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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-Q

|/x/ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|--- |  | ----------------------------------------------------------------------------------------

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

OR

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

For the transition period from to  to

|Commission
File
Number |  | Exact Name of Registrant as Specified in Its Charter; State of Incorporation; Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices |  | IRS Employer
Identification
Number
|---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------
|000-31531              |  | NEON Communications, Inc. (a Delaware corporation)
2200 West Park Drive
Westborough, Massachusetts 01581
(508) 616-7800                                                                           |  | 04-3523408                        

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Securities registered pursuant to Section 12(b) of the Act:None

Securities registered pursuant to Section 12(g) of the Act:NEON Communications, Inc.Common Stock, Par Value $0.01 Per Share

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

At
November 1, 2001 there were 21,335,061 shares of NEON Communications, Inc. common stock outstanding.

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TABLE OF CONTENTS



|                                                                 |  |                                                                                      
|---------------------------------------------------------------- |  | -------------------------------------------------------------------------------------
|PART I. FINANCIAL INFORMATION                                   
|ITEM 1:                                                          |  | FINANCIAL STATEMENTS                                                                 
|Condensed Consolidated Balance Sheets (Unaudited)               
|Condensed Consolidated Statements of Operations (Unaudited)     
|Condensed Consolidated Statements of Cash Flows (Unaudited)     
|Notes to Condensed Consolidated Financial Statements (Unaudited)
|ITEM 2:                                                          |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|ITEM 3:                                                          |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II: OTHER INFORMATION                                      
|Item 1:                                                          |  | Legal Proceedings                                                                    
|Item 2:                                                          |  | Changes in Securities and Use of Proceeds                                            
|Item 4:                                                          |  | Submission of Matters to a Vote of Security Holders                                  
|Item 6:                                                          |  | Exhibits and Reports on Form 8-K                                                     
|Signatures                                                      
|Exhibit Index                                                   

1

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NEON COMMUNICATIONS, INC.  Condensed Consolidated Balance Sheets    (Unaudited)

|                                               |                                             | December 31,
2000                                                                                                                               |             | September 30,
2001 |           
|---------------------------------------------- | ------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------------------ | ----------
|Assets                                         |                                            
|Current Assets:                                |                                             |                                                                                                                                                 |             |                    |           
|                                               | Cash and cash equivalents                   |                                                                                                                                                 | $           | 20,650,158         |           
|                                               | Short-term investments                      |                                                                                                                                                 |             |                   |           
|                                               | Short-term restricted investments           |                                                                                                                                                 |             | 24,452,374         |           
|                                               | Accounts receivable, net                    |                                                                                                                                                 |             | 2,725,732          |           
|                                               | Prepaid expenses and other current assets   |                                                                                                                                                 |             | 413,764            |           
|                                               |                                             |                                                                                                                                                 |             |                    |           
|                                               |                                             | Total current assets                                                                                                                            |             |                    | 48,242,028
|                                               |                                             |                                                                                                                                                 |             |                    |           
|Property and Equipment, net                    |                                             |                                                                                                                                                 | 161,425,167 |                    |           
|Restricted Investments                         |                                             |                                                                                                                                                 | 10,851,258  |                    |           
|Intangible and Other Assets, net               |                                             |                                                                                                                                                 | 61,418,238  |                    |           
|                                               |                                             |                                                                                                                                                 |             |                    |           
|                                               |                                             | $                                                                                                                                               | 281,936,691 |                    | $         
|                                               |                                             |                                                                                                                                                 |             |                    |           
|Liabilities and Stockholders' Equity (Deficit) |                                            
|Current Liabilities:                           |                                             |                                                                                                                                                 |             |                    |           
|                                               | Accounts payable                            |                                                                                                                                                 | $           | 21,559,425         |           
|                                               | Accounts payableCommunications network     |                                                                                                                                                 |             | 11,874,368         |           
|                                               | Accrued expenses                            |                                                                                                                                                 |             | 13,526,077         |           
|                                               | Current portion of long-term obligations    |                                                                                                                                                 |             |                   |           
|                                               | Accrued right-of-way fees, related party    |                                                                                                                                                 |             | 679,531            |           
|                                               | Deferred revenue                            |                                                                                                                                                 |             | 735,105            |           
|                                               |                                             |                                                                                                                                                 |             |                    |           
|                                               |                                             | Total current liabilities                                                                                                                       |             |                    | 48,374,506
|                                               |                                             |                                                                                                                                                 |             |                    |           
|Deferred revenue, net of current portion       |                                             |                                                                                                                                                 | 3,989,670   |                    |           
|Long-term obligations, net of current portion  |                                             |                                                                                                                                                 | 193,650,642 |                    |           
|Contingencies (Note 7)                         |                                             |                                                                                                                                                 |             |                    |           
|Stockholders' Equity (Deficit):                |                                             |                                                                                                                                                 |             |                    |           
|                                               | Unrestricted Common stock, $0.01 par value |                                                                                                                                                 |             |                    |           
|                                               |                                             | Authorized60,000,000 shares; Issued and outstanding18,753,870 and 19,948,089 shares at December 31, 2000 and September 30, 2001, respectively |             |                    | 187,539   
|                                               | Restricted common stock (Note 2)            |                                                                                                                                                 |             | 25,804             |           
|                                               | Subscription receivable (Note 2)            |                                                                                                                                                 |             | (167,431,217       | )         
|                                               | Additional paid-in capital                  |                                                                                                                                                 |             | 289,445,281        |           
|                                               | Accumulated deficit                         |                                                                                                                                                 |             | (86,305,534        | )         
|                                               |                                             |                                                                                                                                                 |             |                    |           
|                                               |                                             | Total stockholders' equity (deficit)                                                                                                            |             |                    | 35,921,873
|                                               |                                             |                                                                                                                                                 |             |                    |           
|                                               |                                             | $                                                                                                                                               | 281,936,691 |                    | $         
|                                               |                                             |                                                                                                                                                 |             |                    |           

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

2

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NEON COMMUNICATIONS, INC.  Condensed Consolidated Statements of Operations    (Unaudited)

|                                                      |                                               | Three Months Ended
September 30, |             | Nine Months Ended
September 30, |  
|----------------------------------------------------- | --------------------------------------------- | -------------------------------- | ----------- | ------------------------------- | -
|
|Revenues:                                             |                                               |                                  |             |                                 |  
|                                                      | Network services                              |                                  | $           | 3,136,374                       |  
|                                                      | Other services                                |                                  |             | 544,128                         |  
|                                                      |                                               |                                  |             |                                 |  
|                                                      | Total revenues                                |                                  |             | 3,680,502                       |  
|                                                      |                                               |                                  |             |                                 |  
|Expenses:                                             |                                               |                                  |             |                                 |  
|                                                      | Cost of revenues                              |                                  |             | 2,745,150                       |  
|                                                      | Selling, general and administrative           |                                  |             | 4,850,600                       |  
|                                                      | Writedown of subscription receivable (Note 2) |                                  |             |                                |  
|                                                      | Depreciation and amortization                 |                                  |             | 3,078,564                       |  
|                                                      |                                               |                                  |             |                                 |  
|                                                      | Total expenses                                |                                  |             | 10,674,314                      |  
|                                                      |                                               |                                  |             |                                 |  
|                                                      | Loss from operations                          |                                  |             | (6,993,812                      | )
|                                                      |                                               |                                  |             |                                 |  
|Other Income (Expense):                               |                                               |                                  |             |                                 |  
|                                                      | Interest and other income                     |                                  |             | 1,103,195                       |  
|                                                      | Interest expense                              |                                  |             | (5,287,652                      | )
|                                                      |                                               |                                  |             |                                 |  
|                                                      | Total other expense, net                      |                                  |             | (4,184,457                      | )
|                                                      |                                               |                                  |             |                                 |  
|Net Loss                                              |                                               | $                                | (11,178,269 | )                               | $
|                                                      |                                               |                                  |             |                                 |  
|Basic and Diluted Loss per Share                      |                                               |                                  | $(0.66      | )                               |  
|                                                      |                                               |                                  |             |                                 |  
|Basic and Diluted Weighted Average Shares Outstanding |                                               |                                  | 17,056,292  |                                 |  
|                                                      |                                               |                                  |             |                                 |  

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

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NEON COMMUNICATIONS, INC.  Condensed Consolidated Statements of Cash Flows    (Unaudited)

|                                                           |                                                                              | Nine Months Ended
September 30,                       |                                          
|---------------------------------------------------------- | ---------------------------------------------------------------------------- | ----------------------------------------------------- | -----------------------------------------
|
|Cash Flows from Operating Activities:                      |                                                                              |                                                       |                                          
|                                                           | Net loss                                                                     |                                                       | $                                        
|                                                           | Adjustments to reconcile net loss to net cash used in operating activities  |                                                       |                                          
|                                                           |                                                                              | Writedown of subscription receivable                  |                                          
|                                                           |                                                                              | Depreciation and amortization                         |                                          
|                                                           |                                                                              | Amortization of deferred financing and interest costs |                                          
|                                                           |                                                                              | Gain on sale of property and equipment                |                                          
|                                                           |                                                                              | Changes in assets and liabilities                    |                                          
|                                                           |                                                                              |                                                       | Accounts receivable                      
|                                                           |                                                                              |                                                       | Prepaid expenses and other current assets
|                                                           |                                                                              |                                                       | Accounts payable                         
|                                                           |                                                                              |                                                       | Accrued expenses                         
|                                                           |                                                                              |                                                       | Deferred revenue                         
|                                                           |                                                                              |                                                       |                                          
|                                                           |                                                                              |                                                       |                                          
|                                                           |                                                                              |                                                       |                                          
|Cash Flows from Investing Activities:                      |                                                                              |                                                       |                                          
|                                                           | Sales (purchases) of short-term investments, net                             |                                                       |                                          
|                                                           | Proceeds from sale of property and equipment                                 |                                                       |                                          
|                                                           | Purchases of property and equipment                                          |                                                       |                                          
|                                                           | Increase in intangible and other assets                                      |                                                       |                                          
|                                                           |                                                                              |                                                       |                                          
|                                                           |                                                                              |                                                       |                                          
|                                                           |                                                                              |                                                       |                                          
|Cash Flows from Financing Activities:                      |                                                                              |                                                       |                                          
|                                                           | (Decrease) increase in accounts payablecommunications network               |                                                       |                                          
|                                                           | Decrease in restricted cash and investments                                  |                                                       |                                          
|                                                           | Proceeds from issuance of convertible debt                                   |                                                       |                                          
|                                                           | Payment of long-term obligations                                             |                                                       |                                          
|                                                           | Proceeds from issuance of common and restricted common stock, net            |                                                       |                                          
|                                                           | Proceeds from subscription receivable                                        |                                                       |                                          
|                                                           | Payment of common stock issuance costs                                       |                                                       |                                          
|                                                           | Proceeds from exercise of common stock options                               |                                                       |                                          
|                                                           |                                                                              |                                                       |                                          
|                                                           |                                                                              |                                                       |                                          
|                                                           |                                                                              |                                                       |                                          
|Net Increase (Decrease) in Cash and Cash Equivalents       |                                                                              |                                                       | 35,550,535                               
|Cash and Cash Equivalents, beginning of period             |                                                                              |                                                       | 4,768,389                                
|                                                           |                                                                              |                                                       |                                          
|Cash and Cash Equivalents, end of period                   |                                                                              |                                                       | 40,318,924                               
|                                                           |                                                                              |                                                       |                                          
|Supplemental Disclosure of Cash Flow information:          |                                                                              |                                                       |                                          
|                                                           | Cash paid during the period for                                             |                                                       |                                          
|                                                           |                                                                              | Interest                                              |                                          
|                                                           |                                                                              |                                                       |                                          
|                                                           |                                                                              | Taxes                                                 |                                          
|                                                           |                                                                              |                                                       |                                          
|Supplemental Disclosure of Non-Cash Financing Information: |                                                                              |                                                       |                                          
|                                                           | Beneficial conversion in Exelon transaction (Note 4(b))                      |                                                       | $                                        
|                                                           |                                                                              |                                                       |                                          
|                                                           | Increase (decrease) in subscription receivable                               |                                                       | $                                        
|                                                           |                                                                              |                                                       |                                          
|                                                           | Issuance of note payable to Nortel Networks (Note 4(c))                      |                                                       | $                                        
|                                                           |                                                                              |                                                       |                                          

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

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NEON COMMUNICATIONS, INC.  Notes to Condensed Consolidated Financial Statements    (Unaudited)

(1) Operations and Reorganization

NEON Communications, Inc. (the "Company" or "NEON") and its subsidiaries are engaged in the ownership, management, operation and installation of fiber
optic telecommunication networks. NEON is a leading provider of advanced optical networking solutions and services in the Northeast and Mid-Atlantic regions of the United States.

To
date, the Company has recorded revenues principally from network transport and related services contracts and has incurred cumulative operating losses of approximately
$187,200,000, including the effect of a one-time non-cash charge of $60,000,000 described in Note 2. The market for fiber optic telecommunications in which the Company
operates is changing rapidly due to technological advancements, the introduction of new products and services, the increasing demands placed on equipment in worldwide telecommunications networks and
the demand for telecommunications capacity compared to the supply currently available.

In
September 2000, the Company completed its second reorganization, under the terms of which NEON Communications, Inc. became the parent holding company of Northeast
Optic Network, Inc. At the same time, Northeast Optic Network, Inc. changed its name to NEON Optica, Inc. The common stock of NEON Communications, Inc. is traded on the
Nasdaq National Market under the symbol "NOPT", with NEON Optica, Inc., the operating entity, as a wholly owned subsidiary of NEON Communications, Inc. The names were changed to reflect
the fact that NEON is now doing business in both the Northeast and the Mid-Atlantic regions.

(2) Network Connectivity Purchases in Exchange for Stock

On September 14, 2000, the Company closed an agreement with Consolidated Edison Communications, Inc. ("CEC") under which CEC agreed to grant the
Company an indefeasible right to use ("IRU") fiber optic facilities on the CEC network to provide network transport and carrier services in its service area, which includes New York City and
Westchester County, New York. At the same time, CEC also agreed to provide connectivity from NEON's backbone system to its local distribution facilities in its service area. This communications
network will operate under the NEON brand, expanding NEON's network into and around New York. The term of the IRU granted under the CEC agreement is for no less than 25 years. In addition to
the IRUs and intangible assets, CEC has also agreed to contribute to the Company cash totaling $11,300,000 over the period from September 14, 2000 to April 15, 2005 for the
build-out of local points of presence ("POP") and the related optronic equipment and for the cost of POP rental, POP operating expenses, optronic equipment maintenance and sales and
marketing expenses. As part of the agreement, the Company has issued 2,476,735 shares of common stock to CEC, of which 56% was restricted as of September 30, 2001, with such restrictions to
lapse incrementally upon the completion of certain milestones over the terms of the agreement, as detailed in the contract with CEC. This transaction resulted in CEC owning approximately 10.5% of
NEON's fully diluted common stock. Pursuant to a stockholders' agreement entered into among the Company, CEC, Exelon Enterprises Management, Inc. ("Exelon"), and a subsidiary of Northeast
Utilities, CEC has nominated a member of the Company's Board of Directors. In connection with this transaction, the Company has recorded a subscription receivable on the accompanying consolidated
balance sheet for the value of these assets, based upon an appraisal of the value of the tangible and intangible assets received in consideration for the stock provided under this agreement. As
network assets are received under this agreement, the related subscription receivable amount will be transferred to fixed and intangible assets. The addition of these tangible and intangible assets
will result in

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significant depreciation and amortization expense and an increase in the Company's net loss per share over the terms of the IRU granted under this agreement.

On
September 14, 2000, the Company also closed a similar agreement with Exelon. Under the initial agreement with Exelon, the Company issued 2,131,143 shares of common and
restricted common stock to Exelon, which resulted in Exelon owning approximately 9.1% of NEON's fully diluted common stock, and received cash totaling approximately $3,300,000 from Exelon. Exelon also
entered into a stockholders' agreement among the Company, CEC, Exelon and a subsidiary of Northeast Utilities, whereby Exelon has nominated a member of the Company's Board of Directors. On
August 10, 2001, the Company closed financing of $11,500,000 in the form of an 18% subordinated convertible note ("Exelon Convertible Note") with Exelon (see Note 4(b)) and modified the
September 2000 agreement. The Exelon Convertible Note purchase agreement provides for an additional $10,000,000 from Exelon, payable either in cash or forgiveness of indebtedness represented by
the Exelon Convertible Note on or before April 2002 in lieu of providing the IRU, services and other cash proceeds required under the September 2000 agreement with Exelon. Pursuant to
the Exelon Convertible Note purchase agreement, all restrictions on the common stock issued to Exelon in September 2000 were released. In connection with the September 2000 agreement,
the Company recorded a subscription receivable on the accompanying consolidated balance sheet for the value of the assets, as determined based on an independent appraisal of the value of the tangible
and intangible assets to be received. Upon closing the Exelon Convertible Note, the Company recorded a one-time, non-cash charge to operations of $60,000,000 to writedown the
subscription receivable related to the Exelon transaction.

(3) Significant Accounting Policies

The accompanying consolidated financial statements reflect the application of certain accounting policies as described below and elsewhere in these notes to
consolidated financial statements.

(a) Principles of Consolidation

The accompanying consolidated financial statements include the results of operations of NEON Communications, Inc., its wholly owned subsidiary, NEON
Optica, Inc. ("NEON Optica") and NEON Optica's wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

(b) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission, and reflect all adjustments, consisting of only normal recurring adjustments, which, in the opinion of management, are necessary for a fair statement of the results
of the interim periods presented. These financial statements do not include disclosures associated with the annual financial statements and, accordingly, should be read in conjunction with the
attached Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and footnotes for the year ended December 31, 2000 included in the
Company's Form 10-K.

(c) Management Estimates

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

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(d) Revenue Recognition

The services the Company provides include short-term leases of lit fiber (fixed amounts of capacity on fiber optic transmission lines that use
optronics equipment installed by the Company) and longer-term leases of dark fiber (fiber optic transmission lines leased without optronics equipment installed by the Company) at
fixed-cost pricing over multi-year terms. Revenues on telecommunications network services are recognized ratably over the term of the applicable lease agreements with
customers, which range from one to 20 years. Amounts billed in advance of the service provided are recorded as deferred revenue (see Note 3(e)). The Company also leases space to
customers at its collocation facilities. Other service revenues includes these collocation service revenues as well as revenues from nonrecurring installation charges and design, engineering and
construction services.

In
December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101,Revenue
Recognition, which provides guidance on applying generally accepted accounting principles to recognition of revenues. The Company adopted SAB No. 101 in the fourth
quarter of 2000. Under the guidance of SAB No. 101, the Company recognizes revenues from nonrecurring installation charges and design, engineering and construction services ratably over the
multi-year network services terms to which the nonrecurring charges relate. Prior to the issuance of SAB No. 101, revenues for these nonrecurring services were generally recognized
as services were performed because the Company had no further obligations. The Company adopted this new accounting guidance as of January 1, 2000 and all periods presented have been restated to
reflect the effects of SAB No. 101.

The
Company has contracts with customers that provide service-level commitments, which may obligate the Company to provide credits against billings if service is interrupted or does
not meet the customer's operating parameters. These amounts are accounted for in cost of sales. To date, credits granted under these arrangements have not been material.

(e) Deferred Revenue

Deferred revenue represents prepayments on dark fiber optic cable leases and amounts related to nonrecurring fees to be recognized over the terms of the
customer fiber optic lease arrangements to which they relate in accordance with SAB No. 101. Lease payments are structured as either prepayments or monthly recurring charges. Prepayments are
accounted for as deferred revenue and recognized over the term of the respective customer fiber optic lease agreement.

(f) Comprehensive Income (Loss)

Statement of Financial Accounting Standards ("SFAS") No. 130,Reporting Comprehensive Income, requires
disclosure of all components of comprehensive income (loss) on an annual and interim basis. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner sources. Comprehensive net loss is the same as reported net loss for all periods presented.

(g) Loss per Share

In accordance with SFAS No. 128, Earnings per Share, basic and diluted loss per share were computed by dividing net loss by the weighted average number
of common shares outstanding. Diluted net loss per share in the three and nine months ended September 30, 2001 excludes 1,386,972 shares of restricted common stock and 2,671,075 and 2,562,600
shares issuable from the assumed exercise of stock options, respectively, as their effect would be antidilutive. Diluted net loss per share in the three and nine months ended September 30, 2000
excludes 2,580,412 shares of restricted stock and 1,342,740 and 1,417,705 shares issuable from the assumed exercise of stock options, respectively, as their effect would be antidilutive.

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(h) Reclassifications

Certain prior-period amounts have been reclassified to conform to the current period presentation.

(i) New Accounting Standards

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141,Business
Combinations. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. This statement is
effective for all business combinations initiated after June 30, 2001. This standard is not expected to impact the Company upon implementation.

In
July 2001, the FASB issued SFAS no. 142,Goodwill and Other Intangible Assets. This statement applies to goodwill and
intangible assets acquired after June 30, 2001, as well as goodwill and intangible assets previously acquired, and is effective for the Company for the first quarter in the fiscal year ended
December 2002. Under this statement goodwill as well as certain other intangible assets, determined to have an infinite life, will no longer be amortized, instead these assets will be reviewed
for impairment on a periodic basis. As of September 30, 2001, the Company had approximately $43,100,000 of goodwill and other intangible assets as well as a subscription receivable for
$29,600,000 of additional goodwill and other intangible assets related to its transaction with CEC (see Note 2). Management is currently evaluating the impact that this statement will have on
the Company's financial statements.

In
June 2001, the FASB issued SFAS No. 143,Accounting for Asset Retirement Obligations. This statement addresses
financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement applies to all
entities. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. This statement amends FASB Statement No. 19 and is effective for financial statements issued for fiscal years beginning
after June 15, 2002. Management is currently evaluating the impact that this statement will have on the Company's financial statements.

In
August 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets.
This statement supercedes FASB Statement No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30,Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. Under this
statement, it is required that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and it broadens the
presentation of discontinued operations to include more disposal transactions. The provisions of this statement are effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years, with early adoption permitted. Management is currently evaluating the impact that this statement will have on the Company's
financial statements.

(4) Long-Term Obligations

(a) 123/4% Senior Notes

In August 1998, NEON Optica sold $180,000,000 of 123/4% Senior Notes due 2008 ("Senior Notes") to the public in the debt offering. The
Senior Notes are due on August 15, 2008 and scheduled interest payments are due on February 15 and August 15 of each year, commencing February 15, 1999. Upon closing of the
sale of the Senior Notes, NEON Optica purchased approximately $72,000,000 in U.S. Government obligations with an average maturity of 645 days to provide for payment in full of the

8

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first seven scheduled interest payments on the Senior Notes. Such securities are pledged as security for the benefit of the holders of the Senior Notes, are classified as
held-to-maturity and reported at amortized cost and are included as restricted investments in the accompanying consolidated balance sheets. The Senior Notes are redeemable in
whole or in part at the option of NEON Optica at any
time on or after August 15, 2003 at the following redemption prices expressed as a percentage of principal plus accrued interest through the date of redemption:

Period

Redemption
Price2003

106.375
%2004

104.2502005

102.125Thereafter

100.000


In
the event of a change in control, as defined, each holder of the Senior Notes will be entitled to require NEON Optica to purchase all or a portion of such holder's Senior Notes at
a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. The Senior Notes are unsecured obligations and rank pari passuin right
of payment with all existing and future indebtedness of NEON Optica that is not subordinated by its terms in right of payment and
priority to the Senior Notes and is senior in right-of-payment to all future subordinated indebtedness of NEON Optica.

The
Senior Notes are thinly traded and are currently trading substantially below their face amount. As of September 30, 2001, the fair value of the Senior Notes was
$50,400,000, based on the market price on that date.

In
connection with this financing, NEON Optica incurred approximately $6,300,000 of issuance costs. These costs have been classified as deferred financing costs in the accompanying
consolidated balance sheet and are being amortized, as additional interest expense, over the term of the Senior Notes.

(b) 18% Subordinated Convertible Notes

On June 15, 2001, the Company closed financing of $15,000,000 in the form of an 18% subordinated convertible note ("NU Convertible Note") with Mode 1
Communications, Inc., a subsidiary of Northeast Utilities ("NU"). The NU Convertible Note matures on August 15, 2008, and scheduled interest payments are due semi-annually
commencing August 15, 2001. The Company has the option to pay the interest in cash, common stock at a price per share of $6.00 or an additional convertible note. The NU
Convertible Note and accrued interest are convertible at any time into common stock, at NU's option, at a price of $6.00 per common share, which represents 2,500,000 shares, subject to certain
anti-dilution provisions.

As
discussed in Note 2, on August 10, 2001, the Company closed financing of $11,500,000 in the form of an 18% subordinated convertible note with Exelon. The Exelon
Convertible Note matures on August 15, 2008, and scheduled interest payments are due semi-annually commencing August 15, 2001. Exelon has the option to receive the interest
in cash or common stock at a price per share of $5.00 or an additional subordinated convertible note. The Exelon Convertible Note and accrued interest are convertible at any time into common stock, at
Exelon's option, at a price of $5.00 per share, which represents 2,300,000 shares of common stock, subject to certain anti-dilution provisions. The Exelon Convertible Note purchase
agreement provides for an additional $10,000,000 from Exelon payable in either cash or forgiveness of the indebtedness represented by the note on or before April 15, 2002. The fair value of the
Company's stock on the date the original commitment by Exelon was executed was $5.50 per share. Therefore, the Company has recorded as deferred financing fees the difference

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between the conversion price and the fair value of the stock, totaling $1,150,000. This non-cash amount will be amortized as interest expense over the term of the Exelon Convertible Note.

(c) Nortel 15% Note

In August 2001, NEON Optica completed an agreement with Nortel Networks, Inc. ("Nortel"), one of its primary optical equipment providers, whereby
NEON Optica refinanced its existing obligations to Nortel through the issuance of a 15% promissory note for $46,250,000. Interest and principle payments are due quarterly beginning
September 30, 2001 through June 30, 2003.

(5) Preferred Stock

The Company's Restated Certificate of Incorporation authorizes the issuance of up to 2,000,000 shares of preferred stock, $0.01 par value per share. Under the
terms of the Certificate of Incorporation, the Board of Directors is authorized, subject to any limitations prescribed by law, without stockholder approval, to issue such shares of preferred stock in
one or more series. Each series of preferred stock shall have rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, as shall be determined by the Board of Directors. At September 30, 2001, no such shares are issued and outstanding.

(6) Sale of IRU to CEC

In January 2001, the Company entered into an agreement with CEC in which the Company granted CEC a 20-year IRU in certain fibers and a
36-month lease of certain other fibers along a route segment between White Plains, NY and New York City. The 36-month lease will convert into a 17-year IRU at the
end of the lease period upon a one-time payment of $1.00. The agreement provides for an up-front payment from CEC of $4,000,000 and an additional $3,172,000 payable monthly
over the 36-month lease period. A portion of the fibers provided to CEC will be included in the IRU granted from CEC to the Company under the September 2000 transaction (see
Note 2). The Company provided the fiber under this agreement to CEC in May, 2001. The Company has accounted for this transaction as a fixed asset sale and sales-type lease and has
recorded a gain in the second quarter of 2001 of approximately $1,515,000, which is included in other income in the consolidated statement of operations.

(7) Contingencies

On August 16, 2001, NEON Optica, Inc. filed a lawsuit against Fiber Optek Interconnect Corp. ("Fiber Optek") and its two principals, Michael S.
Pascazi and Frank Zarzeka, in the Southern District of New York. The Company is seeking a judgment that the Company's termination of its construction contract with Fiber Optek was proper and is
seeking damages based on breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent inducement and breach of express warranty in connection with Fiber Optek's
defective and poor quality work, delay, failure to cooperate, false billing practices, business slander and abuse of process in connection with Fiber Optek's publication of defamatory press releases
and its filing of mechanics liens against NEON under false pretenses. On September 24, 2001, Fiber Optek filed an answer and 58 counterclaims against NEON. The counterclaims seek judgment that
various liens filed by Fiber Optek against NEON are valid and seek damages including lost profits and interest for alleged breaches of contract by NEON. On October 16, 2001, Fiber Optek amended
their counterclaim alleging that they were terminated without cause. NEON filed an answer to the Amended Counterclaims on October 24, 2001. The case is currently pending. There can be no
assurance that NEON will prevail in its lawsuit or successfully defend itself against the counterclaim made by Fiber Optek, and the effects of this litigation may be material to NEON's financial
statements.

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Certain other claims arising in the ordinary course of business are pending against the Company. In the opinion of management, these claims are not expected to have a material effect
on operations.

(8) Concentration of Credit Risk and Significant Customers

SFAS No. 105,Disclosure Of Information About Financial Instruments With Off Balance Sheet Risk and Financial Instruments With
Concentration Of Credit Risk, requires disclosure of any significant off-balance sheet and credit risk concentration. Financial instruments that potentially expose
the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. The Company has not experienced significant
losses related to receivables from any individual or groups of customers or any specific industry or geographic region. Due to these factors, management believes there is no additional credit risk
inherent in the Company's accounts receivable. For the three months ended September 30, 2000 and 2001, two customers and one customer, respectively, represented 27% and 13%, respectively, of
the Company's revenues. At December 31, 2000 and September 30, 2001, one customer and two customers, respectively, represented 21% and 46%, respectively, of the Company's accounts
receivable.

(9) Segment Disclosure

SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information,requires certain
financial and supplementary information to be disclosed on an annual and interim basis for each reportable operating segment of an enterprise. Operating segments are defined as components of an
enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources
and in assessing performance. The Company's chief operating decision maker is the Chief Executive Officer of the Company.

The
Company analyzes segment reporting based on dark fiber, lit fiber, collocation and other services. Dark fiber, lit fiber, collocation and other services are reported as revenue
only. The Company does not allocate for management reporting or segment reporting purposes its cost of revenues and property and equipment, which represent the primarily operating costs,
communications network and equipment that support each segment. Similarly, selling, general and administrative expenses are not allocated to the segments for management or segment reporting purposes.

Management
utilizes several measurements to evaluate its operations and allocate resources. However, the principal measurements are consistent with the Company's financial statements.
The accounting policies of the segments are the same as those described in Note 3. All of the Company's revenues and assets are located in the United States.

Revenue
information for the Company's segments is as follows:

|          |                      | Three Months Ended
September 30, |   | Nine Months Ended
September 30,
|--------- | -------------------- | -------------------------------- | - | -------------------------------
|
|Revenues: |                      |                                  |   |                                
|          | Lit fiber leases     |                                  | $ | 2,286,504                      
|          | Dark fiber leases    |                                  |   | 849,870                        
|          | Collocation services |                                  |   | 386,245                        
|          | Other services(1)    |                                  |   | 157,883                        
|          |                      |                                  |   |                                
|          |                      | Total revenues                   |   | $                              
|          |                      |                                  |   |                                

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

Cautionary Statement

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included or incorporated in this prospectus regarding our strategy,
future operations, financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words "anticipates," "believes," "estimates,"
"expects," "intends," "may," "plans," "projects," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these
identifying words. We cannot guarantee that we actually will achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our
forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important
factors in the cautionary statements included in this report, particularly under the heading "Risk Factors," that we believe could cause actual results or events to differ materially from the
forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may
make. We do not assume any obligation to update any forward-looking statements.

References
in this document to "we," "us," "our" and "the Company" refer, to, NEON Communications, Inc. ("NEON Communications"), its subsidiary, NEON Optica, Inc. ("NEON
Optica", formerly NorthEast Optic Network, Inc.), and NEON Optica's subsidiaries.

Overview

We are a holding company whose principal asset is all of the outstanding shares of the capital stock of NEON Optica. NEON Optica is a wholly owned subsidiary
of NEON Communications and acts as the primary operating entity, generating revenue primarily through the leasing of capacity on our network. In addition, under our agreement with Consolidated Edison
Communications, Inc. ("CEC") which was consummated on September 14, 2000, NEON Communications is expected to become the holder of indefeasible rights of use ("IRUs") in certain fiber
optic filaments in the Northeast region, as well as
certain interconnections and telecommunications facilities in and around New York City, upon delivery of such assets by CEC pursuant to the terms of their agreement.

The
Company owns and operates a technologically advanced, high-bandwidth fiber optic network providing capacity on a wholesale basis to telecommunications service
providers, including local, long distance and wireless telephone companies and Internet service providers. Our network currently extends from Portland, Maine to Washington, D.C. Under our agreement
with CEC, which was consummated on September 14, 2000, we are working to further expand our network in and around New York City. We also intend to further expand our network capillarity south
of New York City in the future. Our customers can connect directly to our network at multiple locations in the larger cities we serve and also in smaller communities along our network's routes.

To
date we have experienced net losses and negative cash flow from operating activities. From our inception to present, our principal activities included building our network,
developing our business plans, hiring management and other key personnel and negotiating and executing customer contracts. We expect to continue to generate net losses and negative cash flow for the
foreseeable future as we expand our operations. See "Liquidity and Capital Resources".

Our
network service revenues include short-term leases of lit fiber and longer-term leases of dark fiber at fixed-cost pricing over
multi-year terms. Other services revenues include collocation services at our facilities as well as nonrecurring design, engineering, and construction services. We generally

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receive fixed monthly payments from our customers for the leasing of capacity on our network and the use of collocation facilities and recognize revenues ratably over the term of the applicable
customer agreement. Design, engineering, and construction services revenues are non-refundable and generally recognized ratably over the term of the related network services arrangement
(generally ranging from one to twenty years).

Our
costs consist primarily of cost of revenues, selling, general and administrative expenses, depreciation and amortization, and interest expense. Cost of revenues relates to lease
payments for fiber optic facilities, operations and maintenance costs, right of way fees and property taxes. Selling, general and administrative expenses relate to expenses in connection with sales,
marketing and operations infrastructure, including personnel, advertising and promotions, office facilities and management and information technology. Depreciation and amortization expense is
associated with the build-out of our network, as well as goodwill from our reorganization on July 8, 1998. Interest expense relates to interest on our $180,000,000
123/4% Senior Notes Due 2008 issued by NEON Optica, subordinated convertible notes payable to Northeast Utilities and Exelon, and promissory note payable to Nortel Networks, as
described in Note 4 to the financial statements included in this Quarterly Report.

Results Of Operations

Revenues increased by $3,410,260, or 93%, to $7,090,762 in the quarter ended September 30, 2001, compared to $3,680,502 in the quarter ended
September 30, 2000. Revenues in the third quarter of 2001 were generated by recurring lease services of $6,342,499 and other service revenues of $748,263, which consists of collocation revenues
and nonrecurring revenues related to design, engineering, and construction. Revenues increased by $10,229,368, or 118%, to $18,863,077 for the nine months ended September 30, 2001, compared to
$8,633,709 for the nine months ended September 30, 2000. The primary reason for the increase was the growth in booking and provisioning of customer orders for additional network services. The
largest area of growth was lit services, revenues from which increased by $2,806,353, or 123%, to $5,092,857 in the quarter ended September 30, 2001, compared to $2,286,504 in the quarter ended
September 30, 2000. Lit services represented 73% and 80%, respectively, of recurring lease revenues during the quarters ended September 30, 2000 and September 30, 2001. Dark
services revenue grew by 47% to $1,249,642 in the quarter ended September 30, 2001, compared to $849,870 in the quarter ended September 30, 2000.

In
December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101,Revenue
Recognition, which provides guidance on applying generally accepted accounting principles to recognition of revenues. We adopted SAB No. 101 in the fourth quarter of
2000. Under the guidance of SAB No. 101, we recognize revenues from nonrecurring installation charges and design, engineering and construction services ratably over the multi-year
network services terms to which the nonrecurring charges ultimately relate. Prior to the issuance of SAB No. 101, revenues for these nonrecurring services were generally recognized as services
were performed because the Company had no further obligations. We adopted this new accounting guidance as of January 1, 2000 and all periods presented in the condensed consolidated financial
statements have been restated to reflect the effects of SAB No. 101.

Cost
of revenues totaled $4,143,789 during the quarter ended September 30, 2001, an increase of 51% as compared to the $2,745,150 in the quarter ended September 30,
2000. Cost of revenues for the nine months ended September 30, 2001 was $12,487,472, an increase of 69% as compared to the $7,387,915 in the nine months ended September 30, 2000. The
increase in cost of revenues reflects our overall growth in business volume during 2001. As a percentage of revenues, cost of revenues decreased to 58% for the quarter ended September 30, 2001,
compared to 75% for the comparable period in 2000. As a percentage of revenues, cost of revenues decreased to 66% for the nine months ended September 30, 2001, compared to 86% for the
comparable period in 2000. These improvements in cost

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of revenues as a percentage of revenues reflect the Company's revenue growth and improving network utilization.

Selling,
general and administrative ("SG&A") expenses increased 20% to $5,833,388 for the quarter ended September 30, 2001, including the effect of a one-time
charge of $298,402 related to staff reductions announced in August 2001, compared to $4,850,600 in the quarter ended September 30, 2000. SG&A expenses increased 89% to $19,729,425 for
the nine months ended September 30, 2001, compared to $10,413,889 in the nine months ended September 30, 2000. The increased SG&A expenses reflect the overall growth in our business
volume during the period. As a percentage of revenues, SG&A expenses decreased to 82% for the quarter ended September 30, 2001 compared to 132% for the same period in 2000. As a percentage of
revenues, SG&A expenses decreased to 105% for the nine months ended September 30, 2001 compared to 121% for the same period in 2000. These improvements in SG&A expenses as a percentage of
revenues reflect the Company's focus on operating efficiencies and overall cost management.

Depreciation
and amortization expense increased 62% to $4,984,891 for the quarter ended September 30, 2001, compared to $3,078,564 for the quarter ended September 30,
2000. Depreciation and amortization expense increased 60% to $13,435,914 for the nine months ended September 30, 2001, compared to $8,419,636 for the nine months ended September 30,
2000. These increases reflect the expansion of our communications network in our Northeast and Mid-Atlantic service areas.

Interest
and other income decreased 52% to $533,984 for the quarter ended September 30, 2001, compared to $1,103,195 for the quarter ended September 30, 2000. Interest
and other income decreased 22% to $3,135,146 for the nine months ended September 30, 2001, compared to $3,996,640 for the nine months ended September 30, 2000. These decreases reflect
the effect of lower cash and investment balances in 2001 compared to 2000.

Interest
expense increased by 33% to $7,022,037 in the quarter ended September 30, 2001 from $5,287,652 in the quarter ended September 30, 2000. Interest expense
increased by 8% to $17,193,882 for the nine months ended September 30, 2001 from $15,976,127 for the nine months ended September 30, 2000. Interest expense primarily relates to our
123/4% Senior Notes Due 2008, 18% subordinated convertible notes and 15% note payable to Nortel Networks. The increase in interest expense during the periods is a result of interest on
the convertible notes and the note payable to Nortel Networks, all of which were issued during 2001.

For
the quarter ended September 30, 2001, we recorded a net loss for the three and nine months ended September 30, 2001 of $74,359,359 and $100,848,470, respectively,
including the effect of a one-time, non-cash charge in the third quarter of $60,000,000 to writedown our subscription receivable from Exelon upon the closing of our financing
arrangement with them, as discussed more fully in Note 2 to the financial statements included in this Quarterly Report. These results are compared to our net loss for the three and nine months
ended September 30, 2000 of $11,178,269 and $29,567,218, respectively. The increase in net loss is primarily attributable to the one-time $60,000,000 non-cash charge and
the other factors discussed above.

Liquidity and Capital Resources

Our operations have required substantial capital investment for the design, construction and development of our network and the purchase of telecommunications
equipment. Capital expenditures during the nine months ended September 30, 2000 and 2001 totaled approximately $53,600,000 and $35,700,000, respectively. We expect to continue to have
substantial capital requirements in connection with (i) the expansion and improvement of our existing network, (ii) the connection of additional buildings and customers to our network,
(iii) the purchase of additional telecommunications equipment, and (iv) additional expenses required to operate and maintain existing facilities.

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We have funded a substantial portion of these expenditures through our public offerings of equity and debt completed on August 5, 1998, which resulted in net proceeds to us of
approximately $218,000,000 (after deducting expenses and before deducting $72,000,000 in escrowed funds to cover the first seven semi-annual interest payments on our 123/4%
Senior Notes due 2008), as well as additional convertible debt issuances totaling $26,500,000 in 2001 and vendor financing provided by Nortel Networks.

The
substantial capital investment required to build our network has resulted in negative cash flow after investing activities over the last three years. This negative cash flow after
investing activities is a result of the requirement to build a substantial portion of our network before we can connect revenue-generating customers. Although we expect to focus our capital spending
primarily on construction and deployment of the network to support customer demands, we expect to continue to experience negative cash flow after investing activities for the foreseeable future.
Accordingly, unless we seek and are able to obtain additional capital, our ability to continue this expansion will be limited by our current capital resources until sufficient cash flow after
investing activities is generated.

Net
cash used in operating activities was $27,556,894 and $14,027,727 for the nine months ended September 30, 2000 and 2001, respectively. Net cash used in operations for the
nine months ended September 30, 2001 decreased compared to the nine months ended September 30, 2000 as a result of business volume growing at a greater rate than operating costs due to
improved network utilization and cost management, as well as a greater focus on up-front payments from customers, as reflected by the growth in our deferred revenues.

Cash
provided by (used in) investing activities totaled $12,702,040 and $(36,750,404) for the nine months ended September 30, 2000 and 2001, respectively. Cash flows from
investing activities for the nine months ended September 30, 2000 reflect the impact of funds generated from the sale of marketable securities purchased in prior years. Our capital expenditures
year over year have been decreasing significantly as we transition from being a network builder to a network solutions provider, utilizing the network we already have in place to provide optical
solutions to customers. Our capital expenditures have consisted primarily of construction and deployment of telecommunications
equipment to build and expand our communications network in the Northeast and Mid-Atlantic regions to support customer demands.

Cash
flow provided by financing activities totaled $50,405,389 and $40,767,978 for the nine months ended September 30, 2000 and 2001, respectively. Cash flow from financing
activities in the first nine months of 2001 was generated from the issuance of $26,500,000 of subordinated convertible notes payable to Northeast Utilities and Exelon bearing interest at a rate of 18%
and due 2008, cash received under our agreements with CEC and Exelon, and the release of the restricted cash placed in escrow in connection with the initial public offering of our
123/4% Senior Notes Due 2008. All proceeds from the release of the restricted cash were used to pay our interest payments due under our 123/4% Senior Notes Due 2008. Cash
flows from financing activities decreased in 2001 as compared to 2000 due to the timing of payments due on our optical equipment purchases as well as fewer exercises of stock options.

We
anticipate that we will continue to experience negative cash flow as we expand our network, deploy telecommunications electronic equipment and market our services to an expanding
customer base, even as we focus on more customer-financed expansion activities. Cash provided by operations will not be sufficient to fund operations and the expansion and development of our system in
the Northeast and Mid-Atlantic regions. As a result, we will require additional financing through some combination of commercial bank borrowings, leasing, vendor financing, strategic
alliances and sale of equity or debt securities if we are to complete our expansion as currently planned. As of September 30, 2001, we had approximately $13,600,000 in unrestricted cash, cash
equivalents, and short-term investments, compared to approximately $20,650,000 as of December 31, 2000.

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On April 12, 2001, we filed a registration statement with the Securities and Exchange Commission relating to the possible offering from time to time of up to $25,000,000 of our
common stock, preferred stock, debt securities or warrants to purchase any of the foregoing. On October 9, 2001, we filed an amendment to this registration statement naming Ramius Securities
LLC as an underwriter in connection with the sale by us from time to time of shares of our common stock that could result in maximum gross proceeds to us of $7,552,998 under an equity line of credit,
provided that the number of shares of our common stock to be sold pursuant to this arrangement will not exceed 1,875,000 shares without approval by our board of directors. This registration statement
has not yet been declared effective by the Securities and Exchange Commission, and no securities may be sold under it until it has been declared effective.

Based
on anticipated continued improvement in our results from operations, our ability to manage capital expenditures and our available cash and other sources of funding, we expect to
have funds sufficient to finance our operations into the second quarter of 2002, at which time we will require additional financing. We expect that it will be difficult to obtain additional financing
on acceptable terms, especially given current economic conditions, and we cannot assure you that we will be successful in doing so.

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 demand for our services or cash flow from operations is less than or more than expected, our plans or projections change or prove to be inaccurate, we make acquisitions, or we
accelerate deployment of our network or otherwise alter the schedule or targets for the implementation of our business plan. The expectations of required future capital expenditures are based on our
current estimates.

New Accounting Standards

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141,Business
Combinations. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. This statement is
effective for all business combinations initiated after June 30, 2001. This standard is not expected to impact us upon implementation.

In
July 2001, the FASB issued SFAS no. 142,Goodwill and Other Intangible Assets. This statement applies to goodwill and
intangible assets acquired after June 30, 2001, as well as goodwill and intangible assets previously acquired. Under this statement goodwill as well as certain other intangible assets,
determined to have an infinite life, will no longer be amortized, instead these assets will be reviewed for impairment on a periodic basis. This statement is effective for the first quarter in the
fiscal year ended December 2002. We are currently evaluating the impact that this statement will have on our financial statements.

In
June 2001, the FASB issued SFAS No. 143,Accounting for Asset Retirement Obligations. This statement addresses
financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement applies to all
entities. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. This statement amends FASB Statement No. 19 and is effective for financial statements issued for fiscal years beginning
after June 15, 2002. We are currently evaluating the impact that this statement will have on our financial statements.

In
August 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets.
This statement supercedes FASB Statement No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30,Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently

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Occurring Events and Transactions. Under this statement, it is required that one accounting model be used for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and it broadens the presentation of discontinued operations to include more disposal transactions. The provisions of this statement are effective for
financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the
impact that this statement will have on our financial statements.

RISK FACTORS

There are a number of important factors that could affect our business and future operating results, including, without limitation, the factors set forth
below, and the information contained in this Quarterly Report on Form 10-Q should be read in light of such factors. Any of the following factors could have a material adverse effect
on our business and our future operating results.

Risk Relating To Our Financial Situation

We have experienced significant net losses throughout our history, and are currently experiencing cash flow problems. As a result, we
may need additional financing in order to fund our operations and carry out our business plan, and if we are unable to obtain this financing, our business may be severely harmed and we may be required
to seek protection from our creditors under the federal bankruptcy laws.

We
have incurred cumulative net losses since our inception of approximately $187,200,000, including a one-time non-cash charge of $60,000,000 recorded in the
third quarter of 2001. As of September 30, 2001, we had approximately $13,600,000 in unrestricted cash, cash equivalents, and short-term investments.

Based
on anticipated continued improvement in our results from operations, our ability to manage capital expenditures and our available cash and other sources of funding, we expect to
have funds sufficient to finance our operations into the second quarter of 2002, at which time we will require additional financing. We expect that it will be difficult to obtain additional financing
on acceptable terms, especially given current economic conditions, and we cannot assure you that we will be successful in doing so. If we are unable to obtain additional financing, we may be forced to
suspend capital expenditures, downsize our operations and delay our network expansion and customer growth plans. As a result, our rate of revenue growth could cease or slow materially and the
fulfillment of our business plan and the date when we might achieve profitability may be substantially delayed.

Risks Relating To Our Business Strategy

Our business strategy depends upon anticipated customer demand for our services, and our failure to obtain customers for our services
at profitable rates would adversely affect our business results.

Our
ability to become profitable depends upon our ability to secure a market for our services and obtain service contracts with our communications customers. Many of our targeted
customers may also be our potential competitors. If our services are not satisfactory or cost competitive, our targeted customers may utilize other providers where available, or construct their own
networks, which would reduce their need for our services and create future sources of competition for us.

Intense competition in the telecommunications industry from a broad range of competitors may prevent us from obtaining customers and require us to lower
prices.

The
telecommunications industry is highly competitive. We face substantial competition from companies with significantly greater financial and other resources whose capacity is
interchangeable with the capacity we offer, including incumbent local telephone companies, competitive local telephone companies and major long distance companies. In addition, potential competitors
capable of offering

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services similar to those offered by us include other communications service providers that own and operate their own networks and equipment, including cable television companies, electric utilities,
microwave carriers, satellite carriers, wireless communication system operators and end-users with private communications networks. Three of our principal stockholders, Northeast
Utilities, or NU, New England Business Trust (an affiliate of Energy East Corporation) and Consolidated Edison Communications, Inc., each own or have rights, through one or more affiliates, to
fibers in the cable that includes a portion of our network, which permits each of them to compete directly with us in the future if they use these fibers for purposes other than their corporate
requirements. Our rights-of-way are non-exclusive so that other service providers (including the utilities themselves) could install competing networks using the
same rights-of-way.

Because we offer a relatively narrow range of services in comparison to some of our competitors, we cannot achieve revenues comparable to companies offering a
broader array of services and may be at a competitive disadvantage with respect to the services we offer.

Unlike
more diversified telecommunications companies, we derive and expect to continue to derive substantially all of our revenues from the leasing of fiber optic capacity on a
wholesale basis to our customers, most of whom are telecommunications companies and Internet service providers serving
end-users. The limited nature of our current services could limit our potential revenues and result in our having lower revenues than competitors which provide a wider array of services.
While we are currently attempting to expand the breadth of our product offering, we cannot assure you that any new product offerings will achieve market acceptance.

Due to rapidly evolving technologies in our industry and the uncertainty of future government regulation, our current business plan may become obsolete and we
may be unable to maintain a competitive position if we are unable to successfully adjust our products, services and business strategies as required.

In
the future, we may become subject to more intense competition due to the development of new technologies, an increased supply of domestic and international transmission capacity,
the consolidation in the industry among local and long distance service providers and the effects of deregulation resulting from the Telecommunications Act of 1996. The introduction of new services
and products or the emergence of new technologies may change the cost or increase the supply of services and products similar to those that we provide. We cannot predict which of many possible future
product and service offerings will be crucial to maintain our competitive position or what expenditures will be required to develop profitably and provide such products and services. Prices for our
services to carriers specifically, and interstate services in general, may decline over the next several years due primarily to price competition to the extent that network providers continue to
install networks that compete with our network. We also believe that there will be technological advances that will permit substantial increases in the transmission capacity of both new and existing
fiber.

A limited number of customers has accounted for a significant percentage of our revenues.

Historically,
a limited number of customers has accounted for a significant percentage of our revenues. In 1999, three customers accounted for 18%, 16% and 13% of revenues,
respectively. In 2000, two customers accounted for 16% and 10% of revenues, respectively. For the three months ended September 30, 2000 and 2001, two customers and one customer, respectively,
represented 27% and 13%, respectively, of the our revenues. At December 31, 2000 and September 30, 2001, one customer and two customers, respectively, represented 21% and 46%,
respectively, of the our accounts receivable. We anticipate that our results of operations in any given period will continue to depend to a significant extent upon revenues from a relatively small
number of customers.

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Risks Relating To The Expansion And Operation Of Our Fiber Optic Network

The successful, timely and cost-effective expansion of our fiber optic network within the Northeast and
Mid-Atlantic regions is crucial to our business plan, and depends upon numerous factors beyond our control.

Our
ability to achieve our strategic objectives depends in large part upon the successful, timely and cost-effective expansion of our fiber optic network within the
Northeast and Mid-Atlantic regions. Among the major factors that could affect our success are:



Either
of these factors, or other factors, over which we have little control, could significantly hinder our ability to complete our network and execute our business plan. To date,
Consolidated Edison Communications has failed to deliver certain network assets in a timely fashion under our original agreements with them. Furthermore, the September 11, 2001 terrorist
attacks on the World Trade Center buildings in New York City resulted in massive damage to the utility infrastructure in southern Manhattan. As a result, we expect that Consolidated Edison will be
required to divert resources from the construction of Consolidated Edison Communication's network in New York City to the repair and reconstruction of the utility infrastructure in the vicinity of the
disaster site. The construction of Consolidated Edison Communication's network has already been substantially delayed, and any further delay could harm our business.

The expenditures necessary to sufficiently expand our fiber optic network and develop our services in order to satisfy the current and forecasted demands of
our customers may surpass our available cash, and we may be unable to obtain additional capital to develop our services on a timely basis and on acceptable terms.

Although
we have expended significant resources in building our network and the development of our customer base, we will require significant additional cash in order to expand our
geographic coverage and the range of services which we can offer throughout our service area in order to be competitive in our market. These expenditures for expansion and for more services, together
with associated operating expenses, may reduce our cash flow and profitability until we establish an adequate customer base throughout all of our coverage areas. To date, we have expended substantial
amounts on construction of our network from the proceeds of our financing activities and, accordingly, we have generated negative cash flow. We may need to obtain additional capital to carry out our
planned expansion of our services and to increase our service territory, and we cannot assure you that additional financing will be available to us or, if available, that we can obtain it on a timely
basis and on acceptable terms.

We obtain some of the key components used in our fiber optic network from a single source or a limited group of suppliers, and the partial or complete loss of
one of these suppliers could disrupt our operations and result in a substantial loss of revenues.

We
depend upon a small group of suppliers for some of the key components and parts used in our network. In particular, we purchase cable from Lucent-Fitel and from Corning, and we
purchase fiber optic equipment from Nortel Networks, Cisco Systems and Sycamore Networks. Any delay or extended interruption in the supply of any of the key components, changes in the pricing
arrangements with our suppliers and manufacturers or delay in transitioning a replacement supplier's product into our network could disrupt our operations.

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Our fiber optic network, which is our sole source of revenue, is vulnerable to physical damage, catastrophic outages, power loss and other disruptions beyond
our control, and the occurrence of any of these failures could result in immediate loss of revenues, payment of outage credits to our customers and, more importantly, the loss of our customers'
confidence and our business reputation.

Our
success in marketing our services to our customers requires that we provide high reliability, high bandwidth and a secure network. Our network and the infrastructure upon which it
depends are subject to physical damage, power loss, capacity limitations, software defects, breaches of security and other disruptions beyond our control that may cause interruptions in service or
reduced capacity for customers. Our agreements with our customers typically provide for the payment of outage related credits (a predetermined reduction or offset against our lease rate when a
customer's leased facility is non-operational or otherwise does not meet certain operating parameters) or damages in the event of a disruption in service. These credits or damages could be
substantial and could significantly decrease our net revenues. Significant or lengthy outages would also undermine our customers' confidence in our fiber optic network and injure our business
reputation.

Risks Relating To Our Rights-Of-Way

We could lose the contract rights upon which we rely to operate and maintain our network in the event of bankruptcy proceedings
relating to one or more of the third parties that have granted to us the right to build and operate our network using their rights-of-way.

The
construction and operation of significant portions of our fiber optic network depend upon contract rights known as indefeasible rights-of-use. Indefeasible
rights-of-use are commonly used in the telecommunications industry, but remain a relatively new concept in property law. Although indefeasible
rights-of-use give the holder a number of rights to control the relevant rights-of-way or fiber optic filaments, legal title remains with the grantor of
the rights. Therefore, the legal status of indefeasible rights-of-use remains uncertain, and our indefeasible rights-of-use might be voidable in the
event of bankruptcy of the grantor. If we were to lose an indefeasible right-of-use in a key portion of our network, our ability to service our customers could become seriously
impaired and we could be
required to incur significant expense to resume the operation of our fiber optic network in the affected areas.

Despite our existing rights-of-way, we may be forced to make substantial additional payments to the affected landowners or remove our
network from their property, which would significantly harm our business and our results of operations.

Our
indefeasible rights-of-use depend on the grantor's interest in the property on which our network is located. To the extent that a grantor of an
indefeasible right-of-use has a limited easement in the underlying property and not full legal title, the adequacy of our indefeasible rights-of-use
could be challenged in court. For example, in May 1999, AT&T entered into a costly settlement of a class action suit brought by landowners who asserted that the railroad-based
rights-of-way upon which AT&T had relied to build portions of its fiber optic network were insufficient to permit AT&T to use these rights-of-way for
telecommunications purposes.

We
believe that it is likely that a number of landowners may make similar claims against us based on our use of utility rights-of-way for our
telecommunications purposes. In fact, some landowners have already asserted claims against us on this basis, and, to date, in two cases, rather than electing to contest the landowners' interpretation
of the scope of the easement, we have made a payment to such landowners to acquire rights-of-way meeting our requirements. We believe that the easements granted by a
substantial number of landowners to grantors of our indefeasible rights-of-use are similar in scope to those with respect to which claims have been asserted, and we cannot
guarantee that additional claims will not be made in the future.

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Because significant portions of our fiber optic network are constructed upon rights-of-way controlled by electric utility companies
which generally place the operation of their electrical facilities ahead of the operation of our fiber optic network, we may be unable to construct and operate our fiber optic network in the affected
areas without periodic interruptions and delays caused by the day-to-day operations of these utility companies.

Our
rights-of-way agreements with NU, Central Maine Power Company (a subsidiary of Energy East Corporation) and Consolidated Edison Communications, Inc.
contain provisions which acknowledge the right of these companies to make the provision of electrical services to their own customers their top priority. These companies are required only to exercise
"reasonable care" with respect to our facilities and are otherwise free to take whatever actions they deem appropriate with respect to ensuring or restoring service to their electricity customers, any
of which actions could impair operation of our network. In addition, some of our ongoing operational efforts are constrained by the limited ability of the utilities to de-energize segments
of their transmission and distribution facilities in order to permit
construction crews to work safely. We have experienced construction delays in the past as a result of such inability to timely de-energize certain segments and we may experience such
delays in the future.

Risks Relating To Government Regulation

Federal regulation of the telecommunications industry is changing rapidly and we could become subject to unfavorable new rules and
requirements which could impose substantial financial and administrative burdens on us and interfere with our ability to successfully execute our business strategies.

Regulation
of the telecommunications industry is changing rapidly. Existing and future federal, state, and local governmental regulations will greatly influence our viability.
Consequently, undesirable regulatory changes could adversely affect our business, financial condition and results of operations.

Revenues from telecommunications provided to end-users, which represent a portion of our revenues, are subject to contributions to the FCC's
universal service fund.

While
we generally do not deal directly with end-users of telecommunications and are therefore generally exempt from contributing to the FCC's Universal Service Fund, the
FCC treats certain Internet service providers purchasing telecommunications as end-users. Our revenues from providing telecommunications to end-users, which represent a portion
of our revenues, are therefore subject to an assessment of 6.8% for the second and third quarter of 2001. Such assessments vary and may increase from quarter to quarter. If the annual contribution
amount would be less than $10,000, we would qualify for ade minimusexemption from contribution to the Fund.

If we become subject to regulation as a common carrier in the future, we would be subject to additional regulatory requirements.

We
do not believe that we are currently a "common carrier," but that status could change based on differing interpretations of current regulations, regulatory changes and changes in
the way we conduct our business. If we become regulated as a common carrier by the FCC, we would have to publicize the rates for our services and submit other reports, and would be required to
contribute to federal funds including, but not limited to, those established for Telecommunications Relay Services, for the management of the North American Numbering Plan and for Local Number
Portability. These regulatory requirements could impose substantial burdens on us.

The
Communications Act of 1996 requires incumbent local telephone companies to provide elements of their networks to competitors on an unbundled basis. In a recent decision, the FCC
determined that dark fiber is a network element that incumbent local telephone companies must provide to others. The
availability of this alternative source of supply may increase competition among providers of dark fiber services and could decrease the demand for our dark fiber.

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Regulatory changes could affect relationships between us, our competitors and customers in unforeseeable ways that could reduce our business
opportunities.

Our
relationships with the telecommunications companies with whom we deal are all affected by our respective positions in the FCC's regulatory scheme. Accordingly, changes in federal
telecommunications law may affect our business by virtue of the interrelationships that exist among us and many of these regulated telecommunications entities. It is difficult for us to forecast at
this time how these changes will affect us in light of the complex interrelationships that exist in the industry and the different levels of regulation.

State regulation of companies providing telecommunications services varies substantially from state to state and we may become subject to burdensome and
restrictive state regulations as we expand our fiber optic network into a broader geographic area, which could interfere with our operations and our ability to meet our strategic
objectives.

We
may be subject to state regulation, which can vary substantially from state to state. NEON Optica's subsidiaries in New York and Connecticut have obtained authority to provide
intrastate telecommunications services on a competitive common carrier basis. Therefore, these subsidiaries are subject to the obligations that applicable law places on all similarly certificated
common carriers including the filing of tariffs, state regulation of certain service offerings, pricing, payment of regulatory fees and reporting requirements. The costs of compliance with these
regulatory obligations, or any of the regulatory requirements of other states to which we might become subject, could have a material adverse effect on our operations. Moreover, some of our
rights-of-way depend on our status as a common carrier in these states, and if that status were to be successfully challenged, those rights-of-way could
be terminated.

Municipal regulation of our access to public rights-of-way is subject to change and could impose administrative burdens that would
adversely affect our business.

Local
governments typically retain the ability to license public rights-of-way, subject to the federal requirement that local governments may not prohibit the
provision of telecommunications services. Changes in local government regulation could impose additional costs on our business and limit our operations. Local authorities affect the timing and costs
associated with our use of public rights-of-way.

Risks Relating To Our Capitalization

Because we have a large amount of debt, we will be required to devote a significant portion of our cash flow to pay interest and we may
not have sufficient remaining cash flow to meet our other obligations and execute our business strategies.

We
are highly leveraged. Our high degree of debt includes:



Our
high degree of debt could have adverse consequences to the holders of NEON Communications' equity securities or NEON Optica's debt securities. A substantial portion of our cash
flow will be dedicated to the payment of interest associated with our debt, and such cash flow may be insufficient to meet our payment obligations on our debt in addition to paying other obligations
as they become due. In addition, due to our leverage ratio, our ability to obtain any necessary financing in the future for completion of our network or other purposes may be impaired. Also, certain
of our future

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borrowings may be at variable rates of interest that could cause us to be vulnerable to increases in interest rates. Because we are highly leveraged, we may be at a competitive disadvantage to our
competitors and may be especially vulnerable to a downturn in our business or the economy generally, or to delays in or increases in the costs of operating and constructing our network.

In connection with NEON Optica's substantial public debt and our high degree of debt, we and NEON Optica have agreed to significant restrictions on our
operations that limit our ability to enter into major corporate transactions, and as a result we may be unable to pursue potential corporate opportunities which would benefit us and our
stockholders.

The
indenture under which NEON Optica's debt was issued imposes significant operating and financing restrictions on us and our present and future subsidiaries. These restrictions
affect, and in certain cases significantly limit or prohibit, among other things, our ability to incur indebtedness, pay dividends and make other restricted payments, create liens, issue and sell
capital stock of subsidiaries, guarantee indebtedness, sell assets or consolidate, merge or transfer all or substantially all of our assets. Furthermore, our agreements with Exelon and Mode 1 limit
our ability to incur additional indebtedness. These limitations could prevent us from exploiting corporate opportunities as they arise, which could be detrimental to the interests of our stockholders.

Our public debt is thinly traded and is currently trading substantially below its face amount. As a result, we may, from time to time, pursue alternatives to
purchase or exchange this debt in order to reduce future cash interest and principal payments.

We
are aware that our 123/4% Senior Notes due 2008 issued by NEON Optica are thinly traded and are currently trading substantially below their face amount. In order to
reduce future cash interest payments, as well as future amounts due at maturity, the Company may, from time to time, purchase such securities for cash, exchange them for common stock under the
exemption provided by Section 3(a)(9) of the Securities Act of 1933, or acquire such securities for a combination of cash and common stock, in each case in open market or privately negotiated
transactions, subject to any applicable restrictions set forth in the indenture relating to the Senior Notes. We will evaluate any such transactions in light of then existing market conditions, taking
into account our present liquidity and prospects for future access to capital. The amounts involved in any such transactions, individually or in the aggregate, may be material.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk related to changes in interest rates, but do not believe that this exposure is material. We do not use derivative financial
instruments for speculative or trading purposes.

We
maintain a short-term investment portfolio consisting mainly of corporate debt securities and U.S. government agency discount notes with an average maturity of less
than three months. These held-to-maturity securities are subject to interest rate risk and will fall in value if market interest rates increase. If market interest rates were
to increase immediately and uniformly by 10% from levels that existed at September 30, 2001, the fair value of the portfolio would decline by an immaterial amount. Because we have the ability
to hold our fixed income investments until maturity, we would not expect our operating results or cash flows to be materially affected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On August 16, 2001, NEON Optica, Inc. filed a lawsuit against Fiber Optek Interconnect Corp. ("Fiber Optek") and its two principals, Michael S.
Pascazi and Frank Zarzeka, in the Southern District of New York. We are seeking a judgment that our termination of our construction contract with Fiber Optek was proper and are seeking damages based
on breach of contract, breach of the implied

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covenant of good faith and fair dealing, fraudulent inducement and breach of express warranty in connection with Fiber Optek's defective and poor quality work, delay, failure to cooperate, false
billing practices, business slander and abuse of process in connection with Fiber Optek's publication of defamatory press releases and its filing of mechanics liens against us under false pretenses.
On September 24, 2001, Fiber Optek filed an answer and 58 counterclaims against NEON Optica. The counterclaims seek judgment that various liens filed by Fiber Optek against us are valid and
seek damages including lost profits and interest for alleged breaches of contract by us. On October 16, 2001, Fiber Optek amended their counterclaim alleging that they were terminated without
cause. We filed an answer to the Amended Counterclaims on October 24, 2001. The case is currently pending. We cannot assure you that we will prevail in our lawsuit or successfully defend
ourselves against the counterclaim made by Fiber Optek, and the effects of this litigation may be material to our financial statements.

Certain
other claims arising in the ordinary course of business are pending against us. In the opinion of management, these claims are not expected to have a material effect on
operations.

Item 2. Changes in Securities and Use of Proceeds

On August 10, 2001, we and Exelon Enterprises Management, Inc., or Exelon, one of our principal stockholders, entered into a purchase agreement
pursuant to which Exelon purchased from us an 18% subordinated convertible note due 2008 in the principal amount of $11,500,000 (the "Note"). Exelon may convert the Note at any time into common stock
of the Registrant at a conversion price of $5.00 per share, or 2,300,000 shares, subject to certain anti-dilution provisions. The interest payments under the Note may be paid in cash or
shares of common stock, at the option of Exelon. The terms of the Note and the purchase and sale thereof are more fully set forth in the Subordinated Convertible Note Purchase Agreement and the form
of 18% Subordinated Convertible Note Due 2008. Pursuant to a Registration Rights Agreement, we have granted Exelon certain registration rights with respect to the shares of our common stock issuable
upon conversion of the Note.

Exelon
is an accredited investor as defined in Rule 501 of the Securities Act of 1933. The Note was issued in reliance on the exemption from registration set forth under
Rule 506 of the Securities Act of 1933. No underwriters were involved in the foregoing sale of securities.

Item 4. Submission of Matters to a Vote of Security Holders

Reference is made to the information set forth under Item 4 of Part II of our Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2001, which is incorporated herein by reference.

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

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Amended and Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-3 (Registration No. 333-70064)                                                                                                            
|3.2         |  | Bylaws of the Registrant, incorporated by reference to Exhibit 3.02 to the Registrant's Registration Statement on Form S-4 (Registration No. 333-38600)                                                                                                                                                      
|10.1        |  | Subordinated Convertible Note Purchase Agreement by and between the Registrant and Exelon Enterprises Management, Inc., dated as of August 10, 2001                                                                                                                                                          
|10.2        |  | Registration Rights Agreement dated August 10, 2001 between the Registrant and Exelon Enterprises Management, Inc., incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form S-3
(Registration No. 333-70064)                                                             
|10.3        |  | Amended and Restated Registration Rights Agreement dated August 10, 2001 among the Registrant, Consolidated Edison Communications, Inc. and Exelon Enterprises Management, Inc., incorporated by reference to Exhibit 4.5 to
the Registrant's Registration Statement on Form S-3 (Registration No. 333-70064)
|10.4        |  | 18% Subordinated Convertible Note Due 2008 dated August 10, 2001 issued to Exelon Enterprises Management, Inc., incorporated by reference to Exhibit 4.7 to the Registrant's Registration Statement on Form S-3 (Registration
No. 333-70064)                                                                 
|10.5        |  | Note dated August 14, 2001 issued to Nortel Networks, Inc. by NEON Optica                                                                                                                                                                                                                                    

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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, on this 14th day of November, 2001.

|NEON COMMUNICATIONS, INC. |                                                                                                                                        | 
|------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | 
|By:                       | /s/STEPHEN E. COURTERStephen E. Courter Chairman and Chief Executive OfficerNEON Communications,
Inc.                                  | 
|By:                       | /s/WILLIAM A. MARSHALLWilliam A. Marshall Chief Financial Officer and Treasurer
(Principal Financial Officer)NEON Communications, Inc. | 

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Exhibit Index

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Amended and Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-3 (Registration No. 333-70064)                                                                                                            
|3.2         |  | Bylaws of the Registrant, incorporated by reference to Exhibit 3.02 to the Registrant's Registration Statement on Form S-4 (Registration No. 333-38600)                                                                                                                                                      
|10.1        |  | Subordinated Convertible Note Purchase Agreement by and between the Registrant and Exelon Enterprises Management, Inc., dated as of August 10, 2001                                                                                                                                                          
|10.2        |  | Registration Rights Agreement dated August 10, 2001 between the Registrant and Exelon Enterprises Management, Inc., incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form S-3
(Registration No. 333-70064)                                                             
|10.3        |  | Amended and Restated Registration Rights Agreement dated August 10, 2001 among the Registrant, Consolidated Edison Communications, Inc. and Exelon Enterprises Management, Inc., incorporated by reference to Exhibit 4.5 to
the Registrant's Registration Statement on Form S-3 (Registration No. 333-70064)
|10.4        |  | 18% Subordinated Convertible Note Due 2008 dated August 10, 2001 issued to Exelon Enterprises Management, Inc., incorporated by reference to Exhibit 4.7 to the Registrant's Registration Statement on Form S-3 (Registration
No. 333-70064)                                                                 
|10.5        |  | Note dated August 14, 2001 issued to Nortel Networks, Inc. by NEON Optica                                                                                                                                                                                                                                    

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