<PAGE>   1
==============================================================================


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-Q


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


                 For the Quarterly Period Ended March 31, 1999


                        Commission file number 0-24059


                            MGC Communications, Inc.
             (Exact name of registrant as specified in its charter)


<TABLE>
<S>                                        <C>
         Nevada                                         88-0360042
(State of incorporation)                   (IRS Employer Identification Number)
</TABLE>

                            3301 North Buffalo Drive
                            Las Vegas, Nevada 89129
                    (Address of principal executive offices)

                                 (702) 310-1000
                        (Registrant's telephone number)


Indicate by check mark whether the registrant (1) has filed all reports 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
               -----                                             -----


         The number of shares outstanding of the issuer's common stock, 
                              as of May 17, 1999:


         Common stock ($.001 par value) .... 17,505,050 shares outstanding
<PAGE>   2
==============================================================================
                            MGC COMMUNICATIONS, INC.


                                      INDEX
==============================================================================

<TABLE>
<CAPTION>
                                                                        Page No.
                                                                        --------
<S>                                                                     <C>
PART I -- FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

        Consolidated Statements of Operations -- Three months ended
           March 31, 1999 and 1998 (Unaudited)                              3

        Consolidated Balance Sheets -- March 31, 1999 (Unaudited) and
         December 31, 1998                                                  4

        Consolidated Statements of Redeemable Preferred Stock and
         Stockholders' Equity for the period from December 31, 1997
         to March 31, 1999                                                  5

        Consolidated Statements of Cash Flows -- Three months ended
         March 31, 1999 and 1998 (Unaudited)                                6

        Condensed Notes to Unaudited Interim Consolidated
         Financial Statements                                               7


Item 2. Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                              9

Item 3. Quantitative and Qualitative Disclosures About Market Risk         12 

PART II -- OTHER INFORMATION

Item 1. Legal Proceedings                                                  12

Item 2. Changes in Securities and Use of Proceeds                          13

Item 6. Exhibits and Reports on Form 8-K                                   14


SIGNATURES                                                                 15
</TABLE>
<PAGE>   3
PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

                            MGC COMMUNICATIONS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                                      MARCH 31,
                                                                   -------------
                                                               1999           1998
                                                             --------       --------
<S>                                                          <C>            <C>
Operating revenues:
     Telecommunications services                             $  8,401       $  2,846

Operating expenses:
     Cost of operating revenues                                 8,483          2,371
     Selling, general and administrative                        7,727          2,562
     Depreciation and amortization                              3,484            867
                                                             --------       --------
                                                               19,694          5,800
                                                             --------       --------
          Loss from operations                                (11,293)        (2,954)
Other income (expense):
     Gain on sale of investments                                  205             --
     Interest income                                            1,500          2,169
     Interest expense(net of amounts capitalized)              (4,624)        (5,505)
                                                             --------       --------
          Net loss                                            (14,212)        (6,290)
Accrued preferred stock dividend                                   --           (444)
                                                             ========       ========
Net loss applicable to common stockholders                    (14,212)        (6,734)

Basic and diluted loss per share of
    common stock                                             $   (.83)      $   (.76)
                                                             ========       ========

Basic and diluted weighted average
    shares outstanding                                     17,204,944      8,892,282
                                                          ===========     ==========
</TABLE>

              See accompanying condensed notes to unaudited interim
                       consolidated financial statements.
<PAGE>   4
                            MGC COMMUNICATIONS, INC.

                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                MARCH 31,     DECEMBER 31,
                                                                 1999             1998
                                                              -----------       --------
                                       ASSETS                 (UNAUDITED)
<S>                                                           <C>             <C>
Current assets:
  Cash and cash equivalents.................................    $  5,972        $ 11,886
  Investments available-for-sale............................       1,867           9,851
  Restricted investments....................................      31,428          20,797
  Accounts receivable, less allowance for doubtful
     accounts of $363 and $257..............................       8,988           6,360
  Prepaid expenses..........................................         250             208
                                                                --------        --------
          Total current assets..............................      48,505          49,102
Property and equipment, net.................................     128,136         116,380
Investments available-for-sale..............................      47,468          63,212
Restricted investments......................................       8,501          18,582
Deferred financing costs, net of amortization of $1,272 and
  $1,065....................................................       4,507           4,714
Other assets................................................         436             129
                                                                --------        --------
          Total assets......................................    $237,553        $252,119
                                                                ========        ========
                         LIABILITIES, REDEEMABLE PREFERRED
                           STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term debt......................    $    241        $    332
  Accounts payable:
     Trade..................................................      12,133           5,314
     Property and equipment.................................       5,683          18,577
  Accrued interest..........................................      10,400           5,200
  Accrued other expenses....................................       3,402           2,473
                                                                --------        --------
          Total current liabilities.........................      31,859          31,896
Senior Secured Notes, net of unamortized discount of $3,163
  and $3,307................................................     156,837         156,693
Other long-term debt........................................         208             270
                                                                --------        --------
          Total liabilities.................................     188,904         188,859
                                                                --------        --------
Commitments and contingencies
 Stockholders' equity:
  Preferred stock, 50,000,000 shares authorized and unissued          --              --
  Common stock, $0.001 par value, 60,000,000 shares
     authorized, 17,236,134 and 17,190,428 shares issued and
     outstanding............................................          17              17
  Additional paid-in capital................................     109,231         108,991
  Accumulated deficit.......................................     (58,604)        (44,392)
                                                                --------        --------
                                                                  50,644          64,616
  Accumulated other comprehensive income                             178             817
  Notes receivable from stockholders for issuance of common
     stock..................................................      (2,173)         (2,173)
                                                                --------        --------
          Total stockholders' equity........................      48,649          63,260
                                                                --------        --------
          Total liabilities, redeemable preferred stock and
            stockholders' equity............................    $237,553        $252,119
                                                                ========        ========
</TABLE>

              See accompanying condensed notes to unaudited interim
                       consolidated financial statements.
<PAGE>   5
                            MGC COMMUNICATIONS, INC.

 CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                    REDEEMABLE
                                                  PREFERRED STOCK                       COMMON STOCK
                                          -----------------------------         ----------------------------
                                            SHARES             AMOUNT             SHARES            AMOUNT
                                          ----------         ----------         ----------        ----------
<S>                                        <C>               <C>                 <C>              <C>
BALANCE AT DECEMBER 31, 1997 .....         5,148,570         $   16,665          8,799,600        $        9
Common stock issued for cash .....                --                 --            100,680                --
Common stock issued for notes
  receivable .....................                --                 --            189,000                --
Warrants and options exercised
  for common stock ...............                --                 --            133,309                --
8% Series A Convertible Preferred
  Stock issued for cash ..........         1,422,857              4,980                 --                --
Accrued preferred stock dividend .                --                 --                 --                --
Common stock issued for cash (IPO)                --                 --          4,025,000                 4
Conversion of preferred stock to
   common stock ..................        (6,571,427)           (21,645)         3,942,839                 4
Unrealized gain on investments
   available-for-sale ............                --                 --                 --                --
Net loss .........................                --                 --                 --                --
                                          ----------         ----------         ----------        ----------
BALANCE AT DECEMBER 31, 1998 .....                --         $       --         17,190,428        $       17
Unrealized loss on investments
   available-for-sale ............                --                 --                 --                --
Common stock issued ..............                --                 --             45,706                --
Net loss .........................                --                 --                 --                --
                                          ----------         ----------         ----------        ----------
BALANCE AT MARCH 31, 1999 ........                --         $       --         17,236,134        $       17
    (UNAUDITED) ..................        ==========         ==========         ==========        ==========
</TABLE>
<TABLE>
<CAPTION>
                                                                                 NOTES
                                                                            RECEIVABLE FROM       ACCUMULATED
                                           ADDITIONAL                       STOCKHOLDERS FOR         OTHER             TOTAL
                                            PAID-IN        ACCUMULATED        ISSUANCE OF        COMPREHENSIVE      STOCKHOLDERS'
                                            CAPITAL          DEFICIT          COMMON STOCK          INCOME             EQUITY
                                          ----------        ----------         ----------         ----------         ----------
<S>                                       <C>               <C>                <C>                <C>                <C>
BALANCE AT DECEMBER 31, 1997 .....        $   22,118        $  (12,463)        $     (688)        $       --         $    8,976
Common stock issued for cash .....               774                --                 --                 --                774
Common stock issued for notes
  receivable .....................             1,485                --             (1,485)                --                 --
Warrants and options exercised
  for common stock ...............                14                --                 --                 --                 14
8% Series A Convertible Preferred
  Stock issued for cash ..........                --                --                 --                 --                 --
Accrued preferred stock dividend .                --              (654)                --                 --               (654)
Common stock issued for cash (IPO)            62,959                --                 --                 --             62,963
Conversion of preferred stock to
   common stock ..................            21,641               790                 --                 --             22,435
Unrealized gain on investments
   available-for-sale ............                --                --                 --                817                817
Net loss .........................                --           (32,065)                --                 --            (32,065)
                                          ----------        ----------         ----------         ----------         ----------
BALANCE AT DECEMBER 31, 1998 .....        $  108,991        $  (44,392)        $   (2,173)        $      817         $   63,260
Unrealized loss on investments
   available-for-sale ............                --                --                 --               (639)              (639)
Common stock issued ..............               240                --                 --                 --                240
Net loss .........................                --           (14,212)                --                 --            (14,212)
                                          ----------        ----------         ----------         ----------         ----------
BALANCE AT MARCH 31, 1999 ........        $  109,231        $  (58,604)        $   (2,173)        $      178         $   48,649
    (UNAUDITED) ..................        ==========        ==========         ==========         ==========         ==========
</TABLE>

              See accompanying condensed notes to unaudited interim
                       consolidated financial statements.
<PAGE>   6
                            MGC COMMUNICATIONS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED
                                                                         MARCH 31,
                                                                    ------------------
                                                                      1999      1998
                                                                    --------   -------
<S>                                                                 <C>        <C>
Cash flows from operating activities:
  Net loss...........................................               $(14,212)  $(6,290)
  Adjustments to reconcile net loss to net cash used
    in operating activities:
    Depreciation and amortization....................                  3,484       867
    Gain on sale of investments......................                   (205)       --
    Amortization of debt discount....................                    144       144
    Amortization of deferred financing costs.........                    207       210
    Changes in assets and liabilities:
       Increase in accounts receivable, net..........                 (2,628)   (1,442)
       Increase in prepaid expenses..................                    (42)      (46)
       Increase in other assets......................                   (307)      (52)
       Increase in accounts payable -- trade.........                  6,819     1,446
       Increase in accrued interest and other expenses                 6,129     4,981
                                                                    --------   -------
         Net cash used in operating activities.......                   (611)     (182)
                                                                    --------   -------
Cash flows from investing activities:
  Purchase of property and equipment, net of
    payables.........................................                (15,240)   (9,795)
  Decrease in accounts payable-property and equipment                (12,894)       --
  Purchase of investments held-to-maturity...........                     --      (276)
  Sale of investments available-for-sale ............                 23,294        --
  Increase in restricted investments.................                   (550)     (792)
                                                                    --------   -------
         Net cash used in investing activities.......                 (5,390)  (10,863)
                                                                    --------   -------
Cash flows from financing activities:
  Costs associated with issuance of Senior Secured
    Notes and warrants...............................                     --      (133)
  Proceeds from issuance of 8% Series A Convertible
    Preferred Stock, net of issuance costs...........                     --     4,980
  Payments on other long term debt...................                   (153)      (92)
  Proceeds from issuance of common stock ............                    240       647
                                                                    --------   -------
         Net cash provided by financing activities...                     87     5,402
                                                                    --------   -------
         Net decrease in cash........................                 (5,914)   (5,643)
Cash and cash equivalents at beginning of period.....                 11,886    45,054
                                                                    --------   -------
Cash and cash equivalents at the end of period.......               $  5,972   $39,411
                                                                    ========   =======

Supplemental schedule of non-cash investing and financing activities:
  Increase in property and equipment purchases included
    in accounts/notes payable -- property and equipment.......       $     --   $   876
                                                                     ========   =======
  Stock issued for notes receivable...........................       $     --   $ 1,485
                                                                     ========   =======
Other disclosures:
  Cash paid for interest net of amounts capitalized...........       $     --   $   305
                                                                     ========   =======
</TABLE>

                  See accompanying condensed notes to unaudited
                   interim consolidated financial statements.
<PAGE>   7
                            MGC COMMUNICATIONS, INC.
     Condensed Notes to Unaudited Interim Consolidated Financial Statements

(1)      PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

         The accompanying unaudited interim consolidated financial statements of
MGC Communications, Inc. (the "Company" or "MGC"), a Nevada corporation, include
the accounts of the Company and its wholly-owned subsidiaries, MGC Lease
Corporation and MGC LJ.Net, Inc. All significant inter-company balances and
transactions have been eliminated.

         These consolidated financial statements reflect all normal recurring
adjustments, which management believes are necessary to present fairly the
financial position, results of operations, and cash flows for the Company for
the respective periods presented. Certain information and footnote disclosures
normally included in the annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission for Form
10-Q. These unaudited interim financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's annual report on Form 10-K filed with the Securities and Exchange
Commission.

         The balance sheet at December 31, 1998 was derived from the audited
financial statements, but does not include all disclosures required under
generally accepted accounting principles.

(2)  PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                   MARCH 31,    DECEMBER 31,
                                                     1999           1998
                                                  -----------   ------------
                                                  (UNAUDITED)
<S>                                                 <C>           <C>
Building and property...........................    $ 5,036       $ 2,653
Switching equipment.............................     88,538        57,045
Leasehold improvements..........................        774           740
Computer hardware and software..................      2,691         2,218
Office equipment and vehicles...................      1,065           901
                                                    -------       -------
                                                     98,104        63,557
Less accumulated depreciation and
  amortization..................................    (10,039)       (6,555)
                                                    -------       -------
                                                     88,065        57,002
Switching equipment under construction..........     40,071        59,378
                                                    -------       -------
          Net property and equipment............   $128,136      $116,380
                                                   ========      ========
</TABLE>

 (3)  COMMITMENTS AND CONTINGENCIES

PURCHASE COMMITMENTS

         In the ordinary course of business, the Company enters into purchase
agreements with its vendors of telecommunications equipment. As of March 31,
1999 and December 31, 1998, the Company had a total for all vendors of
approximately $19.0 million and $15.4 million, respectively, of remaining
purchase commitments for purchases of switching and other telecommunications
equipment.

(4)  RISKS AND UNCERTAINTIES

         Certain rates in the interconnection agreements have been established
by the Federal Communications Commission (FCC) and are subject to adjustment
upon final negotiations. The Company has recorded costs of sales related to the
Sprint (Nevada) interconnection agreement at amounts that are management's best
estimates of the probable outcome of the final negotiated rates, which are less
than the FCC established rates. The difference, which totals approximately $2.2
million and $1.7 million at March 31, 1999 and December 31, 1998, respectively,
<PAGE>   8
have not been recorded in the accompanying consolidated financial statements.
Management believes that the resolution of this matter will not have a material
adverse effect on the Company's financial position, results of operations, or
liquidity.

         The Company recognizes operating revenues from communications services
in the period the related services are provided. Due to current disputes and
pending arbitration and litigation, the Company has recognized switched access
revenues based on management's best estimate of the probable collections from
such revenue. For the three month period ended March 31, 1999 and for the year
ended December 31, 1998, the Company has recognized in operating revenues
switched access revenues of approximately $2,975,000 and $7,378,000,
respectively. Included in trade accounts receivable in the accompanying balance
sheets as of March 31, 1999 and December 31, 1998 are receivables related to
switched access of approximately $5,604,000 and $3,590,000, respectively.

(5)  SUBSEQUENT EVENT

         In April 1999, the Company entered into a Securities Purchase Agreement
with Providence Equity Partners III L.P. and affiliate ("Providence"), JK&B
Capital III L.P. ("JK&B III") and Wind Point Partners III L.P. and affiliate
("Wind Point") under which Providence, JK&B III and Wind Point (the
"Purchasers") agreed to purchase 5,277,779 shares of newly issued Series B
Convertible Preferred Stock at $9.00 per share(the "Transaction") for a total
consideration of $47.5 million. The issuance of Series B Preferred closed on May
4, 1999. Net proceeds to the Company were approximately $46.5 million.

         Dividends accrue at the rate of 10% per annum, are cumulative and are
payable in preference to any dividends that may be paid with respect to the
Company's Common Stock. Beginning 201 days after the closing, the Company may
elect to terminate the accrual of dividends if the Company's stock price exceeds
$27.00 per share (subject to certain adjustments) for 20 consecutive trading
days (the "Market Threshold") within three years after the closing. The Series B
Preferred will vote along with the common stock on an as - converted basis.

         Under the Securityholders' Agreement, the purchasers will have the
right to nominate one (if there are seven Directors), two (if there would
otherwise be eight directors) or a number proportionate to the Purchasers'
percentage stock ownership of the Company (if there are more eight directors)
and to have a representative of the Purchasers serve on each committee of the
Company's Board.

         The Series B Preferred will be convertible into common stock at any
time at the option of the holder. Initially, each share of Series B Preferred
will be convertible into one share of common stock. The conversion price is
subject to adjustment as a result of stock splits, stock dividends and certain
other issuances of additional stock. The weighted average anti-dilution
provisions relating to issuance of additional shares can in no event, however,
result in the conversion price being reduced below $9.00 per share.

         Beginning after a period of time (not more than 386 days), the Company
has the right to require the conversion of the Series B Preferred if the
Company's stock price exceeds the Market Threshold referenced above within three
years after closing, in which case, no accrued dividends will be paid.
<PAGE>   9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS

OVERVIEW
         
         MGC began providing competitive local dialtone services to small
business and residential users in December 1996, and in February 1998, began
offering long distance services in its existing markets. Currently, MGC has
switches fully operational in Las Vegas, Atlanta, Chicago, southern Florida,
and in selected areas of southern California, including Los Angeles and San
Diego.

         The Company's 1997 revenues were generated from sales of
communications services consisting primarily of local phone service, switched
access billings and non-recurring charges, principally installation charges. In
1998 and first quarter 1999, long distance services also contributed to the
Company's revenue base.

         The Company's principal operating expenses consist of cost of
operating revenues, selling, general and administrative costs and depreciation
and amortization expense. Cost of operating revenues consists primarily of
access charges, line installation expenses, transport expenses, compensation
expenses of technical personnel, long distance expenses and collocation lease
expenses. Selling, general and administrative expenses consist primarily of
compensation expenses, advertising, provision for bad debts, professional fees
and office rentals. Depreciation and amortization expense includes depreciation
of switching and collocation equipment as well as general property and
equipment.

         During 1998, MGC expanded significantly with the installation of four
additional switches and the build out of 182 additional collocation sites. As
expected, both cost of operating revenues and selling, general and
administrative costs increased as many of the fixed costs of providing service
in new markets are incurred before significant revenue can be generated from
those markets. In addition, the Company incurred significant marketing costs to
build the initial base of customers in its new markets.

         Building and expanding MGC's business has required and will continue to
require the Company to incur significant capital expenditures primarily
consisting of the costs of purchasing switches and associated equipment, land
for switching sites and constructing buildings or improving leased buildings to
house the Company's switching and collocation facilities. As part of MGC's
"smart build" network strategy, the Company purchased and installed host
switches in each of the its markets while leasing the means of transporting
voice and data traffic from these switches to MGC customers' telephones or other
equipment. The Company believes this facilities-based strategy, while initially
increasing the Company's level of capital expenditures and operating losses,
will enhance long-term financial performance in comparison to a resale strategy.

         The Company has experienced operating losses and generated negative
EBITDA since inception and expects to continue to generate negative EBITDA for
a period of time while MGC continues to expand its network and develop product
offerings and a customer base. There can be no assurance the Company's revenue
or customer base will grow or that the Company will be able to achieve or
sustain positive EBITDA.

RESULTS OF OPERATIONS

  QUARTERLY COMPARISON - MARCH 31, 1999 VS. MARCH 31, 1998

         Total operating revenues increased to $8.4 million for the quarter
ended March 31,1999 as compared to $2.8 million for the quarter ended March 31,
1998. The 200% increase is a result of the increase in the number of lines in
service and increased long distance service revenue. The Company had 65,147
lines in service at the end of the first quarter as compared to 20,924 lines in
service at March 31, 1998, a 211% increase.

         Cost of operating revenues for the quarter ended March 31, 1999 was
$8.5 million as compared to $2.4 million for the quarter ended March 31, 1998.
The 254% increase is due to the increased number of lines in service and
installation and operational expenses associated with the expansion of the
Company's network.

         For the quarter ended March 31, 1999, selling, general and
administrative expenses totaled $7.7 million, a 196% increase over the $2.6
million for the quarter ended March 31, 1998. The increase is a result of
increased costs attributable to the marketing of the Company's services,
delivery of customer service and to support the Company's continued network
expansion.

<PAGE>   10

         For the quarter ended March 31, 1999 depreciation and amortization was
$3.5 million as compared to $0.9 million for the quarter ended March 31, 1998.
This increase is a result of placing additional assets in service in accordance
with the planned build-out of the Company's network.

         Gross interest expense for the quarters ended March 31, 1999 and March
31, 1998 totaled $5.6 million in each of the two quarters. Interest capitalized
for the quarter ended March 31, 1999 increased to $1.0 million as compared to
$0.1 million for the quarter ended March 31, 1998. This increase is due to the
increase in switching equipment under construction. Gross interest expense is
primarily attributable to the 13% Senior Secured Notes issued due 2004 ("the
Senior Secured Notes") by the Company in September 1997.

         Interest income was $1.5 million during the quarter ended March 31,
1999 compared to $2.2 million for the quarter ended March 31, 1998. The 32%
decrease is a result of the decrease in cash and investments since March 31,
1998. Cash and investments have been used to purchase switching equipment, pay
interest on the Senior Secured Notes, and fund operating losses.

         The Company incurred net losses of $14.2 million during the first
quarter 1999 and $6.3 million during the first quarter 1998.


LIQUIDITY AND CAPITAL RESOURCES

         The Company's operations require substantial capital investment for the
purchase of communications equipment and the development and installation of the
its network. Capital expenditures for the quarter ended March 31, 1999 were
$15.2 million. The Company expects to continue requiring substantial amounts of
capital to fund the purchase of the equipment necessary to continue expanding
the network footprint in the Company's existing markets and to develop new
products and services. In addition, the Company is currently evaluating possible
expansion into new markets during 2000. The Company currently expects capital
expenditures of approximately $400.0 million over the next five years, which
will be funded from cash on hand and public or private debt or equity financing.
In addition, the Company is currently evaluating financing proposals from
vendors and equipment lease financing companies. However, there can be no
assurance the Company will be successful in raising sufficient debt or equity
capital on acceptable terms.

         From its inception through September 1997, the Company raised
approximately $17.8 million from private sales of common stock.

         In September 1997, the Company completed a $160.0 million offering of
Senior Secured Notes and warrants to purchase 862,923 shares of common stock
(after giving effect to anti-dilution adjustments). At the closing of the sale
of the Senior Secured Notes, the Company used approximately $56.8 million of the
net proceeds from the sale of the Senior Secured Notes to purchase a portfolio
of securities that has been pledged as security to cover the first six interest
payments on the Senior Secured Notes. In addition, the Company granted the
holders of the Senior Secured Notes a security interest in a substantial portion
of MGC's telecommunications equipment.

         In November 1997 and January 1998, the Company issued an aggregate of
6,571,427 shares of Series A Convertible Preferred Stock at $3.50 per share for
net proceeds of $21.6 million.

         The Company completed its initial public offering on May 15, 1998. MGC
sold a total of 4,025,000 shares of common stock to the public and received net
proceeds of $63.0 million. In connection with the initial public offering of
common stock, MGC reduced the number of authorized and outstanding shares of
its common stock by 40%. The outstanding shares of preferred stock were
converted into 3,942,856 shares of common stock upon the Company's initial
public offering.

         In May 1999, the Company issued 5,277,779 shares of Series B
Convertible Preferred Stock at $9.00 per share for net proceeds of $46.5
million.

         The substantial capital investment required to initiate services and
the funding of the Company's initial operations has exceeded the operating
income cash flow. This negative cash flow from operations results from the need
to establish the network in anticipation of connecting revenue-generating
customers. MGC expects to continue recording negative cash flow from
<PAGE>   11
operations for a period of time because of the Company's continuing network
expansion activities. There can be no assurance the Company will attain
break-even cash flow from operations in subsequent periods. Until sufficient
cash flow from operations is generated, the Company will be required to utilize
its current and future capital resources to meet its cash flow requirements and
may be required to issue additional debt and/or equity securities. The indenture
governing the Senior Secured Notes and the terms of our Series B Convertible
Preferred Stock impose restrictions upon the Company's ability to incur
additional indebtedness or issue preferred stock.

IMPACT OF YEAR 2000

         The Year 2000 issue, commonly referred to as Y2K, is a result of the
way some computer systems store dates. In many cases, when a date is stored by a
computer, a two digit field has been used to store the year (i.e., 01/01/98 =
January 1, 1998). The system assumes that the first two digits in the year field
are "19." With the end of the century approaching, those same systems should
reflect 01/01/00 as being "January 1, 2000." However, a non-compliant system
will read 01/01/00 as January 1, 1900.

         MGC has focused on Year 2000 issues since its inception in 1996. In
recognition of the priority associated with the Year 2000 issue, the Company
established a Year 2000 Project Team at the corporate level to lead the Year
2000 effort. Since the Company is young, much of the hardware and software
currently in place was purchased with Y2K readiness in mind. The Company's Y2K
plans include a number of phases designed to evaluate and prepare for readiness
by June 1999.

         MGC recently completed the inventory and assessment of all network and
information systems and has begun the renovation and testing phases. Mission
critical components of the Company's network and operation support system are
targeted for Year 2000 compliance by June 1999. MGC will continue integration
testing throughout the remainder of 1999. Subject to additional compliance
testing, the Company believes its essential processes, systems and business
functions will be ready for the 1999 to 2000 transition. Maintenance or
modification costs associated with making changes, if needed, will be expensed
as incurred.

         The Company's significant vendors, including the major
telecommunications equipment suppliers, have assured the Company their
applications are Year 2000 compliant. MGC's business also relies on other third
parties. The ability of third parties upon whom the MGC relies to adequately
address their Year 2000 issues is outside the Company's control. However, MGC is
coordinating efforts with these parties to minimize the extent to which business
will be vulnerable to their failure to remediate their own Year 2000 issues.
There can be no assurance the systems of the third parties will be modified on a
timely basis. MGC's business, financial condition and results of operations
could be materially adversely affected by the failure of the systems and
applications of third parties to properly operate after 1999.

         MGC is currently in the process of developing contingency plans should
mission critical systems fail as a result of Y2K issues. The Company is also
participating in industry wide efforts to address Year 2000 issues with the goal
of developing contingency plans addressing the Company's issues as well as those
of the telecommunications industry as a whole.

         In a recent SEC release regarding Year 2000 disclosure, the SEC stated
that public companies must disclose the most reasonably likely worst case Year
2000 scenario. Although it is not possible to assess the likelihood of any of
the following events, each must be included in a consideration of worst case
scenarios: widespread failure of electrical, gas and similar suppliers serving
the Company; widespread disruption of the services provided by common
communications carriers; similar disruption to the means and modes of
transportation for Company employees, contractors, suppliers and customers;
significant disruption to MGC's ability to gain access to, and remain working
in, office buildings and other facilities; the failure of substantial numbers of
the Company's critical computer hardware and software systems, including both
internal business systems and systems controlling operational facilities such as
electrical generation, transmission and distribution systems; and the failure of
outside entities' systems, including systems related to banking and finance.

         If MGC cannot operate effectively after December 31, 1999, the Company
could, among other things, face substantial claims by customers or loss of
revenue due to service interruptions, inability to fulfill contractual
obligations or to  bill customers accurately and on a timely basis, as well as
increased expenses associated with  litigation, stabilization of operations
following critical system failures and the execution of contingency plans. The
Company could also experience an inability by customers and others to pay, on a
timely basis or at all, obligations owed to MGC. Under these circumstances, the
adverse effects, although not quantifiable at this time, could be material.
<PAGE>   12
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income. SFAS No. 130 requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity sections of a statement of
financial position and is effective for financial statements issued for fiscal
years beginning after December 15, 1997. The Company has adopted SFAS No. 130
for 1998 as reported in the accompanying consolidated financial statements.

         In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments
of an Enterprise and Related Information. SFAS No. 131 establishes additional
standards for segment reporting in financial statements and is effective for
fiscal years beginning after December 15, 1997. The Company currently operates
as one segment.

         The American Institute of Certified Public Accountants recently issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires start-up costs, as defined, to be expensed as
incurred and is effective for financial statements for fiscal years beginning
after December 15, 1998. The Company currently expenses all start-up costs as
incurred and the application of SOP 98-5 will have no material impact on the
Company's financial statements.

FORWARD LOOKING STATEMENTS

         Certain statements contained in this Report that state the Company's or
management's intentions, hopes, beliefs, expectations or predictions of the
future are forward-looking statements. Management wishes to caution the reader
these forward-looking statements such as the Company's plans to expand its
existing network through collocation, statements regarding development,
introduction and acceptance of the Company's products or business, statements
regarding the Company's ability to achieve or exceed its goals or reach
profitability in the future, statements regarding the adequacy or availability
of financing, statements regarding the outcome of regulatory proceeding or
litigation or the effect of government regulations or similar statements
contained in this Report regarding matters that are not historical facts, are
only estimates or predictions. Actual results may differ materially as a result
of risks facing the Company or actual results differing from assumptions
underlying such statements. Such risks and assumptions include, but are not
limited to, the Company's ability to successfully market its existing and
proposed services to current and new customers in existing and planned markets,
successfully develop commercially viable data and Internet offerings, access
markets, install switches and obtain suitable locations for its switches,
negotiate and renew suitable interconnect agreements with the ILECs, obtain an
acceptable level of cooperation from the ILECs, all in a timely manner, at
reasonable cost and on satisfactory terms and conditions, as well as regulatory,
competitive, legislative and judicial developments that could materially affect
the Company's future results. All forward-looking statements made in this Report
are expressly qualified in their entirety by these cautionary statements.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         All the Company's long term debt bears fixed interest rates, however,
the fair market value of this debt is sensitive to changes in prevailing
interest rates. The Company runs the risk that market rates will decline and
the required payments will exceed those based on the current market rate. The
Company does not use interest rate derivative instruments to manage its exposure
to interest rate changes. 

PART II.    OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

         The Company is party to numerous state and federal administrative
proceedings. In these proceedings, the Company is seeking to define and/or
enforce ILEC performance requirements related to:

         -- the cost and provisioning of UNEs;

         -- the establishment of Operations Support Systems;

         -- the allocation of subsidies; and

         -- collocation costs and procedures.

The outcome of these proceedings will establish the rates and procedures by
which the Company obtains and provides UNEs and could have a material effect on
the Company's operating costs.

         MGC is also involved in legal proceedings in which the Company is
seeking to enforce its tariffed rates for originating and terminating switched
access. The outcome of these proceedings is uncertain, and adverse results could
have a material impact on the Company's financial condition.

         From time to time, the Company engages in other litigation and
governmental proceedings in the ordinary course of business. The Company does
not believe that any pending litigation or governmental proceedings will have a
material adverse effect on the results of operations or financial condition.
<PAGE>   13
establishment of rates by the respective public utilities commissions could have
a material effect on the Company's cost of revenues.

         From time to time, the Company is engaged in other litigation and
governmental proceedings in the ordinary course of its business. The Company
does not believe that any such pending litigation or governmental proceedings
will have a material adverse effect on its results of operation or financial
condition.


ITEM 2.     CHANGES IN SECURITIES AND USE OF PROCEEDS

         During first quarter 1999, the Company issued 13,985 shares of common
stock pursuant to the exercise of warrants acquired in a private placement. As
the warrants were exercised on a cashless basis, the Company did not receive any
proceeds from the issuance. In each instance, the offers and sales were made
without any public solicitation; the stock certificates bear restrictive
legends; and appropriate stop transfer instruction have been or will be given to
the transfer agent. No underwriter was involved in this transaction and no
commissions were paid with respect to the sale of such securities. These
issuances of securities were made in reliance on the exemption from registration
provided by Section 3(a)(9) of the Securities Act of 1933.

         On May 4, 1999, the Company issued 5,277,779 shares of Series B
Convertible Preferred Stock at $9.00 per share to Providence, JK&B and Wind
Point for total consideration of $47.5 million. Net proceeds to the Company were
approximately $46.5 million. The Company intends to use the proceeds to fund
further network development.

         The Company's Registration Statement No. 333-49085 was declared
effective on May 11, 1998, which was the offering date of common stock
thereunder. During the period from May 11, 1998 until March 31, 1999, the
Company paid $4,790,000 in underwriting discounts and commissions and other
offering expenses of $672,000 for total offering expenses of $5,462,000,
resulting in net offering proceeds to the Company of $62,963,000. Of such
amounts, expenses of $16,000 were paid for charter services to a related party
of which two current board members are major shareholders. No other amounts were
paid for offering expenses directly or indirectly to officers, Directors, 10% or
greater stockholders or other affiliates of the Company.

         During the period from May 11, 1998 until March 31, 1999, the net
offering proceeds were invested in government securities and money market funds.
None of such amounts were paid directly or indirectly to officers, Directors,
10% or greater stockholders or other affiliates of the Company.

<PAGE>   14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

         The following exhibits are filed as part of this report. The exhibit
         numbers refer to Item 601 of Regulation S-K.

         2.1      Merger Agreement between the Company, MGC LJ.Net, Inc. and
                  LJ.Net, Inc. dated as of March 15, 1999.

         4.1      Certificate of Designation of Series B Convertible Preferred
                  Stock.

         4.2      Securityholders Agreement, dated as of April 5, 1999, among
                  the Company, the purchasers of the Company's Series B
                  Convertible Preferred Stock and certain stockholders of the
                  Company.

         4.3      Registration Rights Agreement dated as of May 4, 1999, among
                  the Company and the purchasers of the Series B Convertible
                  Preferred Stock.

         2.7      Financial Data Schedule.

         99.1     Securities Purchase Agreement dated as of April 5, 1999, among
                  the Company and the purchasers of the Series B Convertible
                  Preferred Stock.

(b) No reports on Form 8-K were filed during the first quarter 1999.
<PAGE>   15
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.


                            MGC COMMUNICATIONS, INC.

Date:  May 17, 1999                     /s/  Maurice J. Gallagher, Jr.
                                             -----------------------------
                                             Maurice J. Gallagher, Jr.
                                             Chairman of the Board



Date:  May 17, 1999                     /s/  Linda M. Sunbury
                                             -----------------------------
                                             Linda M. Sunbury
                                             Vice President
                                             Chief Financial Officer