<PAGE>

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

   The number of shares outstanding of the issuer's common stock, as of August
13, 2001, was 40,444,570 shares of Common Stock, $.001 par value.

--------------------------------------------------------------------------------
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<PAGE>

                                     INDEX

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
 <C>      <S>                                                              <C>
 PART I.  FINANCIAL INFORMATION.........................................     1
 Item 1.  Consolidated Financial Statements.............................     1
          Report of Independent Public Accountants......................     9
          Consolidated Balance Sheets as of June 30, 2001 and December
          31, 2000......................................................    10
          Consolidated Statements of Operations for the six months ended
          June 30, 2001 and 2000........................................    11
          Consolidated Statements of Operations for the three months
          ended June 30, 2001 and 2000..................................    12
          Consolidated Statements of Cash Flows for the six months ended
          June 30, 2001 and 2000........................................    13
          Notes to Consolidated Financial Statements....................    14
 Item 2.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations.....................................     1
 Item 3.  Quantitative and Qualitative Disclosures About Market Risk....     6
 PART II. OTHER INFORMATION.............................................     7
 Item 2.  Changes in Securities and Use of Proceeds.....................     7
 Item 4.  Submission of Matters to a Vote of Security Holders...........     7
 Item 6.  Exhibits and Reports on Form 8-K..............................     7
</TABLE>
<PAGE>

                                     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 and information
relating to FiberNet Telecom Group, Inc. and its subsidiaries ("FiberNet" or
the "Company") that are based on the beliefs of the Company's management, as
well as assumptions made by and information currently available to the
Company's management. When used herein, words such as "anticipate," "believe,"
"estimate," "expect," "intend," and similar expressions, as they relate to the
Company or the Company's management, identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions,
relating to the operations and results of operations of the Company, the
Company's business strategy, competition and changes in economic cycles, as
well as other factors described herein. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results or outcomes may vary materially from those described herein as
anticipated, estimated, expected or intended.

Overview

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

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

   We began operating our first metropolitan network in 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 June 30, 2001, we had accomplished
the following:

  .  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 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 had 77 customers and entered into 89 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.

                                       1
<PAGE>

   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. The majority of our
revenues are generated on a monthly recurring basis under long-term contracts,
typically three to five years in length. Most of our customers are obligated to
make minimum payments for the utilization of our 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. Our transport services include the offering of broadband
circuits on our metropolitan transport networks and FINs. Over our metropolitan
transport networks, we can provision circuits from one of our carrier hotel
facilities to another carrier hotel 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 hotel 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 hotel 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 will 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 our off-net
buildings, we have the exclusive right to manage communications access. Once a
customer has entered into an agreement with us for access services, we
typically require that customer to utilize our in-building networking
infrastructure for connectivity to its retail customers.

   The growth of our revenues is dependent upon our ability to add more carrier
hotel facilities and on-net and off-net buildings as points of connectivity on
our networks. We believe that an increase in the number of locations where we
can deliver traffic for our customers provides us with a broader addressable
market to offer our services. Within each carrier hotel facility, on-net and
off-net building, 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 management 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

                                       2
<PAGE>

increase transport capacity to a greater degree than is possible with our
colocation and access management services. In addition, we typically require
our customers to make minimum commitments for transport services to utilize the
inherent operating leverage in our networks.

   Pursuant to the terms of certain of our sales agreements, we submit invoices
to customers for up to the full contract value at the inception of the contract
term. We recognize the revenues ratably over the full contract term as the
services are provided. As a result, we record deferred revenues for amounts
invoiced but not yet recognized as revenues.

   Direct Costs. Direct costs are 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 direct costs are
generally fixed in nature. After the significant capital for our networks and
facilities is expended, we do not anticipate that direct costs 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.

   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.

Results of Operations

 Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

   Revenues. Revenues for the six months ended June 30, 2001 were $15.5 million
compared to $1.8 million for the six months ended June 30, 2000, a $13.7
million increase. We generated revenues by providing transport, colocation and
communications access management services to our customers. For the six months
ended June 30, 2001 and 2000, we recognized $10.4 million and $1.2 million in
transport services, $2.1 million and $0.5 million in colocation services and
$3.0 million and $0.1 million in communications access management and other
services, respectively. During this six-month period ending June 30, 2001,
three of our customers, 360networks, Qwest and Network Plus accounted for
approximately 60.3% of our revenues. We expect such customer concentration to
diminish as we continue to expand our operations and diversify our customer
base.

   Direct Costs. Direct costs for the six months ended June 30, 2001 were $6.8
million compared to $0.8 million for the six months ended June 30, 2000. The
increase of $6.0 million was due to expenses associated with the expansion of
our network facilities. The majority of our direct costs are occupancy
expenses, consisting of rent and utility costs, for our carrier hotel
facilities, on-net buildings and off-net buildings. Other direct costs include
license fees, maintenance and repair costs, and professional fees.

                                       3
<PAGE>

   Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended June 30, 2001 were $19.7
million compared to $9.8 million for the six months ended June 30, 2000. This
increase of $9.9 million 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 do not expect to experience
the same growth in selling, general and administrative expenses that we have
historically.

   Stock Related Expense. Stock related expense for the six months ended June
30, 2001 was $(1.3) million compared to $2.2 million for the same period ending
June 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.

   Depreciation and Amortization. Depreciation and amortization expense for the
six months ended June 30, 2001 was $6.5 million compared to $2.4 million for
the six months ended June 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 six months ended June
30, 2001 was $4.2 million compared to $1.2 million of interest expense, net for
the six months ended June 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 six months ended June 30, 2001, we paid
$0.6 million, compared to $5.5 million for the six months ending June 30, 2000,
in non-cash dividends on our preferred stock in the form of additional shares
of each respective series of 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, 2001 was $2.8 million. Included in the
amount for the prior period, we recorded a beneficial conversion feature of
$14.0 million upon the issuance of our series G preferred stock. All of the
series of preferred stock are convertible into shares of our common stock.

   Net Loss Applicable to Common Stockholders. We reported a net loss
applicable to common stockholders of $28.4 million for the six months ended
June 30, 2001 compared to a loss of $34.2 million for the six months ended June
30, 2000. The decrease is a result of the beneficial conversion feature
recorded in the first six months of 2000 offset by increased expenses in the
current period due to the expansion of our operations. In addition, we recorded
a non-cash charge of $7.4 million related to an early extinguishment of debt
from the modification of our credit facility on February 9, 2001.

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

   Revenues. Revenues for the three months ended June 30, 2001 were $8.2
million compared to $1.7 for the three months ended June 30, 2000, a $6.5
million increase. We generated revenues by providing transport, colocation and
communications access management services to our customers. For the three
months ended June 30, 2001 and June 30, 2000, we recognized $5.3 million and
$1.2 million in transport services, $1.4 million and $0.4 million in colocation
services and $1.5 million and $0.1 million in communications access management
and other services, respectively. During the three-month period ending June 30,
2001, three of our customers, 360networks, Qwest and Network Plus, accounted
for approximately 60.2% of our revenues. We expect such customer concentration
to diminish as we further expand our operations and diversify our customer
base.

   Direct Costs. Direct costs for the three months ended June 30, 2001 were
$3.9 million compared to $0.6 million for the three months ended June 30, 2000.
The increase of $3.3 million was due to expenses associated with the expansion
of our network facilities. The majority of our direct costs are occupancy
expenses, consisting of rent and utility costs, for our carrier hotel
facilities, on-net buildings and off-net buildings. Other direct costs include
license fees, maintenance and repair costs, and professional fees.

                                       4
<PAGE>

   Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended June 30, 2001 were $9.8
million compared to $5.5 million for the three months ended June 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 do not expect to experience the same growth in selling,
general and administrative expenses that we have historically.

   Stock Related Expense. Stock related expense for the three months ended June
30, 2001 was $(1.1) million compared to $0.5 million for the three months ended
June 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.

   Depreciation and Amortization. Depreciation and amortization expense for the
three months ended June 30, 2001 was $3.4 million compared to $1.2 million of
depreciation and amortization expense for the three months ended June 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 June
30, 2001 was $2.1 million compared to $1.3 million of interest expense, net for
the three months ended June 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 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 a dividend expense accrued during the first quarter of 2001 was the
result of a decline in the price per share of our common stock since the
beginning of the current period. For the three months ended June 30, 2000 we
paid $2.7 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. We also recorded a
beneficial conversion feature of $14.0 million upon the issuance of our series
G preferred stock. All of the series of 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 $9.7 million for the three months ended
June 30, 2001 compared to a loss of $24.2 million for the three months ended
June 30, 2000. The decrease is a result of the beneficial conversion feature
recorded in the second quarter of 2000 offset by 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 and a net loss applicable to
common stockholders for the six months ended June 30, 2001 of $10.9 million and
$28.4 million, respectively, compared to $8.8 million and $34.2 million,
respectively, for the six months ended June 30, 2000. During the six months

                                       5
<PAGE>

ended June 30, 2001, cash used to fund operating activities was $12.6 million,
and cash purchases of property, plant and equipment were $31.4 million,
compared to $10.5 million and $14.1 million, respectively, for the six months
ended June 30, 2000.

   During the six months ended June 30, 2001, we received $43.5 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. We may
redeem the warrants when the stock trades at $11.48 or above for 20 consecutive
trading days. As of Aug 15, 2001 we are eligible to sell an additional $121.8
million of common stock, preferred stock, debt securities and warrants under
our existing shelf registration statement. Net proceeds from the issuance of
equity securities during the six months ended June 30, 2001 were $26.0 million.

   On February 9, 2001, we increased our existing credit facility with Deutsche
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 June 30, 2001 the outstanding borrowings under our credit facility
were $71.0 million, and we were in compliance with all of the covenants
contained therein, which gives us full access to the remaining balance
available under such credit facility. We anticipate spending approximately
$55.0 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.

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. government 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.

                                       6
<PAGE>

                                    PART II

                               OTHER INFORMATION

Item 1. Legal Proceedings

   None.

Item 2. Changes in Securities and Use of Proceeds

   On May 22, 2001, a stockholders agreement by and among us and the
stockholders listed therein was amended to terminate the lock-up provision
that restricted the transfer of capital stock owned by parties to the
stockholders agreement. Such amendment was filed as part of a current report
on Form 8-K, filed on May 23, 2001.

Item 3. Defaults Upon Senior Securities

   None.

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

   We held our annual meeting of stockholders on June 5, 2001, at which time
the stockholders voted on the following proposals:

   (1) Election of eight directors for a one-year term each.

<TABLE>
<CAPTION>
   Name of Candidate                                            For     Withheld
   -----------------                                         ---------- --------
   <S>                                                       <C>        <C>
   Timothy P. Bradley....................................... 36,059,184  13,100
   Steven G. Chrust......................................... 36,058,684  13,600
   Philip L. DiGennaro...................................... 36,059,184  13,100
   Roy (Trey) D. Farmer III................................. 36,046,151  26,133
   Michael S. Liss.......................................... 35,786,547 285,737
   Charles J. Mahoney....................................... 36,057,984  14,300
   Richard E. Sayers........................................ 36,058,984  13,300
   William Vrattos.......................................... 36,057,109  15,175
</TABLE>

   There were no abstentions and no broker non-votes.


   (2) Approval of an Amendment to the Equity Incentive Plan, to increase the
number of shares of common stock authorized under the Equity Incentive Plan to
12,644,000.

   The vote was 30,710,673 for, 643,192 against, and there were 115,436
abstentions. There were 4,602,983 broker non-votes.

   (3) Ratification of appointment of Arthur Andersen LLP as auditors.

   The vote was 36,044,330 for, 12,255 against, and there were 15,699
abstentions. There were no broker non-votes.

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 report was filed on Form 8-K, under Item 5, during the
quarter ended June 30, 2001:

     On May 23, 2001, a report was filed regarding an amendment to the
  stockholders agreement, dated as of January 31, 2001, by and among us and
  the stockholders listed therein.

                                       7
<PAGE>

                                   SIGNATURES

   In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                          FIBERNET TELECOM GROUP, INC.

                                                    /s/ Jon A. DeLuca
                                          By:  ________________________________
                                          Name:  Jon A. DeLuca
                                          Title: Senior Vice President--Finance
                                                 Chief Financial Officer*

Date: August 14, 2001

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

                                       8
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To FiberNet Telecom Group, Inc.:

   We have reviewed the accompanying consolidated balance sheet of FiberNet
Telecom Group, Inc. (a Delaware corporation) and subsidiaries (the "Company")
as of June 30, 2001, and the related consolidated statements of operations for
the three-month and six-month periods ended June 30, 2001 and 2000, and the
consolidated statements of cash flows for the six-month periods ended June 30,
2001 and 2000. These financial statements are the responsibility of the
Company's management.

   We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.

   Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.

                                          /s/ Arthur Andersen LLP

New York, New York
July 13, 2001

                                       9
<PAGE>

                          FIBERNET TELECOM GROUP, INC.

                          CONSOLIDATED BALANCE SHEETS
                               (DOLLARS IN 000'S)

<TABLE>
<CAPTION>
                                                        June 30,   December 31,
                                                          2001         2000
                                                       ----------- ------------
                                                       (Unaudited)
<S>                                                    <C>         <C>
                        ASSETS
Current assets:
  Cash and cash equivalents...........................  $  1,046     $  1,582
  Accounts receivable, net............................     9,103       14,030
  Prepaid expenses and other..........................       575          960
                                                        --------     --------
    Total current assets..............................    10,724       16,572
Property, plant and equipment, net....................   153,852      126,114
Goodwill and intangibles, net.........................    66,651       69,057
Deferred charges, net.................................    12,664       14,293
Other assets..........................................       863        1,129
                                                        --------     --------
TOTAL ASSETS..........................................  $244,754     $227,165
                                                        ========     ========
         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable....................................  $ 13,124     $ 11,119
  Accrued expenses....................................     7,030       10,590
  Deferred revenues...................................    12,210       14,381
  Capital lease obligation--current portion...........       249          233
                                                        --------     --------
    Total current liabilities.........................    32,613       36,323
Notes payable, less discount..........................    64,333       45,836
Capital lease obligation..............................       595          723
                                                        --------     --------
    Total liabilities.................................    97,541       82,882
                                                        --------     --------
Stockholders' equity:
  Common Stock, $.001 par value, 150,000,000 shares
   authorized and 39,699,712 and 33,238,346 shares
   issued and outstanding, respectively...............       40          33
  Series C Voting Preferred Stock $.001 par value
   83,688 issued and outstanding (Preference in
   involuntary liquidation value, $1.50 per share)....      126         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, 330,610
   and 317,853 shares issued and outstanding,
   respectively. (Preference in involuntary
   liquidation value, $15.00 per share)...............   24,274      24,130
  Series F Preferred Stock $.001 par value, 391,144
   and 376,202 shares issued and outstanding,
   respectively. (Preference in involuntary
   liquidation value, $30.00 per share)...............   28,728      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)..............   64,766      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..................   173,776      146,719
Accumulated deficit...................................  (181,147)    (152,792)
                                                        --------     --------
    Total stockholders' equity........................   147,213      144,283
                                                        --------     --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............  $244,754     $227,165
                                                        ========     ========
</TABLE>

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

                                       10
<PAGE>

                          FIBERNET TELECOM GROUP, INC.

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

<TABLE>
<CAPTION>
                                                         Six Months Ended
                                                             June 30,
                                                      ------------------------
                                                         2001         2000
                                                      -----------  -----------
<S>                                                   <C>          <C>
Revenues............................................  $    15,530  $     1,768
Operating expenses:
  Direct costs......................................        6,778          813
  Selling, general and administrative expenses......       19,689        9,793
  Stock related expense.............................       (1,282)       2,237
  Depreciation and amortization.....................        6,480        2,415
                                                      -----------  -----------
Total operating expenses............................       31,665       15,258
                                                      -----------  -----------
Loss from operations................................      (16,135)     (13,490)
Interest expense, net...............................        4,209        1,223
                                                      -----------  -----------
Net loss before extraordinary item..................      (20,344)     (14,713)
Extraordinary loss on early extinguishment of debt..       (7,398)         --
                                                      -----------  -----------
Net loss............................................      (27,742)     (14,713)
Preferred stock dividends...........................         (614)     (19,532)
                                                      -----------  -----------
Net loss applicable to common stockholders..........  $   (28,356) $   (34,245)
                                                      ===========  ===========
Net loss applicable to common stockholders per
 share--basic and diluted...........................  $     (0.74) $     (1.25)
Weighted average shares outstanding.................   38,581,411   27,453,872
</TABLE>


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

                                       11
<PAGE>

                          FIBERNET TELECOM GROUP, INC.

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

<TABLE>
<CAPTION>
                                                            Three Months
                                                                Ended
                                                              June 30,
                                                        ----------------------
                                                           2001        2000
                                                        ----------  ----------
<S>                                                     <C>         <C>
Revenues..............................................  $    8,156  $    1,657
Operating expenses:
  Direct costs........................................       3,858         610
  Selling, general and administrative expenses........       9,793       5,502
  Stock related expense...............................      (1,146)        541
  Depreciation and amortization.......................       3,375       1,240
                                                        ----------  ----------
Total operating expenses..............................      15,880       7,893
                                                        ----------  ----------
Loss from operations..................................      (7,724)     (6,236)
Interest expense, net.................................       2,083       1,273
                                                        ----------  ----------
Net loss..............................................      (9,807)     (7,509)
Preferred stock dividends.............................         117     (16,680)
                                                        ----------  ----------
Net loss applicable to common stockholders............  $  ( 9,690) $  (24,189)
                                                        ==========  ==========
Net loss applicable to common stockholders per share--
 basic and diluted....................................  $   ( 0.24) $   ( 0.86)
Weighted average shares outstanding...................  39,697,604  28,094,644
</TABLE>


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

                                       12
<PAGE>

                          FIBERNET TELECOM GROUP, INC.

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

<TABLE>
<CAPTION>
                                                             Six Months Ended
                                                                 June 30,
                                                             ------------------
                                                               2001      2000
                                                             --------  --------
<S>                                                          <C>       <C>
Cash flows from operating activities:
  Net loss applicable to common stockholders................ $(28,356) $(34,245)
  Adjustments to reconcile net loss to net cash used in
   operating activities:
    Extraordinary item......................................    7,398       --
    Depreciation and amortization...........................    6,480     2,415
    Preferred stock dividends...............................      614    19,532
    Stock related expense...................................   (1,282)    2,237
    Other non-cash expense..................................    2,666       918
    Change in assets and liabilities:
      (Increase) decrease in accounts receivable, prepaid
       expenses and other assets............................    3,474    (3,279)
      Increase (decrease) in accounts payable, accrued
       expenses and deferred revenues.......................   (3,551)    1,948
                                                             --------  --------
Cash used in operating activities...........................  (12,557)  (10,474)
Cash flows from investing activities:
  Acquisition of Devnet L.L.C. .............................      --     (3,000)
  Capital expenditures......................................  (31,449)  (14,080)
                                                             --------  --------
Cash used in investing activities...........................  (31,449)  (17,080)
Cash flows from financing activities:
  Net proceeds from debt financings.........................   17,571    18,427
  Net proceeds from issuance of equity securities...........   26,011    23,300
  Repayment of capital lease obligation.....................     (112)      (98)
                                                             --------  --------
Cash provided by financing activities.......................   43,470    41,629
                                                             --------  --------
Net (decrease) increase in cash.............................     (536)   14,075
Cash at beginning of period.................................    1,582     9,512
                                                             --------  --------
Cash at end of period....................................... $  1,046  $ 23,587
                                                             ========  ========
Supplemental disclosures of cash flow information:
  Interest paid............................................. $  2,678  $     76
  Income taxes paid.........................................      --        --
</TABLE>


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

                                       13
<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 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 L.L.C., 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.

                                       14
<PAGE>

                          FIBERNET TELECOM GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (UNAUDITED)


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 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:

<TABLE>
   <S>                                                                <C>
   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
</TABLE>

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

                                       15
<PAGE>

                          FIBERNET TELECOM GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (UNAUDITED)


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.

   The Company is currently evaluating the carrying value of certain long-lived
assets, consisting primarily of $66.7 million of goodwill and intangibles on
its balance sheet as of June 30, 2001. Pursuant to accounting rules, the
majority of the goodwill and intangibles was recorded based upon the stock
price at the time of the Company's acquisition of Devnet L.L.C. Downturns in
the telecommunications industry and financial markets have created unique
circumstances with regard to the assessment of goodwill. The Company may
determine it is appropriate to record charges to reduce the carrying value of
the unamortized goodwill and other long-lived assets, and such adjustments
could represent a substantial portion of their carrying value.

Revenue Recognition

   FiberNet generates revenues from selling network capacity and related
services to other communications service providers. The majority of the
Company's revenues are generated on a monthly recurring basis under long-term
contracts, typically three to five years in length. 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.

   The Company has entered into certain reciprocal agreements. The services
provided and obtained through these agreements are priced at fair market value
and are included in revenues and direct costs in the accompanying consolidated
statements of operations.

Revenues are derived from three general types of services:

   Transport services. FiberNet's transport services include the offering of
broadband circuits on its metropolitan transport networks and in-building
networks. 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 hotel 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 typically
requires the customer to make a minimum commitment for transport services, as
well.

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

                                       16
<PAGE>

                          FIBERNET TELECOM GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (UNAUDITED)

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 retail, end-user tenants.

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 of
its customers. As of June 30, 2001, three customers in the aggregate accounted
for 39.7% of the Company's total accounts receivable. For the six months ended
June 30, 2001, three customers in the aggregate accounted for 60.3% of the
Company's total revenues. The Company recorded an allowance for doubtful
accounts of $2.1 million as of June 30, 2001.

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.

                                       17
<PAGE>

                          FIBERNET TELECOM GROUP, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (UNAUDITED)


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 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 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. The Company is currently evaluating the
effects of SFAS No. 142 which may have a material impact on the consolidated
financial statements of the Company.

   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 (in thousands):

<TABLE>
<CAPTION>
                                                          June 30,  December 31,
                                                            2001        2000
                                                          --------  ------------
   <S>                                                    <C>       <C>
   Computer software..................................... $  3,728    $  2,963
   Computer equipment....................................    2,939       1,926
   Leasehold improvements................................    1,356       1,111
   Office equipment and furniture........................      972         810
   Construction in progress..............................   60,896      52,876
   Network equipment and infrastructure..................   92,566      71,322
                                                          --------    --------
                                                           162,457     131,008
   Accumulated depreciation..............................   (8,605)     (4,894)
                                                          --------    --------
   Property, plant and equipment, net.................... $153,852    $126,114
                                                          ========    ========
</TABLE>

                                       18