<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                       -----------------------------------

                                   FORM 10-QSB
                       -----------------------------------

             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED                        COMMISSION FILE NUMBER:
         JUNE 30, 2001                                       333-49279

                          NEXT GENERATION NETWORK, INC.
        (Exact name of small business issuer as specified in its charter)

<TABLE>
<S>                                                  <C>
               DELAWARE                                 41-1670450
  (State or other jurisdiction of                    (I.R.S. Employer
  incorporation or organization)                     Identification No.)
</TABLE>

                      11010 PRAIRIE LAKES DRIVE, SUITE 300
                          MINNEAPOLIS, MINNESOTA 55344
                    (Address of principal executive offices)

                                 (952) 944-7944
                           (Issuer's telephone number)
                            -------------------------

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                              Yes   X       No
                                 -------      --------

         Number of shares of Common Stock outstanding as of August 10, 2001:
         8,919,641

         Transitional Small Business Disclosure Format  (Check one):

                               Yes         No   X
                                  -------    -------
<PAGE>   2
                          NEXT GENERATION NETWORK, INC.

                                   FORM 10-QSB

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
Part I.   Financial Information                                                                               Page
                                                                                                              ----
<S>                                                                                                           <C>
     Item 1. Financial Statements

        Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 .........................          3

        Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2001 and 2000          4

        Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 2001 .........          5

        Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 .........          6

        Notes to Consolidated Financial Statements ....................................................        7-9

     Item 2. Management's Discussion and Analysis or Plan of Operations ...............................       9-15

Part II.  Other Information

     Item 6. Exhibits an Reports on Form 8-K ..........................................................         16
</TABLE>


                                       2
<PAGE>   3
                                     Part I
                              FINANCIAL INFORMATION

ITEM    1.    FINANCIAL STATEMENTS

                          NEXT GENERATION NETWORK, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                   JUNE 30, 2001       DECEMBER 31, 2000
<S>                                                                                <C>                 <C>
ASSETS
             Current Assets:
                         Cash and cash equivalents                                 $   2,916,467         $  19,619,410
                         Accounts receivable, net                                        538,216             1,014,270
                         Other current assets (Note 4)                                   977,694             1,594,814
                                                                                   -------------         -------------

                         Total current assets                                          4,432,377            22,228,494
                                                                                   -------------         -------------

             Property and Equipment, net                                              16,074,032            16,713,918
             Deferred Financing Costs, net                                               722,382               943,430
             Other Assets                                                                 95,736               270,902
                                                                                   -------------         -------------

                                                                                   $  21,324,527         $  40,156,744
                                                                                   =============         =============

LIABILITIES AND STOCKHOLDERS' DEFICIT
             Current Liabilities:
                         Current maturities of long-term debt                      $     655,509         $     618,377
                         Accounts payable                                              1,003,674             1,718,529
                         Accrued expenses  (Note 3)                                    6,050,251             5,743,974
                                                                                   -------------         -------------

                         Total current liabilities                                     7,709,434             8,080,880
                                                                                   -------------         -------------


             Long-term Debt (Note 2)                                                  42,535,567            39,320,796
                                                                                   -------------         -------------

             Mandatory Redeemable Preferred Stock
             8% Series D, voting; authorized 7,500,000 shares
                 issued and outstanding 3,550,296 shares being accreted to
                 liquidation value plus accrued dividends (aggregate
                 liquidation value $31,553,333 and $30,353,333,
                 respectively)                                                        28,627,202            27,110,222
                                                                                   -------------         -------------

             Stockholders' Deficit  (Note 5)
             8.25% Series A cumulative preferred stock,
                  nonvoting; authorized 20,000 shares; issued and outstanding
                  2,960 shares, stated at liquidation value, excluding
                  cumulative unpaid dividends
                  of $1,159,950 and $1,098,900, respectively                           1,480,000             1,480,000
             Common stock, $0.01 par value; authorized 25,000,000
                 shares; issued and outstanding 8,919,641 shares                          89,196                89,196
             Additional paid-in capital                                               69,320,254            70,837,235
             Accumulated deficit                                                    (128,359,068)         (106,727,465)
             Foreign currency exchange                                                   (78,058)              (34,120)
                                                                                   -------------         -------------
                                                                                     (57,547,676)          (34,355,154)
                                                                                   -------------         -------------
                                                                                   $  21,324,527         $  40,156,744
                                                                                   =============         =============
</TABLE>


See notes to condensed consolidated financial statements.


                                       3
<PAGE>   4
                          NEXT GENERATION NETWORK, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED                         SIX MONTHS ENDED
                                                                 JUNE 30,                                   JUNE 30,
                                                                 --------                                   --------
                                                         2001                 2000                 2001                 2000
                                                         ----                 ----                 ----                 ----
<S>                                                 <C>                  <C>                  <C>                  <C>
Revenues:
         Advertising revenue (Note 4)               $    975,001         $  2,618,364         $  2,075,818         $  4,947,632
         Less agency commissions                         (24,750)             (27,046)             (45,663)             (73,698)
                                                    ------------         ------------         ------------         ------------

         Net advertising revenue                         950,251            2,591,318            2,030,155            4,873,934
         Equipment sales                                 254,830                   --              254,830                   --
         Network operating revenue                        14,500                  210               14,500                  420
                                                    ------------         ------------         ------------         ------------
                         Total revenues                1,219,581            2,591,528            2,299,485            4,874,354
                                                    ------------         ------------         ------------         ------------

Costs and expenses:
         Network operating expenses                    2,375,933            2,155,819            4,772,559            4,286,499
         Selling expenses                              2,529,851            3,179,180            5,214,974            6,307,579
         General and administrative expenses           2,854,853            2,548,957            5,812,364            4,315,397
         Corporate overhead                              680,660              876,400            1,507,575            1,805,208
         Depreciation and amortization                 1,427,091            1,029,685            2,791,677            1,948,316
         Cost of equipment sales                         239,508                   --              239,508                   --
                                                    ------------         ------------         ------------         ------------
                                                      10,107,896            9,790,041           20,338,657           18,662,999
                                                    ------------         ------------         ------------         ------------

         Operating loss                               (8,888,315)          (7,198,513)         (18,039,172)         (13,788,645)

Non operating income (expense):
         Interest expense                             (1,955,676)          (1,576,453)          (3,878,811)          (3,554,346)
         Interest income                                  75,540              207,880              286,271              434,764
         Other income (expense)                              936              (14,824)                 109              (85,044)
                                                    ------------         ------------         ------------         ------------

Net loss                                             (10,767,515)          (8,581,910)         (21,631,603)         (16,993,271)
Preferred stock dividends                                819,540               63,112            1,578,031              272,832
                                                    ------------         ------------         ------------         ------------
Net loss applicable to common stockholders          $(11,587,055)        $ (8,645,022)        $(23,209,634)        $(17,266,103)
                                                    ------------         ------------         ------------         ------------
Basic and diluted net loss per common share         $      (1.30)        $      (1.01)        $      (2.60)        $      (2.29)
                                                    ------------         ------------         ------------         ------------
Weighted average number of common shares
        outstanding                                    8,919,641            8,562,076            8,919,641            7,527,172
                                                    ============         ============         ============         ============
</TABLE>


See notes to condensed consolidated financial statements.


                                       4
<PAGE>   5
                 NEXT GENERATION NETWORK, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
                                  Series A                               Additional                      Foreign
                                 Cumulative                                Paid-In      Accumulated      Currency
                              Preferred Stock        Common Stock          Capital         Deficit       Exchange        Total
                              ---------------        ------------          -------         -------       --------        -----
                            Shares     Amount      Shares      Amount
                            ------     ------      ------      ------
<S>                         <C>      <C>          <C>         <C>       <C>             <C>              <C>         <C>
Balance, December 31, 2000   2,960   $1,480,000   8,919,641   $89,196   $ 70,837,235    $(106,727,465)   $(34,120)   $(34,355,154)
Accrued dividends on
  Mandatory redeemable
  Preferred stock               --           --          --        --     (1,200,000)              --          --      (1,200,000)
Accretion of Series D           --           --          --        --       (316,981)              --          --        (316,981)
  preferred stock to
  liquidation
  value (Note 5)
Foreign currency exchange       --           --          --        --             --               --     (43,938)        (43,938)
Net loss                        --           --          --        --             --      (21,631,603)         --     (21,631,603)
                             -----   ----------   ---------   -------   ------------    -------------    --------    ------------
Balance, June 30, 2001       2,960   $1,480,000   8,919,641   $89,196   $ 69,320,254    $(128,359,068)   $(78,058)   $(57,547,676)
                             =====   ==========   =========   =======   ============    =============    ========    ============
</TABLE>

See notes to condensed consolidated financial statements.

                                       5
<PAGE>   6
                          NEXT GENERATION NETWORK, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                             SIX MONTHS ENDED
                                                                                                  JUNE 30,
                                                                                                  --------
                                                                                         2001                 2000
                                                                                         ----                 ----
<S>                                                                                  <C>                  <C>
OPERATING ACTIVITIES:
         Net Loss                                                                    $(21,631,603)        $(16,993,271)
         Adjustments to reconcile net loss to net cash used in
                          operating activities:
                          Accretion of long term debt discounts                           698,423              715,422
                          Non cash interest on PIK Notes                                2,710,910            2,605,367
                          Amortization of deferred financing costs                        221,048              227,598
                          Depreciation and amortization                                 2,791,677            1,948,316
                          Compensation element of stock options forfeited                      --              (26,411)
                          Loss from equity method investee                                     --               32,824
                          Other                                                                --               52,220
         Changes in assets and liabilities:
                          Receivables                                                     484,781             (704,192)
                          Other current assets                                            617,120               11,530
                          Accounts payable                                               (714,855)            (762,560)
                          Accrued expenses                                                157,367              455,946
                                                                                     ------------         ------------

                          Net Cash Used In Operating Activities                       (14,665,132)         (12,437,211)
                                                                                     ------------         ------------

INVESTING ACTIVITIES:
         Purchase of equipment and furnishings                                         (2,141,167)          (5,323,319)
         Deposits and other assets                                                        155,816              (42,758)
         Proceeds from sale of property and equipment                                          --                1,950
                                                                                     ------------         ------------

                          Net Cash Used in Investing Activities                        (1,985,351)          (5,364,127)
                                                                                     ------------         ------------

FINANCING ACTIVITIES:

         Proceeds from common stock sales and option exercise                                  --           30,007,042
         Redeem PIK Notes                                                                      --           (2,927,579)
         Deferred financing costs                                                              --              (87,842)
         Principal payments on long-term debt and capital leases                           (8,522)             (10,685)
                                                                                     ------------         ------------

                          Net Cash (Used in) Provided by Financing Activities              (8,522)          26,980,936
                                                                                     ------------         ------------

FOREIGN CURRENCY EXCHANGE                                                                 (43,938)                  --
                                                                                     ------------         ------------

Net increase (decrease) in cash and cash equivalents                                  (16,702,943)           9,179,598
Cash and cash equivalents
         Beginning                                                                     19,619,410              403,435
                                                                                     ------------         ------------
         Ending                                                                      $  2,916,467         $  9,583,033
                                                                                     ============         ============

Supplemental Cash Flow Information
         Cash payments for interest                                                  $    248,371         $      5,960
         Non cash activities:
            Increase in mandatory redeemable preferred stock and
             decrease in paid-in capital from accrued dividends                         1,516,981              209,720
           Accrued interest converted to long term debt                                 2,562,000            3,194,000
           Increase in long term debt resulting from interest accretion                   698,423              715,422
           Exchange of preferred stock for common stock                                        --           21,076,669
           Additional paid in capital resulting from PIK Note redemption                       --           13,125,421
</TABLE>

See notes to condensed consolidated financial statements.


                                       6
<PAGE>   7
                          Next Generation Network, Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 1.  Basis of Presentation

         The condensed consolidated balance sheet as of June 30, 2001, the
condensed consolidated statements of operations for the three and six month
periods ended June 30, 2001 and 2000, the condensed consolidated statement of
changes in stockholders' deficit for the six months ended June 30, 2001 and
condensed consolidated statements of cash flows for the six month periods ended
June 30, 2001 and 2000 have been prepared by the Company without audit. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the consolidated financial position,
results of operations and cash flows at and for all periods presented have been
made. The operating results for the period ended June 30, 2001 are not
necessarily indicative of the operating results to be expected for the full
fiscal year. In addition, comprehensive loss is not separately reported since it
is not significantly different than the reported net loss for the periods ended
June 30, 2001 and 2000.

         In accordance with the requirements of Form 10-QSB, certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. Accordingly, the reader of this Form 10-QSB should refer to the
Company's Form 10-KSB for the year ended December 31, 2000 for further
information.

         Beginning in the second quarter of 2001 the Company began selling some
specially configured equipment to one customer. Revenues and costs of such
equipment have been recognized in the statement of income upon the installation
of such equipment.


Note 2. Long Term Debt

       Long-term debt: A summary of the Company's long-term debt is as follows:

<TABLE>
<CAPTION>
                                                                                             JUNE 30,       DECEMBER 31,
                                                                                               2001             2000
                                                                                               ----             ----
<S>                                                                                         <C>             <C>
         12%and 14% Senior Secured PIK Notes ("PIK Notes") due February 2003
            (net of $1,836,397 and $2,415,197 of unamortized discount
            attributed to warrants issued in connection with PIK Notes)                     $41,419,603      $38,278,803
         Noninterest-bearing note payable, discounted at 15%, total of
            $700,000 payable based on certain cash flows, if any, with
            balance due December 2001, secured by equipment                                     654,347          608,694
         Noninterest-bearing note payable, discounted at 15%, total of
            $1,500,000 payable August 2003, plus 10% of certain net
            revenues, if any, secured by equipment                                            1,115,964        1,041,993
         Other debt - capital lease obligations                                                   1,162            9,683
                                                                                            -----------      -----------
                                                                                             43,191,076       39,939,173
         Less current maturities                                                                655,509          618,377
                                                                                            -----------      -----------
                                                                                            $42,535,567      $39,320,796
                                                                                            ===========      ===========
</TABLE>

                                       7
<PAGE>   8
         Amendment to Senior Secured PIK Notes. On January 31, 2001, the Company
amended the indenture related to the 12% Series B Senior Secured PIK Notes due
2003, (the "Series B Notes") as the result of a consent solicitation. The
amendment to the Indenture created 14% Series C Senior Secured PIK Notes due
2003 (the "Series C Notes"). The Series C Notes are identical to the Series B
Notes except as follows: the optional redemption price premium was extended
until January 31, 2003; the period during which the Company may pay interest on
the Series C Notes in the form of additional notes was extended until the
maturity date of February 1, 2003; and the interest rate on the Series C Notes
was increased from 12% to 14% for interest payments made after August 1, 2000.
Noteholders holding $36,662,000 of Series B Notes at December 31, 2000 consented
to the amendment and now hold Series C Notes. In February 2001, the Company
issued additional notes in payment of $2,562,000 of accrued interest on the
aforementioned PIK Notes. A total of $4,032,000 of Series B Notes remain
outstanding.

         The long term debt excluding capital lease obligations and assuming
full accretion of the related discounts is payable as follows: $700,000 in 2001
and $44,756,000 in 2003.


Note 3. Accrued Expenses

       The components of accrued expenses are as follows:

<TABLE>
<CAPTION>
                                              June 30,        December 31,
                                                2001              2000
                                                ----              ----
<S>                                          <C>              <C>
                  Site agreement fees        $2,268,562        $2,105,467
                  Interest                    2,490,000         2,341,090
                  Compensation                  572,880           647,031
                  Other                         718,809           650,386
                                             ----------        ----------
                                             $6,050,251        $5,743,974
                                             ==========        ==========
</TABLE>


Note 4.  Barter Transactions

         Barter revenues were $7,761 and $236,865 for the three and six months
ended June 30, 2001 and $82,332 and $91,306 for the three and six months ended
June 30, 2000, respectively. Barter credits of $853,892 and $1,397,555 are
included in other current assets as of June 30, 2001 and December 31, 2000,
respectively.

Note 5.  Contingent Warrant Issuance

         On November 7, 2000, the Company issued 3,550,296 shares of 8% Series D
preferred stock to a private investor at $8.45 per share, which is also the
redemption value. If the Company consummates an IPO prior to December 31, 2001
that does not yield at least a 100% annualized return to the Series D holders,
the Company has agreed to issue to each Series D holder, warrants to purchase
additional shares of preferred stock at $.001 per share such that the holder
would yield a 100% return based on the price of the Company's common stock
thirty days after the IPO. In addition, if the Company fails to consummate a
qualifying IPO prior to December 31, 2001, the Company has agreed to issue
warrants to purchase additional shares of preferred stock at $.001 per share
such that the effective initial price per share of the preferred stock could be
adjusted down to $7.60 per share. The per share liquidation value would not
change with the issuance of any additional shares. Subsequent to June 30, 2001
management determined that it is probable that it will not consummate a
qualifying IPO prior to December 31, 2001 and therefore it is probable that the
Company will be required to issue the aforementioned price adjustment contingent


                                       8
<PAGE>   9
warrants during 2001. The approximate $3.4 million value ascribed to such
warrants will be accreted by the interest method to Series D preferred stock
beginning in the third quarter of 2001 by periodic charges to additional paid in
capital to November 6, 2005, the mandatory redemption date of the Series D
preferred stock. The periodic accretion will be reflected in the computation of
earnings or loss per share.

Note 6.  Accounting Standards Issued Not Yet Adopted

         In July 2001, the Financial Accounting Standards Board issued two new
statements. Statement No. 141, Business Combinations, eliminates the pooling
method of accounting for business combinations. Statement No. 142, Goodwill and
Other Intangible Assets, eliminates the amortization of goodwill and other
intangibles that are determined to have an indefinite life and requires, at a
minimum, annual impairment tests of goodwill and other intangible assets that
are determined to have an indefinite life. The Company has not yet completed its
full assessment of the effect of these new standards on its consolidated
financial statements, but believes their impact will not be significant. The
standards generally are required to be implemented by the Company in its 2002
financial statements.

Note 7.  Liquidity

         The Company's cash flow is dependent on its ability to increase
advertising revenues and raise additional capital. The Company will need to
raise additional capital during the third quarter of this fiscal year to satisfy
obligations and attain its business plan. The Company intends to reduce
operating and capital expenditures in the near term as part of the realignment
of its sales and other functional organizations. The Company is in discussion
with certain investors to provide bridge financing and has engaged a financial
advisor to solicit additional long term equity financing. However, in the event
it is unsuccessful in completing a strategic transaction or financing, it will
be required to cease operations. In that case, the Company would be unable to
meet future capital requirements. This would result in a default under all
indebtedness, including the PIK Notes. There is no assurance that additional
funds will be available or available on terms acceptable to the Company.



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.

                           FORWARD-LOOKING STATEMENTS

         The forward-looking statements in this report involve known and unknown
risks, uncertainties and other important factors that could cause the actual
results, performance or achievements of the Company, or industry results, to
differ materially from any future results, performance or achievements expressed
or implied by such forward-looking statements. Such risks, uncertainties and
other important factors include, among others: the Company's ability to secure
additional financing; advertising rates; the ability to secure advertising
contracts; the ability to secure new sites; the loss of key existing site
agreements; changes in the political and regulatory climate; out-of-home
advertising industry trends; competition; changes in business strategy or
development plans; availability of qualified personnel; changes in, or the
failure or inability to comply with, government regulations; and other factors
referenced in this report. Many of these factors have been previously identified
in filings or statements made by or on behalf of the Company, including filings
with the Securities and Exchange Commission on Form 10-KSB.

         The Company does not undertake to update forward-looking information
contained herein or elsewhere to reflect actual results, changes in assumptions
or changes in other factors affecting such forward-looking information.


                                       9
<PAGE>   10
GENERAL

         We are a leader in the emerging digital out-of-home media industry. We
are currently implementing a build-out of the world's largest network of digital
video advertising displays. Since our inception, we have developed our
proprietary technology platform to deliver digital advertising and other media
across our growing network of flat panel screens in the U.S. and
internationally.

         Our cash and cash equivalents and cash that may be generated from
operations are expected to be sufficient to meet our anticipated cash needs only
until the second half of August, 2001. In order to continue operations beyond
that date, we would require an additional capital infusion or financing. We
cannot assure you that financing will be available to us, or if available, will
be available on terms acceptable to us. We are in discussions with certain
investors to provide bridge financing and have engaged a financial advisor to
solicit additional long term equity financing. If we are unsuccessful in
completing a strategic transaction or financing, we will be required to cease
operations. In that case, we will be unable to meet our future capital
requirements. This would result in a default under all of our indebtedness,
including our 12% and 14% Senior Secured PIK Notes ("PIK Notes"). Any person
considering an investment in any of our securities is urged to consider both the
risk that we will cease operations and the risk that our securities will be
worthless or of diminished value even assuming completion of a strategic
transaction or financing. All of the statements set forth in this report are
qualified by reference to those facts.

         We have organized our network rollout strategy on a market by market
basis, concentrating on major U.S. advertising markets. As of June 30, 2001, we
have installed screens in 7,112 sites. The historic build-out of our network is
illustrated in the following table.

                         INSTALLED NGN SCREEN LOCATIONS

<TABLE>
<CAPTION>

  DMA
  RANK          MARKET         DEC 31, 1999      MAR 31, 2000   JUNE 30, 2000    DEC 31, 2000   MARCH 31, 2001   JUNE 30, 2001
  ----          ------         ------------      ------------   -------------    ------------   --------------   -------------
<S>         <C>                <C>               <C>            <C>              <C>            <C>              <C>
   1        New York               1,317             1,482          1,699            1,814          1,744            1,674
   2        Los Angeles              578               596            605              614            628              633
   3        Chicago                  172               218            242              281            287              305
   4        Philadelphia             307               327            365              391            564              619
   5        San Francisco            245               300            344              380            381              379
   6        Boston                   241               259            272              297            289              285
   7        Dallas                   306               320            335              364            363              364
   8        Washington DC            519               517            523              521            524              527
   9        Detroit                    -                 -              -                -              -               52
  12        Seattle                    -                 -             41              161            163              169
  14        Tampa                    165               168            168              170            170              170
  15        Phoenix                    -                 -              -                -              -               51
  16        Miami                    117               130            137              146            145              144
  18        Denver                     -                 -            116              156            160              170
  20        Sacramento                64                67             69               70             71               72
  22        Orlando                  257               259            257              253            256              259
  24        Baltimore                204               201            209              210            148              147
  26        San Diego                157               162            163              165            163              162
  40        Norfolk                  237               238            239              239            237              227
  44        West Palm Beach           67                72             84               97             96               96
  60        Austin                     -                 -             34               38             41               41
  61        Richmond                   -                 -              -               54             74               96
  83        Ft. Myers                 54                55             57               57             57               56
            Sydney, Australia          -                 -              -               95            129              145
            Paris, France              -                 -              -               80            144              202
            Other                     24                28             21               39             60               67
                                   -----             -----          -----            -----          -----            -----
            TOTAL SITES            5,031             5,399          5,933            6,692          6,894            7,112
                                   =====             =====          =====            =====          =====            =====
</TABLE>


                                       10
<PAGE>   11
         Our current geographic expansion is primarily focused on the 11 largest
U.S. markets, with the intention of having a significant presence in the 25
largest U.S. markets by 2003.

         We generate revenues principally through the sale of advertising on our
network. Our screens present repeating sequences, or loops, of advertising and
programming. As currently configured, the loops consist of eight 15-second
advertising slots and eight 10-second programming slots, which currently provide
our network with more than 55,000 advertising slots available for sale on a
daily basis. Advertising rates are based upon the availability of space on the
network for the desired location, the size and demographic makeup of the market
served by the screens and the availability of alternative advertising media in
the area. Most advertising contracts are short-term, typically for periods of
one to three months, and are with local, regional and national advertisers. As
the number and geographic diversity of our sites increases, we believe we will
be able to attract more national advertisers to our network, thereby increasing
the contribution of national advertising revenue to our total advertising
revenue in the future.

         We recognize advertising revenues at the time the advertisement appears
on our network. We bill advertisers monthly for contracts that exceed one month
in length and on the first day of the month during which the advertisement
appears on our network for contracts for shorter periods. When advertising
agencies are involved, they deduct a commission, which typically is 15% of gross
revenue, and remit only the net amount to us.

         Installation costs for a new site include the cost of acquiring
hardware and the cost to install the equipment, which are capitalized and
depreciated over five years. The fully installed average per site cost for a
typical site with a single flat panel screen is approximately $2,500. At some
sites, more than one flat panel screen is installed; at those sites, we may
receive higher advertising rates.

         Network operating expenses are costs associated with the daily
operation and maintenance of our screens as well as the site agreement fees paid
to site owners. Most network operating expenses generally increase
proportionally with the number of installed sites. On a site by site basis,
telecommunications and maintenance costs remain relatively fixed, averaging
approximately $65 per month. Accordingly, we expect that these
telecommunications and maintenance expenses as a percentage of advertising
revenues will decrease as our advertising revenues increase. In addition, site
agreements generally provide the site operator with a percentage of the
advertising revenues (typically 10% per site) derived from the screens at the
particular site. Some site agreements provide for a minimum annual site fee.
Based on the number of screens installed on June 30, 2001, we are committed to
minimum site agreement fees of approximately $3.8 million annually through 2005.
We incur network operating expenses in connection with our screens prior to
generating revenues from the sites.

         Selling expenses include all costs associated with operating our sales
organization. The majority of these expenses are related to compensation and
related benefits for sales personnel. We pay our sales personnel fixed salaries
and sales commissions. During the second quarter of 2001 and 2000, the
commission portion of the compensation was 14.2% and 10.4% of net advertising
revenues, respectively. For the six months ended June 30, 2001 and 2000,
commissions were 12.0% and 12.4% of net advertising revenues, respectively.

         General and administrative expenses include rent for our headquarters
and compensation and related benefits for personnel involved in corporate
development, field operations, network operations, marketing, creative services,
management information systems and accounting.


                                       11
<PAGE>   12
         Corporate overhead includes compensation and related benefits for
senior management and administrative personnel, legal, accounting and other
professional fees, travel, insurance and telecommunications.

         Costs of acquiring hardware and installing it in new sites are
capitalized and depreciated over five years. Other equipment and furnishings are
depreciated over their lives of three to seven years. Leasehold improvements are
amortized over the terms of the respective leases.

RESULTS OF OPERATIONS


          Total revenues. Total revenues decreased to approximately $1.2 million
for the second quarter of 2001 compared to approximately $2.6 million for the
same quarter of 2000 and were $2.3 million for the six months ended June 30,
2001 compared to $4.9 million for the same period of 2000. The decrease was
primarily attributable to decreased occupancy levels of advertising slots sold
which we believe to be the result of the transition from primarily local sales
to concentration on regional and national accounts as well as effects of the
slowing economy and acute softness in the advertising market in general. We
estimate that the sales cycle to close many of these regional and national
accounts may reach 12 to 18 months from the initial presentation. Revenues for
the three and six month periods ended June 30, 2001 also included $255,000 of
equipment sales related to a special project that may not be indicative of
future revenues.

         Network operating expenses. Network operating expenses increased to
approximately $2.4 million for the second quarter of 2001, from approximately
$2.2 million for the same quarter of 2000 and were $4.8 million for the six
months ended June 30, 2001 compared to $4.3 million for the same period of 2000.
Major components of network operating expenses for the respective periods were:

<TABLE>
<CAPTION>
                                             3 months ended        3 months ended       6 months ended        6 months ended
                                             June 30, 2001         June 30, 2000         June 30, 2001        June 30, 2000
                                             -------------         -------------         -------------        -------------
<S>                                          <C>                   <C>                  <C>                   <C>
Site agreement expense                          $1,052,000            $1,018,000           $2,049,000            $2,086,000
Telecommunications expense                         830,000               879,000            1,866,000             1,666,000
Maintenance expense                                495,000               259,000              858,000               535,000
</TABLE>

         The increase in telecommunications and maintenance expense was due
primarily to the increase in the average number of installed sites, which
increased 26.5% from 2000 to 2001. Average telecommunications costs per site
have generally decreased from 2000 to 2001 due to price decreases in local and
long distance costs. Average maintenance costs per site have increased in 2001
due to an increase in the monthly service contract rate. The decrease in site
agreement expense was due to the reduction in sales revenues in 2001 compared to
2000.

         Selling expenses. Selling expenses decreased to approximately $2.5
million for the second quarter of 2001 compared to $3.2 million for the same
quarter of 2000 and were $5.2 million for the six months ended June 30, 2001
compared to $6.3 million for the same period of 2000. The decrease resulted
primarily from lower compensation costs due to a reduction of sales office staff
(average 2001 headcount of 77 compared to 2000 average of 100) and lower
commissions due to decreased sales.

         General and administrative expenses. General and administrative
expenses increased to approximately $2.9 million for the second quarter of 2001
compared to $2.5 million for the same quarter of 2000 and were $5.8 million for
the six months ended June 30, 2001 compared to $4.3 million for the same period
of 2000. The increase was primarily attributable to increased advertising, sales
promotion

                                       12
<PAGE>   13
and trade show expense, which during the six months ended June 30 increased to
approximately $1.4 million in 2001 compared to approximately $572,000 in 2000.
Such costs were approximately $744,000 and $525,000 during the second quarter of
2001 and 2000, respectively. Employee compensation and related costs, the
largest component of general and administrative expense, was $1.2 million and
$2.6 million during the three and six months ended June 30, 2001 compared to
$1.3 million and $2.4 million during the comparable 2000 periods. Research and
development costs increased slightly to $45,000 and $91,000 during the three and
six month periods ended June 30, 2001 compared to $41,000 and $82,000 during the
comparable 2000 periods. We capitalized $17,000 and $34,000 of software costs
developed or obtained for internal use during the three and six months ended
June 30, 2001 compared to $345,000 and $454,000 in the comparable 2000 periods.

         Corporate overhead. Corporate overhead decreased to approximately
$681,000 for the second quarter of 2001 compared to $876,000 for the same
quarter of 2000 and was $1.5 million for the six months ended June 30, 2001
compared to $1.8 million for the same period of 2000. The decrease in the second
quarter of 2001 compared to the comparable period in 2000 was primarily due to a
decrease in compensation costs due to severance costs incurred during 2000. The
decrease in the comparable six month periods was primarily due to a reduction in
legal and employment fees and a small decrease in compensation and related
costs.

         Depreciation and amortization. Depreciation and amortization increased
to approximately $1.4 million and $2.8 million for the three and six months
ended June 30, 2001, from approximately $1.0 million and $1.9 million for the
comparable periods in 2000. Depreciation expense relating to our flat panel
screens was $1.1 million and $2.1 million in 2001 compared to $793,000 and $1.5
million in the 2000 periods.

         Operating loss. As a result of the above factors, operating loss
increased to approximately $8.9 million for the second quarter of 2001, from
approximately $7.2 million for the same quarter of 2000 and was $18.0 million
for the six months ended June 30, 2001 compared to $13.8 million for the same
period in 2000.

         Net interest expense. Net interest expense increased to approximately
$1.9 million for the second quarter of 2001 compared to $1.4 million for the
same quarter of 2000 and was $3.6 million for the six months ended June 30, 2001
compared to $3.1 million for the same period of 2000. The increase was
attributable to an increase in interest rate on the Series C PIK notes from 12%
to 14% during the 2001 periods in addition to an increase in the amount of
average borrowings for the period.

         Net loss. As a result of the above factors, the net loss attributable
to common stockholders increased to approximately $11.6 million for the second
quarter of 2001, from approximately $8.6 million for the same quarter of 2000
and was $23.2 million for the six months ended June 30, 2001 compared to $17.0
million for the same period in 2000.

          We expect to incur additional costs to install additional flat panel
screens and for operating costs to expand. As a result, we expect our expenses
to continue to exceed our revenues and to incur a net loss for 2001. We expect
to continue to operate at a net loss for the foreseeable future.



LIQUIDITY AND CAPITAL RESOURCES

         Through June 30, 2001, our primary source of liquidity has been
proceeds from the sale of equity and debt securities.


                                       13
<PAGE>   14
         As of June 30, 2001, total cash and cash equivalents were $2.9 million
compared to $19.6 million as of December 31, 2000. The decrease in cash was a
result of $14.7 million of cash used in operating activities (due primarily to
the loss from operations) and $2.0 million of cash used in investing activities
(primarily for capital expenditures related to the expansion of our network).

         Interest on the Series C Notes is payable either in cash or additional
senior secured notes, at our option, until the maturity date of February 1,
2003. We expect to pay interest on the Series C Notes by issuing additional
senior secured notes. Our semi-annual cash interest requirements on the Series B
Notes will be $242,000 until the notes mature on February 1, 2003. As of August
13, 2001, the cash interest payment of $241,920 on the Series B Notes due August
1, 2001 has not been paid. Under the terms of the indenture governing the Series
B Notes, if we do not pay this interest by August 31, 2001, absent our receipt
of a waiver, an event of default will have occurred. In this case, the trustee
of the Series B Notes or the holders of at least 25% of the aggregate principal
amount of the then outstanding Series B Notes would be able to declare the
principal and accrued and unpaid interest on the Series B Notes due and payable
immediately. If this occurs, unless we receive additional financing, we will not
be able to pay the principal and accrued and unpaid interest on the Series B
Notes. If we cannot pay amounts owed, the trustee or holders of at least 25% of
the aggregate principal amount of the then outstanding Series B Notes will be
entitled to pursue other remedies, including foreclosing upon the collateral
used to secure the Series B Notes.


         Our primary uses of cash are capital expenditures for flat panel
screens and for our working capital requirements. We anticipate capital
expenditures of approximately $10 to $15 million related to the purchase and
installation of our flat panel screens over the next two years if we can raise
additional capital. Our cash flow is dependent on our ability to increase
advertising revenues and is subject to financial, economic and other factors,
some of which are beyond our control. Our cash and cash equivalents and cash
that may be generated from operations are expected to be sufficient to meet our
anticipated cash needs only until the second half of August 2001. In order to
continue operations beyond that date, we would require an additional capital
infusion or financing. We cannot assure you that financing will be available to
us, or if available, will be available on terms acceptable to us. We are in
discussion with certain investors to provide bridge financing and have engaged a
financial advisor to solicit additional long term equity financing. However, in
the event we are unsuccessful in completing a strategic transaction or
financing, we will be required to cease operations. In that case, we will be
unable to meet our future capital requirements. This would result in a default
under all of our indebtedness, including our PIK Notes.

         We anticipate a reduction in headcount of approximately 25% to 30% will
be implemented during the third quarter as part of the continuing plan to reduce
selling and other costs and focus efforts on larger national and regional
customers. As part of this realignment of the sales and other functional
organizations, several regional sales offices will be closed and future
alliances with third party sales organizations are anticipated. We do not
anticipate that the total cost of the realignment will be significant to the
results of our third quarter operations.

SEASONALITY

         Our business is in a growth phase as we continue to expand our
footprint. Consequently, we have not experienced any material seasonal factors
which have affected our advertising revenues to date. We do expect, however,
that seasonal revenue fluctuations caused by variations in advertising
expenditures


                                       14
<PAGE>   15
by local, regional and national advertisers, may effect our revenues in the
future as we achieve a larger installed base of sites.

MARKET RISK AND IMPACT OF INFLATION

         We do not believe we have any significant risk related to interest rate
fluctuations since we have only fixed rate debt. We believe that inflation has
not had a material impact on our results of operations for the three and six
month periods ended June 30, 2001 and 2000. We cannot assure you that future
inflation will not have an adverse impact on our operating results and financial
condition.


                                       15
<PAGE>   16
PART II. OTHER INFORMATION



ITEM 6. Exhibits and Reports on Form 8-K:

a)       Exhibits

         None


b)       Reports on Form 8-K

         None




                                   SIGNATURES


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

<TABLE>
<S>                                      <C>
                                         NEXT GENERATION NETWORK, INC.



Date: August 14, 2001                    By: /s/  Thomas M. Pugliese
                                             --------------------------------------------
                                             Thomas M. Pugliese
                                             Chief Executive Officer

Date: August 14, 2001                    By: /s/  Michael R. Robinson
                                             --------------------------------------------
                                             Michael R. Robinson
                                             Chief Financial Officer
                                             (principal financial and accounting officer)
</TABLE>


                                       16