<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                           --------------------------
                                    FORM 10-K
(MARK ONE)

/X/      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
                                       OR

/ /      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 
         EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                   FOR THE TRANSITION PERIOD FROM            TO 

                        COMMISSION FILE NUMBER 000-23269
                           --------------------------
                         METROMEDIA FIBER NETWORK, INC.
             (Exact name of registrant, as specified in its charter)
                           --------------------------
             DELAWARE                                       11-3168327
   (State or other jurisdiction                          (I.R.S. Employer
 of incorporation or organization)                      Identification No.)
                           --------------------------
                   C/O METROMEDIA FIBER NETWORK SERVICES, INC.
                            1 NORTH LEXINGTON AVENUE
                             WHITE PLAINS, NY 10601
              (Address and zip code of principal executive offices)
                                 (914) 421-6700
               (Registrant's telephone number, include area code)
                           --------------------------
           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                      None
           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                 Class A Common Stock, par value $.01 per share
                           --------------------------

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

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

      The aggregate market value of voting stock and non-voting common equity of
the registrant held by nonaffiliates of the registrant was approximately
$2,693,000,000 as of March 11, 1999 based on the last reported bid quotation on
the Nasdaq National Market as of that date. For purposes of this calculation,
the value of each share of Class B Common Stock of the registrant held by
non-affiliates was determined based on the value of one share of Class A Common
Stock as there is no established market for the Class B Common Stock and as each
share of Class B Common Stock is convertible into one share of Class A Common
Stock.

      The number of shares of Class A Common Stock outstanding as of March 11,
1999 was 76,605,110. The number of shares of Class B Common Stock outstanding as
of March 11, 1999 was 16,884,636.


<PAGE>

                      DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Definitive Proxy Statement to be used in connection 
with the Registrant's 1999 Annual Meeting of Stockholders, to be held May 18, 
1999, are incorporated by reference into Part III of this Annual Report on 
Form 10-K.

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1998
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

ITEM NO.   DESCRIPTION                                                                              
--------   -----------                                                                              
                                     PART I
<S>       <C>                                                                                       
Item 1.    Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         

Item 2.    Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        

Item 3.    Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        

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

                                     PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters. .                   

Item 6.    Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of

           Operations. . . . . . . .  . . .. . . . . . . . . . . . . . . . . . . . . . . . . .        

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk  . . . . . . . . . . . .        

Item 8.    Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . .        

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial

           Disclosure  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        

                                    PART III

Item 10.   Directors and Executive Officers of the Registrant. . . . . . . . . . . . . . . . .        

Item 11.   Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        

Item 12.   Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . .        

Item 13.   Certain Relationships and Related Transactions. . . . . . . . . . . . . . . . . . .        


                                     PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . .        

</TABLE>


                                       2

<PAGE>

                                     PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

      Certain statements in this Annual Report on Form 10-K (this "Form 10-K"),
including statements under "Item 1. Business," "Item 3 Legal Proceedings" and
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations," constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995 (collectively, the "Reform Act"). Certain, but not
necessarily all, of such forward-looking statements can be identified by the use
of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy that involve risks and
uncertainties. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Metromedia Fiber Network, Inc. and its subsidiaries
(collectively, the "Company", "we" or "us") to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, but are not limited to, the
following: general economic and business conditions; competition in the
telecommunications industry; industry capacity; success of acquisitions and
operating initiatives; management of growth; dependence on senior management;
brand awareness; general risks of the telecommunications industries; development
risk; risk relating to the availability of financing; the existence or absence
of adverse publicity; changes in business strategy or development plan;
availability, terms and deployment of capital; business abilities and judgment
of personnel; availability of qualified personnel; labor and employee benefit
costs; changes in, or failure to comply with, government regulations;
construction schedules; the costs and other effects of legal and administrative
proceedings; changes in methods of marketing and technology; changes in
political, social and economic conditions and other factors referenced in this
Form 10-K. The Company will not undertake and specifically declines any
obligation to publicly release the results of any revisions which may be made to
any forward-looking statement to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.

ITEM 1.  BUSINESS

THE COMPANY

      We are a facilities-based provider of technologically advanced,
high-bandwidth, fiber optic communications infrastructure to carrier and
corporate/government customers in the United States and Europe.

THE INTRACITY NETWORKS. We have installed local intracity networks that as of
December 31, 1998, consisted of approximately 160,000 fiber miles (the number of
strands of fiber in a length of fiber optic cable multiplied by the length of
the cable in miles) covering approximately 400 route miles (the number of miles
spanned by fiber optic cable calculated without counting more than once
physically overlapping segments of cable) in four major metropolitan areas (New
York, Philadelphia, Washington, D.C. and Chicago) that constitute key
telecommunications markets among the 15 largest cities in the United States
based on population. We currently operate a high bandwidth fiber optic
communications network in the New York metropolitan area and the greater
Philadelphia area and within the next two quarters will begin operating
such networks in the Washington, D.C. metropolitan area.

      We are currently planning to expand our existing local intracity networks
in these metropolitan areas, 


                                       3

<PAGE>

which will bring our total infrastructure in these markets to approximately
357,000 fiber miles covering approximately 846 route miles. We have also begun
engineering and constructing networks in the San Francisco and Boston
metropolitan areas.

      Within the next two years, we plan to complete an expansion into five 
additional markets: Los Angeles, Seattle, Dallas, Houston and Atlanta. We 
anticipate that our total intracity network infrastructure, as currently 
planned, will encompass ultimately approximately 810,000 fiber miles covering 
approximately 1,896 route miles. We are currently in the planning process for 
construction of those networks.

THE INTERCITY NETWORKS. In addition to intracity networks in these 11 major
metropolitan areas, we are expanding the capacity of our intercity network
between the New York and Washington, D.C. metropolitan areas to a total of
approximately 180,000 fiber miles covering approximately 250 route miles. We
have also obtained, through exchanges of fiber capacity or "fiber swaps" with
other carriers and in certain instances, the payment of certain additional
consideration, the right to use fiber optic strands linking New York-Chicago,
Chicago-Seattle-Portland and New York-Boston. These intercity networks give us
the ability to offer our customers capacity both within the 11 major
metropolitan areas where we will operate networks within the United States and
between many of these same markets.

TRANSATLANTIC CONNECTIVITY. We have entered into a 50/50 joint venture, called
ION, with Racal Telecommunications, Inc., a United Kingdom manufacturer of
electronics and other equipment and a provider of telecommunications services.
Through this joint venture, we are able to offer our customers seamless
broadband connectivity between our New York network and London.

THE EUROPEAN NETWORKS. We also plan to offer our customers an expanded presence
in Europe through:

      o     a joint venture with Carrier 1 Holdings, Ltd. and Viatel, Inc. that
            will engineer and construct, in excess of, a 1,350 route-mile fiber
            optic telecommunications network in Germany connecting to 13 of its
            largest cities, including Hamburg, Berlin, Munich, Frankfurt and
            Dusseldorf, (of which, following completion of the German network, 
            our joint venture with Carrier 1 and Viatel will dissolve and we 
            will end up owning our own conduit of fiber infrastructure in 
            Germany) and


      o     a fiber lease with Viatel under which we will receive the right to
            use approximately 3,880 fiber miles covering approximately 970 route
            miles of a broadband fiber optic network that will travel between
            Germany, France, The Netherlands and the United Kingdom.

GENERAL. We focus on leasing or otherwise making available for use our broadband
communications infrastructure to two main customer groups: communications
carriers and corporate/government customers located in selected top 15 cities in
the United States based on population (or "Tier I" markets). Our target carrier
customers include a broad range of communications companies such as:

      o     incumbent local exchange carriers,

      o     local exchange carriers competing with incumbent local exchange
            carriers in the local services market,

      o     long distance carriers,

      o     paging, cellular and PCS companies,


                                       4

<PAGE>

      o     cable companies, and

      o     vendors providing direct access to the Internet.

      These carrier customers typically lease fiber optic capacity with which
they develop their own communications networks as a low-cost alternative to
building their own infrastructure or purchasing metered services from incumbent
local exchange carriers or facilities-based competing carriers in the local
services market. Our corporate and government customers typically lease fiber
optic infrastructure and other broadband services on a point-to-point basis for
high-bandwidth, secure voice and data networks. We believe that we are
well-positioned to penetrate the corporate and government markets since we plan
to continue to install most of our fiber in Tier I markets. Please refer to the
section entitled "--Customers."

      The fiber communications infrastructure leased to our customers provides
high-bandwidth capacity for customers that seek to establish secure
communications networks for the transmission of large amounts of voice, data and
video. For example, a pair of our fiber optic strands can transmit up to 8.6
gigabits of data per second or the equivalent of approximately 129,000
simultaneous voice conversations.

      We tailor the amounts of capacity leased to the needs of our customers.
Certain customers that lease fiber optic capacity from us connect their own
transmission equipment to the leased fiber, and therefore obtain a fixed-cost,
secure telecommunications alternative to the metered communications services
offered by traditional providers. Other customers that require lesser amounts of
transmission capacity will have the option to lease a much smaller broadband
capacity on our network, as we are able to divide a single strand of fiber into
multiple smaller communications channels. We believe that we have installation,
operating, and maintenance cost advantages per fiber mile relative to our
competitors because we generally install our networks with 432 fibers and may
install as many as 864 fibers as compared to a generally lower number of fibers
in existing competitive networks.

      Our intracity networks support a self-healing SONET (synchronous optical
network, which is an electronics and network architecture for variable bandwith
products which enables transmission of voice, data and video (multimedia) at
very high speeds) architecture that minimizes the risk of downtime in the event
of a fiber cut and provides our customers with high security and reliability. We
install most of our fiber inside high density polyethylene conduit to protect
the cable and, where practicable, we install additional unused conduits to
accommodate future network expansion.

      We benefit from the support of our controlling stockholder, Metromedia
Company. On April 30, 1997, Metromedia Company and certain of its affiliates
made a substantial equity investment in Metromedia Fiber Network. Metromedia
Company and its partners own all of the outstanding shares of Class B Common
Stock. The Class B Common Stock is entitled to 10 votes per share and to vote
separately to elect at least 75% of the members of the Board of Directors. As a
result, Metromedia Company and its partners own and control approximately 64% of
the outstanding voting power (on a fully diluted basis) of Metromedia Fiber
Network.

      Metromedia Fiber Network was founded in 1993 and is a Delaware
corporation.

      Financial information about the Company may be found in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 8. Financial Statements and Supplementary Data" of this
Form 10-K.

BUILD-OUT OF NETWORKS


                                       5

<PAGE>

      We have concentrated on developing and constructing our networks. As we
discuss in more detail below we have either obtained or are currently pursuing
the acquisition of necessary licenses, franchises and rights-of-way to construct
these networks. In constructing our fiber optic networks, we seek to create
strategic alliances with the engineering and construction management firms that
have been engaged to develop routes and easements and manage deployment plans.
Firms with which we are allied in this regard have deployed local loop network
infrastructure for regional Bell operating companies as well as for competing
carriers in the local services markets. Though we anticipate outsourcing much of
the actual construction to various construction firms, we maintain strict
oversight of the design and implementation of our fiber optic communications
networks. We utilize only commercially available advanced fiber. We have ordered
a substantial portion of our fiber optic cable from Lucent Technologies, Inc.
However, we believe that we could obtain advanced fiber from other suppliers on
acceptable terms.

      We intend to finance the build-out of our networks with the net proceeds
we received from the November 25, 1998 issuance and sale of $650.0 million
principal amount of 10% Senior Notes, additional cash on-hand and cash generated
from the sale of capacity on our networks, including substantial up-front
payments for certain long term leases and rights to use agreements, which are
already under contract. Please see Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Liquidity and Capital
Resources."

THE NEW YORK NETWORK. When complete, our intracity network in the New York/New
Jersey metropolitan area as currently planned will be approximately 169,400
fiber miles covering approximately 440 route miles. As expanded, the entire New
York/New Jersey network will create a SONET capable fiber ring focused in
Manhattan and extending into each of the other four boroughs, as well as east to
Brookhaven, Long Island, north to Stamford, Connecticut, and west to Northern
and Central New Jersey.

THE PHILADELPHIA NETWORK. When complete, our network in the Philadelphia
metropolitan area as currently planned will be approximately 29,000 fiber miles
covering approximately 67 route miles. As completed, the entire Philadelphia
network will create a SONET capable fiber ring throughout Center City
Philadelphia as well as the surrounding areas of Bala-Cynwyd, Bryn Mawr, Radnor,
Berwyn, Paoli, Malvern and King of Prussia.

THE WASHINGTON, D.C. NETWORK. When complete, our network in the Washington, D.C.
metropolitan area as currently planned will be approximately 55,000 fiber miles
covering approximately 127 route miles. As completed, the entire Washington
network will create a SONET capable fiber ring throughout Washington, D.C. and
will extend to vital government and business centers in Arlington, Fairfax, the
Dulles airport area, Bethesda, Rockville, Silver Spring and other locations in
northern Virginia and suburban Maryland.

THE CHICAGO NETWORK. When complete, our network in the Chicago metropolitan area
as currently planned will be approximately 104,000 fiber miles covering
approximately 212 route miles. As completed, the entire Chicago network will
create a SONET capable fiber ring throughout Chicago and will extend to Oak
Brook, Downers Grove, Franklin Park, Arlington Heights, Des Plaines, Rosemont,
Schaumburg and O'Hare Airport.

THE OTHER INTRACITY NETWORKS. Subject to the receipt of the necessary
franchises, licenses and rights-of-way, we plan to construct additional fiber
optic communications networks in San Francisco, Boston, Los Angeles, Seattle,
Dallas, Houston and Atlanta. Although we cannot assure you that we will obtain
the necessary franchises, licenses and rights-of-way in these cities or that
these franchises, licenses and rights-of-way will provide all of the rights
needed to implement our strategy on acceptable terms, we are not aware of any
reason why we will not be able to obtain such franchises, licenses and
rights-of-way and we plan to construct our 


                                       6

<PAGE>

networks in these cities in a manner similar to our existing networks. 
Construction is underway in the San Francisco and the Boston metropolitan 
areas. When complete, our network in the San Francisco metropolitan area as 
currently planned will be approximately 65,000 fiber miles covering 
approximately 150 route miles with a SONET capable fiber ring through San 
Francisco, Oakland and San Jose. When complete, our network in the Boston 
metropolitan area as currently planned will be approximately 32,000 fiber 
miles covering approximately 75 route miles with a SONET capable fiber ring 
through Boston, Cambridge, Burlington, Bedford, Lexington and 
Walthem. We are currently in the planning process for the construction of the 
other intracity networks. In January 1999, we entered into an agreement to 
acquire a provider of dark fiber that is constructing an intracity network in 
Dallas. This acquisition was completed on March 11, 1999.

THE INTERCITY NETWORKS. We are in the process of completing the construction 
of the first 432 cable for our intercity network between New York City and 
Washington, D.C. When we complete its construction, this intercity network 
will cover approximately 180,000 fiber miles over approximately 250 route 
miles. When completed, this network will extend from New York to Washington, 
D.C. and will pass through Philadelphia, Pennsylvania, Wilmington, Delaware, 
and Baltimore, Maryland. We have obtained all of the necessary rights-of-way 
for this network.

      We have also obtained, through exchanges of fiber capacity or "fiber
swaps" with other carriers and the payment of certain other consideration, the
right to use fiber optic strands linking New York and Chicago, Chicago and
Seattle, Seattle and Portland and New York and Boston. As a result of these
transactions, we have obtained approximately 33,000 fiber miles covering
approximately 4,474 route miles of broadband fiber optic capacity. We believe we
have the ability to lease broadband capacity between our intracity networks that
will enhance our ability to market our intracity networks to both our carrier
and corporate customers. These intercity network agreements will give us the
ability to offer our customers not only capacity within 11 major metropolitan
areas within the United States but also seamless connectivity from coast to
coast.

THE INTERNATIONAL NETWORKS. We have entered into a forty-year agreement with a
subsidiary of Racal Telecommunications, Inc., a United Kingdom manufacturer of
electronics and other equipment and a provider of telecommunications services,
to create ION, a joint venture in which we hold a 50% equity interest. ION has
obtained transatlantic fiber optic cable rights on Gemini and AC-1, which link
our New York network to London, England. Through ION, we are able to offer our
customers seamless broadband transatlantic communications services between New
York and London. Under the ION joint venture agreement, each party may
contribute additional capital as agreed by the parties. As of December 31, 1998,
we had made capital contributions of approximately $4.3 million to ION. In May
1998, ION was awarded a 25 year contract providing for payments in excess of $25
million from a leading provider of undersea cable capacity to provide inland
capacity services from such provider's undersea cable landing stations in the
U.K. and the U.S.

      We have entered into an agreement with Carrier 1 and Viatel to develop,
jointly, the German network of approximately 64,800 fiber miles covering
approximately 1,350 route miles. The German network will include 13 of Germany's
largest cities such as Hamburg, Berlin, Munich, Frankfurt and Dusseldorf. We
have also entered into an additional agreement to acquire fiber optic capacity
from Viatel. Under this second agreement, we will receive the right to use
approximately 3,880 fiber miles covering approximately 970 route miles on the
European network that will travel between France, Germany, The Netherlands and
the United Kingdom. We anticipate that both the German network and the European
network will be high-capacity broadband networks capable of supporting
high-quality voice, video, Internet protocol and data traffic and built using a
self-healing SONET architecture. Following completion of the German network, our
joint venture with Carrier 1 and Viatel would dissolve and we would end up
owning our own conduit of fiber infrastructure in Germany. We believe that the
German network will be completed in stages with the first segment available by
the third quarter of 1999.


                                       7

<PAGE>

TECHNOLOGY

      Our networks consist of fiber optic communications networks which allow
for high speed, high quality transmission of voice, data and video. Fiber optic
systems use laser-generated light to transmit voice, data and video in digital
formats through ultra-thin strands of glass. Fiber optic systems are generally
characterized by large circuit capacity, good sound quality, resistance to
external signal interference and direct interface to digital switching equipment
or digital microwave systems.

      We plan to install backbone fiber optic cables containing up to 864 fiber
optic strands, which have significantly greater bandwidth than traditional
analog copper cables. Using current electronic transmitting devices, a single
pair of glass fibers used by our network can transmit up to 8.6 gigabits of data
per second or the equivalent of approximately 129,000 simultaneous voice
conversations, which is substantially more than traditional analog copper cable
installed in many current communications networks. We believe that continuing
developments in compression technology and multiplexing equipment will increase
the capacity of each fiber optic strand, thereby providing more bandwidth
carrying capacity at relatively low incremental costs. Our network is capable of
using the highest commercially available capacity transmission (OC192) and
thereby can handle advanced, capacity-intensive data applications such as voice
over Internet Protocol, video teleconferencing, Frame Relay, ATM, multimedia and
Internet-related applications.

      In our intracity networks, we offer end-to-end fiber optic capacity, 
capable of utilizing SONET ring architecture, which has the ability to route 
customer traffic in either direction around its ring design thereby assuring 
that fiber cuts do not interrupt service to customers on our networks. Our 
networks are also capable of supporting DWDM (dense wave division 
multiplexing). Currently, a state-of-the-art network operating system 
continuously monitors and maintains quality control of networks on a 24-hour 
basis, alerts us of any degradation or loss of fiber capacity and pinpoints 
the location of such degradation. This network operating system also enables 
us to repair or replace impaired fiber without any loss of service. In 
addition, the monitoring system automatically reroutes traffic in the event 
of a catastrophic break in the system, enabling us to ensure that our 
customers obtain continuous service.

FRANCHISE, LICENSE AND RELATED AGREEMENTS

      When we decide to build a fiber optic communications network, our 
corporate development staff seeks to obtain the necessary rights-of-way and 
governmental authorizations. In some jurisdictions, a construction permit is 
all that is required. In other jurisdictions, a license agreement, permit or 
franchise is also required. Such licenses, permits and franchises are 
generally for a term of limited duration. Where possible, rights-of-way are 
leased under multi-year agreements with renewal options and are generally 
non-exclusive. We lease underground conduit and pole space and other 
rights-of-way from entities such as ILECs, utilities, railroads, IXCs, state 
highway authorities, local governments and transit authorities. We strive to 
obtain rights-of-way that afford us the opportunity to expand our 
communications networks as business develops. We currently have all 
rights-of-way and other authorizations necessary for our existing intra-city 
networks in the New York, Philadelphia, and Chicago metropolitan areas.

NEW YORK. We have entered into a 15-year nonexclusive franchise agreement with
the City of New York to install, operate, repair, maintain, remove and replace
cable, wire, fiber or other transmission media that may be used in lieu of
cable, wire or fiber on, over and under the inalienable property of the City of
New York in order to provide telecommunications services which originate and/or
terminate in or transit the City of New York. This agreement expires in December
2008 and provides that we may submit a written petition to the City of New 


                                       8
<PAGE>

York to renew the term of the franchise at least 12 months (but not more than 18
months) before the expiration of the 15-year term. However, the City of New York
has no obligation to renew this agreement. We believe that the City of New York
has granted approximately 11 franchises to date. However, we are not aware of
any limit on the number of franchises that the City of New York may grant and
believe that the City of New York has begun the process that will result in the
awarding of additional licenses.

      This agreement requires us to provide the City of New York with certain
telecommunications infrastructure and, by November 1999, to complete
construction of our initial network as described in the agreement. We believe
that we are on schedule to complete such construction by November 1999. On
December 21, 1998, this agreement was amended to extend the period of time to
June 30, 2001 to complete construction of the initial backbone to the borough of
Staten Island.

      Both the City of New York and we have the right, at any one time after
December 20, 2000, upon six months notice, to renegotiate in good faith certain
terms of this agreement, including the annual compensation payable to the City
of New York, based on changes in technological, regulatory or market conditions
which may occur after the effective date of the agreement. If we cannot reach an
agreement upon any such renegotiations, the agreement will be subject to early
termination on a date, which would be one half of the number of days between the
date of the notice to renegotiate and January 1, 2009.

      Under the agreement, we are obligated to pay the City of New York an
annual franchise fee at a rate of 5% of gross revenues for each year of the
franchise. All revenues received directly or indirectly by us or any of our
affiliates from or in connection with telecommunications services which
originate in, terminate in or transit the City of New York constitute "gross
revenues" for purposes of the agreement. Revenues that are generated from
transmissions, which transit the City of New York, but also include transmission
through other areas, are to be prorated. We are obligated to pay a minimum
franchise fee to the City of New York of $200,000 per year.

      The agreement requires that we obtain the consent of the City of New York
for any acquisition of 5% or more of the shares of the Company by any person
other than Mr. Stephen A. Garofalo, Metromedia Company, Mr. Howard M.
Finkelstein, Mr. Peter Sahagen or any other 5% stockholder on the date of the
consummation of our initial public offering.

      We entered into a nonexclusive conduit occupancy agreement with Bell
Atlantic Corporation in May 1993. This agreement authorizes us to install our
cable facilities in Bell Atlantic's conduit system throughout the State of New
York. We are required to pay Bell Atlantic certain rates and charges pursuant to
the terms of this agreement. This conduit occupancy agreement is terminable
without cause by either party upon three months' written notice. Under certain
circumstances, a petition may be brought to the Public Services Commission
requesting that it decide a dispute arising over termination prior to the
termination of this conduit occupancy agreement.

      On June 16, 1998, we entered into a nonexclusive franchise agreement with
the City of White Plains, New York, that grants us the necessary rights for our
expanded New York/New Jersey network in the White Plains area. Under this
agreement, we are obligated to pay the City of White Plains an annual franchise
fee at the rate of 5% of gross revenues generated from the network within the
White Plains area for fifteen years, renewable once. We do not anticipate that
this fee will result in a material cost to us. Upon termination of this
agreement, ownership of the telecommunications network in the White Plains area
will revert to the City of White Plains at fair market value.


                                       9
<PAGE>

PHILADELPHIA. We have obtained all necessary rights-of-way and authorizations 
for the Philadelphia network in the Philadelphia metropolitan area under an 
ordinance from the City of Philadelphia. The ordinance allows us, subject to 
certain conditions to be set forth under a license agreement being currently 
negotiated with the City of Philadelphia, to construct, maintain and operate, 
replace and remove a telecommunications system in, under and across the 
public rights-of-way and city streets and/or to place such telecommunications 
system within the existing facilities owned by Bell Atlantic, PECO Energy 
Company, Southeastern Pennsylvania Transportation Authority, Consolidated 
Rail Corporation or any other entity holding a grant by way of ordinances 
from the City of Philadelphia within the Philadelphia metropolitan area.

CHICAGO. In Chicago, we have also obtained the required franchises, licenses,
permits and other agreements needed to complete our Chicago network. In
addition, we have entered into agreements with various entities, which provide
us with infrastructure of approximately 4,300 fiber miles along approximately 40
route miles on key routes within our Chicago market, in addition to the
necessary easements and rights-of-way for the Chicago network.

WASHINGTON D.C. In Washington, D.C., we have obtained rights-of-way and
authorizations for the Washington network in the District of Columbia under a
Certificate of Public Convenience and are in the process of obtaining all
necessary permits for the network in the downtown area. We do not anticipate any
difficulty in obtaining such permits. We are currently negotiating the necessary
franchise agreements with certain municipalities that make up part of the
expanded Washington network.

      We are currently pursuing our efforts to obtain all rights-of-way and
authorizations for the build-out of our networks in Los Angeles, San Francisco,
Boston, Seattle, Dallas, Houston and Atlanta. We have recently signed a conduit
agreement within the Bay Area Rapid Transit and SAMTRANS right-of-ways for
portions of the network in the San Francisco area, and have obtained the
necessary permits for our intracity network in the downtown San Francisco area.
In January 1999, we entered into an agreement to acquire a provider of dark
fiber that is constructing an intracity network in Dallas. This acquisition was
completed on March 11, 1999.

SALES AND MARKETING

      Our sales and marketing strategy includes:

      o     positioning ourselves as the preferred carriers' carrier of
            broadband communications infrastructure,

      o     focusing on high dollar volume corporate and government customers,
            and

      o     emphasizing the cost advantages which will allow us to lease our
            fiber optic infrastructure at fixed prices which represent
            potentially significant savings for our large volume carrier and
            corporate customers relative to their present build or buy
            alternatives.

      We also believe that communications carriers and corporate and government
customers will be attracted to our dark fiber product and our unmetered pricing
structure. Dark fiber is installed fiber optic cable which is not otherwise
carrying a signal originated by the service provider (i.e., Metromedia Fiber
Network), but which will carry a signal generated by the customer. We intend
initially to centralize our sales and marketing efforts on carrier customers
through a national sales team and we are currently in the process of hiring
additional sales professionals to focus on these customers. As we have
constructed fiber optic networks in new cities, we have hired sales forces in
these areas to target regional corporate, government and, to a lesser extent,
carrier customers and we plan to continue this strategy.


                                       10
<PAGE>

CUSTOMERS

      CARRIERS. We expect that communications carriers will account for a
majority of our business, in the near term. We currently target the major
carriers, such as resellers, data services, regional Bell operating companies,
long distance carriers, competing local exchange carriers, vendors providing
direct access to the Internet, wireless providers, and major information service
providers. We believe that we can compete effectively with other providers due
to our rapid deployment, pricing, reliability, customer service and the capacity
of our networks. We traditionally lease dark fiber to communications carriers,
providing them with point-to-point and long distance carriers point of presence
to end user non-switched access, which connects their customers to our network.
This enables them to eliminate or reduce costly access charges.

      We have entered into contracts with approximately 19 communications
carriers, including providers of wireless, cellular, Internet, interexchange and
competitive local exchange services, as of January 1, 1999. In addition, we are
currently in the process of negotiating agreements with certain other major
communications carriers and will continue to target such carriers in the future.

NEXTLINK AGREEMENTS. In June 1997 and February 1998, we entered into two major
agreements with NextLink New York, L.L.C. ("NextLink") a competitive local
exchange carrier, which provide NextLink with certain exclusive long-term rights
to certain fiber strands and innerducts on specified intracity routes.

      Pursuant to the agreements, we received $11.0 million in scheduled
up-front payments with respect to one agreement and will receive an additional
$92.0 million in additional payments from NextLink with respect to the second
agreement. Of the $92.0 million, $11.75 million was paid up-front and $80.25
million has been placed in escrow and will be released to us periodically as
delivery of the fibers and innerducts are completed during 1999 in accordance
with the agreement.

      We have also entered into an agreement with NextLink Illinois, Inc. which
provides for the sharing of certain construction costs in connection with the
build-out of our Chicago network.

WINSTAR AGREEMENTS. We are a party to agreements with WinStar Communications,
Inc., a national competitive local exchange carrier, for long term leases of
high-capacity fiber optic infrastructure on our intracity networks in the New
York, Washington, D.C., Philadelphia, Chicago and San Francisco areas and on our
intercity network from New York to Washington, D.C. Pursuant to the agreements,
we will receive in excess of $40.0 million in payments from WinStar.

CORPORATE/GOVERNMENT CUSTOMERS. We expect that our corporate and government
customers, including members of the international financial and commercial
community, will primarily be entities with multiple locations and high volume
communications requirements. We expect to provide these customers with dedicated
point-to-point communications that have the capacity to carry a wide range of
communications services (e.g., high speed intranet access). We offer our
high-bandwidth services to such customers at prices that are lower than those
currently offered by regulated competitive local exchange carriers and incumbent
local exchange carriers. However, our customers currently provide their own
transmission or switching equipment.

      We believe that we can effectively compete for corporate and government
customers based upon price, nonmetered usage, reliability and solutions tailored
to the customers' needs. In addition, our New York/New Jersey and Philadelphia
networks utilize, and the other intracity networks will permit use of, SONET
technology, which offers reliability that we believe is generally superior to
that provided by the incumbent local exchange 


                                       11
<PAGE>

carriers. We currently have dark fiber infrastructure leasing arrangements with
a variety of financial services firms, including investment and commercial
banks, securities and accounting firms and a financial exchange, although we
have not yet completed installation of the dark fiber to be leased pursuant to
certain of the contracts.

COMPETITION

      Fiber optic systems are currently under construction both locally and 
nationally. In New York City, for example, we believe that approximately 11 
franchisees have been granted the right to install and operate a 
telecommunications network within the city. Development of fiber optic 
networks is also continuing on a national scale. The construction of these 
networks enables their owners to lease access to their networks to other 
communications carriers or large corporate or government customers seeking 
high bandwidth capacity, without these customers having to incur costly 
expenditures associated with building networks of their own. Alternatively, 
some network owners may choose to use their infrastructure to provide 
switched voice and data services, competing directly with incumbent local 
exchange carriers and long distance carriers. Currently, we do not provide 
such services or plan to provide such services.

      In New York City, Philadelphia, Washington, D.C., and the other cities 
where we plan to deploy fiber optic communications networks, we face 
significant competition from the incumbent local exchange carriers, which 
currently dominate their local communications markets. We also face 
competition from competitive local exchange carriers and other potential 
competitors in these markets and will face competition in the cities in which 
we plan to build our networks. Many of our competitors have financial, 
management and other resources substantially greater than ours, as well as 
other competitive advantages over us, including established reputations in 
the communications market.

      Various communications carriers already own fiber optic cables as part of
their communications networks. Accordingly, each of these carriers could, and
some do, compete directly with us in the market for leasing fiber capacity. In
addition, although competitive local exchange carriers generally provide a wider
array of services to their customers than we presently provide to our customers,
competitive local exchange carriers nevertheless represent an alternative means
by which our potential customers could obtain direct access to a long distance
carrier point of presence or other site of the customer's choosing. Thus,
competitive local exchange carriers could compete with us.

      Some communications carriers and local cable companies have extensive
networks in place that could be upgraded to fiber optic cable, as well as
numerous personnel and substantial resources to undertake the requisite
construction to so equip their networks. To the extent that communications
carriers and local cable companies decide to equip their networks with fiber
optic cable, they are potential direct competitors provided that these
competitors are willing to offer this capacity to all of their customers.

      We believe that as competition in the local exchange market develops, a
fundamental division between the needs of corporate, governmental and
institutional end users and residential end users will drive the creation of
differentiated communications services and service providers. We believe that
the competitive local exchange carriers, long distance carriers, vendors
providing direct access to the Internet, wireless carriers and corporate and
government customers on which we focus will have distinct requirements,
including maximum reliability, consistent high quality transmissions, capacity
for highspeed data transmissions, diverse routing and responsive customer
service. We believe that we will be able to continue to satisfy the needs of
such customers.


                                       12

<PAGE>

REGULATION

      As explained in the section entitled "Business--The Company," we plan to
offer telecommunications infrastructure to customers in two forms. First,
customers may lease fiber optic capacity from us and attach their own
transmission equipment (we call this "dark fiber"). Second, customers will have
the option to lease smaller amounts of broadband capacity (less than a full
strand of fiber) of facilities where we operate our own transmission equipment
(we call this "transmission services"). These two offerings are subject to
varying degrees of regulation in each of the jurisdictions in which we operate.
In the United States, some aspects of our services are regulated by the Federal
Communications Commission and various State regulatory bodies. In other
countries where we operate we may also be subject to regulations by the agencies
having jurisdiction over the provision of telecommunications services.

FEDERAL

      In the United States, federal telecommunications law directly shapes the
market in which we compete. Telecommunications facilities and services are
subject to varying degrees of regulation by the Federal Communications
Commission pursuant to the provisions of the Communications Act of 1934, as
amended by the Telecommunications Act of 1996 and the Federal Communications
Commission regulations issued under these laws.

      Federal telecommunications law imposes special legal requirements on
"common carriers" who engage in "interstate or foreign communication by wire or
radio," and on "telecommunications carriers." Telecommunications carriers and
common carriers are essentially the same, and are companies that provide
communications services "directly to the public" or to all potential users on an
indiscriminate basis subject to standardized rates, terms, and conditions.

DARK FIBER. We believe that we are not a "telecommunications carrier" or "common
carrier" with respect to our leasing of dark fiber, and therefore that these
leases are not subject to special legal requirements applicable to such
carriers. First, we do not believe that the leasing of dark fiber is a
"telecommunications service" that is subject to Federal Communications
Commission regulation. The Federal Communications Commission generally regulates
"communication by wire or radio" or the "transmission" of "information of the
users' choosing," neither of which describes the leasing of dark fiber. Second,
we do not intend to offer dark fiber facilities as a common carrier, I.E., to
all potential users on an indiscriminate basis. Instead, we intend to enter into
individualized negotiations on a selective basis with prospective lessees of our
dark fiber to determine whether and on what terms to serve each potential
lessee. Our dark fiber offerings should therefore not be subject to the common
carrier jurisdiction of the Federal Communications Commission or to the common
carrier provisions of the Communications Act of 1934.

      If our offering of dark fiber facilities were deemed to constitute
"telecommunications," then our revenues from such leases to end users (but not
to other telecommunication carriers), whether or not provided on a common
carrier basis, would become subject to assessment for the Federal Communications
Commission's Universal Service Fund, a fund that was established by the Federal
Communications Commission pursuant to the Telecommunications Act of 1996 to
assist in ensuring the universal availability of basic telecommunications
services at affordable prices. Such assessments could create a liability equal
to a percentage of these gross revenues. We anticipate that the rate of
assessment would be approximately 4% of gross interstate and 1% of gross
intrastate end-user revenues for the year 1999, and may be higher in subsequent
years. We may also be liable for assessments by state commissions for state
universal service programs.

TRANSMISSION SERVICES. With respect to our offering of telecommunications
transmission services, we will likely offer some of these services as a common
carrier (I.E., we will offer such transmission services to all potential 


                                       13

<PAGE>

users indiscriminately) and, therefore, will be subject to the regulatory
requirements applicable to these carriers. For example, we will be required,
with respect to our transmission services, to (1) provide such services
indiscriminately upon any reasonable request; (2) charge rates and adopt
practices, classifications and regulations that are just and reasonable; and (3)
avoid unreasonable discrimination in charges, practices, regulations, facilities
and services. We may also be required to file tariffs setting forth the rates
for our services. Under current Federal Communications Commission policies,
these regulatory requirements should not impose any substantial burdens on us.
The Federal Communications Commission has recently determined, for example, that
providers of "access" services (intracity transmission services used to
originate and/or terminate interstate and foreign communications) need not file
tariffs and may offer such services to customers on a private, contractual
basis. Our revenues from transmission services will also be subject to Federal
Communications Commission Universal Service Fund assessments as discussed above,
to the extent that these services are purchased by end users and to other
Federal Communications Commission fees and assessments. Since the revenues of
our competitors will be subject to comparable assessments, this should not
reduce our competitiveness.

      Also, having some of our services regulated as a "telecommunications
carrier" will give us certain legal benefits. In particular, we will be
entitled, like other competing local exchange carriers, to insist upon access to
the existing telecommunications infrastructure by interconnecting our
fiber-optic networks with incumbent local exchange carrier central offices and
other facilities. Under the Telecommunications Act of 1996, incumbent local
exchange carriers must, among other things: (i) interconnect at any technically
feasible point and provide service equal in quality to that provided to others,
(ii) provide unbundled access to network elements, and (iii) provide access to
their poles, ducts, conduits and other rights-of-way.

      Incumbent local exchange carriers must also provide "physical collocation"
for other telecommunications carriers. Physical collocation is an offering by an
incumbent local exchange carrier that enables another telecommunications carrier
to enter the incumbent local exchange carrier's premises to install, maintain 
and repair its own equipment that is necessary for interconnection or access 
to the incumbent local exchange carrier's network elements. An incumbent 
local exchange carrier allocates reasonable amounts of space to carriers on a 
first-come, first-served basis. If space limitations or practical or 
technical reasons prohibit physical collocation, an incumbent local exchange 
carrier must offer "virtual collocation," by which the other carrier may 
specify incumbent local exchange carrier's equipment to be dedicated to its 
use and electronically monitor and control communications terminating in such 
equipment. We intend, in some instances, to collocate portions of our network 
on the premises of certain incumbent local exchange carriers. Our ability to 
do this on a cost-effective basis will depend on the rates, terms and 
conditions established for collocation, which will be established by state 
regulators in arbitration proceedings and therefore may vary from one state 
to the next.

      The Federal Communications Commission has responsibility under the 
interconnection provisions of the Telecommunications Act of 1996 to determine 
what elements of an incumbent local exchange carrier's network must be 
provided to competitors on an unbundled basis. The Federal Communications 
Commission has decided not to declare dark fiber an unbundled network element 
under these provisions, but has announced that state commissions may decide 
to add network elements to the Federal Communications Commission's list of 
elements that incumbent carriers are required to unbundle. To date, state 
commissions in several states (including New York) have either refused to 
require the incumbent local exchange carriers to offer dark fiber to 
competitors or have stated that the issue would be addressed at a later time. 
On the other hand, other state commissions have found dark fiber to be a 
network element and required the incumbent local exchange carriers to offer 
it on an unbundled basis to competitive local exchange carriers. This 
decision is currently subject to petitions for reconsideration before the 
Federal Communications Commission. In addition, a federal district court in 
North Carolina has interpreted the Telecommunications Act of 1996 to include 
dark fiber as a network element.

                                       14

<PAGE>

      However, the U.S. Supreme Court recently directed the Federal 
Communications Commission to change its rules defining unbundled network 
elements, because the existing rules fail to recognize statutory limits to 
the incumbent carriers' unbundling obligation. The decisions described above 
may have to be reconsidered once the FCC completes this review of its rules. 
Although we cannot predict the specific results of future federal and state 
regulatory proceedings, it is likely that the Supreme Court will result in a 
narrowing, rather than an expansion, of the available unbundled network 
elements. This development should be beneficial to us, because unbundling of 
incumbent carriers' dark fiber as a network element could reduce the demand 
for our dark fiber capacity.

      Incumbent local exchange carriers, competing local exchange carriers and
long distance carriers are subject to additional federal telecommunications
laws. These laws may affect our business by virtue of the interrelationships
that exist among us and many of these regulated telecommunications entities. For
example, the Federal Communications Commission recently issued an order
requiring, among other things, that access charges (fees charged by incumbent
local exchange carriers to long distance carriers for use of local telephone
facilities for the origination and termination of long-distance calls) shift in
part from being usage driven to a fixed flat cost-based structure. The Federal
Communications Commission has also asked for public comments on proposed rules
that would grant incumbent local exchange carriers greater pricing flexibility
for their access services (both switched and non-switched), which may permit the
incumbent local exchange carriers to compete more effectively against some of
our service offerings. While it is not possible to predict the precise effect
the access charge changes will have on our business or financial condition, the
reforms will reduce access charges paid by long distance carriers, likely making
the use of incumbent local exchange carriers facilities by long distance
providers/interexchange carriers more attractive, which could have a material
adverse effect on the use of our fiber optic telecommunications networks by long
distance carriers.

STATE

      The Telecommunications Act of 1996 prohibits state and local governments
from enforcing any law, rule or legal requirement that prohibits or has the
effect of prohibiting any person from providing any interstate or intrastate
telecommunications service. This provision of the Telecommunications Act of 1996
should enable us and our customers to provide telecommunications services in
states that previously prohibited competitive entry.

      However, states retain jurisdiction under the Telecommunications Act of
1996 to adopt regulations necessary to preserve universal service, protect
public safety and welfare, ensure the continued quality of communications
services and safeguard the rights of consumers.

      States continue to determine the rates that incumbent local exchange
carriers can charge for most of their services. They are also responsible for
mediating and arbitrating incumbent local exchange carriers' interconnection
arrangements with other carriers if voluntary agreements are not reached.
Accordingly, state involvement in local telecommunications services is
substantial.

      Each state (and the District of Columbia, which is treated as a state for
the purpose of regulation of telecommunications services) has its own statutory
scheme for regulating providers of certain telecommunications-related services
as "common carriers," as "public utilities," or under similar rubrics. As with
the federal regulatory scheme, we believe that the offering of dark fiber
facilities is not subject to this type of regulation in most jurisdictions, in
which we currently have or plan to construct facilities. Our offering of
transmission services (as distinct from dark fiber capacity), however, will
likely be subject to regulation in each of these jurisdictions to the extent
that these services are offered for intrastate use. Even though many of our
facilities will be physically intrastate, we anticipate that most customers will
use our facilities and services for the purpose of originating and/or
terminating interstate and foreign communications. Under current Federal


                                       15

<PAGE>

Communications Commission policies, any dedicated transmission service or
facility that is used more than 10% of the time for the purpose of interstate or
foreign communication is subject to Federal Communications Commission
jurisdiction to the exclusion of any state regulation. Therefore, only a small
portion of our business should be subject to state regulation.

      State regulation of the telecommunications industry is changing rapidly,
and the regulatory environment varies substantially from state to state. Our
subsidiaries are currently authorized to provide intrastate telecommunications
services in California, Connecticut, Delaware, District of Columbia, Illinois,
Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island,
Virginia, and Washington, and have an application pending in Oregon. At present,
we do not anticipate that the regulatory requirements to which we will be
subject in the states in which we currently intend to operate will have any
material adverse effect on our operations. These regulations may require, among
other things, that we obtain certification to operate, and that we provide
notification of, or obtain authorization for, certain corporate transactions. We
will incur certain costs to comply with these and other regulatory requirements
such as the filing of tariffs, submission of periodic financial and operational
reports to regulators, and payment of regulatory fees and assessments, including
contributions to state universal service programs. In some jurisdictions, our
pricing flexibility for intrastate services may be limited because of
regulation, although our direct competitors will be subject to similar
restrictions. However, we make no assurances that future regulatory, judicial,
or legislative action will not materially adversely affect us.

      As a result of the Telecommunications Act of 1996, Bell Atlantic 
"unbundled" its local loop in October 1996. This enables carriers such as us 
to gain access to Bell Atlantic's existing wiring infrastructure in buildings 
on an economical basis, which we believe enhances the strategic value of the 
New York/New Jersey network to potential customers. By virtue of the 
unbundling, Bell Atlantic must make a significant portion of its in-house 
apartment wiring available for $2 per month per apartment. We expect that the 
availability of an unbundled local loop will enable new carriers to enter the 
residential voice market on a competitive basis with Bell Atlantic, and these 
carriers will be potential customers for our services.

LOCAL

      In addition to federal and state laws, local governments exercise legal
authority that may impact our business. For example, local governments, such as
the City of New York, typically retain the ability to license public
rights-of-way, subject to the limitation that local governments may not prohibit
persons from providing telecommunications services. Local authorities affect the
timing and costs associated with our use of public rights-of-way. These
regulations may have an adverse effect on our business.

FEDERAL REGULATION OF INTERNATIONAL SERVICE

      Various regulatory requirements and limitations also will influence our 
business as it attempts to enter international markets. Although we have not 
fully determined our specific international business strategy, we have 
entered into a 50/50 joint venture, ION, with a subsidiary of Racal 
Telecommunications that contemplates jointly acquiring and selling 
international, facilities-based telecommunications capacity between the U.S. 
and the United Kingdom and possibly between the U.S. and other markets. ION 
is an U.S. international common carrier subject to U.S. regulation under 
Title II of the Communications Act of 1934, and we have also applied to become 
an U.S. international common carrier subject to the same regulations. Under 
current Federal Communications Commission rules, international carriers that 
do not exercise market power and that are not affiliated with dominant 
foreign carriers (carriers possessing market power in their local markets) 
are subject to relatively relaxed U.S. regulation as non-dominant 
international

                                       16

<PAGE>

carriers. As such a non-dominant common carrier, ION is and we will be 
subject to, among other policies, the common carrier obligations of 
nondiscrimination. In addition, Federal Communications Commission rules 
prohibit U.S. carriers from bargaining for special concessions from certain 
foreign partners. ION is and we will be required, under Sections 214 and 203 
of the Communications Act of 1934 to obtain authorization and file an 
international service tariff containing rates, terms and conditions prior to 
initiating service. As a non-dominant carrier, ION has received and we have 
applied for "global" authorization under Section 214 to operate as 
facilities-based and/or resale carriers. International carriers are also 
subject to certain annual fees and filing requirements, such as the 
requirement to file contracts with other carriers, including foreign carrier 
agreements, and reports setting forth international circuit, traffic and 
revenue data. Failure to obtain an appropriate U.S. license for international 
service or the revocation of a license could materially adversely affect our 
future operations.

      To the extent that we and ION operate as international common carriers, we
and ION may also be required to comply with the Federal Communications
Commission's International Settlement Policy which defines the permissible
boundaries for U.S. carriers and their foreign correspondents to settle the cost
of terminating each other's traffic over their respective networks. The
International Settlement Policy is designed to eliminate a foreign carrier's
opportunity to discriminate among different U.S. carriers by bargaining for
accounting rates or other terms that benefit the foreign carrier but is
inconsistent with the U.S. public interest. The International Settlement Policy
generally provides that U.S. carriers may only enter into foreign carrier
agreements for the exchange of switched traffic that contain the same accounting
rate and settlement rate (typically one-half of the accounting rate) offered to
all other U.S. carriers. The International Settlement Policy also requires U.S.
carriers to adhere to the principle of proportionate return so that competing
U.S. carriers have comparable opportunities to receive the return traffic that
reduces the marginal cost of providing international service.

      If we provide public switched services over international private lines,
we would be subject to Federal Communications Commission rules governing such
activity rather than to the International Settlement Policy. These rules limit
us from providing switched services over international private lines between the
United States and certain countries and impose certain conditions on carriers
engaging in such activity.

      The Federal Communications Commission continues to refine its
international service rules to promote competition, reflect and encourage
liberalization in foreign countries, and reduce accounting rates toward cost.
Among other things, the Federal Communications Commission has recognized the
advent of competition in the U.K. market by designating the U.K. as a country
that offers U.S. carriers effective competitive opportunities. The Federal
Communications Commission has also amended its rules to reflect the U.S.
participation in the WTO Agreement on Basic Telecommunications Services in which
72 countries have agreed to eliminate barriers to competition in their markets
for basic telecommunications services. For example, the Federal Communications
Commission has decided to permit U.S. carriers to enter into "flexible"
termination arrangements with carriers in WTO countries, unless such
arrangements would not promote competition. By taking these actions, the Federal
Communications Commission has relaxed or eliminated regulatory limitations on
many U.S. carrier services between the U.S. and the U.K. (as well as between the
U.S. and other members of the WTO). The Federal Communications Commission has
also proposed to eliminate the International Settlements Policy contract
requirements for agreements with certain carriers in certain foreign countries.
In addition, the Federal Communications Commission has established reduced
"benchmark" rates for the amounts U.S. carriers will be allowed to pay foreign
carriers for terminating U.S.-originated traffic. For example, effective as of
January 1, 1999, U.S. carriers may ask the Federal Communications Commission to
require that U.S. carriers pay foreign carriers in "high income" countries such
as the United Kingdom no more than $.15 per minute to terminate such calls.
Different rates would apply at different deadlines in different countries
depending 


                                       17

<PAGE>

on the countries' income level.

      Regulation of the international telecommunications industry is changing
rapidly. We are unable to predict how the Federal Communications Commission will
resolve the various pending international policy issues and the effect of such
resolutions on us.

REGULATION OF INTERNATIONAL OPERATIONS

      Our international services would also be subject to regulation in other
countries where we operate. Such regulation, as well as policies and regulations
on the European Union level, may impose separate licensing, service and other
conditions on our international service operations, and these requirements may
have a material adverse impact on Metromedia Fiber Network. The following
discussion is intended to provide a general outline of certain regulations and
current regulatory posture in certain foreign jurisdictions in which we
currently operate or intend to operate, and is not intended as a comprehensive
discussion of such regulations or regulatory posture. Local laws and regulations
differ significantly among these jurisdictions, and, within such jurisdictions,
the interpretation and enforcement of such laws and regulations can be
unpredictable.

THE EUROPEAN UNION

      The European Union was established by the Treaty of Rome and subsequent
treaties. European Union member states are required to implement directives
issued by the European Commission and the European Council by passing national
legislation. The European Commission and European Council have issued a number
of key directives establishing basic principles for the liberalization of the
European Union telecommunications market. This basic framework has been advanced
by a series of harmonization directives, which include the so-called Open
Network Provision directives and the Licensing Directive of April 1997 and the
Interconnection Directive of June 1997, which address the procedures for
granting license authorizations and conditions applicable to such licenses and
the interconnection of networks and the interoperability of services as well as
the achievement of universal service. The Licensing Directive sets out framework
rules for the procedures associated with the granting of national authorizations
for the provision of telecommunications services and for the establishment or
operation of any infrastructure for the provision of telecommunications
services. It distinguishes between "general authorizations," which should
normally be easier to obtain since they do not require an explicit decision by
the national regulatory authority, and "individual licenses." European Union
member states may impose individual license requirements for the establishment
and operation of public telecommunications networks and for the provision of
voice telephony, among other things. Consequently, ION's operations in the U.K.,
our operation with respect to the German network and European network may
require that ION or Metromedia Fiber Network, respectively, be subject to an
individual licensing system rather than to a general authorization in the
majority of European Union member states. In some countries where we operate, we
may also be required to contribute to a fund for the provision of universal
service. The United Kingdom and each other European Union member state in which
ION currently conducts or we intend to conduct our business has a different
regulatory regime and such differences are expected to continue. The requirement
that ION or we obtain necessary approvals varies considerably from country to
country.

UNITED KINGDOM

      The U.K. Telecommunications Act of 1984 provides a licensing and
regulatory framework for telecommunications activities in the United Kingdom.
The Secretary of State for Trade and Industry at the Department of Trade and
Industry (the "Secretary of Trade") is responsible for granting licenses under
the U.K. Telecommunications Act of 1984 and for overseeing telecommunications
policy, while the Director General of 


                                       18

<PAGE>

Telecommunications (the "Director General") and his office (the Office of
Telecommunications ("OFTEL")) are responsible, among other things, for enforcing
the terms of such licenses. Operators wishing to use their own facilities to
provide international services are currently required to obtain an international
facilities license. An international facilities license licenses the running of
telecommunication systems within the U.K. and permits the licensee to connect
U.K. systems to overseas systems, and to offer international services subject to
certain restrictions. ION was awarded an international facilities license on
December 9, 1998. The U.K. Government is currently consulting on proposals to
amend licenses to create one license authorizing both international and domestic
services. The changes are expected to come into force in 1999 and may result in
ION being licensed to provide both international and domestic services. We have
not applied for an international facilities license or any other authorization
for the U.K. portion of our European network. OFTEL is consulting on which
operators will have the right and obligation to interconnect with the networks
of other operators under the regime established by the Interconnection
Directive. OFTEL is expected to announce its findings shortly. Currently all
operators with international facilities licenses have the right and obligation
to interconnect, and this position is not expected to change. Therefore ION has
the right to request and receive interconnection from all other operators deemed
to be entitled to such rights and obligations (as notified by the Director
General) and also the obligation to offer to enter into an agreement to
interconnect at the request of any such operator. The U.K. Government is
currently consulting on changing the obligation to offer to enter into an
agreement to interconnect to an obligation to negotiate with a view to
concluding an interconnection agreement in response to the concern raised by
operators that the current obligation exceeds the requirements of the
Interconnection Directive. The U.K. Government passed the Competition Act 1998
on November 9, 1998, which introduces concurrent powers to the industry specific
regulators and the Director General of Fair Trading for the enforcement of
prohibitions against anti-competitive behavior modeled on Articles 85 and 86 of
the Treaty of Rome. The Act introduces into U.K. legislation prohibitions on the
abuse of a dominant position and anti-competitive agreements, and provides for
third party rights of action, stronger investigative powers, interim measures
and effective enforcement powers. The new rules are expected to come into force
on March 1, 2000. The Act gives the Director General power to exercise
concurrent powers with the Director General of Fair Trading in relation to
"commercial activities connected with telecommunications". The Act will enable
third parties to seek court orders directly against telecommunications operators
who are in breach of the prohibitions contained in the Act and seek damages
rather than have to wait for the Director General to issue an enforcement order.
Depending on how these provisions of the Act are implemented, it may give
Metromedia Fiber Network (and its competitors) greater ability to challenge
anti-competitive behavior in the U.K. telecommunications market.

GERMANY

      The German Telecommunications Act of July 25, 1996 liberalized all
telecommunications activities. Under the German Telecommunications Act, voice
telephony was liberalized as of January 1, 1998. The German Telecommunications
Act has been complemented by several Ordinances. The most significant Ordinances
concern license fees, rate regulation, interconnection, universal service,
frequencies and customer protection.

      Under the German regulatory scheme, licenses can be granted within four
license classes. A license is required for operation of transmission lines that
extend beyond the limits of a property and that are used to provide
telecommunications services for the general public. The licenses required for
the operation of transmission lines are divided into 3 infrastructure license
classes: mobile telecommunications (license class 1); satellite (license class
2); and telecommunications services for the general public (license class 3).
Beside the infrastructure licenses, an additional license is required for the
provision of voice telephony services on the basis of self-operated
telecommunications networks (license class 4). A class 4 license does not
include the right to operate transmission lines. According to the License Fees
Ordinance, a nationwide class 4 license costs a onetime fee of DM 3,000,000. The
costs for a territorial class 3 license will be determined by the


                                       19

<PAGE>

Regulierungsbehorde fur Telekommunikation und Post, known as the "RegTP", and is
dependent on the population and the geographical area covered by the territorial
class 3 license. A nationwide territorial class 3 license costs DM 10,600,000.
Licensees that operate transmission lines crossing the boundary of a property
have the right to install transmission lines on, in and above public roads,
squares, bridges and public waterways without payment; however, when installing
transmission lines a planning agreement must be obtained from the relevant
authorities.

      A company, which operates a public telecommunications network, has the
right to receive favorable interconnection rates from Deutsche Telekom, as a
dominant carrier. If the company does not agree with the offered rates or
Deutsche Telekom refuses to interconnect for whatever reason, the company can
refer the case to the RegTP which shall decide upon the request for
interconnection within a period of six weeks; if the RegTP decides to extend
this deadline, it must decide within ten weeks of the request, at the latest.
Whether, and under which conditions, carrier to carrier operators will receive
favorable interconnection rates or less favorable "special network access rates"
from Deutsche Telekom depends largely on whether they operate a "public
telecommunications network." No definition of "public telecommunications
network" has yet been provided. A public hearing on the regulatory treatment of
carrier networks-defined in the German Telecommunications Act as a
telecommunications network to which customers are not directly connected and
which interconnects access networks--and public telecommunications networks in
respect of interconnection has recently been conducted. The RegTP is expected to
publish the outcome of the hearing which shall include the RegTP's understanding
of the constituting elements of a public telecommunications network shortly. In
December 1998, the RegTP presented its preliminary views on the results of the
hearing to an audience of interested parties in Bonn. According to this
presentation, a carrier network constitutes a "public telecommunications
network" if it consists of at least one switch and more than two connected
transmission lines and is used to provide telecommunications services to the
public, irrespective of whether or not customers are directly or (in the case of
a carrier network) indirectly connected to such network. The RegTP indicated
that it did not intend to establish a minimum number of points of
interconnection that are required for interconnections with Deutsche Telekom.
However, the RegTP acknowledged that carrier networks with few points of
interconnection may cause atypical traffic patterns on Deutsche Telekom's
network, which may create additional costs to Deutsche Telekom. The RegTP
indicated that Deutsche Telekom will be allowed to recover its additional costs
incurred due to atypical traffic patterns from the operations responsible for
such traffic patterns if and to the extent that Deutsche Telekom can prove such
costs. It is expected that the RegTP's position will become clearer once the
RegTP has published its views in writing in the official journal.

      In view of this outcome of the public hearing, Deutsche Telekom has
terminated a number of interconnection agreements in December 1998, and has
announced that it will offer new standard interconnection agreements. In the
last few months of 1998, and in view of the public hearing, Deutsche Telekom was
only willing to enter into interim interconnection agreements and only if the
companies requesting interconnection have direct customer access, have a minimum
of eight points of interconnection in the startup phase or commit to establish
this number of points of interconnection as ports for interconnection become
available and upgrade the network to 23 points of interconnection in the initial
phase. The same number of points of interconnection were requested by Deutsche
Telekom in a special network offer for carrier networks. The rates offered by
Deutsche Telekom to carrier network operators were substantially higher than
interconnection rates. In January 1999, Deutsche Telekom presented new drafts
for interconnection agreements, which significantly limit the ability of
interconnection partners of Deutsche Telekom to obtain Deutsche Telekom's
services in connection with an interconnection at favorable interconnection
rates. Deutsche Telekom, for example, sets forth requirements to establish
additional points of interconnection if traffic at existing points of
interconnection increases beyond certain thresholds. These drafts are currently
subject to intense discussions between Deutsche Telekom, other
telecommunications companies and representatives of the RegTP. At the end of 
February/beginning of March, two telecommunications companies whose temporary 
interconnection agreements with Deutsche Telekom had expired at the end of 
February and who were not willing to accept the new interconnection 
agreements of Deutsche Telekom started proceedings at the RegTP seeking 
orders for continued interconnection with Deutsche Telekom at conditions 
similar to the conditions which Deutsche Telekom offered until the summer of 
1998. The rates 


                                       20

<PAGE>

of Deutsche Telekom's services in conjunction with interconnection and special
network access are subject to regulatory approval; such approval is typically
granted for a limited period of time. Licensed operators are under an obligation
to present their standard terms and conditions to the RegTP. The RegTP may,
based upon certain criteria, decide not to accept these terms and conditions. We
may become subject to universal service financing obligations. Currently, it is
unlikely that the universal service financing system will be implemented in
Germany in the foreseeable future. We have applied for licenses of Class 3 
under the German Telecommunications Act with regard to parts of the German 
network.

EMPLOYEES

      As of December 31, 1998, we employed 121 people, including 57 in
engineering and construction; 32 in sales and marketing; and 32 administrative
personnel. Our employees are not represented by any labor union. We consider our
relationship with our employees to be good.

ITEM 2.  PROPERTIES

      Our principal properties currently are our fiber network and its component
assets. We own and have contractual rights to use substantially all of the
communications equipment required for our business. Our installed fiber optic
cable is laid under the various rights-of-way held by us. Please refer to "Item
1. Business-The Company," thereto. Our other fixed assets are located at
various leased locations in the geographic areas that we serve. Our executive
and administrative offices are located at our principal office at One North
Lexington Avenue, White Plains, New York (currently approximately 23,800 square
feet) which we lease under an agreement that expires in March 2003. We lease
additional space (currently 8,710 square feet) at 60 Hudson Street, New York,
New York, from Hudson Telegraph Associates under an agreement that expires in
March 2010. We have a sales office at 685 Third Avenue, New York, New York. We
lease this space (approximately 9,670 square feet) under an agreement that
expires in September 2003. We also lease 2,665 square feet of sales space in
Malvern, Pennsylvania, and 3,438 square feet of sales space in McLean, Virginia.
We also lease additional space for our operations in New York, New Jersey,
Chicago, IL, Boston, MA, Philadelphia, PA, Baltimore, MD, Wilmington, DE, and
Washington DC.


ITEM 3.  LEGAL PROCEEDINGS

      On or about October 20, 1997, Vento & Company of New York, LLC commenced
an action against Metromedia Fiber Network, Stephen A. Garofalo, Peter
Silverman, the law firm of Silverman, Collura, Chernis & Balzano, P.C., Peter
Sahagen, Sahagen Consulting Group of Florida (collectively, the "Sahagen
Defendants") and Robert Kramer, Birdie Capital Corp., Lawrence Black, Sterling
Capital LLC, Penrush Limited, Needham Capital Group, Arthur Asch, Michael Asch
and Ronald Kuzon (the "Kramer Defendants") in the United States District Court
for the Southern District of New York (No. 97 CIV 7751). On or about May 29,
1998, Vento & Company filed an amended complaint. In its complaint, as amended,
Vento & Company alleges four causes of action in connection with its sale of
900,000 shares (not adjusted for subsequent stock splits) of Class A Common
Stock to Peter Sahagen and the Kramer Defendants on January 13, 1997. The four
causes of action include: (i) violation of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated under such Act; (ii) fraud and
fraudulent concealment; (iii) breach of fiduciary duty; and (iv) negligent
misrepresentation and omission. On the first and second causes of action, Vento
& Company is seeking, among other things, rescission of the Vento & Company
sale, or alternatively, damages in an amount which we cannot currently ascertain
but believe to be in excess of $36 million, together with interest. On the third
and fourth causes of action, Vento & Company is seeking damages in an amount
which we cannot 


                                       21
<PAGE>

currently ascertain but believe to be in excess of $36 million,
together with interest. Vento & Company is also seeking punitive damages in the
amount of $50 million, reasonable legal fees and the cost of this action. All
the defendants, including Metromedia Fiber Network and Stephen A. Garofalo, have
moved to dismiss Vento & Company's amended complaint.

      On or about June 12, 1998, Claudio E. Contardi commenced an action against
Peter Sahagen, Sahagen Consulting Group of Florida and Metromedia Fiber Network
in the United States District Court for the Southern District of New York (No.
98 CIV 4140). Mr. Contardi alleges a cause of action for, among other things,
breach of a finder's fee agreement entered into between Mr. Sahagen and Mr.
Contardi on or about November 14, 1996 and breach of an implied covenant of good
faith and fair dealing contained in the finder's fee agreement. Mr. Contardi is
seeking, among other things, a number of shares of Metromedia Fiber Network
which we cannot currently ascertain but believe to be approximately 225,000
shares (calculated as of the date on which the complaint was filed) or damages
in an amount which we cannot currently ascertain but believe to be approximately
$4.9 million (calculated as of the date on which the complaint was filed) and
all costs and expenses incurred by him in this action. We have filed an answer
to the complaint and have raised affirmative defenses.

      We intend to vigorously defend both these actions because we believe that
we acted appropriately in connection with the matters at issue in these two
cases. However, we cannot assure you that we will not determine that the
advantages of entering into a settlement outweigh the risk and expense of
protracted litigation or that ultimately we will be successful in defending
against these allegations. If we are unsuccessful in defending against these
allegations, an award of the magnitude being sought in the Vento & Company
litigation would have a material adverse effect on our financial condition or
results of operations.

      In addition, we are subject to various claims and proceedings in the
ordinary course of business. Based on information currently available, we
believe that none of such current claims or proceedings, individually, or in
the aggregate, including the Vento & Company litigation and the Contardi
litigation, will have a material adverse effect on our financial condition or
results of operations, although we can make no assurances in this regard.

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

      No matters were submitted to a vote of security holders during the fourth
fiscal quarter of the year ended December 31, 1998.


                                       22

<PAGE>

                                     PART II

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

      MARKET INFORMATION. Since October 28, 1997, the Class A Common Stock has
been listed and traded on the Nasdaq National Market (the "Nasdaq") under the
symbol "MFNX." The following table shows the range of reported high and low
closing prices per share of Class A Common Stock for each quarter within the
Company's two most recent fiscal years:

<TABLE>
<CAPTION>

               1998                                      High ($)    Low ($)
               ----                                      --------    -------
<S>                                                     <C>         <C>
               First Quarter . . . . . . . . . . . .     10 17/32    3  7/8
               Second Quarter. . . . . . . . . . . .     11 21/32    6  1/2
               Third Quarter . . . . . . . . . . . .     17 27/32    10 1/2
               Fourth Quarter. . . . . . . . . . . .     34  3/4     12 1/2

<CAPTION>

               1997                                      High ($)    Low ($)
               ----                                      --------    -------
<S>                                                     <C>         <C>
               First Quarter . . . . . . . . . . . .       N/A         N/A
               Second Quarter. . . . . . . . . . . .       N/A         N/A
               Third Quarter . . . . . . . . . . . .       N/A         N/A
               Fourth Quarter. . . . . . . . . . . .       6           3 23/32

</TABLE>

      The above prices reflect the effect of both of our two-for-one stock
splits of our Class A and Class B Common Stock in the form of 100 percent stock
dividends to all shareholders of record as of August 7, 1998 (completed August
28, 1998) and December 8, 1998 (completed December 22, 1998).

      HOLDERS. As of March 11, 1999, there were approximately 134 record holders
of Class A Common Stock and three record holders of Class B Common Stock. The
closing price for the Class A Common Stock on such date was $49 1/8 per share as
reported on the Nasdaq. The Company is aware that it has a substantial number of
additional shareholders who hold their shares through The Depository Trust
Company.

      On October 28, 1997, in connection with our initial public offering, we
approved two share exchanges pursuant to which 38,259,760 shares of the old
common stock, par value $.01 per share, were exchanged for the same number of
shares of Class A Common Stock and a total of 33,613 shares of our Series B
Convertible Preferred Stock, par value $.01 per share were exchanged for
17,041,944 shares of our Class B Common Stock. Immediately thereafter, two
shareholders converted an aggregate of 157,308 shares of Class B Common Stock
into an equivalent number of shares of Class A Common Stock. These exchanges
were exempt from registration under the Securities Act of 1933, as amended, by
virtue of Section 3(a)(9) thereof.

      DIVIDENDS. We have never declared or paid any cash dividends on our Class
A Common Stock or our Class B Common Stock and do not expect to do so in the
foreseeable future. The terms of the Indenture for the 10% Senior Notes restrict
our ability to pay dividends on our shares of common stock. We anticipate that
all future earnings, if any, generated from operations will be retained to
finance the expansion and continued development of our business. Any future
determination with respect to the 


                                       23

<PAGE>

payment of dividends will be within the sole discretion of our board of
directors and will depend upon, among other things, our earnings, capital
requirements, the current terms of the indenture governing the Company's 10%
Senior Notes or other then-existing indebtedness, applicable requirements of the
Delaware General Corporation Law, general economic conditions and such other
factors considered relevant by our board.

      We are not currently, and do not expect to become, subject to the
registration requirements of the Investment Company Act of 1940.


                                       24

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                      SELECTED CONSOLIDATED FINANCIAL DATA

      The selected financial data set forth below for Metromedia Fiber Network
for the years ended December 31, 1998, 1997, and 1996 and as of December 31,
1998 and 1997, is derived from, and qualified by reference to, the audited
consolidated financial statements included elsewhere herein. The selected
financial data set forth below for Metromedia Fiber Network for the years ended
December 31, 1995 and 1994 and as of December 31, 1995 and 1994 are derived from
our audited consolidated financial statements not included elsewhere herein. The
selected financial data set forth below should be read in conjunction with Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Item 8. "Financial Statements and Supplementary Data" included
elsewhere herein.

<TABLE>
<CAPTION>

                                                                     Fiscal Year ended December 31,
                                                     -------------------------------------------------------
                                                          1998        1997        1996       1995       1994
                                                     ---------   ---------    --------   --------   --------
                                                                 (in 000's, except per share data)
<S>                                                 <C>         <C>          <C>        <C>        <C>
Statement of Operations Data
Revenue                                              $  36,436   $   2,524    $    236   $     56   $     --
Expenses:
Cost of sales                                           13,937       3,572         699         --         --
Selling, general and administrative                     14,712       6,303       2,070      3,886        874
Consulting and employment incentives (a)                   248      19,218       3,652         --         --
Settlement agreement                                     3,400          --          --         --         --
Depreciation and amortization                            1,532         757         613        162         --
                                                     ---------   ---------    --------   --------   --------
Income (loss) from operations                            2,607     (27,326)     (6,798)    (3,992)      (874)
Interest income (expense), net                           1,927       1,067      (3,561)      (327)        --
(Loss) from joint venture                                 (146)         --          --         --         --
Income taxes                                             3,402          --          --         --         --
                                                     ---------   ---------    --------   --------   --------
Net income (loss)                                    $     986   $ (26,259)   $(10,359)  $ (4,319)  $   (874)
                                                     =========   =========    ========   ========   ========
Net income (loss) applicable to common
   stockholders per share-basic                      $    0.01   $   (0.56)   $  (0.29)  $  (0.17)  $  (0.04)
Net income applicable to common
   stockholders per share-diluted                    $    0.01         N/A         N/A        N/A        N/A
Number of shares of common stock
   assumed outstanding-basic (b)                        93,495      47,447      35,858     24,829     23,336
Number of shares of common stock
   assumed outstanding-diluted (b)                     109,762         N/A         N/A        N/A        N/A

<CAPTION>

                                                                         As of December 31,
                                                     -------------------------------------------------------
                                                          1998        1997        1996       1995       1994
                                                     ---------   ---------    --------   --------   --------
                                                                 (in 000's, except per share data)
<S>                                                 <C>         <C>          <C>        <C>        <C>
Summary Balance Sheet Data
Current assets                                       $ 665,823   $ 140,557    $    645   $    254   $    271
Working capital (deficiency)                           555,050     133,030     (12,887)   (11,542)    (1,735)
Fiber optic transmission network and
   related equipment, net                              244,276      24,934       6,369      5,885      2,288
Property and equipment, net                              2,716         759         525        468         --
Total assets                                           974,417     167,378       7,977      7,077      2,952
Long-term debt                                         672,675          --          --         --      1,968
Total liabilities                                      816,903      17,838      14,835     12,413      3,974
Stockholders' equity (deficiency)                      157,514     149,540      (6,858)    (5,336)    (1,022)

</TABLE>

(a)   Represents value of common stock, warrants and options issued to
      consultants and officers to provide services to Metromedia Fiber Network.


                                       25

<PAGE>

(b)   Based upon the weighted average shares outstanding after giving
      retroactive effect to stock splits; see Note 1 to "Notes to Consolidated
      Financial Statements."


                                       26

<PAGE>

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

      The following discussion and analysis relates to our financial 
condition and our results of operations for the three years ended December 
31, 1998. This information should be read in conjunction with the Item 6. 
"Selected Financial Data" and our consolidated Financial Statements and 
related notes thereto beginning on page F-1.

STATEMENT ON FORWARD-LOOKING INFORMATION

      Certain statements in this section are "forward-looking statements." You
should read the information under Part I, "Special Note Regarding
Forward-Looking Statements" for more information about our presentation of
forward-looking information.

GENERAL

      We are a facilities-based provider of technologically advanced, 
high-bandwidth, fiber optic communications infrastructure to communications 
carriers and corporate/government customers in the United States. We focus 
our operations on domestic intracity fiber optic networks in clusters of the 
15 largest cities throughout the United States based on population. We 
currently operate high-bandwidth fiber optic communications networks in New 
York and the greater Philadelphia area and within the next two quarters we 
will begin to operate similar networks in Washington, D.C. We have also begun 
engineering and constructing networks in Chicago, San Francisco and Boston 
and within the next two years, we plan to complete an expansion into five 
additional markets, including Los Angeles, Seattle, Dallas, Houston and 
Atlanta. We expect that our domestic intracity networks will ultimately 
encompass approximately 810,000 fiber miles covering approximately 1,896 
route miles.

      We have also built or obtained intercity fiber optic capacity that 
links certain of our intracity networks. We expect to complete construction 
of the first 432 cable along our 250-route mile network from New York to 
Washington, D.C. during the first quarter of 1999. We have also obtained 
rights for fiber optic capacity with other facilities-providers and obtained 
fiber optic capacity linking certain of the metropolitan areas (New 
York-Chicago, New York-Boston, Chicago-Seattle-Portland) in which we plan to 
construct intracity networks, except in Portland.

      In addition, we have entered into a joint venture with a U.K. 
telecommunications company to connect our New York network to London. We also 
have formed a joint venture to construct a high-bandwidth fiber optic network 
connecting 13 major cities in Germany and obtain certain additional fiber 
optic capacity in Western Europe.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997:

REVENUES. Revenues for 1998 were $36.4 million or 1,356% greater than revenues
of $2.5 million for 1997. The increase in revenue for 1998 versus 1997 reflected
higher revenues associated with commencement of service to an increased total
number of customers, as well as revenue recognized related to grants of
indefeasible rights of use to portions of our network and sales of dark fiber
classified as sales type leases.


                                       27

<PAGE>

COST OF SALES. Cost of sales was $13.9 million in 1998, a 286% increase over 
cost of sales of $3.6 million in 1997. Cost of sales increased for 1998 as 
compared to 1997 due to costs associated with the commencement of service to 
customers, higher fixed costs associated with the operation of our network in 
service and the allocated costs of the network related to revenue recognized 
for grants of indefeasible rights of use to portions of our network and sales 
type leases of portions of our dark fiber classified as capital leases. Costs 
of sales, as percentages of revenue for 1998 and 1997 were 38% and 142%, 
respectively, declining as a result of the significant increase in the number 
of customers and revenues.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $14.7 million during 1998, from $6.3
million during 1997, an increase of $8.4 million, or 133%. The increase in
selling, general and administrative expenses for 1998 as compared to 1997
resulted primarily from increased overhead to accommodate our network expansion.

CONSULTING AND EMPLOYMENT INCENTIVES EXPENSE. Consulting and employment
incentives expense for 1998 were $0.2 million compared with $19.2 million for
1997. Consulting and employment incentives expense incurred in 1997 reflects the
value of stock options issued to key employees, officers and directors in order
to attract or retain their services. For 1998, the amount recorded reflects
amortization for the unvested component of options issued in 1997 to key
employees.

SETTLEMENT AGREEMENT. We recorded $3.4 million for a settlement agreement in
1998. The amount was recorded in the first quarter of 1998 for the expense
associated with the issuance of stock options and payment of cash related to a
settlement agreement.

DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense was
$1.5 million during 1998, as compared to $0.8 million during 1997, an increase
of $0.7 million, or 88%. The increases in depreciation and amortization expense
resulted from increased investment in our completed fiber optic network and
property and equipment.

INTEREST INCOME (EXPENSE). Interest income was $8.8 million during 1998 as
compared to $1.8 million during 1997, an increase of $7.0 million, or 389%.
Interest income during 1998 was derived from investment of our excess cash
received as proceeds from our initial public offering in October 1997 and the
additional cash received in November 1998 from the proceeds of our $650 million
note issuance. Interest expense increased in 1998 to $6,861,000 as compared to
$741,000 for 1997. The increase in interest expense reflects interest accrued
for the senior notes issued in November 1998.

INCOME (LOSS) FROM JOINT VENTURE. We recorded a $146,000 loss from our 50% share
of the ION joint venture's loss for 1998. The loss primarily represents startup
costs and operating activities for the joint venture.

INCOME TAXES. We recorded a provision for income taxes for 1998 in the amount of
$3.4 million. This represents an estimated effective tax rate, for federal and
state taxes, of 77.5%.

NET INCOME (LOSS). Net income was $1.0 million for 1998, as compared to a net
loss of $26.3 million for 1997. For 1998, basic net income per share was $0.01
as compared to a basic net loss per share of $.56 for 1997. On a diluted basis,
net income per share for 1998 was $0.01.

      The improvements in results for 1998 were primarily attributable to the
growth of revenues and the improvements in gross margins, as noted above, as
well as the increase in net interest income related to the investment made by
Metromedia Company and the funds raised through our initial public offering 


                                       28

<PAGE>

as compared to net interest expense.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996:

REVENUES. Revenues for 1997 were $2.5 million, a 1,150% increase as compared to
1996 revenues of $0.2 million. The revenue increase was generated by one-time
revenues associated with commencement of services to customers as well as
increased recurring lease revenues, which reflects the growth in the number of
our customers.

COST OF SALES. Cost of sales for 1997 was $3.6 million, an increase of 414% as
compared to the $0.7 million that was recorded as cost of sales in 1996. The
increase in cost of sales was associated with the increased revenues. Cost of
sales as a percentage of revenues improved to 142% in 1997 from 296% in 1996.
The improvement in cost of sales as a percentage of revenues reflects the
increases in revenue outdistancing the increases in cost, as the components of
cost were mostly of a fixed nature.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $6.3 million in 1997 from $2.1 million in
1996, a 200% increase. This increase resulted primarily from increased legal
expenses as a result of our increased business activities and the increased
staffing to accommodate our anticipated growth.

CONSULTING AND EMPLOYMENT INCENTIVES EXPENSE. Consulting and employment
incentives expense of $19.2 million was recorded in 1997 as compared to
$3.7million in 1996. The 1997 expense represents the value of stock options
issued to key employees, officers, directors and consultants in order to attract
or retain their services. The amount recorded in 1996 reflects the expense
associated with issuance of stock and warrants to consultants in consideration
for services rendered.

DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense was
$0.8 million in 1997 as compared to $0.6 million in 1996. The increase in
depreciation and amortization expense resulted from increased investment in our
fiber optic network.

INTEREST INCOME (EXPENSE). We had interest income of $1.8 million in 1997 as
compared to no interest income during 1996. The interest income in 1997 arose
from the investment of our excess cash during the year. In 1996, we had no
excess cash to invest and, accordingly, earned no interest income. Interest
expense (including financing costs) decreased in 1997 to $0.7 million from $3.6
million in 1996. The decrease in interest expense reflects the repayment of all
of our debt during the year with the proceeds of the investment made by
Metromedia Company, as well as lower financing costs.

NET LOSS. We recorded a net loss of $26.2 million in 1997 as compared to a net
loss of $10.4 million in 1996. The increase in the net loss was primarily
attributable to costs associated with organizing to meet our growth objectives.
In particular, such costs include the consulting and employment incentive,
described above, to attract and retain key employees, officers and directors, as
well as increased overhead to meet our growth objectives.

LIQUIDITY AND CAPITAL RESOURCES

      On November 3, 1997, our initial public offering of 36,432,000 shares of
Class A Common Stock generated net proceeds of $133.9 million, after deducting
the underwriters' commission and expenses relating to such initial public
offering.


                                       29

<PAGE>

      For 1998, our operating activities generated $18.0 million of cash,
compared with $2.2 million during 1997. The increase in cash provided by
operations was primarily due to the increase in advance payments received from
customers as well as the improvement in net income as a result of increases in
revenues and interest income in 1998 as compared to 1997. For 1998, we used
$218.0 million of cash for investing activities as compared to $19.7 million for
1997. This increase was due primarily to investments in the expansion of our
networks and related construction in progress as well as capital contributions
to our ION joint venture and a deposit on our German network build. For 1998, we
received $630.4 million of net cash from financing activities, compared to
$155.9 million for 1997. The cash from financing activities in 1998 came mainly
from the issuance and sale of 10% Senior Notes in November 1998, while the 1997
amount related to the sale of securities of Metromedia Fiber Network net of the
repayment of certain of our indebtedness. 

      Cash used in operating activities during 1996 was $2.8 million. Cash was
utilized to support the operations through our startup phase. Cash flows used in
investing activities were $1.1 million in 1996. The investing activities cash
outflows in both years were primarily used for the building of our New York/New
Jersey network. Financing activities provided cash flows of $4.3 million in 1996
with the issuance of equity and debt. The cash flows from financing activities
in 1996 were utilized to fund our operating and investing activities.

      We anticipate that we will continue to incur net operating losses as we
expand and complete our existing networks, construct additional networks and
market our services to an expanding customer base. We anticipate spending
approximately $300 million for the year ending December 31, 1999 and
approximately $200 million for the year ending December 31, 2000 on the
build-out of our fiber optic networks in 11 of the 15 largest cities in the
United States based on population and our planned international networks. We
believe that the net proceeds from the issuance and sale of $650.0 million of
10% Senior Notes in November 1998, other cash on hand, certain vendor financing
and cash generated in 1999 and 2000 (including advance customer payments), will
be sufficient to fund the planned build-out of our fiber optic networks and our
other working capital needs through the year ended December 31, 2000. The
indenture for the notes permits us to incur additional indebtedness to finance
the construction of our networks. As a result, we may also consider from time to
time private or public sales of additional equity or debt securities, entering
into senior credit facilities and other financings, depending upon market
conditions, in order to finance the continued build-out of our network. We
cannot assure you that we will be able to successfully consummate any such
financing at all, or on acceptable terms. Accordingly, we expect to continue
experiencing net operating losses and negative cash flows for the foreseeable
future. 

YEAR 2000 SYSTEM MODIFICATIONS

      We are currently working to evaluate and resolve the potential impact of
the Year 2000 on our processing of date-sensitive information and network
systems. The Year 2000 problem is the result of computer programs being written
using two digits (rather than four) to define the year 2000, which could result
in miscalculations or system failures resulting from recognition of a date using
"00" as the year 1900 rather than the year 2000.

      We have delegated responsibility to a group of executives to coordinate
the identification, evaluation and implementation of changes to computer systems
and applications necessary to achieve our goal of a Year 2000 date conversion
which would minimize the effect on our customers and avoid disruption to
business operations. We are also focusing on hardware and software tools,
programming and outside forces that may affect our operations, including our
vendors, banks and utility companies. Our analysis of the Year 2000 threat is
ongoing and will be continuously updated throughout 1999 as necessary.


                                       30

<PAGE>

      We have completed a questionnaire and project plan to our systems and
operating personnel to identify all business and computer applications so that
we can identify potential compliance problems. We plan to initiate
communications with our significant customers, suppliers, contractors and major
systems developers to determine their plans to remedy any Year 2000 issues that
arise in their business with us. We plan to compile a database of information
based upon these responses, which we expect to complete during the second
quarter of 1999. To the extent problems are identified, we will implement
corrective procedures where necessary, then test the applications for Year 2000
compliance. We expect to complete this project prior to January 1, 2000.

      Based on preliminary data, our estimate is that the Year 2000 effort will
have a nominal cost impact, although we can make no assurances as to the
ultimate cost of the Year 2000 effort or the total cost of information systems.
Such costs will be expensed as incurred, except to the extent such costs are
incurred for the purchase or lease of capital equipment. We expect to make some
of the necessary modifications through our ongoing investment in system
upgrades. We believe that our exposure to this issue, based on our internal
systems, is somewhat limited by the fact that substantially all of our existing
systems have been purchased or replaced since 1996.

      As of December 31, 1998, we had incurred nominal consulting costs in
respect of our Year 2000 conversion effort. We have not deferred any other
information systems projects due to the Year 2000 efforts. We expect that the
source of funds for Year 2000 costs will be cash on hand. Accordingly, we are
devoting the necessary resources to resolve all significant Year 2000 issues.

      If our customers, suppliers, contractors or major systems developers are
unable to resolve Year 2000 processing issues in a timely manner, a material
adverse effect on our results of operations and financial condition could
result.

      Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us, you should not place undue reliance on any such forward-
looking statements. Further, any forward-looking statement speaks only as of the
date on which it is made and we undertake no obligation to update any forward-
looking statement or statements to reflect events or circumstances after the
date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for us to predict which will arise. In addition, we cannot assess the
impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, the financial position of the Company is 
routinely subjected to a variety of risks.  In addition to the market risk 
associated with interest movements on the Company's outstanding debt, the 
Company is subject to other types of risk such as the collectibility of its 
accounts receivables.  The Company's principal long term obligation is its 
$650 million 10% Senior Notes.  The fair value of the long-term debt at 
December 31, 1998 was $650 million.  A 10% decrease and a 10% increase in the 
level of interest rates would result in an increase in the fair value of the 
Company's long term obligation by $6.5 million and a decrease in the fair 
value of the Company's long term obligation by $6.5 million respectively.

The Company has also purchased a portfolio of U.S. government securities, 
which mature at dates sufficient to provide for payment in full of interest 
on the Company's $650 million 10% Senior Notes through May 15, 2000.  The 
pledged securities are stated at cost, adjusted for premium amortization and 
accrued interest.  The fair value of the pledged securities approximates its 
carrying value.

The Company has $569 million in cash and cash equivalents at December 31, 
1998.  To the extent the Company's cash and cash equivalents (3 months) 
exceed its funding requirements the Company may invest its excess cash and 
cash equivalents on longer term high-quality financial instruments.  Such 
investments when made will be subject to changes in interest rates.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The response to this item is incorporated by reference to pages F-1
through F-29 and S-1 herein.

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

      None.


                                       31

<PAGE>

                                    PART III

      The information called for by this Part III (Items 10, 11, 12 and 13) is
not set forth herein because the Company intends to file with the SEC not later
than 120 days after the end of the fiscal year ended December 31, 1998 the
Definitive Proxy Statement for the 1999 Annual Meeting of Stockholders to be
held on May 18, 1999. Such information to be included in the Definitive Proxy
Statement is hereby incorporated into these Items 10, 11, 12 and 13 by this
reference.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

a)    1.  Financial Statements:

              See Index to Consolidated Financial Statements on Page F-1.

      2.  Financial Statement Schedules:

              Schedule II    Valuation and Qualifying Accounts

            All other schedules not listed above have been omitted since they
      are either not applicable or the information is contained elsewhere in the
      financial statements or the notes thereto, or the amounts are
      insignificant or immaterial.

b)    Current Reports on Form 8-K 

      On December 4, 1998, the Company filed a Current Report on Form 8-K 
      related to the Company's announcement of the unregistered offering for 
      $650,000,000 aggregate principal amount of 10% Senior Notes due 2008. 
      The notes were issued on November 25, 1998 at a price per note of 100%. 
      Further details, were disclosed in a Press Release, dated November 20, 
      1998, filed as an exhibit to such current report. 

      As of the date of the filing of this Annual Report on Form 10-K no proxy
      materials have been furnished to security holders. Copies of all proxy
      materials will be sent to the Commission in compliance with its rules.

c)    Exhibits.

   EXHIBIT                         DESCRIPTION
   NUMBER                          -----------
   -------
    3.1     Form of Amended and Restated Certificate of Incorporation of
            Metromedia Fiber Network, Inc. (incorporated by reference to the
            Company's Registration Statement on Form S-1 (Registration No.
            333-33653)).
    3.2     Form of Amended and Restated Bylaws of Metromedia Fiber Network,
            Inc. (incorporated by reference to the Company's Registration
            Statement on Form S-1 (Registration No. 333-33653)).
    4.1     Specimen Class A Common Stock Certificate of Metromedia Fiber
            Network, Inc. (incorporated by reference to the Company's
            Registration Statement on Form S-1 


                                       32

<PAGE>

            (Registration No. 333-33653)).
    4.2     Indenture, dated as of November 25, 1998, between Metromedia Fiber
            Network, Inc. and IBJ Whitehall Bank & Trust Company (formerly IBJ
            Schroder Bank & Trust Company) (incorporated by reference to the
            Company's Registration Statement on Form S-4 (Registration No.
            333-71129)).
    4.3     Form of 10% Series A Senior Notes due 2008 of Metromedia Fiber
            Network, Inc. (incorporated by reference to the Company's
            Registration Statement on Form S-4 (Registration No. 333-71129))
    4.4     Form of 10% Series B Senior Notes due 2008 of Metromedia Fiber
            Network, Inc. (incorporated by reference to the Company's Amendment
            No. 1 to Registration Statement on Form S-4 (Registration No.
            333-71129)).
    10.1    Form of Metromedia Fiber Network, Inc. 1997 Incentive Stock Plan
            (incorporated by reference to the Company's Registration Statement
            on Form S-1 (Registration No. 333-33653)).
    10.2    Employment Agreement by and between National Fiber Network, Inc. and
            Stephen A. Garofalo, dated as of February 26, 1997 (incorporated by
            reference to the Company's Registration Statement on Form S-1
            (Registration No. 333-33653)).
    10.3    Employment Agreement by and between National Fiber Network, Inc. and
            Howard M. Finkelstein, dated as of April 30, 1997 (incorporated by
            reference to the Company's Registration Statement on Form S-1
            (Registration No. 333-33653)).
    10.4    Agreement dated as of April 30, 1997, as amended by a Modification
            Agreement dated as of October, 1997 by and among Metromedia Company,
            Stuart Subotnick, Arnold Wadler, Silvia Kessel, Stephen A. Garofalo
            and National Fiber Network, Inc. (incorporated by reference to the
            Company's Registration Statement on Form S-1 (Registration No.
            333-33653)).
    10.5    Franchise Agreement between the City of New York and National Fiber
            Network, Inc., dated as of December 20, 1993 (incorporated by
            reference to the Company's Registration Statement on Form S-1
            (Registration No. 333-33653)).
    10.6    Conduit Occupancy Agreement by and between New York Telephone
            Company and National Fiber Network, Inc., dated as of May 1993
            (incorporated by reference to the Company's Registration Statement
            on Form S-1 (Registration No. 333-33653)).
    10.7    Consulting Agreement between National Fiber Network and Realprop
            Capital Corporation, dated as of February 1, 1996 (incorporated by
            reference to the Company's Registration Statement on Form S-1
            (Registration No. 333-33653)).
    10.8    Letter Agreement from National Fiber Network, Inc. to Peter Sahagen,
            dated February 11, 1997 (incorporated by reference to the Company's
            Registration Statement on Form S-1 (Registration No. 333-33653)).
    10.9    Office Lease by and between National Fiber Network, Inc. and 110
            East 42nd Street Associates, dated as of March 19, 1997
            (incorporated by reference to the Company's Registration Statement
            on Form S-1 (Registration No. 333-33653)).
    10.10   Office Lease by and between National Fiber Network, Inc. and 110
            East 42nd Street, dated as of June 1997 (incorporated by reference
            to the Company's Registration Statement on Form S-1 (Registration
            No. 333-33653)).
    10.11   Trademark License Agreement by and between Metromedia Company and
            Metromedia Fiber Network, Inc., dated as of August 14, 1997
            (incorporated by reference to the Company's Registration Statement
            on Form S-1 (Registration No. 333-33653)).
    10.12   Fiber Optic Use Agreement between National Fiber Network, Inc. and
            NextLink New York, L.L.C., dated as of June 3, 1997 (portions of
            this exhibit are subject to a 


                                       33

<PAGE>

            request to the Securities and Exchange Commission for confidential
            treatment, and omitted material has been separately filed with the
            Securities and Exchange Commission) (incorporated by reference to
            the Company's Registration Statement on Form S-1 (Registration No.
            333-33653)).
    10.13   Amended and Restated Agreement for the Provision of a Fiber Optic
            Transmission Network, dated as of the Effective Date by and between
            US ONE Communications of New York, Inc. and National Fiber Network,
            Inc. (portions of this exhibit are subject to a request to the
            Securities and Exchange Commission for confidential treatment, and
            omitted material has been separately filed with the Securities and
            Exchange Commission) (incorporated by reference to the Company's
            Registration Statement on Form S-1 (Registration No. 333-33653)).
    10.14   Fiber Lease and Innerduct Use Agreement by and between Metromedia
            Fiber Network, Inc. and NextLink Communications, Inc., dated as of
            February 23, 1998 (portions of this exhibit are subject to a request
            to the Securities and Exchange Commission for confidential
            treatment, and omitted material has been separately filed with the
            Securities and Exchange Commission) (incorporated by reference to
            the Company's 1997 Annual Report on Form 10-K (File No.000-23269)).
    10.15   Amendment No. 1 to Fiber Lease and Innerduct Use Agreement by and
            between Metromedia Fiber Network, Inc. and NextLink Communications,
            Inc., made and entered into as of March 4, 1998 (portions of this
            exhibit are subject to a request to the Securities and Exchange
            Commission for confidential treatment, and omitted material has been
            separately filed with the Securities and Exchange Commission)
            (incorporated by reference to the Company's 1997 Annual Report on
            Form 10-K (File No. 000-23269)).
    10.16   Agreement of Lease by and between Connecticut General Life Insurance
            Company and Metromedia Fiber Network Services, Inc., dated as of
            March 9, 1998 (incorporated by reference to the Company's 1997
            Annual Report on Form 10-K (File No. 000-23269)).
    10.17   Purchase Agreement, dated November 20, 1998 among Metromedia Fiber
            Network, Inc., Salomon Smith Barney, Inc., Chase Securities, Inc.,
            Deutsche Bank Securities Inc. and Donaldson Lufkin & Jenrette
            Securities Corporation (incorporated by reference to the Company's
            Registration Statement on Form S-4 (Registration No. 333-71129)).
    10.18   Registration Rights Agreement, dated as of November 25, 1998 among
            Metromedia Fiber Network, Inc., Salomon Smith Barney, Inc., Chase
            Securities, Inc., Deutsche Bank Securities Inc. and Donaldson Lufkin
            & Jenrette Securities Corporation (incorporated by reference to the
            Company's Registration Statement on Form S-4 (Registration No.
            333-71129)).
    10.19   Security Agreement, dated as of November 25, 1998, between
            Metromedia Fiber Network, Inc. and IBJ Whitehall Bank & Trust
            Company (incorporated by reference to the Company's Registration
            Statement on Form S-4 (Registration No. 333-71129)).
    10.20   Employment Agreement by and between Metromedia Fiber Network, Inc.
            and Vincent A. Galluccio, dated as of August 31, 1998 (incorporated
            by reference to the Company's Amendment No. 1 to Registration
            Statement on Form S-4 (Registration No. 333-71129)).
    10.21   Employment Agreement by and between Metromedia Fiber Network, Inc.
            and Gerard Benedetto, dated as of August 31, 1998 (incorporated by
            reference to the Company's Amendment No. 1 to Registration Statement
            on Form S-4 (Registration 


                                       34

<PAGE>

            No. 333-71129)).
    10.22   Employment Agreement by and between Metromedia Fiber Network, Inc.
            and Nicholas M. Tanzi, dated as of August 31, 1998 (incorporated by
            reference to the Company's Amendment No. 1 to Registration Statement
            on Form S-4 (Registration No. 333-71129)).
    21.1*   List of Subsidiaries of Metromedia Fiber Network, Inc.
    23.1*   Consent of Ernst & Young LLP.
    24.1    Power of Attorney from officers and directors.
    27.1*   Financial Data Schedule.

-----------------------
*        Filed herewith


                                       35

<PAGE>

                                   SIGNATURES

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

                                         METROMEDIA FIBER NETWORK, INC.


                                         By:   /s/ Stephen A. Garofalo
                                            ---------------------------------
                                                  Stephen A. Garofalo
                                         CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Dated: March __, 1999

      We, the undersigned officers and directors of Metromedia Fiber Network,
Inc., hereby severally constitute Arnold L. Wadler, Howard M. Finkelstein and
Gerard Benedetto, and each of them singly, our true and lawful attorneys with
full power to them, and each of them singly, to sign for us and in our names in
the capacities indicated below, any and all reports (including any amendments
thereto), with all exhibits thereto and any and all documents in connection
therewith, and generally do all such things in our name and on our behalf in
such capacities to enable Metromedia Fiber Network, Inc. to comply with the
applicable provisions of the Securities Exchange Act of 1934, as amended, and
all requirements of the Securities and Exchange Commission, and we hereby ratify
and confirm our signatures as they may be signed by our said attorneys, or
either of them, to any and all such reports (including any amendments thereto)
and other documents in connection therewith.

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange of 1934, as amended, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.


         SIGNATURES                  TITLE OR CAPACITIES              DATE
         ----------                  -------------------              ----

 /s/ Stephen A. Garofalo          Chairman of the Board and       March __, 1999
----------------------------      Chief Executive Officer        
     Stephen A. Garofalo                                         
                                                                 
                                                                 
 /s/ Howard M. Finkelstein        President, Chief Operating      March __, 1999
----------------------------      Officer and Director           
   Howard M. Finkelstein                                         
                                                                 
                                                                 
 /s/  Gerard Benedetto            Vice President,                 March __, 1999
----------------------------      Chief Financial Officer and    
      Gerard Benedetto            Chief Accounting Officer       
                                                                 
 /s/ Silvia Kessel                Executive Vice President and    March __, 1999
----------------------------      Director                       
        Silvia Kessel                                            
                                                                 
                                                                 
 /s/ Arnold L. Wadler             Executive Vice President,       March __, 1999
----------------------------      Secretary and Director        
      Arnold L. Wadler      


                                       36

<PAGE>

 /s/ Vincent A. Galluccio         Senior Vice President and       March __, 1999
----------------------------      Director
    Vincent A. Galluccio

 /s/ John W. Kluge                Director                        March __, 1999
----------------------------
      John W. Kluge

 /s/ Stuart Subotnick             Director                        March __, 1999
----------------------------
      Stuart Subotnick

 /s/ David Rockefeller            Director                        March __, 1999
----------------------------
     David Rockefeller

 /s/ Leonard White                Director                        March __, 1999
----------------------------
       Leonard White


                                       37

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Auditors. . . . . . . . . . . . . . . . . . . .      F - 2

Consolidated Balance Sheets as of December 31, 1998 and 1997. . . . .      F - 3

Consolidated Statements of Operations for the years ended 
December 31, 1998, 1997 and 1996. . . . . . . . . . . . . . . . . . .      F - 4

Consolidated Statements of Cash Flows for the years ended 
December 31, 1998, 1997 and 1996. . . . . . . . . . . . . . . . . . .      F - 5

Consolidated Statements of Changes in Stockholders' Equity 
(Deficiency) for the years ended December 31, 1998, 1997 and 1996 . .      F - 6

Notes to Consolidated Financial Statements. . . . . . . . . . . . . .      F - 8

Schedule II, Valuation and Qualifying Accounts. . . . . . . . . . . .      S - 1


                                       F-1

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
  Metromedia Fiber Network, Inc.

      We have audited the accompanying consolidated balance sheets of Metromedia
Fiber Network, Inc. and Subsidiaries (the "Company") as of December 31, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. Our audits also included the financial statement schedule listed in
the index at Item 14(a). These consolidated financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and schedule based
on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Metromedia Fiber Network, Inc. and Subsidiaries as of December 31, 1998 and
1997, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.


                                             /s/ Ernst & Young LLP


New York, New York
March 4, 1999


                                       F-2

<PAGE>

                 METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                        (IN 000'S, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                                       DECEMBER 31,
                                                                                   -------------------
                                                                                     1998       1997
                                                                                   --------   --------
                  ASSETS
<S>                                                                               <C>        <C>
Current assets:
  Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . .  $569,319   $138,846
  Pledged securities, current portion . . . . . . . . . . . . . . . . . . . . . .    61,384        -
  Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    30,910        837
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . .     4,210        874
                                                                                   --------   --------
    Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . .   665,823    140,557
Fiber optic transmission network and related equipment, net . . . . . . . . . . .   244,276     24,934
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . .     2,716        759
Pledged securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    30,512        -
Investment in/advance to joint venture. . . . . . . . . . . . . . . . . . . . . .     4,156         56
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    26,934      1,072
                                                                                   --------   --------
    Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $974,417   $167,378
                                                                                   ========   ========

    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  6,106   $  3,072
  Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    96,512      3,271
  Deferred revenue, current portion . . . . . . . . . . . . . . . . . . . . . . .     8,100      1,184
  Capital lease obligations, current portion. . . . . . . . . . . . . . . . . . .        55        -
                                                                                   --------   --------
    Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .   110,773      7,527
Senior notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   650,000        -
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . .    22,675        -
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    33,455     10,311
Commitments and contingencies (see notes) 
Stockholders' equity: 
  Class A common stock, $.01 par value; 180,000,000 
    shares authorized; 77,605,110 and 74,896,568 shares
    issued and outstanding, respectively. . . . . . . . . . . . . . . . . . . . .       776        749
  Class B common stock, $.01 par value; 20,000,000
    shares authorized; 16,884,636 shares issued and
    outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       169        169
  Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . .   198,806    191,845
  Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (42,237)   (43,223)
                                                                                   --------   --------
    Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . .   157,514    149,540
                                                                                   --------   --------
    Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . . .  $974,417   $167,378
                                                                                   ========   ========

</TABLE>

See accompanying notes


                                       F-3

<PAGE>

                 METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN 000'S, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                                   FOR THE YEAR ENDED DECEMBER 31,
                                                                                   -------------------------------
                                                                                     1998       1997        1996
                                                                                   --------   --------    --------
<S>                                                                               <C>        <C>         <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 36,436   $  2,524    $    236

Expenses:
  Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    13,937      3,572         699
  Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . .    14,712      6,303       2,070
  Consulting and employment incentives. . . . . . . . . . . . . . . . . . . . . .       248     19,218       3,652
  Settlement agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3,400        -           -
  Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .     1,532        757         613
                                                                                   --------   --------    --------
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . .     2,607    (27,326)     (6,798)

  Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     8,788      1,808         -
  Interest expense (including financing costs). . . . . . . . . . . . . . . . . .    (6,861)      (741)     (3,561)
  Loss from joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (146)       -           -
                                                                                   --------   --------    --------
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . .     4,388    (26,259)    (10,359)
  Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3,402          -         -
                                                                                   --------   --------    --------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $    986   $(26,259)   $(10,359)
                                                                                   ========   ========    ========

Net income (loss) per share, basic. . . . . . . . . . . . . . . . . . . . . . . .  $   0.01   $  (0.56)   $  (0.29)
                                                                                   ========   ========    ========

Net income per share, diluted . . . . . . . . . . . . . . . . . . . . . . . . . .  $   0.01      N/A         N/A
                                                                                   ========   ========    ========

Weighted average number of shares
  outstanding, basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    93,495     47,447      35,858
                                                                                   ========   ========    ========

Weighted average number of shares
  outstanding, diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   109,762      N/A         N/A
                                                                                   ========   ========    ========

</TABLE>


See accompanying notes.


                                       F-4

<PAGE>

                 METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (IN 000'S)

<TABLE>
<CAPTION>

                                                                                   FOR THE YEAR ENDED DECEMBER 31,
                                                                                  ---------------------------------
                                                                                     1998        1997        1996
                                                                                  ---------    --------    --------
<S>                                                                              <C>          <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                                        
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $     986    $(26,259)   $(10,359)
Adjustments to reconcile net income (loss) to net cash                                       
  provided by (used in) operating activities:                                                
    Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .       1,532         757         613
    Stock options and warrants issued for services. . . . . . . . . . . . . . .         248      19,439       5,395
    Warrants issued for settlement agreement. . . . . . . . . . . . . . . . . .       3,000         -           -
    Deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       2,707  
    Reserve for note receivable . . . . . . . . . . . . . . . . . . . . . . . .         -           338         -
    Loss from joint venture . . . . . . . . . . . . . . . . . . . . . . . . . .         146         -           -
CHANGE IN OPERATING ASSETS AND LIABILITIES:                                                  
    Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (30,073)       (656)          2
    Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . .      13,449         (12)        758
    Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      30,060      10,387         833
    Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (4,070)     (1,806)         12
                                                                                   --------    --------    --------
  Net cash provided by (used in) operating activities . . . . . . . . . . . . .      17,985       2,188      (2,746)
                                                                                   --------    --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:                                                        
Capital expenditures on fiber optic transmission                                             
 network and related equipment. . . . . . . . . . . . . . . . . . . . . . . . .    (114,849)    (19,206)       (974)
Deposit payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (4,675)        (87)        -
Investment in / advance to joint venture. . . . . . . . . . . . . . . . . . . .      (4,246)        (56)        -
Purchase of pledged securities. . . . . . . . . . . . . . . . . . . . . . . . .     (91,896)        -           -
Capital expenditures on property and equipment. . . . . . . . . . . . . . . . .      (2,305)       (318)        (95)
                                                                                   --------    --------    --------
 Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . .    (217,971)    (19,667)     (1,069)
                                                                                   --------    --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:                                                        
Proceeds from issuance of common stock. . . . . . . . . . . . . . . . . . . . .       1,038     133,975         123
Proceeds from issuance of preferred stock and warrants  . . . . . . . . . . . .         -        32,500       2,025
Dividends paid on preferred stock . . . . . . . . . . . . . . . . . . . . . . .         -           (77)        -
Repayments of notes payable- private placement. . . . . . . . . . . . . . . . .         -        (1,408)         25
Repayments of notes payable . . . . . . . . . . . . . . . . . . . . . . . . . .         -        (5,950)     (3,350)
Proceeds from notes payables, net . . . . . . . . . . . . . . . . . . . . . . .     630,000         -         5,450
Payments of capital lease obligations . . . . . . . . . . . . . . . . . . . . .        (579)        -           -
Purchase of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . .         -        (1,140)        -
Purchase of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . .         -        (2,039)        -
                                                                                   --------    --------    --------
 Net cash provided by financing activities. . . . . . . . . . . . . . . . . . .     630,459     155,861       4,273
                                                                                   --------    --------    --------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . .     430,473     138,382         458
CASH AND CASH EQUIVALENTS-BEGINNING OF PERIOD . . . . . . . . . . . . . . . . .     138,846         464           6
CASH AND CASH EQUIVALENTS-END OF PERIOD . . . . . . . . . . . . . . . . . . . .   $ 569,319    $138,846    $    464
Supplemental information:                                                                    
    Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $     219    $  1,145    $    996
                                                                                  =========    ========    ========
    Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $   3,760    $    -      $    -
                                                                                  =========    ========    ========
Supplemental disclosure of significant non-cash investing activities:         
            
    Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . .   $  23,309    $    -      $    -
                                                                                  =========    ========    ========
    Accrued capital expenditures. . . . . . . . . . . . . . . . . . . . . . . .   $  82,916    $    -      $    -
                                                                                  =========    ========    ========

</TABLE>

See accompanying notes


                                       F-5

<PAGE>

<TABLE>
<CAPTION>

                                          METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                              CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                                                             ($000'S)

                                    SERIES A & B                       CLASS A        CLASS B      ADDITIONAL
                                   PREFERRED STOCK   COMMON STOCK    COMMON STOCK   COMMON STOCK    PAID-IN    ACCUMULATED
                                   SHARES   AMOUNT  SHARES  AMOUNT  SHARES  AMOUNT SHARES  AMOUNT   CAPITAL      DEFICIT     TOTAL
                                   ------   ------  ------  ------  ------  ------ ------  ------  ----------  ----------- ---------
<S>                                <C>      <C>    <C>     <C>      <C>     <C>    <C>    <C>     <C>         <C>          <C>
Balance at December 31, 1995 . . .    -        -    24,960  $  249     -    $  -      -    $  -    $    (205)  $   (5,381)   (5,336)
  Issuance of common stock and                                                     
   warrants for services rendered.    -        -    10,652     106     -       -      -       -        4,810          -       4,916
  Issuance of common stock and                                                      
   warrants related to debt                                                         
   financing activities. . . . . .    -        -     3,435      34     -       -      -       -        1,738          -       1,772
  Issuance of common stock in                                                       
   connection with the exercise                                                     
   of warrants . . . . . . . . . .    -        -       762       8     -       -      -       -           (8)         -         -
  Sale of common stock and                                                          
   warrants. . . . . . . . . . . .    -        -       196       3     -       -      -       -          121          -         124
  Sale of preferred stock with                                                      
   warrants. . . . . . . . . . . .    150       15     -       -       -       -      -       -        2,010          -       2,025
  Net loss for the year. . . . . .    -        -       -       -       -       -      -       -          -        (10,359)  (10,359)
                                   ------   ------ -------  ------  ------  ------ ------  ------  ---------   ----------  --------
                                                                                    
Balance at December 31, 1996 . . .    150       15  40,006     400     -       -      -       -        8,467      (15,739)   (6,857)
  Issuance of common stock and                                                      
   connection with the exercise                                                    
   of warrants . . . . . . . . . .    -        -       608       6     -       -      -       -            4          -          10
  Issuance of options to employees    -        -       -       -       -       -      -       -       19,218          -      19,218
  Issuance of warrants in                                                           
   connection with debt extension.    -        -       -       -       -       -      -       -          220          -         220
  Dividends on preferred stock . .    -        -       -       -       -       -      -       -          -            (77)      (77)
  Repurchase and retirement of                                                      
   Series A preferred stock and                                                     
   warrants. . . . . . . . . . . .   (150)     (15)    -       -       -       -      -       -       (2,011)         (13)   (2,039)
  Repurchase and retirement of                                                      
   commons stock and warrants. . .    -        -    (2,354)    (23)    -       -      -       -           18       (1,134)   (1,139)
  Sale of Series B preferred stock      8      -       -       -       -       -      -       -       32,500          -      32,500

</TABLE>

                                      F-6

<PAGE>

<TABLE>
<CAPTION>

                                           METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES

                        CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
                                                             ($000'S)

                                    SERIES A & B                       CLASS A        CLASS B      ADDITIONAL
                                   PREFERRED STOCK   COMMON STOCK    COMMON STOCK   COMMON STOCK    PAID-IN    ACCUMULATED
                                   SHARES   AMOUNT  SHARES  AMOUNT  SHARES  AMOUNT SHARES  AMOUNT   CAPITAL      DEFICIT     TOTAL
                                   ------   ------  ------  ------  ------  ------ ------  ------  ----------  ----------- ---------
<S>                                <C>      <C>    <C>     <C>      <C>     <C>    <C>    <C>     <C>         <C>          <C>

  Net proceeds from initial Public
   Offering. . . . . . . . . . . .    -        -       -       -    36,432     364    -       -      133,514          -     133,879
  Conversion of Common
   Stock to Series A Common
   Stock . . . . . . . . . . . . .    -        -   (38,261)   (383) 38,260     383    -       -          -            -         -
  Conversion of Series B Preferred
   Stock to Series A & B Common
   Stock . . . . . . . . . . . . .     (8)     -       -       -       157       2 16,885     169       (171)         -         -
  Sale of Series A Common Stock
   for warrant . . . . . . . . . .    -        -       -       -        48     -      -       -           86          -          86

  Net loss for the year. . . . . .    -        -       -       -       -       -      -       -          -        (26,259)  (26,259)
                                   ------   ------ -------  ------  ------  ------ ------  ------  ---------   ----------  --------

Balance at December 31, 1997 . . .    -        -       -       -    74,897     748 16,885     169    191,845      (43,223)  149,540
  Issuance of options to employees    -        -       -       -       -       -      -       -          248          -         248
  Issuance of warrants in
   connection with settlement
   agreement . . . . . . . . . . .    -        -       -       -       -       -      -       -        3,000          -       3,000
  Issuance of common stock in 
   connection with the exercise of 
   warrants. . . . . . . . . . . .    -        -       -       -     2,159      22    -       -          139          -         161
  Issuance of common stock in
   connection with the exercise of
   stock options . . . . . . . . .    -        -       -       -       550       6    -       -          867          -         873
  Net income for the year. . . . .    -        -       -       -       -       -      -       -          -            986       986

  Income tax benefit from exercises 
   of employee stock options . . .    -        -       -       -       -       -      -       -        2,707          -       2,707
                                   ------   ------ -------  ------  ------  ------ ------  ------  ---------   ----------  --------
Balance at December 31, 1998 . . .    -        -       -    $  -    77,606  $  776 16,885  $  169  $ 198,806   $  (42,237) $157,514
                                   ======   ====== =======  ======  ======  ====== ======  ======  =========   ==========  ========

</TABLE>


                                      F-7

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:  BUSINESS OPERATIONS AND LINE OF BUSINESS

      The Company is a facilities-based provider of a technologically 
advanced, high-bandwidth, fiber optic communications infrastructure to 
communications carriers and corporate/government customers in the United 
States. The Company focuses its operations on domestic intracity fiber optic 
networks in clusters of the 15 largest cities, based on population, throughout
the United States.

      The Company operates high-bandwidth fiber optic communications networks in
New York and Philadelphia. The Company also is engineering and constructing
networks in Washington, D.C., Chicago, San Francisco and Boston. The Company is
designing networks in Atlanta, Dallas, Houston, Seattle and Los Angeles.

      The Company has also built or obtained intercity fiber optic capacity that
links certain of its intracity networks. . The Company has under construction a
250-route mile network from New York to Washington, D.C. The Company has also
obtained rights for fiber optic capacity with other facilities-providers and
obtained fiber optic capacity linking certain of the metropolitan areas (New
York-Chicago, New York-Boston, Chicago-Seattle-Portland) in which it plans to
construct intracity networks, except in Portland.

      In addition, the Company has entered into a joint venture with a United
Kingdom telecommunications company to connect its New York network to London.
The Company has formed a joint venture to construct a high-bandwidth fiber optic
network connecting 13 major cities in Germany and obtain certain additional
fiber optic capacity in Western Europe.

NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

      The consolidated financial statements include the accounts of the 
Company and its subsidiaries. All significant inter-company balances and 
transactions have been eliminated in consolidation. The investment in a 50% 
owned joint venture with a United Kingdom telecommunications company is 
accounted for by the equity method. Certain balances in the consolidated 
financial statements have been restated to conform to the current period 
presentation.

MANAGEMENT ESTIMATES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

      The carrying amounts for cash, accounts receivable, accounts payable and
accrued liabilities approximate their fair value. The fair value of long-term
debt is determined based on quoted market rates or the cash flows from such
financial instruments discounted at the Company's estimated current interest
rate to enter similar financial instruments. At December 31, 1998, the fair
value of the Company's fixed rate long-term debt for the 10% Senior Notes due in
2008, was $650 million. The recorded amounts for all other long-term debt of the
Company approximates fair values.

CASH AND CASH EQUIVALENTS

      For purposes of the consolidated financial statements, the Company
considers all highly liquid investments with an original maturity of three
months or less when purchased to be cash equivalents.


                                       F-8

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PLEDGED SECURITIES

      In connection with the sale of 10% Senior Notes (see Note 9), a portion of
the net proceeds was utilized to purchase a portfolio consisting of U.S.
government securities, which mature at dates sufficient to provide for payment
in full of interest on the 10% Senior Notes through May 15, 2000. The pledged
securities are stated at cost, adjusted for premium amortization and accrued
interest. The fair value of the pledged securities approximates the carrying
value.

ACCOUNTS RECEIVABLE

      Accounts receivable includes trade receivables and costs and estimated
earnings in excess of billings for those contracts where the Company utilizes
the percentage of completion method for recognizing revenue.

FIBER OPTIC TRANSMISSION NETWORK AND RELATED EQUIPMENT

      The fiber optic transmission network and related equipment are stated at
cost. Costs in connection with the installation and expansion of the network are
capitalized. Depreciation is computed using the straight-line method through the
life of either the franchise agreement or right of way for the related network.

PROPERTY AND EQUIPMENT

      Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.

OTHER ASSETS

      Other assets include debt issuance costs, franchise agreements and 
deposits. Those costs, which are amortizable, are amortized on a 
straight-line basis over a period ranging from ten to fifteen years.

LONG-LIVED ASSETS

      The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company has
identified no such impairment indicators.

INCOME TAXES

      In accordance with Statement of Financial Accounting Standards ("SFAS") 
No. 109, "Accounting for Income Taxes," the Company recognizes deferred 
income taxes for the tax consequences in future years of differences between 
the tax bases of assets and liabilities and their financial reporting amounts 
at each year end, based on enacted tax laws and statutory tax rates 
applicable to the periods in which the differences are expected to affect 
taxable income. Valuation allowances are established when necessary to reduce 
deferred tax assets to the amount that is "more likely than not" to be 
realized. The provision for income taxes is the tax payable for the period 
and the change, during the period, in deferred tax assets and liabilities.

RECAPITALIZATIONS

      In April 1997, the Company increased its authorized common stock of $.01
par value to 60,000,000 shares; in addition, authorized preferred stock with a
par value of $.01 was increased to 2,000,000 shares. On April 29, 1997, the
Company effected a 3-for-one stock split of its outstanding shares of common
stock.

      In September 1997, the Company effected a .507-for-one reverse stock split
of its common stock. 


                                       F-9

<PAGE>

On October 28, 1997, the total authorized number of shares of common stock of
the Company was increased to 200 million shares, par value $0.01 per share, of
which 180 million shares were designated Class A common stock and 20 million
shares were designated Class B common stock.

      On August 28, 1998, the Company completed a two-for-one stock split of the
Company's Class A and Class B Common Stock in the form of a 100 percent stock
dividend to all shareholders of record as of the close of business on August 7,
1998. In addition, on December 22, 1998, the Company completed another
two-for-one stock split of the Company's Class A and Class B Common Stock in the
form of a 100 percent stock dividend to all shareholders of record as of the
close of business on December 8, 1998.

      The accompanying financial statements give retroactive effect to the above
recapitalizations.

RECOGNITION OF REVENUE

      The Company recognizes revenue on telecommunications services ratably over
the term of the applicable lease agreements with customers. Amounts billed in
advance of the service provided are recorded as deferred revenue. The Company
also provides installation services for its customers, and as these services
typically are completed within a year, the Company records the revenues and
related costs for these services under the completed contract method. In
addition, the Company occasionally grants Indefeasible Rights of Use ("IRU's")
to portions of its network. For those grants occurring prior to completion of
the portion of the network granted, the Company recognizes revenue on these
telecommunication services using the percentage of completion method. Under the
percentage of completion method, progress is generally measured on performance
milestones relating to the contract where such milestones fairly reflect the
progress toward contract completion. Network construction costs include all
direct material and labor costs and those indirect costs related to contract
performance. General and administrative costs are charged to expense as
incurred. If necessary, the estimated loss on an uncompleted contract is
expensed in the period in which it is identified. Contract costs are estimated
using allocations of the total cost of constructing the specific phase of the
network. Revisions to estimated profits on contracts are recognized in the
period that they become known.

STOCK OPTIONS

      The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock options.

CONSULTING AND EMPLOYMENT INCENTIVES

      The amounts represent the value of common stock, warrants and options
issued to consultants, officers, employees and directors of the Company as
incentive to provide services to the Company. The 1997 amounts represent the
value of options to purchase 12,381,300 shares of the Company's common stock
issued in 1997 to officers, employees and directors of the Company. The options
have been valued in accordance with APB Opinion No. 25 at the difference between
the exercise price of the options and the fair market value of the Company's
common stock at the date of grant.

EARNINGS PER SHARE

      In accordance with the Financial Accounting Standards Board's ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," basic earnings per share is computed based upon the weighted average
number of common shares outstanding during the periods. Diluted earnings per
share is computed based upon the weighted average number of common shares
outstanding plus the assumed issuance of common stock equivalents computed in
accordance with the treasury stock method.


                                      F-10

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DEFERRED REVENUE

      Deferred revenue represents prepayments received from customers for 
future use of the Company's fiber optic network as well as prepayment for 
installation services, which have not yet been provided. Lease payments are 
structured as either prepayments or monthly recurring charges. Prepayments 
are accounted for as deferred revenues and recognized over the term of the 
respective customer lease agreement. At December 31, 1998, the Company had 
received prepaid lease payments in excess of revenue recognized totaling 
$41.6 million.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

      In June 1997, the FASB released SFAS No. 130 "Reporting Comprehensive
Income," governing the reporting and display of comprehensive income and its
components. This statement is effective for financial statements issued for
periods beginning after December 15, 1997. The Company adopted this standard as
required in fiscal 1998 in its Statement of Changes in Stockholders' Equity
(Deficiency).

      In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments 
of an Enterprise and Related Information." SFAS No. 131 redefines how 
operating segments are determined and requires disclosure of certain 
financial and descriptive information about a company's operating segments. 
In 1998 the Company adopted SFAS No. 131. The Company currently operates in 
one business segment.

      In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
and Hedging Activities," which establishes accounting and reporting standards
for derivative instruments and hedging activities. This standard is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company does not expect the adoption of SFAS No. 133 to have an impact on its
results of operations, financial position or cash flows.

NOTE 3:  ACCOUNTS RECEIVABLE

         Accounts receivable consists of the following (in 000's):

<TABLE>
<CAPTION>

                                                               DECEMBER 31,
                                                            ------------------
                                                              1998      1997
                                                            --------  --------
<S>                                                        <C>       <C>
Trade accounts receivable. . . . . . . . . . . . . . . .    $    560  $    837
Costs and earnings in excess of billings . . . . . . . .      30,134         -
Other. . . . . . . . . . . . . . . . . . . . . . . . . .         216         -
                                                            --------  --------
                                                            $ 30,910  $    837
                                                            ========  ========
</TABLE>

      At December 31, 1998, three customers accounted for 43%, 40% and 14%,
respectively, of the Company's combined accounts receivable.

NOTE 4:  FIBER OPTIC TRANSMISSION NETWORK AND RELATED EQUIPMENT

      Fiber optic transmission network and related equipment consists of the
following (in 000's):


                                      F-11

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                               DECEMBER 31,
                                                            ------------------
                                                              1998      1997
                                                            --------  --------
<S>                                                        <C>       <C>
Material-fiber optic cable. . . . . . . . . . . . . .       $ 23,436  $  1,133
Engineering and layout costs. . . . . . . . . . . . .          7,101     3,322
Fiber optic cable installation costs  . . . . . . . .         16,639     1,869
Other . . . . . . . . . . . . . . . . . . . . . . . .          4,242     2,019
Construction in progress. . . . . . . . . . . . . . .        195,256    17,835
                                                            --------  --------
                                                             246,674    26,178
Less: accumulated depreciation. . . . . . . . . . . .         (2,398)   (1,244)
                                                            --------  --------
                                                            $244,276  $ 24,934
                                                            ========  ========

</TABLE>

      Construction in progress includes amounts incurred in the Company's
expansion of its network. These amounts include fiber optic cable and other
materials, engineering and other layout costs, fiber optic cable installation
costs and other network assets held under capital leases. Construction in
progress also includes payments for rights of way for the underlying sections of
the network build.

NOTE 5:  PROPERTY AND EQUIPMENT

         Property and equipment consists of the following:

<TABLE>
<CAPTION>

                                                               DECEMBER 31,
                                                            ------------------
                                                              1998      1997       USEFUL LIFE
                                                            --------  --------     -----------
<S>                                                        <C>       <C>          <C>
Leasehold improvements. . . . . . . . . . . . . . . . .     $    614  $    538     174 months
Furniture, equipment and software . . . . . . . . . . .        2,581       352     5 years
                                                            --------  --------
                                                               3,195       890
Less: accumulated depreciation and amortization . . . .         (479)     (131)
                                                            --------  --------
                                                            $  2,716  $    759
                                                            ========  ========

</TABLE>

NOTE 6:  INVESTMENT IN/ADVANCES TO JOINT VENTURE

      The Company has a joint venture agreement with Racal Telecommunications,
Inc. ("Racal"), that provides broad-based transatlantic communication services
between New York and London. As of December 31, 1997, neither party had made a
capital contribution. The balance of the investment at December 31, 1997
represents advances made to the joint venture by the Company. During 1998, each
party made capital contributions of $4.3 million. The Company and Racal may each
be required to contribute additional capital as needed for their respective 50%
interests. The Company accounts for its investment using the equity method. For
1998, the Company recorded a $146,000 loss from the joint venture based on its
50% interest in the joint venture. Included within the Company's accounts
receivable is $70,000 for administrative services provided to the joint venture
which were not reimbursed as of December 31, 1998.

NOTE 7:  GERMAN NETWORK BUILD

      In February, 1999, the Company entered into a joint venture with Viatel,
Inc. and Carrier 1 Holdings, Ltd. to jointly build a national fiber optic
telecommunications network in Germany. Upon completion of construction, the
joint venture will be dissolved and the Company will own its own separate 


                                      F-12

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

German broadband network. In connection with the terms of this agreement, the 
Company made a deposit payment of $4.7 million, during the third quarter of 
1998. Upon signing a definitive agreement, the Company provided an 
irrevocable standby letter of credit in the amount of $64 million as security 
for the construction costs of the network, which, in addition to the deposit 
payment made, covers the Company's portion of the estimated construction 
costs.

NOTE 8:  RELATED PARTY TRANSACTIONS

      The Company is a party to a management agreement under which the 
Company's controlling shareholder, Metromedia Company, provides consultation 
and advisory services relating to legal matters, insurance, personnel and 
other corporate policies, cash management, internal audit and finance, taxes, 
benefit plans and other services as are reasonably requested. The management 
agreement terminates on December 31, of each year, and is automatically 
renewed for successive one-year terms unless either party terminates upon 60 
days prior written notice. The 1998 management fee under the agreement was 
$500,000 per year, payable quarterly at a rate of $125,000. The Company is 
also obligated to reimburse Metromedia Company for all its out-of-pocket 
costs and expenses incurred and advances paid by Metromedia Company in 
connection with the management agreement. In 1997, Metromedia Company 
received no money for its out-of-pocket costs and expenses or for interest on 
advances extended by it to the Company under the management agreement.

      In March and June 1997, the Company entered into two one-year leases for
office space with an affiliate. Subsequent to June 1997, the affiliate sold this
property. For the year ended December 31, 1997, office rent expenses for these
leases amounted to approximately $110,000.

NOTE 9:  SETTLEMENT AGREEMENTS

      In February 1996, the Company entered into a settlement agreement with 
a former officer regarding the termination of his employment. This agreement 
provided for the Company to make payments to the officer totaling $1,003,000, 
including interest. The former officer's services effectively terminated 
prior to December 31, 1995. Accordingly, as of December 31, 1995, the Company 
recorded $876,146 as a liability in accordance with the terms of the 
settlement agreement. The settlement agreement also reaffirmed an option 
previously issued to this former officer on May 1, 1995, which entitles the 
holder to purchase 207,883 shares of the Company's common stock at $0.006 per 
share through February 1, 1999. In 1997 the Company repurchased and retired 
the warrants held by this former officer. On November 14, 1996, the Company 
amended the above referenced settlement agreement with the former officer, 
whereby a consultant to the Company agreed to purchase common stock of the 
company from the former officer and certain of his affiliates in exchange for 
$640,000 and the complete satisfaction of the aforementioned liability.

      On February 11, 1997, the Company entered into an agreement with a
consultant/director. Pursuant to the agreement the Company agreed to pay the
consultant/director a fee of $250,000 in full and complete payment for all
services provided to the Company by the consultant/director and for any fees or
compensation due to the consultant/director resulting from any prior agreements
with the Company, and the consultant/director agreed to release the Company from
any claims against the Company.

      In March 1998, the Company entered into a settlement agreement with Howard
Katz, Realprop Capital Corporation and Evelyn Katz, among others, which settled
and resulted in the dismissal of litigation for which the Company was a
defendant in KATZ, ET AL. V. NATIONAL FIBER NETWORK, INC., ET AL., No. 97 Civ.
2764 (JGK) (the "Katz Litigation").


                                      F-13

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10:  NOTES PAYABLE

      On November 25, 1998, the Company issued and sold $650.0 million of 10%
Senior Notes due November 15, 2008. The net proceeds of the 10% Senior Notes
were approximately $630.0 million, after deducting offering costs, which are
included in other long-term assets. Interest on the 10% Senior Notes is payable
semi-annually in arrears on May 15 and November 15 of each year, commencing May
15, 1999. Approximately $91.5 million of the net proceeds was utilized to
purchase certain pledged securities, the proceeds of which, together with 
interest earned on such securities, will be used to satisfy the Company's 
semi-annual interest obligations through May 15, 2000. The 10% Senior Notes 
are subject to redemption at the option of the Company, in whole or in part, 
at any time on or after November 15, 2003, at specified redemption prices. In 
addition, prior to November 15, 2001, the Company may use the net cash 
proceeds from certain specified equity transactions to redeem up to 35% of 
the 10% Senior Notes at specified redemption prices.

      The indentures pursuant to which the 10% Senior Notes are issued 
contain certain covenants that, among other matters, limit the ability of the 
Company and its subsidiaries to incur additional indebtedness, issue stock in 
subsidiaries, pay dividends or make other distributions, repurchase equity 
interests or subordinated indebtedness, engage in sale and leaseback 
transactions, create certain liens, enter into certain transactions with 
affiliates, sell assets, and enter into certain mergers and consolidations.

      In the event of a change in control of the Company as defined in the
indentures, holders of the 10% Senior Notes will have the right to require the
Company to purchase their Notes, in whole or in part, at a price equal to 101%
of the stated principal amount thereof, plus accrued and unpaid interest, if
any, thereon to the date of purchase. The 10% Senior Notes are senior unsecured
obligations of the Company, and are subordinated to all current and future
indebtedness of the Company's subsidiaries, including trade payables.

NOTE 11:  EQUITY TRANSACTIONS

COMMON STOCK

      On November 3, 1997, the Company completed the initial public offering
("the "IPO") of 36,432,000 shares of its Class A common stock, at an offering
price of $4 per share. The net proceeds to the Company from the IPO, after
deducting expenses of the IPO, were approximately $133.9 million.

      In addition, on October 28, 1997, a total of 38,259,760 shares of the
common stock of the Company owned by stockholders prior to the IPO were
exchanged for an equal number of shares of Class A common stock. The Company
also reserved for issuance 17,041,944 shares of Class A common stock for
conversion of the Class B common stock.

      On October 28, 1996, a shareholder granted to the Company's Chairman of
the Board an option to purchase 1,599,556 shares of common stock of the company
for an aggregate exercise price of $500,000. By letter dated December 3, 1996,
the option was amended to reduce the number of option shares to 1,295,356
shares. The Chairman thereafter assigned the option to the Company. On February
11, 1997, the Company exercised the option by payment of $500,000.

      On April 15, 1996, the Company entered into a stock purchase agreement
with Vento & Company of New York, LLC ("VCNY"). Pursuant to this agreement, the
Company issued 6,084,000 shares of common stock to VCNY as consideration for
services provided by VCNY. The Company estimated the value of the stock issued
approximated $2,760,000.

      Concurrent with the execution of the aforementioned stock purchase
agreement, the parties entered into a consulting agreement. The term of the
agreement was from April 15, 1996 to April 15, 2001. Under the terms of the
agreement, VCNY was to provide guidance and advice with respect to the
management of the day-to-day operations of the Company's fiber optic
transmission network. In consideration for such services, the Company reimbursed
VCNY for all reasonable personnel and travel costs incurred by VCNY 


                                      F-14

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

with respect to the performance of these services. On October 9, 1996, the
Company entered into a settlement agreement with the Company's former chief
executive officer and VCNY regarding the termination of such officer's
employment and services provided by VCNY. The agreement provided for VCNY to
deliver a total of 6,084,000 shares of common stock in exchange for payments
made by the Company. The payments were not made and the sale of the shares and
the Company's obligation to buy the shares was deemed null and void.

      In September 1996, the Company sold 43,736 shares of common stock to three
individuals for total proceeds of $23,500.

      In August 1996, the Company issued 730,080 shares of common stock for
consulting services. The Company recorded a non-cash charge of $334,800 for such
issuance.

      In July 1996, the Company issued 48,672 shares of common stock as
consideration for consulting services. The Company recorded a non-cash charge of
$21,200 for such issuance. In addition, the Company issued 602,316 shares to
three employees for services rendered. The transaction was later rescinded and
the shares were returned to the Company.

      In June 1996, the Company sold a total of 152,100 shares of common stock
to two individuals for total proceeds of $100,000. Concurrent with the issuance
of these shares, the Company issued warrants to these shareholders entitling the
holders to purchase a total of 152,100 shares at $0.66 per share for a
three-year period.

      On January 12, 1996, the Company entered into an agreement with its legal
counsel to issue common stock as additional consideration for legal services
provided. Pursuant to this agreement, as amended, the Company issued a total of
1,964,420 shares of its common stock. Management has estimated the value of the
1,964,420 shares issued to be $907,301 and has recorded a non-cash charge in
connection with such issuance.

PREFERRED STOCK

      On April 30, 1997, the Company sold an aggregate of 33,613,300 shares of
Series B convertible preferred stock, par value $0.01 per share (the "Series B
preferred stock"), to Metromedia Company and affiliates ("Metromedia") for an
aggregate purchase price of $32.5 million (the "Metromedia Investment"). Each
share of the Series B preferred stock was convertible into 507 shares of the
Company's common stock. On October 28, 1997, the Series B convertible preferred
shares were converted into 17,041,944 shares of Class B common stock. Further,
on October 28,1997, a total of 157,308 shares of Class B common stock
outstanding were converted into an equivalent number of shares of Class A common
stock.

      A portion of the proceeds from the Metromedia Investment was used to repay
the Metromedia Loan, discussed below, and accrued interest thereon ($4,058,127),
repay other short-term indebtedness ($3,485,000), and redeem (for $2,115,000)
all of the outstanding shares of the Company's preferred stock (the "Series A
preferred stock") and related warrants.

      Through April 30, 1997, Metromedia loaned the Company an aggregate of
$4,000,000 (the "Metromedia Loan"). A portion of the proceeds from the
Metromedia Loan was used to purchase 2,353,880 shares of the Company's common
stock and warrants to purchase 831,532 shares of its common stock.

      No shares of the Company's Series A preferred stock or Series B preferred
stock remained outstanding at December 31, 1997. Both the Series A and Series B
preferred stock of the Company have been eliminated pursuant to actions by the
Board of Directors.


                                      F-15

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK WARRANTS

      A. In 1996, the Company entered into an agreement with a Customer for 
exclusive usage rights for fibers on portions of its network. In connection 
with this agreement, the Company borrowed $4.9 million from the customer. On 
April 30, 1997, the Company amended this agreement to satisfy the obligations 
of the above-referenced note by providing (i) additional leased fiber miles, 
(ii) a cash payment of $1,370,000 and (iii) a warrant to purchase common 
stock of the Company. In July 1998, the agreement was amended to include 
additional fiber miles on the Company's network and for cancellation of the 
warrants.

      B. From October 1995 through February 1996, the Company issued and sold a
private offering of $858,000 of convertible subordinated notes. Concurrent with
the issuance of these notes, warrants were issued by the Company to the
noteholders to purchase 522,008 shares of common stock at $2.00 per share
through November 2000. In 1996 and 1997, in exchange for the extension of the
due dates of the notes, the Company issued warrants to purchase 659,042 shares
of its common stock at $2.00 per share and recorded a charge of $111,306 and
$220,036 in 1996 an 1997, respectively. In 1997, the Company repaid the
outstanding balance of these notes plus all accrued interest. As of December 31,
1998, 782,016 of such warrants have been exercised.

      C. In September 1996, the Company entered into a loan agreement with a
finance company for $550,000. The loan bore interest at 10% per annum and was
repaid in 1997. As an incentive for the loan, the Company issued to the finance
company warrants to purchase 377,208 shares of common stock at an exercise price
of $1.48. The warrants are exercisable through September 1999. In 1996, the
Company recorded a non-cash charge of $13,640 in connection with the issuance of
the warrants. All of the warrants have been exercised.

      D. In August 1995, the Company initiated a $600,000 private offering of
subordinated notes which bore interest at an annual rate of 15% and were repaid
in 1997. With the issuance of the notes, warrants were issued to the
noteholders. In April 1996, the Company issued a total of 237,436 shares of the
Company's common stock in exchange for the surrender and cancellation of the
warrants and a three-month extension of the maturity date of the notes. In 1996,
the Company recorded a non-cash charge of $107,322 in connection with such
issuance.

      E. In April 1995, the Company entered into a loan agreement with a
customer for $500,000 bearing interest at 11% per annum. In July 1997, the note
was repaid in full. In connection with this loan, the Company issued the
customer a warrant entitling the holder to purchase a total of 2,676,668 shares
of the Company's common stock. In February 1997, this warrant was exchanged for
a new warrant to purchase 1,825,200 shares of the Company's common stock at
$1.21 per share. The new warrant expires on February 13, 2000. As of December
31, 1998, none of the warrants have been exercised.

      F. On December 13, 1996, the Company issued and sold to a private 
investor, for an aggregate cash consideration of $2,025,000, (i) 600,000 
shares of 10% cumulative convertible preferred stock (the "Series A preferred 
stock") bearing dividends at a rate of $.34 per share per annum, (ii) 
warrants to purchase 456,300 shares of Class A common stock at an exercise 
price of $1.24 per share and (iii) a contingent stock subscription warrant to 
purchase a number of shares of Class A common stock (such number to be 
determined based on certain future events) at an exercise price of $0.01 per 
share. In connection with the Metromedia Investment, the private investor 
allowed the Series A preferred stock and the contingent warrants to be 
redeemed at an aggregate redemption price of $2,115,000 (which includes 
accrued but unpaid dividends on the Series A preferred stock) and the number 
of shares underlying the private investor's warrants to be increased from 
456,300 to 912,600. In January 1998, the private investor made a cashless 
exercise of all its warrants and the number of its shares issuable upon 
exercise was reduced by the number of shares at the closing on the day of 
exercise having a value equal to the aggregate exercise price. Accordingly, 
the Company issued the private investor 691,060 common shares for all its 
warrants.

                                      F-16

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      G. In June 1996, the Company granted 608,400 common stock purchase
warrants to the Company's legal counsel exercisable at $.02 per share for a
period of four years as additional consideration for legal services provided.
The Company recorded a non-cash charge of $200,000 for such issuance. As of
December 31, 1998, all of the warrants have been exercised.

      As of December 31, 1998, in the aggregate, the Company had reserved
approximately 2,228,050 shares of its Class A common stock for exercise of
outstanding warrants.

STOCK OPTIONS

      In 1997, the Company granted to certain officers, employees and directors
options to purchase up to 12,380,944 shares of its Class A common stock. The
options have exercise prices between $0.49 and $1.91 per share and expire in
2007. The Company recorded a non-cash charge of $19,218,591 for such issuance.

      On October 28, 1997, the Stockholders of the Company approved the
Metromedia Fiber Network, Inc. 1997 Incentive Stock Plan ("1997 Option Plan").
The 1997 Option Plan authorized the award of up to 4,000,000 options to acquire
Class A common stock of the Company to directors, officers and employees of the
Company and others who are deemed to provide substantial and important services
to the Company. In 1997, options to purchase 2,450,000 shares of the Company's
Class A common stock were granted at an exercise price of $4.00 per share, the
market price at the date of grant. In 1998, options to purchase 1,700,000 shares
of the Company's Class A common stock were granted at exercise prices ranging
from $3.88 to $8.59 per share, the market price at the date of grant. Of these
grants, 557,500 were canceled and 117,500 were exercised as of December 31,
1998.

      On May 18, 1998, the Stockholders of the Company approved the Metromedia
Fiber Network, Inc. 1998 Incentive Stock Plan ("1998 Option Plan"). The 1998
Option Plan authorized the award of up to 10,000,000 options to acquire Class A
common stock of the Company to directors, officers and employees of the Company
and others who are deemed to provide substantial and important services to the
Company. Options to purchase 3,459,000 shares of the Company's Class A common
stock were granted at exercise prices ranging from $7.28 to $26.50 per share,
the market prices at the dates of grant.

      The compensation committee of the Company's Board of Directors is
responsible for determining the type of award, when and to whom awards are
granted, the number of shares and terms of the awards and the exercise price.
The options are exercisable for a period not to exceed ten years from the date
of the grant. Vesting periods range from immediate vesting to four years.

      The following table summarizes the stock option transactions for the two
years ended December 31, 1998:


                                      F-17

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                    NUMBER OF
                                                     OPTIONS        EXERCISE PRICES
                                                    ----------   ---------------------
<S>                                                <C>          <C>           <C>
Granted prior to December 31, 1997. . . . . . .     14,830,944   $ 0.49 to     $  4.00
                                                    ----------
Balance outstanding at December 31, 1997. . . .     14,830,944     0.49 to        4.00
                                                    ----------
Granted . . . . . . . . . . . . . . . . . . . .      5,159,000     3.88 to       26.50
Excercised. . . . . . . . . . . . . . . . . . .        550,024     0.49 to        7.47
Cancelled . . . . . . . . . . . . . . . . . . .        567,500     0.49 to        8.59
                                                    ----------
Balance outstanding at December 31, 1998. . . .     18,872,420     0.49 to       26.50
                                                    ==========
Exercisable at:
                                                    ----------
December 31, 1997                                   12,241,172     0.49 to        1.91
                                                    ==========
December 31, 1998                                   12,440,920     0.49 to        4.00
                                                    ==========

</TABLE>

      The following table summarizes information about stock option outstanding
at December 31, 1998:

<TABLE>
<CAPTION>

                                           Options Granted                  Options Exercisable
                             -----------------------------------------   -------------------------
                                               Weighted                                   Weighted
Year         Ranges of         Number          Average        Average      Number         Average
 of          Exercise        Outstanding      Remaining       Exercise   Exercisable      Exercise
Grant         Prices         at 12/31/98     Life (Years)      Price     at 12/31/98       Price
--------------------------   -----------------------------------------   -------------------------
<S>     <C>                  <C>                <C>           <C>        <C>              <C>
1997     $0.49  to  $ 4.00    13,798,420         8.40          $0.98      12,440,920       $0.65
1998      3.88  to   26.50     5,074,000         9.42           9.75             -           -
                              --------------------------------------      ----------------------
                              18,872,420         8.67          $3.33      12,440,920       $0.65
                              ======================================      ======================

</TABLE>

      Pro forma information regarding net income and earnings per share is
required by Statement of Financial Standards No. 123, "Accounting for
Stock-Based Compensation", and has been determined as if the Company had
accounted for its employees' stock options under the fair value method provided
by that Statement. The fair value of the options was estimated at the date of
grant using the Black-Scholes option pricing model with the following
assumptions for vested and non-vested options:

<TABLE>
<CAPTION>

                                                               DECEMBER 31,
                                                       ----------------------------
                                                           1998           1997
                                                       -------------  -------------
<S>                                                   <C>            <C>
Risk-free interest yield. . . . . . . . . . . . . .    5.53 - 6.56 %  5.73 - 6.56 %
Volatility factor . . . . . . . . . . . . . . . . .        .499           .369
Dividend yield. . . . . . . . . . . . . . . . . . .       -----          -----
Average life. . . . . . . . . . . . . . . . . . . .      5 years        5 years

</TABLE>

      The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. 


                                      F-18

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

      For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. The
Company's pro forma information is as follows (000's):

<TABLE>
<CAPTION>

                                                         YEAR ENDED DECEMBER 31,
                                                         -----------------------
                                                            1998         1997
                                                         -----------  ----------
<S>                                                       <C>         <C>

      Pro forma net loss applicable to common stock        $ (864)     $(28,043)
      Pro forma net loss per share applicable to 
      common stock, basic                                  $(0.01)     $  (0.59)

</TABLE>

NOTE 12:  SIGNIFICANT CUSTOMERS

      During the years ended December 31, 1998 and 1997 one customer accounted
for 40% and 21%, respectively of the Company's total revenue. During the years
ended December 31, 1998 and 1997 another customer accounted for 35% and 15%,
respectively of the Company's total revenue. During the years ended December 31,
1998 a third customer accounted for 12% of the Company's total revenue.

NOTE 13:  INCOME TAXES

      Income tax expense (benefit) for the years ended December 31, 1998, 1997
and 1996 is as follows (in thousands):

<TABLE>
<CAPTION>

                                1998         1997         1996
                                ----         ----         ----
<S>                          <C>          <C>          <C>
CURRENT
  Federal                     $ 4,513      $   -        $   -
  State and local               2,720          -            -
                              -------      -------      -------
                                7,233          -            -
                              -------      -------      -------
DEFERRED
  Federal                      (2,375)         -            -
  State and local              (1,456)         -            -
                              -------      -------      -------
                               (3,831)         -            -
                              -------      -------      -------
                              $ 3,402      $   -        $   -
                              =======      =======      =======

</TABLE>

      Total income tax expense (benefit) differed from the amounts computed by
applying the federal statutory income tax rate (35%) to earnings (loss) before
income tax expense (benefit) as a result of the following items for the years
ended December 31, 1998, 1997 and 1996 (in thousands):


                                      F-19

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                         1998         1997         1996
                                                         ----         ----         ----
<S>                                                   <C>          <C>          <C>
U.S. statutory rate applied to pre-tax income
   (loss)                                              $ 1,492      $    -       $    -
State and local taxes, net of federal tax benefit          834           -            -
Non deductible expenses                                  1,118           -            -
Valuation allowance                                         -            -            -
Others, net                                                (42)          -            -
                                                       -------      -------      -------
                                                       $ 3,402      $    -       $    -
                                                       =======      =======      =======

</TABLE>

         The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998 and
1997 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                         1998         1997         1996
                                                         ----         ----         ----
<S>                                                   <C>          <C>          <C>
DEFERRED TAX ASSETS
  Deferred revenue                                     $ 19,923     $  5,173     $   499
  Employee benefits                                       9,893       10,074       1,425
  Cost of sales of IRU's and sales type leases            5,599          573          -
  Net operating loses                                        -         1,125       3,668
  Others                                                  2,522        1,465       1,047
                                                       --------     --------     -------
                                                       $ 37,937     $ 18,410     $ 6,639
                                                       --------     --------     -------
  Valuation allowance                                   (18,309)     (18,309)     (6,579)
                                                       --------     --------     -------
                                                         19,628          101          60
DEFERRED TAX (LIABILITIES)
  Capitalized leases                                    (14,782)          -           -
  Depreciation and amortization                          (1,003)         (89)        (48)
  Other                                                     (12)         (12)        (12)
                                                       --------     --------     -------
                                                        (15,797)        (101)        (60)
                                                       --------     --------     -------
Net deferred asset                                     $  3,831     $     -      $    -
                                                       ========     ========     =======

</TABLE>

      A portion of the deferred tax asset has been reserved since it is not
certain that future taxable income will be realized in the carryforward period
or in year of asset turnaround.

      There was no provision for federal or state income taxes for the years
ended December 31, 1997 and 1996. At December 31, 1998, the Company expects to
have fully utilized its net operating losses

NOTE 14:  401(K) PLAN

      In 1998, the Company implemented a 401(k) Plan (the "Plan") which permits
employees to make contributions to the Plan on a pre-tax salary reduction basis
in accordance with the Internal Revenue Code. All full-time employees are
eligible to participate at the beginning of the quarter following three months
of service. Eligible employees may contribute up to 15% of their annual
compensation. The Company matches 50% of the employees first 6% of
contributions. The Company contributed $78,000 for 1998 as these matching
contributions. The company bore the nominal administrative cost of the plan
during 1998.


                                      F-20

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15:  RECONCILIATION OF EARNINGS PER SHARE (IN THOUSANDS):

<TABLE>
<CAPTION>

                                                             YEAR ENDED DECEMBER 31,
                                                       ----------------------------------
                                                         1998         1997         1996
                                                       --------     --------     --------
<S>                                                   <C>          <C>          <C>
Net income (loss)                                      $    986     $(26,259)    $(10,359)
Deduct dividend on preferred shares                          -            77           -
                                                       --------     --------     --------
Net loss applicable to common stock                         986      (26,336)     (10,359)
                                                       ========     ========     ========

Shares
Weighted average number of
common shares outstanding-basic                          93,495       47,447       35,858

Net income (loss) per common share-basic               $   0.01     $  (0.56)    $  (0.29)
                                                       ========     ========     ========

Weighted average number
  of common shares outstanding-basic                     93,495       47,447       35,858
Assuming conversion of warrants and 
  options outstanding                                    16,267           -            -
                                                       --------     --------     --------
Weighted average number of
  common shares outstanding - diluted                   109,762       47,447       35,858
                                                       ========     ========     ========

Net income (loss) per common share - diluted           $   0.01          N/A          N/A
                                                       ========     ========     ========

</TABLE>

NOTE 16:  COMMITMENTS AND CONTINGENCIES

NETWORK CONSTRUCTION PROJECTS

      In 1998, the Company commenced construction of various networks outside of
the New York Metropolitan area. The Company's commitment to purchase materials
and contracts for the construction of fiber optic network systems was
approximately $70 million as of December 31, 1998.

FRANCHISE, LICENSE, RIGHT-OF WAY AGREEMENTS AND OPERATING AND CAPITAL LEASES

      The Company has entered into various franchise and license agreements with
municipalities and utility-related companies to, in most instances, install,
operate, repair, maintain and replace cable, wire, fiber or other transmission
media and the related equipment and facilities. The terms for these agreements
vary in length, with various renewal and termination provisions. The Company
charges the portions of these agreements incurred to construction-in-progress
until the related portion of the network is completed. The fees charged to
operations in connection with these agreements were approximately $1,673,000,
$607,000 and $459,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.


                                      F-21

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      In addition, the company leases office and operation facilities and
various equipment, which expire at various times through March 31, 2010. Rent
expense charged to operations was approximately $958,000, $268,000 and $158,000
for the years ended December 31, 1998, 1997 and 1996, respectively.

      The Company has entered into capital lease agreements for certain network
assets and for certain rights-of-ways. Total assets acquired under capital
leases were approximately $27,876,000 at December 31, 1998. The capital leases
are held as construction-in-progress until the related portion of the network is
completed.

      Approximate minimum payments under the aforementioned agreements are (in
thousands):

<TABLE>
<CAPTION>

                                                           Franchise,
                                                          License and
                                                           Right-of-
                                                              way       Capital   Operating
                                                           Agreements   Leases     Leases
                                                          -----------   -------   ---------
<S>                                                         <C>        <C>        <C>
For the year ended December 31,                                                   
1999 . . . . . . . . . . . . . . . . . . . . . . . . .       $ 1,018    $ 1,551    $ 1,994
2000 . . . . . . . . . . . . . . . . . . . . . . . . .         1,121      1,797      2,032
2001 . . . . . . . . . . . . . . . . . . . . . . . . .         1,121      1,859      2,054
2002 . . . . . . . . . . . . . . . . . . . . . . . . .           971      1,923      2,050
2003 . . . . . . . . . . . . . . . . . . . . . . . . .           661      1,991      1,532
Thereafter . . . . . . . . . . . . . . . . . . . . . .         7,922     42,972      7,339
                                                             -------    -------    -------
Total minimum lease payments . . . . . . . . . . . . .       $12,814     52,093    $17,001
                                                             =======    -------    =======
Less amounts representing
   interest . . . . . . . . . . . . . . . . . . . . . .                  29,363
Present value of future
  minimum lease payments. . . . . . . . . . . . . . . .                  22,730
                                                                        -------
Less amounts due in one year. . . . . . . . . . . . . .                      55
                                                                        -------
                                                                        $22,675
                                                                        =======

</TABLE>

EMPLOYMENT AGREEMENTS

      The Company has executed employment contracts for future services, for 
up to five years, with certain senior executives for whom the Company has a 
minimum commitment aggregating approximately $3.4 million at December 31, 
1998. This amount is not included in the consolidated financial statements at 
December 31, 1998.

LITIGATION

      On or about October 20, 1997, Vento & Company of New York, LLC 
commenced an action against Metromedia Fiber Network, Stephen A. Garofalo, 
Peter Silverman, the law firm of Silverman, Collura, Chernis & Balzano, P.C., 
Peter Sahagen, Sahagen Consulting Group of Florida (collectively, the 
"Sahagen Defendants") and Robert Kramer, Birdie Capital Corp., Lawrence 
Black, Sterling Capital LLC, Penrush Limited, Needham Capital Group, Arthur 
Asch, Michael Asch and Ronald Kuzon (the "Kramer Defendants") in the United 
States District Court for the Southern District of New York (No. 97 CIV 
7751). On or about May 29, 1998, Vento & Company filed an amended complaint. 
In its complaint, as amended, Vento & Company alleges four causes 


                                      F-22

<PAGE>

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of action in connection with its sale of 900,000 shares (not adjusted for 
subsequent stock splits) of Class A Common Stock to Peter Sahagen and the 
Kramer Defendants on January 13, 1997. The four causes of action include: (i) 
violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 
10b-5 promulgated under such Act; (ii) fraud and fraudulent concealment; 
(iii) breach of fiduciary duty; and (iv) negligent misrepresentation and 
omission. On the first and second causes of action, Vento & Company is 
seeking, among other things, rescission of the Vento & Company sale, or 
alternatively, damages in an amount which we cannot currently ascertain but 
believe to be in excess of $36 million, together with interest. On the third 
and fourth causes of action, Vento & Company is seeking damages in an amount 
which we cannot currently ascertain but believe to be in excess of $36 
million, together with interest. Vento & Company is also seeking punitive 
damages in the amount of $50 million, reasonable legal fees and the cost of 
this action. All the defendants, including Metromedia Fiber Network and 
Stephen A. Garofalo, have moved to dismiss Vento and Company's amended 
complaint.

      On or about June 12, 1998, Claudio E. Contardi commenced an action 
against Peter Sahagen, Sahagen Consulting Group of Florida and Metromedia 
Fiber Network in the United States District Court for the Southern District 
of New York (No. 98 CIV 4140). Mr. Contardi alleges a cause of action for, 
among other things, breach of a finder's fee agreement entered into between 
Mr. Sahagen and Mr. Contardi on or about November 14, 1996 and breach of an 
implied covenant of good faith and fair dealing contained in the finder's fee 
agreement. Mr. Contardi is seeking, among other things, a number of shares of 
Metromedia Fiber Network which we cannot currently ascertain but believe to 
be approximately 225,000 shares (calculated as of the date on which the 
complaint was filed) or damages in an amount which we cannot currently 
ascertain but believe to be approximately $4.9 million (calculated as of the 
date on which the complaint was filed) and all costs and expenses incurred by 
him in this action. We have filed an answer to the complaint and has raised 
affirmative defenses.

      We intend to vigorously defend both these actions because we believe 
that we acted appropriately in connection with the matters at issue in these 
two cases. However, we cannot assure you that we will not determine that the 
advantages of entering into a settlement outweigh the risk and expense of 
protracted litigation or that ultimately we will be successful in defending 
against these allegations. If we are unsuccessful in defending against these 
allegations, an award of the magnitude being sought in the Vento & Company 
litigation would have a material adverse effect on our financial condition or 
results of operations.

      In addition, we are subject to various claims and proceedings in the 
ordinary course of business. Based on information currently available, we 
believe that none of such current claims, or proceedings, individually, or in 
the aggregate, including the Vento & Company litigation and the Contardi 
litigation, will have a material adverse effect on our financial condition or 
results of operations, although we can make no assurances in this regard.


                                      F-23

<PAGE>

                                  EXHIBIT INDEX

                  METROMEDIA FIBER NETWORK, INC. & SUBSIDIARIES

                                   SCHEDULE II


                        VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>

                                     Balance at       Additions                    Balance at
                                    Beginning of   Charged to Costs                  End of
DESCRIPTION                             Year         and Expenses     Deductions      Year
-----------                         ------------   ----------------   ----------   ----------
<S>                                  <C>               <C>            <C>          <C>
Reserves deducted from assets to
which they apply:

OTHER CURRENT ASSETS
1997                                  $     -           $337,500       $     -      $337,500
1998                                  $337,500          $     -        $     -      $337,500

</TABLE>


                                      S-1