing the capacity available on their cable networks among multiple end users.

                                        7
<PAGE>
     WIRELESS AND SATELLITE DATA SERVICE PROVIDERS. Several companies, including
Hughes Communications and Teledesic, are emerging as wireless and
satellite-based data service providers. These companies use a variety of new and
emerging technologies to provide high-speed data services.

     The most significant competitive factors include: transmission speed,
service reliability, breadth of product offerings, price/performance, network
security, ease of access and use, content and service bundling, customer
support, brand recognition, operating experience, capital availability and
exclusive contracts with customers, including Internet service providers and
businesses with multiple offices. We believe our services compete favorably
within our service markets with respect to transmission speed,
price/performance, ease of access and use and customer support. Many of our
competitors enjoy competitive advantages over us based on their brand
recognition, breadth of product offerings, financial resources, customer bases,
operating experience and exclusive contracts with customers.

INTERCONNECTION AGREEMENTS WITH TRADITIONAL LOCAL TELEPHONE COMPANIES

     Under the 1996 Telecommunications Act, the traditional local telephone
companies have a statutory duty to negotiate in good faith with us for
agreements for interconnection and access to certain individual elements of
their networks. This interconnection process is subject to review and approval
by the state regulatory commissions. We have signed interconnection agreements
with BellSouth, Cincinnati Bell, Frontier, SBC Communications, Qwest, Sprint,
and Verizon or their subsidiaries, which govern our relationships in 49 states
and the District of Columbia. These agreements govern, among other things:

     o    the price and other terms under which we locate our equipment in the
          telephone company's central offices,

     o    the price we pay to lease copper telephone lines,

     o    the special conditioning of these copper lines that the traditional
          telephone company provides to enable the transmission of DSL signals,

     o    the price we pay to access the telephone company's transmission
          facilities, and

     o    certain other terms and conditions of our relationship with the
          telephone company.

     We are negotiating renewal agreements with these carriers as the current
agreements expire and are also negotiating amendments to existing agreements.
Future interconnection agreements may contain terms and conditions less
favorable to us than those in our current agreements and could increase our
costs of operations.

     During these interconnection negotiations, either the telephone company or
we may submit disputes to the state regulatory commissions for mediation. Also,
after the expiration of the statutory negotiation period set forth in the 1996
Telecommunications Act, we may submit outstanding disputes to the states for
binding arbitration, in which the state regulatory commissions may arbitrate a
new agreement or particular portions thereof.

     Under the 1996 Telecommunications Act, states have begun and, in a number
of cases, completed regulatory proceedings to determine the pricing of
individual elements of their networks and services. The results of these
proceedings determine the price we pay for, and whether it is economically
attractive for us to use, these elements and services. These prices may be
subject to change as the result of ongoing and future regulatory proceedings.

                                        8
<PAGE>
     Our interconnection agreements generally have terms of one or two years.
Therefore, we have renegotiated, and expect to continue to renegotiate, existing
agreements when they expire. Although we expect to renew our interconnection
agreements and believe the 1996 Telecommunications Act limits the ability of
traditional local telephone companies not to renew these agreements, we may not
succeed in extending or renegotiating our interconnection agreements on
favorable terms. In addition, disputes have arisen and will likely arise in the
future as a result of differences in interpretations of the interconnection
agreements. These disputes have, in the past, delayed the deployment of our
networks. Finally, the interconnection agreements are subject to state
regulatory commission, FCC and judicial oversight. These government authorities
may modify the terms of the interconnection agreements in ways that are harmful
to our business.

GOVERNMENT REGULATIONS

     Significant portions of the services that we offer are subject to
regulation at the federal and/or state levels. The Federal Communications
Commission, or FCC, and state public utility commissions regulate
telecommunications common carriers, which are companies that offer
telecommunications services to the public or to all prospective users on
standardized rates and terms. Our DSL and other facilities-based data transport
services are common carrier services.

     While we serve many of our customers using transport facilities that we own
or lease, in some areas where we do not have the necessary facilities, we
provide our Internet access and other services using the local facilities of
another carrier. The FCC has determined that Internet service providers, such as
us, who are using another carrier's transport facilities, are not acting as
common carriers. Therefore, in those markets where we have not deployed our own
local transport facilities, our services are not subject to common carrier
regulation. Our ability to provide such services, however, is affected by
regulations imposed upon the carriers whose local transport facilities we
utilize.

     The FCC exercises jurisdiction over common carriers, and their facilities
and services, to the extent they are providing interstate or international
communications. The various state utility commissions retain jurisdiction over
telecommunications carriers, and their facilities and services, to the extent
they are used to provide communications that originate and terminate within the
same state. The degree of regulation varies from state to state.

     In recent years, the regulation of the telecommunications industry has been
in a state of flux as the United States Congress and various state legislatures
have passed laws seeking to foster greater competition in telecommunications
markets. The FCC and state regulatory commissions have adopted many new rules to
implement those new laws and to encourage competition. These changes, which are
still incomplete, have created new opportunities and challenges for us and our
competitors. Certain of these and other existing federal and state regulations
are currently the subject of judicial proceedings, legislative hearings and
administrative proposals which could change, in varying degrees, the manner in
which the telecommunications industry operates. Neither the outcome of these
proceedings nor their impact upon the telecommunications industry or us can be
predicted at this time. Indeed, future federal or state regulations and
legislation may be less favorable to us than current regulations and legislation
and therefore have a material and adverse impact on our business and financial
prospects by undermining our ability to provide DSL services at competitive
prices. In addition, we may expend significant financial and managerial
resources to participate in proceedings setting rules at either the federal or
state level, without achieving favorable results.

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<PAGE>
FEDERAL REGULATION AND LEGISLATION

     We must comply with the requirements of a common carrier under the
Communications Act of 1934, as amended, to the extent we provide regulated
interstate services. These requirements include an obligation that our charges,
terms and conditions for communications services must be "just and reasonable"
and that we may not make any "unjust or unreasonable discrimination" in our
charges or terms and conditions. The FCC also has jurisdiction to act upon
complaints against common carriers for failure to comply with their statutory
obligations. We are not currently subject to price cap or rate of return
regulation at the federal level and are not currently required to obtain FCC
authorization for the installation, acquisition or operation of our facilities.

     The FCC has established different levels of regulation for dominant and
non-dominant carriers. Of domestic carriers, only the traditional local
telephone companies are classified as dominant carriers and all other providers
of domestic common carrier service, including us, are classified as non-dominant
carriers. As a non-dominant carrier, we are subject to less FCC regulation than
are dominant carriers.

     Comprehensive changes to the Communications Act of 1934 were made by the
1996 Telecommunications Act, enacted on February 8, 1996. It represents a
significant milestone in telecommunications policy by establishing competition
in local telephone service markets as a national policy. The 1996
Telecommunications Act removes many state regulatory barriers to competition and
forecloses state and local governments from creating laws preempting or
effectively preempting competition in the local telephone service market.

     The 1996 Telecommunications Act places substantial interconnection
requirements on the traditional local telephone companies, including the
following obligations that can be relevant to our business:

     o    Traditional local telephone companies are required to provide physical
          collocation, which allows companies such as us and other
          interconnectors to install and maintain their own equipment in the
          central offices of traditional local telephone companies. This
          requirement is intended to enable us and other competitive carriers to
          deploy our equipment on a relatively convenient and economical basis.

     o    Traditional local telephone companies are required to unbundle certain
          components of their local service networks so that other providers of
          local service can compete for a wide range of local service customers.
          This requirement is designed to provide us flexibility to purchase
          only the network elements we require to deliver our services.

     o    Traditional local telephone companies are required to establish
          "wholesale" rates for their retail telecommunications services to
          promote resale by competitive local exchange carriers and other
          competitors.

     o    Traditional local telephone companies are required to provide
          non-discriminatory access to telephone poles, ducts, conduits and
          rights-of-way.

     The 1996 Telecommunications Act generally sets forth the rights and
obligations of competing carriers. The FCC issues regulations interpreting the
1996 Telecommunications Act and imposing more specific requirements upon which
we and our competitors rely. The outcome of various ongoing FCC rulemaking
proceedings or judicial appeals of such proceedings could materially affect our
business and financial prospects by increasing the cost or decreasing our
flexibility in providing services.


                                       10
<PAGE>
     As part of its effort to implement the 1996 Telecommunications Act, in
August 1996, the FCC issued an order governing interconnection, the unbundling
of network elements, and many other aspects of the relationships between new and
traditional telephone companies. The United States Court of Appeals for the
Eighth Circuit vacated many of these rules, and, in January 1999, the United
States Supreme Court reversed elements of the Eighth Circuit's ruling, finding
that the FCC has broad authority to interpret the 1996 Telecommunications Act
and issue rules for its implementation. Following the United States Supreme
Court's decision, in November, 1999, the FCC issued a modified list of the
network elements that must be offered on an unbundled basis by traditional local
telephone companies, including the local copper telephone lines and interoffice
transport which we lease. However, the decision announced the FCC's intention to
revisit these regulations within three years.

     The FCC initiated this three-year review in early 2002, and on February 20,
2003, it voted to adopt new regulations pertaining to the unbundling obligations
of the traditional local telephone companies. The FCC has yet to release its
order, and the details of the regulations it will enact therefore remain
unclear. However, based upon our initial evaluation of the press materials
released by the FCC on February 20, 2003, it appears that its new regulations
may have, at a minimum, the following impacts:

     o    In the course of upcoming state implementation of the new rules later
          this year, it is possible that we could lose the right to obtain
          unbundled interoffice transport from the traditional local telephone
          companies in locations where a certain number of competitive
          alternatives are available. This change could have the effect of
          increasing our costs of providing service in certain areas.

     o    The new regulations may result in changes to the formula by which the
          rates for unbundled network elements provided to us by the traditional
          local telephone companies are calculated, which could result in
          significant changes to our costs of providing service, and could
          negatively impact our ability to provide our services. New rates would
          be developed in each state in new proceedings expected to begin later
          this year. In addition, the FCC has suggested informally that it may
          revise other aspects of the pricing formula in the near future.

     o    The FCC announced that it would exempt from unbundling obligations
          certain loop transmission facilities that use fiber or new
          technologies. It is possible that these rules will apply only in the
          residential market, in which we do not presently compete. However,
          these limitations may also be imposed on the business enterprise
          market either by the upcoming order or in future regulatory
          proceedings. Depending on how the new rules are written and
          implemented, the traditional local telephone companies may decide to
          modify, characterize or replace their facilities in ways that would
          qualify them for this exemption and thereby preclude us from accessing
          these facilities pursuant to the terms of their interconnection
          agreements. Without access to these facilities, we may not be able to
          provide service in these areas.

     o    The FCC will eliminate the traditional local telephone companies'
          obligation to provide the high frequency portion of a copper loop to a
          competitive DSL provider, known as "line sharing," over the course of
          the next three years. Our current business is not directly affected
          because we do not use line sharing to provide services to our
          customers. Line sharing technology currently does not support the
          ability to provide the high-capacity symmetric services desired by
          customers in the business market, and therefore was primarily used by
          other competing carriers to provide DSL services in the residential
          market.

The FCC's decision will likely be subject to petitions for reconsideration and
appeal. We cannot predict the outcome of these proceedings on our ability to
offer services in the future.

                                       11
<PAGE>
     In addition to this proceeding, the FCC in February 2002 initiated a new
proceeding that will reevaluate the appropriate degree of regulation of
broadband services offered by the traditional local telephone companies,
including whether they should continue to be required to offer network access to
competitors such as us. Any changes to the obligation of the traditional local
telephone companies to provide us with unbundled copper loops and/or interoffice
transport could have significant adverse consequences for our business. A
decision is expected in the spring or summer of 2003.

     There is also the possibility that legislation will be proposed in the
United States Congress that would limit our access to certain unbundled network
elements. In 2002, the House of Representatives passed legislation known as the
Tauzin-Dingell bill, that would have amended the 1996 Telecommunications Act to
prohibit state or federal regulation of high-speed data services. While the
legislation was ultimately not enacted, similar legislation may be proposed in
the future. The effect of such legislation would be that the traditional local
telephone companies would no longer be required to provide unbundled elements at
cost-based rates (if at all) if those elements were to be used to provide
high-speed data services.

     The traditional local telephone companies have also lobbied numerous state
legislatures to adopt new legislation that would limit, or prohibit, the ability
of their state utility commissions to expand upon certain federal requirements
relating to the obligations of the traditional local telephone companies to
provide access to competitors such as us. Because the existing FCC framework
relies substantially on state implementation, the effect of such state
legislation could be to inhibit effective implementation of the 1996
Telecommunications Act with respect to broadband services, and could negatively
effect our ability to offer services in these states.

     In November 1999, the FCC issued an order reaffirming its prior conclusion
that DSL services must be offered for resale at a discount by traditional local
telephone companies to the extent such services are offered at retail to
residential and business customers. The FCC determined, however, that advanced
services provided to Internet service providers would not be subject to resale
at a discount. For the most part, the traditional local telephone companies have
decided to sell DSL only to Internet service providers, including their own
affiliated Internet service providers, such that no DSL service is made
available to competing carriers such as us at the wholesale discount rate
established under the 1996 Telecommunications Act. In February 2002, the FCC
initiated a new proceeding that will, among other things, determine whether the
traditional local telephone companies must make available for resale, at a
wholesale discount, the telecommunications portion of the retail high-speed data
services sold by their affiliated internet service providers. Such a resale
requirement could allow us to more easily enter into new markets for which we do
not presently have facilities, but could also make it easier for other companies
to compete with us. A decision in this proceeding is expected in the spring or
summer of 2003.

     Over the past three years, the FCC has granted authority to provide long
distance inter-exchange service to Verizon, SBC, BellSouth and Qwest in many of
the states where we do business, and numerous additional applications are
pending or are expected in the near future. While we do not presently provide
long distance inter-exchange service, this ruling and any future similar rulings
could negatively impact our business. First, the traditional local telephone
companies are now able to offer bundled packages of local, long distance and
data services that may be attractive to some of our existing and potential
customers. Second, the prospect of long distance authority has served as a
powerful incentive for the traditional local telephone companies to comply with
their obligations under the 1996 Telecommunications Act, including the provision
of unbundled network elements and collocation services to competitors such as
us. The traditional local telephone companies may not extend to us the same
level of cooperation once they receive approval to provide long distance
inter-exchange service.

                                       12
<PAGE>
     Pursuant to the 1996 Telecommunications Act, the FCC requires all
telecommunications carriers providing interstate telecommunications services to
contribute to a universal service fund used to provide subsidies to carriers
that provide service to individuals that live in rural, insular, and high-cost
areas, and to provide telecommunications-related services and facilities for
schools, libraries and certain rural health care providers. The
telecommunications portion of our service is currently subject to this
requirement. For the fourth quarter of 2002, the FCC has established a
contribution rate of 7.2805% of our interstate telecommunications revenues. We
pass the cost of our universal service fund contributions along to our
customers. The FCC's implementation of universal service requirements remains
subject to judicial and additional FCC review. In several new proceedings, the
FCC will consider the degree to which companies providing services such as ours
should be obligated to contribute to this fund. We are unable to predict the
outcome of these proceedings on our business at this time.

     DSL.net's subsidiaries are authorized to provide interstate
telecommunications services pursuant to its access tariff filed with the FCC in
April 1999. Although not required for our existing DSL data service offering, on
August 6, 1999 we obtained authority from the FCC to provide international
telecommunications services originating from the United States.

STATE REGULATION

     In October 1998, the FCC ruled that DSL and other advanced data services
provided as dedicated access services in connection with interstate services
such as Internet access are interstate services subject to the FCC's
jurisdiction. Accordingly, we could offer DSL services without state regulatory
authority, so long as we do not also provide local or intrastate
telecommunications services via our network. This decision allows us to provide
our DSL services in a manner that potentially reduces state regulatory
obligations. However, the regulatory parameters used to define DSL service are,
directly and indirectly, subject to many pending FCC and judicial proceedings
and could change in the future.

     Also, some of our services that are not limited to interstate access
potentially may be classified as intrastate services subject to state
regulation. All of the states where we operate require some degree of state
regulatory commission approval to provide certain intrastate services and
maintain ongoing regulatory supervision. In most states, intrastate tariffs are
also required for various intrastate services, although our services are not
subject to price or rate of return regulation. Actions by state public utility
commissions could cause us to incur substantial legal and administrative
expenses and adversely affect our business.

     We have obtained authorizations to provide local exchange and long-distance
telecommunications services in all 50 states, the District of Columbia, and
Puerto Rico.

LOCAL GOVERNMENT REGULATION

     In certain instances, we may be required to obtain various permits and
authorizations from municipalities, such as for use of rights-of-way, in which
we operate our own local distribution facilities. Whether various actions of
local governments over the activities of telecommunications carriers such as
ours, including requiring payment of franchise fees or other surcharges, pose
barriers to entry for competitive local exchange carriers which violate the 1996
Telecommunications Act or may be preempted by the FCC is the subject of
litigation. While we are not a party to this litigation, we may be affected by
the outcome. If municipal governments impose conditions on granting permits or
other authorizations or if they fail to act in granting such permits or other
authorizations, the cost of providing our services may increase or it may
negatively impact our ability to expand our network on a timely basis and
adversely affect our business.

                                       13
<PAGE>
INTELLECTUAL PROPERTY

     We regard our products, services and technology as proprietary and attempt
to protect them with copyrights, trademarks, trade secret laws, restrictions on
disclosure and other methods. For example, we own a federal supplemental
registration and claim rights in the name DSL.net. There can be no assurance
these methods will be sufficient to protect our technology and intellectual
property. We also generally enter into confidentiality agreements with our
employees, consultants and business partners; and generally control access to
and distribution of our documentation and other proprietary information. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain and use our proprietary information without authorization, or to develop
similar information independently. Effective patent, copyright, trademark and
trade secret protection may be unavailable or limited in certain foreign
countries, and the global nature of the Internet makes it virtually impossible
to control the ultimate destination of our technology or proprietary
information. There can be no assurance that the steps we have taken will prevent
misappropriation or infringement of our technology or proprietary information.
In addition, litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of resources and could have a material
adverse effect on our business, operating results and financial condition. In
addition, some of our information, including our competitive carrier status in
individual states and our interconnection agreements, is a matter of public
record and can be readily obtained by our competitors and potential competitors,
possibly to our detriment.

EMPLOYEES

     As of March 18, 2003, we had approximately 230 employees. We believe that
our future success will depend in part on our continued ability to attract, hire
and retain qualified personnel. Competition for qualified personnel can be
intense, and we may be unable to identify, attract and retain such personnel in
the future. In addition, the reductions in workforce that we undertook in 2000,
2001 and 2003 may make it difficult to attract, hire and retain qualified
personnel. None of our employees are represented by a labor union or are the
subject of a collective bargaining agreement. We have never experienced a work
stoppage and believe that our employee relations are good.

ITEM 2.   PROPERTIES

     Our headquarters consists of approximately 40,600 square feet in an office
building in New Haven, Connecticut. We also lease other offices in Santa Cruz,
California, Minneapolis, Minnesota and Herndon, Virginia. We have vacated and
sublet the office in Santa Cruz, California. See "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations". We
have also given notice to our landlord that we intend to vacate approximately
9,000 square feet at our New Haven headquarters facility when the lease expires
in April 2003. In addition, we lease space for network equipment installations
in a number of other locations. With respect to our arrangements to use space in
traditional telephone companies' central offices, please see "Business
Interconnection Agreements with Traditional Local Telephone Companies."

ITEM 3.   LEGAL PROCEEDINGS

     A lawsuit for wrongful termination of employment was filed against us in
the Superior Court in New Haven, Connecticut on July 29, 1999 by a former
officer who was employed by us for less than two months. Plaintiff's claims are
based chiefly on his allegation that we terminated his employment because he
allegedly voiced concerns to senior management about the feasibility of our
second and third tier city business strategy. The plaintiff is principally
seeking compensatory damages for wages and unvested stock options. We deny the
plaintiff's allegations and believe that his claims are without merit. We plan
to defend the case vigorously.

                                       14
<PAGE>
     We are also a party to legal proceedings related to regulatory approvals.
We are subject to state commission, FCC and court decisions as they relate to
the interpretation and implementation of the 1996 Telecommunications Act and the
interpretation of competitive carrier interconnection agreements in general and
our interconnection agreements in particular. In some cases, we may be deemed to
be bound by the results of ongoing proceedings of these bodies. We therefore may
participate in proceedings before these regulatory agencies or judicial bodies
that affect, and allow us to advance, our business plans.

     From time to time, we may be involved in other litigation concerning claims
arising in the ordinary course of our business, including claims brought by
former employees and claims related to acquisitions. We do not currently believe
that any of these legal claims or proceedings will result in a material adverse
effect on our business, financial position, results of operations or cash flows.


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

     During the quarter ended December 31, 2002, we did not submit any matters
to the vote of our security holders.


                                     PART II

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

     As of March 18, 2003, there were approximately 577 holders of record of our
common stock. Our common stock is listed for quotation on the Nasdaq SmallCap
Market under the symbol "DSLN". Our common stock was listed for quotation on the
Nasdaq National Market under the same symbol until July 22, 2002.

     The range of high and low sales prices per share of DSL.net's common stock
as reported on the Nasdaq National Market and the Nasdaq SmallCap Market for the
two most recent fiscal years are shown below. The last trading price of DSL.net
common stock on March 18, 2003 was $ 0.38 per share.

          QUARTER ENDED                           HIGH                LOW
          -------------                          ------              ------
          March 31, 2001                         $4.000              $0.530
          June 30, 2001                           1.690               0.625
          September 30, 2001                      1.020               0.140
          December 31, 2001                       1.490               0.150
          March 31, 2002                          1.380               0.700
          June 30, 2002                           1.050               0.290
          September 30, 2002                      0.450               0.240
          December 31, 2002                      $0.890              $0.280

     On July 22, 2002, the Nasdaq Stock Market, Inc. ("Nasdaq") transferred the
listing of our common stock from the Nasdaq National Market to the Nasdaq
SmallCap Market. We applied for such transfer as a result of our non-compliance
with Nasdaq's Marketplace Rule 4450(a)(5), which required us to maintain a bid
price of $1.00 per share for at least 10 consecutive trading days during the
last ninety day period prior to July 17, 2002 in order to remain qualified for
listing on the Nasdaq National Market. On October 16, 2002, Nasdaq notified us

                                       15
<PAGE>
that, while we had not regained compliance by October 15, 2002 with the $1.00
bid price per share requirement generally required for continued listing on the
Nasdaq SmallCap Market, we did continue to meet the initial listing requirements
for the Nasdaq SmallCap Market under Rule 4310(c)(2)(A). As a result, we had an
additional 180 calendar days, or until April 14, 2003, to comply with the
minimum bid price of $1.00 per share for 10 consecutive trading days, or such
greater number of trading days as Nasdaq may determine, in order to remain
listed on the Nasdaq SmallCap Market. On March 11, 2003, the Nasdaq amended its
rules to provide that a company that satisfies the initial listing requirements
for the Nasdaq SmallCap Market under Rule 4310(c)(2)(A) would have an additional
90 days (over the 180 days already contemplated by the Nasdaq SmallCap Market
rules) to comply with the minimum bid price of $1.00 per share. As a result, if
we do not satisfy the minimum bid price of $1.00 per share on April 14, 2003,
but satisfy the Nasdaq SmallCap Market initial listing requirements, we will
have until July 13, 2003 to satisfy the minimum bid price of $1.00 per share. As
of March 27, 2003, we satisfied the initial listing requirements for the Nasdaq
SmallCap Market, but there can be no assurance that we will satisfy these
requirements on April 14, 2003. If we can neither comply with the minimum bid
price requirements nor satisfy the initial Nasdaq SmallCap listing requirements
on April 14, 2003, Nasdaq will provide us notice that our common stock will be
de-listed from the Nasdaq SmallCap Market. In addition, if we satisfy the
initial Nasdaq SmallCap listing requirements on April 14, 2003 but are unable to
satisfy the minimum bid price requirements by July 13, 2003, Nasdaq will provide
us notice that our common stock will be de-listed from the Nasdaq SmallCap
Market. In each case, we would have the opportunity to appeal such determination
to a Listings Qualifications Panel. There can be no assurance that we will be
able to comply with the minimum bid price requirement by April 14, 2003 or July
13, 2003, if at all, or that we will continue to satisfy the other listing
requirements of the Nasdaq SmallCap Market.

     Nasdaq has indicated that it intends to submit proposed rules changes to
the SEC which would, among other things, further extend the number of days
during which a company that satisfies the initial listing requirements of the
Nasdaq SmallCap Market may continue to be listed on such market without
complying with the $1.00 minimum bid price requirement. There can be no
assurance that Nasdaq will submit this proposed rule change to the SEC or that
the SEC will approve this proposed rule change, if at all, in time to delay the
possible delisting of our common stock from the Nasdaq SmallCap Market. In
addition, there can be no assurance that we will continue to satisfy the initial
listing requirements of the Nasdaq SmallCap Market.

RECENT SALES OF UNREGISTERED SECURITIES

     On March 1, 2002, we sold an additional aggregate of 10,000 shares of
Series X preferred stock for an aggregate purchase price of $10,000,000. At the
option of the holder thereof, each share of Series X preferred stock may be
converted into approximately 5,555.56 shares of common stock, subject to
adjustment for certain subsequent dilutive issuances and stock splits.

     On May 30, 2002, we sold 8,531 shares of Series Y Preferred Stock for
$5,000,000 in cash and delivery of promissory notes in the aggregate principal
amount of $3,531,000 for cancellation. At the option of the holder thereof, each
share of Series Y preferred stock may be converted into 2,000 shares of common
stock, subject to adjustment for certain subsequent dilutive issuances and stock
splits.

     We entered into a Reimbursement Agreement, dated as of December 27, 2002,
with several private investment funds affiliated with VantagePoint Venture
Partners ("VantagePoint"), Columbia Capital Equity Partners ("Columbia"), The
Lafayette Investment Fund, L.P. and Charles River Partnership, L.P.
(collectively the "Guarantors") and VantagePoint Venture Partners III (Q), L.P.,
as administrative agent. The Guarantors are all holders or affiliates of the
holders of our Series X and Series Y Preferred stock. Pursuant to the terms of
the Reimbursement Agreement, VantagePoint and Columbia issued guarantees in an

                                       16
<PAGE>
aggregate amount up to $6,100,000 to support certain of our obligations under a
Credit Agreement we entered into in 2002 with a commercial bank. Pursuant to the
terms of the Reimbursement Agreement, on December 27, 2002, we issued warrants
to purchase 10,379,420 shares of our common stock to VantagePoint and 1,634,473
shares of our common stock to Columbia, in consideration for their guarantees
aggregating $6,100,000. We issued additional warrants to purchase 767,301 shares
of our common stock to VantagePoint and 168,806 shares of our common stock to
Columbia during the first quarter of 2003. All such warrants are exercisable for
ten years at an exercise price of $0.50 per share.

     No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act of 1933, as amended, set forth in Section 4(2) thereof
relative to sales by an issuer not involving any public offering or the rules
and regulations thereunder.

DIVIDEND POLICY

     We have never declared or paid any cash dividends on our common stock and
currently intend to retain any future earnings for the future operation and
expansion of our business. In addition, prior to and in preference to any
declaration or payment of any cash dividends on our common stock, the holders of
Series X and Series Y preferred stock are entitled to receive cumulative
dividends of $120.00 per share per annum when and as declared by the DSL.net
board of directors. All such dividends on the Series X and Series Y preferred
stock accrue monthly and are payable in cash, except in the case of the
conversion of the Series X or Series Y preferred stock, as the case may be, into
common stock, in which case dividends may be paid, at the sole option of
DSL.net, in shares of DSL.net common stock. Notwithstanding the foregoing,
accrued but unpaid dividends are payable upon the earliest to occur of:

     o    the liquidation, dissolution, winding up or change in control of
          DSL.net,

     o    the conversion of the Series X or Series Y preferred stock, as the
          case may be, into common stock, and

     o    the redemption of the Series X or Series Y preferred stock, as the
          case may be.

Accordingly, we do not anticipate that any cash dividends will be declared or
paid on our common stock in the foreseeable future.


                                       17
<PAGE>
EQUITY COMPENSATION PLAN INFORMATION

     The following table provides information as of March 18, 2003 with respect
to the shares of the Company's common stock that may be issued under the
Company's existing equity compensation plans:
<TABLE><CAPTION>
----------------------------   -------------------   -------------------   -----------------------
                                    Column A              Column B                Column C
----------------------------   -------------------   -------------------   -----------------------
                                                                            Number of securities
                                                                           Remaining Available for
                                                                            Future Issuance Under
                               Number of Securities                          Equity Compensation
                                   to be Issued        Weighted Average       Plans (Excluding
                                 upon Exercise of     Exercise Price of     Securities Reflected
       Plan Category           Outstanding Options   Outstanding Options        in Column A)
----------------------------   -------------------   -------------------   -----------------------
<S>                            <C>                   <C>                   <C>
Equity Compensation Plans
Approved by Shareholders           23,877,004               $0.98                 7,439,394
----------------------------   -------------------   -------------------   -----------------------
Equity Compensation Plans
Not Approved by Shareholders           --                     --                      --
----------------------------   -------------------   -------------------   -----------------------
Total                              23,877,004               $0.98                 7,439,394
----------------------------   ===================   ===================   =======================
</TABLE>


ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA

     We were incorporated on March 3, 1998 and commenced operations on March 28,
1998. The following historical data for the period from inception (March 3,
1998) through December 31, 1998 and the years ended December 31, 1999, 2000,
2001 and 2002, except for "Other Data," has been derived from our financial
statements audited by PricewaterhouseCoopers LLP, independent accountants. Our
balance sheets at December 31, 2001 and 2002 and the related statements of
operations, changes in stockholders' equity and cash flows for the years ended
December 31, 2000, 2001 and 2002 and notes thereto appear elsewhere in this
annual report on Form 10-K.

     You should refer to "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the more complete financial
information included elsewhere in this annual report on Form 10-K.



                                       18
<PAGE>
<TABLE><CAPTION>
                                                PERIOD FROM
                                                 INCEPTION
                                                 (MARCH 3,
                                               1998) THROUGH                       YEAR ENDED DECEMBER 31,
                                                DECEMBER 31,     ----------------------------------------------------------
                                                    1998            1999            2000            2001            2002
                                                 --------------------------------------------------------------------------
<S>                                              <C>             <C>             <C>             <C>             <C>
                                                                            (in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenue                                          $       32      $    1,313      $   17,789      $   41,969      $   45,530
Operating expenses:
Network
 (excluding stock compensation)                          95           2,003          31,651          44,589          33,947
Operations
 (excluding stock compensation)                          26           5,612          31,060          45,614           7,472
General and administrative
 (excluding stock compensation)                         231           4,782          17,974          25,229          11,403
Sales and marketing
 (excluding stock compensation)                          36           6,848          25,263          13,188           6,969
Stock compensation                                    2,423           4,108           3,192           1,202           1,228
Depreciation and amortization                             6           1,831          21,133          28,043          20,332
                                                 --------------------------------------------------------------------------
     Total operating expenses                         2,817          25,184         130,273         157,865          81,351

Operating loss                                       (2,785)        (23,871)       (112,484)       (115,896)        (35,821)

Interest (expense) income, net                           (5)          1,889           6,730             455            (458)
Other (expense) income, net                              --              (6)             (9)            (13)            185
                                                 --------------------------------------------------------------------------

Net loss                                         $   (2,790)     $  (21,988)     $ (105,763)     $ (115,454)     $  (36,094)

Exchange of preferred stock                              --         (11,998)             --              --              --
Dividends on preferred stock                             --              --              --            (122)         (3,573)
Accretion of preferred stock                             --              --              --            (348)        (10,078)
                                                 --------------------------------------------------------------------------
Net loss applicable to common stockholders       $   (2,790)     $  (33,986)     $ (105,763)     $ (115,924)     $  (49,745)
                                                 ==========================================================================

NET LOSS PER COMMON SHARE DATA:
Net Loss per common share, basic and diluted     $    (0.55)     $    (2.05)     $    (1.75)     $    (1.81)     $    (0.77)
Shares used in computing net loss per share           5,118          16,550          60,593          63,939          64,858

CASH FLOW DATA:
Used in operating activities                     $     (154)     $   (6,343)     $  (74,986)     $  (62,990)     $  (17,706)
Used in investing activities                           (290)        (49,264)        (60,225)         (2,921)         (2,368)
Provided by financing activities                        483         121,142         141,960          12,871          12,106

                                                             19
</TABLE>


<PAGE>
<TABLE><CAPTION>
                                                PERIOD FROM
                                                 INCEPTION
                                                 (MARCH 3,
                                               1998) THROUGH                       YEAR ENDED DECEMBER 31,
                                                DECEMBER 31,     ----------------------------------------------------------
                                                    1998            1999            2000            2001            2002
                                                 --------------------------------------------------------------------------
<S>                                              <C>             <C>             <C>             <C>             <C>
                                                                           (in thousands, except per share data)
OTHER DATA:
Reconciliation of net loss to adjusted EBITDA:
   Net loss                                      $   (2,790)     $  (21,988)     $ (105,763)     $ (115,454)     $  (36,094)
   Add: Interest and other expense (income), net          5          (1,883)         (6,721)           (442)            273
        Depreciation and amortization                     6           1,831          21,133          28,043          20,332
        Stock compensation                            2,423           4,108           3,192           1,202           1,228
                                                 --------------------------------------------------------------------------
   Adjusted EBITDA (A)                                 (356)        (17,932)        (88,159)        (86,651)     $  (14,261)
                                                 --------------------------------------------------------------------------
Capital expenditures                                    290          33,811          55,943           5,345           1,647



                                                                                 DECEMBER 31,
                                                 --------------------------------------------------------------------------
                                                    1998            1999            2000            2001            2002
                                                 --------------------------------------------------------------------------
                                                                               (in thousands)
BALANCE SHEET DATA:
Cash, cash equivalents, restricted
 cash and marketable securities                  $       39      $   79,452      $   76,435      $   19,631      $   11,319
Total assets                                            370         117,632         194,806          81,024          53,496
Long-term obligations (including
 current portion)                                       433           3,056          14,114           7,463           4,565
Mandatorily Redeemable Convertible
 Preferred Stock                                         --              --              --             470          14,122
Stockholders' equity (deficit)                   $     (316)     $  100,733      $  149,417      $   50,725      $   20,751
</TABLE>

     (A) Adjusted EBITDA, shown above under "Other Data", consists of net loss
excluding net interest, taxes, depreciation, amortization of intangibles and
non-cash stock compensation expense. The title of this item has been changed
from EBITDA to conform to the SEC's current policy regarding the definition of
EBITDA; however, the components of this item remain unchanged from our prior
reporting of EBITDA. Other companies, however, may calculate Adjusted EBITDA
differently from us. We have provided Adjusted EBITDA because it is a measure of
financial performance commonly used for comparing companies in the
telecommunications industry in terms of operating performance, leverage, and
ability to incur and service debt. Adjusted EBITDA is not a measure determined
under generally accepted accounting principles. Adjusted EBITDA should not be
considered in isolation from, and you should not construe it as a substitute
for:

     o operating loss as an indicator of our operating performance,

     o cash flows from operating activities as a measure of liquidity,

     o other consolidated statement of operations or cash flows data
       presented in accordance with generally accepted accounting principles, or

     o as a measure of profitability or liquidity.


                                       20
<PAGE>
     The above financial data includes the operating results of acquisitions
from their acquisition date, which consequently will effect the comparability of
such financial data from year to year.


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

     THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH "ITEM 6 - SELECTED
CONSOLIDATED FINANCIAL DATA" AND "ITEM 8 - FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA" THAT APPEAR ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K.
THIS DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS"
AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K. EXISTING AND PROSPECTIVE
INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. WE UNDERTAKE NO OBLIGATION,
AND DISCLAIM ANY OBLIGATION, TO UPDATE OR REVISE THE INFORMATION CONTAINED IN
THIS ANNUAL REPORT ON FORM 10-K, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR CIRCUMSTANCES OR OTHERWISE.

OVERVIEW

     We provide high-speed data communications, Internet access, and related
services to small and medium sized businesses, primarily using digital
subscriber line, or DSL, technology. We primarily target select second and third
tier cities, as well as some first tier cities, for the deployment of our own
local DSL and T1 equipment. We began offering commercial service in May 1998
and, as of March 15, 2003, we operated equipment in approximately 394 cities. In
certain other markets where we have not deployed our own equipment, we utilize
the local facilities of other carriers to provide service.

     We have incurred operating losses and net losses for each month since our
formation. For the years ended December 31, 2000, 2001, and 2002, we experienced
net cash outflows from operating and investing activities. As of December 31,
2001 and 2002, we had accumulated deficits of approximately $248,397,000 and
$284,491,000, respectively.

     In an effort to increase revenue from our installed network and conserve
capital, in the fourth quarter of 2000, we decided to suspend the build-out of
additional central offices and focus our efforts on increasing revenue through
targeted marketing to increase penetration in our existing service areas and by
introducing more services. In addition, in order to reduce costs, we (i)
suspended network connections by shutting off the power and communication
connections to approximately 100 central offices, which were not being used to
service customers at the time, (ii) consolidated operating facilities and
vacated certain leased premises and (iii) significantly reduced staff. We also
began actively pursuing opportunities for additional equity financing.

     Near the end of the second quarter of 2001, since we still had not received
additional financing and were continuing to incur significant operating losses,
we initiated further cost reduction actions including (i) additional reductions
in force, (ii) closing our Santa Cruz office and vacating unused office space in
our headquarters building and (iii) closing the 100 non-active central offices
(discussed above), together with approximately 250 then active central offices,

                                       21
<PAGE>
which required removal of our equipment and vacating the premises. Closure of
the active central offices also required re-routing a number of customers and
ultimately resulted in our losing approximately 840 customers, or approximately
4% of our customer base. We also had another significant staff reduction during
the fourth quarter of 2001.

     All of the above-described actions were designed to significantly reduce
operating costs and cash outflows, but necessitated significant restructuring
charges related to: (i) closing of our central offices and resulting asset
write-offs, (ii) costs related to vacated facilities and (iii) severance costs.
In addition, we incurred impairment write-offs of goodwill pertaining to our
Tycho and Trusted Net acquisitions. These restructuring and impairment charges
are more fully discussed below.

     In November and December of 2001, we were successful in securing additional
equity financing from existing and new investor groups in accordance with two
purchase agreements which provided for the sale of up to an aggregate of $35
million in Series X and Y mandatorily redeemable convertible preferred stock. In
accordance with those purchase agreements, in November 2001, we sold an
aggregate of 6,000 shares of Series X preferred stock and in December 2001, we
sold an additional 4,000 shares of Series X preferred stock and 6,469 shares of
Series Y preferred stock for gross proceeds of $16,469,000, before direct
issuance costs. In addition, during December 2001, we issued Promissory Notes to
the Series Y Investors in the aggregate principal amount of $3,531,000 in
exchange for proceeds of $3,531,000. The Promissory Notes provided for an annual
interest rate of 12%. In March 2002, in accordance with the terms of the Series
X Purchase Agreement, we sold an additional 10,000 shares of Series X preferred
stock for an aggregate purchase price of $10,000,000. In May 2002, in accordance
with the terms of the Series Y Purchase Agreement, we sold 8,531 additional
shares of Series Y Preferred Stock for net proceeds of $5,000,000 in cash and
delivery of the Promissory Notes for cancellation. In accordance with the terms
of the Series Y Purchase Agreement, all accrued interest on the Promissory
Notes, of approximately $145,000, was forgiven.

     In December of 2002, the U.S. Bankruptcy Court for the District of Delaware
approved our bid to purchase network assets and associated subscriber lines of
Network Access Solutions Corporation ("NAS") for $14,000,000, consisting of
$9,000,000 in cash and $5,000,000 in a note payable to NAS. We closed the
transaction on January 10, 2003, whereby we acquired the majority of NAS's
operations and network assets, associated equipment in approximately 300 central
offices and approximately 11,500 associated subscriber lines. The cash portion
of the purchase price was paid from our existing cash. In connection with the
closing of the NAS transaction, on January 10, 2003, we hired approximately 78
former NAS employees. No pre-closing liabilities were assumed with the NAS
transaction. We expect that the acquired NAS assets and operations will have a
significant impact on our future operating results.

     In connection with the integration of the NAS business, on January 17,
2003, we had a reduction in force of approximately 35 employees at our
headquarters facility in New Haven, CT. We paid approximately $62,000 in
severance to the terminated employees. Subsequent to the reduction in force, our
headcount approximated 230 employees.

     On February 3, 2003, we borrowed $6,100,000 under our Revolving Credit and
Term Loan Agreement (discussed below). The loan bears interest, payable monthly
in arrears at the bank's "base rate" and any unpaid principal balance will
automatically convert to a term loan on December 12, 2004, after which principal
payments (together with accrued interest on the unpaid principal balance) will
be made in 12 equal installments payable at the end of each calendar quarter
commencing on December 31, 2004. Amounts borrowed under the bank credit line are
guaranteed by the principal holders of our Series X and Series Y Preferred
Stock, with whom we have signed a Reimbursement Agreement (discussed below).

                                       22
<PAGE>
     In addition to our internal sales and marketing efforts, we have grown our
customer base by acquiring end users of other Internet service providers and
companies offering broadband access. We continuously identify and evaluate
acquisition candidates, and in many cases engage in discussions and negotiations
regarding potential acquisitions. Acquisition candidates include both subscriber
lines and whole businesses. Our discussions and negotiations may not result in
an acquisition. Further, if we make any acquisitions, we may not be able to
operate any acquired assets or businesses profitably or otherwise successfully
implement our expansion strategy. We intend to continue to seek additional
opportunities for further acquisitions, which we believe represents a distinct
opportunity to accelerate our growth.

     Our independent accountants have noted in their report that our sustained
operating losses raise substantial doubt about our ability to continue as a
going concern. We believe that our existing cash and cash equivalents, cash
expected to be generated from operations, and funds available under our bank
credit agreement, will be sufficient to fund our operating losses, capital
expenditures, lease payments and working capital requirements into the third
quarter of 2003. We intend to use our cash resources to finance our capital
expenditures and for working capital and other general corporate purposes. We
may also use a portion of our cash resources to acquire complementary
businesses, subscriber lines or other assets. The amounts actually expended for
these purposes will vary significantly depending on a number of factors,
including market acceptance of our services, revenue growth, planned capital
expenditures, cash generated from operations, improvements in operating
productivity, the extent and timing of entry into new markets and availability
and prices paid for acquisitions.

     Additional financing will be required during 2003. We do not believe that
our operations will generate sufficient cash to finance our requirements. As a
result, we will need to raise additional financing through some combination of
borrowings, leasing, vendor financing and the sale of equity or debt securities.
These capital requirements may vary based upon the timing and the success of
implementation of our business plan or if:

     o  demand for our services or our cash flow from operations is less than
        or more than expected;

     o  our plans or projections change or prove to be inaccurate;

     o  we make acquisitions;

     o  we alter the schedule or targets of our business plan implementation; or

     o  we curtail, reorganize, discontinue or shut down our operations.

     There can be no assurance that we will be able to raise sufficient
additional debt, equity or other capital on acceptable terms, if at all. If we
are unable to obtain adequate funds, we may not be able to continue to operate
our network, respond to competitive pressures or fund our operations. As a
result, we may be required to significantly reduce, reorganize, discontinue or
shut down our operations. Our financial statements do not include any
adjustments that might result from this uncertainty.

     Our financial performance will vary, and when we achieve profitability or
become cash flow positive will depend on a number of factors, including:

     o  development of the high-speed data communications industry and our
        ability to compete effectively;

     o  amount, timing and pricing of customer revenue;


                                       23
<PAGE>
     o  availability, timing and pricing of acquisition opportunities, and our
        ability to capitalize on such opportunities;

     o  commercial acceptance of our service and attaining expected
        penetration within our target markets;

     o  our ability to recruit and retain qualified personnel;

     o  up front sales and marketing expenses;

     o  cost and utilization of our network components which we lease from other
        telecommunications providers, including other competitive carriers;

     o  our ability to establish and maintain relationships with marketing
        partners;

     o  successful implementation and management of financial, information
        management and operations support systems to efficiently and
        cost-effectively manage our growth; and

     o  favorable outcome of federal and state regulatory proceedings and
        related judicial proceedings, including proceedings relating to the
        1996 Telecommunications Act.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND RISKS

     Financial Reporting Release No. 60, which was released in December 2001, by
the Securities and Exchange Commission (the "SEC"), requires all companies to
include a discussion of critical accounting policies or methods used in the
preparation of financial statements and the estimates and judgments that are
used by management in applying those accounting policies and methods.

     In addition, Financial Reporting Release No. 61, which was released in
December 2001 by the SEC, requires all companies to include a discussion to
address, among other things, liquidity, off-balance sheet arrangements,
contractual obligations and commercial commitments.

     Management's discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, including the
recoverability of tangible and intangible assets, disclosure of contingent
assets and liabilities as of the date of the financial statements, and the
reported amounts of revenues and expenses during the reported period. The
markets for our services are characterized by intense competition, rapid
technological development, regulatory and legislative changes, and frequent new
product introductions, all of which could impact the future value of our assets
and liabilities.

     We evaluate our estimates on an on-going basis. The most significant
estimates relate to revenue recognition, goodwill and other long-lived assets,
the allowance for doubtful accounts, income taxes, contingencies and litigation.
We base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ materially from those estimates.

                                       24
<PAGE>
     The following is a brief discussion of the more significant accounting
policies and methods and the judgments and estimates used by us in their
application.

REVENUE RECOGNITION

     We recognize revenue in accordance with SEC Staff Accounting Bulletin No.
101, (SAB NO. 101) "REVENUE RECOGNITION IN FINANCIAL STATEMENTS", which requires
that four basic criteria must be met before revenue can be recognized: (1)
persuasive evidence of an arrangement exists; (2) delivery has occurred or
services rendered; (3) the fee is fixed and determinable; and (4) collectibility
is reasonably assured. Determination of criteria (3) and (4) are based on
management's judgments regarding the fixed nature of the fee charged for
services rendered and products delivered and the collectibility of those fees.

     Revenue is recognized pursuant to the terms of each contract on a monthly
service fee basis, which vary based on the speed of the customer's Internet
connection and the services ordered by the customer. The monthly fee includes
phone line charges, Internet access charges, the cost of the equipment installed
at the customer's site and the other services we provide, as applicable. Revenue
that is billed in advance of the services provided is deferred until the
services are rendered. Revenue related to installation charges is also deferred
and amortized to revenue over 18 months. Related direct costs incurred (up to
the amount of deferred revenue) are also deferred and amortized to expense over
18 months. Any excess direct costs over installation charges are charged to
expense as incurred. In certain instances, we negotiate credits and allowances
for service related matters. We establish a reserve for such credits based on
historical experience.

     We seek to price our services competitively. The market for high-speed data
communications services and Internet access is rapidly evolving and intensely
competitive. While many of our competitors and potential competitors enjoy
competitive advantages over us, we are pursuing a significant market that, we
believe, is currently under-served. Although pricing is an important part of our
strategy, we believe that direct relationships with our customers and
consistent, high quality service and customer support will be key to generating
customer loyalty. During the past several years, market prices for many
telecommunications services and equipment have been declining, a trend that
might continue.

GOODWILL AND OTHER LONG-LIVED ASSETS

     We account for our long-lived assets in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 144, "ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF," which
requires that long-lived assets and certain intangible assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If undiscounted expected future cash
flows are less than the carrying value of the assets, an impairment loss is to
be recognized based on the fair value of the assets.

     Effective January 1, 2002, we adopted SFAS No. 142, "GOODWILL AND OTHER
INTANGIBLE ASSETS". This statement requires that the amortization of goodwill be
discontinued and instead an impairment approach be applied. The impairment tests
were performed during the first and last quarters of 2002 and will be performed
annually hereafter (or more often if adverse events occur) and are based upon a
fair value approach rather than an evaluation of the undiscounted cash flows. If
impairment exists, under SFAS No. 142, the resulting charge is determined by the
recalculation of goodwill through a hypothetical purchase price allocation of
the fair value and reducing the current carrying value to the extent it exceeds
the recalculated goodwill. We did not record any goodwill impairment adjustments
resulting from our impairment reviews during 2002.


                                       25
<PAGE>
     Other long-lived assets, such as identifiable intangible assets and fixed
assets, are amortized or depreciated over their estimated useful lives. These
assets are reviewed for impairment whenever events or circumstances provide
evidence that suggests that the carrying amount of the assets may not be
recoverable, with impairment being based upon an evaluation of the identifiable
undiscounted cash flow. If impaired, the resulting charge reflects the excess of
the asset's carrying cost over its fair value.

     If market conditions become less favorable, future cash flows (the key
variable in assessing the impairment of these assets) may decrease and as a
result we may be required to recognize impairment charges.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

     We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. We
primarily sell our services directly to end users mainly consisting of small to
medium sized businesses. We believe that we do not have significant exposure or
concentrations of credit risk with respect to any given customer, as no customer
accounted for more than 5% of annual revenues for the years ended December 31,
2000, 2001 or 2002, respectively. However, if the country or any region we
service, experiences an economic downturn, the financial condition of our
customers could be adversely affected, which could result in their inability to
make payments to us. This could require additional provisions for allowances. In
addition, a negative impact on revenue related to those customers may occur.

     With the acquisition of the NAS assets on January 10, 2003, we acquired a
number of subscribers, some of whom we service indirectly through various
Internet service providers ("ISP's"). We sell our services to such ISP's who
then resell such services to the end user subscriber. We expect to have some
increased exposure and concentration of credit risk pertaining to such ISP's
during 2003; however, we currently expect that no single customer or ISP will
account for more than 5% of 2003 annual revenues.

INCOME TAXES

     We use the liability method of accounting for income taxes, as set forth in
Statement of Financial Accounting Standards No. 109, "ACCOUNTING FOR INCOME
TAXES". Under this method, deferred tax assets and liabilities are recognized
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities and net operating
loss carryforwards, all calculated using presently enacted tax rates.

     We have not generated any taxable income to date and, therefore, have not
paid any federal income taxes since inception. Our state and federal net
operating loss carryforwards begin to expire in 2004 and 2019, respectively. Use
of our net operating loss carryforwards may be subject to significant annual
limitations resulting from a change in control due to our recent sales of Series
X and Series Y preferred stock. We are currently assessing the potential impact
resulting from these transactions. We have provided a valuation allowance for
the full amount of the net deferred tax asset since management has not
determined that these future benefits will more likely than not be realized.

LITIGATION

     From time to time, we may be involved in litigation concerning claims
arising in the ordinary course of our business, including claims brought by
former employees and claims related to acquisitions. We record liabilities when
a loss is probable and can be reasonably estimated. These estimates are based on
an analysis made by internal and external legal counsel who consider information
known at the time. We believe we have made reasonable estimates in the past;
however, court decisions could cause liabilities to be incurred in excess of
estimates.

                                       26
<PAGE>
RESULTS OF OPERATIONS

     The following table depicts our results of operations data and the
components of net loss as a percentage of revenue:

<TABLE><CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                            ----------------------------------
                                              2000         2001         2002
                                            --------     --------     --------
<S>                                         <C>          <C>          <C>
Revenue                                       100.0%       100.0%       100.0%
                                            ----------------------------------
Operating expenses:
   Network
   (excluding stock compensation)             177.9%       106.2%        74.6%

   Operations
   (excluding stock compensation)             174.6%       108.7%        16.4%

   General and administrative
   (excluding stock compensation)             101.0%        60.1%        25.0%

   Sales and marketing
   (excluding stock compensation)             142.0%        31.4%        15.3%

   Stock compensation                          17.9%         2.9%         2.7%

   Depreciation and amortization              118.8%        66.8%        44.7%
                                            ----------------------------------

Total operating expenses                      732.3%       376.1%       178.7%


Operating loss                              (632.3)%     (276.1)%      (78.7)%

Interest income (expense), net                                          (1.0)%
                                               37.8%         1.0%

Other (expense) income, net                   (0.0)%         0.0%         0.4%
                                            ----------------------------------
Net loss                                    (594.5)%     (275.1)%      (79.3)%
                                            ==================================

Net loss applicable to common stockholders:

   Net loss                                 (594.5)%     (275.1)%      (79.3)%

   Dividends on preferred stock                  --%       (0.3)%       (7.8)%

   Accretion of preferred stock                  --%       (0.8)%      (22.1)%
                                            ----------------------------------
Net loss applicable to common stockholders  (594.5)%     (276.2)%     (109.3)%
                                            ==================================
</TABLE>


                                       27
<PAGE>
     REVENUE. Revenue is recognized pursuant to the terms of each contract on a
monthly service fee basis, which varies based on the speed of the connection and
the services ordered. The monthly fee includes all phone line charges, Internet
access charges, the cost of the modem installed at the customer's site and the
other services we provide, as applicable. Revenue that is billed in advance of
the services provided is deferred until the services are rendered. Revenue
related to installation charges is deferred and amortized to revenue over 18
months.

     Revenue increased from approximately $17,789,000 for the year ended
December 31, 2000 to approximately $41,969,000 and approximately $45,530,000 for
the years ended December 31, 2001 and 2002, respectively. Revenue increased
primarily due to the expansion of our network, the increased number of customers
subscribing for our services and contributions from acquisitions, primarily
Vector Internet Services, Inc. ("VISI"), Tycho Networks, Inc. ("Tycho") and
certain assets and subscriber lines of Exario Networks, Inc. ("Exario") during
2000, certain subscriber lines of Covad Communications, Inc. ("Covad") under
their Safety Net program, and certain subscriber lines of Zyan Communications,
Inc. ("Zyan") during 2001 and certain subscriber lines of Broadslate Networks,
Inc. ("Broadslate") and Abacus America, Inc. ("Abacus") during 2002. The revenue
attributable to contributions from acquired businesses was approximately
$6,263,000, $5,326,000 and $2,069,000 for the years ended December 31, 2000,
2001 and 2002, respectively. We expect revenue to increase in 2003 as a result
of our acquisition of the NAS assets and associated subscriber lines, and as we
continue our sales and marketing efforts in our new expanded service areas,
introduce additional services and, possibly, acquire additional businesses
and/or subscriber lines.

     NETWORK EXPENSES. Our network expenses include costs related to network
engineering and network operations personnel, costs for telecommunications lines
between customers, central offices, network service providers and our network,
costs for rent and power at our central offices, costs to connect to the
Internet, costs of customer line installations and the costs of customer premise
equipment when sold to our customers. We expect our network expenses, including
costs for subscriber lines, to increase as a result of our acquisition of the
NAS assets and associated subscriber lines and as we add customers. We lease
high-speed lines and other network capacity to connect our central office
equipment and our network. In addition, costs incurred to connect to the
Internet are expected to increase as the volume of data communications traffic
generated by our customers increases.

     Network expenses increased from approximately $31,651,000 for the year
ended December 31, 2000 to approximately $44,589,000 for the year ended December
31, 2001, and then decreased to approximately $33,948,000 for the year ended
December 31, 2002. The increase in network expenses between 2000 and 2001 was
primarily due to increased telecommunication expenses of approximately
$14,689,000, due to the expansion of our network during 2000 and the increased
number of customers subscribing for our services during 2000 and 2001, which
were partially offset by reductions of approximately $776,000 in salaries and
benefits due to reductions in force, reductions of approximately $593,000 in
professional and consulting services, and reductions of approximately $382,000
in travel and entertainment, recruiting costs, equipment and other expenses,
resulting from our cost reduction initiatives. Reductions during 2002 were
primarily attributable to decreased telecommunications expenses resulting from
our restructuring and cost containment efforts during 2001 (see restructuring
and impairment charges).

     OPERATIONS EXPENSES. Our operations expenses include costs related to
customer care, customer provisioning, customer billing, customer technical
assistance, purchasing, headquarters facilities operations, operating systems
maintenance and support and other related overhead expenses. We expect our
operations expenses to increase in 2003 as a result of our acquisition of the
NAS assets and associated subscriber lines.

                                       28
<PAGE>
     Operations expenses increased from approximately $31,060,000 for the year
ended December 31, 2000 to approximately $45,614,000 for the year ended December
31, 2001, and then decreased to approximately $7,472,000 for the year ended
December 31, 2002. The increase in operations expenses between 2000 and 2001 was
primarily due to increases in restructuring charges (explained below) of
approximately $29,287,000 which were partially offset by reductions of
approximately $4,219,000 in salaries and benefits due to reductions in force,
reductions of approximately $6,583,000 in professional and consulting services,
reductions of approximately $984,000 in taxes and reductions of approximately
$2,947,000 in travel and entertainment, recruiting costs and other expenses due
to our cost containment efforts. Reductions during 2002 were primarily
attributable to decreased expenses resulting from our cost containment efforts
during 2001. These included reductions in restructuring charges of approximately
$31,528,000, reductions of approximately $3,739,000 in salaries and benefits,
reductions of approximately $1,440,000 in professional and consulting services,
reductions of approximately $953,000 in equipment costs and reductions of
approximately $482,000 in travel and entertainment and other expenses due to our
cost containment efforts.

     GENERAL AND ADMINISTRATIVE. Our general and administrative expenses consist
primarily of costs relating to human resources, finance, executive,
administrative services, recruiting, insurance, legal and auditing services,
leased office facilities rent and bad debt expenses. We expect our general and
administrative expenses to increase in 2003 as a result of our acquisition of
the NAS assets and associated subscriber lines.

     General and administrative expenses increased from approximately
$17,974,000 for the year ended December 31, 2000 to approximately $25,230,000
for the year ended December 31, 2001, and then decreased to approximately
$11,403,000 for the year ended December 31, 2002. The increase from 2000 to 2001
was primarily attributable to increases of approximately $5,880,000 in
restructuring and impairment charges (discussed below) and approximately
$2,289,000 in bad debt expenses, which was partially offset by reductions of
approximately $913,000 in facilities costs, professional and consulting
services, recruiting costs and other expenses resulting from our cost reduction
initiatives. The increase in bad debt expenses was primarily due to (i) a
significant increase in customers and associated revenue, (ii) increased
write-offs associated with customer line acquisitions and (iii) increased loss
of customers due to our closure of approximately 350 central offices and various
brief outages and service interruptions in the latter part of 2001, including
service interruptions associated with the aftermath of the September 11th
events. Reductions during 2002 in general and administrative expenses were
primarily due to decreases resulting from our restructuring and cost containment
efforts during 2001 and included reductions in restructuring and impairment
charges of approximately $6,998,000, professional fees of approximately
$1,897,000, salaries and benefits of approximately $2,000,000, sales, use,
property and other taxes of approximately $1,955,000 (as further discussed
below), bad debt expense of approximately $542,000 and other expenses of
approximately $755,000. These reductions were partially offset by increased
insurance costs of approximately $320,000.

     In March 2002, we filed an application with the Connecticut Department of
Revenue Services for research and development expenditure credits for the 1999
and 2000 calendar years. The credits were approved as a reduction against our
corporation business tax. With regard to credits approved for the 2000 calendar
year, we were entitled to elect a cash refund at 65 percent of the approved
credit. We elected to receive the 2000 calendar year credit as a cash refund of
approximately $1,301,000. The 1999 calendar year credit of approximately
$671,000 is available as a carryforward offset to future State of Connecticut
business taxes. In July of 2002, we received the first installment of the cash
refund pertaining to the 2000 calendar year of approximately $1,000,000, with
the $301,000 balance payable in two equal installments in July 2003 and 2004.
Upon receipt of the research and development credits, we were obligated to pay
approximately $402,000 to a professional service provider as a result of a

                                       29
<PAGE>
contingent fee arrangement for professional services in connection with
obtaining such credits. For the year ended December 31, 2002, we recorded the
$1,000,000 refund as a reduction in our state corporate franchise tax expenses
which are included in general and administrative expenses, and the $402,000
contingent fee as professional services expenses, also included in general and
administrative expenses.

     SALES AND MARKETING. Our sales and marketing expenses consist primarily of
expenses for personnel, the development of our brand name, promotional
materials, direct mail advertising and sales commissions and incentives. We
expect our sales and marketing expenses to increase in 2003 as a result of our
acquisition of the NAS assets and associated subscriber lines.

     Sales and marketing expenses decreased from approximately $25,263,000 for
the year ended December 31, 2000, to approximately $13,188,000 and approximately
$6,969,000 for the years ended December 31, 2001 and 2002, respectively.
Reductions during 2001 were primarily due to approximately $3,926,000 in lower
salaries and benefits due to reductions in force, approximately $3,183,000 in
lower marketing and advertising costs, approximately $2,928,000 in lower
professional and consulting services costs, approximately $881,000 in lower
travel and entertainment costs, approximately $668,000 in lower recruiting costs
and approximately $489,000 in lower office and other expenses. The decrease in
sales and marketing expenses during 2002 was primarily due to decreased costs
that resulted from our restructuring and cost containment efforts during 2001,
including reductions in advertising and direct mail marketing expenses of
approximately $2,414,000, salaries and benefits of approximately $1,880,000,
professional and consulting services of approximately $1,752,000 and other
expenses of approximately $173,000.

     DEPRECIATION AND AMORTIZATION. Depreciation and amortization is primarily
attributable to the following: (i) depreciation of network and operations
equipment and Company-owned modems and routers installed at customer sites, (ii)
depreciation of information systems and computer hardware and software, (iii)
amortization and depreciation of the costs of obtaining, designing and building
our collocation space and corporate facilities and (iv) amortization of
intangible capitalized costs pertaining to acquired businesses and customer line
acquisitions. We expect our depreciation and amortization expenses to increase
in 2003 as a result of our acquisition of the NAS network assets and associated
subscriber lines.

     Depreciation and amortization expenses were approximately $21,133,000,
$28,043,000 and $20,332,000 for the years ended December 31, 2000, 2001 and
2002, respectively. Increases in such expenses during 2001 primarily resulted
from the significant expansion of our network and infrastructure and acquired
businesses during 2000, partially offset by reduced depreciation and
amortization in 2001 from assets written off due to our restructuring and
impairment provisions (discussed below). The decrease in depreciation and
amortization expenses during 2002 primarily resulted from restructuring
write-offs of central office equipment and impairment write-offs of intangible
assets taken during 2001.

     During December 2000 and calendar year 2001, we wrote-off approximately
$31.0 million of network equipment and other capitalized costs as part of our
restructuring efforts, and incurred approximately $4.0 million in impairment
charges pertaining to goodwill of acquired companies (see restructuring and
impairment charges).

     Also, in accordance with SFAS No. 142 (see Recently Issued Accounting
Pronouncements, discussed below), we discontinued amortization of goodwill
beginning January 1, 2002, and completed an impairment review during the first
and last quarters of 2002. We did not record any impairment adjustments
resulting from these impairment reviews and will continue to make annual
reviews, unless a change in circumstances requires a review in the interim.
Consequently, amortization expense related to our goodwill was approximately
$2,484,000 higher for the year ended December 31, 2001 than for the year ended
December 31, 2002.

                                       30
<PAGE>
     Depreciation expense pertaining to assets for our network and operations
was approximately $15,119,000, $18,132,000 and $13,719,000 for the years ended
December 31, 2000, 2001 and 2002, respectively. Depreciation and amortization
expenses pertaining to assets related to general and administrative expenses was
approximately $6,014,000, $9,911,000 and $6,613,000 for the years ended December
31, 2000, 2001 and 2002, respectively.

     STOCK COMPENSATION. We incurred non-cash stock compensation expenses as a
result of the granting of stock and stock options to employees, directors and
members of our former board of advisors with exercise prices per share
subsequently determined to be below the fair values per share of our common
stock for financial reporting purposes at the dates of grant. The stock
compensation, if vested, was charged immediately to expense, while non-vested
compensation is being amortized over the vesting period of the applicable
options or stock, which is generally 48 months. Unvested options for terminated
employees are cancelled and the value of such options are recorded as a
reduction of deferred compensation with an offset to additional paid-in-capital.
In addition, in fiscal 2000, we recorded $870,000 of non-cash compensation
expense relating to the vesting of stock options held by members of our former
advisory board.

     Non-cash stock compensation expenses were approximately $3,192,000,
$1,202,000 and $1,228,000 for the years ended December 31, 2000, 2001 and 2002,
respectively. The unamortized balance as of December 31, 2001 and 2002, of
approximately $1,668,000 and $438,000, respectively, is being amortized over the
remaining vesting period of each grant, and is expected to be fully amortized by
June 30, 2003.

     As of December 31, 2001 and 2002, options to purchase 13,877,394 and
23,877,004 shares of common stock, respectively, were outstanding, which were
exercisable at weighted average exercise prices of $1.69 and $0.98 per share,
respectively.

     INTEREST INCOME (EXPENSE), NET. For the year ended December 31, 2000, net
interest income of approximately $6,730,000 included $8,538,000 of interest
income partially offset by $1,808,000 of interest expense. Net interest income
of approximately $455,000 for the year ended December 31, 2001 included
$1,718,000 of interest income, partially offset by $1,263,000 of interest
expense. For the year ended December 31, 2002, net interest expense of
approximately $458,000 included approximately $790,000 in interest expense,
partially offset by $332,000 in interest income. The decrease in interest income
in 2001 and 2002 was caused by lower interest rates on significantly lower cash
and investment balances. Lower interest expense in 2001 and 2002 was caused by
reductions in debt and capital lease obligations. We expect interest expense to
increase in 2003 due to our incurrence of increased debt associated with the
acquisition of the NAS assets and associated subscriber lines, and borrowings
under our bank credit line.

     RESTRUCTURING AND IMPAIRMENT CHARGES. In December 2000, we initiated a new
business plan strategy designed to conserve our capital, reduce our losses and
extend our cash resources. This strategy included the following actions: (i)
further network expansion was curtailed; (ii) network connections to 100 central
offices were suspended; (iii) certain facilities were vacated and consolidated;
(iv) operating expenses were reduced; and (v) headcount was reduced by
approximately 140 employees. These actions resulted in a restructuring charge of
approximately $3,542,000. The components of the restructuring charge were: (i)
approximately $448,000 relating to severence expense for the 140 employees; (ii)
approximately $1,078,000 for estimated costs resulting from the consolidation of
our office facilities by vacating office space located in Milford, Connecticut,
Santa Cruz, California, Atlanta, Georgia and Chantilly, Virginia, and (iii)
approximately $2,016,000 for termination costs and write-offs associated with
our decision to not accept certain central office collocation applications
previously applied for, and to forego the completion of our build-out of certain
other central offices.

                                       31
<PAGE>
     At December 31, 2000, approximately $362,000 of severance costs and
approximately $1,416,000 of capitalized collocation application fees had been
charged against the restructuring reserves. The remaining reserve balance of
approximately $1,764,000 was included in our accrued liabilities at December 31,
2000.

     In March 2001, we re-evaluated our restructuring reserve and booked an
increase in the reserve of approximately $831,000, which was primarily related
to delays in subleasing our vacated facilities and additional estimated costs
pertaining to our suspended central offices.

     In June 2001, due to the lack of liquidity in the financial markets, we
further re-evaluated our business plans and determined that additional actions
were necessary to further reduce our operating losses, cash burn rate and total
funding requirements. These actions included: (i) closure of approximately 100
non-active and 250 active central offices; and (ii) an additional
reduction-in-force of approximately 90 employees. These actions resulted in
additional restructuring and impairment charges of approximately $32,503,000.
Included in this amount were: (i) approximately $272,000 relating to severance
expenses for the 90 employees; (ii) approximately $26,079,000 for the costs
associated with the our decision to close 350 central offices, which includes
approximately $2,545,000 relating to termination and equipment removal fees and
approximately $23,534,000 in write-off of fixed assets; (iii) approximately
$1,641,000 for additional estimated costs resulting from delays and expected
losses in subleasing vacated office space located in Santa Cruz, California;
Atlanta, Georgia; Milford, Connecticut; and Chantilly, Virginia; (iv) $1,356,000
for write-downs of additional equipment no longer in use; and (v) $3,155,000 for
impairments of goodwill. The goodwill impairment analysis was accomplished by
comparing the carrying value of the assets with the expected future net cash
flows generated over the remaining useful life of the assets. Since the carrying
value was more than the expected future net cash flows, the goodwill was reduced
to the net present value of the expected future net cash flows. Of this amount,
$2,124,000 related to a reduction in the goodwill for our acquisition of Tycho
Networks, Inc. ("Tycho") and $1,031,000 related to a reduction in the goodwill
for our acquisition of certain assets of Trusted Net Media Holdings, LLC
("Trusted Net"). These reductions in goodwill resulted in decreases in monthly
amortization expense from approximately $56,800 to approximately $5,000 for
Tycho, and from approximately $43,500 to approximately $20,600 for Trusted Net.

     During the third quarter 2001, due to limited available financing for our
operations and other factors, we again re-evaluated our business plans and
determined that additional actions were necessary to further reduce our
operating losses, cash burn rate and total funding requirements. These actions
included closure of the Tycho and Trusted Net facilities in Santa Cruz, CA and
Atlanta, GA, respectively, and our decision not to install equipment in 100 new
central offices. These actions resulted in additional restructuring and
impairment charges of approximately $4,748,000. Included in this amount were:
(i) increases of approximately $4,451,000 relating to the write-off of
equipment; (ii) approximately $376,000 for additional estimated costs relating
to the delays and losses in subleasing vacated office space located in Santa
Cruz, California and Milford, Connecticut; (iii) approximately $246,000 in
additional costs for equipment removal fees associated with our previous
decision to close certain central offices; and (iv) approximately $800,000 for
impairments of goodwill. These increases in the restructuring reserve were
partially offset by a reduction of approximately $1,125,000 in previously
reserved amounts relating to estimated termination fees associated with our
previous decision to close certain central offices, as we were successful in
negotiating significantly reduced fees at many of the closed central office
locations. The goodwill impairment analysis was accomplished by comparing the
carrying value of the assets with the expected future net cash flows generated
over the remaining useful life of the assets. As a result of this analysis,
expected future net cash flows were determined to be insignificant and, as the
carrying value was more than these expected future net cash flows, the balance
of goodwill was written off. Of this amount, approximately $170,000 related to a
reduction in the goodwill for the acquisition of Tycho and approximately
$630,000 related to a reduction in the goodwill for our acquisition of certain
assets of Trusted Net.

                                       32
<PAGE>
     During the fourth quarter 2001, we had an additional reduction in force of
approximately 84 employees. This resulted in an additional restructuring charge
for severance of approximately $164,000, which was partially offset by a
reduction of approximately $153,000 in previously reserved amounts related to
the write-down of certain fixed assets. In addition, we re-classified amounts
previously reserved for equipment removal to estimated termination fees as we
were successful in negotiating reduced fees for equipment removal at many of the
closed central office locations. In addition, our impairment analyses of
long-lived assets resulted in a $500,000 impairment write-off of a long-term
investment.

     The following table summarizes the additions and charges to the
restructuring reserve from December 2000 through December 2002, and the
remaining reserve balances at December 31, 2002:
<TABLE><CAPTION>
                                                                (dollars in thousands)

                                                   CENTRAL       CENTRAL        FIXED                    IMPAIRMENT
                                                   OFFICE        OFFICE         ASSET      IMPAIRMENT        OF
                                    FACILITY        TERM.         EQUIP.        WRITE          OF         LONG-TERM
                     SEVERANCE       LEASES         FEES         REMOVAL         OFF        GOODWILL     INVESTMENT       TOTAL
                      --------      --------      --------      --------      --------      --------      --------      --------
<S>                   <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>
Additions to the
  Reserve, Dec. 2000  $    448      $  1,078      $    600      $     --      $  1,416      $     --      $     --      $  3,542

Charges to the
  reserve                 (362)           --            --            --        (1,416)           --            --        (1,778)
                      --------      --------      --------      --------      --------      --------      --------      --------
Reserve balance at
  Dec. 31, 2000             86         1,078           600            --            --            --            --         1,764

Additions to the
  reserve                  436         2,408           215         1,451        29,628         3,955           500        38,593

Charges to the
  reserve                 (522)       (2,290)         (500)       (1,451)      (29,628)       (3,955)         (500)      (38,846)
                      --------      --------      --------      --------      --------      --------      --------      --------
Reserve balance at
  Dec. 31, 2001             --         1,196           315            --            --            --            --      $  1,511

Charges to the
  reserve                   --          (576)           --            --            --            --            --          (576)
                      --------      --------      --------      --------      --------      --------      --------      --------
Reserve balance at
  Dec. 31, 2002       $     --      $    620      $    315      $     --      $     --      $     --      $     --      $    935
                      ========      ========      ========      ========      ========      ========      ========      ========
</TABLE>

     The restructuring reserve additions during the year ended December 31, 2000
of approximately $3,542,000 included approximately $2,263,000 in network and
operations expenses, approximately $1,118,000 in general and administrative
expenses and approximately $161,000 in sales and marketing expenses on the
consolidated statements of operations. The remaining reserve balance of
approximately $1,764,000 was included in our accrued liabilities at December 31,
2000.

                                       33
<PAGE>

     The restructuring reserve additions for the year ended December 31, 2001 of
approximately $38,593,000 included approximately $31,528,000 in network and
operations expenses, approximately $6,998,000 in general and administrative
expenses, and approximately $67,000 in sales and marketing expenses on the
consolidated statements of operations. The remaining reserve balance of
approximately $1,511,000 was included in our accrued liabilities at December 31,
2001.

     There were no additions to restructuring reserves for the year ended
December 31, 2002. The remaining restructuring reserve balance at December 31,
2002, of approximately $935,000, was included in our accrued liabilities and
represents approximately $620,000 for anticipated costs pertaining to our
vacated facilities and approximately $315,000 for anticipated costs pertaining
to our closed central offices which we have been disputing.

     NET LOSS. Net loss of approximately $105,763,000 for the year ended
December 31, 2000 increased to approximately $115,454,000 for the year ended
December 31, 2001 and then decreased to approximately $36,094,000 for the year
ended December 31, 2002.

LIQUIDITY AND CAPITAL RESOURCES

     We have financed our capital expenditures and operations primarily with the
proceeds from the sale of stock and from borrowings, including equipment lease
financings. As of December 31, 2002, we had cash and cash equivalents of
approximately $11,319,000 and working capital of approximately $991,000.

     Net cash provided by financing activities in the years ended December 31,
2000, 2001 and 2002, was approximately $141,960,000, $12,871,000 and
$12,106,000, respectively. This cash primarily resulted from the sale of our
capital stock. We have used, and intend to continue using, the proceeds from
these financings primarily to implement our business plan and for working
capital and general corporate purposes. We have also used, and may in the future
use, a portion of these proceeds to acquire complementary businesses or assets.

     In March 2000, we received net proceeds of approximately $141,273,000 from
the sale of 5,750,000 shares of our common stock in a public offering.

     In November and December 2001 and March 2002 we received proceeds of
$6,000,000, $4,000,000 and $10,000,000, respectively, from the sale of 6,000
shares, 4,000 shares and 10,000 shares, respectively, of Series X Preferred
Stock, before direct issuance costs of $189,128.

     In December 2001, we received proceeds of $6,469,000 from the sale of 6,469
shares of Series Y Preferred Stock before direct issuance costs of $300,000. In
addition, In December 2001, we received proceeds of $3,531,000 from the issuance
of promissory notes to the Series Y Investors. In May, 2002, we received net
proceeds of $5,000,000 from the sale of 8,531 additional shares of Series Y
Preferred Stock and, pursuant to the provisions of the Series Y Purchase
Agreement, the $3,531,000 in promissory notes issued to the Series Y Investors
were cancelled.

     In May 1999, we entered into a secured credit facility (the "Credit
Facility") with a bank to provide up to $5,000,000 for the purchase of
telecommunications and office equipment and vehicles. The Credit Facility
expired in May 2000 and converted to a term loan payable over 36 months. The
Credit Facility bore interest on outstanding borrowings at 1% over the higher of
the bank's prime rate or the federal funds rate plus 0.5%. As of December 31,
2000 and July 31 2001, amounts outstanding under this line of credit bore
interest at annual rates of 10.5% and 7.75%, respectively. The Credit Facility
was secured by a lien on certain equipment and vehicles owned by us and located
at our principal office, and imposed certain financial and other covenants
requiring us to maintain certain financial ratios and limited new

                                       34
<PAGE>

indebtedness, the creation of liens, types of investments, mergers,
consolidations and the transfer of all or substantially all of our assets. As of
December 31, 2000, there was approximately $3,545,000 outstanding on this term
loan. In April 2001, we amended the term loan with the bank. The financial
covenants relating to the maintenance of certain financial ratios were
eliminated in their entirety, the maturity date of the loan was accelerated to
August 1, 2001 and certain certificates of deposit equal to the outstanding loan
amount were pledged as additional collateral. On August 1, 2001, we settled the
outstanding loan obligation in full and approximately $37,000 in unamortized
deferred costs were written off. Financing costs associated with the Credit
Facility of approximately $83,900 were deferred over the four-year life of the
facility and term loan. Amortization expense related to the deferred costs for
the years ended December 31, 2000 and 2001 was approximately $20,967 and
approximately $48,927, respectively.

     In March 1999, we entered into a lease facility to finance the purchase of
up to an aggregate of $2,000,000 of equipment on 36-month leases. Amounts
financed under this lease facility bear an interest rate of 8% or 9%, depending
on the type of equipment, and are secured by the financed equipment. In July
2000, we entered into a 48-month lease agreement with an equipment vendor to
finance the purchase of network equipment. We have leased approximately
$8,900,000 under this agreement. Amounts financed under this agreement bear an
interest rate of 12% and are secured by the financed equipment. In addition,
during 1999 and 2000, we purchased and assumed through acquisition certain
equipment and computer software under other capital leases, which are being
repaid over periods ranging from 24 months to 60 months at rates ranging from
7.5% to 15%. In the aggregate, there was approximately $7,463,000 and $4,565,000
outstanding under capital leases at December 31, 2001 and 2002, respectively.

     As a result of the development of our operating infrastructure and
acquisitions, we have entered into certain long-term agreements providing for
fixed payments. Under our facility operating leases, minimum office facility
operating lease payments are approximately $1,621,000 in 2003, $1,741,000 in
2004, $498,000 in 2005, $165,000 in 2006, $169,000 in 2007 and $28,000 in 2008.
We also have long-term purchase commitments with WorldCom and AT&T for data
transport services with minimum payments due even if our usage does not reach
the minimum amounts. The WorldCom commitment began in May 2000 and was
re-negotiated in October 2002, and requires minimum purchases of $4,800,000 per
contract year for the first two contract years and $1,800,000 per contract year
thereafter. The WorldCom contract ends in November 2004. The AT&T commitment was
renegotiated in January 2002, and requires minimum purchases of $1,100,000 for
the contract year ended in November 2002 and $987,000 for the contract period
ending in October 2003. We also have a commitment to purchase $17,600 per month
of certain additional network facilities from AT&T throughout the commitment
period. The following table depicts the WorldCom and AT&T commitments by
contract year:
<TABLE><CAPTION>
                                                                          AT&T
                                         WorldCom Data   AT&T Data     Additional
                                           Transport     Transport      Network
         Commitment Term                    Services     Services      Facilities        Total
     ------------------------------------------------------------------------------------------
<S>                                       <C>           <C>           <C>           <C>
     November 9, 2002 - October 3, 2003           --        987,000       193,600   $ 1,180,600

     June 2002 - May 2003                 $ 1,800,000   $       --    $       --      1,800,000

     June 2003 - May 2004                   1,800,000           --            --      1,800,000

     June 2004 - November 2004                900,000           --            --        900,000
                                          -----------------------------------------------------
      Total                               $ 4,500,000   $   987,000  $    193,600   $ 5,680,600
                                          =====================================================
</TABLE>
                                       35
<PAGE>

     We transmit data across our network via transmission facilities that are
leased from certain carriers, including AT&T and WorldCom (as described above).
The failure of any of our data transport carriers to provide acceptable service
on acceptable terms could have a material adverse effect on our operations.
WorldCom, has filed a voluntary petition to reorganize under Chapter 11 of the
U.S. Bankruptcy Code. While WorldCom has continued with its current operations
since filing its voluntary petition to reorganize in June of 2001, and has
announced that it expects to continue with its current operations without
adverse impact on its customers, it may not be able to do so. We believe that we
could transition the data transport services currently supplied by WorldCom to
alternative suppliers in thirty to sixty days, should WorldCom announce
discontinuance of such services. However, were WorldCom to discontinue such
services without providing sufficient advance notice (at least sixty days), we
might not be able to transition such services in a timely manner, which could
disrupt service provided by us to certain of our customers. This could result in
the loss of revenue, loss of customers, claims brought against us by our
customers, or could otherwise have a material adverse effect on us. Even were
WorldCom to provide adequate notice of any such discontinuation of service,
there can be no assurance that we would be able to transition such service
without a material adverse impact on us or our customers, if at all, or that
such discontinuation of service would not otherwise have a material adverse
effect on us.

     As part of our restructuring in December 2000, we vacated certain office
space in Milford, Connecticut and Chantilly, Virginia and did not occupy certain
space in Santa Cruz, California. During 2001, we vacated our office space
located in Atlanta, Georgia and Santa Cruz, California. As of December 31, 2001,
we were successful in terminating our lease for office space in Chantilly,
Virginia and in assigning our lease in Atlanta, Georgia. We have entered into a
14-month sublease agreement on our office space in Santa Cruz, California with a
one year renewal option. In February 2002, we were successful in terminating our
obligations under the lease for office space in Milford, CT.

     On April 3, 2000, we acquired certain assets and liabilities of Trusted
Net. This acquisition was accounted for under the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets acquired
and liabilities assumed based on their estimated fair values at the date of
acquisition. The approximate net purchase price of $2,500,000, before
transaction costs, consisted of cash payments at closing of approximately
$2,097,000; amounts due to Trusted Net after the closing of approximately
$350,000; and net liabilities assumed of approximately $53,000. In addition, we
incurred transaction costs associated with the acquisition of approximately
$150,000. The remaining amount due to Trusted Net at December 31, 2001, after
certain offsets, as provided in the purchase agreement, was approximately
$272,000. In November 2002, a settlement was reached with Trusted Net and we
made a final payment of approximately $250,000, leaving no remaining amount due
to Trusted Net at December 31, 2002.

     On May 26, 2000, we acquired VISI, an Internet solutions provider based in
Minneapolis, Minnesota. This acquisition was accounted for under the purchase
method of accounting and, accordingly, the purchase price has been allocated to
the assets acquired and liabilities assumed based on their estimated fair values
at the date of acquisition. The approximate net purchase price of $19,969,000,
before transaction costs, consisted of cash payments at closing of approximately
$8,800,000; amounts due to selling stockholders after the closing of
approximately $2,200,000; common stock valued at $2,315,000; and the assumption
of VISI employee stock options, which were valued at $6,654,000. In addition, we
incurred transaction costs associated with the acquisition of approximately
$452,000. All amounts due the selling stockholders of VISI were paid in 2001.

     On December 1, 2000, we acquired certain assets of Exario. This acquisition
was accounted for under the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets acquired based on their
estimated fair values at the date of acquisition. The approximate net purchase
price of $4,463,000, before transaction costs, consisted of cash payments at
closing of

                                       36
<PAGE>

approximately $2,902,000 and amounts due to Exario after the closing of
approximately $1,561,000 (the "Exario Holdback Amount"). In addition, we
incurred transaction costs associated with the acquisition of approximately
$100,000.

     On April 26, 2001, we gave notice to Exario of our intent to pursue an
indemnity claim against the Exario Holdback Amount in accordance with the
provisions of the Asset Purchase Agreement, dated December 1, 2000. The claim,
originally estimated at $1,458,000 and subsequently modified to a final
settlement amount of $1,415,000, related primarily to a request by us for
reimbursement of the purchase price paid for those certain subscriber lines
acquired from Exario that were on the NorthPoint Communications' network, which
ceased operations during the first half of 2001.

     During the quarter ended June 30, 2001, we entered into agreements with
Covad and Zyan, a California-based Internet service provider which had filed for
bankruptcy protection, affording us the right to acquire up to 4,800 Zyan
subscriber lines whose wholesale circuit connections were being supported by
Covad. In accordance with the Covad agreement, the anticipated purchase price of
$1,467,000 for these Zyan lines was escrowed at closing and restricted as of
June 30, 2001. Ultimately, we were able to contract for service with and acquire
approximately 2,800 former Zyan customers, for a purchase price of approximately
$1,075,000. As of December 31, 2001, there were no amounts remaining in escrow.
These Zyan customer line acquisitions were accounted for under the purchase
method of accounting and, accordingly, the purchase price has been allocated to
subscriber lines acquired based on their estimated fair values at the date of
acquisition.

     During the quarter ended March 31, 2002, we entered into an Asset Purchase
Agreement, dated as of January 1, 2002 (the "Broadslate Asset Purchase
Agreement"), with Broadslate Networks, Inc. ("Broadslate") for the purchase of
business broadband customer accounts and certain other assets, including certain
accounts receivable related to the customer accounts, for $800,000, subject to
certain adjustments. The Broadslate Asset Purchase Agreement provided for an
initial cash payment of $650,000, with $150,000 retained by us (the "Broadslate
Holdback Amount"), to be paid to Broadslate after a transition period, subject
to certain adjustments, as provided for in the Broadslate Asset Purchase
Agreement. On March 26, 2002, we gave notice to Broadslate of our intent to
pursue an indemnity claim against the Broadslate Holdback Amount for the full
amount in accordance with the provisions of the Broadslate Asset Purchase
Agreement. The claim and final settlement amount of $150,000 was applied to the
Broadslate Holdback Amount as follows: (i) approximately $50,000 pertained to
our request for reimbursement of a ratable portion of the purchase price paid
for certain subscriber lines which were not available for migration to our
network, and (ii) approximately $100,000 was for amounts due to us from revenue
collected by Broadslate, net of related costs, during the customer transition
period as provided for in the Broadslate Asset Purchase Agreement. The
Broadslate customer line acquisitions were accounted for under the purchase
method of accounting and, accordingly, the adjusted purchase price of
approximately $750,000 was allocated to the assets acquired based on their
estimated fair values at the date of acquisition as follows: approximately
$28,000 to net accounts receivable acquired and approximately $722,000 to
approximately 520 subscriber lines acquired, which amount is being amortized on
a straight-line basis over two years from the date of purchase.

     During the quarter ended September 30, 2002, we entered into an Asset
Purchase Agreement dated as of July 30, 2002 (the "Abacus Asset Purchase
Agreement") with Abacus for the purchase of broadband subscriber lines. The
Abacus Asset Purchase Agreement provided for a cash payment for each
successfully migrated broadband customer line, up to a maximum payment of
approximately $844,000 and required a purchase price deposit of approximately
$211,000. Ultimately, we were able to migrate and acquire 1,066 lines for a
purchase price of approximately $543,000. The Abacus customer line acquisitions
were accounted for under the purchase method of accounting and, accordingly, the
purchase price has been allocated to the subscriber lines acquired based on
their estimated fair values at the date of

                                       37
<PAGE>

acquisition. This amount is being amortized on a straight-line basis over two
years from the date of purchase.

     In December of 2002, the U.S. Bankruptcy Court for the District of Delaware
approved our bid to purchase the on-network assets and associated subscriber
lines of NAS for $14,000,000, consisting of $9,000,000 in cash and $5,000,000 in
a note payable to NAS. We closed the transaction on January 10, 2003, whereby we
acquired NAS's operations and network assets, associated equipment in
approximately 300 central offices and approximately 11,500 associated subscriber
lines. In connection with the closing of the NAS transaction, on January 10,
2003, we hired approximately 78 former NAS employees. No pre-closing liabilities
were assumed in connection with the NAS transaction. The cash portion of the
purchase price was paid from our existing cash. The NAS note has a term of
approximately 5 years and bears interest at 12% and is secured by the NAS
network assets acquired. Interest is payable monthly in arrears on the unpaid
principal balance. The note requires interest-only payments for the first 21
months, after which principal payments will commence monthly and be paid in 39
equal monthly installments together with interest on the unpaid principal
balance.

     In connection with the integration of the NAS business, on January 17,
2003, we had a reduction in force of approximately 35 employees at our
headquarters facility in New Haven, CT. We paid approximately $62,000 in
severance to the terminated employees. Subsequent to this reduction in force,
our headcount approximated 230 employees.

     We entered into a Revolving Credit and Term Loan Agreement, dated as of
December 13, 2002 (as amended and in effect from time to time, the "Credit
Agreement") with a commercial bank providing for a revolving line of credit of
up to $15,000,000 (the "Commitment"). Borrowings under the credit facility may
be made in minimum $500,000 increments from time to time up to the Commitment,
and repayments may be made in minimum $100,000 increments, in each case until
the Revolving Credit maturity date of December 12, 2004, at which time all
amounts outstanding will convert to a Term Loan payable in 12 quarterly
installments commencing on December 31, 2004. We may pre-pay amounts due under
the Term Loan in increments of $1,000,000 without penalty. Interest is payable
on all amounts outstanding under the Credit Agreement in arrears at the end of
each calendar quarter at a variable interest rate equal to the higher of the
bank's prime rate equivalent or 0.5% percent above the Federal Funds Effective
rate (the bank's "Base Rate"). The undrawn Commitment (subject to certain
adjustments) under the Credit Agreement is subject to a commitment fee, payable
in arrears at the end of each calendar quarter, equal to an annualized rate of
0.25%. The Credit Agreement also requires us and our subsidiaries, except for
Vector Internet Services, Inc., to maintain all of our bank deposit and
investment accounts with the bank. Our ability to borrow amounts available under
the Credit Agreement is subject to the bank's receipt of a like amount of
guarantees from certain of our investors and/or other guarantors acceptable to
the bank.

     We entered into a Reimbursement Agreement, dated as of December 27, 2002,
with several private investment funds affiliated with VantagePoint, Columbia,
The Lafayette Investment Fund, L.P. and Charles River Partnership, L.P.
(collectively the "Guarantors") and VantagePoint Venture Partners III (Q), L.P.,
as administrative agent (the"Agent"). The Guarantors are all holders or
affiliates of holders of our Series X and Series Y preferred stock. Pursuant to
the terms of the Reimbursement Agreement, VantagePoint and Columbia issued
guarantees in an aggregate amount of $6,100,000 to support our obligations under
the Credit Agreement. On March 5, 2003, we entered into Amendment No. 1 to the
Reimbursement Agreement with VantagePoint and Columbia, pursuant to which
VantagePoint increased its guarantees by $3,000,000, to an aggregate of
$9,100,000 for all Guarantors.

     The Reimbursement Agreement obligates us to reimburse the Guarantors for
any payments they may be required to make in accordance with their guarantees,
within two business days of notification of such payments. Any such obligations
not paid by us, when due, shall bear interest at the rate of 10% per

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<PAGE>

annum. Our obligations under the Reimbursement Agreement are also guaranteed by
certain of our wholly-owned subsidiaries and collateralized by a Security
Agreement signed by us and certain of our wholly-owned subsidiaries which
pledges a significant portion of our consolidated assets as collateral. The
Reimbursement Agreement also obligates us, when our unrestricted cash balance
equals or exceeds $11,000,000 to either, at the Agent's request, (i) repay
oustanding loans under the Credit Agreement in minimum increments of $1,000,000
(provided that if there is less than $1,000,000 of outstanding loans due under
the Credit Agreement, then we shall pay such lessor amount) to the extent that
we retain unrestricted cash balances in an amount greater than or equal to
$10,000,000 after giving effect to such payment or (ii) cause each Guarantor's
guarantee requirement under the Credit Agreement to be eliminated ratably in an
aggregate amount equal to the outstanding loans that would otherwise be required
to be repaid pursuant to (i) above.

     Pursuant to the terms of the Reimbursement Agreement, on December 27, 2002,
we issued warrants to purchase 10,379,420 shares of our common stock to
VantagePoint and 1,634,473 shares of our common stock to Columbia, in
consideration for their guarantees aggregating $6,100,000. We issued additional
warrants to purchase 767,301 shares of our common stock to VantagePoint and
168,806 shares of our common stock to Columbia during the first quarter of 2003.
All such warrants are exercisable for ten years at an exercise price of $0.50
per share. In addition, if we close an equity financing on or before December 5,
2003, we have authorized the issuance to VantagePoint, subject to certain
conditions, of additional warrants to purchase the type of equity securities
issued by us in such equity financing in consideration for the additional
$3,000,000 guaranty provided by VantagePoint on March 5, 2003, under the
Reimbursement Agreement. The number of such additional warrants would be
determined by dividing $1,000,000 by the per share price of such equity
securities. Prior to the execution of the Reimbursement Agreement, VantagePoint
beneficially owned 21,956,063 shares of our common stock and 20,000 shares of
our Series X preferred stock, which are convertible into 111,111,111 shares of
our common stock, and Columbia owned 15,000 shares of our Series Y preferred
stock, which are convertible into 30,000,000 shares of our common stock.

     We have valued the 12,950,000 warrants issued to the Guarantors at $0.514
each for a total of $6,656,300. The valuation was performed using a Black
Scholes valuation model with the following assumptions: (i) a risk free interest
rate of 4.01% (ten-year Treasury rate), (ii) a zero dividend yield, (iii) a ten
year expected life, (iv) an expected volatility of 153%, (v) an option exercise
price of $0.50 and (vi) a current market price of $0.52 (the closing price of
our common stock on February 3, 2003). Since the warrants were issued in
consideration for loan guarantees, which enabled us to secure financing at below
market interest rates, we recorded the value of the warrants as a deferred
financing cost on February 3, 2003, which will be amortized to interest expense
over the remaining term of the loan (approximately 57 months) using the
"Interest Method" of amortization.

     On February 3, 2003, we borrowed $6,100,000 under our bank Credit
Agreement. The loan bears interest, payable monthly in arrears at the bank's
"base rate" and any unpaid principal balance will automatically convert to a
term loan on December 12, 2004, after which principal payments (together with
accrued interest on the unpaid principal balance) will be required in 12 equal
installments payable at the end of each calendar quarter commencing on December
31, 2004.

     In 2000, 2001 and 2002, net cash used in our operating activities was
approximately $74,986,000, $62,990,000 and $17,706,000, respectively. This cash
was used for a variety of operating expenses, including salaries, consulting and
legal expenses, network operations, sales and marketing and overhead expenses.

     Net cash used in investing activities in 2000, 2001 and 2002, was
approximately $60,225,000, $2,921,000 and $2,368,000, respectively. For the year
ended December 31, 2000, approximately

                                       39
<PAGE>

$55,943,000 was used primarily for the purchases of equipment and payment of
collocation costs and approximately $14,049,000 was used for acquisitions and
investments, excluding approximately $3,508,000 which was payable by us to
selling stockholders at future dates. These expenditures were partially offset
by proceeds from the sale of marketable securities of approximately $13,274,000.
For the year ended, December 31, 2001, approximately $5,345,000 was used
primarily for the purchase of equipment and approximately $1,797,000 was used
for the acquisition of subscriber lines. These expenditures were partially
offset by approximately $456,000 in proceeds from sale of equipment and a
$3,765,000 decrease in restricted cash, primarily resulting from our settlement
of holdback payments attributable to acquisitions. For the year ended, December
31, 2002, approximately $1,647,000 was used primarily for the purchase of
equipment and approximately $1,150,000 was used for acquisition of subscriber
lines. These expenditures were partially offset by approximately $85,000 in
proceeds from sale of equipment and a $344,000 decrease in restricted cash,
primarily resulting from our settlement of holdback payments attributable to
acquisitions.

     The development and expansion of our business has required significant
capital expenditures. Capital expenditures, including collocation fees, were
approximately $55,943,000, $5,345,000 and $1,647,000 for the years ended
December 31, 2000, 2001 and 2002, respectively. The actual amounts and timing of
our future capital expenditures will vary depending on the speed at which we
expand our network and implement service for our customers. As a result of our
decision to suspend further deployment of our network, our planned capital
expenditures for 2003 are currently expected to be primarily for the purchase
and installation at our customers' sites of the equipment necessary for us to
provide our services, as well as for the continued development of our network
and operational support systems. We currently anticipate spending approximately
$1,000,000 to $1,500,000 for capital expenditures, excluding acquisitions,
during the year ending December 31, 2003. The actual amounts and timing of our
capital expenditures could differ materially both in amount and timing from our
current plans.

     Our independent accountants have noted in their report that our sustained
operating losses raise substantial doubt about our ability to continue as a
going concern. We believe that our existing cash and cash equivalents, cash
expected to be generated from operations and funds available under our bank
Credit Agreement, will be sufficient to fund our operating losses, capital
expenditures, lease payments and working capital requirements into the third
quarter of 2003. We intend to use our cash resources to finance our capital
expenditures and for working capital and other general corporate purposes. We
may also use a portion of these cash resources to acquire complementary
businesses, subscriber lines or other assets. The amounts actually expended for
these purposes will vary significantly depending on a number of factors,
including market acceptance of our services, revenue growth, planned capital
expenditures, cash generated from operations, improvements in operating
productivity, the extent and timing of entry into new markets and availability
and prices paid for acquisitions.

     Additional financing will be required during 2003. We do not believe that
our operations will generate sufficient cash to finance our 2003 requirements.
As a result, we will need to raise additional financing through some combination
of borrowings, leasing, vendor financing and the sale of equity or debt
securities. These capital requirements may vary based upon the timing and the
success of implementation of the our business plan or if:

     o    demand for our services or our cash flow from operations is less than
          or more than expected;

     o    our plans or projections change or prove to be inaccurate;

     o    we make acquisitions;

     o    we alter the schedule or targets of our business plan implementation;
          or

     o    we curtail, reorganize, discontinue or shut down our operations.

                                       40
<PAGE>

     There can be no assurance that we will be able to raise sufficient
additional debt, equity or other capital on acceptable terms, if at all. If we
are unable to obtain adequate funds, we may not be able to continue to operate
our network, respond to competitive pressures or fund our operations. As a
result, we may be required to significantly reduce, reorganize, discontinue or
shut down our operations. Our financial statements do not include any
adjustments that might result from this uncertainty.

     Our financial performance will vary, and when we achieve profitability or
become cash flow positive will depend on a number of factors, including:

     o    development of the high-speed data communications industry and our
          ability to compete effectively;

     o    amount, timing and pricing of customer revenue;

     o    availability, timing and pricing of acquisition opportunities, and our
          ability to capitalize on such opportunities;

     o    commercial acceptance of our service and attaining expected
          penetration within our target markets;

     o    our ability to recruit and retain qualified personnel;

     o    up front sales and marketing expenses;

     o    cost and utilization of our network components which we lease from
          other telecommunications providers, including other competitive
          carriers;

     o    our ability to establish and maintain relationships with marketing
          partners;

     o    successful implementation and management of financial, information
          management and operations support systems to efficiently and
          cost-effectively manage our growth; and

     o    favorable outcome of federal and state regulatory proceedings and
          related judicial proceedings, including proceedings relating to the
          1996 Telecommunications Act.

     On July 22, 2002, the Nasdaq Stock Market, Inc. ("Nasdaq") transferred the
listing of our common stock from the Nasdaq National Market to the Nasdaq
SmallCap Market. We applied for such transfer as a result of our non-compliance
with Nasdaq's Marketplace Rule 4450(a)(5), which required us to maintain a bid
price of $1.00 per share for at least 10 consecutive trading days during the
last ninety day period prior to July 17, 2002 in order to remain qualified for
listing on the Nasdaq National Market. On October 16, 2002, Nasdaq notified us
that, while we had not regained compliance by October 15, 2002 with the $1.00
bid price per share requirement generally required for continued listing on the
Nasdaq SmallCap Market, we did continue to meet the initial listing requirements
for the Nasdaq SmallCap Market under Rule 4310(c)(2)(A). As a result, we had an
additional 180 calendar days, or until April 14, 2003, to comply with the
minimum bid price of $1.00 per share for 10 consecutive trading days, or such
greater number of trading days as Nasdaq may determine, in order to remain
listed on the Nasdaq SmallCap Market. On March 11, 2003, the Nasdaq amended its
rules to provide that a company that satisfies the initial listing requirements
for the Nasdaq SmallCap Market under Rule 4310(c)(2)(A) would have an

                                       41
<PAGE>

additional 90 days (over the 180 days already contemplated by the Nasdaq
SmallCap Market rules) to comply with the minimum bid price of $1.00 per share.
As a result, if we do not satisfy the minimum bid price of $1.00 per share on
April 14, 2003, but satisfy the Nasdaq SmallCap Market initial listing
requirements, we will have until July 13, 2003 to satisfy the minimum bid price
of $1.00 per share. As of March 27, 2003, we satisfied the initial listing
requirements for the Nasdaq SmallCap Market, but there can be no assurance that
we will satisfy these requirements on April 14, 2003. If we can neither comply
with the minimum bid price requirements nor satisfy the initial Nasdaq SmallCap
listing requirements on April 14, 2003, Nasdaq will provide us notice that our
common stock will be de-listed from the Nasdaq SmallCap Market. In addition, if
we satisfy the initial Nasdaq SmallCap listing requirements on April 14, 2003
but are unable to satisfy the minimum bid price requirements by July 13, 2003,
Nasdaq will provide us notice that our common stock will be de-listed from the
Nasdaq SmallCap Market. In each case, we would have the opportunity to appeal
such determination to a Listings Qualifications Panel. There can be no
assurance that we will be able to comply with the minimum bid price requirement
by April 14, 2003 or July 13, 2003, if at all, or that we will continue to
satisfy the other listing requirements of the Nasdaq SmallCap Market.

     Nasdaq has indicated that it intends to submit proposed rules changes to
the SEC which would, among other things, further extend the number of days
during which a company that satisfies the initial listing requirements of the
Nasdaq SmallCap Market may continue to be listed on such market without
complying with the $1.00 minimum bid price requirement. There can be no
assurance that Nasdaq will submit this proposed rule change to the SEC or that
the SEC will approve this proposed rule change, if at all, in time to delay the
possible delisting of our common stock from the Nasdaq SmallCap Market. In
addition, there can be no assurance that we will continue to satisfy the initial
listing requirements of the Nasdaq SmallCap Market.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     During fiscal 2000, we adopted the revenue recognition guidelines of SAB
No.101, which changed the manner in which we recognize installation revenue and
related direct costs. The cumulative effect of adoption of SAB No. 101 resulted
in deferral of installation revenue and related direct costs of approximately
$176,000 at January 1, 2000. The effect of the adoption for the year ended
December 31, 2000, resulted in a deferral of installation revenue and related
direct costs of approximately $735,000. Installation revenue deferred during the
fourth quarter of 2000 was approximately $25,000. The adoption of SAB No. 101
had no impact on net income for all periods reported.

     The following table sets forth the unaudited pro forma impact of SAB No.
101 adoption on previously reported quarterly revenue and the unaudited revenue
as adjusted for each quarter of the year 2000:

                            Revenue as
                            Originally         Effect of         Revenue
     Quarter Ended           Reported         SAB No. 101      as Adjusted
     -------------           --------         -----------      -----------
     March 31, 2000        $  1,737,306      $  (333,176)      $  1,404,130
     June 30, 2000         $  3,785,626      $  (279,760)      $  3,505,866
     September 30, 2000    $  5,860,857      $   (97,128)      $  5,763,729
     December 31, 2000     $  7,140,599      $   (24,914)      $  7,115,685

     In June 2001, Statement of Financial Accounting Standards No. 141,
"BUSINESS COMBINATIONS" ("SFAS") No. 141 and SFAS No. 142 "GOODWILL AND OTHER
INTANGIBLE ASSETS" were issued. SFAS No. 141 requires the purchase method of
accounting to be used for all business combinations initiated after June 30,
2001. SFAS No. 141 also specifies criteria that intangible assets acquired must
meet to be

                                       42
<PAGE>

recognized and reported separately from goodwill. The Company does not
anticipate that adoption of SFAS No. 141 will have any material effect on our
financial position or results of operations.

     SFAS No. 142 requires that goodwill and intangible assets with indefinite
lives no longer be amortized but instead be measured for impairment at least
annually, or when events indicate that there may be an impairment. SFAS No. 142
is effective for fiscal years beginning after December 15, 2001 (see "Critical
Accounting Policies, Estimates and Risks" described above) With the the
implementation of SFAS No. 142, we have discontinued amortizing approximately
$8.5 million of goodwill associated with acquired businesses. We recorded
approximately $2.5 million of amortization related to this goodwill in 2001 and
would have recorded an equal amount in 2002.

     In June 2001, SFAS No. 143, "ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS"
was issued. SFAS No. 143 addresses financial accounting and reporting for legal
obligations associated with the retirement of tangible long-lived assets and the
associated retirement costs that result from the acquisition, construction, or
development and normal operation of a long-lived asset. Upon initial recognition
of a liability for an asset retirement obligation, SFAS No. 143 requires an
increase in the carrying amount of the related long-lived asset. The asset
retirement cost is subsequently allocated to expense using a systematic and
rational method over the assets useful life. SFAS No. 143 is effective for
fiscal years beginning after June 15, 2002. The adoption of this statement is
not expected to have a material affect on our financial position or results of
operations.

     In August 2001, SFAS No. 144, "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS" was issued. SFAS 144 supersedes SFAS No. 121, "ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF" and supercedes and amends
certain other accounting pronouncements. SFAS No. 144 retains the fundamental
provisions of SFAS No. 121 for recognizing and measuring impairment losses on
long-lived assets held for use and long-lived assets to be disposed of by sale,
while resolving significant implementation issues associated with SFAS No. 121.
Among other things, SFAS No. 144 provides guidance on how long-lived assets used
as part of a group should be evaluated for impairment, establishes criteria for
when long-lived assets are held for sale, and prescribes the accounting for
long-lived assets that will be disposed of other than by sale. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. The adoption of
SFAS No. 144 did not have an impact on our financial position and results of
operations in 2002.

     In June 2002, SFAS No. 146, "ACCOUNTING FOR EXIT OR DISPOSAL ACTIVITIES"
was issued. SFAS No. 146 addresses the accounting for costs to terminate a
contract that is not a capital lease, costs to consolidate facilities and
relocate employees, and involuntary termination benefits under one-time benefit
arrangements that are not an ongoing benefit program or an individual deferred
compensation contract. The provisions of the statement will be effective for
disposal activities initiated after December 31, 2002. We are currently
evaluating the financial impact of adoption of SFAS No. 146.

     In December 2002, SFAS No. 148 "ACCOUNTING FOR STOCK-BASED COMPENSATION -
TRANSITION AND DISCLOSURE - AN AMENDMENT OF SFAS No.123" was issued. SFAS No.148
amends SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION", to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
NO. 148 amends the disclosure requirements of SFAS NO. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. We have adopted these amended disclosure requirements
in Note 12 to the Notes to Consolidated Financial Statements under the heading
"Employee Stock Option Plan" and will implement the required interim disclosures
beginning in the first quarter of 2003.

                                       43
<PAGE>

     In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT
GUARANTEES OF INDEBTEDNESS OF OTHERS," ("FIN 45"). FIN 45 expands previously
issued accounting guidance and disclosure requirements for certain guarantees.
FIN 45 requires an entity to recognize an initial liability for the fair value
of an obligation assumed by issuing a guarantee. The disclosure requirements of
FIN 45 are effective for all financial statements issued after December 15,
2002. The provision for initial recognition and measurement of the liability
will be applied on a prospective basis to guarantees issued or modified after
December 31, 2002. The adoption of FIN 45 is not expected to have a material
adverse impact on our financial position, results of operations or cash flows.

     In January 2003, the FASB issued Interpretation No. 46, "CONSOLIDATION OF
VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO. 51," ("FIN 46"). FIN 46
requires all Variable Interest Entities ("VIEs") to be consolidated by the
primary beneficiary. The primary beneficiary is the entity that holds the
majority of the beneficial interests in the VIE. In addition, FIN 46 expands
disclosure requirements for both VIEs that are consolidated as well as VIEs from
which the entity is the holder of a significant amount of the beneficial
interest, but not the majority. The disclosure requirements of FIN 46 are
effective for all financial statements issued after January 31, 2003. The
consolidation requirements of this interpretation are effective for all periods
beginning after June 15, 2003. The adoption of FIN 46 is not expected to have a
material adverse impact on our financial position, results of operations or cash
flows at this time.

                                  RISK FACTORS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND CERTAIN OTHER INFORMATION

     Some of the statements under "Risk Factors", "Management's Discussion and
Analysis of Financial Condition and Results of Operations", "Business" and
elsewhere in this Annual Report on Form 10-K constitute forward-looking
statements. We make such forward-looking statements under the provisions of the
"Safe Harbor" section of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements relate to future events or our future financial or business
performance and are identified by terminology such as "may", "might", "will",
"should", "expect", "scheduled", "plan", "intend", "anticipate", "believe",
"estimate", "project" "potential", or "continue" or the negative of such terms
or other comparable terminology. These statements are subject to a variety of
risks and uncertainties, many of which are beyond our control, which could cause
actual results to differ materially from those contemplated in these
forward-looking statements. In evaluating these statements, you should
specifically consider various factors, including the risks outlined under "Risk
Factors". Existing and prospective investors are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. We undertake no obligation, and disclaim any obligation, to update or
revise the information contained in this Annual Report on Form 10-K, whether as
a result of new information, future events or circumstances or otherwise.

                         RISKS RELATING TO OUR BUSINESS

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND
PROSPECTS

     We commenced operations in March 1998 and began offering commercial service
in Stamford, Connecticut in May 1998. Accordingly, you have limited information
about our company with which to evaluate our business, strategies and
performance and an investment in our common stock.

                                       44
<PAGE>

WE HAVE INCURRED LOSSES AND HAVE EXPERIENCED NEGATIVE OPERATING CASH FLOW TO
DATE AND EXPECT OUR LOSSES AND NEGATIVE OPERATING CASH FLOW TO CONTINUE

     We have incurred significant losses and experienced negative operating cash
flow for each month since our formation. We expect to continue to incur
significant losses and negative operating cash flow in 2003. If our revenue does
not grow as expected or capital and operating expenditures exceed our plans, our
business, prospects, financial condition and results of operations will be
materially adversely affected. Based on our current plans and projections, we
believe our existing cash and cash equivalents, together with the cash expected
to be generated from operations and funds available under our bank Credit
Agreement, will be sufficient to fund our operating losses, capital
expenditures, lease payments and working capital requirements into the third
quarter of 2003. There can be no assurance that we will be able to raise
sufficient additional debt, equity or other capital on acceptable terms, if at
all. In addition, we cannot be certain if or when we will be profitable or if or
when we will generate positive operating cash flow. Our independent accountants
have noted in their report that our sustained operating losses raise substantial
doubt about our ability to continue as a going concern.

WE MUST OBTAIN ADDITIONAL FINANCING IN 2003 IF WE ARE TO CONTINUE OPERATING OUR
BUSINESS

     Additional financing will be required during 2003. We expect our operating
losses, net operating cash outflows and capital expenditures to continue during
2003. Our independent accountants have noted in their report that our sustained
operating losses raise substantial doubt about our ability to continue as a
going concern. We believe that our existing cash and cash equivalents and cash
generated from operations will be sufficient to fund our operating losses,
capital expenditures, lease payments and working capital requirements into the
third quarter of 2003. We do not believe that our operations alone will generate
sufficient cash to finance our requirements. As a result, we need to raise
financing through some combination of borrowings, leasing, vendor financing and
the sale of equity or debt securities. Our capital requirements may vary based
upon the timing and the success of implementation of our business plan and as a
result of regulatory, technological and competitive developments or if:

     o    demand for our services or our cash flow from operations is less than
          or more than expected;

     o    our plans or projections change or prove to be inaccurate;

     o    we make acquisitions;

     o    we accelerate or delay integration of acquired assets or otherwise
          alter the schedule or targets of our business plan implementation; or

     o    we curtail, reorganize, discontinue or shut down our operations.

     We cannot assure you that we will be able to raise sufficient debt or
equity capital on terms that we consider acceptable, if at all. If we are unable
to obtain adequate funds, we may not be able to operate our network, respond to
competitive pressures or fund our operations. Ultimately, we may be required to
significantly reduce or discontinue our operations.

                                       45
<PAGE>

OUR INDEPENDENT ACCOUNTANTS HAVE RAISED QUESTIONS ABOUT OUR ABILITY TO CONTINUE
AS A GOING CONCERN IN THEIR REPORT ON OUR AUDITED FINANCIAL STATEMENTS, WHICH
MAY HAVE AN ADVERSE IMPACT ON OUR ABILITY TO RAISE ADDITIONAL CAPITAL AND ON OUR
STOCK PRICE

     Our independent accountants have included in their report on our audited
financial statements an explanatory paragraph relating to our ability to
continue as a going concern. This explanatory paragraph includes the following
language: "The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has have experienced sustained operating
losses that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty." The inclusion of this explanatory
paragraph in the report of our independent accountants may have an adverse
impact on our ability to raise additional capital and on our stock price. We
cannot assure you that we will be able to continue as a going concern.

BECAUSE THE HIGH-SPEED DATA COMMUNICATIONS INDUSTRY IS NEW AND RAPIDLY EVOLVING,
WE CANNOT PREDICT ITS FUTURE GROWTH OR ULTIMATE SIZE

     The high-speed data communications industry is in the early stages of
development and is subject to rapid and significant technological change. Since
this industry is new and because the technologies available for high-speed data
communications services are rapidly evolving, we cannot accurately predict the
rate at which the market for our services will grow, if at all, or whether
emerging technologies will render our services less competitive or obsolete. If
the market for our services fails to develop or grows more slowly than
anticipated, our business, prospects, financial condition and results of
operations could be materially adversely affected. Many providers of high-speed
data communication services are testing products from numerous suppliers for
various applications.

OUR BUSINESS MODEL IS UNPROVEN, AND MAY NOT BE SUCCESSFUL

     We do not know whether our business model and strategy will be successful.
If the assumptions underlying our business model are not valid or we are unable
to implement our business plan, achieve the predicted level of market
penetration or obtain the desired level of pricing of our services for sustained
periods, our business, prospects, financial condition and results of operations
could be materially adversely affected. We have adopted a different strategy
than certain other broadband Internet service providers and DSL providers. We
focus on selling directly to small and medium sized businesses. Our unproven
business model makes it difficult to predict the extent to which our services
will achieve market acceptance. It is possible that our efforts will not result
in significant market penetration, favorable operating results or profitability.

IF OUR SERVICES FAIL TO ACHIEVE OR SUSTAIN MARKET ACCEPTANCE AT DESIRED PRICING
LEVELS, OUR ABILITY TO ACHIEVE PROFITABILITY OR POSITIVE CASH FLOW WOULD BE
IMPAIRED

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

WE MAY BE SUBJECT TO RISKS ASSOCIATED WITH ACQUISITIONS

     We may not be able to compete successfully for acquisition opportunities,
operate the acquired assets or businesses profitably or otherwise implement
successfully our acquisition strategy. We have made a number of asset and
business acquisitions. We intend to continue to seek additional opportunities
for further acquisitions, which we believe represents a distinct market
opportunity to accelerate growth.

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<PAGE>

We continuously identify and evaluate acquisition candidates and in many cases
engage in discussions and negotiations regarding potential acquisitions. Our
discussions and negotiations may not result in any acquisitions. There is
significant competition for acquisition opportunities in our business. As the
consolidation in our industry continues, this competition may intensify and
increase the costs of capitalizing on such opportunities. We compete for
acquisition opportunities with companies that have significantly greater
financial and management resources. Also, all or part of the purchase price of
any future acquisition may be paid in cash, thus depleting our cash resources.
In addition, an acquisition, including our recent acquisition of assets and
operations of Network Access Solutions Corporation, may not produce the revenue,
earnings, cash flows or business synergies that we anticipate, and an acquired
asset or business might not perform as we anticipated. Any such event may delay
the time at which we expect to achieve profitability or positive cash flows.
Further, if we pursue any future acquisition, our management could spend a
significant amount of time and effort in identifying and completing the
acquisition and may be distracted from the operation of our business. We will
also have to devote a significant amount of management resources to integrating
any acquired businesses, including the recently acquired Network Access
Solutions operations, with our existing operations, and that may not be
successful.

OUR MANAGEMENT TEAM IS CRITICAL AND THE LOSS OF KEY PERSONNEL COULD ADVERSELY
AFFECT OUR BUSINESS

     We depend on a small number of executive officers and other members of
senior management to work effectively as a team, to execute our business
strategy and business plan, and to manage employees located in several locations
across the United States. The loss of key managers or their failure to work
effectively as a team could have a material adverse effect on our business and
prospects. We do not have employment agreements with any of our executive
officers, so any of these individuals may terminate employment at any time.

OUR FAILURE TO MAINTAIN THE NECESSARY INFRASTRUCTURE TO SUPPORT OUR BUSINESS AND
TO MANAGE OUR GROWTH COULD STRAIN OUR RESOURCES AND ADVERSELY AFFECT OUR
BUSINESS AND FINANCIAL PERFORMANCE

     We have had significant growth in the number of markets in which we provide
service and the number of customers subscribing for our services. This growth
has placed a significant strain on our management, financial controls,
operations, personnel and other resources. We have deployed operations support
systems to help manage customer service, bill customers, process customer orders
and coordinate with vendors and contractors. Subsequent integration and
enhancement of these systems could be delayed or cause disruptions in service or
billing. To efficiently and cost-effectively manage our geographically dispersed
business, we must continue to successfully implement these systems on a timely
basis, and continually expand and upgrade these systems as our operations
expand.

IF WE FAIL TO RETAIN OUR EMPLOYEES OR RECRUIT QUALIFIED PERSONNEL IN A TIMELY
MANNER, WE WILL NOT BE ABLE TO EXECUTE OUR BUSINESS PLAN AND OUR BUSINESS WILL
BE HARMED

     To execute our business plan, we need to hire and retain qualified
personnel, particularly sales and marketing, engineering and other technical
personnel. If we are unable to retain our employees or recruit qualified
personnel in a timely manner, we will not be able to execute our business plan.
The reductions in workforce that we made in 2000, 2001 and 2003, and the
competitive nature of our industry, may make it difficult to hire qualified
personnel on a timely basis and to retain our employees.

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<PAGE>

DISAPPOINTING QUARTERLY REVENUE, OPERATING RESULTS OR OPERATING STATISTICS COULD
CAUSE THE PRICE OF OUR COMMON STOCK TO FALL

     Our quarterly revenue, operating results and operating statistics are
difficult to predict and may fluctuate significantly from quarter to quarter. If
our quarterly revenue, operating results or operating statistics fall below the
expectations of investors or security analysts, the price of our common stock
could fall substantially. Our quarterly revenue, operating results and operating
statistics may fluctuate as a result of a variety of factors, many of which are
outside our control, including:

     o    the timing and success of acquisitions, if any;

     o    the timing of the rollout of our services and any additional
          infrastructure, and the amount and timing of expenditures relating
          thereto;

     o    regulatory developments;

     o    the rate at which we are able to attract customers and our ability to
          retain these customers at sufficient aggregate revenue levels;

     o    the availability of financing;

     o    technical difficulties or network service interruptions; and

     o    the introduction of new services or technologies by our competitors
          and resulting pressures on the pricing of our service.

THE FAILURE OF OUR CUSTOMERS TO PAY THEIR BILLS ON A TIMELY BASIS COULD
ADVERSELY AFFECT OUR CASH FLOW

Our target customers consist mostly of small and medium sized businesses. We
bill and collect numerous relatively small customer accounts. We may experience
difficulty in collecting amounts due on a timely basis. In addition, with the
acquisition of the Network Access Solutions business on January 10, 2003, we
acquired a number of subscribers whom we service indirectly through various
Internet service providers. We sell our services to such Internet service
providers who then resell such services. We therefore expect to have increased
exposure and concentration of credit risk pertaining to such Internet service
providers during 2003 and beyond. Our failure to collect accounts receivable
owed to us by our customers on a timely basis could have a material adverse
effect on our business, financial condition and cash flow.

WE DEPEND ON WHOLESALE DSL AND T1 PROVIDERS, SOME OF WHOM ARE COMPETITORS, TO
PROVIDE US WITH LOCAL FACILITES IN AREAS WHERE WE HAVE NOT DEPLOYED OUR OWN
EQUIPMENT

     In markets where we have not deployed our own local DSL and T1 equipment,
we utilize local facilities from wholesale providers, including Covad
Communications, in order to provide service to our end-user customers. In these
cases, we are dependent upon these wholesale carriers to provide, or arrange the
provision of, the equipment and on-site wiring required to provide local DSL or
T1 services to our end-user customers, as well as to provide and maintain the
local DSL or T1 line. In general, these carriers may terminate the service they
provide to us with little or no notice. These carriers may not continue to
provide us with acceptable local services for our customers on the scale, at the
price levels and within the

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<PAGE>

time frames we require, or at all. If we are unable to obtain acceptable
services from these wholesale carriers or they terminate the service they
provide us, we may be required to install our own equipment in a central office
and provide and install new equipment for our customers, or arrange for another
wholesale carrier to do so. Obtaining space and provisioning equipment in a new
central office is a lengthy and costly process. We cannot assure you that we, or
another carrier with whom we work, would be able to obtain the space required in
a central office on a cost effective basis, if at all, or that we could provide
services to such customers on a timely basis. Our failure to install and provide
services to customers on a timely basis, or the disruption in the services
provided to our customers, would likely result in the loss of many, if not all,
of the customers in the affected locations, and could result in claims brought
by these customers against us. This could have a material adverse effect on our
competitive position, business, results of operations, financial position and
prospects.

     Certain wholesale providers with whom we work offer services that compete
with ours, or have other customers whose services compete with ours. Such
competing interests may affect the ability or willingness of these providers to
provide us with acceptable services on acceptable terms. In addition, certain of
these providers are relatively young companies that are facing substantial
operational and financial challenges. The operational success and abilities of
these carriers to operate their businesses could materially affect our business.
The failure of any of these companies could cause us to lose customers and
revenue, expose us to claims and otherwise have a material adverse effect on our
competitive position, business, results of operations, financial position and
prospects.

OUR SERVICES ARE SUBJECT TO FEDERAL, STATE AND LOCAL REGULATION, AND CHANGES IN
LAWS OR REGULATIONS COULD ADVERSELY AFFECT THE WAY WE OPERATE OUR BUSINESS

     The facilities we use and the services we offer are subject to varying
degrees of regulation at the federal, state and local levels. Changes in
applicable laws or regulations could, among other things, increase our costs,
restrict our access to the network elements and central offices of the
traditional local telephone companies, or restrict our ability to provide our
services. For example, the 1996 Telecommunications Act, which, among other
things, requires traditional local telephone companies to unbundle network
elements and to allow competitors to locate their equipment in the traditional
local telephone companies' central offices, is the subject of ongoing
proceedings at the federal and state levels, litigation in federal and state
courts, and legislation in federal and state legislatures. For example, the FCC
voted in February 2003 to amend its regulations in many key respects that could
have a significant adverse impact on our business, and it is also considering
substantial reductions or even elimination of the obligation of the traditional
local telephone companies to provide network elements to competitors such as us
for use for high-speed data services. Pending or expected legislative proposals
in Congress and state legislatures could, if adopted, also have the effect of
reducing the obligations of the traditional local telephone companies on which
we rely. Adoption of this legislation, or of some of the regulatory changes
being considered by the FCC, could have severe adverse consequences for our
business. We cannot predict the outcome of the various proceedings, litigation
and legislation or whether or to what extent these proceedings, litigation and
legislation may adversely affect our business and operations.

     Decisions by the FCC and state telecommunications regulators will determine
some of the terms of our relationships with traditional telecommunications
carriers, including the terms and prices of interconnection agreements, and
access fees and surcharges on gross revenue from interstate and intrastate
services. State telecommunications regulators determine whether and on what
terms we will be authorized to operate as a competitive local exchange carrier
in their state. In addition, local municipalities may require us to obtain
various permits that could increase the cost of services or delay development of
our network. Future federal, state and local regulations and legislation may be
less favorable to us than current regulations and legislation and may adversely
affect our businesses and operations. See "Item 1 - Business-Governmental
Regulations".

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<PAGE>

OUR SUCCESS DEPENDS ON NEGOTIATING AND ENTERING INTO INTERCONNECTION AGREEMENTS
WITH TRADITIONAL LOCAL TELEPHONE COMPANIES

     We must enter into and renew interconnection agreements with traditional
local telephone companies in each market in which we deploy our own DSL
equipment. These agreements govern, among other things, the price and other
terms regarding our location of equipment in the offices of the traditional
local telephone companies, known as central offices, and our lease of copper
telephone lines that connect those central offices to our customers. We have
entered into agreements with BellSouth, Cincinnati Bell, Frontier, SBC
Communications, Qwest, Sprint, Verizon or their subsidiaries, which govern our
relationships in 49 states and the District of Columbia. Delays in obtaining or
renewing interconnection agreements would delay our entrance into new markets
and could have a material adverse effect on our business and prospects. In
addition, disputes have arisen, and will likely arise in the future, regarding
the interpretation of these interconnection agreements. These disputes have, in
the past, delayed the deployment of our network. Our interconnection agreements
generally have limited terms of one to two years and we cannot assure you that
new agreements will be negotiated on a timely basis, if at all, or that existing
agreements will be extended on terms favorable to us. Interconnection agreements
must be approved by state regulators and are also subject to oversight by the
FCC and the courts. These governmental authorities may modify the terms or
prices of our interconnection agreements in ways that could adversely affect our
ability to deliver service and our business and results of operations.

FAILURE TO NEGOTIATE INTERCONNECTION AGREEMENTS WITH THE TRADITIONAL LOCAL
TELEPHONE COMPANIES COULD LEAD TO COSTLY AND LENGTHY ARBITRATION WHICH MAY NOT
BE RESOLVED IN OUR FAVOR

     Under federal law, traditional local telephone companies have an obligation
to negotiate with us in good faith to enter into interconnection agreements. If
no agreement can be reached, either side may petition the applicable state
telecommunications regulators to arbitrate remaining disagreements. Arbitration
is a costly and lengthy process that could delay our entry into markets and
could harm our ability to compete. Interconnection agreements resulting from
arbitration must be approved by state regulators. We cannot assure you that a
state regulatory authority would resolve disputes in our favor.

OUR SUCCESS DEPENDS ON TRADITIONAL LOCAL TELEPHONE COMPANIES PROVIDING
ACCEPTABLE TRANSMISSION FACILITIES AND COPPER TELEPHONE LINES

     We interconnect with and use the networks of traditional local telephone
companies to provide services to our customers in the markets where we have
deployed our own DSL equipment. In markets where we utilize the local DSL
facilities of other carriers to provide our service, those carriers must
interconnect with and use the networks of traditional local telephone companies
to provide this service. We cannot assure you that these networks will be able
to meet the telecommunications needs of our customers or maintain our service
standards. We also depend on the traditional local telephone companies to
provide and maintain their transmission facilities and the copper telephone
lines between our network and our customers' premises. The FCC's decision in
February 2003 to exempt the traditional local telephone companies from their
obligation to provide access to certain loop transmission facilities that use
fiber or new technologies to competitors such as us may incent the traditional
local telephone companies to modify, characterize or replace their facilities in
ways that would qualify them for this exemption and thereby preclude us from
accessing these facilities. Our dependence on traditional local telephone
companies could cause delays in establishing our network and providing our
services. Any such delays could have a material adverse effect on our business.
We, or the other carriers with which we work, lease copper telephone lines
running from the central office of the traditional local telephone companies to
each customer's location. In many cases, the copper telephone lines must be
specially

                                       50
<PAGE>

conditioned by the telephone company to carry digital signals. We may not be
able to obtain a sufficient number of acceptable telephone lines on acceptable
terms, if at all. Traditional telephone companies often rely on unionized labor
and labor-related issues have in the past, and may in the future, adversely
affect the services provided by the traditional telephone companies.

WE COMPETE WITH THE TRADITIONAL LOCAL TELEPHONE COMPANIES ON WHICH WE DEPEND

     Most of the traditional local telephone companies, including those created
by AT&T's divestiture of its local telephone service business, offer DSL-based
services. In addition, these companies also currently offer high-speed data
communications services that use other technologies, including T1 services.
Consequently, these companies have certain incentives to delay:

     o    our entry into, and renewals of, interconnection agreements with them;

     o    our access to their central offices to install our equipment and
          provide our services;

     o    providing acceptable transmission facilities and copper telephone
          lines; and

     o    our introduction and expansion of our services.

Any such delays would negatively impact our ability to implement our business
plan and harm our competitive position, business and prospects.

     In addition, the other carriers whose local facilities we utilize in
markets where we have not deployed our own equipment also compete with the
traditional local telephone companies and rely on these companies for the same
facilities and services that we do. Any delay in the provision of acceptable
transmission facilities and copper telephone lines provided by the traditional
local telephone companies to these carriers which are used in the provision of
our service could negatively impact our ability to implement our business plan
and harm our competitive position, business and prospects.

     Competition from the traditional local telephone companies offering DSL, T1
or other competitive high-speed data communications services in a specific
market may adversely impact our ability to obtain customers in that area and
harm our competitive position, business and prospects. These companies have
established brand names and reputations for high quality in their service areas,
possess sufficient capital to deploy broadband equipment rapidly, have their own
copper telephone lines and can bundle digital data services with their existing
voice services to achieve a competitive advantage in serving customers. In
addition, we depend upon these traditional local telephone companies to provide
us access to their central offices and to individual elements of their networks.
As a result, they can significantly influence the actual and perceived
reliability, quality and timeliness of our services in their service areas. The
perceived relative stability of the traditional local telephone companies,
particularly in light of the failure of certain competitive telephone companies
and the financial and operational issues surrounding other such companies,
provides the traditional local telephone companies a significant competitive
advantage.

WE DEPEND ON LONG DISTANCE CARRIERS TO CONNECT OUR NETWORK

     Data is transmitted across our network via transmission facilities that we
lease from long distance carriers, including WorldCom and AT&T. Failure of these
carriers to provide service or to provide quality service may interrupt the use
of our services by our customers. The service provided by these carriers has
been interrupted in the past, which has affected the services we provide to our
customers. We cannot be sure that this service will not be interrupted in the
future.

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<PAGE>

     In addition, WorldCom has filed a voluntary petition to reorganize under
Chapter 11 of the U.S. Bankruptcy Code. While WorldCom has continued with its
current operations since filing its voluntary petition to reorganize in June
2001, and has announced that it expects to continue with its current operations
without adverse impact on its customers, it may not be able to do so. We believe
that we could transition the data transport services currently supplied by
WorldCom to alternative suppliers in thirty to sixty days, should WorldCom
announce discontinuance of such services. However, were WorldCom to discontinue
such services without providing sufficient advance notice (at least sixty days),
we might not be able to transition such services in a timely manner, which could
disrupt service provided by us to certain of our customers. This could result in
the loss of revenue, loss of customers, claims brought against us by our
customers, or could otherwise have a material adverse effect on us. Even were
WorldCom to provide adequate notice of any such discontinuation of service,
there can be no assurance that we would be able to transition such service
without a material adverse impact on us or our customers, if at all, or that
such discontinuation of service would not otherwise have a material adverse
effect on us.

INTENSE COMPETITION IN THE HIGH-SPEED DATA COMMUNICATION SERVICES MARKET MAY
NEGATIVELY AFFECT THE NUMBER OF OUR CUSTOMERS AND THE PRICING OF OUR SERVICES

     The high-speed data communication services market is intensely competitive.
If we are unable to compete effectively, our business, prospects, financial
condition and results of operations would be adversely affected. We expect the
level of competition to intensify in the future, due, in part, to increasing
consolidation in our industry. Our competitors use various high speed
communications technologies for local access connections such as integrated
services digital network, or ISDN, frame relay, T1, DSL services and wireless,
satellite-based and cable networks. We expect significant competition from:

     o    Other providers of DSL and T1 services, including Covad
          Communications, Speakeasy, Inc. and New Edge Networks;

     o    Internet service providers, such as UUNET, EarthLink and MegaPath,
          which offer high-speed access capabilities, as well as other related
          products and services;

     o    Traditional local telephone companies, including the traditional local
          telephone companies created by AT&T's divestiture of its local
          telephone service business, which deploy DSL and T1 services and which
          provide other high-speed data communications services;

     o    National long distance carriers, such as AT&T, Sprint, Williams and
          WorldCom, some of which are offering competitive DSL and T1 services
          and other high-speed data communications services;

     o    Cable modem service providers, such as AT&T, Comcast and RCN, which
          are offering high-speed Internet access over cable networks; and

     o    Providers utilizing alternative technologies, such as wireless and
          satellite-based data service providers.

     Many of our current and potential competitors have longer operating
histories, greater brand name recognition, larger customer bases and
substantially greater financial, technical, marketing, management, service
support and other resources than we do. Therefore, they may be able to respond
more quickly than we can to new or changing opportunities, technologies,
standards or customer requirements. See "Item 1. Business-Competition".

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<PAGE>

OUR FAILURE TO DEVELOP AND MAINTAIN GOOD RELATIONSHIPS WITH MARKETING PARTNERS
IN A LOCAL SERVICE MARKET COULD ADVERSELY AFFECT OUR ABILITY TO OBTAIN AND
RETAIN CUSTOMERS IN THAT MARKET

     In addition to marketing through our direct sales force, we rely on
relationships with local marketing partners, such as integrators of computer
systems and networks and consultants. These partners recommend our services to
their clients, provide us with referrals and help us build a local presence in
each market. We may not be able to identify, and maintain good relationships
with, quality marketing partners and we cannot assure you that they will
recommend our services rather than our competitors' services to their customers.
Our failure to identify and maintain good relationships with quality marketing
partners could have a material adverse effect on our ability to obtain and
retain customers in a market and, as a result, our business would suffer.

UNCERTAIN TAX AND OTHER SURCHARGES ON OUR SERVICES MAY INCREASE OUR PAYMENT
OBLIGATIONS TO FEDERAL AND STATE GOVERNMENTS

     Telecommunications providers are subject to a variety of federal and state
surcharges and fees on their gross revenues from interstate and intrastate
services. These surcharges and fees may be increased and other surcharges and
fees not currently applicable to our services could be imposed on us. In either
case, the cost of our services would increase and that could have a material
adverse effect on our business, prospects, financial condition and results of
operations.

A SYSTEM FAILURE COULD DELAY OR INTERRUPT SERVICE TO OUR CUSTOMERS

     Our operations depend upon our ability to support a highly complex network
infrastructure and avoid damage from fires, earthquakes, floods, power losses,
excessive sustained or peak user demand, telecommunications failures, network
software flaws, computer worms and viruses, transmission cable cuts and similar
events. The occurrence of a natural disaster or other unanticipated interruption
of service at our owned or leased facilities could cause interruptions in our
services. In addition, failure of a traditional telephone company, competitive
telecommunications company or other service provider to provide communications
capacity or other services that we require, as a result of a natural disaster,
operational disruption or any other reason, could cause interruptions in our
services. Any damage or failure that causes sustained interruptions in our
operations could have a material adverse effect on our business.

A BREACH OF OUR NETWORK SECURITY COULD RESULT IN LIABILITY TO US AND DETER
CUSTOMERS FROM USING OUR SERVICES

     Our network may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Any of the foregoing problems could result in
liability to us and deter customers from using our service. Unauthorized access
could jeopardize the security of confidential information stored in the computer
systems of our customers. Eliminating computer viruses and alleviating other
security problems may require interruptions, delays or cessation of service to
our customers, cause us to incur significant costs to remedy the problem, and
divert management's attention. We can provide no assurance that the security
measures we have implemented will not be circumvented or that any failure of
these measures will not have a material adverse effect on our ability to obtain
and retain customers. Any of these factors could have a material adverse effect
on our business and prospects.

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<PAGE>

OUR FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS MAY ADVERSELY AFFECT
OUR BUSINESS

     We rely on unpatented trade secrets and know-how to maintain our
competitive position. Our inability to protect these secrets and know-how could
have a material adverse effect on our business and prospects. We protect our
proprietary information by entering into confidentiality agreements with
employees and consultants and business partners. These agreements may be
breached or terminated. In addition, third parties, including our competitors,
may assert infringement claims against us. Any such claims could result in
costly litigation, divert management's attention and resources, and require us
to pay damages and/or to enter into license or similar agreements under which we
could be required to pay license fees or royalties.

WE MAY BE EXPOSED TO LIABILITY FOR INFORMATION CARRIED OVER OUR NETWORK OR
DISPLAYED ON WEB SITES THAT WE HOST

     Because we provide connections to the Internet and host web sites for our
customers, we may be perceived as being associated with the content carried over
our network or displayed on web sites that we host. We do not and cannot screen
all of this content. As a result, we may face potential liability for
defamation, negligence, copyright, patent or trademark infringement and other
claims based on the content carried over our network or displayed on web sites
that we host. These types of claims have been brought against providers of
online services in the past and can be costly to defend regardless of the merit
of the lawsuit. The protection offered by recent federal legislation that
protects online services from some claims when the material is written by third
parties is limited. Further, the law in this area remains in flux and varies
from state to state. We may also suffer a loss of customers or reputational harm
based on this content or resulting from our involvement in these legal
proceedings.

WE MAY INCUR SIGNIFICANT AMOUNTS OF DEBT IN THE FUTURE TO IMPLEMENT OUR BUSINESS
PLAN AND, IF INCURRED, THIS INDEBTEDNESS WILL CREATE GREATER FINANCIAL AND
OPERATING RISK AND LIMIT OUR FLEXIBILITY

     We established a $15,000,000 revolving line of credit in December 2002.
Availability of funds under this line is subject to the receipt by the bank of
certain third-party guarantees. As of March 24, 2003, we had borrowed an
aggregate of $6,100,000 under this line. The terms of this line and certain
agreements we entered into with guarantors of amounts borrowed under this line
contain provisions that could limit our ability to incur additional indebtedness
and place other restrictions on our business. We may seek additional debt
financing in the future. We may not be able to repay any current or future debt.
If we incur additional debt, we will be required to devote increased amounts of
our cash flow to service indebtedness. This could require us to modify, delay or
abandon the capital expenditures and other investments necessary to implement
our business plan.

                 RISKS RELATING TO OWNERSHIP OF OUR COMMON STOCK

OUR STOCK PRICE COULD FLUCTUATE WIDELY IN RESPONSE TO VARIOUS FACTORS, MANY OF
WHICH ARE BEYOND OUR CONTROL

     The trading price of our common stock has been and is likely to continue to
be highly volatile. Our stock price could fluctuate widely in response to
factors such as the following:

     o    actual or anticipated variations in quarterly operating results or
          operating statistics;

     o    announcements of new products or services by us or our competitors or
          new competing technologies;

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<PAGE>

     o    the addition or loss of customers;

     o    changes in financial estimates or recommendations by securities
          analysts;

     o    conditions or trends in the telecommunications industry, including
          regulatory or legislative developments;

     o    growth of Internet and on-line commerce usage and the Internet and
          on-line commerce industries;

     o    announcements by us of significant acquisitions, strategic
          partnerships, joint ventures or capital commitments;

     o    additions or departures of our key personnel;

     o    future equity or debt financings by us or our announcements of such
          financings; and

     o    general market and economic conditions.

     In addition, in recent years the stock market in general, and the Nasdaq
National Market and the market for Internet, technology and telecommunications
companies in particular, have experienced large price and volume fluctuations.
These fluctuations have often been unrelated or disproportionate to the
operating performance of these companies. These market and industry factors may
materially and adversely affect our stock price, regardless of our operating
performance.

OUR COMMON STOCK MAY BE DELISTED FROM THE NASDAQ SMALLCAP MARKET, WHICH MAY HAVE
A MATERIAL ADVERSE IMPACT ON THE PRICING AND TRADING OF OUR COMMON STOCK

     On July 22, 2002, the Nasdaq transferred the listing of our common stock
from the Nasdaq National Market to the Nasdaq SmallCap Market. On October 16,
2002, Nasdaq notified us that, while we had not regained compliance by October
15, 2002 with the $1.00 bid price per share requirement generally required for
continued listing on the Nasdaq SmallCap Market, we did continue to meet the
initial listing requirements for the Nasdaq SmallCap Market under Rule
4310(c)(2)(A). As a result, we had an additional 180 calendar days, or until
April 14, 2003, to comply with the minimum bid price of $1.00 per share for 10
consecutive trading days, or such greater number of trading days as Nasdaq may
determine, in order to remain listed on the Nasdaq SmallCap Market. On March 11,
2003, the Nasdaq amended its rules to provide that a company that satisfies the
initial listing requirements for the Nasdaq SmallCap Market under Rule
4310(c)(2)(A) would have an additional 90 days (over the 180 days already
contemplated by the Nasdaq SmallCap Market rules) to comply with the minimum bid
price of $1.00 per share. As a result, if we do not satisfy the minimum bid
price of $1.00 per share on April 14, 2003, but satisfy the Nasdaq SmallCap
Market initial listing requirements, we will have until July 13, 2003 to satisfy
the minimum bid price of $1.00 per share. As of March 27, 2003, we satisfied the
initial listing requirements for the Nasdaq SmallCap Market, but there can be no
assurance that we will satisfy these requirements on April 14, 2003. If we can
neither comply with the minimum bid price requirements nor satisfy the initial
Nasdaq SmallCap listing requirements on April 14, 2003, Nasdaq will provide us
notice that our common stock will be de-listed from the Nasdaq SmallCap Market.
In addition, we if satisfy the initial Nasdaq SmallCap listing requirements on
April 14, 2003 but are unable to satisfy the minimum bid price requirements by
July 13, 2003, Nasdaq will provide us notice that our common stock will be
de-listed from the Nasdaq SmallCap Market. In each case, we would have the
opportunity to appeal such

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<PAGE>

determination to a Listings Qualifications Panel. There can be no assurances
that we will be able to comply with the minimum bid price requirement by April
14, 2003 or July 13, 2003, if at all, or that we will continue to satisfy the
other listing requirements of the Nasdaq SmallCap Market. Nasdaq has indicated
that it intends to submit proposed rules changes to the SEC which would, among
other things, further extend the number of days during which a company that
satisfies the initial listing requirements of the Nasdaq SmallCap Market may
continue to be listed on such market without complying with the $1.00 minimum
bid price requirement. There can be no assurance that Nasdaq will submit this
proposed rule change to the SEC or that the SEC will approve this proposed rule
change, if at all, in time to delay the possible delisting of our common stock
from the Nasdaq SmallCap Market. In addition, there can be no assurance that we
will continue to satisfy the initial listing requirements of the Nasdaq SmallCap
Market. If our common stock is delisted by the Nasdaq, it will become more
difficult to trade or to obtain accurate and timely quotations to trade our
common stock. Furthermore, any delisting of our common stock could depress our
stock price or result in a decline in the trading market of our common stock.

A STOCKHOLDER GROUP CONTROLS MOST MATTERS REQUIRING STOCKHOLDER APPROVAL, WHICH
COULD HAVE A MATERIAL ADVERSE EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK.

     A group of private investment funds affiliated with VantagePoint Venture
Partners owns of record approximately 34% of our outstanding common stock, 100%
of our outstanding Series X preferred stock and 65% of the combined voting power
of all issued and outstanding DSL.net capital stock as of March 18, 2003. As
long as at least 50% of the Series X preferred stock owned by VantagePoint
remains outstanding, the holders of the Series X preferred stock are entitled to
elect a majority of our board of directors, subject to the provisions of a
stockholders agreement relating to the election of directors. As a result,
subject to the special voting rights of our Series Y preferred stock and the
provisions of the stockholders agreement, VantagePoint can control most matters
requiring stockholder approval, including approval of significant corporate
transactions. This concentration of ownership may have the effect of delaying,
preventing or deterring a change in control, could deprive our stockholders of
an opportunity to receive a premium for their common stock as part of a sale and
might affect the market price of our common stock.

CERTAIN PROVISIONS OF OUR CHARTER, BY-LAWS AND DELAWARE LAW COULD MAKE A
TAKEOVER DIFFICULT

     Our corporate documents and Delaware law contain provisions that might
enable our management to resist a third-party takeover. These provisions include
a staggered board of directors, limitations on persons authorized to call a
special meeting of stockholders, advance notice procedures required for
stockholders to make nominations of candidates for election as directors or to
bring matters before an annual meeting of stockholders, and the right of the
holders of Series X preferred stock to elect a majority of our directors. These
provisions might discourage, delay or prevent a change in control by a
third-party or a change in our management. These provisions could also
discourage proxy contests and make it more difficult for our stockholders to
elect directors and take other corporate actions. The existence of these
provisions could limit the price that investors might be willing to pay in the
future for shares of our common stock and could deprive our stockholders of an
opportunity to receive a premium for their common stock as part of a sale.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We have no derivative financial instruments in our cash and cash
equivalents. We invest our cash and cash equivalents in investment-grade, highly
liquid investments, consisting of commercial paper, bank certificates of deposit
and corporate bonds.

                                       56
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of DSL.net, Inc.:


     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of DSL.net, Inc. and its subsidiaries at December 31, 2002 and 2001,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has experienced sustained operating losses
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

/s/ PricewaterhouseCoopers LLP
Stamford, CT
February 14, 2003, except for Note 16, as to which the date
is March 26, 2003






                                       57
<PAGE>
<TABLE><CAPTION>
                                                     DSL.NET, INC.
                                              CONSOLIDATED BALANCE SHEETS
<S>                                                                                   <C>                <C>
                                                                                                December 31,
                                                                                      --------------------------------
                                                                                           2001               2002
                                                                                      -------------      -------------
                                           ASSETS
Current assets:
Cash and cash equivalents                                                             $  19,284,985      $  11,317,701
Restricted cash  (Note 2)                                                                   345,773              1,492
Accounts receivable (net of allowances of $3,844,148 and $606,232
at December 31, 2001 and 2002, respectively)                                              5,856,288          4,357,928
Deferred costs                                                                            1,131,031            615,473
Prepaid expenses and other current assets                                                 2,235,201          1,432,459
                                                                                      -------------      -------------
Total current assets                                                                     28,853,278         17,725,053

Fixed assets, net  (Note 3)                                                              36,860,674         23,065,764
Goodwill and other intangible assets  (Note 5)                                           14,741,019         10,656,314
Other assets                                                                                568,931          2,048,812
                                                                                      -------------      -------------
Total assets                                                                          $  81,023,902      $  53,495,943
                                                                                      =============      =============

 LIABILITIES, MANDATORILY REDEEMABLE, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                                                                      $   4,326,642      $   4,620,692
Accrued salaries                                                                            907,444          1,225,106
Accrued liabilities  (Note 14)                                                            9,635,427          4,620,988
Deferred revenue                                                                          3,965,804          3,591,352
Current portion of capital leases payable  (Note 7)                                       2,902,267          2,676,353
Bridge loan payable (Note 6)                                                              3,531,000               --
                                                                                      -------------      -------------
Total current liabilities                                                                25,268,584         16,734,491

Capital leases payable  (Note 7)                                                          4,560,492          1,888,538
                                                                                      -------------      -------------
Total liabilities                                                                        29,829,076         18,623,029
                                                                                      -------------      -------------
Commitments and contingencies  (Note 7)

Preferred stock:  20,000,000 preferred shares authorized (Note 9)
20,000 shares designated as Series X, mandatorily redeemable, convertible
preferred stock, $.001 par value; 10,000 and 20,000 shares issued and outstanding
as of December 31, 2001 and 2002, respectively (liquidation preference $10,115,233
and $22,315,233 as of December 31, 2001 and 2002, respectively)                             435,930          8,740,517

15,000 shares designated as Series Y, mandatorily redeemable, convertible
preferred stock, $.001 par value; 6,469 and 15,000 shares issued and outstanding
as of December 31, 2001 and 2002, respectively (liquidation preference $6,475,380
and $16,379,830 as of December 31, 2001 and 2002, respectively)                              34,356          5,381,150

Stockholders' equity  (Note 9)
Common stock, $.0005 par value; 200,000,000 and 400,000,000 shares authorized;
64,851,462 and 64,929,899 shares issued and outstanding                                      32,426             32,465
Additional paid-in capital                                                              300,756,586        305,647,333
Deferred compensation                                                                    (1,667,694)          (437,568)
Accumulated deficit                                                                    (248,396,778)      (284,490,983)
                                                                                      -------------      -------------
Total stockholders' equity                                                               50,724,540         20,751,247
                                                                                      -------------      -------------
Total liabilities, preferred stock and stockholders' equity                           $  81,023,902      $  53,495,943
                                                                                      =============      =============

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

                                                                 58
</TABLE>
<PAGE>
<TABLE><CAPTION>
                                                     DSL.NET, INC.
                                         CONSOLIDATED STATEMENTS OF OPERATIONS

<S>                                                                <C>                <C>                <C>
                                                                    Year ended         Year ended         Year ended
                                                                 December 31, 2000  December 31, 2001  December 31, 2002
                                                                   -------------      -------------      -------------
Revenue                                                            $  17,789,410      $  41,969,411      $  45,529,895
                                                                   -------------      -------------      -------------
Operating expenses:
Network (excluding $29,406, $29,408 and
$29,407 of stock compensation, respectively)                          31,650,733         44,588,601         33,947,636
Operations (excluding $383,311, ($153,521) and
$51,912 of stock compensation, respectively)                          31,060,266         45,614,092          7,472,164
General and administrative (excluding $1,805,703, $449,320
and $283,389 of stock compensation, respectively)                     17,974,474         25,229,558         11,402,868
Sales and marketing (excluding $973,802, $876,511 and
$863,043 of stock compensation, respectively)                         25,262,817         13,188,078          6,968,726
Stock compensation                                                     3,192,222          1,201,718          1,227,751
Depreciation and amortization                                         21,132,583         28,042,645         20,332,036
                                                                   -------------      -------------      -------------

Total operating expenses                                           $ 130,273,095      $ 157,864,692      $  81,351,181
                                                                   -------------      -------------      -------------

Operating loss                                                     $(112,483,685)     $(115,895,281)     $ (35,821,286)

Interest income (expense), net                                         6,729,657            455,033           (458,160)
Other (expense) income, net                                               (9,120)           (13,434)           185,241
                                                                   -------------      -------------      -------------

Net loss                                                           $(105,763,148)     $(115,453,682)     $ (36,094,205)
                                                                   =============      =============      =============

Net loss applicable to common stockholders:
Net loss                                                            (105,763,148)      (115,453,682)       (36,094,205)
Dividends on preferred stock                                                --             (121,613)        (3,573,450)
Accretion of preferred stock, net of issuance costs                         --             (348,673)       (10,077,931)
                                                                   -------------      -------------      -------------
Net loss applicable to common stockholders                         $(105,763,148)     $(115,923,968)     $ (49,745,586)
                                                                   =============      =============      =============
Net loss per share, basic and diluted                              $       (1.75)     $       (1.81)     $       (0.77)
                                                                   =============      =============      =============
Shares used in computing net loss per share, basic and diluted        60,593,437         63,938,960         64,857,869
                                                                   =============      =============      =============

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

                                                           59
</TABLE>
<PAGE>
<TABLE><CAPTION>
                                                            DSL.NET, INC.
                                     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


                                                   Common Stock          Additional
                                              ----------------------     Paid - In       Deferred      Accumulated
                                                Shares       Amount       Capital      Compensation      Deficit          Total
                                              -----------   --------   -------------   ------------   -------------   -------------
<S>                                            <C>          <C>        <C>             <C>            <C>             <C>
Balance as of December 31, 1999                58,382,196   $ 29,191   $ 141,245,583   $(13,361,940)  $ (27,179,948)  $ 100,732,886
Deferred compensation - stock options                --         --        (6,238,995)     6,238,995            --              --
Amortization of deferred compensation                --         --              --        3,192,222            --         3,192,222
Issuance of common stock - warrants               102,737         51             (51)          --              --              --
Issuance of common stock - employee stock
   purchase plan                                   29,741         14         182,704           --              --           182,718
Issuance of common stock - stock options        1,451,742        727         851,259           --              --           851,986
Issuance of common stock, net of issuance
   costs                                        5,750,000      2,875     141,248,935           --              --       141,251,810
Issuance of common stock - Vector Internet
   Services, Inc. acquisition                     286,392        143       8,968,822           --              --         8,968,965
Net loss                                             --         --              --             --      (105,763,148)   (105,763,148)
                                              -----------   --------   -------------   ------------   -------------   -------------
Balance as of December 31, 2000                66,002,808   $ 33,001   $ 286,258,257   $ (3,930,723)  $(132,943,096)  $ 149,417,439
Deferred compensation - stock options                --         --          (674,670)       674,670            --              --
Amortization of deferred compensation                --         --              --        1,201,718            --         1,201,718
Repurchase of common stock                     (1,538,503)      (769)       (385,872)       386,641            --              --
Issuance of common stock - employee stock
   purchase plan                                   25,383         13          29,993           --              --            30,006
Issuance of common stock - stock options          361,774        181          19,292           --              --            19,473
Beneficial conversion option of preferred
   stock, net of issuance costs                      --         --        15,979,872           --              --        15,979,872
Accrued dividends on preferred stock                 --         --          (121,613)          --              --          (121,613)
Accretion of beneficial conversion option of
   preferred stock, net of issuance costs            --         --          (348,673)          --              --          (348,673)
Net loss                                             --         --              --             --      (115,453,682)   (115,453,682)
                                              -----------   --------   -------------   ------------   -------------   -------------
Balance as of December 31, 2001                64,851,462   $ 32,426   $ 300,756,586   $ (1,667,694)  $(248,396,778)  $  50,724,540
Deferred compensation - stock options                --         --            (2,375)         2,375            --              --
Amortization of deferred compensation                --         --              --        1,227,751            --         1,227,751
Repurchase of common stock                           --         --              --             --              --              --
Issuance of common stock - employee stock
   purchase plan                                   14,000          7           3,993           --              --             4,000
Issuance of common stock - stock options           64,437         32           9,510           --              --             9,542
Beneficial conversion option of preferred
   stock, net of issuance costs                      --         --        18,531,000           --              --        18,531,000
Accrued dividends on preferred stock                 --         --        (3,573,450)          --              --        (3,573,450)
Accretion of beneficial conversion option of
   preferred stock, net of issuance costs            --         --       (10,077,931)          --              --       (10,077,931)
Net loss                                             --         --              --             --       (36,094,205)    (36,094,205)
                                              -----------   --------   -------------   ------------   -------------   -------------
Balance as of December 31, 2002                64,929,899   $ 32,465   $ 305,647,333   $   (437,568)  $(284,490,983)  $  20,751,247
                                              ===========   ========   =============   ============   =============   =============

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

                                                                 60
</TABLE>
<PAGE>
<TABLE><CAPTION>
                                                     DSL.NET, INC.
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                   Year ended         Year ended         Year ended
                                                                December 31, 2000  December 31, 2001  December 31, 2002
                                                                  -------------      -------------      -------------
<S>                                                               <C>                <C>                <C>
Cash flows from operating activities:
Net loss                                                          $(105,763,148)     $(115,453,682)     $ (36,094,205)

Reconciliation of net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization                                        21,132,583         28,042,645         20,332,036
Bad debt expense                                                        700,000          2,996,096          2,535,735
Sales credits and allowances                                            590,496          1,498,498          1,181,368
Amortization of deferred debt issuance costs                             58,299             86,259              9,324
Stock compensation expense                                            3,192,222          1,201,718          1,227,751
Restructuring charges for write-down of fixed assets                  1,416,816         29,627,771               --
Impairment charges for write-down of goodwill and investments              --            4,455,397               --
Loss on sales of fixed assets                                              --              131,810             12,702
Write off of equipment                                                     --              229,258            361,737
Net changes in assets and liabilities:
(Increase) in accounts receivable                                    (4,219,149)        (6,656,335)        (2,194,084)
(Increase) / decrease in prepaid and other current assets            (1,052,000)           221,992          1,318,300
(Increase) / decrease in other assets                                (1,055,846)         1,260,101         (1,479,881)
Increase / (decrease) in accounts payable                             2,054,260         (8,859,006)           294,050
Increase / (decrease) in accrued salaries                               729,156           (670,553)           317,662
Increase / (decrease) in accrued expenses                             5,676,441         (2,713,422)        (5,110,769)
Increase / (decrease) in deferred revenue                             1,554,131          1,611,894           (417,519)
                                                                  -------------      -------------      -------------
Net cash used in operating activities                               (74,985,739)       (62,989,559)       (17,705,793)
                                                                  -------------      -------------      -------------
Cash flows from investing activities:
Purchases of property and equipment                                 (55,942,721)        (5,344,788)        (1,647,008)
Proceeds from sales of property and equipment                              --              456,134             84,882
Sales of marketable securities                                       13,274,183               --                 --
Acquisitions of businesses and customer lines                       (13,548,674)        (1,797,328)        (1,149,997)
Other investments                                                      (500,001)              --                 --
(Increase) / decrease in restricted cash                             (3,508,111)         3,765,298            344,281
                                                                  -------------      -------------      -------------
Net cash used in investing activities                               (60,225,324)        (2,920,684)        (2,367,842)
                                                                  -------------      -------------      -------------
Cash flows from financing activities:
Proceeds from equipment credit facility                               2,921,870               --                 --
Proceeds from common stock issuance                                 142,286,514             49,475             13,543
Proceeds from preferred stock issuance and bridge note                     --           19,510,872         15,000,000
Principal payments under notes and capital lease obligations         (3,248,711)        (6,689,030)        (2,907,192)
                                                                  -------------      -------------      -------------
Net cash provided by financing activities                           141,959,673         12,871,317         12,106,351
                                                                  -------------      -------------      -------------
Net increase / (decrease) in cash and cash equivalents                6,748,610        (53,038,926)        (7,967,284)
Cash and cash equivalents at beginning of period                     65,575,301         72,323,911         19,284,985
                                                                  -------------      -------------      -------------
Cash and cash equivalents at end of period                        $  72,323,911      $  19,284,985      $  11,317,701
                                                                  =============      =============      =============
Supplemental disclosure:
Cash paid: interest                                               $   1,477,168      $   1,372,308      $     819,192
                                                                  =============      =============      =============
Fixed assets financed under capital leases                        $  10,292,727      $        --        $        --
                                                                  =============      =============      =============
Fixed asset purchases included in accounts payable                $   8,136,269      $     455,263      $     485,470
                                                                  =============      =============      =============

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

                                                          61
</TABLE>

<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   FORMATION AND OPERATIONS OF THE COMPANY

     DSL.net, Inc. (the "Company") was incorporated in Delaware on March 3, 1998
and operations commenced March 28, 1998. The Company provides dedicated
high-speed data communications, Internet access and related services, primarily
using digital subscriber line (DSL) technology.

     The Company has incurred substantial losses and negative cash flows from
operations in every fiscal period since inception. For the year ended December
31, 2002, the Company incurred operating losses of $35,821,286 and negative
operating cash flows of $17,705,793 that were financed primarily by proceeds
from equity issuances. The Company had accumulated deficits of $248,396,778 and
$284,490,983 at December 31, 2001 and 2002, respectively. The Company expects
its operating losses, net operating cash outflows and capital expenditures to
continue through 2003.

     As reflected in the accompanying financial statements, in December 2000,
the Company initiated a new business plan strategy to reduce its losses and to
conserve its cash. The Company implemented its plan by undertaking various
restructuring actions (Note 15). The Company has successfully completed rounds
of private equity and bridge financing totaling approximately $35 million as
follows: approximately $20 million in the fourth quarter of 2001, $10 million in
March 2002 and $8.5 million in May 2002 (which, after cancellation of the bridge
loans, yielded net proceeds of approximately $5 million) (Note 9). The Company's
independent accountants have noted in their report that the Company's sustained
operating losses raise substantial doubt about its ability to continue as a
going concern. The Company believes that its existing cash and cash equivalents,
cash expected to be generated from operations, and funds available under its
bank credit agreement, will be sufficient to fund its operating losses, capital
expenditures, lease payments and working capital requirements into the third
quarter of 2003. The Company intends to use its cash resources to finance its
capital expenditures and for working capital and other general corporate
purposes. The Company may also use a portion of these cash resources to acquire
complementary businesses, subscriber lines or other assets. The amounts actually
expended for such purposes will vary significantly depending on a number of
factors, including market acceptance of the Company's services, revenue growth,
planned capital expenditures, cash generated from operations, improvements in
operating productivity, the extent and timing of entry into new markets and
availability and prices paid for acquisitions.

     Additional financing will be required during 2003. The Company does not
believe that its operations will generate sufficient cash to finance its 2003
requirements. As a result, the Company will need to raise additional financing
through some combination of borrowings (including borrowings under the bank
credit facility described in Notes 6 and 16), leasing, vendor financing and the
sale of equity or debt securities. These capital requirements may vary based
upon the timing and the success of implementation of the Company's business plan
or if:

     o    demand for the Company's services or its cash flow from operations is
          less than or more than expected;

     o    plans or projections change or prove to be inaccurate;

     o    the Company makes acquisitions;

     o    the Company alters the schedule or targets of its business plan
          implementation; or

     o    the Company curtails, reorganizes, discontinues or shuts down its
          operations.

                                       62
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

There can be no assurance that the Company will be able to raise sufficient
additional debt, equity or other capital on acceptable terms, if at all. If the
Company is unable to obtain adequate funds, the Company may not be able to
continue to operate its network, respond to competitive pressures or fund its
operations. As a result, the Company may be required to significantly reduce,
reorganize, discontinue or shut down its operations. These financial statements
do not include any adjustments that might result from this uncertainty.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Significant accounting policies followed in the preparation of these
financial statements are as follows:

PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements include the transactions
and balances of DSL.net, Inc. and its wholly owned subsidiaries, including
DSLnet Communications, LLC, DSLnet Communications VA, Inc., Tycho Networks, Inc.
and Vector Internet Services, Inc. All material intercompany transactions and
balances have been eliminated.

USE OF ESTIMATES

     The preparation of financial statements in accordance with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, including the recoverability of tangible and intangible
assets, disclosure of contingent assets and liabilities as of the date of the
financial statements, and the reported amounts of revenues and expenses during
the reported period. The markets for the Company's services are characterized by
intense competition, rapid technological development, regulatory changes, and
frequent new product introductions, all of which could impact the future value
of the Company's assets and liabilities.

     The Company evaluates its estimates on an on-going basis. The most
significant estimates relate to revenue recognition, goodwill and other
long-lived assets, the allowance for doubtful accounts, income taxes,
contingencies and litigation. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ materially from
those estimates.

CASH EQUIVALENTS AND MARKETABLE SECURITIES

     The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.

RESTRICTED CASH

     Restricted cash at December 31, 2001 of $345,773 represented cash
restricted primarily for future amounts due in connection with acquisitions,
subject to any post-closing adjustments. Restricted cash at December 31, 2002 of
$1,492 represented the balance of unvested amounts of the Company's share of

                                       63
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

matching contributions for terminated employees in the Company's 401K plan. This
cash is restricted for future funding of matching contributions to the Company's
401K plan.

CONCENTRATION OF CREDIT RISK AND CONCENTRATION OF DATA TRANSMISSION SERVICE
PROVIDERS

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents,
marketable securities and accounts receivable. The Company's cash and investment
policies limit investments to short-term, investment grade instruments.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers comprising the Company's customer base. No
individual customer accounted for more than 5% of the Company's revenue for the
years ended December 31, 2002, 2001 or 2000, respectively.

     The Federal Deposit Insurance Corporation's ("FDIC") maximum insurance
against bank failures for deposits is $100,000 per institution. The Company's
funds, maintained at its banking institutions from time to time, exceed the
insured amounts. The Company's short-term investment grade instruments generally
are not insured by the FDIC.

     In certain markets where the Company has not deployed its own DSL or T1
equipment, the Company utilizes local DSL or T1 facilities from wholesale
providers, including Covad Communications, Inc. ("Covad"), in order to provide
service to its end-user customers. These wholesale providers may terminate their
service with little or no notice. The failure of Covad or any of the Company's
other wholesale providers to provide acceptable service on acceptable terms
could have a material adverse effect on the Company's operations. There can be
no assurance that Covad or other wholesale providers will be successful in
managing their operations and business plans.

The Company transmits data across its network via transmission facilities that
are leased from certain carriers, including AT&T and MCI WorldCom
Communications, Inc. ("WorldCom"). The failure of any of the Company's data
transport carriers to provide acceptable service on acceptable terms could have
a material adverse effect on the Company's operations. WorldCom, has filed a
voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code.
While WorldCom has continued with its current operations and has announced that
it expects to continue with its current operations without adverse impact on its
customers, it may not be able to do so. The Company believes that it could
transition the data transport services currently supplied by WorldCom to
alternative suppliers in thirty to sixty days, should WorldCom announce
discontinuance of such services. However, if WorldCom was to discontinue such
services without providing sufficient advance notice (at least sixty days), the
Company might not be able to transition such services in a timely manner, which
could disrupt service provided by the Company to certain of its customers. This
could result in the loss of revenue, loss of customers, claims brought against
the Company by its customers, or could otherwise have a material adverse effect
on the Company. Even if WorldCom was to provide adequate notice of any such
discontinuation of service, there can be no assurance that the Company would be
able to transition such service without a material adverse impact on the Company
or its customers, if at all.

FIXED ASSETS

     Fixed assets are stated at cost and are depreciated using the straight-line
method over the estimated useful lives of the assets, which are five years for
network equipment (except for routers and modems, which are three years), three
years for computer equipment, five years for furniture, fixtures and office
equipment and three years for capitalized software and vehicles. Leasehold
improvements are amortized over the shorter of the term of the related lease or
the useful life of the asset. Collocation space

                                       64
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

improvements represent payments to carriers for infrastructure improvements
within their central offices to allow the Company to install its equipment,
which allows the Company to interconnect with the carrier's network. These
payments are being amortized over their estimated useful lives of five years.
Maintenance and repairs are charged to expense as incurred. The Company also
installs its equipment at customer locations to enable connections to its
network.

     The Company, in accordance with AICPA Statement of Position 98-1,
"ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE," ("SOP 98-1"), capitalizes certain costs incurred in the
development of internal use software. Internal use software has an estimated
useful life of three years.

     Upon disposal of fixed assets, the cost and related accumulated
depreciation are removed from the accounts and the resulting gain or loss is
reflected in earnings. Fully depreciated assets are not removed from the
accounts until physical disposition.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets were amortized on a straight-line basis
over the estimated future periods to be benefited, ranging from two to five
years. Goodwill represents the excess purchase price over the fair value of
identifiable net assets of businesses acquired. Effective January 1, 2002, the
Company adopted SFAS No. 142 "GOODWILL AND OTHER INTANGIBLE ASSETS". The Company
ceased to amortize $8,482,394 of goodwill in accordance with the provisions of
SFAS No. 142. The Company recorded approximately $1,447,121 and $2,483,732 of
amortization relating to this goodwill during 2000 and 2001, respectively, and
would have recorded an additional $2,483,732 in 2002.

The Company completed its transitional goodwill impairment test during the first
quarter of 2002, which did not result in an impairment loss. The Company reviews
the recoverability of goodwill annually by comparing the estimated fair values
of reporting units with their respective net book values. If the fair value of a
reporting unit exceeds its carrying amount, the goodwill of the reporting unit
is not considered impaired. If the carrying amount of the reporting unit exceeds
its fair value, the goodwill impairment loss is measured as the excess of the
carrying value of goodwill over its implied fair value. The Company completed
its annual impairment test as of December 31, 2002 and was not required to
recognize a goodwill impairment charge.

OTHER ASSETS

     Other assets include refundable deposits held as security on certain lease
obligations and deposits and associated direct costs paid in connection with
future acquisitions, subject to any post-closing adjustments. As of December 31,
2001, and 2002, refundable deposits were $568,931 and $1,167,234, respectively,
and deposits and associated direct costs paid in connection with future
acquisitions, subject to any post-closing adjustments, were $0 and $881,578,
respectively.

INCOME TAXES

     The Company uses the liability method of accounting for income taxes, as
set forth in SFAS No. 109, "ACCOUNTING FOR INCOME TAXES". Under this method,
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
basis of assets and liabilities and net operating loss carryforwards, all
calculated using presently enacted tax rates.

                                       65
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

REVENUE RECOGNITION

     The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, (SAB No. 101) "REVENUE RECOGNITION IN FINANCIAL STATEMENTS"
which requires that four basic criteria must be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or services rendered; (3) the fee is fixed and determinable, and (4)
collectibility is reasonably assured. Determination of criteria (3) and (4) are
based on management's judgments regarding the fixed nature of the fee charged
for services rendered and products delivered and the collectibility of those
fees.

     Revenue is recognized pursuant to the terms of each contract on a monthly
service fee basis. Revenue that is billed in advance of the services provided is
deferred until the services are rendered. Revenue related to installation
charges is also deferred and amortized to revenue over eighteen months, the
estimated life of the customer relationship. Related direct costs incurred (up
to the amount of deferred revenue) are also deferred and amortized to expense
over eighteen months, and any excess direct costs over installation revenue is
charged to expense as incurred. The Company, in certain instances, negotiates
sales credits and allowances for service related matters. The Company
establishes a reserve for such credits based on historical experience.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

     The Company maintains an allowance for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
The Company primarily sells its services directly to end users mainly consisting
of small to medium sized businesses, and consequently, believes that it does not
have significant exposure or concentrations of credit risk with respect to any
given customer. However, if the country or any region the Company serves,
experiences an economic downturn, the financial condition of the Company's
customers could be adversely affected, which could result in their inability to
make payments. This could require additional provisions for allowances. In
addition, a negative impact on revenue related to those customers may occur.

LONG-LIVED ASSETS

      For the fiscal years prior to 2002, the Company applied SFAS No. 121,
"ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF," which required that long-lived assets and certain intangible
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If undiscounted
expected future cash flows are less than the carrying value of the assets, an
impairment loss is to be recognized based on the fair value of the assets.

     In August 2001, SFAS No. 144, "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS" was issued. SFAS 144 supersedes SFAS No. 121, "ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF" and supercedes and amends
certain other accounting pronouncements. SFAS No. 144 retains the fundamental
provisions of SFAS No. 121 for recognizing and measuring impairment losses on
long-lived assets held for use and long-lived assets to be disposed of by sale,
while resolving significant implementation issues associated with SFAS No. 121.
Among other things, SFAS No. 144 provides guidance on how long-lived assets used
as part of a group should be evaluated for impairment, establishes criteria for
when long-lived assets are held for sale, and prescribes the accounting for
long-lived assets that will be disposed of other than by sale. SFAS No. 144 is
effective for fiscal years beginning after

                                       66
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

December 15, 2001. The adoption of SFAS No. 144 on January 1, 2002, has not had
a material impact on the Company's financial position and results of operations.

STOCK COMPENSATION

     The Company applies Accounting Principles Board Opinion ("APB") No. 25 and
related interpretations in accounting for its stock option plans and stock
awards with the disclosure provisions of SFAS No. 123. Under APB No. 25,
compensation expense is computed to the extent that the fair market value of the
underlying stock on the date of grant exceeds the exercise price of the employee
stock option or stock award. Compensation so computed is then recognized over
the vesting period. The Company accounts for equity instruments issued to
non-employees in accordance with SFAS No. 123 and Emerging Issues Task Force
("EITF") 96-18.

     Stock compensation expense includes amortization of deferred compensation
and charges related to stock grants. Stock compensation expense for the years
ended December 31, 2000, 2001 and 2002 was $3,192,222, $1,201,718 and
$1,227,751, respectively.

    If compensation expenses had been recognized based on the fair value of the
options at their grant date, in accordance with SFAS No. 123, the results of
operations for the years ended December 31, 2000, 2001 and 2002 would have been
as follows:

<TABLE><CAPTION>
                                                                   Year ended December 31,
                                                     ---------------------------------------------------
                                                          2000               2001              2002
                                                     -------------      -------------      -------------
<S>                                                  <C>                <C>                <C>
Net loss, as reported ..........................     $(105,763,148)     $(115,453,682)     $ (36,094,205)

Deduct: Total stock-based employee
  compensation expense determined under
  fair value based method for all awards,
  net of related tax effects ...................        (4,468,671)        (3,477,048)        (4,475,524)
                                                     -------------      -------------      -------------
Pro forma under FAS 123 ........................     $(110,231,819)     $(118,930,730)     $ (40,569,729)

Net loss applicable to common stockholders:
   As reported .................................     $(105,763,148)     $(115,923,968)     $ (49,745,586)
   Pro forma under FAS 123 .....................     $(110,231,819)     $(119,401,016)     $ (54,221,110)
Basic and diluted net loss per common share:
   As reported .................................     $       (1.75)     $       (1.81)     $       (0.77)
   Pro forma under FAS 123 .....................     $       (1.82)     $       (1.87)     $       (0.84)
</TABLE>

EARNINGS (LOSS) PER SHARE

     The Company computes net loss per share pursuant to SFAS No. 128, "EARNINGS
PER SHARE." Basic net loss per share is computed by dividing income or loss
applicable to common stockholders by the weighted average number of shares of
the Company's common stock outstanding during the period. Diluted net loss per
share is determined in the same manner as basic net loss per share except that
the number of shares is increased assuming exercise of dilutive stock options
and warrants using the treasury stock method and dilutive conversion of the
Company's preferred stock.

                                       67
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

     The following options, warrants and convertible preferred stock were
excluded from the calculation of earnings per share since their inclusion would
be anti-dilutive for all periods presented:

<TABLE><CAPTION>
                                                           Shares of Common Stock
                                                -------------------------------------------
                                                               December 31,
                                                -------------------------------------------
                                                    2000            2001            2002
                                                -----------     -----------     -----------
<S>                                               <C>            <C>             <C>
Options to purchase common stock ..........       7,318,612      13,877,394      23,877,004
Warrants to purchase common
stock .....................................          83,314          83,314      13,033,314

Preferred Series X stock convertible to
common stock ..............................            --        55,555,556     111,111,111
Preferred Series Y stock convertible to
     common stock .........................            --        12,938,000      30,000,000
                                                -----------     -----------     -----------
Total .....................................       7,401,926      82,454,264     178,021,429
                                                ===========     ===========     ===========
</TABLE>

COMPREHENSIVE INCOME

     The Company has adopted the accounting treatment prescribed by SFAS No.
130, "COMPREHENSIVE INCOME." The adoption of this statement had no material
impact on the Company's financial statements for the periods presented.

RECLASSIFICATIONS

     Certain reclassifications have been made in prior years' financial
statements to conform to classifications used in the current year.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     During fiscal 2000, the Company adopted the revenue recognition guidelines
of SAB No. 101, which changed the manner in which the Company recognizes
installation revenue and related direct costs. The cumulative effect of adoption
of SAB No. 101 resulted in deferral of installation revenue and related direct
costs of approximately $176,000 at January 1, 2000. The effect of the adoption
for the year ended December 31, 2000, resulted in a deferral of installation
revenue and related direct costs of approximately $735,000. The adoption of SAB
No. 101 had no impact on net income.

     The following table sets forth the unaudited pro forma impact of SAB No.
101 adoption on previously reported unaudited revenue as adjusted for each
quarter of the year 2000:

                               Revenue as         Effect of           Revenue
     Quarter Ended         Originally Reported   SAB No. 101        as Adjusted
     -------------         -------------------   -----------        -----------
     March 31, 2000            $1,737,306        $ (333,176)        $1,404,130
     June 30, 2000             $3,785,626        $ (279,760)        $3,505,866
     September 30, 2000        $5,860,857        $  (97,128)        $5,763,729
     December 31, 2000         $7,140,599        $  (24,914)        $7,115,685

                                       68
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

     In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "BUSINESS COMBINATIONS" and SFAS No. 142, "GOODWILL AND OTHER
INTANGIBLE ASSETS." SFAS No. 141 requires companies to account for acquisitions
entered into after June 30, 2001 using the purchase method and establishes
criteria to be used in determining whether acquired intangible assets are to be
recorded separately from goodwill. This criterion is to be applied to business
combinations completed after June 30, 2001. The adoption of SFAS No. 141 is not
expected to have a material impact on the Company's financial position or
results of operations. SFAS No. 142 requires that goodwill and intangible assets
with indefinite lives no longer be amortized but instead be measured for
impairment at least annually, or when events indicate that there may be an
impairment. SFAS No. 142 is effective for fiscal years beginning after December
15, 2001. With the implementation of SFAS No. 142, Company has ceased to
amortize $8,482,394 of goodwill. The Company recorded approximately $1,447,121
and $2,483,732 of amortization relating to this goodwill during 2000 and 2001,
respectively, and would have recorded an additional $2,483,732 in 2002. In lieu
of amortization, the Company made an initial impairment review of its goodwill
in January of 2002 and another impairment review in December of 2002. The
Company did not record any goodwill impairment adjustments resulting from its
impairment reviews. The Company will continue to perform annual impairment
reviews, unless a change in circumstances requires a review in the interim.

     In June 2001, SFAS No. 143, "ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS"
was issued. SFAS No. 143 addresses financial accounting and reporting for legal
obligations associated with the retirement of tangible long-lived assets and the
associated retirement costs that result from the acquisition, construction or
development and normal operation of a long-lived asset. Upon initial recognition
of a liability for an asset retirement obligation, SFAS No. 143 requires an
increase in the carrying amount of the related long-lived asset. The asset
retirement cost is subsequently allocated to expense using a systematic and
rational method over the asset's useful life. SFAS No. 143 is effective for
fiscal years beginning after June 15, 2002. The adoption of this statement is
not expected to have a material impact on the Company's financial position or
results of operations.

     In August 2001, SFAS No. 144, "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS" was issued. SFAS 144 supersedes SFAS No. 121, "ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF" and supercedes and amends
certain other accounting pronouncements. SFAS No. 144 retains the fundamental
provisions of SFAS No. 121 for recognizing and measuring impairment losses on
long-lived assets held for use and long-lived assets to be disposed of by sale,
while resolving significant implementation issues associated with SFAS No. 121.
Among other things, SFAS No. 144 provides guidance on how long-lived assets used
as part of a group should be evaluated for impairment, establishes criteria for
when long-lived assets are held for sale, and prescribes the accounting for
long-lived assets that will be disposed of other than by sale. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. The adoption of
SFAS No. 144 has not had a material impact on the Company's financial position
and results of operations.

     In June 2002, SFAS No. 146, "ACCOUNTING FOR EXIT OR DISPOSAL ACTIVITIES"
was issued. SFAS No. 146 addresses the accounting for costs to terminate a
contract that is not a capital lease, costs to consolidate facilities and
relocate employees, and involuntary termination benefits under one-time benefit
arrangements that are not an ongoing benefit program or an individual deferred
compensation contract. The provisions of the statement will be effective for
disposal activities initiated after December 31, 2002. The Company is currently
evaluating the financial impact of adoption of SFAS No. 146.

     In December 2002, SFAS No. 148 "ACCOUNTING FOR STOCK-BASED COMPENSATION -
TRANSITION AND DISCLOSURE - AN AMENDMENT OF SFAS No. 123" was issued. SFAS No.
148 amends SFAS No. 123,

                                       69
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

"ACCOUNTING FOR STOCK-BASED COMPENSATION", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company has adopted these amended disclosure requirements in Note
12 to the Notes to Consolidated Financial Statement under the heading "Employee
Stock Option Plan" and will implement the required interim disclosures beginning
in the first quarter of 2003.

     In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT
GUARANTEES OF INDEBTEDNESS OF OTHERS," ("FIN 45"). FIN 45 expands previously
issued accounting guidance and disclosure requirements for certain guarantees.
FIN 45 requires an entity to recognize an initial liability for the fair value
of an obligation assumed by issuing a guarantee. The disclosure requirements of
FIN 45 are effective for all financial statements issued after December 15,
2002. The provision for initial recognition and measurement of the liability
will be applied on a prospective basis to guarantees issued or modified after
December 31, 2002. The adoption of FIN 45 is not expected to have a material
adverse impact on the Company's financial position, results of operations or
cash flows.

     In January 2003, the FASB issued Interpretation No. 46, "CONSOLIDATION OF
VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO. 51," ("FIN 46"). FIN 46
requires all Variable Interest Entities ("VIEs") to be consolidated by the
primary beneficiary. The primary beneficiary is the entity that holds the
majority of the beneficial interests in the VIE. In addition, FIN 46 expands
disclosure requirements for both VIEs that are consolidated as well as VIEs from
which the entity is the holder of a significant amount of the beneficial
interest, but not the majority. The disclosure requirements of FIN 46 are
effective for all financial statements issued after January 31, 2003. The
consolidation requirements of this interpretation are effective for all periods
beginning after June 15, 2003. The adoption of FIN 46 is not expected to have a
material adverse impact on the Company's financial position, results of
operations or cash flows at this time.

3.   FIXED ASSETS
<TABLE><CAPTION>
                                                                 Estimated            December 31,
                                                                  Useful       ---------------------------
                                                                   Lives           2001            2002
                                                                 ---------     -----------     -----------
<S>                                                                <C>         <C>             <C>
     Network and computer equipment ........................       5 years     $35,358,514     $35,982,531
     Furniture, fixtures, office equipment and software ....     3-5 years      18,372,726      18,507,135
     Vehicles ..............................................       3 years         175,693         148,257
     Collocation costs .....................................       5 years      12,356,680      12,430,112
                                                                               -----------     -----------
                                                                                66,263,613      67,068,035
     Less-accumulated depreciation and amortization ........                    29,402,939      44,002,271
                                                                               -----------     -----------
                                                                               $36,860,674     $23,065,764
                                                                               ===========     ===========
</TABLE>

     As of December 31, 2001 and 2002, the recorded cost of equipment under
capital lease was $11,242,703 and $10,275,635, respectively. As of December 31,
2001 and 2002, the cost of equipment under capital lease included in network and
computer equipment was $9,860,142 and $8,900,798, respectively. The cost of
equipment under capital lease included in furniture, fixtures, office equipment
and software as of December 31, 2001 and 2002, was $1,382,561 and $1,374,837,
respectively.

                                       70
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

Accumulated depreciation for this equipment under capital lease was $4,637,658
and $6,416,194 at December 31, 2001 and 2002, respectively.

     As of December 31, 2001 and 2002, the Company had capitalized computer
software costs of $9,904,185 and $10,055,241, respectively, and had recorded
accumulated amortization expense related to these costs of $6,073,054 and
$9,173,056, respectively. Depreciation and amortization expense related to fixed
assets was $16,975,382, $20,117,967 and $14,982,598 for the years ended December
31, 2000, 2001 and 2002, respectively.

4.   ACQUISITIONS

     On April 3, 2000, the Company acquired certain assets and liabilities of
Trusted Net Media Holdings, LLC ("Trusted Net"). The acquisition was accounted
for under the purchase method of accounting and, accordingly, the purchase price
was allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition. The approximate purchase
price, including transaction costs, was $2,650,000. The purchase price was
recorded as goodwill and was amortized on a straight-line basis over its
estimated useful life of five years. During 2001, the remaining unamortized
goodwill balance was determined to be impaired and written off (see Note 5). The
results of the acquired operations of Trusted Net have been included in the
consolidated results of the Company from the date of acquisition.

     On May 26, 2000, the Company acquired Vector Internet Services, Inc.
("VISI"), an Internet solutions provider based in Minneapolis, Minnesota. The
acquisition was accounted for under the purchase method of accounting and,
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the date of
acquisition. The approximate purchase price including transaction costs was
$20,421,000. The purchase consideration of the assets acquired and liabilities
assumed was allocated based on the fair values as follows: net assets acquired,
$130,000; customer base, $7,878,000; and goodwill, $12,413,000. The customer
base was valued based on the expected future net cash flows from customers
discounted back to the present value taking into account the expected life cycle
of the customer relationships. This amount is being amortized on a straight-line
basis over its estimated useful life of three years. The excess of the purchase
price over the net identifiable assets was recorded as goodwill and had been
amortized on a straight-line basis over its estimated useful life of five years.
In 2002, in accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets", which became effective January 1, 2002, the Company ceased to amortize
approximately $8,482,000 of this goodwill. The Company recorded approximately
$1,447,121 and $2,483,732 of amortization during 2000 and 2001 and would have
recorded an additional $2,483,732 in 2002. In lieu of amortization, the Company
made an initial impairment review and an annual impairment review of this
goodwill in January and December 2002, respectively. The Company did not record
any goodwill impairment adjustments based on its initial and annual impairment
reviews. The results of the VISI operations have been included in the
consolidated results of the Company from the date of acquisition.

     In December 2000, the Company announced that it would be participating in
the Covad Safety Net program. The program provides customers of certain Internet
Service Providers ("ISP's"), whose underlying DSL connection is provided by
Covad, an opportunity to maintain their DSL service while switching ISP's. The
program was available to customers of financially distressed ISP's who felt
their current ISP could no longer adequately provide service to them. Under the
program, Covad made referrals to the Company for a fee and subsequently assisted
with migrating the customer's service to the Company. During 2001, the Company
acquired approximately 1,100 subscriber lines referred by Covad

                                       71
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

under the Covad Safety Net program, for aggregate fees of approximately
$696,000. These customer line acquisitions were accounted for under the purchase
method of accounting and, accordingly, the purchase price was allocated to the
subscriber lines acquired based on their estimated fair values at the date of
acquisition. This amount is being amortized on a straight-line basis over two
years.

     On December 1, 2000, the Company acquired certain assets of Exario
Networks, Inc. ("Exario"). The acquisition was accounted for under the purchase
method of accounting and, accordingly, the purchase price was allocated to the
assets acquired based on their estimated fair values at the date of acquisition.
The approximate purchase price was $4,563,000, including transaction costs and
amounts due to Exario after the closing of approximately $1,561,000 (the "Exario
Holdback Amount"). The purchase consideration for the assets acquired from
Exario, was allocated based on the fair values of such assets, approximately as
follows: net assets acquired, $57,000; and Exario customer base, $4,506,000. The
customer base was valued based on the expected future net cash flows from
customers discounted back to the present value taking into account the expected
life of the customer relationships.

     On April 26, 2001, the Company gave notice to Exario of its intent to
pursue an indemnity claim against the Exario Holdback Amount in accordance with
the provisions of the Asset Purchase Agreement, dated as of December 1, 2000,
between Exario and the Company. The claim, originally estimated at $1,458,000
and subsequently modified to a final settlement amount of $1,415,000, related
primarily to a request by the Company for reimbursement of the purchase price
paid for those certain subscriber lines acquired from Exario that were on the
NorthPoint Communications' network, which ceased operations during the first
half of 2001.

     During the first quarter of 2001, the Company reduced the estimated useful
life of the Exario subscriber lines, originally estimated at four years, to two
years and accordingly amortized the cost of those subscriber lines on a
straight-line basis over two years. These subscriber lines were fully amortized
at December 31, 2002.

     In June 2001, the Company reduced the value of the intangibles related to
the Exario customer base by approximately $1,415,000 to approximately
$3,091,000. In September 2001, the value of the intangibles related to the
Exario customer base was further reduced to approximately $3,001,000. These
reductions related primarily to the customers who were formerly served by
NorthPoint Communications and who were the subject of the Company's settled
indemnity claim.

     During the quarter ended June 30, 2001, the Company entered into agreements
with Covad and Zyan Communications, Inc. ("Zyan"), a California-based ISP which
had filed for bankruptcy protection; affording the Company the right to acquire
up to 4,800 Zyan subscriber lines whose wholesale circuit connections were being
supported by Covad. In accordance with the Covad agreement, the anticipated
purchase price of $1,467,000 for these Zyan lines was escrowed at closing and
restricted as of June 30, 2001. Ultimately, the Company was able to contract for
service with and acquire approximately 2,800 former Zyan customers, for a
purchase price of approximately $1,075,000 and as of December 31, 2001 the
remaining escrow balance of approximately $392,000 had been returned to the
Company. These Zyan customer line acquisitions were accounted for under the
purchase method of accounting and, accordingly, the purchase price was allocated
to subscriber lines acquired based on their estimated fair values at the date of
acquisition. This amount is being amortized on a straight-line basis over two
years.

     The Company entered into an Asset Purchase Agreement, dated as of January
1, 2002 (the "Broadslate Asset Purchase Agreement"), with Broadslate Networks,
Inc. ("Broadslate") for the purchase

                                       72
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

of business broadband customer accounts and certain other assets, including
certain accounts receivable related to the customer accounts, for $800,000,
subject to certain adjustments. The Broadslate Asset Purchase Agreement provided
for an initial cash payment of $650,000, with $150,000 retained by the Company
(the "Broadslate Holdback Amount"), to be paid to Broadslate after a transition
period, subject to certain adjustments, as provided for in the Broadslate Asset
Purchase Agreement. On March 26, 2002, the Company gave notice to Broadslate of
its intent to pursue an indemnity claim against the Broadslate Holdback Amount
for the full amount in accordance with the provisions of the Broadslate Asset
Purchase Agreement. The claim and final settlement amount of $150,000 was
applied to the Broadslate Holdback Amount as follows: (i) approximately $50,000
pertained to the Company's request for reimbursement of a ratable portion of the
purchase price paid for certain subscriber lines which were not available for
migration to the Company's network, and (ii) approximately $100,000 was for
amounts due to the Company from revenue collected by Broadslate, net of related
costs, during the customer transition period as provided for in the Broadslate
Asset Purchase Agreement. The Broadslate customer line acquisitions were
accounted for under the purchase method of accounting and, accordingly, the
adjusted purchase price of approximately $750,000 was allocated to the assets
acquired based on their estimated fair values at the date of acquisition as
follows: approximately $28,000 to net accounts receivable acquired and
approximately $722,000 to approximately 520 subscriber lines acquired, which
amount is being amortized on a straight-line basis over two years from the date
of purchase.

     During the quarter ended September 30, 2002, the Company entered into an
Asset Purchase Agreement dated as of July 30, 2002 (the "Abacus Asset Purchase
Agreement") with Abacus America, Inc. ("Abacus") for the purchase of broadband
subscriber lines. The Abacus Asset Purchase Agreement provided for a cash
payment for each successfully migrated broadband customer line, up to a maximum
payment of approximately $844,000 and required a purchase price deposit of
approximately $211,000. Ultimately, the Company was able to migrate and acquire
approximately 1,100 subscriber lines for a purchase price of approximately
$543,000. The Abacus subscriber line acquisitions were accounted for under the
purchase method of accounting and, accordingly, the purchase price has been
allocated to the subscriber lines acquired based on their estimated fair values
at the date of acquisition. This amount is being amortized on a straight-line
basis over two years from the date of purchase.

     The following table sets forth the unaudited pro forma consolidated
financial information of the Company, giving effect to the acquisition of VISI,
the acquisition of certain assets of Exario, the acquisition of end users under
the Covad Safety Net program and the acquisition of Zyan customers, Broadslate
customers, and Abacus customers, as if the transactions occurred at the
beginning of the periods presented. Inclusion of Trusted Net's Results would not
materially change the reported unaudited pro forma results:

<TABLE><CAPTION>
                                                                      Year Ended December 31,
                                                         ---------------------------------------------------
                                                             2000                2001               2002
                                                         -------------      -------------      -------------
<S>                                                      <C>                <C>                <C>
Pro forma revenue                                        $  36,650,606      $  48,805,467      $  46,574,919
Pro forma operating loss                                  (110,669,467)      (112,513,705)       (35,144,721)
Pro forma net loss                                        (105,465,597)      (112,993,199)       (35,575,601)
Pro forma net loss applicable to common stockholders     $(105,512,597)     $(113,463,199)     $ (49,227,601)
Pro forma net loss per share, basic and diluted          $       (1.74)     $       (1.77)     $       (0.76)
Shares used in computing pro forma net loss
     per share, basic and diluted                           60,712,751         63,938,960         64,857,869
</TABLE>

                                       73
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

     The pro forma results are not necessarily indicative of the actual results
of operations that would have been obtained had the acquisitions taken place at
the beginning of the respective periods or the results that may occur in the
future.

     The revenue attributable to subscriber lines acquired was approximately
$6,263,187, $5,326,462 and $2,068,889 for the years ended December 31, 2000,
2001 and 2002, respectively.

     On October 16, 2002, the Company entered into an Asset Purchase Agreement
(the "NAS Asset Purchase Agreement") with Network Access Solutions Corporation
("NAS"), certain of its affiliates and Adelman Lavine Gold and Levin, a
Professional Corporation, as deposit escrow agent, pursuant to which the Company
agreed to acquire network assets and associated subscriber lines of NAS for
$7,000,000 in cash (subject to adjustment as specified in the NAS Asset Purchase
Agreement) and the assumption of certain liabilities in an aggregate principal
amount of no more than $10,000,000. As NAS filed a voluntary petition for
Chapter 11 reorganization in June 2002, the NAS Asset Purchase Agreement was
subject to the approval of the U.S. Bankruptcy Court for the District of
Delaware. On December 11, 2002, the parties amended and restated the NAS Asset
Purchase Agreement to provide, among other things, for a purchase price of
$14,000,000 consisting of $9,000,000 in cash (subject to adjustment as specified
in the NAS Asset Purchase Agreement) and $5,000,000 in a note payable to NAS.
The transaction was approved by the Bankruptcy Court in December 2002 and the
Company closed the transaction on January 10, 2003 (Note 16).

5.       GOODWILL AND OTHER INTANGIBLE ASSETS

     In June 2001, a goodwill impairment analysis was performed on the Company's
recorded goodwill for Tycho and Trusted Net by comparing the carrying value of
the goodwill with the expected future net cash flows generated over the
remaining useful life of the assets. Since the carrying value was more than the
expected future net cash flows due to the under performance of the acquired
assets, the goodwill was reduced by approximately $3,155,000 to the net present
value of the expected future net cash flows. Of this amount, $2,124,000 related
to a reduction in the goodwill for the Company's acquisition of Tycho and
$1,031,000 related to a reduction in the goodwill for the Company's acquisition
of certain assets of Trusted Net (Note 15).

     In September 2001, a goodwill impairment analysis was again performed on
the Company's recorded goodwill for Tycho and Trusted Net by comparing the
carrying value of the goodwill with the expected future net cash flows generated
over the remaining useful life of the assets. As a result of this analysis,
expected future net cash flows were determined to be insignificant and, as the
carrying value was more than the expected future net cash flows, the balance of
goodwill of approximately $800,000 was written off. Of this amount,
approximately $170,000 and $630,000 pertained to reductions in the goodwill of
Tycho and Trusted Net, respectively (Note 15).





                                       74
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

     The following table shows the gross and unamortized balances of goodwill
and other intangible assets:

<TABLE><CAPTION>
                                 December 31, 2001                              December 31, 2002
                   -------------------------------------------     -------------------------------------------
                                   Accumulated                                     Accumulated
                      Gross       Amortization          Net           Gross       Amortization         Net
                      -----       ------------          ---           -----       ------------         ---
<S>                <C>             <C>             <C>             <C>             <C>             <C>
Goodwill           $12,413,247     $ 3,930,853     $ 8,482,394     $12,413,247     $ 3,930,853     $ 8,482,394
Customer lists      12,649,510       6,390,885       6,258,625      13,914,243      11,740,323       2,173,920
                   -------------------------------------------     -------------------------------------------
 Total             $25,062,757     $10,321,738     $14,741,019     $26,327,490     $15,671,176     $10,656,314
                   ===========================================     ===========================================
</TABLE>

     Amortization expense of goodwill and other intangible assets for the years
ended December 31, 2000 and 2001 was $4,158,188 and $7,924,678, respectively.
Amortization expense of other intangible assets for the year ended December 31,
2002 was $5,349,438. Accumulated amortization at December 31, 2001 and 2002, was
$10,321,738 and $15,671,176, respectively. The future amortization of the
unamortized balance of customer lists as of December 31, 2002, is $2,015,560 in
2003 and $158,360 in 2004.

     In accordance with SFAS No. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS",
which became effective on January 1, 2002, the Company has ceased to amortize
$8,482,394 of goodwill. The Company recorded approximately $1,447,121 and
$2,483,732 of amortization relating to this goodwill during 2000 and 2001,
respectively, and would have recorded an additional $2,483,732 in 2002. In lieu
of amortization, the Company made an initial impairment review of its goodwill
in January of 2002 and another impairment review in December of 2002. The
Company did not record any goodwill impairment adjustments resulting from its
impairment reviews. The Company will continue to perform annual impairment
reviews, unless a change in circumstances requires a review in the interim.

6.   DEBT

     In May 1999, the Company entered into a secured credit facility (the
"Credit Facility") with a bank to provide up to $5,000,000 for the purchase of
telecommunications and office equipment and vehicles. The Credit Facility
expired in May 2000 and converted to a term loan payable over 36 months. The
Credit Facility bore interest on outstanding borrowings at 1% over the higher of
the bank's prime rate or the federal funds rate plus 0.5%. As of December 31,
2000 and July 31 2001, amounts outstanding under this line of credit bore
interest at annual rates of 10.5% and 7.75%, respectively. The Credit Facility
was secured by a lien on certain equipment and vehicles owned by the Company
located at its principal office, and imposed certain financial and other
covenants requiring the Company to maintain certain financial ratios and limited
new indebtedness, the creation of liens, types of investments, mergers,
consolidations and the transfer of all or substantially all of the Company's
assets. As of December 31, 2000, there was approximately $3,545,000 outstanding
on this term loan. In April 2001, the Company and the bank amended the term
loan.

     The financial covenants relating to the maintenance of certain financial
ratios were eliminated in their entirety, the maturity date of the loan was
accelerated to August 1, 2001 and certain certificates of deposit equal to the
outstanding loan amount were pledged as additional collateral. On August 1,
2001, the Company settled its outstanding loan obligation in full and
approximately $37,000 in unamortized deferred costs were written off. Financing
costs associated with the Credit Facility of approximately

                                       75
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

$83,900 were deferred over the four-year life of the facility and term loan.
Amortization expense related to the deferred costs for the years ended December
31, 2000 and 2001 was $20,967 and $48,927, respectively.

     In December 2001, in conjunction with the Company's sale of shares of
mandatorily redeemable convertible Series Y Preferred Stock (the "Series Y
Preferred Stock"), the Company issued short-term promissory notes (the
"Promissory Notes") for proceeds of $3,531,000 to the Series Y Preferred
Stockholders. The Promissory Notes provided for an annual interest rate of 12%.
In May 2002, in accordance with the terms of the Series Y Purchase Agreement,
the Company sold an additional 8,531 shares of Series Y Preferred Stock for
$5,000,000 in cash and delivery of the Promissory Notes for cancellation. All
accrued interest on the Promissory Notes, of approximately $145,000, was
forgiven (Note 9).

     The Company entered into a Revolving Credit and Term Loan Agreement, dated
as of December 13, 2002 (as amended and in effect from time to time, the "Credit
Agreement") with a commercial bank providing for a revolving line of credit of
up to $15,000,000 (the "Commitment"). Borrowings under the credit facility may
be made in minimum $500,000 increments from time to time up to the Commitment
and repayments may be made in minimum $100,000 increments, in each case until
the Revolving Credit maturity date of December 12, 2004, at which time all
amounts outstanding will convert into a Term Loan payable in 12 quarterly
installments commencing on December 31, 2004. The Company may pre-pay amounts
due under the Term Loan in increments of $1,000,000 without penalty. Interest is
payable on all amounts outstanding under the Credit Agreement in arrears at the
end of each calendar quarter at a variable interest rate equal to the higher of
the bank's prime rate equivalent or 0.5% percent above the Federal Funds
Effective rate (the bank's "Base Rate"). The undrawn Commitment (subject to
certain adjustments) under the Revolving Credit facility is subject to a
commitment fee, payable in arrears at the end of each calendar quarter, equal to
an annualized rate of 0.25%. The Credit Agreement also requires the Company and
its subsidiaries, except for Vector Internet Services, Inc., to maintain all of
its bank deposit and investment accounts with the lender. The Company's ability
to borrow amounts available under the Credit Agreement is subject to the bank's
receipt of a like amount of guarantees from certain of the Company's investors
and/or other guarantors acceptable to the bank (Note 16).

     The Company entered into a Reimbursement Agreement, dated as of December
27, 2002, with several private investment funds affiliated with VantagePoint
Venture Partners ("VantagePoint"), Columbia Capital Equity Partners
("Columbia"), The Lafayette Investment Fund, L.P. and Charles River Partnership,
L.P. (collectively the "Guarantors") and VantagePoint Venture Partners III (Q),
L.P., as administrative agent (the"Agent"). The Guarantors are all holders of or
affilliates of holders of the Company's Series X and Series Y Preferred stock.
Pursuant to the terms of the Reimbursement Agreement, VantagePoint and Columbia
issued guarantees in an aggregate amount up to $6,100,000 to support certain
obligations of the Company under the previously described bank Credit Agreement.
The Reimbursement Agreement obligates the Company to reimburse the Guarantors
for any payments they may be required to make in accordance with their
guarantees within two business days of notification of such payments. Any such
obligations not paid by the Company, when due, shall bear interest at the rate
of 10% per annum. The Company's obligations under the Reimbursement Agreement
are also guaranteed by certain of the Company's wholly-owned subsidiaries and
collateralized by a Security Agreement signed by the Company and certain of its
wholly-owned subsidiaries which pledges a significant portion of the Company's
consolidated assets as collateral. The Reimbursement Agreement also obligates
the Company, when its unrestricted cash balance equals or exceeds $11,000,000 to
either, at the Agent's request, (i) repay outstanding loans under the bank
Credit Agreement in minimum increments of $1,000,000 (provided that if there is
less than $1,000,000 of outstanding loans due under the Credit

                                       76
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

Agreement, then the Company shall pay such lessor amount) to the extent that it
retains unrestricted cash balances in an amount greater than or equal to
$10,000,000 after giving effect to such payment or (ii) cause each Guarantor's
guarantee requirement under the Credit Agreement to be eliminated ratably in an
aggregate amount equal to the outstanding loans that would otherwise be required
to be repaid pursuant to (i) above.

     Pursuant to the terms of the Reimbursement Agreement, on December 27, 2002,
the Company issued warrants to purchase 10,379,420 shares of its common stock to
VantagePoint and warrants to purchase 1,634,473 shares of its common stock to
Columbia, in consideration for their guarantees aggregating $6,100,000. The
Company issued additional warrants to purchase 767,301 shares of its common
stock to VantagePoint and 168,806 shares of its common stock to Columbia during
the first quarter of 2003, bringing the total number of warrants issued to
12,950,000. All such warrants have a ten year life and an exercise price of
$0.50 per share. Also pursuant to the terms of the Reimbursement Agreement, in
the event that the Company does not borrow any loans under the Credit Agreement
on or before March 31, 2003, then the Credit Agreement and all Guarantees issued
under the Reimbursement Agreement shall terminate and any warrants issued to
Guarantors in connection with the transactions contemplated shall be deemed
terminated. The Company borrowed $6,100,000 under the Credit Agreement on
February 3, 2003 (Note 16). Prior to the execution of the Reimbursement
Agreement, VantagePoint owned or beneficially owned 21,956,063 shares of the
Company's common stock and 20,000 shares of the Company's mandatorily
redeemable, convertible Series X Preferred Stock, which are convertible into
111,111,111 shares of the Company's common stock, and Columbia owned 15,000
shares of the Company's Series Y Preferred Stock, which are convertible into
30,000,000 shares of the Company's common stock.

     On March 5, 2003, the Company and certain of the Guarantors entered into
Amendment No. 1 to the Reimbursement Agreement, pursuant to which VantagePoint
increased its guarantee by $3,000,000, such that the Reimbursement Agreement
provides for $9,100,000 in aggregate guarantees from VantagePoint and Columbia
(Note 16).

7.   COMMITMENTS AND CONTINGENCIES

LEASES

     Rent expense under operating leases was approximately $2,726,000,
$1,918,000 and $1,460,000 for the years ended December 31, 2000, 2001 and 2002,
respectively.

     The Company leases space in several buildings, which are used for office
and network operations facilities. The Company is obligated under various
building leases and capital equipment leases, primarily for its network and
computer equipment, which expire at different times through February 2008.









                                       77
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

     The future minimum annual lease payments under the terms of such
non-cancelable leases as of December 31, 2002 are as follows:

                                                  OPERATING         CAPITAL
                                                    LEASES           LEASES
                                         2003    $ 1,621,215      $ 3,108,038
                                         2004      1,741,093        1,935,060
                                         2005        498,144           51,289
                                         2006        165,269
                                         2007        168,816
                                   Thereafter         28,235
                                                 ----------------------------
                                                 $ 4,222,772      $ 5,094,387
                                                 ===========
     Less: Amount representing interest                               529,496
                                                                  ===========
     Present value of future minimum lease payments               $ 4,564,891
                                                                  ===========

     In March 1999, the Company entered into a master lease agreement to provide
up to $2,000,000 for capital equipment purchases over an initial twelve-month
period, subject to renewal options. Individual capital leases are amortized over
30 or 36 month terms and bear interest at 8% to 9% per annum. The outstanding
balance under this agreement at December 31, 2001 and 2002 was approximately
$565,000 and $113,000, respectively.

     In July 2000, the Company entered into a 48-month lease agreement with an
equipment vendor to finance the purchase of network equipment. The Company has
leased approximately $8,900,000 under this agreement. Amounts financed under
this lease agreement bear an interest rate of 12% per annum and are secured by
the financed equipment. The outstanding balance under this agreement at December
31, 2001 and 2002, was approximately $6,198,000 and $4,099,000, respectively.

     In February 2002, the Company negotiated a termination of its obligations
under its lease for vacated office space located in Milford, Connecticut. The
Company had recorded anticipated losses related to these vacated premises as
part of its restructuring charges during the year ended December 31, 2001.
Consequently, no additional costs related to this lease were incurred during the
year ended December 31, 2002.

PURCHASE COMMITMENTS

     The Company has long-term purchase commitments with WorldCom and AT&T for
data transport services with minimum payments due even if the Company's usage
does not reach the minimum amounts. The WorldCom commitment began in May 2000
and required minimum purchases of $4,800,000 per contract year. In October 2002,
the contract was amended to (i) provide for certain price reductions, (ii)
reduce the Company's minimum purchase commitment from $4,800,000 per contract
year to $1,800,000 per contract year for contract years beginning on and after
June 1, 2002, and (iii) allow the Company to include certain additional services
toward meeting the minimum purchase commitment (which were previously excluded)
on a retroactive and prospective basis. The WorldCom contract ends in November
2004.

     In January 2002, the Company negotiated an amendment to its long-term
purchase commitment with AT&T for data transport services. The amendment reduced
the Company's minimum purchase commitment to $1,100,000 for the contract year
ending in November 2002 and $987,000 for the contract

                                       78
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

period ending in October 2003. The Company also has a commitment to purchase
$17,600 per month of certain additional network facilities from AT&T throughout
the commitment period. The following table depicts the Company's long-term
purchase commitments:

<TABLE><CAPTION>
                                      WorldCom         AT&T           AT&T
                                        Data           Data        Additional
                                      Transport      Transport       Network
       Commitment Term                 Services       Services      Facilities        Total
     ----------------------------     ----------     ----------     ----------     ----------
<S>                                   <C>            <C>            <C>            <C>
     Nov., 9, 2002 - Oct. 3, 2003     $     --       $  987,000     $  193,600     $1,180,600

     June 2002 - May 2003              1,800,000     $     --       $     --        1,800,000

     June 2003 - May 2004              1,800,000           --             --        1,800,000

     June 2004 - November 2004           900,000           --             --          900,000
                                      ----------     ----------     ----------     ----------
          Total                       $4,650,000     $  987,000     $  193,600     $5,680,600
                                      ==========     ==========     ==========     ==========
</TABLE>

LITIGATION

     The Company is involved in litigation with a former officer who claims
wrongful termination of employment. The plaintiff is principally seeking
compensatory damages for wages and unvested stock options. The Company believes
that the plaintiff's claims are without merit, and plans to defend the case
vigorously.

     The Company is also a party to legal proceedings related to regulatory
approvals and is subject to state commission, FCC and court decisions related to
the interpretation and implementation of the 1996 Telecommunications Act and the
interpretation of competitive carrier interconnection agreements in general and
the Company's interconnection agreements in particular. In some cases, the
Company may be deemed to be bound by the results of ongoing proceedings of these
bodies. The Company, therefore, may participate in proceedings before these
regulatory agencies or judicial bodies that affect, and allow it to advance, its
business plans.

     From time to time, the Company may be involved in other litigation
concerning claims arising in the ordinary course of its business, including
claims brought by former employees and claims related to acquisitions. The
Company does not believe any of these legal claims or proceedings will result in
a material adverse effect on its business, financial position, results of
operations or cash flows.

OTHER MATTERS

     The Company has entered into interconnection agreements with traditional
local telephone companies. The agreements generally have terms of one to two
years and are subject to certain renewal and termination provisions by either
party, generally upon 30 days' notification. The Company has renewed such
agreements beyond their initial terms in the past and anticipates that it will
do so in the future. However, failure to re-negotiate interconnection agreements
or delays in negotiations could have a material adverse effect on the Company's
operations.

     In certain markets where the Company has not deployed its own DSL
equipment, the Company utilizes local DSL facilities from wholesale providers,
including Covad, in order to provide service to its

                                       79
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

end-user customers. These wholesale providers may terminate their service with
little or no notice. The failure of Covad or any of the Company's other
wholesale providers to provide acceptable service could have a material adverse
effect on the Company's operations. There can be no assurance that Covad or
other wholesale providers will be successful in managing their operations and
business plans.

     The Company transmits data across its network via transmission facilities
that are leased from certain carriers, including AT&T and WorldCom. The failure
of any of the Company's data transport carriers to provide acceptable service on
acceptable terms could have a material adverse effect on the Company's
operations. WorldCom, filed a voluntary petition to reorganize under Chapter 11
of the U.S. Bankruptcy Code in July of 2002. While WorldCom has continued its
current operations and has announced that it expects to continue with its
current operations without adverse impact on its customers, it may not be able
to do so. The Company believes that it could transition the data transport
services currently supplied by WorldCom to alternative suppliers in thirty to
sixty days, should WorldCom announce discontinuance of such services. However,
if WorldCom was to discontinue such services without providing sufficient
advance notice (at least sixty days), the Company might not be able to
transition such services in a timely manner, which could disrupt service
provided by the Company to certain of its customers. This could result in the
loss of revenue, loss of customers, claims brought against the Company by its
customers, or could otherwise have a material adverse effect on the Company.
Even if WorldCom was to provide adequate notice of any such discontinuation of
service, there can be no assurance that the Company would be able to transition
such service without a material adverse impact on the Company or its customers,
if at all.

8.   RELATED PARTY TRANSACTIONS

     In November 2000, the Company entered into an agreement to license and
implement components of an operations support system from a software vendor.
Approximately $62,000 was paid under this agreement in 2000. Two stockholders of
the Company owned stock of the software vendor.

     On November 14, 2001, the Company entered into a Series X Preferred Stock
Purchase Agreement (the "Series X Purchase Agreement") with several private
investment funds affiliated with VantagePoint Venture Partners (collectively
"VantagePoint") relating to the sale and purchase of up to an aggregate of
20,000 shares of mandatorily redeemable convertible Series X Preferred Stock
(the "Series X Preferred Stock") of the Company at a purchase price of $1,000
per share. Pursuant to the Series X Purchase Agreement, on November 14, 2001,
December 10, 2001 and March 1, 2002 the Company sold an aggregate of 6,000
shares, 4,000 shares and 10,000 shares, respectively, of Series X Preferred
Stock to VantagePoint for total proceeds of $20,000,000, before direct issuance
costs of $189,128 (Note 9). Prior to the sale of the 20,000 shares of Series X
Preferred Stock, VantagePoint beneficially owned approximately 21,956,063
shares, or approximately 34%, of the Company's total outstanding common stock.
The 20,000 shares of Series X Preferred Stock owned by VantagePoint are
convertible into approximately 111,111,111 shares of the Company's common stock.
As a result, VantagePoint beneficially owns the equivalent of 133,067,174 shares
of common stock. Two affiliates of VantagePoint are members of the Company's
Board of Directors.

     On December 24, 2001, the Company, entered into a Series Y Preferred Stock
Purchase Agreement (the "Series Y Purchase Agreement") with Columbia Capital
Equity Partners III, L.P., Columbia Capital Equity Partners II, L.P., The
Lafayette Investment Fund, L.P., Charles River Partnership X, A Limited
Partnership and N.I.G. - Broadslate, Ltd. (collectively with their assigns, the
"Series Y Investors") relating to the sale and purchase of up to an aggregate of
15,000 shares of mandatorily redeemable convertible Series Y Preferred Stock of
the Company (the "Series Y Preferred Stock") at a purchase price

                                       80
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

of $1,000 per share. Subject to the terms and conditions of the Series Y
Purchase Agreement, on December 28, 2001, the Company sold an aggregate of 6,469
shares of Series Y Preferred Stock to the Series Y Investors for an aggregate
purchase price of $6,469,000, before direct issuance costs of $300,000. In
addition, during December 2001, the Company issued the Promissory Notes (Note 6)
to the Series Y Investors in the aggregate principal amount of $3,531,000 in
exchange for proceeds of $3,531,000. On May 29, 2002, the Company sold to the
Series Y Investors 8,531 shares of Series Y Preferred Stock for total proceeds
of $8,531,000, which resulted in net proceeds of approximately $5,000,000, after
the cancellation of the Promissory Notes issued to the Series Y Investors in
December 2001. The 15,000 shares of Series Y Preferred Stock owned by the Series
Y Investors are convertible into 30,000,000 shares of the Company's common
stock. An affiliate of the Columbia Capital entities is a member of the
Company's Board of Directors.

     In January 2002, the Company entered into an Asset Purchase Agreement with
Broadslate for the purchase of business broadband customer accounts and certain
other assets, including accounts receivables related to the acquired customer
accounts, for an adjusted purchase price of approximately $750,000 (Note 4).
Certain of the Company's stockholders, including investment funds affiliated
with Columbia Capital, in the aggregate owned in excess of 10% of the capital
stock of Broadslate. An affiliate of Columbia Capital and a member of our Board
of Directors was a director of Broadslate until February 2002.

     The Company entered into a Reimbursement Agreement, dated as of December
27, 2002, with several private investment funds affiliated with VantagePoint,
Columbia, The Lafayette Investment Fund, L.P. and Charles River Partnership,
L.P. (collectively the "Guarantors") and VantagePoint Venture Partners III (Q),
L.P., as administrative agent (the"Agent"). The Guarantors are all holders of or
affilliates of holders of the Company's Series X and Series Y Preferred stock.
Pursuant to the terms of the Reimbursement Agreement, on December 27, 2002, the
Company issued warrants to purchase 10,379,420 shares of its common stock to
VantagePoint and warrants to purchase 1,634,473 shares of its common stock to
Columbia, in consideration for their guarantees aggregating $6,100,000. The
Company issued additional warrants to purchase 767,301 shares of its common
stock to VantagePoint and 168,806 shares of its common stock to Columbia during
the first quarter of 2003, bringing the total number of warrants issued to
12,950,000. All such warrants are exercisable for ten years at an exercise price
of $0.50 per share (Note 6). Prior to the execution of the Reimbursement
Agreement, VantagePoint beneficially owned 21,956,063 shares of the Company's
common stock and 20,000 shares of the Company's mandatorily redeemable,
convertible Series X Preferred Stock, which are convertible into 111,111,111
shares of the Company's common stock, and Columbia owned 15,000 shares of the
Company's Series Y Preferred Stock, which are convertible into 30,000,000 shares
of the Company's common stock. Two affiliates of VantagePoint and one affiliate
of Columbia are members of the Company's Board of Directors.

9.  MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

     On November 14, 2001, the Company entered into the Series X Purchase
Agreement with VantagePoint relating to the sale and purchase of up to an
aggregate of 20,000 shares of mandatorily redeemable convertible Series X
Preferred Stock of the Company at a purchase price of $1,000 per share. Pursuant
to the Series X Purchase Agreement, on November 14, 2001, December 10, 2001 and
March 1, 2002 the Company sold an aggregate of 6,000 shares, 4,000 shares and
10,000 shares, respectively, of

                                       81
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

Series X Preferred Stock to VantagePoint for total proceeds of $20,000,000,
before direct issuance costs of $189,128.

     The Series X Preferred Stockholders are entitled to receive cumulative
dividends of 12% per year ($120.00 per share per annum) when and as declared by
the Board of Directors. All such dividends shall accrue monthly and shall be
payable in cash, except in the case of the conversion of the Series X Preferred
Stock into common stock, in which case such dividends may be paid, at the sole
option of the Company, in shares of common stock. The accrued but unpaid
dividends are payable upon the earliest to occur of (i) the liquidation,
dissolution, winding up or change in control (as described below) of the
Company, (ii) the conversion of the Series X Preferred Stock into common stock
and (iii) the redemption of the Series X Preferred Stock.

     In the event of the liquidation, dissolution or winding up of the Company,
the Series X Preferred Stockholders shall be entitled to $1,000 per share plus
all unpaid accrued dividends (whether or not declared), on parity with holders
of the Series Y Preferred Stock (discussed below). Remaining assets, if any,
shall be distributed to the holders of Series X Preferred Stock, Series Y
Preferred Stock, common stock and any other class or series of the Company's
capital stock that is not limited to a fixed sum or percentage of assets, on a
pro rata basis assuming full conversion into the Company's common stock of all
preferred stock. Unless a majority of the holders of the then outstanding Series
X Preferred Stock elect otherwise, (i) an acquisition, merger or consolidation
which results in a majority ownership change or (ii) the sale of all or
substantially all of the assets of the Company (i.e., a "change in control")
shall be deemed to be a liquidation of the Company.

     At the option of the Series X Preferred Stockholders, each share of Series
X Preferred Stock may be converted at any time, into approximately 5,555.56
shares of common stock, which shall be adjusted for certain subsequent dilutive
issuances and stock splits. Since the conversion option price was less than the
market price of the Company's common stock on the date the Series X Purchase
Agreement was signed ("the Series X commitment date"), the Company has recorded
a Beneficial Conversion Feature ("BCF") by a reduction (discount) to Preferred
Stock in accordance with the guidance under Emerging Issues Task Force ("EITF")
00-27. The BCF was determined using the intrinsic value method which is defined
as the "accounting conversion price" less the quoted market price of the common
stock on the Series X commitment date multiplied by the number of common shares
into which the preferred stock converts; however, the BCF recognized was limited
to the net proceeds received from the issuance of the Series X Convertible
Preferred Stock. The BCF is accreted from each Preferred Stock issue date to the
earliest redemption date of January 1, 2005. If conversion occurs before the BCF
is fully accreted, a charge will be required for the unamortized BCF. The
accreted BCF is included in the calculation of net loss applicable to common
stockholders.

     The Series X Preferred Stock shall automatically convert into common stock
upon the close of business on the date on which the closing sale price of the
Company's common stock on the Nasdaq Stock Market has exceeded $2.50 per share
(as adjusted for any stock splits, stock dividends, recapitalizations or the
like) for a period of 45 consecutive trading days beginning after May 13, 2002.

     The Series X Preferred Stock has voting rights similar to common stock
based on the number of shares into which such Series X Preferred Stock is
initially convertible. So long as at least 50% of the Series X Preferred Stock
issued pursuant to the Series X Purchase Agreement remains outstanding, the
Series X Preferred stockholders shall have the

                                       82
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

right to elect a majority of the members of the Company's Board of Directors. In
addition, so long as at least 25% of the Series X Preferred Stock issued
pursuant to the Series X Purchase Agreement remains outstanding, the Series X
Preferred stockholders shall have the right to vote as a separate class with
respect to the approval of (i) the authorization or issuance, or obligation to
issue, any equity-related security having rights, preferences or privileges
senior to or, during the six-month period commencing December 28, 2001, on
parity with, to the Series X Preferred Stock, (ii) any alteration or change to
the rights, preferences or privileges of the Series X Preferred Stock or (iii)
any reclassification of the Series X Preferred Stock. The Series X Preferred
Stock is redeemable, on parity with the Series Y Preferred Stock (discussed
below), at the option of the holders of a majority of the then outstanding
shares of Series X Preferred Stock at any time on or after January 1, 2005 at a
price equal to $1,000 per share plus all unpaid accrued dividends (whether or
not declared).

     On December 24, 2001, the Company entered into the Series Y Purchase
Agreement with the Series Y Investors relating to the sale and purchase of up to
an aggregate of 15,000 shares of mandatorily redeemable convertible Series Y
Preferred Stock of the Company at a purchase price of $1,000 per share. Subject
to the terms and conditions of the Series Y Purchase Agreement, on December 28,
2001, the Company sold an aggregate of 6,469 shares of Series Y Preferred Stock
to the Series Y Investors for an aggregate purchase price of $6,469,000, before
direct issuance costs of $300,000. In addition, on December 28, 2001, the
Company issued promissory notes to the Series Y Investors in the aggregate
principal amount of $3,531,000 in exchange for proceeds of $3,531,000 (Note 6).
The promissory notes provided for an annual interest rate of 12%. On May 29,
2002, in accordance with the terms of the Series Y Purchase Agreement, the
Company sold 8,531 additional shares of Series Y Preferred Stock for net
proceeds of $5,000,000 in cash and delivered the Promissory Notes for
cancellation. All accrued interest of approximately $145,000 on the Promissory
Notes was forgiven (Note 6).

     The holders of Series Y Preferred Stock are entitled to receive cumulative
dividends of 12% per year ($120.00 per share per annum) when and as declared by
the Company's board of directors. All such dividends accrue monthly and are
payable in cash, except in the case of the conversion of the Series Y Preferred
Stock into common stock, dividends may be paid, at the sole option of the
Company, in shares of common stock. Notwithstanding the foregoing, accrued but
unpaid dividends are payable upon the earliest to occur of (i) the liquidation,
dissolution, winding up or change of control (as described below) of the
Company, (ii) the conversion of the Series Y Preferred Stock into common stock
and (iii) the redemption of the Series Y Preferred Stock.

     In the event of the liquidation, dissolution or winding up of the Company,
the holders of Series Y Preferred Stock are entitled to receive $1,000 per share
plus all unpaid accrued dividends (whether or not declared) in parity with the
holders of the Company's Series X Preferred Stock. Remaining assets, if any,
shall be distributed to the holders of Series X Preferred Stock, Series Y
Preferred Stock, common stock and any other class or series of the Company's
capital stock that is not limited to a fixed sum or percentage of assets on a
pro rata basis, assuming full conversion into the Company's common stock of all
Preferred Stock. Unless a majority of the holders of the then outstanding Series
Y Preferred Stock elect otherwise, (i) an acquisition, merger or consolidation
of the Company which results in a majority ownership change or (ii) the sale of
all or substantially all of the assets of the Company (i.e., a "change in
control") shall be deemed to be a liquidation of the Company.

     In May 2002, the Company's certificate of incorporation was amended to,
among other things, increase the number of authorized shares of common stock to
400,000,000. Subsequent to this increase in the authorized shares, at the option
of the Series Y Preferred stockholders, each share of Series Y Preferred Stock
may be converted into 2,000 shares of common stock, subject to adjustment for
certain subsequent dilutive issuances and stock splits. Since the conversion
option price was less than the market price of the Company's common stock on the
date the Series Y Purchase Agreement was signed, the

                                       83
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

Company has recorded a reduction (discount) to the Preferred Stock and an offset
to Additional Paid-in Capital and applied the same accounting treatment as
described above for the Series X Preferred Stock.

     The Series Y Preferred Stock automatically converts into common stock upon
the close of business on the date on which the closing sale price of the common
stock on the Nasdaq Stock Market has exceeded $2.50 per share (as adjusted for
any stock splits, stock dividends, recapitalizations or the like) for a period
of 45 consecutive days commencing on or after June 26, 2002.

     Each share of Series Y Preferred Stock has the right to 978.5 votes and,
except as otherwise provided in the Company's certificate of incorporation or
required by law, votes together with all other classes and series of capital
stock of the Company as a single class on all actions to be taken by all holders
of the Company's stock. So long as at least 25% of the Series Y Preferred Stock
issued pursuant to the Series Y Purchase Agreement remains outstanding, the
Series Y Preferred stockholders have the right to vote as a separate class with
respect to the approval of (i) the authorization or issuance, or obligation to
issue, any equity-related security having rights, preferences or privileges
senior to or, during the six-month period commencing December 28, 2001, on
parity with, the Series Y Preferred Stock, (ii) any alteration or change to the
rights, preferences or privileges of the Series Y Preferred Stock or (iii) any
reclassification of the Series Y Preferred Stock.

     The Series Y Preferred Stock is redeemable, on parity with the Series X
Preferred Stock and any other class or series of the Company's capital stock
entitled to redemption that is on parity with the Series X Preferred Stock, at
the option of a majority of the holders of the then outstanding shares of Series
Y Preferred Stock at any time on or after January 1, 2005, at a price equal to
$1,000 per share plus all unpaid accrued dividends (whether or not declared).

     In connection with the Series Y Purchase Agreement, the holders of the
Series Y Preferred Stock and the Series X Preferred Stock entered into voting
agreements which obligate them to vote in favor of the required transactions
contemplated by the Series Y Purchase Agreement and related matters. In
addition, a stockholders agreement among the Company, the holders of the Series
X Preferred Stock and the holders of the Series Y Preferred Stock provides for
rights relating to election of directors, the registration of the Company's
common stock issuable upon conversion of the Series X and Series Y Preferred
Stock and certain protective provisions.











                                       84
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

     The Series X and Series Y Preferred Stock activity is summarized as
follows:
<TABLE><CAPTION>
                                                                                        Mandatorily
                                                                          Redeemable Convertible Preferred Stock
                                                            -----------------------------------------------------------------
                                                                      Series X                           Series Y
                                                            ------------------------------      -----------------------------
<S>                                                         <C>               <C>               <C>              <C>
                                                               Shares            Amount            Shares           Amount
                                                            ------------      ------------      ------------     ------------
Balance December 31, 2000                                           --        $       --                --       $       --

Issuance of shares                                                10,000        10,000,000             6,469        6,469,000

Issuance costs                                                                    (189,128)                          (300,000)

Discount on Series X and Y Preferred Stock resulting
  from a beneficial conversion feature, net of issuance
  costs                                                                        (9,810,872)                         (6,169,000)

Accrued dividends on Series X and Y Preferred Stock                               115,233                               6,380

Accretion of beneficial conversion feature of Series X
  and Y Preferred Stock                                                            320,697                             27,976
                                                            ------------      ------------      ------------     ------------
Balance December 31, 2001                                         10,000      $     35,930             6,469     $     34,356
                                                            ============      ============      ============     ============
Issuance of shares                                                10,000      $ 10,000,000             8,531     $  8,531,000

Discount on Series X and Y Preferred Stock resulting
  from a beneficial conversion feature, net of issuance
  costs                                                                        (10,000,000)                        (8,531,000)

Accrued dividends on Series X and Y Preferred Stock                              2,200,000                          1,373,450

Accretion of beneficial conversion feature of Series X
  and Y Preferred Stock                                                          6,104,587                          3,973,344
                                                            ------------      ------------      ------------     ------------
Balance December 31, 2002                                         20,000      $  8,740,517            15,000     $  5,381,150
                                                            ============      ============      ============     ============
</TABLE>

                                       85
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

COMMON STOCK TRANSACTIONS

     In March 2000, the Company completed a public offering of 5,750,000 shares
of common stock, including the exercise of the underwriters' over-allotment
option, at an offering price of $26.00 per share. Net proceeds to the Company
from this offering were approximately $141,273,000, after deducting underwriting
discounts and commissions and offering expenses payable by the Company.

     In the first quarter of 2000, the Company recorded non-cash compensation
expense of $870,000 relating to the vesting of stock options held by members of
the Company's former advisory board. The advisory board was dissolved in the
first quarter of 2000 and, as a result, all unvested stock options held by such
members were cancelled and the unamortized deferred compensation balance of
$4,163,000 related to unvested stock options held by advisory board members was
reclassified against additional paid-in capital. The 85,604 vested options held
by members of the Company's former advisory board were exercised during the
second quarter of 2000.

     The Company's remaining unamortized deferred compensation balance of
approximately $438,000 as of December, 31 2002, relating to stock options and
restricted stock held by employees and directors, is being amortized over the
respective remaining vesting periods.

     In conjunction with the Company's acquisition of VISI (Note 4), the Company
issued purchase consideration that included 286,392 shares of common stock
having a value of $2,315,000 at the time of the acquisition. The Company also
assumed all of the then outstanding options issued under the VISI 1997 and 1999
Stock Option Plans, which became fully vested options to purchase an aggregate
of 898,926 shares of common stock. The Company will grant no additional options
under the VISI stock option plans. The VISI options were valued at $6,654,000 at
the time of the acquisition.

     In January 2001, the Company exercised its repurchase right for 1,288,566
shares of common stock at $.001875 per share, representing the remaining
unvested shares from one of the Company's founding shareholders who had
terminated his employment. The shares were subsequently cancelled and $323,832,
or $0.2513 per share, was reclassified from deferred compensation to additional
paid-in capital and common stock.

     In July 2001, the Company exercised its repurchase right for 249,937 shares
of common stock at $.001875 per share, representing the remaining unvested
shares from one of the Company's founding shareholders who had terminated his
employment. The shares were subsequently cancelled and $62,809, or $0.2513 per
share, was reclassified from deferred compensation to additional paid-in capital
and common stock.




                                       86
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

COMMON STOCK RESERVED

     The Company has reserved shares of common stock as follows:

<TABLE><CAPTION>
                                                                  December 31,
                                                          ---------------------------
                                                              2001            2002
                                                          -----------     -----------
<C>                                                        <C>             <C>
1999 Stock Plan .....................................      10,473,563      10,409,130
2001 Stock Plan .....................................       4,000,000      20,000,000
VISI Stock Option Plans .............................         679,615         676,392
1999 Employee Stock Purchase Plan ...................         244,876         230,876
Stock Warrants ......................................          83,314      13,033,314
Series X Redeemable Convertible Preferred Stock .....      55,555,556     111,111,111
Series Y Redeemable Convertible Preferred Stock .....            --        30,000,000
                                                          -----------     -----------
                                                           71,036,924     185,460,823
                                                          ===========     ===========
</TABLE>

STOCK WARRANTS

     On May 8, 2000, 111,242 stock purchase warrants, which were issued in
conjunction with a lease transaction, were exercised in a cashless exercise
pursuant to the terms of the warrants, resulting in a net issuance of 102,737
shares of common stock.

     At December 31, 2001 and 2002, the Company had outstanding warrants to
purchase 83,314 and 13,033,314 shares of common stock, respectively. Pursuant to
the terms of the Reimbursement Agreement, on December 27, 2002, the Company
issued warrants to purchase 10,379,420 shares of its common stock to
VantagePoint and warrants to purchase 1,634,473 shares of its common stock to
Columbia, in consideration for their guarantees aggregating $6,100,000. The
Company issued additional warrants to purchase 767,301 shares of its common
stock to VantagePoint and 168,806 shares of its common stock to Columbia during
the first quarter of 2003, bringing the total number of warrants issued to
12,950,000. All such warrants have a ten year life and an exercise price of
$0.50 per share (Notes 6 and 16).

10.  INCOME TAXES

     An income tax provision has not been recorded for the years ended December
31, 2000, 2001 and 2002, because the Company generated net operating losses for
those respective years.






                                       87
<PAGE>
                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

     The Company's gross deferred tax assets and liabilities were comprised of
the following:
<TABLE><CAPTION>
                                                              DECEMBER 31,
                                          ---------------------------------------------------
                                               2000               2001               2002
                                          -------------      -------------      -------------
<S>                                       <C>                <C>                <C>
Gross deferred tax asset:
Net operating loss carryforwards ....     $  46,351,085      $  87,891,278      $  98,956,120
Other ...............................         3,381,268          6,801,788          6,197,149
                                          -------------      -------------      -------------
   Gross deferred tax assets ........        49,732,353         94,693,066        105,153,269

Gross deferred tax liability:
Depreciation ........................         2,164,719          1,329,434            764,925
Other ...............................           527,713            566,102            512,983
                                          -------------      -------------      -------------
   Gross deferred tax liabilities ...         2,692,432          1,895,536          1,277,908
                                          -------------      -------------      -------------
Net deferred tax assets .............        47,039,921         92,797,530        103,875,361
Valuation allowance .................       (47,039,921)       (92,797,530)      (103,875,361)
                                          -------------      -------------      -------------
   Net deferred taxes ...............     $        --        $        --        $        --
                                          =============      =============      =============
</TABLE>
     A full valuation allowance is recorded against the net deferred tax assets
because management believes it is more likely than not that these assets will
not be realized. If future profitability is achieved, a significant portion of
the net deferred tax assets may not be available to offset future income tax
liabilities.

     At December 31, 2001 and 2002, the Company had approximately $218,000,000
and $254,000,000 of federal and state net operating loss carryforwards,
respectively. Of this amount, approximately $6,000,000 relates to stock-based
compensation deductions which, when realized will be accounted for as a credit
to additional paid-in-capital rather than a reduction to the income tax
provision. The federal and state net operating loss carryforwards begin to
expire in 2019 and 2004, respectively. A significant portion of the net
operating loss carryforwards may be subject to limitations under the U.S.
federal income tax laws due to changes in the capital structure of the Company.

     The provision for (benefit from) income taxes reconciles to the statutory
federal tax rate as follows:
<TABLE><CAPTION>
                                                               DECEMBER 31,
                                                  --------------------------------------
                                                    2000           2001           2002
                                                  --------       --------       --------
<S>                                                 <C>            <C>            <C>
     Statutory federal tax rate                     (34.00)%       (34.00)%       (34.00)%
     State income tax, net of federal benefit        (6.00)         (6.09)         (4.97)
     Permanent differences                            1.50           0.94           0.04
     Deferred tax state rate change                   --             --             8.27
                                                  --------       --------       --------
     Deferred tax asset valuation allowance          38.50          39.15          30.66
                                                  --------       --------       --------
          Effective federal tax rate                   - %            - %            - %
                                                  ========       ========       ========
</TABLE>

11.  RESEARCH AND DEVELOPMENT EXPENDITURE CREDITS

     In March 2002, the Company filed an application with the Connecticut
Department of Revenue Services for research and development expenditure credits
for the 1999 and 2000 calendar years. The credits were approved as a reduction

                                       88
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

against the Connecticut corporation business tax. With regard to credits
approved for the 2000 calendar year, the Company was entitled to elect a cash
refund at 65 percent of the approved credit. The Company elected to receive the
2000 calendar year credit as a cash refund of approximately $1,301,000. The 1999
calendar year credit of approximately $671,000 is available as a carry forward
to offset future State of Connecticut corporation business taxes. In July 2002,
the Company received the first installment of the cash refund pertaining to the
2000 calendar year of approximately $1,000,000, with the $301,000 balance
payable in two equal installments in July 2003 and 2004. Upon receipt of the
research and development credits, the Company was obligated to pay approximately
$402,000 to a professional service provider as a result of a contingent fee
arrangement for professional services in connection with obtaining such credits.

     For the year ended December 31, 2002, the Company has recorded the
$1,000,000 refund as a reduction in its state corporate franchise tax expenses
which are included in general and administrative expenses and the $402,000
related professional services fee has also been included in general and
administrative expenses.

12.  INCENTIVE STOCK AWARD PLANS

EMPLOYEE STOCK OPTION PLAN

     In February 1999, the Company's Board of Directors adopted the 1999 Stock
Plan under which employees, officers, directors, advisors and consultants can be
granted incentive stock options, non-qualified stock options, stock appreciation
rights, and stock awards. A total of 12,364,200 shares of common stock have been
authorized under the 1999 Stock Plan.

     In November 2001, the Company's Board of Directors adopted the 2001 Stock
Option and Incentive Plan (the "2001 Stock Plan"), under which non-officer
employees, certain new officers, advisors and consultants can be granted
non-qualified stock options, stock appreciation rights, and stock awards. A
total of 4,000,000 shares of common stock have been authorized under the 2001
Stock Plan.

     In May 2002, the Company's Board of Directors amended the 2001 Stock Plan
to (i) increase the number of shares of commons stock authorized under the 2001
Stock Plan to a total of 20,000,000 shares, (ii) allow all officers and
directors to be granted awards under the plan and (iii) provide for the granting
of incentive stock options under the plan.

     Options granted to employees under the 1999 Stock Plan and the 2001 Stock
Plan generally vest, at the discretion of the Board of Directors, either at (i)
25% after one year, then ratably over the next thirty-six months or (ii) 16%
after six months and a day, then ratably over the next thirty months. Once
vested, the options under both plans are exercisable for ten years from the date
of grant.

     In conjunction with the acquisition of VISI, the Company also assumed all
of the then outstanding options issued under the VISI 1997 and 1999 Stock Option
Plans (together with the 1999 Stock Plan and the 2001 Stock Plan, "the Plans"),
which became fully vested options to purchase an aggregate of 898,926 shares of
common stock. No additional options will be granted by the Company under the
VISI stock option plans. The VISI options were valued at $6,654,000 at the time
of the acquisition.



                                       89
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

     A summary of activity under the Plans as of December 31, 2000, 2001 and
2002 is as follows:

                                                            Weighted Average
                                                          ---------------------
                                           Number of        Fair       Exercise
                                            Shares          Value        Price
                                          ----------      --------     --------

Outstanding at December 31, 1999 ....      5,874,302

Granted .............................      6,142,293      $   5.49     $   8.31
VISI assumed ........................        898,926                   $   2.18
Exercised ...........................     (1,451,751)                  $   0.59
Cancelled ...........................     (4,145,158)                  $   8.66
                                          ----------
Outstanding at December 31, 2000 ....      7,318,612

Granted .............................      9,204,150      $   0.68     $   0.83
Exercised ...........................       (361,774)                  $   0.05
Cancelled ...........................     (2,283,594)                  $   6.17
                                          ----------
Outstanding at December 31, 2001 ....     13,877,394

Granted .............................     10,891,500      $   0.25     $   0.29
Exercised ...........................        (64,433)                  $   0.14
Cancelled ...........................       (827,457)                  $   3.47
                                          ----------
Outstanding at December 31, 2002 ....     23,877,004


















                                       90
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

     The following summarizes the outstanding and exercisable options under the
Plans as of December 31, 2000, 2001 2002:

<TABLE><CAPTION>
                               Options Outstanding                     Options Exercisable
                   ---------------------------------------------   ---------------------------
                                   Weighted Avg.
                                  Remaining Life   Weighted Avg.                 Weighted Avg.
Exercise Price       Number         (in years)    Exercise Price    Number      Exercise Price
--------------     ---------        ----------    --------------   ---------    --------------
<C>                <C>                  <C>          <C>           <C>             <C>
12/31/00
--------
$0.04-2.53         2,787,663            8.1          $   0.66      1,425,012       $   0.81
$2.72-5.00         2,712,289            9.7          $   3.19        306,039       $   2.99
$6.31-9.85         1,020,128            9.1          $   7.04        140,002       $   7.63
$10.63-14.88         584,283            8.9          $  12.53         25,000       $  10.63
$16.50-18.75          17,250            8.9          $  17.28          4,783       $  17.26
$20.94-25.94         196,999            2.2          $  22.78        149,999       $  22.75
                  ----------                                       ---------
                   7,318,612            8.7          $   4.07      2,050,835       $   3.36

12/31/01
--------
$0.04-2.59        10,902,144            9.3          $   0.79      1,944,923       $   0.79
$2.59-5.19         2,027,736            8.4          $   3.07        805,236       $   3.11
$5.19-7.78           571,612            7.5          $   6.93        341,058       $   7.08
$7.78-10.37           88,290            7.3          $   8.45         86,892       $   8.44
$10.37-12.97         171,100            5.2          $  11.94        110,157       $  11.94
$12.97-15.56          96,287            7.2          $  14.63         51,658       $  14.63
$15.56-$25.94         20,225            6.7          $  20.96         11,665       $  21.53
                  ----------                                       ---------
                  13,877,394            9.0          $   1.69      3,351,589       $   2.84

12/31/02
--------
$0.02-0.49        11,382,076            9.2          $   0.28        927,605       $   0.22
$0.49-1.05         7,511,060            8.5          $   0.62      3,152,807       $   0.61
$1.05-2.07         1,864,473            7.8          $   1.25        941,417       $   1.40
$2.07-5.19         2,449,597            7.7          $   2.88      1,436,678       $   2.89
$5.19-7.78           387,432            7.2          $   6.74        258,784       $   6.76
$7.78-10.37           83,000            6.6          $   8.40         82,352       $   8.40
$10.37-12.96         104,000            7.3          $  11.94         69,641       $  11.94
$12.96-15.56          82,200            6.0          $  14.65         59,686       $  14.66
$15.56-$25.94         13,166            3.4          $  20.25          9,994       $  20.13
                  ----------                                       ---------
                  23,877,004            8.7          $   0.98      6,938,964       $   1.72
</TABLE>






                                       91
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

    If compensation expenses had been recognized based on the fair value of the
options at their grant date, in accordance with SFAS No. 123, the results of
operations for the years ended December 31, 2000, 2001 and 2002 would have been
as follows:

<TABLE><CAPTION>
                                                               Year ended December 31,
                                                 ---------------------------------------------------
                                                      2000               2001               2002
                                                 -------------      -------------      -------------
<S>                                              <C>                <C>                <C>
Net loss, as reported ......................     $(105,763,148)     $(115,453,682)     $ (36,094,205)
Deduct: Total stock-based employee
  compensation expense determined under
  fair value based method for all awards,
  net of related tax effects ...............        (4,468,671)        (3,477,048)        (4,475,524)
                                                 -------------      -------------      -------------
Pro forma under FAS 123 ....................     $(110,231,819)     $(118,930,730)     $ (40,569,729)


Net loss applicable to common stockholders:
   As reported .............................     $(105,763,148)     $(115,923,968)     $ (49,745,586)
   Pro forma under FAS 123 .................     $(110,231,819)     $(119,401,016)     $ (54,221,110)
Basic and diluted net loss per common share:
   As reported .............................     $       (1.75)     $       (1.81)     $       (0.77)
   Pro forma under FAS 123 .................     $       (1.82)     $       (1.87)     $       (0.84)
</TABLE>

    The estimated fair value at date of grant for options granted for the year
ended December 31, 2000 ranged from $0.75 to $17.19 per share, and for the year
ended December 31, 2001, ranged from $0.15 to $1.58 per share, and for the year
ended December 31, 2002, ranged from $0.25 to $0.94 per share. The minimum value
of each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions:

                                                December 31,
                                --------------------------------------------
                                    2000             2001            2002
                                -----------      -----------     -----------
     Risk free interest rate    5.26%-6.72%      4.70%-5.48%     2.49%-4.42%
     Expected dividend yield       None             None            None
     Expected life of option     5 years          3 years        3 -4 years
     Expected volatility            75%             152%            152%

     As additional options are expected to be granted in future years, and the
options vest over several years, the above pro forma results are not necessarily
indicative of future pro forma results.

     The Company records deferred compensation when common stock options and
restricted stock are granted with an exercise price below estimated fair value.
Deferred compensation is recognized to compensation expense generally over the
vesting period. Unvested options for terminated employees are cancelled and the
value of such options are recorded as a reduction of deferred compensation with
an offset to additional-paid-in-capital. Stock compensation expense totaled
approximately $3,192,000, $1,202,000 and $1,228,000 for the years ended December
31, 2000, 2001 and 2002, respectively.

EMPLOYEE STOCK PURCHASE PLAN

     The Company's 1999 Employee Stock Purchase Plan (the ''Purchase Plan'')
authorized the issuance of up to a total of 300,000 shares of common stock to
participating employees.

                                       92
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

     All employees of the Company and all employees of any participating
subsidiaries whose customary employment is more than 20 hours per week and more
than three months in any calendar year are eligible to participate in the
Purchase Plan. Under the terms of the Purchase Plan, the price per share paid by
each participant on the last day of the offering period (as defined therein) is
an amount equal to 85% of the fair market value of the common stock on either
the first day or the last day of the offering period, whichever is lower. Each
employee participating in the Purchase Plan may purchase a maximum of 500 shares
during each six-month offering period. The Purchase Plan terminates on December
31, 2009 or such earlier date as the Board of Directors determines. The Purchase
Plan will terminate in any case when all or substantially all of the unissued
shares of stock reserved for the purposes of the Purchase Plan have been
purchased. Upon termination of the Purchase Plan all amounts in the accounts of
participating employees will be promptly refunded.

     The first offering period of the Purchase Plan began on October 6, 1999 and
ended on February 29, 2000. The Company issued a total of 25,383 and 14,000
shares of common stock under the plan during the years ended December 31, 2001
and 2002, respectively.

13.  EMPLOYEE SAVINGS PLAN 401(K)

     On April 1, 2000, the Company started a 401(k) savings plan under which it
matches employee contributions at 50% up to the first 4% of their contribution.
Employees may elect to participate in the plan bi-annually on the enrollment
dates provided they have been employees for at least ninety days. Employees
participating in the plan may chose from a portfolio of investments, with the
Company's match having the same investment distribution as the employees'
election. The Company's contribution to the 401(k) plan during the years ended
December 31, 2001 and 2002 was $189,691 and $140,065, respectively.

14.  ACCRUED LIABILITIES

     Accrued liabilities included the following:

                                               December 31,
                                        -------------------------
                                           2001           2002
                                        ----------     ----------

     Due to sellers                     $  272,333     $     --

     Taxes payable - other than
       income taxes                      2,388,865      1,401,462

     Accrued telecommunication
       expenses                          1,958,470        790,136

     Accrued restructuring expenses      1,511,074        934,985

     Other accrued liabilities           3,504,685      1,494,405
                                        ----------     ----------
           Total                        $9,635,427     $4,620,988
                                        ==========     ==========

15.  RESTRUCTURING AND IMPAIRMENTS

     In December 2000, the Company initiated a new business plan strategy
designed to conserve its capital, reduce its losses and extend its cash
resources. This strategy included the following actions:

                                       93
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

1) further network expansion was curtailed; 2) network connections to certain
central offices were suspended; 3) certain facilities were vacated and
consolidated; 4) operating expenses were reduced; and 5) headcount was reduced
by approximately 140 employees. These actions resulted in a restructuring charge
of approximately $3,542,000.

     In March 2001, the Company re-evaluated its restructuring reserve and
booked an increase in the reserve of approximately $831,000, which was primarily
related to delays in subleasing its vacated facilities and additional costs
pertaining to its suspended central offices.

     In June 2001, due to the lack of liquidity in the financial markets, the
Company further re-evaluated its business plans and determined that additional
actions were necessary to further reduce its operating losses, cash burn rate
and total funding requirements. These actions included: 1) further reductions in
operating expenses; 2) closure of approximately 100 non-active and 250 active
central offices; and 3) an additional reduction-in-force of approximately 90
employees. These actions resulted in additional restructuring charges
approximating $32,503,000. Included in this amount were: 1) approximately
$272,000 relating to severance expenses for the 90 employees; 2) approximately
$26,079,000 for the costs associated with the Company's decision to close
certain central offices, which includes approximately $2,545,000 relating to
termination and equipment removal fees and approximately $23,534,000 in
write-off of fixed assets; 3) approximately $1,641,000 for additional estimated
costs resulting from delays and expected losses in subleasing vacated office
space located in Santa Cruz, California, Atlanta, Georgia, Milford, Connecticut,
and Chantilly, Virginia; 4) $1,356,000 for write down of additional equipment no
longer in use; and 5) $3,155,000 for impairments of goodwill. The goodwill
impairment analysis was accomplished by comparing the carrying value of the
assets with the expected future net cash flows generated over the remaining
useful life of the assets. Since the carrying value was more than the expected
future net cash flows, the goodwill was reduced to the net present value of the
expected future net cash flows. Of this amount, $2,124,000 related to a
reduction in the goodwill for the Company's acquisition of Tycho and $1,031,000
related to a reduction in the goodwill for the Company's acquisition of certain
assets of Trusted Net. These reductions in goodwill resulted in decreases in
monthly amortization expense from approximately $56,800 to approximately $5,000
for Tycho, and from approximately $43,500 to approximately $20,600 for Trusted
Net.

     During the third quarter 2001, due to limited available financing for the
Company's operations and other factors, the Company again re-evaluated its
business plans and determined that additional actions were necessary to further
reduce its operating losses, cash burn rate and total funding requirements.
These actions included: 1) further reductions in operating expenses; 2) closure
of the Tycho and Trusted Net facilities in Santa Cruz, CA and Marietta, GA,
respectively; and 3) decision not to install equipment in 100 new central
offices. These actions resulted in additional restructuring and impairment
charges approximating $4,748,000. Included in this amount were increases of: 1)
approximately $4,451,000 relating to the write off of equipment; 2)
approximately $376,000 for additional estimated costs relating to the delays and
losses in subleasing vacated office space located in Santa Cruz, California and
Milford, Connecticut; 3) approximately $246,000 in additional costs for
equipment removal fees associated with the Company's previous decision to close
certain central offices; and 4) approximately $800,000 for impairments of
goodwill. These increases in the restructuring reserve were partially offset by
a reduction of approximately $1,125,000 in previously reserved amounts relating
to estimated termination fees associated with the Company's previous decision to
close certain central offices, as the Company was successful in negotiating
significantly reduced fees at many of the closed central office locations. The
goodwill impairment analysis was accomplished by comparing the carrying value of
the assets with the expected future net cash flows generated over the remaining
useful life of the assets. As a result of this analysis, expected future net
cash flows were determined to be insignificant and, as the carrying value

                                       94
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

was more than these expected future net cash flows, the balance of goodwill was
written off. Of this amount, approximately $170,000 related to a reduction in
the goodwill for the Company's acquisition of Tycho and approximately $630,000
related to a reduction in the goodwill for the Company's acquisition of certain
assets of Trusted Net.

     During the fourth quarter 2001, the Company again re-evaluated its business
plans and determined that additional actions were necessary to further reduce
its operating losses and cash burn rate. These actions included an additional
reduction-in-force of approximately 84 employees. These actions resulted in
additional restructuring and impairment charges approximating $511,000. Included
in this amount were increases of: 1) approximately $164,000 relating to
severance expenses for the 84 employees; and 2) approximately $500,000 for
impairment of a long term investment. These increases in the restructuring
reserve were partially offset by a reduction of approximately $153,000 in
previously reserved amounts relating to the write down of fixed assets
associated with the Company's previous decision to close certain central
offices. Additionally, during the fourth quarter of 2001, the Company
reallocated amounts previously reserved for equipment removal to termination
fees, as the Company was successful in negotiating reduced fees for equipment
removal at many of the closed central office locations.

     The long term investment impairment analysis was accomplished by comparing
the carrying value of the investment with the expected future net cash flows
generated, over the remaining useful life of the investment.

     The following table summarizes the additions and charges to the
restructuring reserve from December 2000 through December 2002, and the
remaining reserve balances at December 31, 2002:

<TABLE><CAPTION>
                                                              (dollars in thousands)
                        ---------------------------------------------------------------------------------------------------
                                                  CENTRAL      CENTRAL       FIXED                   IMPAIRMENT
                                                   OFFICE      OFFICE        ASSET      IMPAIRMENT       OF
                                     FACILITY       TERM.      EQUIP.        WRITE          OF       LONG-TERM
                       SEVERANCE      LEASES        FEES       REMOVAL        OFF        GOODWILL    INVESTMENT     TOTAL
                        --------     --------     --------     --------     --------     --------     --------     --------
<S>                     <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
Additions to the
  Reserve, Dec. 2000    $    448     $  1,078     $    600     $   --       $  1,416     $   --       $   --       $  3,542

Charges to the
  reserve                   (362)      (1,416)      (1,778)
                        --------     --------     --------     --------     --------     --------     --------     --------
Reserve balance at
  Dec. 31, 2000               86        1,078          600         --           --           --           --          1,764

Additions to the
  reserve:                   436        2,408          215        1,451       29,628        3,955          500       38,593

Charges to the
  reserve                   (522)      (2,290)        (500)      (1,451)     (29,628)      (3,955)        (500)     (38,846)

                        --------     --------     --------     --------     --------     --------     --------     --------
Reserve balance at
  Dec. 31, 2001             --          1,196          315         --           --           --           --          1,511

Charges to the
  reserve                                (576)                                                                         (576)
                        --------     --------     --------     --------     --------     --------     --------     --------
Reserve balance at
  Dec. 31, 2002         $   --       $    620     $    315     $   --       $   --       $   --       $   --       $    935
                        ========     ========     ========     ========     ========     ========     ========     ========
</TABLE>

                                       95
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

     The restructuring reserve charges during the year ended December 31, 2000,
of approximately $3,542,000, included approximately $2,263,000 in network and
operations expenses, $161,000 in sales and marketing expenses and approximately
$1,118,000 in general and administrative expenses on the consolidated statements
of operations. At December 31, 2000, approximately $362,000 of severance costs
and approximately $1,416,000 of capitalized collocation application fees had
been charged against the restructuring reserves. The remaining reserve balance
of approximately $1,764,000 was included in the Company's accrued liabilities at
December 31, 2000.

     The restructuring reserve charges for the year ended December 31, 2001
included approximately $31,528,000 in network and operations expenses,
approximately $6,998,000 in general and administrative expenses and
approximately $67,000 in sales and marketing expenses on the consolidated
statements of operations. The remaining reserve balance of approximately
$1,511,000 was included in the Company's accrued liabilities at December 31,
2001.

     The Company's remaining restructuring reserve balance at December 31, 2002,
of approximately $935,000, was included in the Company's accrued liabilities and
represents approximately $620,000 for anticipated costs pertaining to its
vacated facilities and approximately $315,000 for anticipated costs pertaining
to its closed central offices, which the Company has been disputing.

16.  SUBSEQUENT EVENTS

     In December of 2002, the U.S. Bankruptcy Court for the District of Delaware
approved the Company's bid to purchase network assets and associated subscriber
lines of NAS for $14,000,000, consisting of $9,000,000 in cash and $5,000,000 in
a note payable to NAS. The Company closed the transaction on January 10, 2003,
whereby it acquired NAS's operations and network assets, associated equipment in
approximately 300 central offices and approximately 11,500 associated subscriber
lines. Additionally, on January 10, 2003, the Company hired approximately 78
employees formerly employed by NAS. No pre-closing liabilities were assumed with
the NAS transaction. The cash portion of the consideration was paid from the
Company's existing cash. The NAS note has a term of approximately 5 years and
bears interest at 12% and is secured by the network equipment acquired from NAS.
Interest is payable monthly in arrears on the unpaid principal balance. The note
requires interest-only payments for the first 21 months, after which, principal
payments will commence monthly and be paid in 39 equal monthly installments
together with interest on the unpaid principal balance.

     In connection with the integration of the NAS business, on January 17,
2003, the Company had a reduction in force of approximately 35 employees at its
headquarters facility in New Haven, Connecticut. The Company paid approximately
$62,000 in severance to the terminated employees. Subsequent to this reduction
in force, the Company's headcount approximated 230 employees.

     On February 3, 2003, the Company borrowed $6,100,000 under its bank Credit
Agreement. The loan bears interest, payable monthly in arrears at the bank's
"base rate" and any unpaid principal balance will automatically convert to a
term loan on December 12, 2004, after which principal payments (together with
accrued interest on the unpaid principal balance) will be required in 12 equal
installments payable at the end of each calendar quarter commencing on December
31, 2004 (Note 6).

     Pursuant to the terms of the Reimbursement Agreement, the Company, on March
26, 2003, issued additional warrants, exercisable for ten years, to purchase a
total of 936,107 shares its common stock at $0.50 per share, to VantagePoint and
Columbia, bringing the total number of warrants issued in

                                       96
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

connection with the Reimbursement Agreement to 12,950,000. Since, the Company
initiated a loan on its bank Credit Agreement on February 3, 2003, the
Guarantors' guarantees of the subject loan became effective on February 3, 2003
and the contingency related to the validation of the warrants was eliminated
(Note 6).

The Company, on February 3, 2003, has valued the 12,950,000 warrants at $0.514
each with a total value of $6,656,300. The valuation was performed using a Black
Scholes valuation model with the following assumptions: (i) a risk free interest
rate of 4.01% (ten-year Treasury rate), (ii) a zero dividend yield, (iii) a ten
year expected life, (iv) an expected volatility of 153%, (v) an option exercise
price of $0.50 and (vi) a current market price of $0.52 (the closing price of
the Company's common stock on February 3, 2003). Since the warrants were issued
in consideration for loan guarantees, which enabled the Company to secure
financing at below market interest rates, the Company recorded their value as a
deferred financing cost which will be amortized to interest expense over the
term of the loan (approximately 57 months) using the "Interest Method" of
amortization.

     On March 3, 2003, the Company and certain of the Guarantors entered into
Amendment No. 1 to the Reimbursement Agreement, pursuant to which VantagePoint
increased its guarantee by $3,000,000, bringing the aggregate guarantees by all
Guarantors under the Reimbursement Agreement, as amended, to $9,100,000 (Note
6). As consideration for VantagePoint's increased guarantee, if the Company
closes an equity financing on or before December 3, 2003, it is authorized to
issue VantagePoint additional warrants to purchase the type of equity securities
issued by it in such equity financing. The number of such additional warrants
would be determined by dividing $1,000,000 by the per share price of such equity
securities.

     With the acquisition of the NAS assets and associated subscriber lines on
January 10, 2003, the Company acquired a number of subscribers that are serviced
indirectly through various Internet service providers ("ISP's"). The Company
sells its services to such ISP's who then resell such services. The Company
expects to have some increased exposure and concentration of credit risk
pertaining to such ISP's during 2003; however, the Company currently expects
that no individual customer or ISP will account for more than 5% of monthly
revenues in 2003.









                                       97
<PAGE>

                                  DSL.NET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

17.  SELECTED UNAUDITED QUARTERLY FINANCIAL DATA

     The following table depicts selected quarterly unaudited financial data for
the years ended December 31, 2000, 2001 and 2002.

<TABLE><CAPTION>
                                                                   Preferred
                                                                     Stock           Net Loss         Net Loss
                                                                    Exchange,      Applicable to      Per Share,
                                 Operating                          Dividends         Common          Basic and
                 Net Revenue        Loss           Net Loss       and Accretion    Stockholders       Diluted
                ------------    ------------     ------------     ------------     ------------     ------------
<S>             <C>             <C>              <C>              <C>              <C>              <C>
     Q1 2000    $  1,404,130    $(19,851,278)    $(18,338,284)    $       --       $(18,338,284)    $      (0.33)
     Q2 2000       3,505,866     (29,668,566)     (27,286,633)            --        (27,286,633)           (0.45)
     Q3 2000       5,763,729     (31,563,809)     (30,231,355)            --        (30,231,355)           (0.48)
     Q4 2000       7,115,685     (31,400,032)     (29,906,876)            --        (29,906,876)           (0.47)

     Q1 2001       8,822,319     (27,153,299)     (26,626,674)            --        (26,626,674)           (0.42)
     Q2 2001      10,347,878     (56,269,983)     (56,168,995)            --        (56,168,995)           (0.88)
     Q3 2001      11,724,199     (21,897,516)     (21,911,744)            --        (21,911,744)           (0.34)
     Q4 2001      11,075,015     (10,574,483)     (10,746,269)        (470,286)     (11,216,555)           (0.17)


     Q1 2002      11,380,915      (9,382,333)      (9,454,821)      (2,190,788)     (11,645,609)           (0.18)
     Q2 2002      11,595,695      (9,404,684)      (9,393,593)      (3,339,527)     (12,733,120)           (0.20)
     Q3 2002      11,262,209      (8,389,760)      (8,458,214)      (4,060,533)     (12,518,747)           (0.19)
     Q4 2002    $ 11,291,076    $ (8,644,509)    $ (8,787,577)    $ (4,060,533)    $(12,848,110)    $      (0.20)
</TABLE>

     The 2000 quarterly revenue has been restated to reflect the impact of SAB
No.101 (Note 2).















                                       98
<PAGE>

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

     There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters during DSL.net's two most recent
fiscal years.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information under the sections "Election of Directors," "Occupations of
Directors and Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" from the registrant's definitive proxy statement for the Company's
2003 annual meeting of stockholders, which is to be filed with the Securities
and Exchange Commission not later than 120 days after the close of the
registrant's fiscal year ended December 31, 2002, is hereby incorporated by
reference.

ITEM 11. EXECUTIVE COMPENSATION

    The information under the sections "Compensation and Other Information
Concerning Directors and Officers" and "Stock Performance Graph" from the
registrant's definitive proxy statement for the Company's 2003 annual meeting of
stockholders, which is to be filed with the Securities and Exchange Commission
not later than 120 days after the close of the registrant's fiscal year ended
December 31, 2002, is hereby incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information under the section "Securities Ownership of Certain
Beneficial Owners and Management" from the registrant's definitive proxy
statement for the Company's 2003 annual meeting of stockholders, which is to be
filed with the Securities and Exchange Commission not later than 120 days after
the close of the registrant's fiscal year ended December 31, 2002, is hereby
incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information under the sections "Compensation and Other Information
Concerning Directors and Officers" and "Certain Relationships and Related
Transactions" from the registrant's definitive proxy statement for the Company's
2003 annual meeting of stockholders, which is to be filed with the Securities
and Exchange Commission not later than 120 days after the close of the
registrant's fiscal year ended December 31, 2002, is hereby incorporated by
reference.

ITEM 14. CONTROLS AND PROCEDURES

     a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.

     Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
have evaluated the disclosure controls and procedures (as defined in the
Securities and Exchange Act of 1934 (the "Exchange Act") Rules 13a-14(c) and
15d-14(c)) as of a date within 90 days before the filing date of this annual
report. Based on this evaluation, the principal executive officer and principal
financial officer concluded that our disclosure controls and

                                       99
<PAGE>

procedures effectively ensure that material information required to be disclosed
in our filings and submissions under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.

     b) CHANGES IN INTERNAL CONTROLS

     There have been no significant changes in our internal controls or, to our
knowledge, in other factors that could significantly affect these controls
subsequent to the date of evaluation of our disclosure controls and procedures
referred to above.
































                                       100
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

     (a) The following documents are filed as part of this form 10-K.

           (1)    Financial Statements (see "Financial Statements and
                  Supplementary Data" at Item 8 and incorporated herein by
                  reference).

           (2)    Financial Statement Schedules -- Schedules to the Financial
                  Statements have been omitted because the information required
                  to be set forth therein is not applicable or is shown in the
                  accompanying Financial Statements or notes thereto, except for
                  Schedule II, Valuation and Qualifying Accounts, which is
                  attached hereto.

           (3)    Exhibits.

     The following exhibits are filed as part of and incorporated by reference
into this Form 10-K:

                                     EXHIBIT

EXHIBIT
  NO.
--------
2.01      Amended and Restated Asset Purchase Agreement, dated as of December
          11, 2002, By and among DSL.net, Inc., Network Access Solutions
          Corporation, Network Access Solutions LLC, NASOP, Inc. and Adelman
          Lavine Gold and Levin, A Professional Corporation, as deposit escrow
          agent (incorporated by reference to Exhibit 2.1 filed with our Form
          8-K dated as of January 10, 2003).

3.01      Amended and Restated Certificate of Incorporation of DSL.net, Inc., as
          amended (incorporated by reference to Exhibit 4.01 filed with our
          registration statement on Form S-8 (No. 333-89886)).

3.02      Amended and Restated By-laws of DSL.net, Inc. (incorporated by
          reference to Exhibit 4.02 filed with our registration statement on
          Form S-8 (No. 333-89886)).

4.01      Specimen Certificate for shares of DSL.net, Inc.'s Common Stock
          (incorporated by reference to the exhibit of corresponding number
          filed with our registration statement on Form S-1 (No. 333-80141)).

4.02      Specimen Certificate for shares of DSL.net, Inc.'s Series X Preferred
          Stock (incorporated by reference to Exhibit 4.01 filed with our
          Quarterly Report on Form 10-Q for the quarterly period ended September
          30, 2001).

4.03      Specimen Certificate for shares of DSL.net, Inc.'s Series Y Preferred
          Stock (incorporated by reference to Exhibit 4.02 filed with our Form
          8-K dated as of December 24, 2001).

4.04      Description of Capital Stock (contained in the Certificate of
          Incorporation filed as Exhibit 3.01 herewith).

                                       101
<PAGE>

4.05      Form of Stock Purchase Warrant dated as of October 12, 1999 between
          DSL.net, Inc. and certain investors (incorporated by reference to
          exhibit 4.03 filed with our registration statement on Form S-1 (No.
          333-96349)).

4.06*     Form of Stock Purchase Warrant dated as of December 27, 2002 between
          DSL.net, Inc. and certain guarantors.

4.07*     Form of Stock Purchase Warrant dated as of March 26, 2003 between
          DSL.net, Inc. and certain guarantors.

10.01+    Amended and Restated 1999 Stock Plan (incorporated by reference to the
          exhibit of corresponding number filed with our registration statement
          on Form S-1 (No. 333-80141)).

10.02+    1999 Employee Stock Purchase Plan (incorporated by reference to the
          exhibit of corresponding number filed with our registration statement
          on Form S-1 (No. 333-80141)).

10.03+    Amended and Restated 2001 Stock Option and Incentive Plan
          (incorporated by reference to Exhibit 4.3 filed with our registration
          statement on Form S-8 (No. 333-89886)).

10.04     Amended and Restated Investors' Rights Agreement dated as of July 16,
          1999 between DSL.net, Inc. and the purchasers named therein
          (incorporated by reference to Exhibit 10.03 filed with our
          registration statement on Form S-1 (No. 333-80141)).

10.05     Amendment No. 1 to Amended and Restated Investors' Rights Agreement
          (incorporated by reference to Exhibit 10.21 filed with our
          registration statement on Form S-1 (No. 333-80141)).

10.06     Lease Agreement dated February 5, 1999 by and between DSL.net, Inc.
          and Long Wharf Drive, LLC, as amended (incorporated by reference to
          Exhibit 10.07 filed with our registration statement on Form S-1 (No.
          333-96349)).

10.07     Amendment No. 1 dated June 9, 1999 to Lease Agreement by and between
          DSL.net, Inc. and Long Wharf Drive, LLC (incorporated by reference to
          Exhibit 10.08 filed with our registration statement on Form S-1 (No.
          333-96349)).

10.08     Amendment No. 2 dated November 9, 1999 to Lease Agreement by and
          between DSL.net, Inc. and Long Wharf Drive, LLC (incorporated by
          reference to Exhibit 10.09 filed with our registration statement on
          Form S-1 (No. 333-96349)).

10.09     Amendment No. 3 dated January 20, 2000 to Lease Agreement by and
          between DSL.net, Inc. and Long Wharf Drive, LLC (incorporated by
          reference to Exhibit 10.10 filed with our registration statement on
          Form S-1 (No. 333-96349)).

10.10     Amendment No. 4 dated February 8, 2000 to Lease Agreement by and
          between DSL.net, Inc. and Long Wharf Drive, LLC (incorporated by
          reference to Exhibit 10.12 filed with our Annual Report on Form 10-K
          for the fiscal year ended December 31, 2000).

10.11     Amendment No. 5 dated November 12, 2001 to Lease Agreement by and
          between DSL.net, Inc. and Long Wharf Drive, LLC. (incorporated by
          reference to Exhibit 10.11 filed with our Annual Report on Form 10-K
          for the year ended December 31, 2001).


                                       102
<PAGE>
10.12     Amendment No. 6 to Lease, Dated as of April 22, 2002, by and between
          DSL.net, Inc. and Long Wharf Drive, LLC (incorporated by reference to
          Exhibit 10.2 filed with our Quarterly Report on Form 10-Q for the
          quarterly period ended June 30, 2001).

10.13*    Amendment No. 7 to Lease, Dated as of December 4, 2002, by and between
          DSL.net, Inc. and Long Wharf Drive, LLC.

10.14     Amended and Restated Shareholders' Agreement, as amended, by and among
          DSL.net, Inc. and certain investors (incorporated by reference to
          Exhibit 10.08 filed with our registration statement on Form S-1 (No.
          333-80141)).

10.15+    Additional Compensation Agreement dated as of December 29, 1998
          between DSL.net, Inc. and David Struwas (incorporated by reference to
          Exhibit 10.18 filed with our registration statement on Form S-1 (No.
          333-80141)).

10.16+    Vector Internet Services, Inc. 1999 Stock Option Plan (incorporated by
          reference to Exhibit 4.4 filed with our registration statement on Form
          S-8 (No. 333-39016)).

10.17+    Vector Internet Services, Inc. 1997 Stock Option Plan (incorporated by
          reference to Exhibit 4.5 filed with our registration statement on Form
          S-8 (No. 333-39016)).

10.18     Series X Preferred Stock Purchase Agreement dated as of November 14,
          2001, by and among DSL.net and the Investors named therein
          (incorporated by reference to Exhibit 10.01 filed with our Quarterly
          Report on Form 10-Q for the quarterly period ended September 30,
          2001).

10.19     Series Y Preferred Stock Purchase Agreement dated as of December 24,
          2001, by and among DSL.net and the Investors named therein
          (incorporated by reference to Exhibit 99.01 filed with our Form 8-K
          dated as of December 24, 2001).

10.20     Stockholders Agreement dated as of December 24, 2001, by and among
          DSL.net and the Investors named therein (incorporated by reference to
          Exhibit 99.02 filed with our Form 8-K dated as of December 24, 2001).

10.21*    Revolving Credit and Term Loan Agreement dated as of December 13, 2002
          by and between DSL.net, Inc. and Fleet National Bank.

10.22*    Reimbursement Agreement dated December 27, 2002 by and among DSL.net,
          Inc., the Guarantors party thereto and VantagePoint Venture Partners
          III (Q), L.P., as Administrative Agent.

10.23*    Subsidiary Guaranty dated as of December 27, 2002 by DSLnet
          Communications Puerto Rico, Inc., DSLnet Communications VA, Inc.,
          Tycho Networks, Inc. and Vector Internet Services, Inc. in favor of
          VantagePoint Venture Partners III (Q), L.P., as Administrative Agent.

10.24*    Security Agreement dated as of December 27, 2002 by DSL.net, Inc.,
          DSLnet Communications Puerto Rico, Inc., DSLnet Communications VA,
          Inc., Tycho Networks, Inc. and Vector Internet Services, Inc. in favor
          of VantagePoint Venture Partners III (Q), L.P., as Administrative
          Agent.

                                       103
<PAGE>

10.25*    Guaranty of VantagePoint Venture Partners III (Q), L.P. delivered to
          Fleet National Bank.

10.26*    Guaranty of Columbia Capital Equity Partners II (QP), LP, Columbia
          Capital Equity Partners II (Cayman), LP, Columbia Capital Equity
          Partners II, LP, Columbia Capital Equity Partners III (QP), LP,
          Columbia Capital Equity Partners III (Cayman), LP and Columbia Capital
          Equity Partners III (AI), LP delivered to Fleet National Bank.

10.27*    Amendment No. 1 to Stockholders Agreement dated as of December 24,
          2002 by and among DSL.net, Inc. and the investors named therein.

10.28*    Amendment No. 1 to Reimbursement Agreement dated March 5, 2003 by and
          among DSL.net, Inc., the Guarantors party thereto and VantagePoint
          Venture Partners III (Q), L.P., as administrative Agent.

10.29*    First Amendment to Guaranty dated March 5, 2003 by and between
          VantagePoint Venture Partners III (Q), L.P. and Fleet National Bank.

10.30*    Letter Agreement dated March 5, 2003 by and between DSL.net, Inc. and
          VantagePoint Venture Partners III (Q), L.P.

21.01*    Subsidiaries of DSL.net, Inc.

23.01*    Consent of PricewaterhouseCoopers LLP.

24.01*    Power of Attorney (see signature page hereto).
___________
*    Filed herewith
+    Indicates a management contract or any compensatory plan, contract or
     arrangement.

     (b) Reports on Form 8-K

     The Company filed a Current Report on Form 8-K on October 18, 2002,
reporting on Items 5 and 7, relating to the Asset Purchase Agreement dated as of
October 16, 2002 with Network Access Solutions Corporation, Network Access
Solutions LLC and NASOP, Inc. and Adelman Lavine Gold and Levin, A Professional
Corporation, as deposit escrow agent.

     The Company filed a Current Report on Form 8-K on November 14, 2002,
reporting on Item 9, relating to the certifications of its Chief Executive
Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection
with the Company's quarterly report on Form 10-Q for the quarter ended September
30, 2002. The certifications were submitted to the Securities and Exchange
Commission on November 14, 2002.




                                       104
<PAGE>

                                   SIGNATURES

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


                                  DSL.NET, INC.


Dated: March 31, 2003                          By:   /s/ David F. Struwas
                                                    ------------------------
                                                    David F. Struwas
                                                    Chairman of the Board and
                                                    Chief Executive Officer

                        POWER OF ATTORNEY AND SIGNATURES

     We, the undersigned officers and directors of DSL.net, Inc., hereby
severally constitute and appoint David F. Struwas, Robert J. DeSantis and
Stephen Zamansky, and each of them singly, our true and lawful attorneys, with
full power to them and each of them singly, to sign for us in our names in the
capacities indicated below, any amendments to this Annual Report on Form 10-K,
and generally to do all things in our names and on our behalf in such capacities
to enable DSL.net, Inc. to comply with the provisions of the Securities Exchange
Act of 1934 and all requirements of the Securities and Exchange Commission.

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

Signature                      Title(s)                          Date
---------                      --------                          ----


/s/ David F. Struwas           Chairman of the Board and         March 31, 2003
-------------------------      Chief Executive Officer
David F. Struwas               (Principal Executive Officer)



/s/ Robert J. DeSantis         Chief Financial Officer           March 31, 2003
-------------------------      (Principal Financial and
Robert J. DeSantis             Accounting Officer)



/s/ Robert Gilbertson          Director                          March 31, 2003
-------------------------
Robert Gilbertson


/s/ Robert Hartnett            Director                          March 31, 2003
-------------------------
Robert Hartnett

                                       105
<PAGE>


/s/ Harry Hopper               Director                          March 31, 2003
-------------------------
Harry Hopper


/s/ Paul Keeler                Director                          March 31, 2003
-------------------------
Paul Keeler


/s/ William J. Marshall        Director                          March 31, 2003
-------------------------
William J. Marshall


/s/ James D. Marver            Director                          March 31, 2003
-------------------------
James D. Marver


/s/ Michael Yagemann           Director                          March 31, 2003
-------------------------
Michael Yagemann










                                       106
<PAGE>

                                 CERTIFICATIONS

I, David F. Struwas, certify that:

1.   I have reviewed this annual report Form 10-K, of DSL.net, Inc.;

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

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

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

     (a)  Designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;

     (b)  Evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     (c)  Presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

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

     (a)  All significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     (b)  Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

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

Date:  March 31, 2003

                                                 By: /s/ David F. Struwas
                                                     ---------------------------
                                                     Chairman of the Board and
                                                     Chief Executive Officer

                                       107
<PAGE>

I, Robert J. DeSantis, certify that:

1.   I have reviewed this annual report Form 10-K, of DSL.net, Inc.;

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

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

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

     (a)  Designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;

     (b)  Evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     (c)  Presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

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

     (a)  All significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     (b)  Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

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

Date:  March 31, 2003

                                                 By: /s/ Robert J. DeSantis
                                                     --------------------------
                                                     Chief Financial Officer

                                       108
<PAGE>

                   Exhibit Index to Annual Report on Form 10-K
                     for Fiscal Year Ended December 31, 2002

                                     EXHIBIT
                                     -------
EXHIBIT
  NO.
-------
2.01      Amended and Restated Asset Purchase Agreement, dated as of December
          11, 2002, By and among DSL.net, Inc., Network Access Solutions
          Corporation, Network Access Solutions LLC, NASOP, Inc. and Adelman
          Lavine Gold and Levin, A Professional Corporation, as deposit escrow
          agent (incorporated by reference to Exhibit 2.1 filed with our Form
          8-K dated as of January 10, 2003).

3.01      Amended and Restated Certificate of Incorporation of DSL.net, Inc., as
          amended (incorporated by reference to Exhibit 4.01 filed with our
          registration statement on Form S-8 (No. 333-89886)).

3.02      Amended and Restated By-laws of DSL.net, Inc. (incorporated by
          reference to Exhibit 4.02 filed with our registration statement on
          Form S-8 (No. 333-89886)).

4.01      Specimen Certificate for shares of DSL.net, Inc.'s Common Stock
          (incorporated by reference to the exhibit of corresponding number
          filed with our registration statement on Form S-1 (No. 333-80141)).

4.02      Specimen Certificate for shares of DSL.net, Inc.'s Series X Preferred
          Stock (incorporated by reference to Exhibit 4.01 filed with our
          Quarterly Report on Form 10-Q for the quarterly period ended September
          30, 2001).

4.03      Specimen Certificate for shares of DSL.net, Inc.'s Series Y Preferred
          Stock (incorporated by reference to Exhibit 4.02 filed with our Form
          8-K dated as of December 24, 2001).

4.04      Description of Capital Stock (contained in the Certificate of
          Incorporation filed as Exhibit 3.01 herewith).

4.05      Form of Stock Purchase Warrant dated as of October 12, 1999 between
          DSL.net, Inc. and certain investors (incorporated by reference to
          exhibit 4.03 filed with our registration statement on Form S-1 (No.
          333-96349)).

4.06*     Form of Stock Purchase Warrant dated as of December 27, 2002 between
          DSL.net, Inc. and certain guarantors.

4.07*     Form of Stock Purchase Warrant dated as of March 26, 2003 between
          DSL.net, Inc. and certain guarantors.


                                       109
<PAGE>

10.01+    Amended and Restated 1999 Stock Plan (incorporated by reference to the
          exhibit of corresponding number filed with our registration statement
          on Form S-1 (No. 333-80141)).

10.02+    1999 Employee Stock Purchase Plan (incorporated by reference to the
          exhibit of corresponding number filed with our registration statement
          on Form S-1 (No. 333-80141)).

10.03+    Amended and Restated 2001 Stock Option and Incentive Plan
          (incorporated by reference to Exhibit 4.3 filed with our registration
          statement on Form S-8 (No. 333-89886)).

10.04     Amended and Restated Investors' Rights Agreement dated as of July 16,
          1999 between DSL.net, Inc. and the purchasers named therein
          (incorporated by reference to Exhibit 10.03 filed with our
          registration statement on Form S-1 (No. 333-80141)).

10.05     Amendment No. 1 to Amended and Restated Investors' Rights Agreement
          (incorporated by reference to Exhibit 10.21 filed with our
          registration statement on Form S-1 (No. 333-80141)).

10.06     Lease Agreement dated February 5, 1999 by and between DSL.net, Inc.
          and Long Wharf Drive, LLC, as amended (incorporated by reference to
          Exhibit 10.07 filed with our registration statement on Form S-1 (No.
          333-96349)).

10.07     Amendment No. 1 dated June 9, 1999 to Lease Agreement by and between
          DSL.net, Inc. and Long Wharf Drive, LLC (incorporated by reference to
          Exhibit 10.08 filed with our registration statement on Form S-1 (No.
          333-96349)).

10.08     Amendment No. 2 dated November 9, 1999 to Lease Agreement by and
          between DSL.net, Inc. and Long Wharf Drive, LLC (incorporated by
          reference to Exhibit 10.09 filed with our registration statement on
          Form S-1 (No. 333-96349)).

10.09     Amendment No. 3 dated January 20, 2000 to Lease Agreement by and
          between DSL.net, Inc. and Long Wharf Drive, LLC (incorporated by
          reference to Exhibit 10.10 filed with our registration statement on
          Form S-1 (No. 333-96349)).

10.10     Amendment No. 4 dated February 8, 2000 to Lease Agreement by and
          between DSL.net, Inc. and Long Wharf Drive, LLC (incorporated by
          reference to Exhibit 10.12 filed with our Annual Report on Form 10-K
          for the fiscal year ended December 31, 2000).

10.11     Amendment No. 5 dated November 12, 2001 to Lease Agreement by and
          between DSL.net, Inc. and Long Wharf Drive, LLC. (incorporated by
          reference to Exhibit 10.11 filed with our Annual Report on Form 10-K
          for the year ended December 31, 2001).

10.12     Amendment No. 6 to Lease, Dated as of April 22, 2002, by and between
          DSL.net, Inc. and Long Wharf Drive, LLC (incorporated by reference to
          Exhibit 10.2 filed with our Quarterly Report on Form 10-Q for the
          quarterly period ended June 30, 2001).

10.13*    Amendment No. 7 to Lease, Dated as of December 4, 2002, by and between
          DSL.net, Inc. and Long Wharf Drive, LLC.

10.14     Amended and Restated Shareholders' Agreement, as amended, by and among
          DSL.net, Inc. and certain investors (incorporated by reference to
          Exhibit 10.08 filed with our registration statement on Form S-1 (No.
          333-80141)).

                                       110
<PAGE>

10.15+    Additional Compensation Agreement dated as of December 29, 1998
          between DSL.net, Inc. and David Struwas (incorporated by reference to
          Exhibit 10.18 filed with our registration statement on Form S-1 (No.
          333-80141)).

10.16+    Vector Internet Services, Inc. 1999 Stock Option Plan (incorporated by
          reference to Exhibit 4.4 filed with our registration statement on Form
          S-8 (No. 333-39016)).

10.17+    Vector Internet Services, Inc. 1997 Stock Option Plan (incorporated by
          reference to Exhibit 4.5 filed with our registration statement on Form
          S-8 (No. 333-39016)).

10.18     Series X Preferred Stock Purchase Agreement dated as of November 14,
          2001, by and among DSL.net and the Investors named therein
          (incorporated by reference to Exhibit 10.01 filed with our Quarterly
          Report on Form 10-Q for the quarterly period ended September 30,
          2001).

10.19     Series Y Preferred Stock Purchase Agreement dated as of December 24,
          2001, by and among DSL.net and the Investors named therein
          (incorporated by reference to Exhibit 99.01 filed with our Form 8-K
          dated as of December 24, 2001).

10.20     Stockholders Agreement dated as of December 24, 2001, by and among
          DSL.net and the Investors named therein (incorporated by reference to
          Exhibit 99.02 filed with our Form 8-K dated as of December 24, 2001).

10.21*    Revolving Credit and Term Loan Agreement dated as of December 13, 2002
          by and between DSL.net, Inc. and Fleet National Bank.

10.22*    Reimbursement Agreement dated December 27, 2002 by and among DSL.net,
          Inc., the Guarantors party thereto and VantagePoint Venture Partners
          III (Q), L.P., as Administrative Agent.

10.23*    Subsidiary Guaranty dated as of December 27, 2002 by DSLnet
          Communications Puerto Rico, Inc., DSLnet Communications VA, Inc.,
          Tycho Networks, Inc. and Vector Internet Services, Inc. in favor of
          VantagePoint Venture Partners III (Q), L.P., as Administrative Agent.

10.24*    Security Agreement dated as of December 27, 2002 by DSL.net, Inc.,
          DSLnet Communications Puerto Rico, Inc., DSLnet Communications VA,
          Inc., Tycho Networks, Inc. and Vector Internet Services, Inc. in favor
          of VantagePoint Venture Partners III (Q), L.P., as Administrative
          Agent.

10.25*    Guaranty of VantagePoint Venture Partners III (Q), L.P. delivered to
          Fleet National Bank.

10.26*    Guaranty of Columbia Capital Equity Partners II (QP), LP, Columbia
          Capital Equity Partners II (Cayman), LP, Columbia Capital Equity
          Partners II, LP, Columbia Capital Equity Partners III (QP), LP,
          Columbia Capital Equity Partners III (Cayman), LP and Columbia Capital
          Equity Partners III (AI), LP delivered to Fleet National Bank.

10.27*    Amendment No. 1 to Stockholders Agreement dated as of December 24,
          2002 by and among DSL.net, Inc. and the investors named therein.


                                       111
<PAGE>

10.28*    Amendment No. 1 to Reimbursement Agreement dated March 5, 2003 by and
          among DSL.net, Inc., the Guarantors party thereto and VantagePoint
          Venture Partners III (Q), L.P., as administrative Agent.

10.29*    First Amendment to Guaranty dated March 5, 2003 by and between
          VantagePoint Venture Partners III (Q), L.P. and Fleet National Bank.

10.30*    Letter Agreement dated March 5, 2003 by and between DSL.net, Inc. and
          VantagePoint Venture Partners III (Q), L.P.

21.01*    Subsidiaries of DSL.net, Inc.

23.01*    Consent of PricewaterhouseCoopers LLP.

24.01*    Power of Attorney (see signature page hereto).
___________
*    Filed herewith
+    Indicates a management contract or any compensatory plan, contract or
     arrangement.


























                                       112
<PAGE>

                      REPORT OF INDEPENDENT ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE


To the Board of Directors and Stockholders of
DSL.net, Inc.:


Our audits of the consolidated financial statements referred to in our report
dated February 14, 2003 except for Note 16 as to which the date is March 26,
2003 appearing in this Form 10-K of DSL.net, Inc. also included an audit of the
financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.





/s/ PricewaterhouseCoopers LLP

Stamford, Connecticut
February 14, 2003














                                       113
<PAGE>

SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS

     The following table depicts the activity in the allowance for doubtful
accounts for the years ended December 31, 2000, 2001 and 2002:

<TABLE><CAPTION>
------------------------------------------------------------------------------------------
                            Allowance for Doubtful Accounts
------------------------------------------------------------------------------------------
                                                   Additions   Deductions
                        Additions    Additions    Charged to     Charged
          Balance at    Charged to  Charged to      Sales        Against
           Beginning    Costs and    Purchase    Credits and    Valuation    Balance at
  Year     of Period     Expenses   Accounting    Allowances    Allowance   End of Period
-------- ------------ ------------ ------------ ------------- ------------- --------------
<S>       <C>          <C>          <C>          <C>           <C>            <C>
  2000    $   62,603   $  700,000   $   87,000   $   590,496   $   (87,000)   $1,353,099
-------- ------------ ------------ ------------ ------------- ------------- --------------
  2001    $1,353,099   $2,807,239   $      --    $ 1,498,498   $(1,814,688)   $3,844,148
-------- ------------ ------------ ------------ ------------- ------------- --------------
  2002    $3,844,148   $2,583,210   $      --    $       --    $(5,821,126)   $  606,232
-------- ------------ ------------ ------------ ------------- ------------- --------------
</TABLE>























                                      114