<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                                   (Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                                     1934.

                  For the quarterly period ended June 30, 2002

                                       OR

 [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                                    OF 1934.

        For the transition period from           to              .

                        Commission file number 000-24661

                          FiberNet Telecom Group, Inc.

             (Exact Name of Registrant as Specified in its Charter)




                Delaware                               52-2255974
    (State or Other Jurisdiction of       (I.R.S. Employer Identification No.)
     Incorporation or Organization)


                    570 Lexington Avenue, New York, NY 10022
                    (Address of Principal Executive Offices)

                                 (212) 405-6200
                (Issuer's Telephone Number, Including Area Code)

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [_] The
number of shares outstanding of the issuer's common stock, as of Aug 13, 2002,
was 64,331,722 shares of Common Stock, $.001 par value.

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                                      INDEX

<TABLE>
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                                                                                        Page
                                                                                        ----
<S>                                                                                     <C>
PART I.  FINANCIAL INFORMATION ......................................................     1
Item 1.  Consolidated Financial Statements
         Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001 ......    13
         Consolidated Statements of Operations for the six months ended June
         30, 2002 and 2001 ..........................................................    14
         Consolidated Statements of Operations for the three months
         ended June 30, 2002 and 2001 ...............................................    15
         Consolidated Statements of Cash Flows for the six months ended
         June 30, 2002 and 2001 .....................................................    16
         Notes to Consolidated Financial Statements .................................    17
Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations ..................................................     1
Item 3.  Quantitative and Qualitative Disclosures About Market Risk .................    10
PART II. OTHER INFORMATION ..........................................................    11
Item 2.  Changes in Securities and Use of Proceeds ..................................    11
Item 6.  Exhibits and Reports on Form 8-K ...........................................    11
</TABLE>

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                                     PART I

                              FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

See attached.

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

This report contains certain forward-looking statements as that term is defined
in the Private Securities Litigation Reform Act of 1995. Such statements are
based on management's current expectations and are subject to a number of
factors and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. Investors are cautioned
that there can be no assurance that actual results or business conditions will
not differ materially from those projected or suggested in such forward-looking
statements as a result of various factors, including, but not limited to, the
following: the difficulty inherent in operating an early-stage company in a new
and rapidly evolving market; our history of operating losses and accumulated
deficit; our limited financial resources and uncertainty as to the availability
of additional capital to fund our operations on acceptable terms, if at all; our
success in obtaining additional carrier hotel lease agreements and license
agreements with building owners; growth in demand for our services; the
frequency of service interruptions on our networks; the potential development by
competitors of competing products and technologies; restrictions imposed on us
as a result of our debt; and changes in the regulatory environment. As a result,
our future operations involve a high degree of risk. Except as required by law,
we undertake no obligation to update any forward-looking statement, whether as a
result of new information, future events or otherwise.

Overview

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

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

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

Factors Affecting Future Operations

Revenues. We generate revenues from selling network capacity and related
services to other communications service providers. We recognize revenues when
earned as services are provided throughout the life of each contract with a
customer. Revenues are derived from three general types of services:

     o   Transport services. Our transport services include the offering of
         broadband circuits on our metropolitan transport networks and FiberNet
         In-building Networks, or FINs. Over our metropolitan transport
         networks, we can provision circuits from one of our carrier point
         facilities to another carrier point facility or to an on-net building
         via an interconnection with our FIN in that building. We can also
         provision circuits vertically between floors in a carrier point
         facility or an on-net building.

     o   Colocation services. Our colocation services include providing
         customers with the ability to locate their communications and
         networking equipment at our carrier point facilities in a secure
         technical operating environment. We can also provide our customers with
         colocation services in the central equipment rooms of certain of our
         on-net and off-net buildings. Typically, if a customer colocates its
         equipment at our facilities, our agreement with them may include a
         minimum commitment to use our transport services.

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

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

Our services are typically sold under fixed price agreements. In the case of
transport services, we provide an optical circuit or other means of connectivity
for a fixed price. Revenues from transport services are not dependent on
customer usage or the distance between the origination point and termination
point of a circuit. The pricing of colocation services is based upon the size of
the colocation space or the number of colocation units, such as cabinets,
provided to the customer. Revenues from access management services are typically
determined by the square footage of the commercial office properties to which a
customer purchases access. The pricing of all of our services have declined
significantly over the past year, although we believe not to the extent that the
pricing in other segments of the telecommunications market has declined.

The growth of our revenues is dependent upon our ability to provide additional
services in our existing facilities. We also believe that the majority of the
growth in our revenues will come from our existing customers. Consequently, our
growth in revenues is dependent on the underlying growth of our customers'
businesses and their need for our services within the facilities that we already
operate. We continue to add additional customers. However, we believe the number
of companies that are potential customers is decreasing, due to the industry
environment. In addition, we currently do not anticipate expanding our network
infrastructure to other carrier point facilities or on-net buildings and off-net
buildings. Within each of our existing facilities, our revenues will depend upon
the demand for our services, the competition that we face and our customer
service.

We typically begin our sales cycle by entering into a non-binding business
services agreement with a customer. This agreement establishes our mutual
interest in exploring a business relationship and the general parameters upon
which we will proceed. As a next step, we execute a telecommunications services
agreement, also known as an interconnection agreement. This is a technical
document that outlines the engineering specifications and operating standards
that are required of us by the customer. With the technical requirements
complete, we finalize a sales contract. Customers can order a specific circuit
or colocation space, or, alternatively, they can purchase general availability
on our networks or in our facilities by establishing minimum revenue commitments
on a recurring basis.

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

Cost of Services. Cost of services is associated with the operation of our
networks and facilities. The largest component of our cost of services is the
occupancy expenses at our carrier point facilities, on-net buildings and off-net
buildings. Other specific costs include maintenance and repair costs and utility
costs. Our license agreements for our on-net and off-net buildings require us to
pay license fees to the owners of these properties. In addition, our lease for
our meet-me-room at 60 Hudson Street in New York City also requires us to pay a
license fee. These license fees typically are calculated as a percentage of the
revenues that we generate in each particular building. Other than our license
fees, our cost of services is generally fixed in nature. We do not anticipate
that cost of services will change commensurately with any change in our
revenues.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses generally include all of our personnel costs, occupancy
costs for our corporate offices, insurance costs, professional fees, sales and
marketing expenses and other miscellaneous expenses. Personnel costs, including
wages, benefits and sales commissions, are our largest component of selling,
general and administrative expenses. We have reduced the number of our employees
from 173 as of June 30, 2001 to 82 as of June 30, 2002, and our personnel costs
have decreased significantly. Prospectively, we do not anticipate significant
changes in headcount, and we believe that our personnel costs will increase
moderately.

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

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Depreciation and Amortization. Depreciation and amortization expense includes
the depreciation of our network equipment and infrastructure, computer hardware
and software, furniture and fixtures, and leasehold improvements, as well as the
amortization of certain deferred charges. We commence the depreciation of
network related fixed assets when they are placed into service and depreciate
those assets over periods ranging from three to 20 years. As a result of the
impairment to fixed assets that we recorded during 2001, depreciation and
amortization expense may decrease going forward.

We review the carrying value of our assets for impairment whenever events and
circumstances indicate the carrying value of an asset may not be recoverable
from the estimated future cash flows expected to result from its use and
eventual disposition.

In the fourth quarter of 2001, we determined that our forecasts for revenues for
certain of our facilities would not be achieved due to the significant adverse
change in the business climate. We further determined that the dramatic change
in the operating environment for the telecommunications industry resulted in a
significantly less demand for our services in these facilities. We believe that
the decrease in demand was a result of the significant number of bankruptcies of
telecommunications companies that were existing or potential customers of ours
and the overall economic recession. We also determined that a rebound in demand
for our services would not occur in the near term. As a result, we revised our
business plan and conducted extensive reviews of our assets and operations. The
revisions to the business plan primarily included reductions in forecasts of
revenues and capital expenditures. The projected amounts of certain cost of
services and overhead expenses were reduced as well to reflect the decrease in
our expected business activity. We also determined that certain financial
covenants in our credit facility would need to reflect the revised business
plan, including our reduced revenue forecasts. Consequently, we amended our
credit facility in December 2001.

We used an undiscounted forecasted cash flow model to determine if there was an
impairment based on the cash flows expected to be generated from these assets,
and used a discounted cash flow model to measure the impairment. As a result of
this analysis, we have recorded an asset impairment of approximately $51.8
million in the fourth quarter of 2001, based on the amount by which the carrying
amount of these assets exceeded their fair value. Of this amount, $40.4 million
relates to assets held for use, and $11.4 million represents assets to be
disposed of.

The assets that we identified for disposition were abandoned, as we determined
that these assets had no value. Consequently, there was no cost to us for this
abandonment, nor do we expect to receive any proceeds or other consideration
from this abandonment. We recorded no reserves, accruals or other liabilities
related to this abandonment. These assets primarily related to engineering and
network architecture design costs and general contracting and project management
costs for facilities that we are no longer pursuing.

During the third quarter of 2001, we evaluated the carrying value of certain
long-lived assets and acquired equity investments, consisting primarily of
goodwill resulting from our acquisition of Devnet. Pursuant to APB Opinion No.
16, "Business Combinations", the purchase price was determined and goodwill was
recorded based on the stock price at the time the merger agreement was executed
and announced. An assessment of the goodwill related to the Devnet acquisition
was performed pursuant to SFAS No. 121, due to the negative industry and
economic trends affecting certain of our current operations and expected future
revenues, as well as the general decline in the valuations of telecommunications
companies. The conclusion of that assessment was that the decline in market
conditions within the telecommunications industry was significant and other than
temporary.

Devnet had entered into exclusive license agreements to manage communications
access to commercial office properties, and we associated the related goodwill
primarily to those agreements. We used an undiscounted forecasted cash flow
model to determine if there was an impairment based on the cash flows expected
to be generated from business activities in the commercial office properties
underlying the license agreements and used a discounted cash flow model to
measure the impairment. As a result, we recorded a charge of $56.5 million
during the third quarter of 2001 to reduce goodwill associated with the purchase
of Devnet. The charge was based on the amount by which the carrying amount of
the asset exceeded its fair value. In June 2001, the FASB issued SFAS No. 142,
"Goodwill and Other Intangible Assets", applicable for fiscal years beginning
after December 15, 2001. SFAS No. 142, which we adopted effective January 1,
2002, requires that goodwill and certain intangible assets resulting from
business combinations entered into prior to June 30, 2001 no longer be
amortized, but instead be reviewed for recoverability. Any write-down of
goodwill would be charged to results of operations as accumulative change in
accounting principle upon adoption of the new accounting standard if the
recorded value of goodwill and certain intangibles exceeds its fair value. Any
write-down of goodwill up to and including December 31, 2001 would not be
subject to the rules of this new standard. We are evaluating the impact of the
adoption of SFAS No. 142 and have completed the first step of the goodwill
impairment test during the quarter ended June 30, 2002, which has indicated an
impairment of the goodwill. We will perform the second step of the impairment
test during the third quarter of 2002 to determine whether any adjustment is
necessary.

Summary of Critical Accounting Policies

The preparation of financial statements in conformity with accounting principals
generally accepted in the United States of America requires management to adopt
accounting policies and make estimates and assumptions that affect amounts
reported in the unaudited interim consolidated financial statements. The
critical accounting polices and related adjustments underlying our unaudited
interim consolidated financial statements are summarized below. In applying
these policies, management makes subjective complex judgments

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that frequently require estimates about matters that are inherently uncertain.
Many of these policies are common in the telecommunications industry.

Impairment of Long-Lived Assets. We review the carrying value of long-lived
assets including property, plant and equipment for impairment whenever events
and circumstances indicate the carrying value of an asset may not be recoverable
from the estimated future cash flows expected to result from its use and
eventual disposition. In cases where undiscounted expected future cash flows are
less than the carrying value, an impairment loss is recognized equal to an
amount by which the carrying value exceeds the fair value of the assets, based
upon discounted expected future cash flows. The financial statement risk is that
the outcome of the facts and circumstances of the related projections used to
estimate future cash flows are uncertain and subject to managements judgment and
estimates.

Impairment of Goodwill. We are in the process of adopting SFAS No. 142,
"Goodwill and Intangible Assets." In accordance with SFAS No. 142, we evaluate
goodwill for potential impairment by comparing the fair value of the lowest
determinable reporting unit to the net book value of that reporting unit. The
financial statement risks are the determination of the reporting unit and the
determination of the fair value of that unit.

Restatement of Financial Statements

We restated our consolidated financial statements for the quarter ended March
31, 2001 to record a beneficial conversion feature of $21.0 million in
connection with the reduction of the conversion price on our series H and I
preferred stock on February 9, 2001. Other than with respect to the consolidated
financial statements for the quarter ended March 31, 2001, this restatement has
no impact on our assets or total stockholders' equity, and it resulted in an
increase in additional paid-in-capital and an increase in net loss. The change
increased net loss by $21.0 million and increased net loss applicable to common
stockholders per share by $0.54 for the six months ended June 30, 2001. The
change has no impact on our cash flows. This change was already reflected in our
annual report on Form 10-K for the fiscal year ended December 31, 2001, as
amended.

Results of Operations

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

Revenues. Revenues for the six months ended June 30, 2002 were $13.4 million
compared to $15.5 million for the six months ended June 30, 2001, a decrease of
$2.1 million. We generated revenues by providing transport, colocation and
communications access management services to our customers. For the six months
ended June 30, 2002 and 2001, we recognized $8.4 million and $10.4 million in
transport services, $2.7 million and $2.1 million in colocation services and
$2.3 million and $3.0 million in communications access management and other
services, respectively. During this six-month period ending June 30, 2002, two
of our customers, Qwest and 360networks accounted for approximately 30.0% of our
revenues.

The decrease in revenues was due to the elimination of certain reciprocal
agreements that were terminated during the first quarter of 2002. Reciprocal
agreements accounted for $0.5 million, or 4.0%, of our revenues in the first six
months of 2002, down from $2.6 million, or 16.6%, of our revenues for the same
period in 2001.

Revenues continue to be negatively impacted by the general economic environment
and by the difficulties that are impacting our industry. Customer contracts and
services have been cancelled, resulting in a loss of recurring revenues to us.
Losses in revenues have been partially offset by customer orders for new
services. There can be no assurance that to the extent we continue to incur
losses of revenues, they will be offset by orders for new services, if any.

In July 2002 we negotiated a revised pricing structure with a significant
customer for the services that we provided to it, although we previously were
not obligated to do so. In addition, this customer subsequently terminated
certain services that we were providing. The anticipated quarterly decrease in
revenues attributable to these two events is equal to approximately 12.0% of
revenues for the six months ended June 30, 2002. The impact of these events does
not put us in a loss position with respect to the remaining services with this
customer.

Cost of Services. Cost of services for the six months ended June 30, 2002 were
$3.5 million compared to $6.8 million for the six months ended June 30, 2001.
The decrease of $3.3 million was due to reduction in expenses associated with
our network facilities and the elimination of certain reciprocal agreements that
were terminated during the first quarter of 2002. In addition, cost of services
for the six months ended June 30, 2002 was reduced by $0.7 million due to
certain, non-recurring concessions that we negotiated from vendors, thereby
reducing accounts payable. These items were expensed in prior periods and
included in our cost of services.

Cost of services included on-net building license fees, maintenance and repair
costs, rent expense at carrier hotel facilities and on-net and off-net
buildings, and related utility costs. Reciprocal agreements accounted for $0.6
million of our cost of services in the first six months of 2002 and $2.6 million
of our cost of services for the same period in 2001.

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Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended June 30, 2002 were $8.3 million
compared to $19.7 million for the six months ended June 30, 2001. This decrease
is a result of our aggressive cost savings initiatives to reduce corporate
overhead in line with our current outlook for business activity. Cost reductions
were realized in nearly all components of selling, general and administrative
expenses, including advertising and marketing costs, professional fees and
travel and entertainment expenses. The greatest decrease in overhead came in
personnel costs, as we reduced headcount from 173 employees as of June 30, 2001
to 82, as of June 30, 2002.

Stock Related Expense. Stock related expense for the six months ended June 30,
2002 was approximately $0.1 million compared to $(1.3) million for the same
period ending June 30, 2001. This non-cash expense relates to the granting of
stock options to our employees. The amount recorded for the six months ended
June 30, 2001 was a reversal of an expense incurred during 2000 due to a decline
in the public market price of our common stock during the first six months of
2001.

Write-off of Property, Plant and Equipment. During the six months ended June 30,
2002, we recorded a write-off of property, plant and equipment of $0.7 million.
We recorded this write-off of capital assets due to the termination of several
property leases and license agreements for network facilities. There was no cost
to us to abandon these assets, nor do we expect to receive any proceeds or other
consideration from the abandonment of these assets. We recorded no other
reserves, accruals or other liabilities related to this write-off. During the
six months ended June 30, 2001, we did not record a write-off of property, plant
and equipment.

Depreciation and Amortization. Depreciation and amortization expense for the six
months ended June 30, 2002 was $5.2 million compared to $6.5 million for the six
months ended June 30, 2001. The decrease resulted from the impairment of
property, plant and equipment that we recorded in 2001 and the adoption of SFAS
No. 142, "Goodwill and Other Intangible Assets", applicable for fiscal years
beginning after December 15, 2001. SFAS No. 142, which we adopted effective
January 1, 2002, requires that goodwill and certain intangible assets resulting
from business combinations entered into prior to June 30, 2001 no longer be
amortized, but instead be reviewed for recoverability.

Interest Expense, Net. Interest expense, net for the six months ended June 30,
2002 was $4.3 million compared to $4.2 million of interest expense, net for the
six months ended June 30, 2001. Interest expense was generated as a result of
borrowings under our senior secured credit facility, outstanding capital lease
obligations and other notes payable.

Preferred Stock Dividends. For the six months ended June 30, 2002, we paid
approximately $31,000 in non-cash dividends on our preferred stock in the form
of additional shares of series H preferred stock, based on the closing price per
share of our common stock at the end of the period. For the six months ended
June 30, 2001, we paid $0.6 million in non-cash dividends on our preferred stock
in the form of additional shares of series D, E, F, H and I preferred stock,
based on the closing price per share of our common stock at the end of the
period. The liquidation value of all of the dividends paid on June 30, 2002 was
$0.4 million. Our series J preferred stock does not pay a dividend. Both the
series H and J preferred stock are convertible into shares of common stock.

Preferred Stock - Beneficial Conversion. In February 2001, the conversion price
of our series H and series I preferred stock was reduced to $4.38, in accordance
with the original terms of the issuance transactions. The certificates of
designation of the series H and series I include provisions requiring the
conversion prices to be lowered to the per share price at which we issue any
shares of common stock, subject to certain exceptions, subsequent to the initial
issuance of the series H and series I. In February 2001, we issued shares of
common stock in a directed public offering at a price of $4.38 per share,
resulting in the reduction of the conversion price. We recorded a beneficial
conversion charge of $21.0 million as a result of the reduction of the
conversion price. Additionally, in connection with the conversion of the series
H and series I, the conversion price of the remaining 100,000 shares of series H
was reduced to $1.31. However, as all of the proceeds from the issuances of the
series H and series I had been allocated to beneficial conversion features, no
additional proceeds were allocated upon the reset of the conversion price of the
series H to $1.31. No additional beneficial conversion feature was recorded
during the first six months of 2002 on our series J preferred stock based upon
our evaluation of changes in the conversion price of the series J and the public
market price of our common stock.

Net Loss Applicable to Common Stockholders. We reported a net loss applicable to
common stockholders of $8.7 million for the six months ended June 30, 2002
compared to a net loss of $49.4 million for the six months ended June 30, 2001.
The decrease is a result of the aforementioned changes in our operations,
including $0.7 million in non-recurring concessions from vendors recorded in the
second quarter of 2002 and two non-recurring charges recorded in the first
quarter of 2001: a non-cash charge of $7.4 million related to an early
extinguishment of debt from the modification of our credit facility on February
9, 2001 and the preferred stock-beneficial conversion of $21.0 million recorded
in February 2001.

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

Revenues. Revenues for the three months ended June 30, 2002 were $6.4 million
compared to $8.2 for the three months ended June 30, 2001, a decrease of $1.8
million. We generated revenues by providing transport, colocation and
communications access management services to our customers. For the three months
ended June 30, 2002 and June 30, 2001, we recognized $4.0 million and $5.3
million in transport services, $1.3 million and $1.4 million in colocation
services and $1.1 million and $1.5 million in

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communications access management and other services, respectively. During the
three-month period ending June 30, 2002, two of our customers, Qwest and
360networks accounted for approximately 28.4% of our revenues.

The decrease in revenues was due to the elimination of certain reciprocal
agreements that were terminated during the first quarter of 2002 and the
cancellation of services from certain of our customers. Reciprocal agreements
accounted for $0.1 million, or 1.9%, of our revenues in the second quarter of
2002, down from $1.4 million, or 17.0%, of our revenues for the second quarter
of 2001.

Revenues continue to be negatively impacted by the general economic environment
and by the difficulties that are impacting our industry. Customer contracts and
services have been cancelled, resulting in a loss of recurring revenues to us.
Losses in revenues have been partially offset by customer orders for new
services. There can be no assurance that to the extent we continue to incur
losses of revenues, they will be offset by orders for new services, if any.

In July 2002 we negotiated a revised pricing structure with a significant
customer for the services that we provided to it, although we previously were
not obligated to do so. In addition, this customer subsequently terminated
certain services that we were providing. The anticipated quarterly decrease in
revenues attributable to these two events is equal to approximately 12.5% of
revenues for the three months ended June 30, 2002. The impact of these events
does not put us in a loss position with respect to the remaining services with
this customer.

Cost of Services. Cost of services for the three months ended June 30, 2002 were
$1.1 million compared to $3.9 million for the three months ended June 30, 2001.
The decrease of $2.8 million was due to reduction in expenses associated with
our network facilities and the elimination of certain reciprocal agreements that
were terminated during the first quarter of 2002. In addition, cost of services
for the three months ended June 30, 2002 was reduced by $0.7 million due to
certain, non-recurring concessions that we negotiated from vendors, thereby
reducing accounts payable. These items were expensed in prior periods and
included in our cost of services.

Cost of services included on-net building license fees, maintenance and repair
costs, rent expense at carrier hotel facilities and on-net and off-net
buildings, and related utility costs. Reciprocal agreements accounted for $0.1
million of our cost of services in the second quarter of 2002 and $1.3 million
of our cost of services for the same period in 2001.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended June 30, 2002 were $4.0
million compared to $9.8 million for the three months ended June 30, 2001. This
decrease is a result of our aggressive cost savings initiatives to reduce
corporate overhead in line with our current outlook for business activity. Cost
reductions were realized in nearly all components of selling, general and
administrative expenses, including advertising and marketing costs, professional
fees and travel and entertainment expenses. The greatest decrease in overhead
came in personnel costs, as we reduced headcount from 173 employees as of June
30, 2001 to 82, as of June 30, 2002.

Stock Related Expense. Stock related expense for the three months ended June 30,
2002 was $0.1 million compared to $(1.1) million for the three months ended June
30, 2001. This non-cash expense relates to the granting of stock options to our
employees. The amount recorded for the three months ended June 30, 2001 was a
reversal of an expense incurred during 2000 due to a decline in the public
market price of our common stock during the second quarter of 2001.

Write-off of Property, Plant and Equipment. During the three months ended June
30, 2002, we recorded a write-off of property, plant and equipment of $0.7
million. We recorded this write-off of capital assets due to the termination of
several property leases and license agreements for network facilities. There was
no cost to us to abandon these assets, nor do we expect to receive any proceeds
or other consideration from the abandonment of these assets. We recorded no
other reserves, accruals or other liabilities related to this write-off. During
the three months ended June 30, 2001, we did not record a write-off of property,
plant and equipment.

Depreciation and Amortization. Depreciation and amortization expense for the
three months ended June 30, 2002 was $2.6 million compared to $3.4 million of
depreciation and amortization expense for the three months ended June 30, 2001.
The decrease resulted from the impairment of property, plant and equipment that
we recorded in 2001 and the adoption of SFAS No. 142, "Goodwill and Other
Intangible Assets", applicable for fiscal years beginning after December 15,
2001. SFAS No. 142, which we adopted effective January 1, 2002, requires that
goodwill and certain intangible assets resulting from business combinations
entered into prior to June 30, 2001 no longer be amortized, but instead be
reviewed for recoverability.

Interest Expense, Net. Interest expense, net for the three months ended June 30,
2002 was $2.1 million compared to $2.1 million of interest expense, net for the
three months ended June 30, 2001. Interest expense was generated as a result of
borrowings under our senior secured credit facility, outstanding capital lease
obligations and other notes payable.

Preferred Stock Dividends. For the three months ended June 30, 2002, we recorded
approximately $3,000 in non-cash dividends on our series H preferred stock, and
paid approximately $31,000 in the form of additional shares of preferred stock,
based on the closing price per share at the end of the period. For the three
months ended June 30, 2001, we recorded a reversal of an accrual in the amount
of $(0.1) million, based on the closing price per share of our common stock at
the end of the period. This reversal of dividends accrued during the first
quarter of 2001 was the result of a decline in the price per share of our common
stock during the second quarter of

                                       6

<PAGE>

2001. For the three months ended June 30, 2001 we paid $0.6 million in non-cash
dividends on our preferred stock, payable in the form of additional shares of
each respective series of preferred stock, based on the closing price per share
at the end of the period. For the period ending June 30, 2002 the liquidation
value of all of the dividends accrued was $0.4 million. Our series J preferred
stock does not pay a dividend. Both the series H and J preferred stock are
convertible into shares of common stock.

Net Loss Applicable to Common Stockholders. We reported a net loss applicable to
common stockholders of $4.2 million for the three months ended June 30, 2002
compared to a net loss of $9.7 million for the three months ended June 30, 2001.
The decrease is a result of the aforementioned changes in our operations,
including $0.7 million in non-recurring concessions from vendors

Liquidity and Capital Resources

As a result of our developmental activities and the deployment of our networks
and facilities, we have incurred significant losses from inception to date. We
expect such losses to continue, as we further execute our business plan and
expand our operations. Consequently, we have been dependent upon external
sources of capital to fund our operations. Prospectively, we will continue to
incur losses and will not be able to fund our operations with internally
generated funds. Therefore we will require additional, external capital.
Additionally, we have no relevant operating history upon which an evaluation of
our performance and prospects can be made. We are subject to unforeseen capital
requirements, failure to achieve market acceptance, failure to establish and
maintain business relationships, and competitive disadvantages against larger
and more established companies.

To date, we have financed our operations through direct equity investments from
our stockholders, the issuance of additional debt and equity securities in
private transactions and by arranging a senior secured credit facility with a
group of lenders. We incurred an EBITDA (as defined) profit and a net loss
applicable to common stockholders for the six months ended June 30, 2002 of $1.7
million and $8.7 million, respectively, compared to an EBITDA (as defined) loss
of $10.9 million and net loss applicable to common stockholders of $49.4
million, respectively, for the six months ended June 30, 2001. During the six
months ended June 30, 2002, cash used to fund operating activities was $2.8
million, and cash purchases of property, plant and equipment were $1.8 million,
compared to $12.6 million and $31.4 million, respectively, for the six months
ended June 30, 2001. During the six months ended June 30, 2002, we received $2.4
million in net cash proceeds from financing activities, primarily representing
$2.0 million in gross proceeds from the issuance of a promissory note.

On March 15, 2002, we received gross proceeds of $2.0 million from the issuance
of a promissory note to an existing investor. The issuance of the note was in
lieu of a second and third closing on our series J preferred stock, as was
previously contemplated. The promissory note had an original maturity date of
June 14, 2002 and bears interest, which is due and payable on the maturity date,
at an annual rate of 8%. The principal amount of the promissory note plus all
accrued and unpaid interest may be converted into shares of convertible
preferred stock or common stock in our company with a value equal to 110% of the
principal amount of the note and all accrued interest outstanding. The terms of
the series of preferred stock or other equity security into which the note may
be converted shall be determined in connection with our proposed
recapitalization, as discussed below. Additionally, in connection with this
financing, the lenders under our credit facility agreed to extend the due date
of the quarterly interest payment due on March 14, 2002 to April 15, 2002.

Subsequently, our lenders have periodically agreed to extend the due dates of
our interest payments. Most recently on August 13, 2002, our lenders agreed to
extend the due dates to August 30, 2002. On June 14, 2002, the holder of our
$2.0 million promissory note we issued on March 15, 2002 agreed to amend certain
terms of the note, resulting in an extension of the note's term to June 28,
2002, and possibly, depending on the satisfaction of certain conditions, to July
12, 2002. We have also received subsequent periodic extensions of the note's
term, most recently extending the note's term to August 30, 2002 on August 13,
2002.

On August 1, 2002, we entered into a non-binding letter of intent with our
lenders for them to convert $66 million of outstanding borrowings under our
credit facility into shares of common stock at an effective conversion price of
approximately $0.15 per share. The availability under our credit facility will
be reduced from $105 million to $37 million, which will consist of $23 million
in outstanding term loans, $7 million in outstanding revolving loans and $7
million of outstanding letters of credit. This agreement represents an expansion
of, and supersedes, our understanding with our lenders that we had previously
announced on May 6, 2002, which provided for the conversion of $25 million of
indebtedness.

As a condition to the debt conversion, we have executed a non-binding term sheet
with prospective investors pursuant to which the investors will purchase shares
of common stock with net proceeds to us of at least $3.5 million at
approximately $0.10 to $0.15 per share. It is anticipated that the closing with
respect to these transactions will occur prior to September 30, 2002; provided,
however, there can be no assurance that we will be able to successfully
effectuate any debt conversion or any equity financing. Should we succeed in
doing so, these transactions will be substantially dilutive to our existing
stockholders.

We have agreed to register the shares of common stock issued in connection with
the debt conversion and the concurrent equity financing under the Securities Act
of 1933. There are a number of conditions to closing each of these transactions,
including receipt of credit approval from each lender; negotiating definitive
documentation; receipt of stockholder approval; completion of the equity
financing, with respect to the debt conversion; completion of the debt
conversion, with respect to the equity financing; and conversion

                                       7

<PAGE>

of all currently outstanding convertible preferred securities and notes into
common stock. The conversion of senior secured debt into equity would also
involve certain amendments to the provisions of the senior secured credit
facility.

Our access to the additional availability under the credit facility is subject
to our compliance with the covenants, and other terms and conditions, in the
credit agreement. In accordance with the most recent extension of the due dates
of our interest payments as of August 13, 2002, we do not have access to the
additional availability under the credit facility until October 1, 2002.
Material financial covenants monitored on a quarterly basis include minimum
requirements for cumulative revenues and EBITDA (as defined), a maximum
limitation on capital expenditures, and compliance with ratios of total debt to
consolidated capitalization and total debt to property, plant and equipment, net
of accumulated depreciation. Non-compliance with any of these covenants,
requirements, or other terms and conditions, as of the reporting dates
constitutes an event of default under the credit agreement, prohibiting access
to any additional funds available under the credit facility and potentially
accelerating the outstanding balance for immediate payment.

As of June 30, 2002, the outstanding borrowings under our credit facility were
$96.0 million, and the weighted average interest rate on our outstanding
borrowings under the facility was 6.6%. Outstanding letters of credit under the
credit facility totaled $7.4 million. As of August 14, 2002 there were no events
of default under our credit agreement. On August 13, 2002, we received a waiver
from our lenders for the non-compliance of the minimum cumulative revenue
requirement as of June 30, 2002. We have evaluated the impact of this waiver
under EITF 86-30, "Classification of Obligations When a Violation Is Waived by
the Creditor". We made the determination the related debt should be classified
as a current liability because although we obtained a waiver for the covenant
violation and we have a financing agreement to refinance the debt on a long-term
basis, the non-binding letter of intent with our lenders is cancelable in the
event of a material adverse change in the business or operations of the company.

On January 2, 2002 we entered into an interest rate swap transaction with
Deutsche Bank AG for a notional amount of $25.0 million and a term of two years.
Pursuant to this transaction, we were obligated to make quarterly interest
payments at a fixed, annual interest rate of 3.7%. Because such interest rate
excludes the applicable margin of 4.5% that we pay on our credit facility, the
total interest rate for us on this swap transaction was 8.2%. As part of this
agreement, Deutsche Bank AG was obligated to pay to us on a quarterly basis a
floating rate of interest based upon LIBOR with a designated maturity of three
months. On March 20, 2002 we terminated this interest rate swap transaction with
Deutsche Bank AG with no payments of other amounts owed by either party. As a
result, all of our outstanding borrowings under our credit facility bear
interest at a floating rate.

We anticipate spending $3.0 million to $4.0 million during fiscal year 2002 on
capital expenditures for the implementation of customer orders and the
maintenance of our networks. We have substantially completed the deployment of
our FINs, carrier hotel facilities and metropolitan transport networks. We may
expend additional capital for the selected expansion of our network
infrastructure, depending upon market conditions, customer demand and our
liquidity and capital resources.

Our planned operations continue to require additional capital to fund equipment
purchases, engineering and construction costs, marketing costs, administrative
expenses and other operating activities. Although we reported that we generated
positive EBITDA (as defined) for the six months ended June 30, 2002, there can
be no assurance that we will be able to achieve such a result prospectively. We
cannot fund our operating and investing activities with internally generated
cash flows. We continue to require external sources of capital. The successful
completion of the debt conversion and the related equity financing is critical
to our liquidity. The consummation of both transactions are subject to a number
of conditions, as described above, and there can be no assurance that we will be
able to successfully effectuate the debt conversion or the equity financing. Our
inability to effectuate these transactions may have a material adverse affect on
the company.

From time to time, we may consider other private or public sales of additional
equity or debt securities and other financings, depending upon market
conditions, in order to finance the continued operations of our business. There
can be no assurance that we will be able to successfully consummate any such
financing on acceptable terms, or at all. We do not have any off-balance sheet
financing arrangements, nor do we anticipate entering into any.

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

                                        8

<PAGE>


<TABLE>
<CAPTION>
                                                       Consolidated Financial Data       Consolidated Financial Data
                                                             (in thousands)                    (in thousands)
                                                               (unaudited)                      (unaudited)
                                                            Six months Ended                 Three months Ended
                                                                June 30,                          June 30,
                                                     --------------------------------  --------------------------------
                                                         2002                 2001         2002                2001
                                                     ------------          ----------  ------------        ------------
                                                                          Restated (1)
<S>                                                     <C>                  <C>          <C>                 <C>
Calculation of EBITDA (as defined):

Net loss .........................................      $ (8,642)            $(27,742)    $ (4,154)           $ (9,807)

Plus:
Operating expenses:
Stock related expense for selling,
  general, and administrative matters ............           148               (1,282)          74              (1,146)
Write-off of property, plant and
  equipment ......................................           685                   --          685                  --
Depreciation and amortization ....................         5,228                6,480        2,585               3,375

Extraordinary loss on early
  extinguishments of debt ........................            --                7,398           --                  --
Interest expense, net ............................         4,276                4,209        2,119               2,083

                                                        --------             --------     --------            --------

EBITDA (as defined) ..............................      $  1,695             $(10,937)    $  1,309            $ (5,495)
</TABLE>



(1) See Footnote 5 to the notes of the consolidated financial statements for a
discussion of the restatement of our financial results for the quarter ended
March 31, 2001.

Recent Accounting Pronouncements

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

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", applicable for fiscal years beginning after December 15, 2001. SFAS No.
142, which was adopted by us effective January 1, 2002, requires that goodwill
and certain intangible assets resulting from business combinations entered into
prior to June 30, 2001 no longer be amortized, but instead be reviewed for
recoverability. Any write-down of goodwill would be charged to results of
operations as accumulative change in accounting principle upon adoption of the
new accounting standard if the recorded value of goodwill and certain
intangibles exceeds its fair value. Any write-down of goodwill up to and
including December 31, 2001 would not be subject to the rules of this new
standard. We are evaluating the impact of the adoption of SFAS No. 142 and have
completed the first step of the goodwill impairment test during the quarter
ended June 30, 2002, which has indicated a possible impairment of the goodwill.
We will perform the second step of the impairment test during the third quarter
of 2002 to determine whether any adjustment is necessary.

The following table presents the impact of SFAS No. 142 as if it had been in
effect for the six months ended June 30, 2001 and the three months ended June
30, 2001 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                            Six Months Ended        Three Months Ended
                                                                 June 30,                  June 30,
                                                         -----------------------   --------------------
                                                            2002          2001         2002       2001
                                                         ---------     ----------  --------   ---------
                                                                      Restated (1)

<S>                                                       <C>          <C>         <C>        <C>
Net loss applicable to common stockholders .............  $ (8,673)    $ (49,375)  $(4,157)   $ (9,690)
Plus: Goodwill amortization ............................        --         2,406        --       1,203
                                                          --------     ---------   -------   ---------
Adjusted net loss applicable to common stockholders ....  $ (8,673)    $ (46,969)  $(4,157)   $ (8,487)

Basic and diluted earnings per share
  Net loss applicable to common stockholders ...........  $  (0.14)    $   (1.28)  $ (0.07)   $  (0.24)
  Plus: Goodwill amortization ..........................        --          0.06        --        0.03
                                                          --------     ---------   --------   ---------
  Adjusted net loss applicable to common stockholders ..  $  (0.14)    $   (1.22)  $ (0.07)   $  (0.21)
</TABLE>

(1) See Footnote 5 to the notes of the consolidated financial statements for a
discussion of the restatement of our financial results for the quarter ended
March 31, 2001.

In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." The Statement requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity capitalizes a
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its then present value, and the capitalized
cost is depreciated over the useful life of the related asset. Upon settlement
of the

                                       9

<PAGE>

liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The Statement is effective for fiscal
years beginning after June 15, 2002, with earlier application encouraged. We do
not expect the adoption of the Statement to have a material impact on our
results of operations.

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

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements 4,
44 and 64, Amendment of FASB Statement 13, and Technical Corrections". SFAS No.
145 rescinds the provisions of SFAS No. 4 that requires companies to classify
certain gains and losses from debt extinguishments as extraordinary items,
eliminates the provisions of SFAS No. 44 regarding transition to the Motor
Carrier Act of 1980 and amends the provisions of SFAS No. 13 to require that
certain lease modifications be treated as sale leaseback transactions. The
provisions of SFAS No. 145 related to classification of debt extinguishment are
effective for fiscal years beginning after May 15, 2002. Commencing January 1,
2003, we will classify debt extinguishment costs within income from operations
and will reclassify previously reported debt extinguishments as such. The
provisions of SFAS No. 145 related to lease modification are effective for
transactions occurring after May 15, 2002. We do not expect the provisions of
SFAS No. 145 related to lease modification to have a material impact on our
financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 nullifies Emerging Issues Task
Force ("EITF") No. 94-3, "Liability Recognition for certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in as Restructuring)". The principal difference between SFAS No. 146 and EITF
No. 94-3 relates to its requirements for recognition of a liability for a cost
associated with an exit or disposal activity. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under EITF No. 94-3, a liability for an exit
cost was recognized at the date of an entity's commitment to an exit plan. SFAS
No. 146 is effective for exit and disposal activities that are initiated after
December 31, 2002. We do not expect the provisions of SFAS No. 146 to have a
material impact on our financial position or results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to financial market risk, including changes in interest rates,
relates primarily to our credit facility and marketable security investments.
Borrowings under our credit facility bear interest at floating rates, based upon
LIBOR or a base rate plus an applicable margin. As a result, we are subject to
fluctuations in interest rates. A 100 basis point increase in LIBOR would
increase our annual interest expense by less than $1.0 million per year. As of
June 30, 2002, we had borrowed $96.0 million under our credit facility. We are
subject to fluctuations in interest rates on the entire portion of our
outstanding balance, with a current weighted average interest rate of 6.6%.

On January 2, 2002 we entered into an interest rate swap transaction with
Deutsche Bank AG for a notional amount of $25.0 million and a term of two years.
Pursuant to this transaction, we were obligated to make quarterly interest
payments at a fixed, annual interest rate of 3.7%. Because such interest rate
excludes the applicable margin of 4.5% that we pay on our credit facility, the
total interest rate for us on this swap transaction was 8.2%. As part of this
agreement, Deutsche Bank AG was obligated to pay to us on a quarterly basis a
floating rate of interest based upon LIBOR with a designated maturity of three
months. On March 20, 2002 we terminated this interest rate swap transaction with
Deutsche Bank AG with no payments of other amounts owed by either party. As a
result, all of our outstanding borrowings under our credit facility bear
interest at a floating rate.

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

                                       10

<PAGE>

                                     PART II
                                OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Changes in Securities and Use of Proceeds

During the quarter ended June 30, 2002, we granted options under our Equity
Incentive Plan to purchase 80,000 shares of common stock to employees with an
exercise price of $0.12 per share. These option grants were made in reliance
upon an exemption from the Securities Act of 1933 set forth in Section 4(2)
relating to sales by an issuer not involving any public offering. No underwriter
was involved with this transaction.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) The following documents are filed herewith as part of this Form 10-Q:

         99.1     Certification of Chief Executive Officer Pursuant to Section
                  906 of the Sarbanes-Oxley Act of 2002

         99.2     Certification of Chief Financial Officer Pursuant to Section
                  906 of the Sarbanes-Oxley Act of 2002


(b) The following report was filed on Form 8-K, under Item 5, during the quarter
ended June 30, 2002:

         1.       A report was filed on April 17, 2002, regarding an extension
                  of the due date of an interest payment under our credit
                  facility.

         2.       A report was filed on May 28, 2002, regarding an extension of
                  the due date of an interest payment under our credit facility.

         3.       A report was filed on June 17, 2002, regarding an extension of
                  the due date of two interest payments under our credit
                  facility and an extension of our $2.0 million promissory
                  note's term.

                                       11

<PAGE>

                                   SIGNATURES

Pursuant to the requirements 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.

     Date: August 14, 2002               FiberNet Telecom Group, Inc.


                                       By:  /S/ Jon A. DeLuca
                                            ------------------------------------
                                       Name:    Jon A. DeLuca
                                       Title:   Senior Vice President--Finance

                                                Chief Financial Officer*

* The Chief Financial Officer is signing this quarterly report on Form 10-Q as
both the principal financial officer and authorized officer.

                                       12

<PAGE>

                          FIBERNET TELECOM GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS
                  (DOLLARS IN 000'S, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                                      June 30,           December 31,
                                                                                        2002                 2001
                                                                                   --------------        ------------
                                                                                    (Unaudited)

<S>                                                                                   <C>                 <C>
                                     ASSETS
Current assets:
  Cash and cash equivalents ....................................................      $   1,157           $   3,338
  Accounts receivable, net of allowance of $2,309 and $2,245 at
      June 30, 2002 and December 31, 2001, respectively ........................          2,627               2,659
  Prepaid expenses and other ...................................................            776                 700
                                                                                      ---------           ---------
    Total current assets .......................................................          4,560               6,697
Property, plant and equipment, net .............................................        104,723             109,837
Goodwill, net of accumulated amortization of $1,159 at December 31, 2001 .......          7,509               7,509
Deferred charges, net of accumulated amortization of $2,716 and $1,937 at
 June 30, 2002 and December 31, 2001, respectively .............................         11,831              12,099
Other assets ...................................................................            406                 445
                                                                                      ---------           ---------
    Total other assets .........................................................         19,746              20,053
                                                                                      ---------           ---------
TOTAL ASSETS ...................................................................      $ 129,029           $ 136,587
                                                                                      =========           =========
                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable .............................................................      $   4,930           $   6,742
  Accrued expenses .............................................................          8,522               7,452
  Deferred revenues ............................................................          5,126               6,071
  Capital lease obligation--current portion ....................................            247                 250
  Subordinated note payable ....................................................          2,000                  --
  Note payable, affiliate ......................................................            935               2,321
  Notes payable, less original issue discount of $5,476 ........................         90,524                  --
                                                                                      ---------           ---------
    Total current liabilities ..................................................        112,284              22,836
Notes payable, less original issue discount of $6,071 ..........................             --              88,929
Capital lease obligation .......................................................            348                 474
                                                                                      ---------           ---------
    Total liabilities ..........................................................        112,632             112,239

Stockholders' equity:
  Series H Preferred Stock $.001 par value, 104,578 and 100,556 shares issued
   and outstanding, respectively. (Preference in involuntary liquidation value,
   $100.00 per share) ..........................................................         17,127              17,096
  Series J preferred stock $.001 par value, 303 and 356 shares issued and
   outstanding at June 30, 2002 and December 31, 2001, respectively
   (Preference in involuntary liquidation value, $10,000.00 per share) .........            912               7,063
  Common Stock, $.001 par value, 150,000,000 shares authorized and 64,331,722
   and 61,572,613 shares issued and outstanding, respectively ..................             64                  62
  Subscription receivable from series J preferred stock ........................             --              (5,700)
  Additional paid in capital ...................................................        296,790             295,649
  Accumulated deficit ..........................................................       (298,496)           (289,822)
                                                                                      ---------           ---------
    Total stockholders' equity .................................................         16,397              24,348
                                                                                      ---------           ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .....................................      $ 129,029           $ 136,587
                                                                                      =========           =========
</TABLE>

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

                                       13

<PAGE>

                          FIBERNET TELECOM GROUP, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                  (DOLLARS IN 000'S, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                              Six Months Ended
                                                                                                  June 30,
                                                                                      ------------------------------
                                                                                          2002              2001
                                                                                      ------------      ------------
                                                                                                        As Restated-
                                                                                                         See Note 5
<S>                                                                                   <C>               <C>
Revenues ........................................................................     $     13,441      $     15,530
Operating expenses:
  Cost of services (exclusive of items shown
   separately below) ............................................................            3,474             6,778
  Selling, general and administrative expense
   excluding stock related expense ..............................................            8,272            19,689
  Stock related expense for selling, general,
   and administrative matters ...................................................              148            (1,282)
  Write-off of property, plant and equipment ....................................              685                --
  Depreciation and amortization .................................................            5,228             6,480
                                                                                      ------------      ------------
Total operating expenses ........................................................           17,807            31,665
                                                                                      ------------      ------------
Loss from operations ............................................................           (4,366)          (16,135)
Interest expense, net ...........................................................           (4,276)           (4,209)
                                                                                      ------------      ------------
Net loss before extraordinary item ..............................................           (8,642)          (20,344)
Extraordinary loss on early extinguishment of debt ..............................               --            (7,398)
                                                                                      ------------      ------------
Net loss ........................................................................           (8,642)          (27,742)
Preferred stock dividends .......................................................              (31)             (614)
Preferred stock - beneficial conversion .........................................               --           (21,019)
                                                                                      ------------      ------------
Net loss applicable to common stockholders ......................................     $     (8,673)     $    (49,375)
                                                                                      ============      ============
Net loss applicable to common stockholders per share--basic and diluted .........     $      (0.14)     $      (1.28)
Weighted average shares outstanding .............................................       62,844,551        38,581,411
</TABLE>



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

                                       14

<PAGE>

                          FIBERNET TELECOM GROUP, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                  (DOLLARS IN 000'S, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                    Three Months Ended
                                                                                        June 30,
                                                                              ----------------------------
                                                                                  2002            2001
                                                                              ------------    ------------
<S>                                                                           <C>             <C>
Revenues .................................................................    $      6,427    $      8,156
Operating expenses:
  Cost of services (exclusive of items shown separately below) ...........           1,072           3,858
  Selling, general and administrative expense
   excluding stock related expense .......................................           4,046           9,793
  Stock related expense for selling, general,
   and administrative matters ............................................              74          (1,146)
  Write-off of property, plant and equipment .............................             685              --
  Depreciation and amortization ..........................................           2,585           3,375
                                                                              ------------    ------------
Total operating expenses .................................................           8,462          15,880
                                                                              ------------    ------------
Loss from operations .....................................................          (2,035)         (7,724)
Interest expense, net ....................................................          (2,119)         (2,083)
                                                                              ------------    ------------
Net loss .................................................................          (4,154)         (9,807)
Preferred stock dividends ................................................              (3)            117
                                                                              ------------    ------------
Net loss applicable to common stockholders ...............................    $     (4,157)   $     (9,690)
                                                                              ============    ============
Net loss applicable to common stockholders per share--basic and diluted ..    $      (0.07)   $      (0.24)
Weighted average shares outstanding ......................................      63,475,767      39,697,604
</TABLE>



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

                                       15

<PAGE>

                          FIBERNET TELECOM GROUP, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                               (DOLLARS IN 000'S)

<TABLE>
<CAPTION>
                                                                                                  Six Months Ended
                                                                                                      June 30,
                                                                                           ------------------------------
                                                                                              2002                2001
                                                                                           ------------        ----------
                                                                                                             As Restated-
                                                                                                              See Note 5
<S>                                                                                          <C>               <C>
Cash flows from operating activities:
  Net loss applicable to common stockholders ..........................................      $ (8,673)         $(49,375)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Extraordinary item ................................................................            --             7,398
    Depreciation and amortization .....................................................         5,228             6,480
    Preferred stock dividends .........................................................            31               614
    Preferred stock - beneficial conversion ...........................................            --            21,019
    Stock related expense .............................................................           148            (1,282)
    Write-down of property plant and equipment ........................................           685                --
    Other non-cash expense ............................................................         1,316             2,666
    Change in assets and liabilities:
      (Increase) decrease in accounts receivable, prepaid expenses and other
        assets ........................................................................          (455)            3,474
      Decrease in accounts payable, accrued expenses and deferred
        revenues ......................................................................        (1,094)           (3,551)
                                                                                             --------          --------
Cash used in operating activities .....................................................        (2,814)          (12,557)
Cash flows from investing activities:
  Capital expenditures ................................................................        (1,810)          (31,449)
                                                                                             --------          --------
Cash used in investing activities .....................................................        (1,810)          (31,449)
Cash flows from financing activities:
  Net proceeds from debt financings ...................................................           572            17,571
  Net proceeds from issuance of equity securities .....................................            --            26,011
  Net proceeds from subordinated note payable .........................................         2,000                --
  Repayment of capital lease obligation ...............................................          (129)             (112)
                                                                                             --------          --------
Cash provided by financing activities .................................................         2,443            43,470
                                                                                             --------          --------
Net Decrease in cash and cash equivalents .............................................        (2,181)             (536)
Cash and cash equivalents at beginning of period ......................................         3,338             1,582
                                                                                             --------          --------
Cash and cash equivalents at end of period ............................................      $  1,157          $  1,046
                                                                                             ========          ========
Supplemental disclosures of cash flow information:
  Interest paid .......................................................................      $    203          $  2,678
  Income taxes paid ...................................................................            --                --
</TABLE>



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

                                       16

<PAGE>

                          FIBERNET TELECOM GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1. ORGANIZATION AND OPERATIONS

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

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

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

The Company has agreements with other entities, including telecommunications
license agreements with on-net building landlords, interconnection agreements
with other telecommunications service providers and leases with carrier hotel
property owners. FiberNet also has entered into contracts with suppliers for the
components of its telecommunications networks. These contracts and agreements
are critical to the Company's ability to execute its business strategy and
operating plan.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, FiberNet Operations, Inc., Devnet, FiberNet
Telecom, Inc., Equal Access and Local Fiber. The accompanying unaudited
consolidated financial statements have been prepared in accordance with the
instructions to Form 10-Q and, therefore, do not include all information and
footnotes necessary for a fair presentation of financial position, results of
operations, and cash flows in conformity with accounting principles generally
accepted in the United States of America. However, in the opinion of management,
all adjustments consisting of normal recurring accruals necessary for a fair
presentation of the operating results have been included in the consolidated
financial statements. All significant intercompany balances and transactions
have been eliminated.

Use of Estimates

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

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

                                       17

<PAGE>

Cash and Cash Equivalents

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

Property, Plant and Equipment

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

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

Maintenance and repairs are expensed as incurred. Long-term improvements are
capitalized as additions to property, plant and equipment.

Impairment of Long-Lived Assets

The Company reviews the carrying value of long-lived assets including property,
plant and equipment for impairment whenever events and circumstances indicate
the carrying value of an asset may not be recoverable from the estimated future
cash flows expected to result from its use and eventual disposition. In cases
where undiscounted expected future cash flows are less than the carrying value,
an impairment loss would be recognized equal to an amount by which the carrying
value exceeds the fair value of the assets, based upon discounted expected
future cash flows.

Revenue Recognition

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

Revenues are derived from three general types of services:

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

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

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

As of June 30, 2002 the Company had one reciprocal agreement. The services
provided and obtained through this agreement were priced at fair market value as
of the date of the agreement and is included in revenues and cost of services in
the accompanying consolidated statements of operations. The Company recorded
revenues from these reciprocal agreements for transport services and colocation
services in the amount of approximately $0.5 million and $2.6 million for the
six months ended June 30, 2002 and June 30,

                                       18

<PAGE>

2001, respectively, and approximately $0.1 million and $1.4 million for the
three months ended June 30, 2002 and June 30, 2001, respectively. The Company
leased colocation facilities under these agreements. The total amounts expensed
for services rendered under the reciprocal agreements for the six months ended
June 30, 2002 and June 30, 2001 were approximately $0.6 million and $2.6
million, respectively, and for the three months ended June 30, 2002 and June 30,
2001 were approximately $0.1 million and $1.3 million, respectively.

Goodwill

Cost in excess of net assets of acquired business, principally goodwill, is
accounted for under SFAS No. 142, "Goodwill and Other Intangible Assets". In
June 2001, the FASB issued SFAS No. 142, which is applicable for fiscal years
beginning after December 15, 2001. SFAS No. 142, which was adopted by the
Company effective January 1, 2002, requires that goodwill and certain intangible
assets resulting from business combinations entered into prior to June 30, 2001
no longer be amortized, but instead be reviewed for recoverability. Any
write-down of goodwill would be charged to results of operations as accumulative
change in accounting principle upon adoption of the new accounting standard if
the recorded value of goodwill and certain intangibles exceeds its fair value.
Any write-down of goodwill up to and including December 31, 2001 would not be
subject to the rules of this new standard.

Deferred Charges

Deferred charges include the cost to access buildings and deferred financing
costs. Costs to access buildings are amortized over 15 years, which represents
the term of the related contracts. Deferred financing costs are amortized over
the term of the related debt instrument.

Earnings Per Share

Basic earnings per share have been computed using the weighted average number of
shares during the period. Diluted earnings per share are computed by including
the dilutive effect on common stock that would be issued assuming conversion of
stock options, warrants and other dilutive securities. Dilutive options,
warrants and other securities did not have an effect on the computation of
diluted earnings per share in 2002 and 2001, as they were anti-dilutive.

Concentration of Credit Risk

The Company has concentration of credit risk among its customer base. The
Company performs ongoing credit evaluations of its customers' financial
condition. As of June 30, 2002, one customer accounted for 27.0% of the
Company's total accounts receivable, and as of December 31, 2001 one customer
accounted for 19.4% of the Company's total accounts receivable.

For the six months ended June 30, 2002, two customers in the aggregate accounted
for 30.0% of the Company's total revenue, and for the six months ended June 30,
2001, three customers in the aggregate accounted for 60.3% of the Company's
total revenue. For the three months ended June 30, 2002, two customers in the
aggregate accounted for 28.5% of the Company's total revenue, and for the three
months ended June 30, 2001, three customers in the aggregate accounted for 60.2%
of the Company's total revenue.

As of December 31, 2001, the Company had an allowance for doubtful accounts of
$2.2 million. During the six months ended June 30, 2002, FiberNet wrote off $0.4
million of this allowance and recorded $0.5 million of bad debt expense,
resulting in an allowance for doubtful accounts of $2.3 million, as of June 30,
2002. For the six months ended June 30, 2001, the Company recorded $2.1 million
of bad debt expense.

Stock Option Plan

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

Accounting for Income Taxes

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

Accounting for Derivative Instruments

                                       19

<PAGE>

The Company accounts for derivative instruments in accordance with SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended. SFAS
No. 133 establishes standards of accounting and reporting for derivative
instruments and hedging activities, and requires that all derivatives be
recognized on the balance sheet at fair value. Changes in the fair value of
derivatives that do not meet the hedge accounting criteria are to be reporting
in earnings. The adoption of SFAS No. 133 did not have a material impact on the
Company's consolidated financial statements for the six months ended June 30,
2002 and June 30, 2001.

Reclassifications

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

Segment Reporting

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

Recent Accounting Pronouncements

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

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", applicable for fiscal years beginning after December 15, 2001. SFAS No.
142, which was adopted by the Company effective January 1, 2002, requires that
goodwill and certain intangible assets resulting from business combinations
entered into prior to June 30, 2001 no longer be amortized, but instead be
reviewed for recoverability. Any write-down of goodwill would be charged to
results of operations as accumulative change in accounting principle upon
adoption of the new accounting standard if the recorded value of goodwill and
certain intangibles exceeds its fair value. Any write-down of goodwill up to and
including December 31, 2001 would not be subject to the rules of this new
standard. The Company is evaluating the impact of the adoption of SFAS No. 142
and has completed the first step of the goodwill impairment test during the
quarter ended June 30, 2002, which has indicated a possible impairment of the
goodwill. The Company will perform the second step of the impairment test during
the third quarter of 2002 to determine whether any adjustment is necessary.

The following table presents the impact of SFAS No. 142 as if it had been in
effect for the six months ended June 30, 2001 and the three months ended June
30, 2001 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                             Six Months Ended        Three Months Ended
                                                                  June 30,                  June 30,
                                                          -----------------------   --------------------
                                                             2002          2001         2002       2001
                                                          ---------     ----------  --------   ---------
                                                                       As Restated -
                                                                        See Note 5

<S>                                                        <C>           <C>         <C>       <C>
Net loss applicable to common stockholders .............   $ (8,673)     $ (49,375)  $(4,157)  $ (9,690)
Plus: Goodwill amortization ............................         --          2,406        --      1,203
                                                           --------      ---------   --------   ---------
Adjusted net loss applicable to common stockholders. ...   $ (8,673)     $ (46,969)  $(4,157)  $   (8,487)

Basic and diluted earnings per share"
  Net loss applicable to common stockholders ...........   $  (0.14)     $   (1.28)  $ (0.07)  $   (0.24)
  Plus: Goodwill amortization ..........................         --           0.06        --        0.03
                                                           --------      ---------   --------   ---------
  Adjusted net loss applicable to common stockholders ..   $  (0.14)     $   (1.22)  $ (0.07)  $   (0.21)
</TABLE>

In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." The Statement requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity capitalizes a
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its then present value, and the capitalized
cost is depreciated over the useful life of the related asset. Upon settlement
of the liability, an entity either settles the obligation for its recorded
amount or incurs a gain or loss upon settlement. The Statement is effective for
fiscal years beginning after June 15, 2002, with earlier application encouraged.
The Company does not expect the adoption of the Statement to have a material
impact on its results of operations.

In October, 2001 the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The Statement replaces SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," although it retains the impairment testing methodology used in SFAS No.
121. The accounting and reporting provisions of Accounting

                                       20

<PAGE>

Principals Board Opinion ("APB") 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," are superceded by
SFAS No. 144, except that the Statement preserves the requirement of APB 30 to
report discontinued operations separately from continuing operations. The
Statement covers a variety of implementation issues inherent in SFAS No. 121,
unifies the framework used in accounting for assets to be disposed of and
discontinued operations, and broadens the reporting of discontinued operations
to include all components of an entity with operations that can be distinguished
from the rest of the entity and that will be eliminated from the ongoing
operations of the entity in a disposal transaction. The Statement is effective
for fiscal years beginning after December 15, 2001. FiberNet adopted SFAS No.
144 on January 1, 2002. The adoption of SFAS No. 144 did not have a material
impact on the Company's financial statements.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements 4,
44 and 64, Amendment of FASB Statement 13, and Technical Corrections". SFAS No.
145 rescinds the provisions of SFAS No. 4 that requires companies to classify
certain gains and losses from debt extinguishments as extraordinary items,
eliminates the provisions of SFAS No. 44 regarding transition to the Motor
Carrier Act of 1980 and amends the provisions of SFAS No. 13 to require that
certain lease modifications be treated as sale leaseback transactions. The
provisions of SFAS No. 145 related to classification of debt extinguishment are
effective for fiscal years beginning after May 15, 2002. Commencing January 1,
2003, the Company will classify debt extinguishment costs within income from
operations and will reclassify previously reported debt extinguishments as such.
The provisions of SFAS No. 145 related to lease modification are effective for
transactions occurring after May 15, 2002. The Company does not expect the
provisions of SFAS No. 145 related to lease modification to have a material
impact on its financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 nullifies Emerging Issues Task
Force ("EITF") No. 94-3, "Liability Recognition for certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in as Restructuring)". The principal difference between SFAS No. 146 and EITF
No. 94-3 relates to its requirements for recognition of a liability for a cost
associated with an exit or disposal activity. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under EITF No. 94-3, a liability for an exit
cost was recognized at the date of an entity's commitment to an exit plan. SFAS
No. 146 is effective for exit and disposal activities that are initiated after
December 31, 2002. The Company does not expect the provisions of SFAS No. 146 to
have a material impact on its financial position or results of operations.

3. PROPERTY, PLANT AND EQUIPMENT

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

                                                     June 30,       December 31,
                                                       2002            2001
                                                     ---------      -----------
Computer software ................................   $     175       $     178
Computer equipment ...............................         278             293
Leasehold improvements ...........................          31              30
Office equipment and furniture ...................         146             146
Network equipment and infrastructure .............     124,667         120,523
                                                     ---------       ---------
Total ............................................     125,297         121,170
Accumulated depreciation .........................     (20,574)        (15,758)
                                                     ---------       ---------
 .................................................     104,723         105,412
Construction in progress .........................          --           4,425
                                                     ---------       ---------
Property, plant and equipment, net ...............   $ 104,723       $ 109,837
                                                     =========       =========

During the three months ended June 30, 2002, the Company recorded a write-off of
property, plant and equipment of $0.7 million. FiberNet recorded this write-off
of capital assets due to the termination of several property leases and license
agreements for network facilities. There was no cost to FiberNet to abandon
these assets, nor does it expect to receive any proceeds or other consideration
from the abandonment of these assets. Management had the authority to write-off
these assets, in the ordinary course of business, and recorded no other
reserves, accruals or other liabilities related to this write-off.

4. SIGNIFICANT EVENTS

On March 15, 2002, the lenders under the Company's credit facility agreed to
extend the due date of the quarterly interest payment due on March 14, 2002 to
April 15, 2002, as part of the initiation of the Company's proposed
recapitalization. Subsequently as the ongoing negotiations continued, FiberNet's
lenders have periodically agreed to extend the due dates of its interest
payments. Most

                                       21

<PAGE>

recently on August 13, 2002, the lenders agreed to extend the due dates to
August 30, 2002. During these negotiations, the Company was not in default with
respect to its credit facility (see Note 6).

On June 14, 2002, the holder of the Company's $2.0 million promissory note that
was issued on March 15, 2002, also as part of the initiation of the Company's
proposed recapitalization, agreed to amend certain terms of the note, resulting
in an extension of the note's term to June 28, 2002, and possibly, depending on
the satisfaction of certain conditions, to July 12, 2002. The Company has also
received subsequent periodic extensions of the note's term, most recently
extending the note's term to August 30, 2002 on August 13, 2002, and was not in
default with respect to the promissory note (see Note 6).

During the second quarter of 2002, the Company negotiated non-recurring
concessions of $1.3 million related to amounts owed to certain vendors, and as a
result the Company reduced accounts payable by such an amount. This reduction
corresponded to a $0.6 million reduction in property, plant, and equipment and a
$0.7 million reduction in cost of services. These amounts were capitalized or
expensed, respectively, in prior periods. In addition, the Company reached a
similar concession with a related party that resulted in forgiveness of a
portion of a note payable in the amount of $0.6 million that was recorded as
additional paid in capital, in accordance with APB No. 26, "Early Extinguishment
of Debt".

5. RESTATEMENT

The Company restated its consolidated financial statements for the quarter ended
March 31, 2001 to record a beneficial conversion feature of $21.0 million in
connection with the reduction of the conversion price on series H and series I
preferred stock on February 9, 2001. The conversion price of the series H and
series I preferred stock was reduced to $4.38, in accordance with the original
terms of the issuance transactions. The certificates of designation of the
series H and series I preferred stock include provisions requiring the
conversion prices to be lowered to the per share price at which the Company
issues any shares of common stock, subject to certain exceptions, subsequent to
the initial issuance of the series H and series I. In February 2001, the Company
issued shares of common stock in a directed public offering at a price of $4.38
per share, resulting in the reduction of the conversion price. The amount of the
charge assumes the market price per share of the underlying common stock, as of
the date the charge is incurred, in accordance with EITF Issue 98-05,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratio."

Other than with respect to the consolidated financial statements for the quarter
ended March 31, 2001, this restatement has no impact on the Company's assets or
total stockholders' equity, and it resulted in an increase in additional
paid-in-capital and an increase in net loss. The change increased net loss
applicable to common stockholders by $21.0 million and increased net loss
applicable to common stockholders per share by $0.54 for the six months ended
June 30, 2001. The change has no impact on the Company's cash flows. This change
was previously reflected in the Company's annual report on Form 10-K for the
fiscal year ended December 31, 2001, as amended.

6. SUBSEQUENT EVENTS

On August 1, 2002, the Company entered into a non-binding letter of intent with
its lenders to convert $66 million of outstanding borrowings under the credit
facility into shares of common stock at an effective conversion price of
approximately $0.15 per share. The availability under the credit facility will
be reduced from $105 million to $37 million, which will consist of $23 million
in outstanding term loans, $7 million in outstanding revolving loans and $7
million of outstanding letters of credit. This agreement represents an expansion
of, and supersedes, the Company's understanding with its lenders that had
previously been announced on May 6, 2002, which provided for the conversion of
$25 million of indebtedness.

As a condition to the debt conversion, the Company has executed a non-binding
term sheet with prospective investors pursuant to which the investors will
purchase shares of common stock with net proceeds to the Company of at least
$3.5 million at approximately $0.10 to $0.15 per share. It is anticipated that
the closing with respect to these transactions will occur prior to September 30,
2002; provided, however, there can be no assurance that the Company will be able
to successfully effectuate any debt conversion or any equity financing. Should
the Company succeed in doing so, these transactions will be substantially
dilutive to its existing stockholders.

FiberNet has agreed to register the shares of common stock issued in connection
with the debt conversion and the concurrent equity financing under the
Securities Act of 1933. There are a number of conditions to closing each of
these transactions, including receipt of credit approval from each lender;
negotiating definitive documentation; receipt of stockholder approval;
completion of the equity financing, with respect to the debt conversion;
completion of the debt conversion, with respect to the equity financing; and
conversion of all currently outstanding convertible preferred securities and
notes into common stock. The conversion of senior secured debt into equity would
also involve certain amendments to the provisions of the senior secured credit
facility.

On August 13, 2002, FiberNet received a waiver from its lenders for the
non-compliance of the minimum cumulative revenue requirement as of June 30,
2002. The Company evaluated the impact of this waiver under EITF 86-30,
"Classification of Obligations When a Violation Is Waived by the Creditor." The
Company made the determination the related debt should be classified as a
current

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liability because although FiberNet obtained a waiver for the covenant violation
and the Company has a financing agreement to refinance the debt on a long-term
basis, the non-binding letter of intent with its lenders is cancelable in the
event of a material adverse change in the business or operations of the Company.

In July 2002 the Company negotiated a revised pricing structure with a
significant customer for the services that the Company provides to it, although
the Company previously was not obligated to do so. In addition, this customer
subsequently terminated certain services that the Company was providing. The
anticipated quarterly decrease in revenues attributable to these two events is
equal to approximately 12.5% of revenues for the three months ended June 30,
2002. The impact of these events does not put the Company in a loss position
with respect to the remaining services with this customer.

In August 2002 the Company defaulted on product orders for dark fiber laterals
to certain on-net buildings. As a result, FiberNet lost inter-building
connectivity to certain of its facilities. The Company believes this event will
not have a material impact on its business operations or financial results.

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