NETWORK ACCESS SOLUTIONS CORP
10-Q, 2000-11-13
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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                                                                          1
                               UNITED STATES
                    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 SEPTEMBER 30, 2000


                     Commission file number 000-25945

                   NETWORK ACCESS SOLUTIONS CORPORATION
          (Exact name of registrant as specified in its charter)


                Delaware                               54-1738938
      (State or other jurisdiction                  (I.R.S. Employer
    of incorporation or organization)            Identification Number)


                       13650 Dulles Technology Drive
                         Herndon, Virginia  20171
           (Address and zip code of principal executive offices)

                              (703) 793-5000
           (Registrant's telephone number, including area code)


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

     As of November 1, 2000, there were 47,360,389 shares of the
Registrant's common stock ("Common Stock") outstanding.



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                                                                          2
                   NETWORK ACCESS SOLUTIONS CORPORATION

                                   INDEX

                                 FORM 10-Q


PART I - FINANCIAL INFORMATION                                         Page

Item 1.   Financial Statements:

          Balance Sheets as of September 30, 2000 (unaudited) and
               December 31, 1999. . . . . . . . . . . . . . . . . . . . . 3

          Unaudited Statements of Operations and Other
               Comprehensive Income (Loss) for the three months
               and nine months ended September 30, 2000 and 1999. . . . . 4

          Unaudited Statements of Cash Flows for the nine months
               ended September 30, 2000 and 1999. . . . . . . . . . . . . 5

          Notes to Financial Statements . . . . . . . . . . . . . . . . . 6

Item 2.   Management's Discussion and Analysis of Financial
               Condition and Results of Operations. . . . . . . . . . . .16

Item 3.   Quantitative and Qualitative Disclosures about Market Risk. . .30


PART II - OTHER INFORMATION

Item 1.   Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . .31

Item 2.   Changes in Securities and Use of Proceeds . . . . . . . . . . .31

Item 3.   Defaults Upon Senior Securities . . . . . . . . . . . . . . . .31

Item 4.   Submission of Matters to a Vote of Security Holders . . . . . .31

Item 5.   Other Information . . . . . . . . . . . . . . . . . . . . . . .31

Item 6.   Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . .32


Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33


<PAGE>
<PAGE>
                                                                          3
                      PART I - FINANCIAL INFORMATION
                     ITEM 1.     FINANCIAL STATEMENTS

                   NETWORK ACCESS SOLUTIONS CORPORATION
                              BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                        As of          As of
                                                                     September 30,   December 31,
                                                                         2000           1999
ASSETS                                                               ------------    ------------
                                                                      (Unaudited)
<S>                                                                  <C>            <C>
Current assets:
  Cash and cash equivalents . . . . . . . . . . . . . . . . . . .    $ 31,332,760   $  18,240,096
  Short-term investments. . . . . . . . . . . . . . . . . . . . .      57,837,450      24,575,893
  Accounts receivable, net of allowance for doubtful accounts of
     $806,003 and $376,399 as of September 30, 2000 and
     December 31, 1999, respectively. . . . . . . . . . . . . . .       6,922,634       3,257,204
  Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . .         940,294         440,770
  Prepaid and other current assets. . . . . . . . . . . . . . . .       2,623,906         927,218
                                                                     ------------    ------------
     Total current assets . . . . . . . . . . . . . . . . . . . .      99,657,044      47,441,181
Property and equipment, net . . . . . . . . . . . . . . . . . . .     105,947,992      55,097,670
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . .       1,600,000       1,600,000
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . .         461,874         481,012
                                                                     ------------    ------------
     Total assets . . . . . . . . . . . . . . . . . . . . . . . .    $207,666,910   $ 104,619,863
                                                                     ============    ============

LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable. . . . . . . . . . . . . . . . . . . . . . . .    $ 10,775,289   $   8,221,681
  Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . .      13,398,792       4,366,424
  Current portion of deferred compensation liability. . . . . . .               -         166,667
  Current portion of capital lease obligations. . . . . . . . . .      13,689,080       5,630,429
  Current portion of note payable . . . . . . . . . . . . . . . .         745,686         478,925
  Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . .          56,602          42,788
                                                                     ------------    ------------
     Total current liabilities. . . . . . . . . . . . . . . . . .      38,665,449      18,906,914
  Long-term portion of capital lease obligations. . . . . . . . .      31,059,470      15,251,100
  Long-term portion of note payable . . . . . . . . . . . . . . .       1,837,538       2,453,211
                                                                     ------------    ------------
     Total liabilities. . . . . . . . . . . . . . . . . . . . . .      71,562,457      36,611,225
                                                                     ------------    ------------
Commitments and contingencies:
Series B mandatorily redeemable preferred stock, $0.001 par
  value, 1,500,000 and 0 shares authorized, issued and
  outstanding (liquidation preference $156,056,964 (unaudited))
  as of September 30, 2000. . . . . . . . . . . . . . . . . . . .     155,907,368               -
                                                                     ------------    ------------
Stockholders' equity:
  Common stock, $0.001 par value, 150,000,000 shares authorized,
      55,887,447 and 53,831,997 shares issued and outstanding as
      of September 30, 2000 and December 31, 1999, respectively .          55,887          53,832
  Additional paid-in capital. . . . . . . . . . . . . . . . . . .     134,523,882     130,431,898
  Accumulated other comprehensive gain (loss) . . . . . . . . . .          82,254         (51,960)
  Deferred compensation on stock options. . . . . . . . . . . . .     (22,340,474)    (18,389,540)
  Accumulated deficit . . . . . . . . . . . . . . . . . . . . . .    (130,223,319)    (42,135,592)
  Less treasury stock, at cost, 8,562,869 and 8,550,000 shares as
      of September 30, 2000 and December 31, 1999, respectively .      (1,901,145)     (1,900,000)
                                                                     ------------    ------------
     Total stockholders' equity . . . . . . . . . . . . . . . . .     (19,802,915)     68,008,638
                                                                     ------------    ------------
     Total liabilities, mandatorily redeemable preferred stock and
           stockholders' equity . . . . . . . . . . . . . . . . .    $207,666,910   $ 104,619,863
                                                                     ============    ============
</TABLE>
                  The accompanying notes are an integral
                    part of these financial statements.

<PAGE>
<PAGE>
                                                                          4
                   NETWORK ACCESS SOLUTIONS CORPORATION

                       STATEMENTS OF OPERATIONS AND
                     OTHER COMPREHENSIVE INCOME (LOSS)
                                (unaudited)
<TABLE>
<CAPTION>
                                                             For the three months            For the nine months
                                                              ended September 30,            ended September 30,
                                                          ---------------------------    ---------------------------
                                                              2000           1999           2000           1999
                                                          ------------   ------------   ------------    ------------
<S>                                                       <C>            <C>            <C>            <C>
Revenue:
  Product sales and consulting services . . . . . . . .   $  6,218,868   $  3,639,064   $ 15,669,300   $  11,874,371
  Network services. . . . . . . . . . . . . . . . . . .      2,880,119        529,187      7,246,766         813,711
                                                          ------------   ------------   ------------    ------------
     Total revenue. . . . . . . . . . . . . . . . . . .      9,098,987      4,168,251     22,916,066      12,688,082
                                                          ------------   ------------   ------------    ------------

Operating expenses:
  Product sales and consulting services costs (ex-
     clusive of depreciation and amortization
     presented below) . . . . . . . . . . . . . . . . .      5,580,804      3,085,500     13,567,513       9,883,845
  Network services costs (exclusive of deprecia-
     tion and amortization presented below) . . . . . .      6,502,092      1,358,839     16,533,097       2,142,000
  Selling, general and administrative . . . . . . . . .     23,991,551      8,808,507     59,712,853      16,725,879
  Amortization of deferred compensation on
     stock options. . . . . . . . . . . . . . . . . . .      1,992,345      1,431,114      5,436,606       6,699,302
  Depreciation and amortization . . . . . . . . . . . .      8,209,788      1,612,262     17,616,231       2,497,445
                                                          ------------   ------------   ------------    ------------
     Total operating expenses . . . . . . . . . . . . .     46,276,580     16,296,222    112,866,300      37,948,471
                                                          ------------   ------------   ------------    ------------
Loss from operations. . . . . . . . . . . . . . . . . .    (37,177,593)   (12,127,971)   (89,950,234)    (25,260,389)

Interest income . . . . . . . . . . . . . . . . . . . .      1,793,390        936,308      5,109,771       1,300,983
Interest expense. . . . . . . . . . . . . . . . . . . .     (1,079,096)      (377,087)    (2,623,648)       (548,354)
Follow-on offering costs. . . . . . . . . . . . . . . .              -              -       (573,723)              -
                                                          ------------   ------------   ------------    ------------
Loss before income taxes. . . . . . . . . . . . . . . .    (36,463,299)   (11,568,750)   (88,037,834)    (24,507,760)

Provision (benefit) for income taxes. . . . . . . . . .         49,893          1,043         49,893         (71,292)
                                                          ------------   ------------   ------------    ------------
Net loss  . . . . . . . . . . . . . . . . . . . . . . .    (36,513,192)   (11,569,793)   (88,087,727)    (24,436,468)

Preferred stock dividends . . . . . . . . . . . . . . .      2,721,370              -      6,056,964         339,726
Preferred stock accretion . . . . . . . . . . . . . . .         26,323              -         59,221         257,719
                                                          ------------   ------------   ------------    ------------

  Net loss applicable to common stockholders. . . . . .   $(39,260,885)  $(11,569,793)  $(94,203,912)  $ (25,033,913)
                                                          ============   ============   ============    ============

  Net loss per common share applicable to
     common stockholders (basic and diluted). . . . . .   $      (0.83)  $      (0.26)  $      (2.02)  $       (0.63)
                                                          ============   ============   ============    ============

Weighted average common shares outstanding
  (basic and diluted) . . . . . . . . . . . . . . . . .     47,043,947     45,021,799     46,628,181      39,932,623
                                                          ============   ============   ============    ============

Comprehensive loss:
  Net loss. . . . . . . . . . . . . . . . . . . . . . .   $(36,513,192)  $(11,569,793)  $(88,087,727)  $ (24,436,468)

Other comprehensive income:
  Unrealized gain on short-term investments . . . . . .         39,261              -        134,214               -
                                                          ------------   ------------   ------------    ------------

Total comprehensive loss. . . . . . . . . . . . . . . .   $(36,473,931)  $(11,569,793)  $(87,953,513)  $ (24,436,468)
                                                          ============   ============   ============    ============

</TABLE>
                  The accompanying notes are an integral
                    part of these financial statements.

<PAGE>
<PAGE>
                                                                          5
                   NETWORK ACCESS SOLUTIONS CORPORATION

                         STATEMENTS OF CASH FLOWS
                                (unaudited)

<TABLE>
<CAPTION>
                                                                                      For the nine months
                                                                                      ended September 30,
                                                                                  ---------------------------
                                                                                     2000            1999
                                                                                  ------------   ------------
<S>                                                                              <C>             <C>
Cash flows from operating activities:
  Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ (88,087,727)  $(24,436,468)
  Adjustment to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization expense. . . . . . . . . . . . . . . . . . .     17,616,231      2,497,445
     Provision for doubtful accounts receivable . . . . . . . . . . . . . . . .      1,035,384         91,082
     Amortization of deferred compensation on stock options . . . . . . . . . .      5,436,606      6,699,302
     Follow-on offering costs . . . . . . . . . . . . . . . . . . . . . . . . .        573,723              -
     Net changes in assets and liabilities:
       Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . .     (4,700,814)    (1,455,311)
       Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (499,524)        52,003
       Prepaid and other current assets . . . . . . . . . . . . . . . . . . . .     (1,696,688)      (886,870)
       Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (240,134)       (22,850)
       Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .        171,262        617,021
       Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .      7,537,396      1,799,364
       Deferred compensation. . . . . . . . . . . . . . . . . . . . . . . . . .       (166,667)      (166,667)
       Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .         13,814         69,805
                                                                                  ------------   ------------
          Net cash used in operating activities . . . . . . . . . . . . . . . .    (63,007,138)   (15,142,144)
                                                                                  ------------   ------------

Cash flows from investing activities:
  Purchases of short-term investments . . . . . . . . . . . . . . . . . . . . .    (33,127,343)             -
  Expenditures for network. . . . . . . . . . . . . . . . . . . . . . . . . . .    (28,000,227)   (16,704,704)
  Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . .    (12,655,138)    (4,776,951)
                                                                                  ------------   ------------
          Net cash used in investing activities . . . . . . . . . . . . . . . .    (73,782,708)   (21,481,655)
                                                                                  ------------   ------------

Cash flows from financing activities:
  Borrowings on notes payable . . . . . . . . . . . . . . . . . . . . . . . . .     30,000,000     12,000,000
  Borrowings on sale/leaseback. . . . . . . . . . . . . . . . . . . . . . . . .      5,502,720              -
  Repayments of notes payable . . . . . . . . . . . . . . . . . . . . . . . . .    (30,348,912)       (26,905)
  Principal payments on capital leases. . . . . . . . . . . . . . . . . . . . .     (5,477,652)      (934,098)
  Issuance of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . .              -     83,700,000
  Issuance of mandatorily redeemable preferred stock. . . . . . . . . . . . . .    150,000,000              -
  Issuance costs related to common and preferred stock offerings. . . . . . . .       (208,817)    (1,846,099)
  Issuance costs related to follow-on offering. . . . . . . . . . . . . . . . .       (406,368)             -
  Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . .        822,684      1,682,492
  Treasury stock acquired . . . . . . . . . . . . . . . . . . . . . . . . . . .         (1,145)             -
                                                                                  ------------   ------------
          Net cash provided by financing activities . . . . . . . . . . . . . .    149,882,510     94,575,390
                                                                                  ------------   ------------

Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . .     13,092,664     57,951,591

Cash and cash equivalents at the beginning of the period. . . . . . . . . . . .     18,240,096      5,518,117
                                                                                  ------------   ------------
Cash and cash equivalents at the end of the period. . . . . . . . . . . . . . .  $  31,332,760   $ 63,469,708
                                                                                  ============   ============

Supplemental disclosure of cash flow information:
  Cash paid during the period for:
     Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   2,553,842   $    511,585
     Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         49,893              -
  Non-cash investing and financing activities:
     Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     23,841,953     19,397,618
     Preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . . . .      6,056,964        339,726
     Preferred stock accretion. . . . . . . . . . . . . . . . . . . . . . . . .         59,221        257,719
     Expenditures for offering costs included in accrued expenses . . . . . . .        108,084              -
     Expenditures for network included in accounts payable. . . . . . . . . . .      2,048,508              -
     Purchases of property and equipment included in accounts payable . . . . .      2,228,648              -
     Expenditures for network included in accrued expenses. . . . . . . . . . .        400,000              -
     Purchases of property and equipment included in accrued expenses . . . . .      1,186,889              -
     Conversion of notes payable into common stock. . . . . . . . . . . . . . .              -     10,000,000
     Conversion of redeemable preferred stock into common stock . . . . . . . .              -      6,238,096
</TABLE>
                  The accompanying notes are an integral
                    part of these financial statements.

<PAGE>
<PAGE>
                                                                          6
                   NETWORK ACCESS SOLUTIONS CORPORATION

                       NOTES TO FINANCIAL STATEMENTS
                                (unaudited)


1. Business

   Network Access Solutions Corporation, or the Company, was originally
incorporated in the Commonwealth of Virginia on December 19, 1994. On
August 3, 1998, the Company reincorporated in the State of Delaware. Prior
to the reincorporation, the Company had authorized 10,000 shares of common
stock, of which 7,803 shares were issued and outstanding. As of August 3,
1998, the Company was recapitalized with authorized capital stock of
15,000,000 shares of common stock, $.001 par value per share and 10,000,000
shares of preferred stock, $.001 par value per share. On March 18, 1999,
the Company increased the authorized common stock to 50,000,000 shares with
a par value of $.001 per share. In conjunction with this reincorporation
and recapitalization, the Company changed from a July 31 year-end to a
calendar year-end. On March 18, 1999, the Company and its Board of
Directors declared a two for one stock split, effected as a stock dividend,
of its common stock. On May 7, 1999, the Company and its Board of Directors
declared a 2.25 for one stock split, effected as a stock dividend, of its
common stock. All share information has been retroactively adjusted for all
periods presented to reflect the new capital structure and stock splits.

   The Company, which is a major provider of high-speed data
communications services and related applications, provides network
services, telecommunications products and equipment and consulting services
to business customers. Through its CopperNet branded service, the Company
offers its customers high-speed, continuous connectivity using Digital
Subscriber Line (DSL) technology. The Company provides metropolitan area
and wide area network services, manages and monitors its customers'
networks, sells telecommunications equipment, designs networks for its
customers, installs the equipment and provides related services. The
Company currently offers its DSL-based networking solutions in the
following nine cities and their surrounding markets: Baltimore, Boston, New
York, Norfolk, Philadelphia, Pittsburgh, Richmond, Washington, D.C., and
Wilmington.

2. Summary of Significant Accounting Policies

     Unaudited Interim Financial Statements

   The unaudited balance sheet as of September 30, 2000, the unaudited
statements of operations for the three months and nine months ended
September 30, 2000 and 1999 and the unaudited statement of cash flows for
the nine months ended September 30, 2000 and 1999 have been prepared in
accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally



<PAGE>
<PAGE>
                                                                          7
accepted accounting principles, and these financial statements should be
read in conjunction with the financial statements and related notes
included in the Company's annual report on Form 10-K for the year ended
December 31, 1999. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the nine months
ended September 30, 2000 are not necessarily indicative of results that may
be expected for the year ending December 31, 2000.

     Revenue Recognition

   The Company's revenue is derived from product sales and consulting
services and from network services. The Company recognizes revenue on the
sale of its products when a valid purchase order is received, shipment
occurs, collection is probable and no significant obligations remain
related to the completion of installation and performance of support
services.  The Company provides consulting services, including network
planning, design, and integration services, under time-and-material type
contracts and recognizes revenue as services are performed and as costs are
incurred.

   The Company provides network services, including DSL-based services,
under monthly and fixed rate service contracts. Revenue on monthly
contracts is recognized when services are performed. Revenue on fixed rate
service contracts is recognized as costs are incurred over the related
contract period, which generally does not exceed one year. Payments
received in advance of providing services are recorded as deferred revenue
until the period in which such services are provided. Revenue related to
installation and activation fees are recognized to the extent of
incremental direct costs incurred. Any excess installation and activation
fees over direct costs are deferred and amortized over the service
contract. Such revenue historically has not significantly exceeded the
direct costs. In certain situations, the Company will waive non-recurring
installation and activation fees in order to obtain a sale. The Company
expenses the related direct costs as incurred.

     Property and Equipment

   Property and equipment consists of network costs associated with the
development and implementation of the DSL networks, office and computer
equipment, and furniture and fixtures. The costs associated with the DSL
network under development are composed of collocation fees, equipment,
equipment held under capital leases, and equipment installation. These
assets are stated at cost. The Company leases certain of its equipment
under capital lease agreements. The capital lease assets are stated at the
lower of the present value of the net minimum lease payments or the fair
value at the inception of the lease, and are depreciated over the shorter
of the estimated useful life or the lease term. Depreciation of office and
computer equipment and furniture and fixtures is computed using the
straight-line method, generally over three to five years, based upon
estimated useful lives, commencing when the assets are placed in service.



<PAGE>
<PAGE>
                                                                          8
The depreciation of the DSL network costs commences as individual network
components are placed in service and are depreciated over two to five
years. Expenditures for maintenance and repairs are expensed as incurred.
When assets are retired or disposed, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss
is recognized in operations for the period.

     Net Loss Per Share

   The Company presents basic and diluted net loss per share. Basic net
loss per share is computed based on the weighted average number of
outstanding shares of common stock. Diluted net loss per share adjusts the
weighted average for the potential dilution that could occur if stock
options, warrants or other convertible securities were exercised or
converted into common stock. Diluted net loss per share for the three
months and nine months ended September 30, 2000 and 1999, is the same as
basic net loss per share because the effects of such items were anti-
dilutive.

     Stock-Based Compensation

   The Company measures compensation expense for its employee stock-based
compensation using the intrinsic value method and provides pro forma
disclosures of net loss as if the fair value method had been applied in
measuring compensation expense. Under the intrinsic value method of
accounting for stock-based compensation, when the exercise price of options
granted to employees is less than the estimated fair value of the
underlying stock on the date of grant, deferred compensation is recognized
and is amortized to compensation expense over the applicable vesting
period.

     Segment Reporting

   The Company has determined its reportable segments based on the
Company's method of internal reporting, which disaggregates its business by
product category. The Company's reportable segments are: (i) product sales
and consulting services, and (ii) network services. The network services
segment provides local, metropolitan and wide area data communications
services to customers. This segment also provides a wide variety of other
services to customers, including remote network management and monitoring,
network security, virtual private networks, e-commerce and CopperNet, the
Company's high-speed, continuously connected DSL access to
telecommunications networks. The product sales and consulting services
segment provides sales of selected equipment from manufacturing partners,
as well as nonrecurring service activation and installation, network
integration, on site network management, network security consulting and
professional services. Engineers select product solutions based upon
customized network designs to improve the customers' operations and network
efficiencies. In addition, the product sales and consulting services
segment provides maintenance and installation of equipment, some of which



<PAGE>
<PAGE>
                                                                          9
may be provided through third party providers under contract. The Company's
business is currently conducted principally in the eastern United States.
There are no foreign operations.

     Recent Accounting Pronouncements

   In July 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 137, "Deferral of
the Effective Date of FAS 133" which defers the effective date of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
133 is effective for all quarters of fiscal years beginning after June 15,
2000. The Company is in the process of determining the effect of adopting
this standard.

   In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) Number 101, "Revenue Recognition in Financial
Statements." This bulletin will become effective for the Company no later
than the quarter ending December 31, 2000. This bulletin establishes more
clearly defined revenue recognition criteria than previously existing
accounting pronouncements, and specifically addresses revenue recognition
requirements for non-refundable fees, such as activation fees, collected by
a company upon entering into an arrangement with a customer, such as an
arrangement to provide telecommunications services. The Company is
currently evaluating the full impact of this bulletin to determine the
impact on its financial position and results of operations.

     Reclassification of Prior Period Amounts

   Certain amounts in the 1999 financial statements have been reclassified
to conform to the 2000 financial statement presentation.

3. Property and Equipment

   Property and equipment consists of the following:

<PAGE>
<PAGE>
                                                                         10

                                                 As of          As of
                                             September 30,  December 31,
                                                 2000           1999
                                              ------------   ------------
                                              (unaudited)

   Network placed in service. . . . . . .    $  80,706,572  $  40,291,575
   Network development in process . . . .       19,700,852     12,790,617
   Office equipment and computer systems.       23,496,405      5,925,278
   Furniture and fixtures . . . . . . . .        4,998,550      1,428,356
   Less accumulated depreciation. . . . .      (22,954,387)    (5,338,156)
                                              ------------   ------------
   Property and equipment, net. . . . . .    $ 105,947,992  $  55,097,670
                                              ============   ============

   The Company's network includes equipment under capital leases,
equipment, installation, and collocation fees. Collocation fees represent
nonrecurring fees paid to obtain central office space for location of
certain equipment. When a new portion of the Company's network has been
completed and made available for use, the related cost is transferred from
network development in process to network placed in service. As of
September 30, 2000 and December 31, 1999, the recorded cost of the network
equipment under capital leases was $47,279,761 and $22,939,012,
respectively. Accumulated amortization for this equipment under capital
leases was $11,331,243 and $2,998,446 as of September 30, 2000 and December
31, 1999, respectively.

   During the three months ended September 30, 2000, the Company announced
measures to streamline operations and re-focus its effort on higher margin
business.  This included a reassessment of the Company's network
infrastructure which identified approximately $14 million of network assets
under development to be sold or otherwise disposed.  The Company believes
it will be able to recover the costs of these assets through one or a
combination of alternatives it is presently evaluating.

4. Stock-Based Compensation

   On July 23, 1998, the Company adopted the 1998 Incentive Stock Plan
(the "Plan"), under which incentive stock options, non-qualified stock
options, stock appreciation rights, restricted or unrestricted stock
awards, phantom stock, performance awards or any combination thereof may be
granted to the Company's employees and certain other persons in accordance
with the Plan. The Board of Directors, which administers the Plan,
determines the number of options granted, the vesting period and the
exercise price. The Board of Directors may terminate the Plan at any time.
With respect to options granted prior to February 15, 2000, options granted
under the Plan are immediately exercisable into restricted shares of the
Company's common stock upon award and expire ten years after the date of
grant. The restricted common stock generally vests over a three or four
year period. Subsequent to exercise, unvested shares of restricted stock
cannot be transferred until such shares have vested. Upon voluntary

<PAGE>
<PAGE>
                                                                         11
termination, unvested shares of restricted stock can be repurchased by the
Company at the lower of fair value or the exercise price. Options granted
subsequent to February 15, 2000, under the Company's "Year 2000 Program" of
administering the Plan, vest and are exercisable cumulatively over a three-
year period commencing with the first anniversary of the date of grant, and
expire ten years after the date of grant. At December 31, 1998, 9,000,000
shares were reserved for issuance under the Plan. Effective November 1,
1999 (as approved by the Company's stockholders on June 6, 2000), the
Company increased the number of shares of common stock reserved for
issuance under the Plan to 13,250,000.

   As of September 30, 2000 and December 31, 1999, a total of 10,149,549
and 10,973,222, respectively, of stock options outstanding had been granted
at exercise prices ranging from $0.09 to $34.50 per share. At September 30,
2000, 7,894,649 of these options were exercisable into restricted shares of
our common stock that generally vest over a three- to four-year period.
Stock option activity during the nine months ended September 30, 2000, was
as follows:

<TABLE>
<CAPTION>
                                                                                    Weighted
                                                                       Range of      Average
                                                           Stock       Exercise     Exercise
                                                          Options       Prices        Price
                                                        ----------   ------------   ---------
<S>                                                            <C>            <C>        <C>

   Options outstanding, December 31, 1999 . . . . . .   10,973,222   $0.09 -32.00   $   1.71
   Options granted. . . . . . . . . . . . . . . . . .    2,698,300   $4.00 -34.50   $  14.80
   Options exercised. . . . . . . . . . . . . . . . .   (2,055,450)  $0.09 -20.63   $   0.39
   Options canceled . . . . . . . . . . . . . . . . .   (1,466,523)  $0.09 -34.50   $   7.76
                                                        ----------   ------------   ---------
   Options outstanding, September 30, 2000. . . . . .   10,149,549   $0.09 -34.50   $   4.59
                                                        ==========   ============   =========
</TABLE>

   In certain instances, the Company has determined the fair value of the
underlying common stock on the date of grant was in excess of the exercise
price of the options. As a result, the Company recorded deferred
compensation of $106,663 and $9,387,540, respectively, for the three months
and nine months ended September 30, 2000. This amount was recorded as an
increase to additional paid-in capital and is being amortized as a charge
to operations over the vesting periods which range from three to four years
of the underlying restricted common stock. The Company recognized stock
compensation expense of  $1,992,345 and $5,436,606, respectively, for the
three months and nine months ended September 30, 2000.

   SFAS No. 123, Accounting for Stock-Based Compensation, encourages
adoption of a fair value-based method for valuing the cost of stock-based
compensation. However, it allows companies to continue to use the intrinsic
value method for options granted to employees and disclose pro forma net
loss and loss per share. Had compensation cost for the Company's stock-
based compensation plans been determined consistent with SFAS No. 123, the
Company's net loss and loss per share during the periods set forth below
would have been as follows:

<TABLE>
<CAPTION>
                                                             For the three months            For the nine months
                                                              ended September 30,            ended September 30,
                                                          ---------------------------    ---------------------------
                                                              2000           1999           2000           1999
                                                          ------------   ------------   ------------    ------------
<S>                                                       <C>            <C>            <C>            <C>
Net loss applicable to common stockholders,
  as reported . . . . . . . . . . . . . . . . . . . . .   $ 39,260,885   $ 11,569,793   $ 94,203,912   $  25,033,913
Pro forma net loss applicable to common
  stockholders. . . . . . . . . . . . . . . . . . . . .     42,519,708     11,725,461    102,385,560      25,934,308
Net loss per share applicable to common
  stockholders, as reported, basic and diluted. . . . .          (0.83)         (0.26)         (2.02)          (0.63)
Pro forma net loss per share applicable to common
  stockholders, basic and diluted . . . . . . . . . . .          (0.90)         (0.26)         (2.20)          (0.65)

</TABLE>


<PAGE>
<PAGE>
                                                                         12
  The weighted-average fair value of options granted during the three
months and nine months ended September 30, 2000 was approximately $5.98 and
$15.33, respectively, based on the Black-Scholes option pricing model. Upon
termination, unvested shares of restricted stock are repurchased by the
Company at the lower of the exercise price or fair market value.

  The fair value of each option is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the nine months ended September 30,
2000: Dividend yield of 0%; expected volatility of 92%; risk-free interest
rates of 5.79% to 6.74%; and expected term of five years.

  As of September 30, 2000, the weighted average remaining contractual
life of the options was 8.47 years.

5.   Debt and Capital Lease Obligations

  The Company currently has debt and capital lease facilities available of
approximately $135.5 million. Of this amount, Lucent (through its
acquisition of Ascend) has provided the Company with a $95.0 million
capital lease facility to fund acquisitions of certain Lucent equipment,
under which $23.6 million was outstanding as of September 30, 2000. The
terms of the Company's capital leases range from three to four years,
require monthly lease payments and have an interest rate of 9.5%. Lucent
has the right to withdraw or suspend further advances if the Company's
interconnection agreements with Bell Atlantic are not renewed or are
terminated, or if certain key employees terminate their employment with the
Company without competent replacement in the reasonable commercial judgment
of Lucent. In addition, the Company has arrangements with other vendors
that permit the Company to finance up to $35.5 million of equipment and
other assets and $5.0 million of working capital, under a variety of
applicable interest rates ranging from 6.0% to 13.3%. An aggregate of $47.3
million was outstanding under these arrangements, including the Lucent
facilities, as of September 30, 2000.

  In connection with the Company's strategic financing agreement with SBC
Communications, Inc. (SBC) and Telefonos de Mexico, S.A. de C.V. (Telmex),
SBC and Telmex loaned the Company a total of $30 million ($15 million each)
until the Company received the necessary regulatory approvals to complete
the preferred stock sale.  The loans bore interest at a rate of prime plus
2% during the time they were outstanding.  Upon obtaining the regulatory
approvals, the Company exchanged the loans for preferred stock and received
the remaining proceeds upon the consummation of the preferred stock sale on
March 7, 2000, net of the principal and accrued interest on these interim
borrowings.

6.   Mandatorily Redeemable Preferred Stock and Stockholders' Equity

  On March 7, 2000, the Company issued 1,500,000 shares of Series B
Mandatorily Redeemable Preferred Stock (preferred stock) for total proceeds
of $150,000,000 excluding direct issuance costs of $208,817.


<PAGE>
<PAGE>
                                                                         13
  The convertible preferred stock is non-voting and pays a 7.0% dividend,
which can be satisfied with either additional stock or cash.  Each $100.00
share of preferred stock is convertible at any time at the election of the
holder into 3.2258 shares of the Company's common stock, or a total of
4,838,700 common shares.  The preferred stock may be called by the Company
for mandatory conversion into its common stock at any time between two and
five years after the original issue date, provided the Company's common
stock is trading above $31.00 per share.  On each anniversary of the issue
date, beginning on the second anniversary and ending on the seventh
anniversary, the holders of the preferred stock may request that the
Company redeem the shares for a cash amount equal to $100 per share plus
unpaid dividends.  The Company may postpone such right until the following
year for all but the seventh year if its common stock share price is below
$31.00 for a specified period preceding the anniversary date.  The Company
agreed to use 50% of the proceeds from the preferred stock to more closely
align its network and business operations with the future network and
business operations of both SBC and Telmex.  If SBC and Telmex convert
their preferred stock positions into the Company's common stock, SBC will
own approximately 4.9% and Telmex will own approximately 4.6% of the
Company's equity on a fully diluted basis.  SBC and Telmex have the right
to maintain their percentage equity ownership interests in the Company's
common stock through a right of primary offer mechanism in the financing
agreement.  This right permits them to purchase, in any subsequent offering
of the Company's stock, on the same terms and conditions as the stock is
offered to third parties, an amount of stock that will allow them to
maintain their respective percentage ownership interests.  Through a
separate agreement with the Company's present principal stockholders,
Spectrum Equity Investors II, L.P. and Jonathon P. Aust, the Company's
Chief Executive Officer, SBC and Telmex also have a right of first offer to
purchase, in certain circumstances, any shares that these stockholders may
wish to sell in the future.

  The Preferred Stock activity is summarized as follows:

<TABLE>
<CAPTION>
                                                             Shares         Amount
                                                          ------------   ------------
<S>                                                       <C>            <C>

  Balance, December 31, 1999. . . . . . . . . . . . . .              -   $          -
  Issuance of shares. . . . . . . . . . . . . . . . . .      1,500,000    150,000,000
  Issuance costs. . . . . . . . . . . . . . . . . . . .              -       (208,817)
  Accrued dividends . . . . . . . . . . . . . . . . . .              -      6,056,964
  Accretion to redemption price . . . . . . . . . . . .              -         59,221
                                                          ------------   ------------
  Balance, September 30, 2000 . . . . . . . . . . . . .      1,500,000   $155,907,368
                                                          ============   ============
</TABLE>


<PAGE>
<PAGE>
                                                                         14
7.   Segment Information

  The Company evaluates the performance of its segments and allocates
resources to them based on gross profit. There are no intersegment
revenues. The table below presents information about the reported gross
profit (loss) of the Company's reportable segments for the three months and
nine months ended September 30, 2000 and 1999.  During the first quarter of
2000, the Company changed its internal organization in a manner that caused
the composition of its reportable segments to change from three to two
reportable segments.  The corresponding information for earlier periods has
been reclassified to conform to the new presentation of two reportable
segments. Asset information is not reported for the product sales and
consulting services segment, as this data is not considered by the Company
in making its decisions regarding operating matters.

<TABLE>
<CAPTION>
                                                                 Product
                                                                Sales and
                                                               Consulting    Network    Reconciling
                                                                Services    Services       Items       Total
                                                               ----------  ----------   ----------  ----------
<S>                                                                   <C>         <C>          <C>         <C>
   As of and for the three months ended                                     (dollars in thousands)
      September 30, 2000:
         Revenue. . . . . . . . . . . . . . . . . . . . . .    $    6,219  $    2,880   $        -  $    9,099
                                                               ==========  ==========   ==========  ==========
         Gross profit (loss) (1). . . . . . . . . . . . . .    $      638  $   (3,622)  $        -  $   (2,984)
                                                               ==========  ==========   ==========  ==========
         Property and equipment, net. . . . . . . . . . . .    $        -  $   81,434   $   24,514  $  105,948
                                                               ==========  ==========   ==========  ==========
   As of and for the three months ended
      September 30, 1999:
         Revenue. . . . . . . . . . . . . . . . . . . . . .    $    3,639  $      529   $        -  $    4,168
                                                               ==========  ==========   ==========  ==========
         Gross profit (loss) (1). . . . . . . . . . . . . .    $      554  $     (830)  $        -  $     (276)
                                                               ==========  ==========   ==========  ==========
         Property and equipment, net. . . . . . . . . . . .    $        -  $   38,571   $    5,551  $   44,122
                                                               ==========  ==========   ==========  ==========

   As of and for the nine months ended
      September 30, 2000:
         Revenue. . . . . . . . . . . . . . . . . . . . . .    $   15,669  $    7,247   $        -  $   22,916
                                                               ==========  ==========   ==========  ==========
         Gross profit (loss) (1). . . . . . . . . . . . . .    $    2,102  $   (9,286)  $        -  $   (7,184)
                                                               ==========  ==========   ==========  ==========
         Property and equipment, net. . . . . . . . . . . .    $        -  $   81,434   $   24,514  $  105,948
                                                               ==========  ==========   ==========  ==========
   As of and for the nine months ended
      September 30, 1999:
         Revenue. . . . . . . . . . . . . . . . . . . . . .    $   11,874  $      814   $        -  $   12,688
                                                               ==========  ==========   ==========  ==========
         Gross profit (loss) (1). . . . . . . . . . . . . .    $    1,990  $   (1,328)  $        -  $      662
                                                               ==========  ==========   ==========  ==========
         Property and equipment, net. . . . . . . . . . . .    $        -  $   38,571   $    5,551  $   44,122
                                                               ==========  ==========   ==========  ==========
</TABLE>
_______________
  (1) Adjustments that are made to the total of the segments' gross profit
      in order to arrive at loss before income taxes are as follows:

<TABLE>
<CAPTION>
                                                             For the three months            For the nine months
                                                              ended September 30,            ended September 30,
                                                          ---------------------------    ---------------------------
                                                              2000           1999           2000           1999
                                                          ------------   ------------   ------------    ------------
<S>                                                       <C>            <C>            <C>            <C>
                                                                            (dollars in thousands)

  Gross profit (loss) (exclusive of depreciation and
     amortization presented below). . . . . . . . . . .   $     (2,984)  $       (276)  $     (7,184)  $         662
  Operating expenses:
     Selling, general and administrative. . . . . . . .         23,992          8,809         59,713          16,726
     Amortization of deferred compensation on
       stock options. . . . . . . . . . . . . . . . . .          1,992          1,431          5,437           6,699
     Depreciation and amortization. . . . . . . . . . .          8,210          1,612         17,616           2,497
                                                          ------------   ------------   ------------    ------------
  Loss from operations. . . . . . . . . . . . . . . . .        (37,178)       (12,128)       (89,950)        (25,260)
     Interest income. . . . . . . . . . . . . . . . . .          1,794            936          5,110           1,301
     Interest expense . . . . . . . . . . . . . . . . .         (1,079)          (377)        (2,624)           (549)
     Follow-on offering costs . . . . . . . . . . . . .              -              -           (574)              -
                                                          ------------   ------------   ------------    ------------
  Loss before income taxes. . . . . . . . . . . . . . .   $    (36,463)  $    (11,569)  $    (88,038)  $     (24,508)
                                                          ============   ============   ============    ============
</TABLE>

<PAGE>
<PAGE>
                                                                         15
8. Legal Proceedings

   On November 3, 2000, InterConnX, Inc. served a summons and complaint
against the Company in the United States District Court, Eastern District
of Virginia, alleging that InterConnX has been damaged by a series of
purported breaches of contracts for the sale of goods by the Company.
InterConnX is seeking $1.2 million for these damages. The Company has
initiated a preliminary review of these allegations, and although the
outcome of any legal proceeding cannot be predicted with certainty, the
Company's management presently believes that there are defenses to the
claims by InterConnX and that any adverse ruling would not have a material
adverse effect on the Company's business, financial condition, results of
operations or cash flows.

9. Subsequent Events

   On November 8, 2000 the Company announced additional measures to reduce
its expenses as part of its plan to streamline operations and re-focus
sales efforts on higher margin business. These measures are designed to
result in a reduction of operating expenses primarily attributable to a
reduction of the Company's workforce.  The Company is currently evaluating
the financial impact of this event that will be recorded in the fourth
quarter of 2000.


<PAGE>
<PAGE>
                                                                         16
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS

   The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements and
the related notes included elsewhere in this Form 10-Q and the financial
statements and related notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in our Form 10-K.
Historical results and percentage relationships among any amounts in the
Financial Statements are not expected to be indicative of trends in
operating results for any future period.

Historical Overview

   We began operations in 1995 by selling data communications products
made by others and providing consulting services for wide area networks.
Shortly thereafter, we began offering a wide range of networking solutions
for the data communications needs of businesses. We provide network
integration services, where we design our customers' networks and sell and
install related network equipment. We also manage our customers' networks,
ensure the security of their networks and provide related professional
services. From 1995 through 1998, our revenue was derived primarily from
product sales and consulting services. In prior periods, our business had
primarily depended on AT&T and AstraZeneca for revenue from our product
sales and consulting services. AT&T accounted for 2.1% and 35.2% of total
revenue for the nine months ended September 30, 2000 and 1999,
respectively, while AstraZeneca accounted for 4.4% and 10.0% of total
revenue for the nine months ended September 30, 2000 and 1999,
respectively.  (See "Recent Developments" below for a discussion of the
Company's re-focused business strategy.)

   In 1996, we began to pursue deployment of a series of city-wide
networks that enable DSL services. In February 1997, we began developing
technical standards for delivery of DSL-based services within our target
markets through a joint effort with Bell Atlantic. In April 1997, we
entered into our first interconnection agreement with Bell Atlantic, which
allowed us to use their copper telephone lines and to collocate our
equipment in telephone company offices known as "central offices." Central
offices serve as the central connection point for all copper telephone
lines in a local area and form the basis for our network and a telephone
company's network. We began CopperNet service trials in November 1997 and
began commercially offering our CopperNet service in Philadelphia and
Washington, D.C. in January 1999.

   We currently offer our DSL-based networking solutions in the following
nine northeast and mid-Atlantic cities and their surrounding markets:
Baltimore, Boston, New York, Norfolk, Philadelphia, Pittsburgh, Richmond,
Washington D.C. and Wilmington.

   As of September 30, 2000, we had installed our equipment in more than
500 central offices.  The majority of these central offices are within our


<PAGE>
<PAGE>
                                                                         17
northeast and mid-Atlantic markets. As of September 30, 2000, we had
installed 9,608 lines in our northeast and mid-Atlantic regions.

   From February 1997 through the end of the third quarter 2000, we have
invested substantial amounts in the development and deployment of the
network we use to deliver our CopperNet service. We have funded the
deployment of our CopperNet services through proceeds received from a
preferred and common stock financing in August 1998, issuance of promissory
notes that were converted into common stock during the three months ended
June 30, 1999, capital lease financing, our initial public offering and the
proceeds received from the sale of $150 million of our Series B Mandatorily
Redeemable Preferred Stock (preferred stock) to SBC and Telmex, as
described in more detail in Note 6 of Notes to Financial Statements.
During this period, we increased our operating expenses and capital
expenditures in an effort to continue to rapidly expand our equipment and
human resource-related infrastructure and DSL-based network services. We
expect to continue to incur substantial operating losses, net losses and
negative cash flow during our penetration of each market we serve. Although
we continue to derive the majority of our revenue from our product sales
and consulting services, we expect that over time revenue from network
services, which includes our CopperNet services, will constitute the more
significant portion of our total revenue.

Recent Developments

   In September 2000, we announced plans to reduce capital expenditure
requirements and to pursue a larger share of high-margin retail business.
In November 2000, we announced additional measures to reduce our expenses
as part of this plan. These measures included a reduction of operating
expenses primarily attributable to a reduction of our workforce.

Revenue

   Revenue consists of:

     Network services

   We charge monthly service fees for access to our CopperNet local,
metropolitan and wide area networks. We also provide a wide variety of
network services to customers, including remote network management and
monitoring, network security, dedicated private connections to our network,
Internet access, e-commerce and other data applications. Some of these
services are delivered to customers using resources from third-party
providers under contract to us.

     Product sales and consulting services

   As part of our overall data communications solutions, we sell data
communications products, including the network and security components that
our customers require in order to build, maintain and secure their
networks. We sell, install and configure selected equipment from our
manufacturing partners. Our engineers provide product solutions to improve


<PAGE>
<PAGE>
                                                                         18
our customers' operations and network efficiencies. Our engineers refer to
a standard network design that they seek to customize to fit the needs of
each customer. We also bill our customers for network design and
integration, on-site network management, staging, installation, maintenance
and warranty services, network security and professional services based on
time and materials for contracted services. In addition, we derive revenue
from the maintenance and installation of equipment. Some of these services
may be provided through third-party providers under contract to us.

Operating Expenses

   Operating expenses consists of:

     Network services costs

   Our network services costs generally consist of non-employee-based
charges such as:

   o  CopperNet service fees. We pay a monthly service fee for each copper
      line and for each collocation arrangement, as well as usage fees for
      the support services we obtain from the traditional telephone
      companies we work with in order to serve our CopperNet customers.
      Sometimes, we must pay these companies to perform special work, such
      as preparing a telephone line to use DSL technology, when such work
      is required in order to serve a particular client.

   o  Other access costs and levied line expense. We pay installation
      charges and monthly fees to competitive telecommunications companies
      or traditional telephone companies for other types of access, other
      than through our CopperNet network, which we provide to customers as
      part of our network services.

   o  Backbone connectivity charges. We incur charges for our fiber optic
      network, or backbone, within a metropolitan area, typically from a
      competitive telecommunications company or a traditional telephone
      company, and for the backbone interconnecting our networks in
      different metropolitan areas from a long distance carrier. We pay
      these carriers a one-time installation and activation fee and a
      monthly service fee for these leased network connections.

   o  Network operations expenses. We incur various recurring costs at our
      network operations center. These costs include data connections,
      engineering supplies and certain utility costs.

   o  Equipment operating lease expenses. In the future, we may decide to
      enter into operating leases for some or all of the equipment we use
      in our network, including the DSL equipment we use in the
      traditional telephone company's central office locations and
      equipment installed on the customer's premises. Currently, we
      generally use capital leases to finance the acquisition of
      substantially all of this equipment, which we depreciate over a
      range of two to five years.


<PAGE>
<PAGE>
                                                                         19
     Product sales and consulting services costs

   We purchase equipment from various vendors whose technology and
hardware solutions we recommend to our customers. We do not manufacture any
of this equipment. Consulting services cost of revenue consists of charges
for hardware maintenance, installation and certain contract services that
we purchase from third parties.

     Selling, general and administrative expenses

   Our selling, general and administrative expenses include all employee-
based charges, including field technicians, engineering support, customer
service and technical support, information systems, billing and
collections, general management and overhead and administrative functions.

   o  Sales and marketing expenses. We distribute our products and
      services through direct and indirect sales efforts, agents and
      telemarketing. Our direct sales force focuses on selling CopperNet
      connectivity to small- and medium-sized businesses and consulting
      services and network services to medium- and large-sized businesses.
      We indirectly sell our full complement of products and services,
      including our network services, consulting services and products,
      through network service providers, including long distance and local
      carriers and other networking services companies.

   o  General and administrative expenses.  Our general and administrative
      expenses include the cost of employees located in our headquarters
      as well as the markets we serve.  Certain functions, such as
      customer service, network operations, finance, billing and
      administrative services, are likely to remain centralized in order
      to achieve economies of scale. We pay licensing fees for standard
      systems to support our business processes, such as billing systems.

     Amortization of deferred compensation on stock options

   We had outstanding stock options to purchase a total of 10,149,549
shares of common stock as of September 30, 2000 and 10,973,222 shares of
common stock as of December 31, 1999, respectively, at weighted average
exercise prices of $4.59 and $1.71 per share, respectively. At September
30, 2000,  7,894,649 of these options were exercisable for restricted
shares of our common stock that generally vest over a three- to four-year
period. In certain instances, we determined the fair value of the
underlying common stock on the date of grant was in excess of the exercise
price of the options. As a result, we recorded deferred compensation of
$107,000 and $2.1 million for the three months ended September 30, 2000 and
1999, respectively, and $9.4 million and $23.1 million for the nine months
ended September 30, 2000 and 1999, respectively. We recorded this amount as
a reduction to stockholders' equity that is amortized as a charge to
operations over the vesting periods. Related to these options we recognized
$2.0 million and $1.4 million of stock compensation expense for the three
months ended September 30, 2000 and 1999, respectively, and $5.4 million


<PAGE>
<PAGE>
                                                                         20
and $6.7 million of stock compensation expense for the nine months ended
September 30, 2000 and 1999, respectively.

     Depreciation and amortization

   Depreciation expense arising from our network and equipment purchases
for our customers' premises is significant and is expected to continue to
increase as we deploy further networks and expand our customer base.
Collocation fees, build-out costs, including one-time installation and
activation fees, and other DSL-based equipment costs are capitalized and
amortized over a range of two to five years.

Interest Income (Expense), Net

   Interest income (expense), net, primarily consists of interest income
from our cash and cash equivalents and short-term investments less interest
expense associated with our debt and capital leases. Our capital
expenditures are not expected to increase significantly in the future.
Accordingly, our interest expense associated with our capital leases has
increased, but future growth will be closely related to the amount of our
capital expenditures.  Interest income will decrease as our cash balances
decline.

Results of Operations

   The following tables present our results of operations data and the
components of net loss in dollars and as a percentage of our revenue.  (See
Note 7 of Notes to Financial Statements for certain additional financial
information about our segments.)



<PAGE>
<PAGE>
                                                                         21
<TABLE>
<CAPTION>
                                                             For the three months            For the nine months
                                                              ended September 30,            ended September 30,
                                                          ---------------------------    ---------------------------
                                                              2000           1999           2000           1999
                                                          ------------   ------------   ------------    ------------
<S>                                                       <C>            <C>            <C>            <C>
                                                                       (unaudited; dollars in thousands)
  Revenue:
     Product sales and consulting services. . . . . . .   $      6,219   $      3,639   $     15,669   $      11,874
     Network services . . . . . . . . . . . . . . . . .          2,880            529          7,247             814
                                                          ------------   ------------   ------------    ------------
       Total revenue. . . . . . . . . . . . . . . . . .          9,099          4,168         22,916          12,688
                                                          ------------   ------------   ------------    ------------
  Operating expenses:
     Product sales and consulting services costs. . . .          5,581          3,085         13,567           9,884
     Network services costs . . . . . . . . . . . . . .          6,502          1,359         16,533           2,142
     Selling, general and administrative. . . . . . . .         23,992          8,809         59,713          16,726
     Amortization of deferred compensation on
         stock options. . . . . . . . . . . . . . . . .          1,992          1,431          5,437           6,699
     Depreciation and amortization. . . . . . . . . . .          8,210          1,612         17,616           2,497
                                                          ------------   ------------   ------------    ------------
       Total operating expenses . . . . . . . . . . . .         46,277         16,296        112,866          37,948
                                                          ------------   ------------   ------------    ------------
  Loss from operations. . . . . . . . . . . . . . . . .        (37,178)       (12,128)       (89,950)        (25,260)
  Interest income (expense), net. . . . . . . . . . . .            715            559          2,486             753
  Follow-on offering costs. . . . . . . . . . . . . . .              -              -           (574)              -
  Provision (benefit) for income taxes. . . . . . . . .             50              1             50             (71)
                                                          ------------   ------------   ------------    ------------
  Net loss. . . . . . . . . . . . . . . . . . . . . . .   $    (36,513)  $    (11,570)  $    (88,088)  $     (24,436)
                                                          ============   ============   ============    ============

</TABLE>

<TABLE>
<CAPTION>
                                                             For the three months            For the nine months
                                                              ended September 30,            ended September 30,
                                                          ---------------------------    ---------------------------
                                                              2000           1999           2000           1999
                                                          ------------   ------------   ------------    ------------
<S>                                                       <C>            <C>            <C>            <C>
                                                                      (unaudited; percentage of revenue)
  Revenue:
     Product sales and consulting services. . . . . . .       68.3%          87.3%          68.4%          93.6%
     Network services . . . . . . . . . . . . . . . . .       31.7           12.7           31.6            6.4
                                                          ------------   ------------   ------------    ------------
       Total revenue. . . . . . . . . . . . . . . . . .      100.0          100.0          100.0          100.0
                                                          ------------   ------------   ------------    ------------
  Operating expenses:
     Product sales and consulting services costs. . . .       61.3           74.1           59.2           77.9
     Network services costs . . . . . . . . . . . . . .       71.5           32.6           72.1           16.9
     Selling, general and administrative. . . . . . . .      263.7          211.3          260.6          131.8
     Amortization of deferred compensation on
         stock options. . . . . . . . . . . . . . . . .       21.9           34.3           23.7           52.8
     Depreciation and amortization. . . . . . . . . . .       90.2           38.7           76.9           19.7
                                                          ------------   ------------   ------------    ------------
       Total operating expenses . . . . . . . . . . . .      508.6          391.0          492.5          299.1
                                                          ------------   ------------   ------------    ------------
  Loss from operations. . . . . . . . . . . . . . . . .     (408.6)        (291.0)        (392.5)        (199.1)
  Interest income (expense), net. . . . . . . . . . . .        7.9           13.5           10.8            6.0
  Follow-on offering costs. . . . . . . . . . . . . . .        -              -             (2.5)           -
  Provision (benefit) for income taxes. . . . . . . . .        0.5            0.1            0.2           (0.5)
                                                          ------------   ------------   ------------    ------------
  Net loss. . . . . . . . . . . . . . . . . . . . . . .     (401.2)%       (277.6)%       (384.4)%       (192.6)%
                                                          ============   ============   ============    ============

</TABLE>

<PAGE>
<PAGE>
                                                                         22
Three Months Ended September 30, 2000 Compared to Three Months Ended
September 30, 1999

     Revenue. We recognized $9.1 million in revenue for the three months
ended September 30, 2000, as compared to $4.2 million for the three months
ended September 30, 1999, an increase of $4.9 million. This increase was
attributable to a $2.6 million increase in product sales and consulting
services and a $2.3 million increase in network services.  Product sales
and consulting services increased from $3.6 million for the three months
ended September 30, 1999 to $6.2 million for the three months ended
September 30, 2000.  This increase was mainly due to significant sales to
two customers that comprised $3.2 million for the three months ended
September 30, 2000. Additionally, AT&T accounted for 0.9% and 15.8% of
total revenue for the three months ended September 30, 2000 and 1999,
respectively, while AstraZeneca accounted for 3.1% and 12.3% of total
revenue for the three months ended September 30, 2000 and 1999,
respectively. Network services increased from $529,000 for the three months
ended September 30, 1999 to $2.9 million for the three months ended
September 30, 2000. This was the result of increased sales of services
related to our DSL-enabled network, which was introduced in early 1999.

     Product sales and consulting services costs. Product sales and
consulting services costs were $5.6 million for the three months ended
September 30, 2000, as compared to $3.1 million for the three months ended
September 30, 1999, an increase of $2.5 million. This was due to an
increase in product sales and consulting services revenue of $2.6 million
over the same period.

     Network services cost. Network services cost was $6.5 million for the
three months ended September 30, 2000, as compared to $1.4 million for the
three months ended September 30, 1999, an increase of $5.1 million. The
increase was principally attributable to an increase in expenses incurred
to continue to expand, develop and operate our CopperNet and other
networking services.

     Selling, general and administrative expenses. Selling, general and
administrative expenses were $24.0 million for the three months ended
September 30, 2000, as compared to $8.8 million for the three months ended
September 30, 1999, an increase of $15.2 million. This increase was
primarily due to increased staffing and other expenses incurred to develop,
operate and sell our CopperNet network and other networking solutions.

     Amortization of deferred compensation on stock options. Amortization
of deferred compensation was $2.0 million for the three months ended
September 30, 2000, as compared to $1.4 for the three months ended
September 30, 1999, an increase of $561,000. This increase is attributable
to the increase in the unamortized deferred compensation from $19.9 million
to $22.3 million as of September 30, 1999 and 2000, respectively, which is
principally due to the granting of stock options to key employees in
certain cases at less than fair market value, and the related amortization
of this increased balance over the remaining vesting period for these
options.


<PAGE>
<PAGE>
                                                                         23
     Depreciation and amortization expense. Depreciation and amortization
expense was $8.2 million for the three months ended September 30, 2000, as
compared to $1.6 million for the three months ended September 30, 1999, an
increase of $6.6 million. This increase was primarily due to investments in
our CopperNet network, computer equipment and software, office furnishings
and leasehold improvements, which increased from $46.8 million at September
30, 1999, to $128.9 million at September 30, 2000.

     Loss from operations. Our loss from operations was $37.2 million for
the three months ended September 30, 2000, as compared to $12.1 million for
the three months ended September 30, 1999, an increase of $25.0 million.
The increased loss for the three months ended September 30, 2000 was
primarily due to increased staffing and other operating expenses we
incurred in connection with the expansion, development, operation and
support of our CopperNet network.

     Interest income (expense), net. For the three months ended September
30, 2000, we recorded net interest income of $714,000, consisting of
interest income of $1.8 million and interest expense of $(1.1) million. For
the three months ended September 30, 1999, we recorded net interest income
of $559,000, consisting of interest income of $936,000 and interest expense
of $(377,000). The increase in interest income was primarily attributable
to interest earned from the net proceeds of $149.8 million received from
our preferred stock offering in March 2000. The increase in interest
expense is primarily due to interest on capital lease obligations, which
have increased from $20.0 million at September 30, 1999 to $44.7 million at
September 30, 2000.

     Provision for income taxes. For the three months ended September 30,
2000 we recorded a provision for income taxes of $50,000 compared to $1,000
for the three months ended September 30, 1999.

     Net loss. For the foregoing reasons, our net loss was $36.5 million
for the three months ended September 30, 2000, as compared to a net loss of
$11.6 million for the three months ended September 30, 1999, an increase of
$24.9 million.

Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30, 1999

     Revenue. We recognized $22.9 million in revenue for the nine months
ended September 30, 2000, as compared to $12.7 million for the nine months
ended September 30, 1999, an increase of $10.2 million. This increase was
mainly attributable to a $6.4 million increase in network services, which
increased from $814,000 for the nine months ended September 30, 1999 to
$7.2 million for the nine months ended September 30, 2000. This was the
result of increased sales of services related to our DSL-enabled network,
which was introduced in early 1999. Product sales and consulting services
revenue increased $3.8 million from $11.9 million for the nine months ended
September 30, 1999 to $15.7 million for the nine months ended September 30,
2000. This increase was mainly due to significant sales to two customers
that comprised $3.2 million for the nine months ended September 30, 2000.


<PAGE>
<PAGE>
                                                                         24
Additionally, AT&T accounted for 2.1% and 35.2% of total revenue for the
nine months ended September 30, 2000 and 1999, respectively, while
AstraZeneca accounted for 4.4% and 10.0% of total revenue for the nine
months ended September 30, 2000 and 1999, respectively.

     Product sales and consulting services costs. Product sales and
consulting services costs were $13.6 million for the nine months ended
September 30, 2000, as compared to $9.9 million for the nine months ended
September 30, 1999, an increase of $3.7 million. This was due to an
increase in product sales and consulting services revenue of $3.8 million
over the same period.

     Network services cost. Network services cost was $16.5 million for the
nine months ended September 30, 2000, as compared to $2.1 million for the
nine months ended September 30, 1999, an increase of $14.4 million. The
increase was principally attributable an increase in expenses incurred to
continue to expand, develop and operate our CopperNet and other networking
services.

     Selling, general and administrative expenses. Selling, general and
administrative expenses were $59.7 million for the nine months ended
September 30, 2000, as compared to $16.7 million for the nine months ended
September 30, 1999, an increase of $43.0 million. This increase was
primarily due to increased staffing and other expenses incurred to develop,
operate and sell our CopperNet network and other networking solutions.

     Amortization of deferred compensation on stock options. Amortization
of deferred compensation was $5.4 million for the nine months ended
September 30, 2000, as compared to $6.7 million for the nine months ended
September 30, 1999, a decrease of $1.3 million. This decrease is
attributable to an expense of $3.5 million during the nine months ended
June 30, 1999 related to a stock option grant to a board member. This was
partially offset by an increase attributable to the increase in the
unamortized deferred compensation from $19.9 million to $22.3 million as of
September 30, 1999 and 2000, respectively, which is principally due to the
granting of stock options to key employees in certain cases at less than
fair market value, and the related amortization of this increased balance
over the remaining vesting period for these options.

     Depreciation and amortization expense. Depreciation and amortization
expense was $17.6 million for the nine months ended September 30, 2000, as
compared to $2.5 million for the nine months ended September 30, 1999, an
increase of $15.1 million. This increase was primarily due to investments
in our CopperNet network, computer equipment and software, office
furnishings and leasehold improvements, which increased from $46.8 million
at September 30, 1999, to $128.9 million at September 30, 2000.

     Loss from operations. Our loss from operations was $90.0 million for
the nine months ended September 30, 2000, as compared to $25.3 million for
the nine months ended September 30, 1999, an increase of $64.7 million. The
increased loss for the nine months ended September 30, 2000 was primarily
due to increased staffing and other operating expenses we incurred in


<PAGE>
<PAGE>
                                                                         25
connection with the expansion, development, operation and support of our
CopperNet network.

     Interest income (expense), net. For the nine months ended September
30, 2000, we recorded net interest income of $2.5 million, consisting of
interest income of $5.1 million and interest expense of $(2.6) million. For
the nine months ended September 30, 1999, we recorded net interest income
of $753,000, consisting of interest income of $1.3 million and interest
expense of $(548,000). The increase in interest income was primarily
attributable to interest earned from the net proceeds of $149.8 million
received from our preferred stock offering in March 2000. The increase in
interest expense is primarily due to interest on capital lease obligations,
which have increased from $20.0 million at September 30, 1999 to $44.7
million at September 30, 2000.

     Follow-on offering costs. During the nine months ended September 30,
2000 we expensed $574,000 related to our follow-on offering of common stock
that we commenced earlier in the year but subsequently withdrew due to
unfavorable market conditions. There were no similar costs during the
comparable period in 1999.

     Provision (benefit) for income taxes. For the nine months ended
September 30, 2000 we recorded a provision for income taxes of $50,000
compared to a benefit of $72,000 for the nine months ended September 30,
1999.

     Net loss. For the foregoing reasons, our net loss was $88.1 million
for the nine months ended September 30, 2000, as compared to a net loss of
$24.5 million for the nine months ended September 30, 1999, an increase of
$63.6 million.

Liquidity and Capital Resources

     Although we do not require significant capital expenditures for our
product sales and consulting services segment, the development and
expansion of our CopperNet network has required significant capital
expenditures. The principal capital expenditures related to our CopperNet
rollout include the procurement, design and construction of our collocation
spaces and the deployment of DSL-based equipment in central offices and
connection sites. Capital expenditures were $55.3 million for the year
ended December 31, 1999 and $68.5 million for the nine months ended
September 30, 2000. During the rest of 2000 and for future periods, we may
continue to incur capital expenditures primarily due to:

     o    continued collocation construction in the northeastern and mid-
          Atlantic regions;

     o    procurement of software systems; and

     o    the purchase of telecommunications equipment for expansion of our
          network.


<PAGE>
<PAGE>
                                                                         26
     Our capital expenditures will depend in part upon obtaining adequate
demand for our services from our CopperNet customers. We anticipate capital
expenditures during the rest of 2000 to range from $5.0 million to $15.0
million for the expansion of our network and computer systems.

     Initial Public Offering. The net proceeds from our initial public
offering, completed in June 1999, were approximately $81.8 million. As of
September 30, 2000, we have used approximately $62.8 of these net proceeds.
Approximately $31.2 million was used to finance operating losses,
approximately $27.3 million was used to finance capital expenditures for
central office installation, collocation fees, property and equipment and
approximately $4.3 million was used for general corporate purposes and to
make payments under lease commitments. We expect to use a substantial
portion of the remaining net proceeds to finance operating losses that we
anticipate incurring as we expand our customer base, to make payments under
lease commitments and for general corporate purposes.

     Borrowings and Sale of Preferred Stock. In February 2000, we borrowed
$15 million from each of SBC and Telmex until we received regulatory
approvals for the issuance of 1,500,000 shares of our Series B Mandatorily
Redeemable Preferred Stock (preferred stock) on March 7, 2000. The loans
bore interest at a rate of prime plus 2% during the time they were
outstanding, and we repaid both loans plus accrued interest in full upon
consummation of the preferred stock sale on March 7, 2000. The net proceeds
from our sale of preferred stock in March 2000 were approximately $149.8
million.

     Operating Activities. Net cash used in operating activities for the
nine months ending September 30, 2000 was $63.0 million. This was primarily
the result of operating losses of $88.1 million attributable to the
expansion of our CopperNet network and development of our CopperNet
services, but also the result of an increase in accounts receivable of $4.7
and an increase in prepaid and other current assets of $1.7 million. These
were partially offset by increases in non-cash expenses consisting
primarily of depreciation of $17.6 million, amortization of deferred
compensation on stock options of $5.4 million and provision for bad debts
of $1.0 million, accompanied by increases in accrued expenses of $7.5
million.

     Net cash used in operating activities for the nine months ending
September 30, 1999 was $15.1 million. This was primarily the result of
operating losses of $24.4 million attributable to the expansion of our
network and development of our CopperNet services, accompanied by an
increase in accounts receivable of $1.5 million. This was partially offset
by an increase in non-cash expenses consisting primarily of amortization of
deferred compensation on stock options of $6.7 million and depreciation of
$2.5 million, accompanied by an increase in accrued expenses of $1.8
million.

     Investing Activities. Net cash used in investing activities was $73.8
million for the nine months ended September 30, 2000. This was primarily
the result of purchases of short-term investments of $33.1 million and


<PAGE>
<PAGE>
                                                                         27
deployment of equipment for our CopperNet services of $28.0 million. This
was accompanied by purchases of property and equipment of $12.7 million.

     Net cash used in investing activities was $21.5 million for the nine
months ended September 30, 1999. This was the result of the deployment of
equipment for our CopperNet services of $16.7 million and purchases of
property and equipment of $4.8 million.

     Financing Activities. Net cash provided by financing activities was
$149.9 million for the nine months ended September 30, 2000. This was
primarily the result of net proceeds from our preferred stock offering of
$150.0 million, borrowings on notes payable of $30.0 million and borrowings
on sale/leaseback arrangements of $5.5 million. These were partially offset
primarily by repayments of notes payable of $30.3 million and principal
payments on capital leases of $5.5 million.

     Net cash provided by financing activities was $94.6 million for the
nine months ended September 30, 1999. This was primarily the result of net
proceeds from our initial public offering of $83.7 million partially offset
by issuance costs paid of $1.8 million and borrowings on notes payable of
$12.0 million.

     Debt and Capital Lease Arrangements. We currently have debt and
capital lease facilities available to us of approximately $135.5 million.
Of this amount, Lucent (through its acquisition of Ascend) has provided us
with a $95.0 million capital lease facility to fund acquisitions of certain
Lucent equipment, under which $23.6 million was outstanding as of September
30, 2000. The terms of our capital leases range from three to four years.
These leases require monthly lease payments and have an interest rate of
9.5%. Lucent has the right to withdraw or suspend further advances to us if
our interconnection agreements with Bell Atlantic are not renewed or are
terminated, or if certain key employees terminate their employment with us
without competent replacement, in the reasonable commercial judgment of
Lucent. In addition, we have arrangements with other vendors that permit us
to finance up to $35.5 million of equipment and other assets and $5.0
million of working capital, under a variety of applicable interest rates
ranging from 6.0% to 13.3%. An aggregate of $47.3 million was outstanding
under these arrangements, including the Lucent facilities, as of September
30, 2000.

     Liquidity Requirements. We believe that our existing cash and cash
equivalents, short-term investments, existing equipment lease financings
that have not been fully utilized, and anticipated future revenue generated
from operations will be sufficient to fully fund our operating losses,
capital expenditures, lease payments and working capital requirements
through the fourth quarter of 2001.

     We expect to incur substantial operating losses and, to a lesser
extent, capital expenditures in the future. We may seek to finance such
future operations through a combination of commercial bank borrowings,
leasing, vendor financing or the private or public sale of equity or debt


<PAGE>
<PAGE>
                                                                         28
securities. If we were to leverage our business by incurring significant
debt, we could be required to devote a substantial portion of our cash flow
to service that indebtedness. Such equity or debt financings, however, may
not be available to us on favorable terms or at all.

     Our capital requirements may vary based upon the timing and success of
our CopperNet roll-out, as a result of regulatory, technological and
competitive developments or if:

     o    demand for our services or cash flow from operations is more or
          less than expected;

     o    our development plans or projections change or prove to be
          inaccurate;

     o    we alter the schedule or targets of our CopperNet roll-out plan;
          or

     o    we engage in any strategic acquisitions or relationships.

Recent Accounting Pronouncements

     In July 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 137, "Deferral of the
Effective Date of FAS 133" which defers the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133 is
effective for all quarters of fiscal years beginning after June 15, 2000.
The Company is in the process of determining the effect of adopting this
standard.

     In December 1999, the Securities and Exchange Commission released
Staff Accounting Bulletin (SAB) Number 101, "Revenue Recognition in
Financial Statements." This bulletin will become effective for the Company
no later than the quarter ending December 31, 2000. This bulletin
establishes more clearly defined revenue recognition criteria than
previously existing accounting pronouncements, and specifically addresses
revenue recognition requirements for non-refundable fees, such as
activation fees, collected by a company upon entering into an arrangement
with a customer, such as an arrangement to provide telecommunications
services. The Company is currently evaluating the full impact of this
bulletin to determine the impact on its financial position and results of
operations.

Forward-looking Statements

     Many statements made in this Form 10-Q are forward-looking statements
relating to future events and our future performance within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including, without limitation, statements regarding
our expectations, beliefs, intentions or future strategies that are
signified by the words "expects," "anticipates," "intends," "believes," or


<PAGE>
<PAGE>
                                                                         29
similar language. These forward-looking statements address, among other
things:

     o    our CopperNet deployment plans and strategies;

     o    development and management of our business;

     o    our relationships with SBC and Telmex;

     o    our ability to attract, retain and motivate qualified personnel;

     o    our ability to attract and retain customers;

     o    the extent of acceptance of our services;

     o    the market opportunity and trends in the markets for our
          services;

     o    our ability to upgrade our technologies;

     o    prices of telecommunication services;

     o    the nature of regulatory requirements that apply to us;

     o    our ability to obtain and maintain any required governmental
          authorizations;

     o    our future capital expenditures and needs;

     o    our ability to obtain and maintain financing on commercially
          reasonable terms; and

     o    the extent and nature of competition.

     These statements may be found in this section, and in this Form 10-Q
generally.

     We have based these forward-looking statements on our current
expectations and projections about future events based on information
available to us on this date, and we assume no obligation to update any
forward-looking statements. However, our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of risks facing us or faulty assumptions on our part. These include,
but are not limited to:

     o    the nature of our ongoing relationship with Bell Atlantic;

     o    the nature of our ongoing relationships with SBC and Telmex;

     o    our success in maintaining the continuity of our interconnection
          agreements;


<PAGE>
<PAGE>
                                                                         30
     o    our ability to successfully re-focus business operations and
          achieve profitability;

     o    our ability to keep pace with technological innovations within
          the telecommunications industry;

     o    our ability to hire and retain key personnel;

     o    our ability to protect our proprietary rights;

     o    our ability to successfully market our services to current and
          new customers;

     o    our ability to generate customer demand for our services in our
          target markets;

     o    market pricing for our services and for competing services;

     o    the extent of increasing competition;

     o    our ability to acquire the funds needed to continue to expand our
          network and to continue to fund our operations;

     o    the ability of our equipment and service suppliers to meet our
          needs;

     o    trends in regulatory, legislative and judicial developments; and

     o    our ability to manage the growth of our operations.

     In light of these risks, uncertainties and assumptions, the forward-
looking events discussed in this Form 10-Q may not occur.


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     We are not exposed to fluctuations in currency exchange rates because
all of our services are invoiced in U.S. dollars. We are exposed to the
impact of interest rate changes on our short-term cash investments,
consisting of U.S. Treasury obligations and other investments in respect of
institutions with the highest credit ratings, all of which have maturities
of three months or less. These short-term investments carry a degree of
interest rate risk. We believe that the impact of a 10% increase or decline
in interest rates would not be material to our investment income.


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                                                                         31
                        PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS --

     On November 3, 2000, InterConnX, Inc. served a summons and complaint
against the Company in the United States District Court, Eastern District
of Virginia, alleging that InterConnX has been damaged by a series of
purported breaches of contracts for the sale of goods by the Company.
InterConnX is seeking $1.2 million for these damages. The Company has
initiated a preliminary review of these allegations, and although the
outcome of any legal proceeding cannot be predicted with certainty, the
Company's management presently believes that there are defenses to the
claims by InterConnX and that any adverse ruling would not have a material
adverse effect on the Company's business, financial condition, results of
operations or cash flows.

     We are not currently involved in any legal proceedings that we believe
could have a material adverse effect on our business, financial condition,
results of operations or cash flows. We are, however, subject to state
telecommunications regulators, FCC and court decisions as they relate to
the interpretation and implementation of the Telecommunications Act of
1996, the Federal Communications Act of 1934, as amended, various state
telecommunications statutes and regulations, the interpretation of
competitive telecommunications company interconnection agreements in
general and our interconnection agreements in particular. In some cases, we
may be deemed to be bound by the results of ongoing proceedings of these
bodies or the legal outcomes of other contested interconnection agreements
that are similar to our agreements. The results of any of these proceedings
could have a material adverse effect on our business, financial condition,
results of operations or cash flows.

ITEM 2.   CHANGES IN SECURITIES --

     Use of Public Offering Proceeds. The net proceeds from our initial
public offering, completed in June 1999, were approximately $81.8 million.
As of September 30, 2000, we have used approximately $62.8 of these net
proceeds. Approximately $31.2 million was used to finance operating losses,
approximately $27.3 million was used to finance capital expenditures for
central office installation, collocation fees, property and equipment and
approximately $4.3 million was used for general corporate purposes and to
make payments under lease commitments.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES -- Inapplicable.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --
          Inapplicable.

ITEM 5.   OTHER INFORMATION -- Inapplicable.


<PAGE>
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                                                                         32
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K --

     (a)  Exhibits:

               27   Financial Data Schedule

     (b)  Reports on Form 8-K:

               None.


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                                                                         33
                                SIGNATURES


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



                                   Date:  November 13, 2000

                                   NETWORK ACCESS SOLUTIONS CORPORATION



                                   By:   /s/ JONATHAN P. AUST
                                       --------------------------------
                                        Jonathan P. Aust
                                        Chairman and
                                        Chief Executive Officer



                                   By:   /s/ SCOTT G. YANCEY, JR.
                                       --------------------------------
                                        Scott G. Yancey, Jr.
                                        Chief Financial Officer

<PAGE>
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                                                                         34
                             INDEX TO EXHIBITS
===========================================================================
  EXHIBIT |
  NUMBER  | DESCRIPTION
---------------------------------------------------------------------------
    27    | Financial Data Schedule
===========================================================================



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