<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q/A
                                (Amendment No. 1)

(Mark One)

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

                For the quarterly period ended September 30, 2001

                                       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 past 90 days. Yes [X] No [_]

     The number of shares outstanding of the issuer's common stock, as of June
25, 2002, was 64,331,722 shares of Common Stock, $.001 par value.

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                                      INDEX

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PART I.   FINANCIAL INFORMATION .......................................................................     1
Item 1.   Consolidated Financial Statements
             Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000 ...............    12
             Consolidated Statements of Operations for the nine months ended September 30,
             2001 and 2000 ............................................................................    13
             Consolidated Statements of Operations for the three months ended September 30,
             2001 and 2000 ............................................................................    14
             Consolidated Statements of Cash Flows for the nine months ended September 30,
             2001 and 2000 ............................................................................    15
          Notes to Consolidated Financial Statements ..................................................    16
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations .......     1
Item 3.   Quantitative and Qualitative Disclosures About Market Risk ..................................     7
PART II.  OTHER INFORMATION ...........................................................................    10
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                                EXPLANATORY NOTE

     The purpose of this amendment is to amend and restate Part I of our Form
10-Q, which was originally filed on November 14, 2001. 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 nine months ended September 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.

                                     PART I

                              FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

         See attached.

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

         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.

         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.

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.

         We began operating our first metropolitan network in New York City in
January 2000, and we began deploying our infrastructure in Chicago and Los
Angeles in the fourth quarter of 2000. As of September 30, 2001, we had
accomplished the following:


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         .    We deployed fiber-optic transport infrastructure in nine major
              carrier hotels in the New York metropolitan area, including 60
              Hudson Street and 111 Eighth Avenue, six major carrier hotels in
              Los Angeles and one major carrier hotel in Chicago.

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

         .    We have 80 customers and have entered into 98 interconnection
              agreements with existing and potential customers, establishing the
              basis for purchase orders from them.

         .    We entered into exclusive license agreements that give us the
              right to build and operate our FINs in 36 office buildings in our
              target markets.

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

         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 deploy our
network infrastructure and expand our business operations. As a result of our
limited operating history, prospective investors have limited operating history
and financial data upon which to evaluate our performance.

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:

         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.

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

         Communications access management services. Our access management
     services include providing our customers with the non-exclusive right to
     market and provide their retail services to tenants in our on-net and
     off-net buildings. Customers typically enter into an agreement with us to
     gain access to all or a significant number of our properties. For certain
     of 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


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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.

     In the third quarter of 2001, 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. These costs typically include maintenance and repair
costs and utility costs. Other specific costs include occupancy expenses at our
carrier hotel facilities, on-net buildings and off-net buildings. Certain of our
license agreements for our on-net and off-net buildings require us to pay
license fees to the owners of these properties. 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 are generally fixed
in nature. After the significant capital for our networks and facilities is
expended, we do not anticipate that cost of services will grow commensurately
with the growth of our revenues.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses generally include all of our personnel costs, including
wages and benefits, occupancy costs for our corporate offices, professional
fees, and other miscellaneous expenses. Sales and marketing expenses, including
advertising and promotions, are also included.

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

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

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

     During 2001, we performed an assessment of the goodwill related to our
acquisition of Devnet, LLC, pursuant to SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Devnet had entered into exclusive license agreements to manage communications
access to commercial office properties, and we associated the goodwill resulting
from the acquisition primarily to those agreements. We made this determination
based upon significant negative industry and economic trends. In 2001, a change
in the business environment resulted in significantly less demand for
telecommunications access to commercial office properties, and the number of
potential customers seeking these services diminished greatly. Consequently, we
revised our forecasted cash flows from Devnet and determined that the decline in
the market conditions within this market segment was material and other than
temporary. After using an undiscounted cash flow model of the future cash flows
forecasted to be generated from business activities in the commercial office
properties underlying the license agreements and determining there was an



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impairment, we used a discounted cash flow model to determine the size of the
impairment. As a result, we recorded a charge of $56.5 million during the third
quarter of 2001 to reduce goodwill associated with the purchase of Devnet. The
charge was based on the amount by which the carrying amount of these assets
exceeded their fair value. During 2001, we recorded approximately $3.1 million
of amortization of goodwill relating to Devnet.

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. The conversion price of the series H and
series I was reduced to $4.38, in accordance with the original terms of the
issuance transactions. 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.
As a result, we recorded a beneficial conversion charge of $21.0 million as a
result of the reduction of the conversion price. 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 nine months ended
September 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

Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000

     Revenues. Revenues for the nine months ended September 30, 2001 were $23.2
million compared to $6.4 million for the nine months ended September 30, 2000, a
$16.8 million increase. We generated revenues by providing transport, colocation
and communications access management services to our customers. For the nine
months ended September 30, 2001 and 2000, we recognized $15.1 million and $4.8
million in transport services, $3.1 million and $1.1 million in colocation
services and $5.0 million and $0.5 million in communications access management
and other services, respectively. During this nine-month period ending September
30, 2001, three of our customers, 360networks, Qwest and Network Plus accounted
for approximately 57.1% of our revenues. We expect such customer concentration
to diminish as we continue to expand our operations and diversify our customer
base. Reciprocal agreements accounted for $3.9 million, or 16.6%, of our
revenues as of the first nine months of 2001, up from $1.1 million, or 17.8%, of
our revenues for the same period of 2000.

     Cost of Services. Cost of services for the nine months ended September 30,
2001 were $10.5 million compared to $2.9 million for the nine months ended
September 30, 2000. The increase of $7.6 million was due to expenses associated
with the expansion of our network facilities. The majority of our cost of
services is occupancy expenses, consisting of rent and utility costs, for our
carrier hotel facilities, on-net buildings and off-net buildings. Other cost of
services includes license fees, maintenance and repair costs, and professional
fees. Reciprocal agreements accounted for $4.0 million of our cost of services
in the first nine months of 2001 and $1.3 million of our cost of services for
the same period in 2000.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 2001 were $27.9
million compared to $16.0 million for the nine months ended September 30, 2000.
This increase is consistent with the rapid expansion of our operations. We have
experienced significant growth in personnel costs, marketing and advertising
expenses, and network construction overhead to support our business strategy.
Prospectively, we expect to experience a decrease in selling, general and
administrative expenses compared to the current period, as a result of the cost
reduction initiatives that we have implemented, including a significant
reduction in headcount.

     Stock Related Expense. Stock related expense for the nine months ended
September 30, 2001 was approximately $(1.3) compared to $2.8 million for the
same period ending September 30, 2000. This non-cash expense relates to the
granting of stock options to our employees. The amount for the current period
reflects a reversal of a previously recorded expense. This reversal is due to a
decline in the price per share of our common stock since the beginning of the
current period.

     Impairment of Goodwill. During the nine months ended September 30, 2001, we
recorded a non-cash, non-recurring charge for the impairment of goodwill,
relating to our acquisition of Devnet, LLC in July 2000, in the amount of $56.5
million. We recorded this write down of goodwill in accordance with Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." No impairment of
goodwill was recorded during the nine months ended September 30, 2000.

     Depreciation and Amortization. Depreciation and amortization expense for
the nine months ended September 30, 2001 was $11.4 million compared to $5.1
million for the nine months ended September 30, 2000. The increase resulted from
commencement of the depreciation of network related fixed assets that were
placed into service.



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     Interest Expense, Net. Interest expense, net for the nine months ended
September 30, 2001 was $6.5 million compared to $2.9 million of interest
expense, net for the nine months ended September 30, 2000. Interest expense was
generated as a result of borrowings under our senior secured credit facility and
outstanding capital lease obligations.

     Preferred Stock Dividends. For the nine months ended September 30, 2001, we
paid and accrued $0.7 million for preferred stock dividends, compared to $9.4
million paid and accrued for the nine months ending September 30, 2000, based on
the closing price per share of our common stock at the end of the period. This
decrease in the amount paid and accrued is due to a decline in the price per
share of our common stock since the prior period. Dividends on all of our series
of preferred stock are non-cash, payable in the form of additional shares of
each respective series of preferred stock. All of the series of preferred stock
are convertible into shares of our common stock. The liquidation value of all of
the dividends paid and accrued for the nine months ended September 30, 2001 is
$4.3 million.

     Preferred Stock - Beneficial Conversion. In February 2001, the conversion
price of the series H and series I was reduced to $4.38, in accordance with the
original terms of the issuance transactions. 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. The amounts of the charge
assume 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." Included in the amount for the prior period, we
also recorded a beneficial conversion feature of $27.6 million upon the issuance
of our series G, H and I preferred stock.

     Net Loss Applicable to Common Stockholders. We reported a net loss
applicable to common stockholders of $117.4 million for the nine months ended
September 30, 2001 compared to a loss of $60.4 million for the nine months ended
September 30, 2000. Included in the results for the current period are two
non-recurring items: a non-cash charge of $56.5 million for the impairment of
goodwill and 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 a beneficial conversion feature of $21.0 million recorded in
February 2001. In addition, expenses increased in the current period due to the
expansion of our operations.

Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000

     Revenues. Revenues for the three months ended September 30, 2001 were $7.7
million compared to $4.6 for the three months ended September 30, 2000, a $3.1
million increase. We generated revenues by providing transport, colocation and
communications access management services to our customers. For the three months
ended September 30, 2001 and September 30, 2000, we recognized $4.7 million and
$3.5 million in transport services, $1.4 million and $0.6 million in colocation
services and $1.6 million and $0.5 million in communications access management
and other services, respectively. During the three-month period ending September
30, 2001, three of our customers, 360networks, Qwest and Network Plus, accounted
for approximately 50.6% of our revenues. We expect such customer concentration
to diminish as we further expand our operations and diversify our customer base.
Reciprocal agreements accounted for $1.3 million, or 16.5%, of our revenues for
the third quarter of 2001, up from $0.8 million, or 17.6%, of our revenues for
the third quarter of 2000.

     Cost of Services. Cost of services for the three months ended September 30,
2001 were $3.7 million compared to $2.1 million for the three months ended
September 30, 2000. The increase of $1.6 million was due to expenses associated
with the expansion of our network facilities. The majority of our cost of
services are occupancy expenses, consisting of rent and utility costs, for our
carrier hotel facilities, on-net buildings and off-net buildings. Other cost of
services include license fees, maintenance and repair costs, and professional
fees. Reciprocal agreements accounted for $1.3 million of our cost of services
in the third quarter of 2001 and $0.8 million of our cost of services for the
same period in 2000.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 2001 were $8.2
million compared to $6.2 million for the three months ended September 30, 2000.
This increase is consistent with the rapid expansion of our operations. We have
experienced significant growth in personnel costs, marketing and advertising
expenses, and network construction overhead to support our business strategy.
Prospectively, we expect to experience a decrease in selling, general and
administrative expenses compared to the current period, as a result of the cost
reduction initiatives that we have implemented, including a significant
reduction in headcount.

     Stock Related Expense. Stock related expense for the three months ended
September 30, 2001 was approximately $7,000 compared to $0.5 million for the
three months ended September 30, 2000. This non-cash expense relates to the
granting of stock options to our employees. The decrease is due to a decline in
the price per share of our common stock since the prior period.



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     Impairment of Goodwill. During the three months ended September 30, 2001,
we recorded a non-cash, non-recurring charge for the impairment of goodwill,
relating to our acquisition of Devnet, LLC in July 2000, in the amount of $56.5
million. We recorded this write down of goodwill in accordance with Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." No impairment of
goodwill was recorded during the three months ended September 30, 2000.

     Depreciation and Amortization. Depreciation and amortization expense for
the three months ended September 30, 2001 was $4.9 million compared to $2.7
million of depreciation and amortization expense for the three months ended
September 30, 2000. The increase resulted from commencement of the depreciation
of network related fixed assets that were placed into service.

     Interest Expense, Net. Interest expense, net for the three months ended
September 30, 2001 was $2.3 million compared to $1.6 million of interest
expense, net for the three months ended September 30, 2000. Interest expense was
generated as a result of borrowings under our senior secured credit facility and
outstanding capital lease obligations.

     Preferred Stock Dividends. For the three months ended September 30, 2001,
we recorded an accrual of approximately $71,000 compared to $4.3 million for the
three-month period ending September 30, 2000. This decrease in the amount
accrued is due to a decline in the price per share of our common stock since the
prior period. Dividends on all of our series of preferred stock are non-cash,
payable in the form of additional shares of each respective series of preferred
stock. All of the series of preferred stock are convertible into shares of our
common stock. The liquidation value of all of the dividends accrued for the
three months ended September 30, 2001 is $1.5 million.

     Preferred Stock - Beneficial Conversion. Included in the prior period, we
recorded a beneficial conversion feature of $13.2 million upon the issuance of
our series H and I preferred stock.

     Net Loss Applicable to Common Stockholders. We reported a net loss
applicable to common stockholders of $68.0 million for the three months ended
September 30, 2001 compared to a loss of $26.2 million for the three months
ended September 30, 2000. The change was primarily a result of the non-cash
charge of $56.5 million for the impairment of goodwill and increased expenses in
the current period due to the expansion of our operations.

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 of 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 loss (as defined below) and a net loss
applicable to common stockholders for the nine months ended September 30, 2001
of $15.2 million and $117.4 million, respectively, compared to $12.6 million and
$60.4 million, respectively, for the nine months ended September 30, 2000.
During the nine months ended September 30, 2001, cash used to fund operating
activities was $16.1 million, and cash purchases of property, plant and
equipment were $43.7 million, compared to $13.4 million and $51.5 million,
respectively, for the nine months ended September 30, 2000.

     During the nine months ended September 30, 2001, we received $67.4 million
in net cash proceeds from financing activities. On February 2, 2001, we
completed a $28.2 million directed public offering of our common stock under our
existing shelf registration statement. We issued 6,440,000 shares of common
stock at a purchase price of $4.375 per share as well as warrants to purchase an
additional 1,288,000 shares at an exercise price of $6.56 per share. Net
proceeds from the issuance of equity securities during the nine months ended
September 30, 2001 were $26.0 million

     On February 9, 2001, we increased our existing credit facility with
Deutsche Bank AG New York Branch, Deutsche Banc Alex. Brown Inc., First Union
Investors, Inc., First Union Securities, Inc., Toronto Dominion (USA) Securities
Inc. and other lenders from $75.0 million to $105.0 million. The maturity of the
credit facility was extended to six years from four and one-half years, and the
initial interest rate was lowered to LIBOR + 4.5% from LIBOR + 6.0%. In
connection with this amended credit facility, we issued warrants to purchase an
additional 454,409 shares of our common stock at a purchase price of $8.00 per
share. In addition, as part of the amendment of our credit facility, all
warrants issued under the original credit agreement were replaced with new
warrants to purchase an equivalent amount of our common stock at a purchase
price of $8.00 per share.

     As of September 30, 2001 the outstanding borrowings under our credit
facility were $95.0 million, and the weighted average

                                       8

<PAGE>

interest rate on our outstanding borrowings under the facility was 8.1%.
Additionally, we were in full compliance with all of the covenants contained in
the credit agreement underlying the facility.

         As of November 14, 2001 we were eligible to sell an additional $121.8
million of common stock, preferred stock, debt securities and warrants under our
existing shelf registration statement. We recently executed a commitment letter,
that is subject to certain conditions, with an existing institutional investor
to provide up to $8 million in equity capital through three closings over the
next seven months. We expect the initial part of this transaction to close in
the next few weeks. However, there can be no assurance that we will be able to
successfully consummate this financing.

         We anticipate spending approximately between $47.0 and $52.0 million
during the fiscal year 2001 for the deployment of our FINs, expansion of our
metropolitan transport networks, the development of additional carrier hotel
facilities and other network programs and management systems. Our planned
operations may require significant additional capital to fund equipment
purchases, engineering and construction costs, marketing costs, administrative
expenses and other operating activities. From time to time, we may consider
private or public sales of additional equity or debt securities and other
financings, depending upon market conditions, in order to finance the continued
operations of our business. There can be no assurance that we will be able to
successfully consummate any such financing on acceptable terms, or at all.

         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.

<TABLE>
<CAPTION>
                                               Consolidated Financial Data         Consolidated Financial Data
                                                     (in thousands)                      (in thousands)
                                                      (unaudited)                         (unaudited)

                                                   Nine Months Ended                  Three Months Ended
                                                      September 30,                      September 30,
                                            --------------------------------   -------------------------------
                                                  2001             2000             2001             2000
                                              ------------     ------------     -------------     ------------
                                              Restated (1)                       Restated (1)
<S>                                           <C>              <C>               <C>              <C>
Calculation of EBITDA (as defined):

Net loss ...................................     $(95,648)       $(23,363)          $(67,905)       $ (8,650)

Plus:
Operating expenses:
Stock related expense for selling,
  general, and administrative matters ......       (1,275)          2,777                  7             541
Depreciation and amortization ..............       11,387           5,134              4,907           2,719
Extraordinary loss on early
  extinguishments of debt ..................        7,398              --                 --              --
Impairment of Goodwill .....................       56,467              --             56,467              --
Interest expense, net ......................        6,498           2,851              2,289           1,626
                                                 --------        --------           --------        --------

EBITDA (as defined) ........................     $(15,173)       $(12,601)          $ (4,235)       $ (3,764)
</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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

         Our exposure to financial market risk, including changes in interest
rates, relates primarily to our senior secured credit facility and marketable
security investments. Borrowings under our senior secured credit facility bear
interest at floating rates. As a result, we are subject to fluctuations in
interest rates. We generally place our marketable security investments in high
credit quality instruments, primarily U.S. g`overnment obligations and corporate
obligations with contractual maturities of less than one year. We do not believe
that a 100 basis point increase or decrease in interest rates would
significantly impact our business. We do not have any derivative instruments. 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.

                                       9

<PAGE>

                                     PART II

                                OTHER INFORMATION

Item 1.  Legal Proceedings

         None.

Item 2.  Changes in Securities and Use of Proceeds

         None.

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:

             None.

         (b) The following reports were filed on Form 8-K during the quarter
             ended September 30, 2001:

             None.

                                       10

<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: June 28, 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.

                                       11

<PAGE>

                          FIBERNET TELECOM GROUP, INC.

                           CONSOLIDATED BALANCE SHEETS
                                   (IN 000'S)

<TABLE>
<CAPTION>
                                                                                        September 30, December 31,
                                                                                            2001          2000
                                                                                         -----------   -----------
                                                                                         (Unaudited)
                                                                                         As Restated-
                                                                                          See Note 5
                                     ASSETS

Current assets:
<S>                                                                                        <C>          <C>
     Cash and cash equivalents .........................................................   $   9,220    $   1,582
     Accounts receivable, net of allowance of $2,467 and $482 at
      September 30, 2001 and December 31, 2000, respectively ...........................       3,395       14,030
     Prepaid expenses and other ........................................................         489          960
                                                                                           ---------    ---------
          Total current assets .........................................................      13,104       16,572
Property, plant and equipment, net .....................................................     162,231      126,114
Goodwill and intangibles, net of accumulated amortization of $6,275 and $2,696
  at September 30, 2001 and December 31, 2000, respectively ............................       7,654       69,057
Deferred charges, net of accumulated amortization of $1,697 and $749
  at September 30, 2001 and December 31, 2000, respectively ............................      12,330       14,293
Other assets ...........................................................................         556        1,129
                                                                                           ---------    ---------
TOTAL ASSETS ...........................................................................   $ 195,875    $ 227,165
                                                                                           =========    =========

                          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable ..................................................................   $  10,615    $  11,119
     Accrued expenses ..................................................................       9,672       10,590
     Deferred revenues .................................................................       6,928       14,381
     Capital lease obligation--current portion .........................................         251          233
                                                                                           ---------    ---------
          Total current liabilities ....................................................      27,466       36,323
Notes payable, less original issue discount of $6,369 and $4,164 at September 30, 2001
and December 31, 2000, respectively ....................................................      88,631       45,836
Capital lease obligation ...............................................................         534          723
                                                                                           ---------    ---------
          Total liabilities ............................................................     116,631       82,882
                                                                                           ---------    ---------
Stockholders' equity:
     Common Stock, $.001 par value, 150,000,000 shares authorized
        and 40,464,984 and 33,238,346 shares issued and outstanding, respectively ......          40           33
     Series C Voting Preferred Stock $.001 par value 78,960 and 83,688 issued and
        outstanding (Preference in involuntary liquidation value, $1.50
        per share) .....................................................................         118          126
     Series D Preferred Stock $.001 par value, 329,158 and 322,704 shares issued
        and outstanding, respectively. (Preference in involuntary liquidation value,
        $15.00 per share) ..............................................................      24,044       23,971
     Series E Preferred Stock $.001 par value, 291,678 and 317,853 shares issued
        and outstanding, respectively. (Preference in involuntary liquidation value,
        $15.00 per share) ..............................................................      21,418       24,130
     Series F Preferred Stock $.001 par value, 362,943 and 376,202 shares issued
        and outstanding, respectively. (Preference in involuntary liquidation value,
        $30.00 per share) ..............................................................      26,651       28,559
     Series H Preferred Stock $.001 par value, 458,166 and 440,544 shares issued and
        outstanding, respectively. (Preference in involuntary liquidation value, $100.00
        per share) .....................................................................      64,767       64,568
     Series I Preferred Stock $.001 par value, 67,008 and 64,431 shares issued and
        outstanding, respectively. (Preference in involuntary liquidation value, $120.00
        per share) .....................................................................      12,606        8,969
     Additional paid in capital and other ..............................................     199,743      146,719
     Accumulated deficit ...............................................................    (270,143)    (152,792)
                                                                                           ---------    ---------
          Total stockholders' equity ...................................................      79,244      144,283
                                                                                           ---------    ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................................   $ 195,875    $ 227,165
                                                                                           =========    =========
</TABLE>

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

                                       12

<PAGE>

                          FIBERNET TELECOM GROUP, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (IN 000'S)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                        Nine Months Ended September 30,
                                                                                        -------------------------------
                                                                                              2001            2000
                                                                                        ---------------   -------------
                                                                                         As Restated-
                                                                                          See Note 5
<S>                                                                                       <C>             <C>
Revenues ..........................................................................       $     23,203    $      6,366
Operating expenses:
      Cost of services (exclusive of items shown separately below) ................             10,495           2,940
      Selling, general and administrative expense
        excluding stock related expense ...........................................             27,881          16,027
      Stock related expense for selling, general,
        and administrative matters ................................................             (1,275)          2,777
      Impairment of goodwill ......................................................             56,467              --
      Depreciation and amortization ...............................................             11,387           5,134
                                                                                          ------------    ------------
Total operating expenses ..........................................................            104,955          26,878
                                                                                          ------------    ------------
Loss from operations ..............................................................            (81,752)        (20,512)
Interest expense, net .............................................................             (6,498)         (2,851)
                                                                                          ------------    ------------
Net loss before extraordinary item ................................................            (88,250)        (23,363)
Extraordinary loss on early extinguishment of debt ................................             (7,398)             --
                                                                                          ------------    ------------
Net loss ..........................................................................            (95,648)        (23,363)
Preferred stock dividends .........................................................               (684)         (9,449)
Preferred stock - beneficial conversion ...........................................            (21,019)        (27,600)
                                                                                          ------------    ------------
Net loss applicable to common stockholders ........................................       $   (117,351)   $    (60,412)
                                                                                          ============    ============
Net loss applicable to common stockholders per share--basic and diluted ...........       $      (3.00)   $      (2.11)
Weighted average shares outstanding ...............................................         39,179,999      28,641,519
</TABLE>

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

                                       13

<PAGE>

                          FIBERNET TELECOM GROUP, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (IN 000'S)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                        Three Months Ended September 30,
                                                                                        --------------------------------
                                                                                              2001            2000
                                                                                          ------------    --------------
                                                                                          As Restated-
                                                                                           See Note 5
<S>                                                                                       <C>             <C>
Revenues .......................................................................          $      7,674    $      4,599
Operating expenses:
     Cost of services (exclusive of items shown separately below) ..............                 3,717           2,128
     Selling, general and administrative expense
       excluding stock related expense .........................................                 8,192           6,235
     Stock related expense for selling, general,
       and administrative matters ..............................................                     7             541
     Impairment of goodwill ....................................................                56,467              --
     Depreciation and amortization .............................................                 4,907           2,719
                                                                                          ------------    ------------
Total operating expenses .......................................................                73,290          11,623
                                                                                          ------------    ------------
Loss from operations ...........................................................               (65,616)         (7,024)
Interest expense, net ..........................................................                (2,289)         (1,626)
                                                                                          ------------    ------------
Net loss .......................................................................               (67,905)         (8,650)
Preferred stock dividends ......................................................                   (71)         (4,317)
Preferred stock - beneficial conversion ........................................                    --         (13,200)
                                                                                          ------------    ------------
Net loss applicable to common stockholders .....................................          $    (67,976)   $    (26,167)
                                                                                          ============    ============
Net loss applicable to common stockholders per share--basic and diluted ........          $      (1.70)   $      (0.84)
Weighted average shares outstanding ............................................            39,891,975      30,990,996
</TABLE>

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

                                       14

<PAGE>

                          FIBERNET TELECOM GROUP, INC.

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

<TABLE>
<CAPTION>
                                                                                           Nine Months Ended
                                                                                             September 30,
                                                                                        -----------------------
                                                                                           2001          2000
                                                                                        ----------   ----------
<S>                                                                                     <C>          <C>
                                                                                         As Restated-
Cash flows from operating activities:                                                    See Note 5
     Net loss applicable to common stockholders .....................................   $(117,351)   $ (60,412)
     Adjustments to reconcile net loss to net cash used in operating activities:
          Extraordinary item ........................................................       7,398           --
          Impairment of goodwill ....................................................      56,467           --
          Depreciation and amortization .............................................      11,387        5,134
          Preferred stock dividends .................................................         684        9,449
          Preferred stock - beneficial conversion ...................................      21,019       27,600
          Stock related expense .....................................................      (1,275)       2,777
          Other non-cash expense ....................................................       3,627        1,761
          Change in assets and liabilities:
               (Increase) decrease in accounts receivable, prepaid expenses and other
                  assets ............................................................       9,290       (3,826)
               Increase (decrease) in accounts payable, accrued expenses and deferred
                  revenues ..........................................................      (7,342)       4,155
                                                                                        ---------    ---------
Cash used in operating activities ...................................................     (16,096)     (13,362)
Cash flows from investing activities:
     Acquisition of Devnet, LLC - net of cash received ..............................          --      (17,715)
     Capital expenditures ...........................................................     (43,678)     (51,516)
                                                                                        ---------    ---------
Cash used in investing activities ...................................................     (43,678)     (69,231)
Cash flows from financing activities:
     Net proceeds from debt financings ..............................................      41,572       30,960
     Net proceeds from issuance of equity securities ................................      26,011       52,419
     Repayment of capital lease obligation ..........................................        (171)        (150)
                                                                                        ---------    ---------
Cash provided by financing activities ...............................................      67,412       83,229
                                                                                        ---------    ---------
Net increase in cash ................................................................       7,638          636
Cash at beginning of period .........................................................       1,582        9,512
                                                                                        ---------    ---------
Cash at end of period ...............................................................   $   9,220    $  10,148
                                                                                        =========    =========
Supplemental disclosures of cash flow information:
     Interest paid ..................................................................   $   4,189    $     464
     Income taxes paid ..............................................................          --           --
</TABLE>

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

                                       15

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

     The Company is materially dependant on certain existing agreements with
other entities, including telecommunications license agreements with building
landlords, interconnection agreements with other telecommunications service
providers and leases with carrier hotel property owners. FiberNet also has
entered into material 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 interim unaudited consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, FiberNet Operations,
Inc., Devnet, LLC, FiberNet Telecom, Inc., FiberNet Equal Access, LLC and Local
Fiber, LLC and have been prepared in accordance with generally accepted
accounting principles in the United States. All significant intercompany
balances and transactions have been eliminated.

Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of expenses during the 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 fact that the Company is an early-stage company operating
in a new and rapidly evolving market; has experienced and will continue to
experience operating losses, net losses and cash flow deficits; must make
significant capital expenditures before generating operating profits, which may

                                       16

<PAGE>

prove insufficient to justify those expenditures; must obtain additional carrier
hotel lease agreements and maintain existing agreements in major carrier hotels;
must obtain additional license agreements and leases with building owners for
the installation of in-building network infrastructure; may require additional
capital to complete the build-out of networks and fund other needs; and depends
heavily on a limited number of real estate owners and developers. The Company
cannot assure the successful completion of network construction; must increase
the volume of traffic on the network; may need to expand or adapt its networks
in the future in order to remain competitive; may be unable to obtain licenses
for key third party software on commercially acceptable terms in the future; is
dependent on key personnel; must attract and retain qualified professionals; may
not be able to compete effectively in its highly competitive sector; and has
outstanding debt which may limit its ability to borrow additional funds,
restrict the use of cash flows, constrain its business strategy and cause the
Company to be unable to meet its debt obligations.

     Additionally, there might not be sufficient demand for the Company's
services. If the Company cannot maintain the scalability, reliability and speed
of the network, potential customers may not use FiberNet's services. Service
interruptions on networks could expose the Company to liability, or cause it to
lose customers. The Company's failure to manage the growth of its operations or
development of its information support systems could harm its business.
Alternative technologies pose competitive threats. Continued competition or
excess network capacity could cause prices for FiberNet's services to decline,
and legislation and government regulation could adversely affect the Company.

Cash and Cash Equivalents

     Cash and cash equivalents include highly liquid investments with an
original maturity of three months or less. 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 provided using the straight-line method over the
estimated useful lives of the assets, once placed in service. The estimated
lives are as follows:

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

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

Impairment of Long-Lived Assets

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

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

                                       17

<PAGE>

networks and in-building networks. Over its metropolitan transport networks, the
Company can provision circuits from one of its carrier hotel facilities to
another carrier hotel facility or to an on-net building via an interconnection
with its in-building network in that building. The Company can also provision
circuits vertically between floors in a carrier hotel or an on-net building.

     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 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 September 30, 2001 the Company had four reciprocal agreements. The
services provided and obtained through these agreements were priced at fair
market value as of the date of the agreements and are included in revenues and
cost of services in the accompanying consolidated statements of operations. The
Company recorded revenues for transport services and colocation services of
approximately $3.9 million and $1.1 million for the nine months ended September
30, 2001 and September 30, 2000, respectively, from these reciprocal agreements.
The Company leased colocation facilities under these agreements, and the total
amounts expensed for services rendered under the reciprocal agreements for the
nine months ended September 30, 2001 and September 30, 2000, were approximately
$4.0 million and $1.3 million, respectively.

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101 ("SAB 101"), which addresses accounting policies
to be applied in the recognition, presentation and disclosure of revenues from
contract partnerships, in financial statements filed with the SEC. The net
effect of SAB 101, when applicable, could defer revenue recognition for certain
payments previously received into future accounting periods. On June 26, 2000,
the SEC deferred the implementation of SAB 101 from the second calendar quarter
of 2000 until no later than the fourth calendar quarter of 2000, to provide
companies with additional time to determine the effect that a change in
accounting policy under SAB 101 has on their revenue recognition practices. The
implementation of SAB 101 requires companies to report any changes in accounting
principle at the time of implementation in accordance with Accounting Principles
Board Opinion No. 20, "Accounting Changes". The Company's financial statements
reflect the accounting guidance in SAB 101 for all periods presented.

Fair Value of Financial Instruments

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

Goodwill and Intangibles

     Cost in excess of net assets of acquired businesses, principally goodwill,
is amortized on the straight-line method over 15 years. Other intangible assets
include the cost to access buildings and deferred financing costs. Costs to
access buildings are amortized over 15 years, which represents the term of the
related contracts. Deferred financing costs are amortized over the term of the
associated debt obligation.

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 2001 and 2000, as they were anti-dilutive.

Concentration of Credit Risk

     The Company has some concentration of credit risk among its customer base.
The Company performs ongoing credit evaluations of the financial condition its
customers. As of September 30, 2001, two customers in the aggregate accounted
for 42.0% of the Company's total accounts receivable. For the nine months ended
September 30, 2001, three customers in the aggregate accounted for 57.1% of the
Company's total revenues. The Company recorded an allowance for doubtful
accounts of $2.5 million as of September 30, 2001.


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<PAGE>

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 Statement of Financial Accounting Standards 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.

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 1999, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133", which deferred the
effective date of SFAS No. 133 to January 2001. SFAS No. 133 establishes new
standards of accounting and reporting for derivatives 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 reported in earnings. The adoption of SFAS
No. 133 did not have a material impact on the Company's consolidated financial
statements, as the Company has not entered into any derivative instrument
contracts.

     In June 2001, 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. The adoption of SFAS No. 141
does not have a material impact on the consolidated financial statements of the
Company.

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

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

     In October, 2001 the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The Statement replaces SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," although it retains the impairment testing
methodology used in SFAS No. 121. The accounting and reporting provisions of
Accounting Principals Board Opinion (APB) 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," are
superceded by SFAS No. 144, except that the Statement preserves the requirement
of APB 30 to report discontinued operations separately from continuing
operations. The Statement covers a variety of implementation issues inherent in
SFAS No. 121, unifies the framework used in accounting for assets to be disposed
of and discontinued operations, and broadens the reporting of discontinued
operations to include all components of an entity with operations that can be
distinguished from the rest of the entity and that will be eliminated from the


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<PAGE>

ongoing operations of the entity in a disposal transaction. The Statement is
effective for fiscal years beginning after December 15, 2001. FiberNet adopted
SFAS No. 144 on January 1, 2002. The Company does not expect the adoption of
SFAS No. 144 to have a material impact on its financial statements.

     The accompanying financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in FiberNet's
annual report on Form 10-K for the fiscal year ended December 31, 2000.

3. PROPERTY, PLANT AND EQUIPMENT

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

                                                     September 30,  December 31,
                                                         2001           2000
                                                     ------------   ------------
        Computer software ......................     $     3,674    $     2,963
        Computer equipment .....................           2,957          1,926
        Leasehold improvements .................           1,324          1,111
        Office equipment and furniture .........             972            810
        Construction in progress ...............           2,887         52,876
        Network equipment and infrastructure ...         162,570         71,322
                                                     -----------    -----------
                                                         174,384        131,008
        Accumulated depreciation ...............         (12,153)        (4,894)
                                                     -----------    -----------
        Property, plant and equipment, net .....     $   162,231    $   126,114
                                                     ===========    ===========

4. IMPAIRMENT OF GOODWILL

     During 2001, the Company evaluated the carrying value of certain long-lived
assets and acquired equity investments, consisting primarily of goodwill
resulting from the Company's acquisition of Devnet. Pursuant to APB Opinion No.
16, "Business Combinations", the purchase price was determined and goodwill was
recorded based on the stock price at the time the merger agreement was executed
and announced. The Company reviews the carrying value of long-lived assets
including goodwill and property, plant and equipment for impairment whenever
events and circumstances indicate the carrying value of an asset may not be
recoverable from the estimated future cash flows expected to result from its use
and eventual disposition.

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

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

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 I
preferred stock on February 9, 2001. The conversion price of the Series H and
Series I was reduced to $4.38, in accordance with the original terms of the
issuance transactions. 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 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 amounts of the charge assume 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."


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<PAGE>

     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 by $21.0 million and increased net loss applicable to common stockholders
per share by $0.56. The change has no impact on the Company's cash flows. This
change was already reflected in the Company's annual report on Form 10-K for the
fiscal year ended December 31, 2001, as amended.


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